Friday, August 05, 2011

If this Doesn't Work, They'll ask you to Start Hoarding Canned Food

ECB President Jean-Claude Trichet said the central bank's controversial program of buying government paper in an effort to stabilize markets, inactive since March, was ongoing. "You will see what we do,'' he told a news conference.
Be afraid.

The EU is setting up the ultimate moral hazard: buying up member government bonds to backstop them. They will then have to find buyers for the stuff.
It also raised questions about whether the ECB was waiting for Rome and Madrid to take extra fiscal adjustment measures before it will buy their bonds, or whether the central bank was unable to agree on widening the scope of bond-buying to them.
The ECB were certainly waited out by the "provincials" who only need to stay mum to out-maneuver Trichet.

This is the equivalent of a couple of California-sized states issuing bonds left and right knowing that the more bogus the prospect, the more likely that the Federal government will "save" them by buying those obligations up. Not only is there no-one else out there that can be bullied or to pawn this crap off on, it could cause an outflow and inflation at the same time.

Next step, of course is to see internecine cat fights. But first you'll hear some actual, real-life economics being theorized:
"I note that the Bank of Japan today launched quantitative easing and the Swiss central bank cut rates to zero. We are waiting for (ECB) decisions if possible, but desirable,'' he said. Tremonti said when he talked to Asian investors, they said: "If your central bank doesn't buy your bonds, why should we buy them?''
Bring popcorn.

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