The ECB and its QE

W. Buiter has a good post about the ECB and its QE by buying covered bonds. 60 billion € looks quite puny and one can rest assured that the ECB will buy back some junk unknowingly. Witness that Spain is already issuing big time. Buiter asks if the ECB has sufficient capital in light of its price stability mandate.

With assets of € 1,795 bn and capital and reserves of € 73 bn, the Eurosystem has 24,6 times leverage.  A decline of just four percent in the value of its assets would wipe out its capital.  That does not look like a terribly comfortable position, as the quality of much of the assets it has accepted as collateral from Euro Area banks is likely to be uncertain at best.

Unlike the US banks and the UK banks, Eurozone banks have barely made a start on recognising the toxic and bad assets they are exposed to, on balance sheet or off-balance sheet. … We know of the dreadful state of most of the German Landesbanken, the fragility of the bailed-out Commerzbank, the opaque balance sheet of Deutsche Bank, the precarious state of the remaining large listed Benelux banks, the exposure of the Austrian banks to Central and Eastern Europe etc. etc.  If any of these banks had good collateral, they would not give it to the Eurosystem.  They would sit on it.

Even before the Eurosystem starts to buy private securities outright (as it is planning to do with high-grade covered bonds, Pfandbriefe, to the tune of € 60 bn), it is certainly within the realm of the possible (or even likely) that it would suffer losses on its assets of €73 bn or more, before this crisis and this contraction are over.

full article

JC Trichet: Eyes wide shut and now QE

It took a while, some prodding, some pushing, but now it is official: JCT goes QE. 60 billion € to be precise. And it lowered interest rates to 1% from 1,25%.

„It’s a significant departure from previous ECB policy,“ Gilles Moec, senior economist at Bank of America – Merrill Lynch, told Bloomberg News.

„But other central banks have been a lot more aggressive.“

JCT is excused, he is French. One funny thing is that the € rises on QE!

Lesenswert

1. Sarko über andere Staatschefs

2. ECB is totally behind the curve
Led by Trichet, the ECB remains to be behind the curve on all things monetary; but there is growing divide among the ECB governors:

Policy makers on the ECB’s 22-member council are divided over the best way to stem the euro region’s worst recession since World War II. Germany’s Axel Weber has ruled out cutting the ECB’s key interest rate below 1 percent and said he doesn’t want to buy debt securities. Greece’s George Provopoulos and Athanasios Orphanides of Cyprus want to keep open the option of deeper rate reductions and asset purchases to fight the risk of deflation.

Trichet said there was no split among the Governing Council. He declined to comment on any possible non-standard measures the bank may decide at its May 7 meeting.

[European EconoMonitor]

Au, das muss weh tun

Der Exportweltmeister kann nun alles andere brauchen als einen derart hohen € Kurs.

Zwar etwas überverkauft der Dollar, doch wenn JCT von der EZB nicht bald die Schleusen aufmacht, dann wird Germany Exportzahlen nahe denen von Nord-Korea sehen.

Z.B. ThyssenKrupp will mehr als 3000 Jobs streichen.

Vot is zis French Clouseau smoking?

„We’re approaching a moment where we might have a pickup,“ said European Central Bank president Jean-Claude Trichet, in his most optimistic assessment to date of tentative signs of stabilization in some markets. He cited a modest rebound in corporate bond markets as one positive sign. Mr. Trichet spoke to reporters on behalf of participants in a meeting of central bankers from the world’s leading economies at the Bank for International Settlements in Basel, Switzerland.

Jean Claude stolpert in die 1,5%

Jakso Claude von die EZB geht auf … runter: „Weitere Massnahmen mög … schnarch … lich.“ Wir wissens, JCT. Oh, vorsicht, nicht über das Baguette stolpern.

EZB Letzter bei Behinderten-Olympiade

Je ne comprend. Vat is zis Dutch-Brit prick zinking?

Willem Buiter in einem Post über die EZB in Auszügen:

„Indeed, the Eurozone is now getting so far behind the curve that, if the ECB were on an Olympic race-track, it would be looking itself in the back.

At the ECB, a special branch of voodoo monetary theory has been developed that sees insurmountable problems and dangers associated with getting the official policy rate below some value that is well above the zero floor set by the zero nominal interest on currency.   The exact location of this mysterious liquidity trap lower bound has never been revealed, but on the basis of the stammering, incoherent and incomprenhensible statements in this regard from Jean-Claude Trichet, Jurgen Stark, Gertrude Tumpel-Gugerell, Lorenzo Bini-Smaghi and Ives Mersch  (to name but a few), it appears to be migrating south slowly from around 2.00 percent.

The ECB’s blabbering about a possible liquidity trap above a zero percent nominal interest rate is complete and utter nonsense.  The only floor, if there is one at all, is the zero floor.

The ECB, after being the leader of the pack in fighting the liquidity crunch – it accepted as collateral in its repos and at the discount window anything that did not move and a few things that did – has become the laggard as regards the outright purchasing of private securities (qualitative easing).  It is even reluctant to engage in significant quantitative easing.

There are no obstacles to quantitative easing by the ECB/Eurosystem to be found in the Treaties.  The ECB/Eurosystem is banned from lending directly to national governments and from buying government securities directly in the primary or new issues market, but there is nothing to stop it from purchasing all the govenment securities it wishes in the secondary markets.  All it takes is a decision by the ECB’s Governing Council.“

voller Artikel

EZB JCT High Tech Zinsdeterminator

Die EZB mit Jean le Claude de la Trichet scheut keine Kosten die Zinsen zu bestimmen: JCT EZB Zinsdeterminator 2.0

Dank an Macro Man

JCT sieht (unter)preisliche Risiken

Oh, par bleu. C’est très beunruhigend. Gut, dass Jean Claude es nun auch gesehen hat.

Excerpts: “Current conditions in global financial markets look potentially unstable, suggesting that investors need to prepare themselves for a significant repricing of some assets, Jean-Claude Trichet, president of the European Central Bank, warned at the weekend in Davos. The recent explosion of structured financial products and derivatives had made it more difficult for regulators and investors to judge the current risks in the financial system, Mr Trichet said. We are currently seeing elements in global financial markets which are not necessarily stable, he said, pointing to the low level of rates, spreads and risk premiums as factors that could trigger a repricing.”

voller Text

Jean Chéri Claude Trichet Redux

Dies von Macro Man (nichts hinzuzufügen)

Every time the ECB meets, you can count on two things:

1) Jean-Claude Trichet will come close to dislocating his shoulder as he pats himself on the back, and

2) A cohort of Macro Man’s readers will spring to his defense.

Yesterday proved to be no exception. Macro Man is finding it difficult to escape the notion that Trichet is a spectacularly poor economist; what other explanation could there be for his apparent ongoing concern about wage pressures in Europe? And given everything we’ve seen over the past year and a half, Trichet’s casual dismissal of the possibility of European deflation (as well as a European government default) was intellectually cavalier. A good rule of thumb in finance is that when someone says that something „cannot happen“, they don’t know what they’re doing.

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Monsieur Baguette muss irgendwo in einem Blickvakuum leben, denn die jüngsten Downgrades durch S&P der PIGS Bonds führen zu deutlich höheren Kosten für neue Kredite.

hier Bloomberg:

„Diverging bond yields hurt Trichet’s argument that the ECB’s inflation-fighting mandate ushered in an era of stability for nations that once suffered rampant price growth. They also make it tougher for the ECB, which cut its key rate to a record yesterday, to set one benchmark for all 16 euro nations. That may delay recovery as governments try to fund stimulus plans.

“It will act as an additional braking mechanism on these economies,” said Julian Callow, chief European economist at Barclays Capital in London. “For the ECB it makes it harder to determine the future evolution of the economy.”

(Spreads für 10-Jahre Bonds: Span. – Deutschl.: 115bp)

‘Question Mark’

“There is a question mark about a much more patchy upswing,” said Ken Wattret, senior economist at BNP Paribas SA in London. “The divergence of economies will continue to raise questions about whether monetary union is functioning.”

Die unerträgliche Leichtigkeit ein Patchwork von unterschiedlichen Nationen unter einen Europa-Hut zu bekommen.