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by Ashraf Laidi
Posted: Sep 6, 2012 18:43
Comments: 27
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This thread was started in response to the Article:

Draghi Buys Bonds, Fed Buys Time

Draghi's bond purchase plan keeps appetite supported & buys further time for Bernanke to delay its next QE
 
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DaveO
UK
Posted Anonymously
12 years ago
Sep 8, 2012 10:52
Cat, if the plan succeeds with what amounts to an effective USE I can see UK right out in the cold and still politically unable to address things like long term pension liabilities, healthcare costs etc etc. The system of elections every 4 or 5 years in UK and US is absolutely hopeless. Short termism has been the ruination of our economies.
DaveO
N.Cornwall, UK
Posts: 5733
12 years ago
Sep 7, 2012 23:44
That Draghi a cool cookie. So now we have to see the results of German court decision next Wednesday.
cat0nip
Frankfurt, Germany
Posts: 1632
12 years ago
Sep 7, 2012 22:25
Imho Don Draghi has maneuvered Merkel in a box she cannot escape. Either the shared liabilities which she objects to come via ESM or with ECB losses from haircuts, hence, Eurobonds are the cheapest solution. There is no way other than an all Eurozone common economic growth plan in proper balance with austerity, and hence fiscal union, that can only be managed with Eurobonds.
So what is the lesson: never fight a Goldman when you cannot count up to three.
cat0nip
Frankfurt, Germany
Posts: 1632
12 years ago
Sep 7, 2012 22:11
According to ECB, the bonds bought as part of the previous SMP programme will not be sold, but kept until maturity. AND: in case of haircut, ECB has to bear the loss as well as any other investor.
hence when Spain or Italy fails with more austerity or otherwise reforms, it doesn't matter because ECB has 2 choices: buy up the short term bonds to cover the pay of maturing bonds or haircut of bonds in ECB portfolio.
Thus, inflation is not an immidiate danger, it is still deflation.
DaveO
N.Cornwall, UK
Posts: 5733
12 years ago
Sep 7, 2012 21:29
I mean what is likely to happen when a country like Spain or Italy fails to satisfy the ECB terms. Further modifications to accomodate.
DaveO
N.Cornwall, UK
Posts: 5733
12 years ago
Sep 7, 2012 20:05
Its beginning to feel like the gold bufs were right several yrs ago when they predicted rampant inflation through printing. How else can the debt be managed. Seems to me deleveraging and fiscal rectitude is never going to happen until the mother of all crisese hits.
cat0nip
Frankfurt, Germany
Posts: 1632
12 years ago
Sep 7, 2012 19:49
of course Draghi has bought - once again- the lazy Ezone politics time namely for a growth plan. Merkel-style austerity is the opposite of a growth plan, it only worsens Ezone economy towards deep recession.
With recession and rising unemployment , the next big problem is pensions.
cat0nip
Frankfurt, Germany
Posts: 1632
12 years ago
Sep 7, 2012 18:22
neither nor. The ECB in a sense mops up LTRO liquidity by providing a one week fixed rate deposit to banks such these should shift accounts from zero deposit rate at ECB to the fixed term deposit.
It is not really a full sterilization but anyway the total of money does not increase.
Ashraf Laidi
London, UK
Posts: 0
12 years ago
Sep 7, 2012 14:42
usikpa,

they can still borrow (sell) bonds at a higher rate than the minimum deposit rate.

Another way to sterilize (which im not cleat about) is they borrow money from the national central banks with which they buy bonds. It sounds complex but it does offset the outright purchases.


Ashraf
usikpa
Moscow, Russia
Posts: 77
12 years ago
Sep 6, 2012 19:58
Ashraf,

How can they keep sterilizing SMP 1 + LTRO1 +LTRO2 +"unlimited" when they just lowered the ER deposit rate recently?
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