Thursday, August 18, 2011

Pressure in the boiler rises

ECB Daren’t Blink First as It Stares Down Market Yields

"The European Central Bank needs to back up last week’s record purchases of government debt with further buying to prevent speculators from driving borrowing costs for Spain and Italy back up again". "The ECB may have spent around 12 billion euros in the second week of bond purchases, according to Harvinder Sian, an interest-rate strategist at RBS in London". (don't they need some 'elf and safety advice?). Robeco’s Penninga said “New investors need to be attracted. You are only going to attract them with higher yields".

Posted by alan @ 09:19 AM (1345 views)
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9 thoughts on “Pressure in the boiler rises

  • Looking at all this ECB ‘buying’ of bonds with money they appear to have created themselves, and which is not (as far as I can ascertain) assigned to any member nation of the eurozone – a question arises..

    When this doomed project finally collapses, what happens to this mountain of sovereign debt, bought with money that never really existed..?

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  • general congreve says:

    @1 – What actually happens to the debt is happens as the debt is purchased, not when the project finally collapses. The debt is bought with made up money, but it isn’t a zero sum game where the debt is eliminated by made up money as such, because as soon as that trash is bought, the made up money it is bought with flows into the European economy, thereby devaluing the purchasing power of the Euro. So the debt is not destroyed, it is repaid of a fashion, out of the pockets of everyone earning and holding Euros.

    Euro holders and others know this and have been busy swapping Euros for Swiss Francs, but the Swiss don’t want that happening, as it forced the value of their currency up and ultimately destroys their export economy. So those guys have been printing Swiss Francs like hell to stop it happening, which of course is inflationary for holders of Swiss Francs too. The Swiss National Bank has even been touting ideas of tying the value of the the Swiss Franc to Euro. Whether they are serious or it is just a ruse to scare people out of the Swiss Franc I do not know, but the bottom line is the Swiss Franc cannot absorb the capital inflows from the Euro and elsewhere without its own economy sinking under the weight.

    So those people escaping the Euro need to look elsewhere to protect their purchasing power, somewhere free of the influence and agendas of governments and central banks. If only there were a free currency, readily recognised the world over, its worthiness proven over millennia, that was worthy of such nomination?

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  • Alan: (don’t they need some ‘elf and safety advice?)

    Spot on.

    A primary lesson of H&S is that it trains folk never to assess risk for themselves or take responsibility for consequences.

    How many European banks bought into Greek bonds (for similar/ identical) return as the German bonds …. because Goldman Sachs said it was okay and the ratings agencies rubber stamped it.

    Yes – of course we need H&S, but some of it really needs to be rethought!

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  • “A primary lesson of H&S is that it trains folk never to assess risk for themselves or take responsibility for consequences”

    Absolutely – the HSE is the most spineless, parasitic and self-interested of all the public bodies – I do wish the govt. would find the guts to abolish it..

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  • “How many European banks bought into Greek bonds (for similar/ identical) return as the German bonds …. because Goldman Sachs said it was okay and the ratings agencies rubber stamped it.”

    I remember about five years ago, some people expressing surprise that now the eurozone had settled down, there was still a yield spread between the sovereign debt of different nations. Those of us who still believed (then) that the eurozone would fail, were given patronising smiles..

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  • Uncle Tom, remind me are you pro or anti Europe – I can never remember…

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  • tt,

    I like to travel within europe and enjoy its cultural diversity..

    ..but if you are talking about the EU, I think that it’s an evil institution that ought to be shut down.

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  • mark wadsworth says:

    General Congreve, the situation in Switzerland is quite extraordinary.

    If I were the Swiss govt what I’d do is “print” billions of new CHFs and then use them to buy foreign currencies, and just keep going until CHF is at a “competitive” level again (whatever that may be). These printed CHFs come out of thin air of course, but all the USD and EUR and GBP which end up in my vaults are real – and being in a safe, they cannot cause domestic inflation because all the billions of CHFs I printed are in somebody else’s safe and are not being spent in Switzerland, so in future I can the USD, EUR and GBP to fund govt spending or cutting taxes for Swiss residents or heck knows what.

    Or from your point of view, i could print CHF and buy gold. Even if gold price tumbles afterwards, so what? I got it for free.

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  • general congreve says:

    @7 – I second that UT.

    @8 – In the first instance I suppose it becomes a case of which central banks can feverishly bash the zero and buy buttons on their PC’s the quickest 😉 In the second instance, that is what they should be doing, but then I expect as time goes on everyone else will be doing it too. I mean, what is to stop governments the world over printing and grabbing gold as fast as they can? Seems like a sure fire plan to me, the earlier you get in on the action the better too. It devalues your currency to keep you competitve, it fills the coffers with gold and then when all the currencies are toast, you just turn around, default on your debts, go back to a form of gold-backed currency and declare yourself solvent again. Are you listening Merv?

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