[seldom_seen]

ECB Lends Record $622 Billion in Bid to Ease Crisis

FRANKFURT -- The European Central Bank pumped a record €442 billion ($622 billion) into euro-zone money markets Wednesday in its first-ever offer of one-year funds as it battles the Continent's recession.

Euro-zone banks borrowed the one-year funds, the largest amount the central bank has ever dispersed in a single shot, at the ECB's current key rate of 1%.

http://online.wsj.com/article/SB1245837 ... lenews_wsj

I'm only posting this because a year or two ago, this would have been huge news. People would have been screaming holy hells bells and falling out of their chairs.

Now? Ho hum. Doesn't this happen everyday?

[mattduke]

It was coordinated with the Fed meeting to help prevent the dollars from dropping against euros.

[gnm]

It was coordinated with the Fed meeting to help prevent the dollars from dropping against euros.

Exactly - As have been the rate reductions. Can't have the dollar crapping itself for all to see now can we? Just bench em all down into the toilet a little at a time...

-G

[DantesPeak]

The Fed is indeed trying to drag the ECB along for the hell ride.

Remember last fall the Fed financed $550 billion in dollar ‘swaps’ that had the intended purpose of providing liquidity to foreign banks – most all in Europe. That has been reduced to $100 billion lately. So effectively those European banks may have been looking for $450 billion or so to replace low cost and easy Fed money.

The $650 billion is now provided by the ECB as of today, but Europe's banks will have to repay $150 billion in another operation on July 1 – so the net effect by the ECB is $500 billion in new money.

The Fed also announced today that it is extending its swaps, so with the $100 billion still outstanding the net new money given to Europe’s banks is about $600 billion.

New money given by the Fed to US banks over the last year is about $1 trillion.

The inflationary effects of this $1.6 trillion in new money could take up to another year to impact the money supply, but the banks have use of all the money and could start using it in the way they chose at any time.

[shortonoil]

DantesPeak said:

The inflationary effects of this $1.6 trillion in new money could take up to another year to impact the money supply, but the banks have use of all the money and could start using it in the way they chose at any time.

This looks like the same type of post-mortem process that is happening in the US. Loaning money in an economy with a declining GDP, rising interest rates, rising unemployment and declining asset values is a one way trip to bankruptcy. Of course the ECU banks are probably already in the same position as most of the US banking system. Insolvent!

This is like the county coroner passing out party favors to the corpses!





AvailableEnergy

[DantesPeak]

This is like the county coroner passing out party favors to the corpses!

So it looks like the banking system plays the part of Bernie, in Weekend at Bernie's, except his friends stick $1.6 trillion in his pocket, but he still doesn't want to spend the money.

Never the less with a walking dead financial system, the Fed and ECB can, and plan to, create all the money they want - even if the only purpose is to effectively pay for government deficits by printing money.


Edit: The ECB is actually reversing closer to $200 billion in repos on July 1, so the net effect effect is closer to $450 billion. But at this point, $50 billion doesn't mean that much anymore.

[shortonoil]

DantesPeak said:

even if the only purpose is to effectively pay for government deficits by printing money.

As the government pays its deficits, the bond holders pay the government. Those bond holders are the American peoples retirement plans, insurance companies and money market funds. How long can it be before SWF and Etna Insurance figure out it is not a good idea to do business with Turbo Tim and partners?

With a bottomless pit of debt to service, this has got to end badly!

[DantesPeak]

DantesPeak said:

even if the only purpose is to effectively pay for government deficits by printing money.

As the government pays its deficits, the bond holders pay the government. Those bond holders are the American peoples retirement plans, insurance companies and money market funds. How long can it be before SWF and Etna Insurance figure out it is not a good idea to do business with Turbo Tim and partners?

With a bottomless pit of debt to service, this has got to end badly!

Although I joke about the $1.6 trillion, I don’t think the central banks have the ability to remove any more than a small portion of that amount without having the banking system collapse without lack of CB support.

Therefore we are on an upward curve of ever increasing money creation, to be shortly followed by an upslope in interest rates as the game is revealed and reviled. That will lead to a feedback cycle of even faster money creation, and more rate increases.

[shortonoil]

DantesPeak said:

Therefore we are on an upward curve of ever increasing money creation, to be shortly followed by an upslope in interest rates as the game is revealed and reviled. That will lead to a feedback cycle of even faster money creation, and more rate increases.

This gets back to my argument that with a declining GDP an expansion of the money supply deflates asset values! We now have real authentic toilet paper backing FRNs. Interest rates will go up on increased risk as they monetize, and the value of the collateral behind that TP will go down. The collateral behind that TP is the combined net worth of the US.

We are going to see a continuation of declining asset values across all sectors because the government now only has two alternatives; to expand the money supply or start shutting down.

Guess which one they’ll chose? America will pay for this insanity with everything they own.





AvailableEnergy

[pablonite]

America will pay for this insanity with everything they own.

Precisely, but to call it insanity only makes sense from the ignorant working stiff perspective.
"blah blah blah...until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." Thomas Jefferson

Never the less with a walking dead financial system, the Fed and ECB can, and plan to, create all the money they want - even if the only purpose is to effectively pay for government deficits by printing money.

How absurd. The Fed is NOT the government - they are a private banking cartel. The money is created out of thin air by the "Fed" and loaned to the government at interest insuring perpetual debt for the people. It's called economic slavery and a scam, plain and simple. The government is completely capable of creating it's own money interest free but over the years have become subservient to international banking dynasties. It gets irritating when this simple fact gets smothered in complicated "economic" explainations.

The world revolves around money, now mostly digital bits and bytes. The masses barely understand their own computer let alone how their digital money bits are created - it might be quite a shock when they evaporate back to where they came from - thin air

[DantesPeak]

The government is completely capable of creating it's own money interest free but over the years have become subservient to international banking dynasties.

You are wrong. I am not sure what country you live in, because in the US the US Consitution does not allow the government to print fiat money.

US monetary history is long, complicated, and somewhat convoluted. This had lead to a great many misunderstandings about the role of Fed.

Anyway, why don't you tell us exactly when those digital bits are going to evaporate, and what we should do about it before it happens?

[shortonoil]

pablonite said:

How absurd. The Fed is NOT the government - they are a private banking cartel. The money is created out of thin air by the "Fed" and loaned to the government at interest insuring perpetual debt for the people.

Number one pablonite it is not nice to throw stones when you live in a glass house. The government, GS, JPM, BAC or FED do not create money. (There is now a finance cartel controlling the US) The government only has two powers concerning money: to destroy it (spend) or move it around (redistribute). Those little bits of paper are not money, they are currency, which is only a representation of the product of working capital in the private sector.

The government is completely capable of creating it's own money interest free but over the years have become subservient to international banking dynasties. It gets irritating when this simple fact gets smothered in complicated "economic" explainations.

The government never has and never will create a single dollar. They do not produce a thing, unless you want to define debt as a product. They don’t produce potatoes, autos or Barbie Action figures. The do not contribute one item, or service. They only manipulate the goods and services that began with the hard work of the citizenry. If you don’t believe this, try eating a $20 bill and tell us much your appetite was satisfied!

Mortgage originations in the U.S. may total $2.03 trillion this year, 27 percent less than earlier forecast, as rising interest rates reduce home refinancings, the Mortgage Bankers Association said.

Today's forecast cuts $700 billion from the Washington- based group's March estimate, a change MBA Chief Economist Jay Brinkmann said came because the Federal Reserve's pledge to buy as much as $300 billion in U.S. Treasuries hasn't been enough to keep Treasury yields and mortgage rates down.

With better than $60 trillion in bond debt now floating in the US, monetary formation through credit creation is now falling short on the order of $1 trillion to service that debt. To keep the system from entering a stage of massive cascading defaults the FED must now inject that shortfall directly through monetization.

When the FED monetizes they buy assets forcing their price upward. This produces the effect of driving the returns on these assets downward. This results in a reduction of value for all other asset classes, driving their returns upward. Interest rates increase.

As there is now insufficient credit origination to create the funds to service the debt that already exists, the FED is being forced to monetize to create those funds. These monetized funds are now reducing asset values with the reversed leverage which is built into the fractional reserve banking system. That is, asset values are now being reduced at a rate equal to the monetized debt times the fractional reserve leverage rate.

With reserve limits now about 5%, (probably a lot less), that ratio is at least 20:1. Each $1 trillion monetized is now destroying 20 in asset values.







AvailableEnergy

[DantesPeak]

With better than $60 trillion in bond debt now floating in the US, monetary formation through credit creation is now falling short on the order of $1 trillion to service that debt. To keep the system from entering a stage of massive cascading defaults the FED must now inject that shortfall directly through monetization.

When the FED monetizes they buy assets forcing their price upward. This produces the effect of driving the returns on these assets downward. This results in a reduction of value for all other asset classes, driving their returns upward. Interest rates increase.

As there is now insufficient credit origination to create the funds to service the debt that already exists, the FED is being forced to monetize to create those funds. These monetized funds are now reducing asset values with the reversed leverage which is built into the fractional reserve banking system. That is, asset values are now being reduced at a rate equal to the monetized debt times the fractional reserve leverage rate.

With reserve limits now about 5%, (probably a lot less), that ratio is at least 20:1. Each $1 trillion monetized is now destroying 20 in asset values.

Very well put.

I said a year ago the Fed can, and will, produce $trillions in new fiat money. At the time that idea seemed far fetched even to doomers at PO.com. But now I wonder – just how many trillions $s will the Fed will ‘print’ up before it calls it quits, because interest rates will rise along with amount of new Fed money created (although with some lag time).

Higher interest rates will cause most intangible and tangible assets (except natural resources and food) to have their value discounted, and thus be further ‘deflated’. However despite continued weakness in asset prices, particularly for housing, the net overall cost of living will increase only faster. This will occur even while incomes drop through unemployment – as government spending will, at least in the near term, overcome that and increase faster than the income drop.

Luckily for us this process hasn’t yet gained too much momentum, but as we fall further down the slope of oil availability, it will.

[shortonoil]

DantesPeak said:

However despite continued weakness in asset prices, particularly for housing, the net overall cost of living will increase only faster. This will occur even while incomes drop through unemployment – as government spending will, at least in the near term, overcome that and increase faster than the income drop.

If we look at the future cost of living as a ratio of disposable income to the cost of goods, and not just the cost of goods compared to past cost of goods, the cost of living is going to rise exponentially. From that point of view even a slight rise in the cost of goods is going to have a dramatic effect.

The days of just stopping at a shop and picking up a cheeseburger for the heck of it are coming to an end.

[DantesPeak]

The $650 billion is now provided by the ECB as of today, but Europe's banks will have to repay $150 billion in another operation on July 1 – so the net effect by the ECB is $500 billion in new money.

The ECB rolled over the $150 billion today, which indicates that they appartently plan to keep that $150 billion outstanding after all.

Therefore that $622 billion is, in fact, an entire addition of new fiat money.

All indications are then that the Fed, ECB, and China's central bank intend to inflate to find a way of this financial crisis.