Category Archives: ECB

Japan buying euro bonds

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JAPAN FINMIN NODA: JAPAN WILL BUY EURO BONDS TO HELP BOOST TRUST IN EFSF SCHEME

EURO RISES AFTER JAPAN FINMIN NODA SAYS JAPAN TO BUY EURO BONDS

JAPAN NODA: TO BUY ABOUT 20 PCT OF BONDS PLANNED TO BE ISSUED JOINTLY BY EURO ZONE LATER THIS MONTH

Japan Joins China in Assisting Debt-Crisis-Hit Europe

By Toru Fujioka

January 11 (Bloomberg) — Japan plans to buy euro-zone
sovereign bonds, its finance minister said, joining China in
assisting a region hit by a fund-raising crisis.

Finance Minister Yoshihiko Noda told a news conference in
Tokyo today that Japan will use its foreign-exchange reserves to
buy more than 20 percent of bonds to be issued under a special
assistance program to help Ireland.

“It’s appropriate for Japan to make a contribution as a
leading nation to increase trust in the deal,” he said.

China has also expressed support for the euro zone, with
Vice Premier Li Keqiang last week expressing confidence in
Spain’s financial markets and pledging more purchases of that
nation’s debt. Chinese Vice Premier Wang Qishan said on Dec. 21
his nation has taken “concrete action” to help the European
Union address its debt crisis.

The euro climbed immediately after Noda’s comments, rising
as high as $1.2991, before trading at $1.2952 at 11:50 a.m. in
Tokyo.

>   
>   This is being done in an effort to weaken ¥ vs €.
>   

Yes, with the cover of helping the euro zone, just like China, who announced the same a short while ago to lead the way for Japan.

Japan has been actively seeking ways of weakening the yen to support their exporters.

They publicly bought some $ last year, and their US Tsy holdings have been falling, indicating something unannounced has been going on as well.

And their budget was somewhat expansionary.

Weakening the yen like this is one of the things somewhat subtly working to limit US aggregate demand growth, which should be a good thing for us (we can have lower taxes for a give size govt) but unfortunately our leadership simply lets aggregate demand languish.

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TRICHET SAYS ECB BOND PURCHASES ARE `ONGOING PROGRAM’

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TRICHET SAYS ECB BOND PURCHASES ARE `ONGOING PROGRAM’

>   
>   (email exchange)
>   
>    On Fri, Jan 7, 2011 at 7:09 AM, Dave wrote:
>   
>   In response to German govt comments earlier
>   
>   Also ECB is in buying small amounts of Greece and Portugal in today’s
>   weak market
>   

They probably only see two choices-

Keep muddling through by doing what they are doing.

Or stop doing it, which means it all quickly grinds to a halt, most likely with none of the member nations being able to fund themselves.

At least for now, there doesn’t seem to be any political progress towards any other institutional structure.

Meanwhile, the ECB’s highly deflationary terms and conditions exacted in exchange for the funding (aka austerity measures) are slowly working to cut aggregate demand in reverse the current modest expansion.

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ECB’s Stark: Helping governments cannot and should not be a goal of these operations

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Right, as if that has anything to do with inflation, thanks

No question the state of the art is pitiful when it comes to mainstream headline awareness of monetary operations.

Roger Erickson wrote:
“€73.5 billion …. an amount the ECB will on Tuesday seek to reabsorb from the eurozone financial system to offset the inflationary impact of its action“
 

And how did that go overall? :)

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ECB’s Stark: Helping Governments Cannot and Should Not be a Goal of These Operations

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The Fed is conducting it’s QE to lower the risk free term structure of rates for the further purpose of supporting lending in the economy in general.

The ECB is buying member nation debt in the marketplace specifically to help member nations fund the deficits and avoid default.

What the ECB is doing for Greece, Portugal, and Ireland is more analogous to what the Fed did a couple of years ago when it bought corporate debt (commercial paper) from the likes of GE and GM to keep them afloat.

In fact, the ECB can’t ‘expand into US Federal Reserve-style“quantitative easing” ‘ even if it wanted to, because there are no euro equivalents of US Treasury securities. (Not that the Fed’s QE does anything of substance for the US economy, inflation, or the dollar.) About the closest the ECB could come to a ‘Fed style QE’ would be to receive fixed in euribor swap market, which is not even a consideration, as their issue is the solvency of their member nations and not the risk free term structure of rates in general.

Meanwhile, as previously discussed, as long as the ECB keeps buying, it all muddles through.

ECB Increases Intervention in Bond Markets
 

The European Central Bank increased its intervention in government bond markets last week, indicating that the euro’s monetary guardian remained wary of an escalation of the eurozone debt crisis.
 

Purchases under the ECB’s securities market programme rose to €1.1 billion ($1.4 billion) from €603 million in the previous week, according to figures released on Monday.
 

The acceleration highlights how the ECB has been forced into action to prevent governments’ borrowing costs spinning out of control, even though it sees the main responsibility for restoring investor confidence in Europe’s 12-year-old monetary union as lying with political leaders.
 

The previous week’s figures had pointed to a lull in the ECB’s intervention. The rise came in spite of thin trading before the Christmas and new year holidays.
 

The ECB argues its action is aimed simply at correcting malfunctioning markets – and will not be allowed to expand into US Federal Reserve-style“quantitative easing” to support the economy.
 

“Helping governments cannot and should not be a goal of these operations,” Jürgen Stark, an ECB executive and one of its governing council’s more hawkish members, told the German newspaper Stuttgarter Zeitung at the weekend.
 

The latest increase could add to the discomfort of ECB policymakers, however, if it encourages expectations that the ECB will become more aggressive.
 

Because of the increased risks it is bearing, the ECB said this month it would double to €10.76 billion its subscribed capital, which would allow it to increase provisions against losses.
 

The announcement triggered speculation that the ECB was preparing to accelerate its bond purchases. However, Mr Stark said the increase had “nothing to do with the current situation but dates from analysis that we started in 2009”.
 

The ECB began buying bonds in May, at the height of this year’s eurozone crisis. After weekly purchases of €10 bilion or more, the programme was scaled down, with the weekly figures sometimes falling to zero.
 

But in early December the programme was reactivated – although still not up to its initial scale.
 

The ECB does not give precise details but recent purchases are thought to have been concentrated on Portuguese and Irish bonds, where financial market tensions have been focused.
 

Total purchases since the programme started in May have reached €73.5 billion – an amount the ECB will on Tuesday seek to reabsorb from the eurozone financial system to offset the inflationary impact of its action.

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ECB Has ‘Serious Concerns’ About Irish Bank Proposals

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EU Headlines
ECB Has ‘Serious Concerns’ About Irish Bank Proposals

And they call the shots now.

Trichet Says Euro Remains Credible; States Leaving Is ’Absurd’
EU Nations Violating Deficit Caps May Be Fined Up to 0.5% of GDP

Fines have proven unworkable.

My proposal for annual distributions from the ecb to the member govts on a per capita basis with terms and conditions is far more easily enforceable.

It’s a lot easier politically to withhold payment than to fine and collect.

European financials see dollar funding gap widen

Euro banks in dollars are a higher risk than US banks in dollars so a higher price of funding makes perfect sense to me.

Their deposit insurance is not yet credible, and the ECB has limited ability to lend in dollars.

And it also means none of them should be in the libor basket if their rates exceed US banks.
But they are, and the Fed doesn’t want libor to go up beyond its desired rate targets, so this Fed is likely to again lend unsecured to the ECB and other CB’s for the purpose of keeping libor rates down on an as needed basis.

EU rushes to raise bail-out cash

It will ultimately come from the ECB

German Tax Intake Rises as Recovery Firms, Handelsblatt Reports

Growth that reduces the deficit also slows the expansion

Germany’s robust economy not enough to stop record debt
France’s AAA Grade at Risk as Rating Cuts Spread: Euro Credit

The are all in ponzi (required to borrow to make payments), including Germany.
The ratings agencies seem to be slowly coming around to viewing them as US States,
as they should have done from inception.

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Trichet cmnts

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Translation- they keep funding on an as needed basis, at least for now.

*DJ ECB Trichet: The ECB Is Meeting Its Resposibilities
*DJ ECB Trichet: Important That Deficit Targets Are Met
*DJ ECB Trichet: Spain Should Deepen Labor Mkt Reform
*DJ ECB Trichet: Bank Stress Tests Are Very Useful
*DJ ECB Trichet: Stress Tests Important To Do On Regular Basis
*DJ ECB Trichet: Investors Don’t Yet Appreciate Postive Actions Taken
*DJ ECB Trichet: We Permamently Watch Commodities Prices
*DJ ECB Trichet: Spain One Of Countries That Needs Deficit Cuts

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ECB, ‘the euro’s monetary guardian’, confirms bond purchase strategy

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Yes, as discussed, looks like the ECB continues to facilitate funding by continuing the same bond purchase strategy, along with dictating terms and conditions.

For the member nations, compliance means continued funding.

Continued funding + compliance with deflationary austerity measures + no ECB buying of fx = euro strong enough to work to keep net exports from increasing.

And the possibility that the ECB decides to change course remains evidenced by the steep yield curves of member nations.

Trichet hints at bond purchase rethink

By Ralph Atkins in Frankfurt and Richard Milne and David Oakley in London

Published: November 30 2010 18:52 | Last updated: November 30 2010 18:52

Jean-Claude Trichet, European Central Bank president, has left open the possibility of the bank significantly expanding its government bond purchases and warned markets not to underestimate Europe’s determination to resolve the escalating eurozone crisis.

The hint that the ECB could recalibrate its response to the unfolding crisis came as the premiums that Italy and Spain pay over Germany benchmark interest rates hit fresh highs since the launch of the euro. The euro’s monetary guardian had already stepped up purchases of Portuguese bonds, traders reported.

Nov-30

The ECB’s bond purchase programme has been controversial within its governing council since its launch in May, with Axel Weber, president of Germany’s Bundesbank, voicing his opposition publicly.

But the pace at which the crisis has spread has altered the debate within the ECB, which could justify stepping up its intervention by arguing governments’ borrowing costs were far out of line with fundamentals, signalling dysfunctioning markets.

Speaking in the European parliament on Tuesday, Mr Trichet would not comment “at this stage” on the bond programme “in the light of the current situation”. But the programme was “on-going” and decisions on its future would be taken by the 22-strong governing council, which next meets on Thursday. He also refused to rule out the possibility of eurozone governments issuing joint bonds, although the ECB was not endorsing such a step.

Since May, the ECB has spent just €67bn under its bond purchase programme. Financial markets, however, see the ECB increasingly as the only institution with pockets deep enough pockets to ease the crisis.

The ECB thinks financial markets are badly mis-pricing risk. Mr Trichet said that “pundits are under-estimating the determination of governments”. Eurozone growth was proving surprisingly strong, and Ireland’s bail-out at the weekend had shown the EU was capable of responding to crisis. “I don’t think that financial stability in the eurozone, given what I know, could really be called into question,” he said.

Willem Buiter, chief economist at Citi, said: “The involvement of the ECB is likely to rise, despite its statements – and probably wishes – to the contrary.” He argued recently that the ECB backed by governments could give the new European bail-out fund a €2,000bn loan.

Gary Jenkins, head of fixed income at Evolution Securities, argued the ECB could try “real quantitative easing” through purchases of €1,000bn-€2,000bn of bonds. “It might be politically unpalatable. But it would be an immediate way of creating a firebreak.”

Mr Trichet has insisted repeatedly that the ECB is not engaged in “quantitative easing” as it has withdrawn liquidity from the financial system equal to the amounts it has spent on bonds, neutralizing any inflationary risks. That policy would almost certainly continue under an expanded scheme.

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Trichet statement

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*DJ Trichet: Euro-Zone Govts Are Conscious Of Their Past Mistakes
*DJ Trichet: Efforts To Improve Governance Are Being Underestimated
*DJ Trichet: Ireland And Greece Are Solvent
*DJ Trichet: Euro-Zone Public Finances Compare Well With Japan, US
*DJ Trichet: Real Euro-Zone Economy Has Surprised Positively

As if he doesn’t know the actual analogy is with the US states.

This is shameless, bold faced intellectual dishonesty.

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euro update and why no one is leaving (yet)

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As before, all that’s been done in euro land is highly deflationary.

No new euro will be spent by any govt as a result of the latest goings ons.

In fact, it’s more austerity.

And the ECB continues to do just enough to keep it all muddling through (including dictating that the new facilities be set up and activated) as it dictates terms and conditions.

And with euro zone gdp still growing (modestly) austerity still has room to slow growth before it sends it into reverse.

So why isn’t there more clamor to leave?

Simple, it’s not obvious that the currency arrangements per se are the problem.

Inflation is reasonably low, and interest rates are low, so (to the uninformed, non MMT world) how can that be the problem?

For most, the problem is obvious- same old story- their corrupt, worthless, self serving govts grossly over spent, dished it out to their banker buddies, insiders, etc., on most everything they were involved in, and now the entire nation is paying the price.

And thank goodness there were market forces in place to shut them down and stop them from turning it all into a Weimar scenario!

And this time at least they haven’t had the usual massive inflation where everyone loses their purchasing power, including those still working.

For example, those in Spain with savings can buy a lot more house than before.

The ‘good’ (prudence is considered a virtue) have sort of been rewarded.

etc.

And look how good Germany has it.

Unemployment down to 7%, driven by exports, no inflation, and they have near total fiscal domination/control (via the ECB) over the other members where they get to force austerity.

What more could they ask for?

It’s their dream come true.

So it could soon be back to strong euro, slowing growth, muddling through, until they push too far.

But even negative growth is sustainable without insolvency for as long as the ECB keeps funding it all.

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euro endgame

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On Sun, Nov 28, 2010 at 7:24 PM, wrote:

I’ve tried to think of a happy ending here and there simply isn’t one.

That’s like thinking for the endgame of the US if you believe the federal budget needs to be balanced. There isn’t one in that case either.

The end game is always for the fiscal authority to run a deficit. Which means the ECB in the euro zone.

They won’t let the Euro collapse which means Germany leaving is out of the question. But Germany won’t just become the funding source for all of these periphery nations.

Right, it has to be the ECB. Just like Texas can’t fund the other states.

I think they should just vote to remove Ireland and Greece with a partial debt restructuring. They’d actually be doing them a huge favor while also avoiding massive collateral damage in the banking system.

Likewise, the ECB has to fund the deposit insurance to make it credible and workable.

Then they could target their efforts on saving Spain and the Euro.

Problem is, they all need to be saved.

As credit sensitive entities like the US states their debt to gdp ratios need to be below 20% to be ‘stand alone.’

The reason Luxembourg is that low is because they never did have their own currency, and so never could get higher than where they were.

The other national govts had their own currencies before joining the euro, and therefore had deficits appropriate for being the currency issuer, which is equal to non govt savings desires. Problem was they joined the euro, turned over the currency management to the ECB, and kept their old debt ratios. The informed way to have merged would have been to have the ECB take over their national debts, and let them start clean. But it happened the way it happened and now they have to move forward from here.

Ireland and Greece go it alone, the world panics for a few months and then everyone realizes that we’re all better off. Then the Euro continues to exist until it causes another crisis in 15 years (assuming no central funding system is created)….

They already have a central funding system in place- the ECB buying nat govt bonds in the secondary markets. While far from my first choice on how to do things for a variety of economic and political reasons, it does function to keep member nations solvent, for as long as the ECB keeps doing it.

My proposal remains the most sensible but not even a consideration- per capita ECB annual distributions to the govts to pay down debt of the member nations beginning with an immediate 10% of GDP distribution. To do this they first have to understand why it’s not inflationary, which means they have to understand inflation on the demand side is a function of spending, and the distribution does not increase govt spending.

That’s a big leap from their inflation expectations theory of inflation. They believe that anything that increases people’s expectation of inflation is what actually causes inflation. And they believe that because they have still failed to recognize that the currency itself is a (simple) public monopoly.

That means the price level is a function of prices paid by the govt of issue when it spends, whether it knows it or not, and not a function of expectations.

So while in fact it is the economy that needs the govt’s funds to pay its taxes, and therefore the economy is ‘price taker’, they instead believe that it is the govt that needs the economy’s funds to be able to spend.

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