Home » Posts tagged 'ecb'

Tag Archives: ecb

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai III: Cataclysm
Click on image to purchase

ECB and the Coming Banking Crisis

 

QUESTION: Mr. Armstrong; Your post of November 16th where you state that the ECB is looking to freeze accounts in a banking crisis, does that mean they will no longer honour the claimed insurance of €100,000 per account?

PH

ANSWER: No. They will not pretend to eliminate that insurance, they just will “suspend” it as a bank holiday. But you gloss over another problem. The insurance of  €100,000 is NOT per account, but PER PERSON. So taking €1 million euro and spreading among 10 banks does not thereby provide insurance for the whole lot. The same is true in the USA. The ECB is proposing supplementing it with discretionary powers to suspend bank withdrawals. To say that the entire program will be terminated is an exaggeration. Nevertheless, it reflects the realization that the European banking system is in serious trouble. I recommend that Europeans should have a stash of cash, and if you have a lot of cash in your account, put some into dollars in the States before it is too late.

Protect Your Savings With Gold: ECB Propose End To Deposit Protection 

Protect Your Savings With Gold: ECB Propose End To Deposit Protection 

– Protect Your Savings With Gold: ECB Propose End To Deposit Protection
– New ECB paper proposes ‘covered deposits’ should be replaced to allow for more flexibility
– Fear covered deposits may lead to a run on the banks
– Savers should be reminded that a bank’s word is never its bond and to reduce counterparty exposure
– Physical gold enable savers to stay out of banking system and reduce exposure to bail-ins

EU deposit protection scheme

It is the ‘opinion of the European Central Bank’ that the deposit protection scheme is no longer necessary:

‘covered deposits and claims under investor compensation schemes should be replaced by limited discretionary exemptions to be granted by the competent authority in order to retain a degree of flexibility.’

To translate the legalese jargon of the ECB bureaucrats this could mean that the current €100,000 (£85,000) deposit level currently protected in the event of a bail-in may soon be no more.

But worry not fellow savers as the ECB is fully aware of the uproar this may cause so they have been kind enough to propose that:

“…during a transitional period, depositors should have access to an appropriate amount of their covered deposits to cover the cost of living within five working days of a request.”

So that’s a relief, you’ll only need to wait five days for some ‘competent authority’ to deem what is an ‘appropriate amount’ of your own money for you to have access to in order eat, pay bills and get to work.

The above has been taken from an ECB paper published on 8 November 2017 entitled ‘on revisions to the Union crisis management framework’.

It’s 58 pages long, the majority of which are proposed amendments to the Union crisis management framework and the current text of the Capital Requirements Directive (CRD).

…click on the above link to read the rest of the article…

Weekly Commentary: “Not Clear What That Means”

Weekly Commentary: “Not Clear What That Means”

November 15 – Bloomberg (Nishant Kumar and Suzy Waite): “Hedge-fund manager David Einhorn said the problems that caused the global financial crisis a decade ago still haven’t been resolved. ‘Have we learned our lesson? It depends what the lesson was…’ Einhorn said he identified several issues at the time of the crisis, including the fact that institutions that could have gone under were deemed too big to fail. The scarcity of major credit-rating agencies was and remains a factor, Einhorn said, while problems in the derivatives market ‘could have been dealt with differently.’ And in the ‘so-called structured-credit market, risk was transferred, but not really being transferred, and not properly valued.’ ‘If you took all of the obvious problems from the financial crisis, we kind of solved none of them,’ Einhorn said… Instead, the world ‘went the bailout route.’ ‘We sweep as much under the rug as we can and move on as quickly as we can,’ he said.”
October 12 – ANSA: “European Central Bank President Mario Draghi defended quantitative easing at a conference with former Fed chief Ben Bernanke, saying the policy had helped create seven million jobs in four years. Bernanke chided the idea that QE distorted the markets, saying ‘It’s not clear what that means’.”

Once you provide a benefit it’s just very difficult to take it way. This sure seems to have become a bigger and more complex issue than it had been in the past. Taking away benefits is certainly front and center in contentious Washington with tax and healthcare reform. It is fundamental to the dilemma confronting central bankers these days.
…click on the above link to read the rest of the article…

Draghi Speech: Everything Is Awesome In Europe, No Signs Of Systemic Risks

Draghi Speech: Everything Is Awesome In Europe, No Signs Of Systemic Risks

Mario Draghi gave the keynote speech at the Frankfurt European Banking Congress this morning in which he focused on the strong outlook for the Eurozone economy and how his monetary policy is playing a vital role. The speech was peppered with upbeat phrases and adjectives like solid, robust, unabated, endogenous propagation, resilient, remarkable and ongoing. According to Draghi.

The euro area is in the midst of a solid economic expansion. GDP has risen for 18 straight quarters, with the latest data and surveys pointing to unabated growth momentum in the period ahead. From the ECB’s perspective, we have increasing confidence that the recovery is robust and that this momentum will continue going forward.

Draghi is confident that future growth will be unabated for three reasons.

  • Previous headwinds have dissipated;
  • Drivers of growth are increasingly endogenous rather than exogenous; and
  • The Eurozone economy is more resilient to new shocks.

In terms of previous headwinds, Draghi notes that global growth and trade have recovered, while the eurozone has de-leveraged.

For some years global growth and world trade have been a drag on the recovery. Now, we are seeing signs of a sustained expansion. Global PMIs remain strong. The share of countries in which growth has been improving relative to the previous three years has risen from 20% in mid-2016 to 60% today. And this has fed through into a rebound in world trade, which is growing at its strongest annual rate in six years, and may well become a tailwind going forward.

Domestically, a key headwind in the past has been the necessary deleveraging by firms and households. But this is also now diminishing as debt returns to more sustainable levels.

…click on the above link to read the rest of the article…

Is There a Way Out of the ECB’s Trap?

 

The ECB faces the Devil’s Alternative that Frederick Forsyth mentioned in one of his books. All options are potentially riskly. Mario Draghi knows that maintaining the so-called stimuli involves more risks than benefits, but also knows that eliminating them could make the eurozone deck of cards collapse.

Despite the massive injection of liquidity, he knows that he can not disguise political risks such as the secessionist coup in Catalonia. The Ibex reflects this, making it clear that the European Central Bank does not print prosperity, it only puts a floor to valuations.

The ECB wants a weak euro. But it is a game of juggling to pretend a weak euro and at the same time a strong economy. The European Union countries export mostly to themselves. Member countries sell more than two-thirds of their goods and services to other countries in the eurozone. Therefore, the more they export and their economies recover, the stronger the euro, and with it, the risk of losing competitiveness. The ECB has tried to break the euro strength with dovish messages, but it has not worked until political risk reappeared. With the German elections and the prospect of a weak coalition, the results of the Austrian elections and the situation in Spain, market operators have realized – at last – that the mirage of “this time is different “in the European Union was simply that, a mirage.

A weak euro has not helped the EU to export more abroad. Non-EU exports from the member countries have been stagnant since the monetary stimulus program was launched, even though the euro is much weaker than its basket of currencies compared to when the stimulus program began. The Central Bank Trap, which I explain in my new book.

…click on the above link to read the rest of the article…

Mind the Junk—-This Ain’t Your Grandfather’s Capitalism

Mind the Junk—-This Ain’t Your Grandfather’s Capitalism

The financial system is loaded with anomalies, deformations and mispricings—-outcomes which would never occur on an honest free market. For example, the junk bond yield at just 2% in Europe is now below that of the “risk-free” US treasury bond owing solely to the depredations of the ECB.

Indeed, madman Draghi has purchased $2.6 trillion of securities since launching QE in March 2015, and during the interim has actually bought more government debt than was issued by all the socialist governments of the EU-19 combined!

Euro Area Central Bank Balance SheetOutrunning Europe’s deficit-addicted welfare states is quite a feat in itself, but that wasn’t the half of it. The ECB’s printing press became so parched for government debt to buy that it has ended up owning more than $120 billion of corporate bonds. In some recent cases, the ECB has actually taking down 20% or more of new corporate issues—an action that surely leaves the fastidious founders of its Bundesbank prodecessor turning in their graves.

In turn, the ECB’s Big Fat Thumb on the investment grade scale stampeded fund managers into the junk market in quest of yield, especially for BB rated paper which makes up 75% of the European high yield market. So doing, these return hungry managers have crushed the the yield on the Merrill Lynch junk bond index, driving it down from 6.4% in early 2106 to an incredible 2.002% last week.

That is to say, leveraged speculators in European junk have made 100% plus returns over the last 20 months on dodgy paper that should be yielding double or triple its current rate.

In fact, the current lunatic euro-trash yield is completely off the historical charts. Euro-junk rarely yielded under 5% in the past, and had spiked to upwards of 10% at the time of Draghi’s “whatever it takes” ukase, which, in turn, was modest compared to the 25% blow-0ff high during the depths of the financial crisis.

…click on the above link to read the rest of the article…

Is There Any Way Out of the ECB’s Trap?

Is There Any Way Out of the ECB’s Trap?

ebc.PNG

The ECB faces the Devil’s Alternative that Frederick Forsyth mentioned in one of his books. All options are potentially riskly. Mario Draghi knows that maintaining the so-called stimuli involves more risks than benefits, but also knows that eliminating them could make the eurozone deck of cards collapse.

Despite the massive injection of liquidity, he knows that he can not disguise political risks such as the secessionist coup in Catalonia. The Ibex reflects this, making it clear that the European Central Bank does not print prosperity, it only puts a floor to valuations.

The ECB wants a weak euro. But it is a game of juggling to pretend a weak euro and at the same time a strong economy. The European Union countries export mostly to themselves. Member countries sell more than two-thirds of their goods and services to other countries in the eurozone. Therefore, the more they export and their economies recover, the stronger the euro, and with it, the risk of losing competitiveness. The ECB has tried to break the euro strength with dovish messages, but it has not worked until political risk reappeared. With the German elections and the prospect of a weak coalition, the results of the Austrian elections and the situation in Spain, market operators have realized – at last – that the mirage of “this time is different “in the European Union was simply that, a mirage.

A weak euro has not helped the EU to export more abroad. Non-EU exports from the member countries have been stagnant since the monetary stimulus program was launched, even though the euro is much weaker than its basket of currencies compared to when the stimulus program began. The Central Bank Trap, which I explain in my new book.

…click on the above link to read the rest of the article…

What Hayek Tells Us About the Link Between Ultra-Loose Monetary Policy and Political Instability

The European Central Bank will increase the overall volume of its bond purchase program to 2.550.000.000.000 euros by September 2018. The main refinancing rate will remain at zero. Mario Draghi has stressed that this policy shall continue until inflation picks up sustainably (which is unlikely to happen in the foreseeable future). The works of Friedrich August von Hayek (1931, 1944, 1976) help to explain why the tremendous monetary expansion is increasingly causing growing economic and political instability in Europe.

Hayek’s (1931) Production and Prices explains boom and bust with central bank mistakes. During the upswing, the central bank keeps the interest rate too low. Investment projects with comparatively low marginal efficiency are launched, financed by credit creation of the banking sector. Share prices hike, because profit opportunities of enterprises and banks increase, while deposit rates are low. Wages do not rise as long as idle capacities in the labor market exist. As soon as wages start to rise, enterprises lift prices and inflation picks up. When the central bank increases the interest rate to contain inflation, investment projects with low marginal efficiency have to be dismantled. The boom turns into bust. The central bank aggravates the recession by keeping the interest rate too high.

To understand the economic development of the industrialized countries since the mid 1980s Hayek (1931) is important, but two modifications have to be made (Schnabl 2016). In line with Hayek, central banks around the globe have tended to keep interest rates too low during upswings, thereby causing exuberant booms. In contrast to Hayek’s theory, they cut interest rates fast during crisis to avoid painful recessions. In addition, increasingly expansionary monetary policies became visible in rising asset rather than goods prices (see Figure). Therefore, interest rates could converge towards zero and central bank balance sheet could be inflated without inflation targeting central banks being forced to tighten monetary policy.

…click on the above link to read the rest of the article…

Italy Target2 Imbalance Hits Record €432.5 Billion as Dwindling Trust in Banks Plunges 

Contrary to ECB propaganda, Target2 imbalances are a direct result an unsustainable balance of payment system. The imbalances represent both capital flight and debts that can never be paid back. If you think Italy can pay German and other creditors a record €432.5 Billion, you are in Fantasyland.

The interesting aspect of Italy’s new record Target2 Imbalance is that it comes just as Dwindling Trust in Italian Banks is on the rise.

Just 16 percent of Italians have confidence in the country’s lenders, down from an already meager 17 percent in June, according to a poll by the SWG research group of Trieste on Friday. Only 24 percent trust the Bank of Italy, plunging from 36 percent in June.

One likely reason: a tortuous bank crisis that caused losses for savers and led the government to rescue three lenders with taxpayers’ money this year. The vanishing confidence is likely to show in campaigns for national elections expected by next spring.

Supporters of the populist Five Star Movement and anti-migrant Northern League have the least confidence in lenders and the Bank of Italy among those with a definite opinion, according to the survey of 1,000 adults conducted Oct. 23-25.

Confidence in Banks Plunges

The eurosceptic Five Star Movement just happens to have the largest share of the vote in recent polls.

Target2 Discussion

Target2 stands for Trans-European Automated Real-time Gross Settlement System. It is a reflection of capital flight from the “Club-Med” countries in Southern Europe (Greece, Spain, and Italy) to banks in Northern Europe.

Pater Tenebrarum at the Acting Man blog provides this easy to understand example: “Spain imports German goods, but no Spanish goods or capital have been acquired by any private party in Germany in return. The only thing that has been ‘acquired’ is an IOU issued by the Spanish commercial bank to the Bank of Spain in return for funding the payment.

…click on the above link to read the rest of the article…

Financial Storm Clouds Gather Over Italy

Financial Storm Clouds Gather Over Italy

Wishful thinking may not be enough.

The financial markets have been exceedingly calm in Italy of late. At the end of October the government was able to sell €2.5 billion of 10-year debt at auction at a yield of 1.86%, the lowest since last December — an incredible feat for a country that four months ago witnessed a major bank bailout and two bank resolutions, and that has so much public debt that it spends €70 billion a year to service it, the world’s third-highest.

And there’s the ECB’s recent decision to slash its bond buying from roughly €60 billion a month to €30 billion as of Jan 1, 2018. Then there’s the over €432 billion of Target 2 debt the government owes the ECB, the growing likelihood of political instability as elections approach in 2018, the recent referendums for greater fiscal and political autonomy in Lombardy and Veneto and serious unresolved issues in the banking sector.

Monte dei Paschi di Siena may still be alive as a bank, but it’s not out of the woods. Last week its stock resumed trading after ten months of being suspended from Italy’s benchmark index, the FTSE MBE. Shares opened on Wednesday at €4.10, then rose 28% to €5.26. But it didn’t stick. On Friday, shares closed at €4.58.

It’s a far cry from the €6.49 a share the Italian government paid in August when it injected €3.85 billion into the bank to keep it alive. It spent another €1.5 billion shielding some of the bank’s junior bondholders, whose debt was converted into equity. As part of the rescue, the Tuscan bank was forced to present a plan to cut 5,500 jobs and close 600 branches until 2021, in addition to transferring 28,600 million euros in unproductive loans and divesting non-strategic assets. Investors clearly have their doubts.

…click on the above link to read the rest of the article…

The Swiss National Bank Now Owns A Record $88 Billion In US Stocks

The Swiss National Bank Now Owns A Record $88 Billion In US Stocks

In the third quarter of 2017, one in which the global economy was supposedly undergoing a unprecedented “coordinated growth spurt”, and in which central banks were preparing to unveil their QE tapering intentions, in the case of the ECB, or raising rates outright, at the Fed, what was really taking place was another central bank buying spree meant to boost confidence that things are now back to normal, using “money” freshly printed out of thin air, and spent to prop up risk assets around the world by recklessly buying stocks with no regard for price or cost.

Nowhere was this more obvious than in the latest, just released 13F from the massive hedge fund known as the “Swiss National Bank.” What it showed is that, just like in the prior quarter, and the quarter before that, and on, and on, the Swiss central bank had gone on another aggressive buying spree and following its record purchases in the first quarter, the central bank boosted its total holdings of US stocks to an all time high $87.8 billion, up 4.2% or $3.5 billion from the $84.3 billion at the end of the second first quarter.

As reported earlier this week, as of Sept.30, the Swiss central bank had accumulated foreign exchange worth 760 billion francs (roughly the same in USD) due to its relentless open market interventions to depress the Swiss franc, and has “invested” those funds created out of thin air in both stocks and bonds. At the end of the second quarter, it held 20% in equities, of which the bulk was in US stocks.

…click on the above link to read the rest of the article…

Dear Mario Draghi: About Your Victory Over Deflation Speech in March 

In March, ECB President Mario Draghi declared victory over deflation. Let’s take a look at Eurozone inflation since his victory speech.

On March 10, 2017, I reported ECB Declares Victory Over Deflation: Hallelujah!

My lead-in comment was “ECB President Mario Draghi Declares Victory Over Deflation. That’s much like shouting hallelujah when you miss the game-winning field goal.”

In the Eurozone, consumer price inflation is measured by the Harmonised Index of Consumer Prices (HICP). Harmonized means all the countries in the Eurozone use the same methodology. HICP is essentially the same as the CPI in the US.

Core HICP excludes food, energy, alcohol, and tobacco. In the US, core CPI excludes food and energy.

It’s been seven months since Draghi’s victory speech. Let’s investigate details from the October Fash Estimate of Eurozone HICP.

Year-over-year Inflation in services is down from 1.5% to 1.2%. The core HICP is down from 1.1% to 0.9%. Thus most of the decline in the core is due to a drop in the rate of inflation in services.

Mario Draghi, like his counterparts at the Fed, are not pleased with such results. Like all economic illiterates, the Central Banks are happiest when your money decreases in value every month.

Meanwhile, consumers are happy to see prices decline. It takes years of brainwashing to believe rising prices are a good thing.

Germany Also Engages in Political Prosecution

The Alternative for Germany party (AfD) in Germany has asked the Federal Government to file a lawsuit against all decisions of European Central Bank (ECB) regarding the purchase of government bonds and corporate bonds as well as derivatives since 2015. They are petitioning to file in the European Court of Justice asserting that the policies of the European Treaties and by the Federal Constitutional Court were being violated.

Effectively, the ECB “stimulus” policy (QE) has completely failed and instead has become a life-support system subsidizing the debt of Eurozone member states. Even reducing the amount bought per month is an attempt to see if the marketplace takes up the debt. But the Eurozone governments never cut back spending or reformed. They never had to. The QE program was merely targeting to support the government – not the average person in the economy.

Meanwhile, the former leader of the nationalist AfD, Frauke Petry, was formally charged with perjury and was accused of lying under oath about the party’s finances. If found guilty she would face a minimum sentence of six months in jail, but it would be the end of her political career. This seems to be another political-prosecution.

Frauke Petry resigned from the AfD and has plans to form a new political group in the German parliament that will be distant from the far-right Alternative for Germany (AfD). For this reason, she is a threat politically.

Why are all politicians not prosecuted for lying to the public to win an election and then do the opposite? The charges against Petry are intended to stop her political career.

The $2 Trillion Hole: “In 2019, Central Bank Liquidity Finally Turns Negative”

The $2 Trillion Hole: “In 2019, Central Bank Liquidity Finally Turns Negative”

In all the euphoria over yesterday’s “dovish taper” by the ECB, markets appear to have forgotten one thing: the great Central Bank liquidity tide, which generated over $2 trillion in central bank purchasing power in 2017 alone – which as Bank of America said last month is the only reason why stocks are at record highs, is now on its way out.

This was a point first made by Deutsche Bank’s Alan Ruskin two weeks ago, who looked at the collapse in global vol, and concluded that “as we look at what could shake the panoply of low vol forces, it is the thaw in Central Bank policy as they retreat from emergency measures that is potentially most intriguing/worrying. We are likely to be nearing a low point for major market bond and equity vol, and if the catalyst is policy it will likely come from positive volatility QE ‘flow effect’ being more powerful than the vol depressant ‘stock effect’. To twist a phrase from another well know Chicago economist: Vol may not always and everywhere be a monetary phenomena – but this is the first place to look for economic catalysts over the coming year.”

He showed this great receding tide of liquidity in the following chart projecting central bank “flows” over the next two years, and which showed that “by the end of next year, the combined expansion of all the major Central Bank balance sheets will have collapsed from a 12 month growth rate of $2 trillion per annum to zero.

Shortly after, Fasanara Capital’s Francesco Filia used this core observation in his own bearish forecast, when he wrote that “the undoing of loose monetary policies (NIRP, ZIRP), and the transitioning from ‘Peak Quantitative Easing’ to Quantitative Tightening, will create a liquidity withdrawal of over $1 trillion in 2018 alone. The reaction of the passive community will determine the speed of the adjustment in the pricing for both safe and risk assets.

…click on the above link to read the rest of the article…

Europe’s Economic Death Spiral

QUESTION: Mr. Armstrong, you said when you were here in Berlin that the EU Commission is about as incompetent as the US Congress. You also said Macron is trying to federalize Europe as the solution Could you elaborate on that comment?

ANSWER: The EU Commission at present is composed of 28 Commissioners, who must always ensure that they are dependent on the nomination from the home country mush as American congressmen who are supposed to represent their state. Every member of the Commission, therefore, has a personal self-interest in staying in office. The complexity of regulations and initiatives often have hidden agendas that are often far too difficult to identify. One of the proposals of Macron is to reduce the Commission to just 15 eliminating state representation and the priority would then, in theory, be given to the professional competence of the candidates rather than representing member states. This would be the FEDERALIZATION of Europe and totally eliminate and democratic process. The people would have no say in changing the direction of Europe.

Macron is proposing to create European politicians. To deal with the end of a democratic process, he has suggested that these 15 commissioners be elected by all EU citizens in the longer term. He has said that with BREXIT, the British vacancies should be the first to be open to elections of all remaining Europeans in the EU. When commissioners are elected by their own politicians, then Macron argues they are not being elected by a European choice of citizens.

In fact, a smaller Commission and a Parliament he hopes would portray Europe as a whole that would forge the EU as a single government at last. This is argued would end the current paralysis that the EU is unable to get out of the economic hole it finds itself in and the ECB has failed with its stimulation to end deflation for nearly 10 years of quantitative easing

…click on the above link to read the rest of the article…

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai III: Cataclysm
Click on image to purchase