Down and up in the markets

Yesterday we discovered that 192 banks are using facilities from the European Central Bank. More and more of the business that used to go through the inter-bank market now goes through the Central bank of the system. Commercial banks do not trust each other enough to lend and borrow between themselves on a big enough scale for their needs. The weekly liquidity supplied by the ECB to banks rose to Euro 265 billion.

We also were told that the bond buying programme of the ECB has now bought more than Euro 200 billion of bonds, largely sovereign debt in the weaker countries. This is meant to be bought by the ECB on the basis that it mops up the equivalent of the cash it makes available for the purchases. It should avoid printing money overall to carry out the bond buying. This week there was a modest shortfall in the amount of money deposited with the ECB to cover the bond purchases in full.

The purpose of bond buying is to try to get the prices up of the weaker country bonds, thereby lowering the borrowing costs to those countries. The aim is not meant to be printing more money to buy the bonds to make more cash available, which is why they sterilize or get the money back from the bond purchases by other means from the markets.Typically banks in the system deposit with the ECB, or lend the ECB the money.

Commentators yesterday were debating whether this marks a change of policy. Is the ECB moving towards printing money to buy bonds? There is no statement to say so, no change announced on their website. It is more likely it was difficult getting in the money needed because bank liquidity was very strained.

To underwrite this possible explanation, there was a concerted move by major Central Banks together to supply more liquidity to banks and markets later in the day. This gave a sugar rush to risky markets, with shares and commodities leaping up on the news. If the market problem is just one of liquidity it is something concerted Central Bank action can resolve.

However, the deeper seated problems remain. There is a lack of competitiveness of the south of the EU. There is a problem transferring German surplus to weaker deficit countries on trade account. There is the weak position of some banks, recently recognised by more rating downgrades. There is the vicious circle between bond prices and bank balance sheets. The Euroland politicians have to do more than just enjoy the temporary benefits of more Central Bank cash.

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53 Comments

  1. Posted December 1, 2011 at 6:34 am | Permalink

    JR, you may need to help me out a bit here.

    If the ECB is buying weak sovereign bonds, wouldn’t this weaken the ECB’s credibility and strength? Thus wouldn’t any kind of sovereign default by the PIGS or others be de facto insolvency for the ECB given its limited balance sheet?

    And if printing is off the table, isn’t the ECB just subscriber funded via the sovereign European nations, thus aren’t they basically funding their own bond sales?

    If this is correct, it can’t end well.

    Reply: The GReek “default” was an agreement with the private sector only, leaving the ECB and other public holders with the belief that they will be repaid in full.
    If the ECB is empowered to be a full Central Bank it can print as much as it needs to cover any future losses. If not the stronger member states have to pay them.

  2. Posted December 1, 2011 at 7:01 am | Permalink

    I think the fact that you choose to refer to €9.3 Billion as a modest shortfall, brilliantly illustrates how the value of our money has been completely trashed over the past few years.

  3. Posted December 1, 2011 at 7:04 am | Permalink

    I can see no real, long term, solution short of splitting the EURO up that would work politically without bloodshed.

    • Posted December 1, 2011 at 9:05 am | Permalink

      The BBC coverage of the strike has been, as expected, almost absurdly pro the state sector — they certainly seem to know where their bread is buttered.

      Little mention of the fact they they get more pay on average, work fewer days, take more sick leave, retire earlier, have better working conditions and hours and have pensions about 7-8 times the private sector average.

      Lots of talk about what the magic (I assume) “public purse” can afford. Little about what the private sector taxpayers, often with no pensions at all, can afford in tax.

      I would not go quite as far a Jeremy Clarkson (they should be shot) but one can understand he felt the need to redress the absurd BBC bias in the other direction somewhat.

      • Posted December 1, 2011 at 3:13 pm | Permalink

        Now it seems:- In response to the Jeremy Clarkson outburst, Unison have announced that they are taking “urgent” legal advice and may launch legal proceedings against Clarkson and the BBC.

        It would be rather funny if they did sue the BBC as it seems to me that the BBC is about the only friend they have left – with their consistent and absurdly pro state sector union bias.

        The strike just seemed to remind us how little we actually need these workers.

        • Posted December 1, 2011 at 10:51 pm | Permalink

          Sorry if I sound pompous but Jeremy Clarkson was outrageous.

        • Posted December 2, 2011 at 9:14 am | Permalink

          lifelogic: “It would be rather funny if they did sue the BBC as it seems to me that the BBC is about the only friend they have left .. ”

          It’s all of a part.

          The unions are hopefully going to lose public funding for their part time workers on the Public payroll getting paid union wages for full time Union work too. Hopefully the wet drip Cameron will manage that!

          But tapping the BBC for more public funds this time by way of so called ‘damages’ is simply another route into the public purse.

      • Posted December 1, 2011 at 4:44 pm | Permalink

        “Little mention of the fact they they get more pay on average, work fewer days, take more sick leave, retire earlier, have better working conditions and hours and have pensions about 7-8 times the private sector average. ”

        Do you have any proof to support this? Last time I check public school teachers don’t get paid more, work less, take more sick leave, retire earlier, have better working conditions and hours, or have pensions about 7-8 times larger than their private sector counterparts.

        Also the Hutton report said the ‘public purse’ could continue to afford public sector pensions because the scheme currently has a surplus and the total cost as a percentage of GDP will be reduced, not increased, in future years.

        • Posted December 1, 2011 at 7:34 pm | Permalink

          You don’t believe that the 9am ’til 3pm school teachers work less than people in the private sector eh?

          And don’t even start me on half terms, easter and christmas breaks, the obselete summer closures.

          You have to pro-rata teachers salaries up to full-time equivalent.

        • Posted December 1, 2011 at 7:51 pm | Permalink

          The public sector pension scheme has not really got any investments to have any surplus of in general – it is just a promise by the state to pay in the future using money extracted from future tax payers under the threat of imprisonment.

        • Posted December 1, 2011 at 8:02 pm | Permalink

          Proof on relative earnings, sick pay, hours and pensions is widely available from several studies.

        • Posted December 2, 2011 at 9:16 am | Permalink

          uname5: “Last time I check .. ”

          When was that?

          Who did you compare the state school teachers pay against?

        • Posted December 2, 2011 at 10:34 am | Permalink

          Uuanime5 ,

          Assume a teacher who retires on £35,000/year at current accrual rates of 80ths . Tax free lump sum of 3 * salary , annuity rates for an inflation proof pension of 3.6% :-

          Pension = 35,000 * (40/80) = £17,500

          Pension pot = £17,500 * (100/3.6) = £486,111
          + £17,500 * 3 = £52,500
          = £538,611

          According to the Guardian , 8 out of 10 private sector workers retire with a pension pot of less than £30,000 . Assuming they take 1/4 as a tax free lump sum , they will end up with a pension of 22,500 * ( 3.6/100) = £810/year if they want it inflation proofed .

          Personally I think teachers deserve every penny they get and that we should be prepared to pay more to get better ones . There pensions are amongst the least generous in the public sector . The police ones are little more than a scam .

          So you are right , they don’t retire on a secondary pension of 7 or 8 times the average private sector worker’s , it is 20 or 21 times .

          If you do not accept the figures please say where you think they are wrong .

      • Posted December 1, 2011 at 6:29 pm | Permalink

        The government took a fair beating from C4 and I expect SKY. Why do you only watch and obtain information from the BBC if you do not believe them? Are you afraid that you will not believe enough in your own ideology? That somehow the BBC may be telling the truth?

    • Posted December 1, 2011 at 2:08 pm | Permalink

      I see that Cameron’s absurd happiness index continues to provide pointless jobs and waste money and thus kill far more real ones. I am sure we are all happy to know that: 76% of people rated themselves as seven out of 10 or more when asked to gauge how satisfied they were with life.

      I understand it did not, surprisingly, ask if they would be even happier if their taxes were not being wasted on this happiness nonsense and all the over paid staff at the Office of National Statistics (were they on strike yesterday I wonder?).

      It also did not ask what might make the tax payers happier, which might have been interesting. I would have said abolish this silly index, get out of the EU, fire one in two in the state sector, stop bailing out the PIGIS, abandon “green does not work” energy and fire Chris Huhne and the rest of the pro EU, fake green, tax and waste socialists in the government.

      • Posted December 1, 2011 at 6:35 pm | Permalink

        Maybe idle people like yourself should in principal pay more taxes than others who have to do some graft to obtain their income and living? Seems that this ideology is good enough for bone idle poor who like you are often in this situation because of ‘circumstances’ and also obtain there money by no intelligence, work or wit. Impossible to impose, but just a thought.

    • Posted December 1, 2011 at 4:08 pm | Permalink

      I think you are underestimating the bloody mindedness of the European Project Managers. They will stop at nothing to promote their dream.

      • Posted December 1, 2011 at 5:00 pm | Permalink

        You can be sure they will stop before actually using their own money rather than just tax payers.

    • Posted December 1, 2011 at 4:45 pm | Permalink

      Well splitting the Euro up would be very profitable for the banks as they could go back to making money through converting one European currency, such as the Franc, to another European currency, such as the Lira.

      • Posted December 1, 2011 at 7:24 pm | Permalink

        Good point uanime5, this could be good for jobs on fx dealing desks and the associated back office support functions.

  4. Posted December 1, 2011 at 7:42 am | Permalink

    After quite a lot of mangled presentation on the BBC last night, I now think I understand what is going on. Thank you for a very lucid and clear presentation of that and also for looking in the right place! (Which is, of course, the skill of an experienced politician!)

    The real problem is that the EURO is a busted flush. You say that.

    But there is another problem too. It is illegal. The Germans were afraid of restarting another Weimar devaluation and specifically ruled out their ECB taking part in a back-up like this and especially the shibboleth of printing money to pay for it all.

    If the government breaks the law when it feels like it (this is becoming a habit actually) then what is to stop complete lawlessness taking over as the crowds flood onto the streets (even in England yesterday)?

  5. Posted December 1, 2011 at 8:14 am | Permalink

    We also learned yesterday that your government has completely capitulated on plans to seek repatriation of powers even before next week’s Council meeting has begun. We also learned that the EU plans to introduce treaty changes in a way that will prevent the need for any referendums. Your comments on this (and what you so called “Euroscpetics” plan to do about it) would be very welcome. For example, presumably you can give your assurance that all 81 (and more?) “Eurosceptics” will vote down the approval of any such treaty changes in parliament.

    Reply: 81 cannot vote down anything in Parliament, but of course Eurosceptic MPs will not be willing to vote for more Treaty changes without a good deal for the UK

  6. Posted December 1, 2011 at 8:15 am | Permalink

    John, as a disgruntled Englishman who has moved to the Far East to escape the disintegrating UK with its myopic leaders, may I just say that it is only the likes of your blog and those of Dan Hannan, Douglas Carswell and Allister Heath which fill me with any confidence for ol’ Blighty’s future. Please dont give up the fight but redouble your efforts, for there are not enough of your ilk preaching this message. I dont wish to sound sycophantic but the plight of the UK is truly sickening and I’m one of those ever growing number of expat economic migrants who will find it ever harder to return to the UK and help it up off the ground if and when it ever returns to sanity.

    • Posted December 1, 2011 at 1:44 pm | Permalink

      “If and when the UK ever returns to sanity”

      Well we have perhaps 3+ year of Cameron/Clegg big state fake green, pro EU, tax and waste socialism then perhaps 5 years of Milliband perhaps under direct orders from Unison – so it could be at least a decade before things even start moving the right way – I should stay away for quite a while yet if I were you.

      • Posted December 2, 2011 at 2:38 am | Permalink

        Unfortunately I concur, England ain’t what it twas and the tax rate is a lot more conducive to actually bothering to wake up in the morning and do a day’s work over here…

  7. Posted December 1, 2011 at 8:42 am | Permalink

    Unfortunately, the immediate problems take indeed time away from the unresolved underlying problems.
    I suspect that the Dutch prime-minister is now lobbying for a temporary special IMF vehicle as was used in the seventies when the oil crisis had struck. Dutch press reports today that he is calling several EU leaders about an increased role for the IMF.

  8. Posted December 1, 2011 at 8:42 am | Permalink

    John an excellent post, but :

    Forgive me for making what may be a crass remark, but I am not experienced in International finance at all.

    I assume that the ECB was originally set up by members (Country’s) within the Eurozone, and Funded by those same members when financial times were somewhat better than they are now.

    Given that many of its member Country’s are now in financial trouble, and are in effect having to borrow their own money back, which seems to be underwritten, by bond sales of those same members to the ECB, is this not just a financial merry go round of make believe finance, underwritten by future unknown valued assets, of financially strapped Country’s, who could not survive without such action.

    It all sounds like last gasp desperation to me.

    Is this why Outside Country’s like China and others have refused to purchase bonds, or push any real money into the ECB?

    Reply: All the main Central Banks have very extended balance sheets these days. The EU memebr states all were initial shareholders. Non Euromembers like the EU paid up very little. Euro members put in more capital. Now the Bank has a very geared balance sheet, like the Fed and the Bank of England. It borrows on one side and buys bonds on the other. The Bank of England has £200 bn of UK bonds financed by a £200bn loan.
    China was invited to invest in the EFSF, a Luxembourg commpany set up to fund bail outs, not to subscribe to the ECB

  9. Posted December 1, 2011 at 9:00 am | Permalink

    We were told that the FED is doing currency swaps with the EU central banks.

    Interest rate swaps are used to create synthetic demand for bonds. Currency swaps are interest rate swaps between different currencies eg dollars and euros to create demand for euro bonds. In other words by piling on nose bleed amounts of derivatives the FED(or any other central bank) can not only capture any part of the yield curve and suppress rates at home, but also any country abroad that participates.

    They are creating liquidity with leverage out of thin air. NOTHING financial is priced at market, everything is rigged from the ground up. This is going to end extremely badly.

    Interest rate swaps and their effects on bond demand explained :

    http://www.marketoracle.co.uk/Article12522.html

    • Posted December 1, 2011 at 9:06 am | Permalink

      This is how Greece was shoe-horned into the EU. Interest rate swaps were used to drive their rates down. It is like compressing a powerful spring ever further until it cannot go any more. We know how that has turned out, the spring is uncoiling.

    • Posted December 1, 2011 at 10:32 am | Permalink

      I don’t understand what’s going on with these currency swaps, there being so many wheels within wheels within wheels, but you may be interested in these two articles I found this morning.

      http://online.wsj.com/article/SB10001424052970204397704577070682008232246.html

      “Wall Street Pushed Federal Reserve for Europe Action”

      “Wednesday’s moves involved central-bank coordination to lend to European banks, and it couldn’t be determined what precisely prompted the Fed and the other central bankers to act. In the September meeting, the Wall Street executives suggested a different kind of coordination by central banks – boosting the global economy by buying securities or through other methods of injecting liquidity. Coordinated lending to European banks wasn’t among their suggestions.

      But analysts say Wednesday’s broad stock-market rally was partly fueled by investors’ expectations that central banks will do more to ease the crisis, such as the kind of central-bank coordination recommended by the members at the September meeting.”

      http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html

      “Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress”

      “The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. No one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates”

      A number of other striking statements such as:

      “On Nov. 26, 2008, then-Bank of America Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed “one of the strongest and most stable major banks in the world.” He didn’t say that his firm owed the central bank $86 billion that day.”

      Without knowing the details of what is happening now, my suspicion is that as equity investors have responded with such enthusiasm that probably means taxpayers are being, or eventually will be, quietly ripped off.

      • Posted December 1, 2011 at 4:51 pm | Permalink

        Concerted action by Central banks: how is the stability of the world’s financial system best served when of the two major central banks, one is secret and privately owned and the other is entirely stateless and neither is prepared to exchange its fiat paper for anything of value?

        As JR has extensively explained, the raison d’etre of a central bank is as lender of last resort to the lending banks within its purview. The Fed however, apparently, can lend not only to US lending banks but to foreign banks that had been defrauded with worthless sub-prime mortgage derivatives and to other companies which at the time of getting into difficulties were either not lending banks or banks of any description. In addition, as the boards of the Fed banks are stuffed with those whose corporations potentially and actually have benefitted from lending decisions, it is not at all clear that the Fed acts typically to promote financial stability rather than offer opportunities for insiders to prosper. The reported total to which US taxpayers have additionally been put on the hook as a result of lending decisions of the Fed since 2008 is reported as $23.7 trillion.

        Meanwhile, the ECB, unlike the Fed which is mandated as an extremely privileged private corporation within one jurisdiction, does not belong to one jurisdiction and therefore cannot act as a conventional central bank.

        Is it surprising that financiers and others are making lots of money whilst the economies served by the Fed and the ECB are in dire distress? Is it not time for better mechanisms for supporting World commerce such as proper central banks?

  10. Posted December 1, 2011 at 9:08 am | Permalink

    This is a good explanation of where we are and what is likely to happen.

    http://www.zerohedge.com/news/imminent-defaults-and-self-deception-kyle-bass-prepares-worst

  11. Posted December 1, 2011 at 9:38 am | Permalink

    So far the EU has been more interested in preserving its wretched “project” than dealing with the mess it has itself created. Even they must know that the euro as they constructed it cannot survive (it has been obvious to many since its ill-conceived inception). Surely the other world economies will not sit back and allow everything to be wrecked because of the EU’s political myopia.

  12. Posted December 1, 2011 at 10:56 am | Permalink

    If it is their plan to buy bonds they are not getting enough weekly deposits to sterlize them (only o/n). It looks like the ECB has flopped until Germany gives them any muscle.

    In the mean time Schaeuble says Germany “ready to discuss expanding IMF funds”. In otherwords Germany will impose its policy via the IMF rather than directly.

    So the IMF will have to wait for formal invitations from Italy and Spain (already in “informal” talks with Italy). How will the IMF handle devaluations with the EZ? The IMF can only deal with countries not the EZ as a whole or the ESFS. I guess their only choice is to tell the PIIGS to cut VERY deep.

    This of course means the UK has (1) no crisis to use to justify the deep cuts that are needed (2) edges the UK toward the markets line of fire – after belguim

    • Posted December 1, 2011 at 6:10 pm | Permalink

      Is there any precedent for the IMF to supplement its available resources by borrowing a vast sum of money from a bank, a central bank or any other bank; which money is to be used for a narrow purpose specified by the bank, in this case to assist distressed eurozone states; and would that be allowed under the IMF rules; and isn’t there some general principle of law that a principal, in this case the ECB, cannot circumvent a legal prohibition to which it is subject merely by operating through an agent, in this case the IMF; and wouldn’t the ECB Statute mean that the ECB would have no lawful authority to engage the IMF as its agent for this purpose; and so wouldn’t there be questions about whether any such agreement between the ECB and the IMF would be valid; and in theory couldn’t it end up with those running both the ECB and the IMF being held personally liable and being exposed to both civil and criminal prosecution?

  13. Posted December 1, 2011 at 11:07 am | Permalink

    It is not just the south of the EU that is uncompetitive. We are too thanks to the decimation of enterprise in the real business world by regulation both from Westminster and Brussels.

    When Jack Cohen, as a street trader started what was to become Tesco he didn’t even have a barrow. Google began by renting a garage from a friend’s father while Soichiro Honda, then a young mechanic pawned everything he had to develop an idea for a two stroke engine to power a bicycle.

    We need to encourage more like these here in the UK and when they start to grow, we shouldn’t strangle their operations at birth with a flood of directives and strip out their cash flow with taxes designed for large corporations.

    If we don’t our economy is going to continue to struggle. If we do we won’t be depending on fictional and unsustainable housing booms in the future to kid ourselves that we’re prosperous.

    • Posted December 1, 2011 at 4:51 pm | Permalink

      Can you name any statues or directives that are strangling entrepreneurs? If not could it be that there aren’t any.

      Also the tax laws for small businesses are different than those for large corporations.

      • Posted December 1, 2011 at 7:38 pm | Permalink

        “Can you name any statues or directives that are strangling entrepreneurs?”

        Yes.

        In my industry (housebuilding) Special protection areas. I can cite examples if you want of businesses destroyed by euro-meddling. I suspect others from other industries could do likewise.

      • Posted December 1, 2011 at 10:07 pm | Permalink

        All of them employment, health and safety, waste materials, over & absurdly complex taxation, planning, environmental, building regs …….. – all inflict extra costs which make the UK often unable to compete so the jobs go some where else.

      • Posted December 2, 2011 at 10:53 am | Permalink

        Have you ever tried to actually do anything in the UK ?

        Or do you just want to take it easy and get topped up by the handouts and credits and grumble about those who do have the gumption to give it a go ?

        Try becoming self-employed and if you don’t go out of business try taking on an employee on and come back to us if you still think the UK is small business friendly .

    • Posted December 1, 2011 at 6:45 pm | Permalink

      Big corporation often strangle small enterprises. Who can compete with the likes of Tesco? That is not to say everyone can or should use small businesses. The world has moved on since many of these small companies began and even then their founders and many other successful founders of business are just the persons who plants the seed. The company growing on the backs of the employees and other sharp owners. Following the founders advice in the case of Honda, who said two stroke engines are little more than bamboo tubes was relevant in the 1940’s, when four strokes were primitive, but a dangerous philosophy for Honda in modern times restricting vision on engine design. His death opened the gates to Honda’s successful Two stroke engines and motorbikes.

  14. Posted December 1, 2011 at 11:58 am | Permalink

    Isn’t this a matter of temporary swaps, on each occasion with the Fed lending X dollars to the ECB but simultaneously taking Y euros from the ECB?

    Later the Fed will recover its X dollars and the ECB will get back its Y euros, but the ECB will also pay the Fed some sum Z in interest for the privilege of having been lent the X dollars for a time, up to 3 months.

    So the ECB will have no extra money available during the period of the swap, but more of what it has available will be in the form of dollars, and later it will lose a small sum in the interest due.

    It’s not clear to me why this should mean that the governments of Greece, Italy etc will be able to borrow as much as they need at reasonable interest rates – especially as their bonds are euro-denominated and therefore investors will need euros to buy them, not dollars.

  15. Posted December 1, 2011 at 12:46 pm | Permalink

    This document is well worth trawling through.

    http://www.scribd.com/fullscreen/74335711

    The main points IMO :

    1. World debt is 310% of global GDP, the largest accumulation of peacetime debt ever. The world has never been in this position without a war.
    2. Their is no saviour large enough to bail this out.
    3. The rates in the EU countries are telling us the EU has in fact already broken up, even if politically they are still in denial.
    4. Massive printing will be started, if it has not already.
    5. Japan is facing a demographic problem that is intractable, short of importing millions of new young workers(Blair and New Labour, anyone ?). The welfare system is drying of new entrants to fund old retirees, something that many western countries also experience.
    6. “One more dollar worth of global credit market debt produces almost no additional utility via GDP growth.”

    • Posted December 1, 2011 at 4:42 pm | Permalink

      I am interested too in the future.

      There are already a lot of left wingers on the streets and they could, it is true, turn violent and then have to be repressed by “a strong man” usually from a minor part of the country (Hitler, Mussolini, Napoleon, Louis XIV, Stalin, Ghadaffi all came from the provinces).

      As money loses its value and things seem to get more and more expensive and out of reach, you cannot blame yourself for milking the state for what it is worth. No! You need (examples left out-ed) a nice little minority whom everyone agrees to hate together. This brings about political unity.

      By the way, Argentina, Russia and Turkey recently wrecked their economies and recovered completely. Did you notice? Zimbabwe jumped the riots and ruined its economy single handed without a real war. Then there are the basket states like the Congo.

      Reply: I hope the past is no guide to the future in these respects. Surely there are many pressures against such a repeat of dreadful past events and attitudes.

    • Posted December 1, 2011 at 7:15 pm | Permalink

      Re para 5.

      The demographic is a reality, and only a problem if chosen to present as such.

      More younger people is not a long term solution. More younger people eventually become more older people, requiring even more younger people who grow old, and so on. This looks like a Ponzi scheme to me.

    • Posted December 2, 2011 at 11:06 am | Permalink

      Gary: “World debt is 310% of global GDP, the largest accumulation of peacetime debt ever.”

      And it is worth noting that it is because of the Politicians desire to deficit spend over the last 60 years, encouraged by the bankers that has led to this fiasco.

      Here is a thought, this behavior will likely lead to considerable, no has led to considerable civil unrest especially in Greece. Now I make the case that by behaving in the manner they have politicians have effectively become ‘economic terrorists’.

      Hell, they are even now exploiting the situation to grab more power.

  16. Posted December 1, 2011 at 1:42 pm | Permalink

    It is like a giant Ponzi scheme BUT and that is a big BUT,as Gary says they are creating the
    new money that comes in to a Ponzi scheme to keep it going not from new members but from
    THIN AIR,and as he says IT IS GOING TO END BADLY.I recommend all of you to read Daniel Hannan’s latest very long article and then Watch Pat Condell on You Tube,if these don’t scare you then I am mystified,especially Pat Condell.I am going to try and get Fred on Everything from the USA who lives in Mexico to try and analyse this whole WORSE THAN FIASCO thing from his perspective,watch his blog and see stuff written that would definitely be Moderated/ed./CENSORED in this country and will cause PANIC in Brussels as ,while eggs are eggs and I have a fundamental ORIFICE as my father used to say,the Tea Party will get hold of it and a MUSHROOM CLOUD of words and critique will appear
    THEN watch Gingrich and the Rest start.

  17. Posted December 1, 2011 at 4:42 pm | Permalink

    Having recommended “Fred on Everything” I read his latest piece called “Justice at last”
    although not about financial matters anywhere ,reading it which I really recommend, is so
    apropos ALL that is wrong in this world, it encapsulates and conflates with ALL that is going on with the out and out Frauds running the Governments of most of the world,in fact I would say that his words show HOW “mad hatterish” Billions of peoples are being FORCED to live
    by the Political classes,IMHO one day soon there will be a collective nervous breakdown
    amongst the general populace that will TRULY be TERRIBLE for all the class that has perpetrated this,because it knows full well that JR/Hannan/Carswell etc etc are right and it is wrong BUT still lemming like races at light speed towards a precipice that could be calamitous to all and take a generation to repair.History will judge all as badly as it does
    all demagogic dictators and demagogic ideas, WHY WHY WHY do they persist .

    • Posted December 1, 2011 at 10:21 pm | Permalink

      Like having all the worst parts of the Old Testament happen on the same day.

      Roll on death !

  18. Posted December 1, 2011 at 6:03 pm | Permalink

    The massive monetary expansion after the dot-com crash had the side-effect of inflating asset prices, sowing the seeds of the ensuing boom’s destruction.

    This time, inflating asset prices is the primary purpose of the BoE, the Fed and now the European Central Bank.

    Can anyone believe that this will not have consequences down the line, and is that not one of the main factors keeping confidence low?

  19. Posted December 1, 2011 at 6:11 pm | Permalink

    The role of Schauble in steeering the German course through this crisis cannot be underestimated I believe. Interesting analysis of his tactics from http://hat4uk.wordpress.com/
    EUROCRISIS ANALYSIS: SCHAUBLE PLAYS A CLEVER GAME OF FEAR AND CONFUSION.

  20. Posted December 1, 2011 at 8:06 pm | Permalink

    9 billion has been paid of mortgages in the last three months which is the equivalent of taking 3.5% of take home pay out of the economy and the most since records began in the 1970’s. This hardly represents confidence in the economy and especially job security. I paid off mine last year, 13 years early, and will not be getting another one. More money in your pocket and the confidence to tell employers to ram it, whatever government is in power. Very worrying trend for some. What are tactics when the workforce cannot be threatened?

  21. Posted December 2, 2011 at 11:42 am | Permalink

    This “sterilization” by the ECB, or any central bank, is a charade. The ECB monetizes bonds by purchasing them to prop up bond demand and thus lower rates. In order to sterilize the money that has been injected by this purchase the ECB must offload the bonds and thus mop up the money. But who buys the bonds off the ECB ? Why the banks , of course. And where do they get their money ? From the ECB , via the the banks from its weekly Main Refinancing Operation !

    This is ponzi finance, and all it does it give the ECB ie taxpayers, increased interest rate risk and liquidity risk one step removed.

    There is no money to cover the amount of debt it has to be created from somewhere, the banks are on permanent life support , hooked up to the central bank, and the only place any money is going to come from is the central bank. No matter how they dress it up. Smoke and mirrors designed to baffle the public and most all politicians.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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