Thursday, 22 January 2015
ECBs Mirage to Recovery: Last desperate gasp of "Whatever it takes"
Below are several articles that outline some of the most important aspects of this highly questionable, barely legal, already-proven-not-to-work move, to try and generate at least a mirage of "recovery" to shimmer in front of the uneasy public of the European Union.
While this might look like a "European problem" to the general populous of North America, this action by the ECB will have global ramifications of epic proportions. Hell.... even some of the fine print gives quite a large peak into what's next.
I will highlight several sections that I think everyone should taken note of.
ECB announces milestone €1.14tn ‘easy money’ program
Published time: January 22, 2015 13:43
Edited time: January 22, 2015 14:42
Edited time: January 22, 2015 14:42
The European Central Bank announced it will embark on a fully-fledged quantitative easing program from March, which will break down to €60 billion per month. The move is made to counter a triple-dip recession in the eurozone.
ECB President Mario Draghi's press conference is live here
“Under this expanded program, the combined monthly purchases of public and private securities will amount to €60 billion, intended to be carried out to 2016,” Draghi said Thursday. The bank will buy €1.14tn ($1.3 trillion) in government debt, a decision that will inject extra money into supply, spurring a devaluation in the currency.
After the announcement, the euro fell 1.15 percent against the dollar, to $1.14.
The ECB Releases The Details Of Its Debt Monetization And Money Printing ProgramSubmitted by Tyler Durden on 01/22/2015 10:42 -0500
- GREEK PM SAMARAS SAYS WITHOUT CLOSING THE CURRENT REVIEW, GREECE WILL BE EXCLUDED FROM ECB BOND-BUY PROGRAMME
Here Are The Negatives In Today's ECB QE AnnouncementSubmitted by Tyler Durden on 01/22/2015 12:23 -0500
So here, courtesy of ADMISI's Marc Ostwald, are the negatives:
- Risk sharing is very limited, with national central banks taking 80% of the risk on sovereign bond purchases, and rather un-reassuring was Draghi's comment that "most national central banks have adequate buffers to absorb a negative event" - most being how many.
- Not good news for Greece, while it and Cyprus will be eligible for purchases of govt under a 'waiver' for (bail-out) 'programme countries', the ECB already has a very high volume of Greek bonds on it balance sheet from the SMP programme, and given a limit on total holdings for each sovereign issuer, it will not be eligible for purchases until it redeems debt in July asnd August. It should be added that other Italy and Spain and other bail-out countries will implicitly also have a lower available volume of total purchases, until SMP holdings are redeemed.
- BUT perhaps the key aspect relates to the limits on the 25% limit on purchases of a single issue, which ensures that the ECB adheres to the ECJ's ruling about the ECB ensuring that is does not interfere with "price formation". So here's the key aspect, there are some $12.0 Trln of FX reserves in the world, of which roughly a quarter are held in Euros. Operating on the traditional metric that roughly half of those will be invested in Govt Bills and Bonds, this means that FX reserve managers will have to be involved in the process of establishing prices for whatever is purchased under the Govt bond QE programme. Eminently anything that is sold by central banks will not find its way into the private financial sector, therefore that EUR 60 Bln figure may often overstate what is being injected into the market.
- Last but not least, the expanded programme does not start until March 15, so
"Mr Market" now has a very long waiting period to sit on holdings of
EUR debt before selling to the ECB, and with plenty of event risk in the
world, starting with the Greek election, and to mention the prospect of
an imminent Ukrainian default. Sort this under an uncomfortably long
period before the QE 'party' gets started.
ECB To Print Trillion Euros – Gold Could Surge 40% In 15 Minutes Against Euro, Dollaroccur against a backdrop of strong German resistance and many concerns.
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