Comments on: Why ECB lending won’t solve the euro crisis A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: WallStreetDude Sun, 25 Dec 2011 00:37:48 +0000 @Trieste

There are many who view the wonton printing of money as heresy. They call for the gold standard which by its very nature limits the money supply. There is a major fault with this argument: There is not enough gold to go around.

Think about what a central bank does. It creates (prints) money that facilitates transactions. As the economy grows, more money is needed. What is a sovereign bank to do? Tax the populace to get money to buy more gold so they can print more money? Not very efficient. And what is other countries have a gold standard? The accommodate everyone, the price of gold will go through the roof. This causes banks to impose more taxes to get the money to buy the gold…..

You get the idea. The gold standard is not the answer.

By: sarkozyrocks Thu, 22 Dec 2011 18:52:28 +0000 The plan doesn’t pass the common sense test. It asks extremely risk-averse commercial banks to assume a “hedge fund” / high risk carry trade in an environment where they’re not deploying cash to anyone. Sure, sovereigns could force feed their own banks to the trade, but that’s a small percentage of the total sovereign financing need. When a commercial bank does take the trade, its stock is quickly hammered in the market, and shareholders lose, perhaps significantly. Shareholders aren’t public philanthropists. Won’t work.

By: Keltmpoh Wed, 21 Dec 2011 04:12:23 +0000 I am probably too stupid to understand all these intelligent financial manouevering……but it seems to me nothing significant has changed with the fundamentals.

There are more funds in the system…but where are these funds going to be applied? Banks loan to Sovereigns…sovereigns are still …
1) overspending (not efficiently)
2) consumption vs production is still an issue
3) funds to Govt, Govt issues bonds, bonds as collateral to increase private lending, collaterals become toxic assets……
4) prudent and efficient economies have to bail out reckless and inefficient ones, perpetuating the problems.

Tell me again why is the market so happy today?? Because some finance guru and their associates will be making their Q4 numbers, and FY bonuses??!!

Working the numbers has become such an obsession, that we forget that the markets are meant to facilitate the mainstream economies……and “the street” is not the be all and end all of the game on both sides of the “pond”.

By: WallStreetDude Wed, 21 Dec 2011 02:53:08 +0000 @Alan

Europe will delever by the German Plan: austerity. You can pay off the notes if you eat pork and beans. This is the German way. They have the mental resolve to suck it up and get it done. They took on the burden of unifying East Germany at a cost of billions of Euros.

I am not so sure of the Mediterranean countries. Austerity can be a real drag on their lifestyle. Greece may balk at Teutonic discipline and bail out of the Euro. How easy is it to default on all the debt and then relax with a glass of ouzo?

By: WallStreetDude Wed, 21 Dec 2011 02:44:05 +0000 @SouthMed

The cognitive dissonance you sense is due to the non-synchrony of words vs. action by Germany. Angela Merkel has said repeatedly that she want the Euro. No buts about it. But her actions in preventing the ECB from unleashing the bazooka says otherwise. The fire of fear in the EU financial markets will remain until John Wayne show up with his bazooka.

The other more deeply rooted factor is that a Euro in Germany is not the same as a Euro in Greece. In Germany, the Euro will buy the output of very industrious and smart people. In Greece, one Euro will buy the output of a Greek who rather be drinking ouzo rather than working. In reality the former is worth more. The market has a hard time figuring this out.

The Germans know this of course. But they benefit because the Euro is weaker due to the less industrious countries in the Mediterranean. A weaker Euro to Germany is good for exports. But the Germans only like this deal if they don’t have to spend too much to bail out the lesser countries.

By: sbenard Wed, 21 Dec 2011 01:00:19 +0000 A global ponzi scheme and a shell game! The end is only delayed in this latest delay. The end result will be more debt and a bigger disaster in the end!

By: alanchristopher Tue, 20 Dec 2011 21:37:51 +0000 ECB lending will fail because no one has a plan for growth that is required for repayment. Banknotes cannot have sex with other banknotes to create new banknotes whether the banknotes are in cash or electronic pulses in cyberspace. The huge hoards of money will not remove the finance charges that will continue until the money is depleted. Loans to small businesses create the most new entrepreneurs, ideas, jobs, workers, paychecks, products, customers, profits, and taxes. Profits expand companies, repay banks, and pay taxes. Taxes let governments pay interest, pay debts, and finance programs. Small business plans for businesses, banks, and governments would focus thoughts on tasks needed for success and would reassure creditors that debtors know what they are doing and will repay the loans. Unfortunately, leaders of governments and big banks have become arrogant and lazy. They prefer news interviews to effective work.

By: southmed Tue, 20 Dec 2011 10:28:54 +0000 Of course the ECB is acting now as a lender of last resort albeit limited by law, that only permits liquidity easing to banks, not states.
The only doubt I have now pertains to the political domain: why commentators sistematically devalue political statements and movements that clearly indicate a firm commitment of european partners in maintaining the euro as the single currency of the ENTIRE eurozone ?
We all know that a sudden conversion to national currencies or even new regional currencies would be a disaster to all Europe and perhaps to the World. So, it´s unthinkable that the most wealthy region in the world could embark in such a self-destructive path. That´s plain common sense.

By: WallStreetDude Mon, 19 Dec 2011 23:51:33 +0000 @Dan

The ECB is no different than any other bank with respect to the creation and destruction of money. Think about it; where does money come from? The genesis of money is always a loan from the central bank to another bank. The central bank does not perform double entry bookeeping. When it makes a loan of cash, it literally invents the money out of thin air. When the loan is paid off, poof! the money is gone into thin air.

The concept of inventing money out of thin air and destroying it with a wave of a wand scares most folks. But that is what happens.

By: georgehanson Mon, 19 Dec 2011 19:28:04 +0000 The last stand will be Spain. If one applies a 60% loss ratio on property developper loans (Ireland @ 80%) on Spanish banks loan book (circa 350Bn euro), then that points to €200bn loss in spanish banking system. If Spanish banks are re-capitalised to the tune of €200Bn by the Spanish government, then that brings Spanish net debt/gdp to 100% (if autonomous region debt is added to central govt debt). That leaves you with a highly indebted Spain that is dependent on external creditors (unlike the Italians – who are alot wealthier than the Spanish BTW) and structurally fubar i.e. few export champions, unemployment at 20%, further austerity, no devaluation. Spain is and always has been the elephant in the room. phoney accounting has delayed their property bust by 3 years on paper. who will fund Spain?…Ireland/Greece/Portugal haircuts are already fact…when the market really focuses on Spain, that will be the litmus test for Euro.