It's no secret that the Germans are negative to further financial support of the weak euro countries. Germany's current strategy is inaction to the calls of introducing Eurobonds or Germany to leave the Euro. What they dread is the other option - that a weak country would leave the euro and its implications on... Germany.
I have been reviewing the papers from a recent conference;-
The ESRB at 1
& I think there is a crystallisation of a theme at that conference reflected in one particular presentation which articulates a narrative that we have been developing here on asymptotix in regard to Stress testing over the last 2 or 3 years.
In December 2008 financial market liquidity (in Europe) disappeared altogether, vanished according to the ECB FSR June 2010 . For monetarists like me this massive disappearance precedes & probably causes the massive GNP collapse of 3 quarters later; visually the 2 collapses have close to identical shapes.
Think about it, as LTRO triggers on the leap day TODAY, why is the Central Bank being forced to do this against its will? The European monetary transmission mechanism doesn't have an IMF-Equivalent; so not only is the euro a political mishmash at the concept level its a stool (sic) on two legs at the practical institutional level.
EU Money supply is at rock bottom, the pump at the 'heart' of European money supply is on life support.
That 'life support' is LTRO from the Central Bank, right? The Central Bank should be independent right? It shouldn't be pumping up the very thing that it is chartered to control, that is perversity by definition right?
It's LTRO that I’m talking about this time! LTRO the latest version of “economic life support those” crackpot surgeons in the Central Banks and Treasuries of Europe have come up with. What is the issue with it? As LTRO2 approaches, to on the leap day (29/2/2012) I present a number of theses about LTRO;
1. LTRO is a workaround for Crowding Out
2. LTRO is executed via a process called 'Round Tripping' or known as a ‘Carry Trade’
3. Hedge Funds are intrinsic to the success of LTRO
4. This makes governments dependent upon Hedge Funds (& not just the banks)
5. LTRO creates a cash balloon which props up the equity market
6. LTRO is a high-risk central bank strategy which could deflate at a stroke
7. Ironically the very Hedge Funds and Asset Managers who are intrinsic to the success of LTRO are already freaked out by the high risk nature of the policy,
Stability bonds. That is the new moniker given by the European Commission to euro bonds as it moves toward presenting its most definitive proposal yet for the debt pooling measure on Wednesday.
Indeed, European Economic and Monetary Affairs Commission Olli Rehn was in Berlin on Tuesday to tout Brussels' three-option studyon how bonds issued jointly by the 17 euro-zone member states could help stem the debt crisis.
Lenders increased overnight deposits at the European Central Bank to the highest level in more than 16 months.
Banks parked 299 billion euros ($412 billion) with the Frankfurt-based ECB yesterday, up from 288 billion euros on Nov. 4. That’s the most since June 30, 2010, and compares with a year-to-date average of 71 billion euros.