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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

euro shares slipping on Greece

Posted by WARREN MOSLER on January 24th, 2012

It wouldn’t be taking this long if there was a way to get’er done?

Not to mention that once haircuts are finalized the obvious political response from the opposition in Italy, for example, is “if Greece doesn’t have to pay why do we?’

Europe Shares Retreat From Highs as Greece Talks Stall

Jan 24 (Reuters) — European shares retreated from near six-month highs as concerns deepened that Greece might head towards a disorderly default and technical analysts said the recent rally could be coming to a close.

5 Responses to “euro shares slipping on Greece”

  1. Matt Franko Says:

    Warren I dont know if you have seen this plan out from Soros at the FT, FYI:

    Link here.

    “My proposal is to use the European Financial Stability Facility and the European Stability Mechanism to insure the ECB against the solvency risk on any newly issued Italian or Spanish treasury bills they may buy from commercial banks. This would allow the European Banking Authority to treat the T-bills as the equivalent of cash, since they could be sold to the ECB at any time. Banks would then find it advantageous to hold their surplus liquidity in the form of T-bills as long as these bills yielded more than bank deposits held at the ECB. Italy and Spain would then be able to refinance their debt at close to the deposit rate of the ECB, which is currently 1 per cent on mandatory reserves and 25 basis points on excess reserve accounts. This would greatly improve the sustainability of their debt. Italy, for instance, would see its average cost of borrowing decline rather than increase from the current 4.3 per cent. Confidence would gradually return, yields on outstanding bonds would decline, banks would no longer be penalised for owning Italian government bonds and Italy would regain market access at more reasonable interest rates.”

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    WARREN MOSLER Reply:

    like getting the US states to insure the fed?

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    Matt Franko Reply:

    @Matt Franko, Seems like that would be the case if the countries are the ones that fund the ESM and EFSF….

    I’m confused on how the banks can replace “liquidity” with govt bonds… Is he saying that the commercial banks can replace RBs with govt bonds? If so can they do that?

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    WARREN MOSLER Reply:

    probably talking about the securities they now consider liquidity holdings

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    Matt Franko Reply:

    @Matt Franko, It looks like Soros thinks banks “lend out the reserves”. And in this case instead of “lending out the reserves” to the ECBs Deposit Facility (@0.25%), he proposes to let them buy instead now double guaranteed govt bonds (@4%). Good work if you can get it.

    He is advocating I guess changing the bank regulations to lower required reserves and instead allow banks to position double guaranteed govt bonds as an asset on the bank BS in their stead. This would take a lot of regulatory changes I would think…

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