Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
SPX/Gold, Long-term Yields & Yield Curve 3 Amigos Update - 22nd Jun 18
Gold - How Long Can This Last? - 22nd Jun 18
Dow Has Fallen 8 days in a Row. Medium-long Term Bullish for Stocks - 22nd Jun 18
Trouble Spotting Market Trends? This Can Help - 22nd Jun 18
Financial Markets Analysis and Trend Forecasts 2018 - A Message from Nadeem Walayat - 21st Jun 18
SPX Bouncing Above Support - 21st Jun 18
Things You Need To Know If You Want To Invest In Bitcoin Now - 21st Jun 18
The NASDAQ’s Outperformance vs. the Dow is Very Bullish - 21st Jun 18
Warning All Investors: Global Stock Market Are Shifting Away From US Price Correlation - 20th Jun 18
Gold GLD ETF Update… Breakdown ? - 20th Jun 18
Short-term Turnaround in Bitcoin Might Not Be What You Think - 19th Jun 18
Stock Market’s Short Term Downside Will be Limited - 19th Jun 18
Natural Gas Setup for 32% Move in UGAZ Fund - 19th Jun 18
Magnus Collective To Empower Automation And Artificial Intelligence - 19th Jun 18
Trump A Bull in a China Shop - 19th Jun 18
Minor Car Accident! What Happens After You Report Your Accident to Your Insurer - 19th Jun 18
US Majors Flush Out A Major Pivot Low and What’s Next - 18th Jun 18
Cocoa Commodities Trading Analysis - 18th Jun 18
Stock Market Consolidating in an Uptrend - 18th Jun 18
Russell Has Gone Up 7 Weeks in a Row. EXTREMELY Bullish for Stocks - 18th Jun 18
What Happens Next to Stocks when Tech Massively Outperforms Utilities and Consumer Staples - 18th Jun 18
The Trillion Dollar Market You’ve Never Heard Of - 18th Jun 18
The Corruption of Capitalism - 17th Jun 18
North Korea, Trade Wars, Precious Metals and Bitcoin - 17th Jun 18
Climate Change and Fish Stocks – Burning Oxygen! - 17th Jun 18
A $1,180 Ticket to NEW Trading Opportunities, FREE! - 16th Jun 18
Gold Bullish on Fed Interest Rate Hike - 16th Jun 18
Respite for Bitcoin Traders Might Be Deceptive - 16th Jun 18
The Euro Crashed Yesterday. Bearish for Euro and Bullish for USD - 15th Jun 18
Inflation Trade, in Progress Since Gold Kicked it Off - 15th Jun 18
Can Saudi Arabia Prevent The Next Oil Shock? - 15th Jun 18
The Biggest Online Gambling Companies - 15th Jun 18
Powell's Excess Reserve Change and Gold - 15th Jun 18
Is This a Big Sign of a Big Stock Market Turn? - 15th Jun 18
Will Italy Sink the EU and Boost Gold? - 15th Jun 18
Bumper Crash! Land Rover Discovery Sport vs Audi - 15th Jun 18
Stock Market Topping Pattern or Just Pause Before Going Higher? - 14th Jun 18
Is the ECB Ending QE a Good Thing? Markets Think So - 14th Jun 18
Yield Curve Continues to Flatten. A Bullish Sign for the Stock Market - 14th Jun 18
How Online Gambling has Impacted the Economy - 14th Jun 18
Crude Oil Price Targeting $58 ppb Before Finding Support - 14th Jun 18
Stock Market Near Another Top? - 14th Jun 18
Thorpe Park REAL Walking Dead Living Nightmare Zombie Car Park Ride Experience! - 14th Jun 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

One Bank Ruled Them All, Trichet's ECB Powergrab 

Politics / Central Banks Jun 12, 2010 - 06:48 PM GMT

By: Mike_Whitney

Politics

Best Financial Markets Analysis ArticleOn Thursday, European Central Bank head Jean-Claude Trichet announced that he would continue the ECB's low interest rates (1 percent) and easy lending policies for the foreseeable future. Wall Street rallied on the news sending shares skyrocketing 273 points on the day. Trichet also said that he would continue his controversial bond-purchasing program which has drawn fire from wary German leaders who fear the onset of inflation. The bank chief adroitly dodged questions on the program suggesting that he will operate secretively like the Fed, buying up downgraded assets and concealing their original owner. By appointing himself the de facto Fiscal Czar of the European Union, Trichet has stopped the fall of the euro, scattered the short-sellers, and zapped the markets upward. Not bad for a day's work.


Up until yesterday, credit conditions in the EU had been steadily deteriorating. Hoarding by banks had intensified while the rates that banks charge each other for short-term loans was on the rise. Lenders were afraid that the $2.4 trillion in loans to countries in the south (the PIIGS) and East Europe would not be repaid and that that would push more banks into default. Euribor had been creeping upwards while overnight deposits at the ECB were setting new records every day. Jittery banks have parked over $390 billion at the ECB's deposit facility since the crisis began. Banks would rather get low interest on their deposits then lend in the money markets where they might not be repaid at all.

From Bloomberg News:

Jean-Claude Trichet said the European Central Bank will extend its offerings of unlimited cash and keep buying government bonds for now as it tries to ease tensions in money markets and fight the European debt crisis.

“It’s appropriate to continue to do what we’ve decided” on sovereign bonds, ECB President Trichet said at a press conference in Frankfurt today. “We have a money market which is not functioning perfectly.”

Trichet’s ECB is buying debt and pumping unlimited funds into the banking system as part of a European Union strategy to stop the euro region from breaking apart. While Trichet refused to bow to some investors’ demands for more details on the bond purchases, he said the ECB plans to offer more help to financial institutions struggling to raise cash in money markets.

The ECB will give banks access to unlimited three-month funds at a fixed rate in July, August and September, he said. The measure is a key tool used by the ECB since the collapse of Lehman Brothers Holdings Inc." (Bloomberg)

It's Christmas in June. By providing a safe location for overnight deposits, limitless funding for collateral that the market will no longer accept, and a (bond) purchasing program that keeps asset prices artificially high; the ECB is performing all the tasks of the market while eliminating all the risks. Trichet has made protecting the banking system the primary responsibility of the EU superstate.

"We have the best track record on price stability over 11 1/2 years in Europe and among the legacy currencies,” Trichet boasted. “What we have done and what we do with the same purpose is to help restoring an appropriate functioning of the monetary- policy transmission mechanism.”

Trichet's actions have nothing to do with the so-called "monetary-policy transmission mechanism". They're a straightforward bailout of banks which invested in sovereign bonds that are steadily losing value. Greece has already received loans that will cover its funding needs through 2012. Trichet's bond buying-spree and lavish liquidity provisions are a lifeline to his banking brethren who are trying desperately to keep their chestnuts out of the fire. The ECB boss is merely helping them shunt their losses onto the public's balance sheet, like Bernanke has done in the US.

For the EU to survive, the member states will have to create a governing authority that can implement fiscal policy. Regrettably, Trichet has usurped that authority while circumventing the normal democratic process. It's not Trichet's job to arbitrarily underwrite the bad bets of reckless speculators or to prevent the market from clearing because some of his banking buddies might go broke. That's well beyond his mandate. The ECB needs to be reigned in and Trichet's powergrab stopped. The European Union should be based on more than the profitability of its banks.

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

© 2010 Copyright Mike Whitney - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Mike Whitney Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules