This is a fascinating theory. Where does it come from. It is quite different from what is being mooted by Ne York International et al. It has to date all hinged on ECB only buying bonds not individual countries. I cannot see this being a starter. German bonds are so low the interest is in negative territory and their economy and Merckel would mean they will not participate. Italy could not even if it wanted to. There has been nothing of this suggestion in the Italian financial press. We shall see but I still maintain it will not and cannot happen in what people expect.
As per my previous post. Qe will be announced on Thursday next. Greece will not be included. Subject to certain conditions each ecb member states central bank will be allowed to buy a % of its own government's bonds. Each CB will bear the risk of their own government default and the ecb will take on no extra risk. There will be no initial limit on the amount the ecb will make available. All this has been cleared with Germany.
I'm absolutely no expert but I can't see the markets been overly impressed. They will welcome the extra cash in the system. However, the lack of risk sharing leaves this far from a union. The euro area of Europe is just a number of countries that happen to have the same currency. We are open to been picked off one by one, with the first victim been already separated from the herd.
I do not believe it will happen like this at all. Germany has dropped below 5% unemployment. Italy youth unemployment 43%. Germany a has its first budget surplus since 1969. Greece cannot and will not be included rember the election at the end of the month after it will be forced to Eave the Euro - as Merckel has hinted at. So I think what we shall see is talk in February only. Then maybe something in Mar h/ April. None will agree to €500 billion up front. existing bonds anyway cannot be bought as against EU charter. I think we shall see variou tranches of new Eirobonds issued by the ECB in chunks of around €50 billion a month. If it happens at all. Remember Draghi just talks and signs the bank notes! Merckel in over 30 summits has never come up with a plan for growth. She is seriously ineffective. Living in Italy I feel near the heart of it. Italy is shambolic with a real economy a black one and 5 Mafia ones the last 2 if absorbed into the main would put the place straight.
Surely the only reason qe is required is if the distribution of wealth has become significantly unbalanced. If this is the case who or what is retaining the bulk of the wealth. Is it a case that we have a few super corporations that have amassed such wealth that there is nothing left to go around for anyone else. Hence the only way to ease the problem is to print more money.?
These days we have a number of massive corporations Apple, Samsung, Microsoft Google to name a few of the major tech massives.
Another way to look at it is that the population has grown so significantly since there was a reasonable amount of qe that again the distribution of wealth has become so diluted that there isn't enough to go around.
Just a thought.
There's more to it than miss managed funds and a few greedy bankers.
Bruce: I'd expect the ECB to announce at least €500 billion QE - to start. The Swiss National Bank move to abandon the EUR:CHF floor is not an accident. To use a theme here, the Swiss decided it could not be the last man buying the drinks at Mulligans.
How will it work? the Advocate General said the ECB can be pari with other bondholders (Germany had argued it must be senior), and that the default risk (at least on investment grade bonds) can be spread across all national central banks. So I think Draghi will back the "whatever it takes" statement 2 years ago, finally with real action. The shock and awe would be 'open ended' QE1 starting with €500 bn and no ceiling (the US just ended QE3), and crucially, the purchases of corporate bonds.
I'd expect the market to rally on this, but expect a sell off if the ECB only announces a ceiling of €500 bn and no corporate bond purchases.
Greece is junk rated - so I'd expect sovereign bond purchases but not any corporate bond buying but the ECB.
But whose bonds will be bought and in what proportion especially with Greece maybe reneging. Germany is in negative territory. Or will the ECB issue its own and then have them bought in? Another idea is that €55 billion will be dealt a month. Interesting times and yet again this is all totally against the EU charter!
will be issuing their "grade" for Ireland later this evening. At least ugraded 1and possibly 2 grades is on the cards. Its possible banks will get a mention, hopefully in a positive way. Not sure how relevant that would even be though, still, all good news welcomed.
In the US qe worked in tandem with a week dollar. Europe now has a week euro plus creap oil. If eu qe is added on top of that I think it may work. Europe is closer consumer wise and population wise to the US than Japan. Japan's demographics are not good. They are a mature ageing country with minimal immigration. Printing cash to encourage consumer spending there is a hard sell. Older people have a tendency to save and not spend. However, Europe, although maturing itself, still has a population that might be encouraged to spend if they had the confidence things are on the up.
The biggest beneficiary in all this could be ireland. A week euro will push on our exports. Cheaper oil will encourage spending at home . Liquidity in the system should allow companies to expand to meet demand and a positive chain of growth should continue. Hence my faith in the medium term future of boi.
What happens when all this money printing comes home to roost I don't know. That's one of the problems alluded to earlier. This is unknown territory, so how this all plays out is a "known, unknown " to quote an infamous general.
I reiterate. I cannot see how it can happen. Even if it does it is too later and the results will be muted. I think the Eurozone is starting to look like Japan over the past 15 years. Certainly here in Italy it is noticeable that prices have not moved at all this last year. Our car insurance, RAC equivalent both cheaper. Morning coffee and pastry still the same and some ristorante prices down. And petrol actually cheaper than UK now especially diesel
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