How The ECB Directly And Indirectly Monetized All Irish September Treasury Auctions

Tyler Durden's picture Submitted by Tyler Durden on 10/10/2010 20:19 -0500

European Central BankGermanyIrelandSovereign Debt

One of the most bullish stories coming out of Europe last month was that Ireland, despite a drunk and disorderly finmin, and banks either increasingly more nationalized or on the verge of full scale restructuring, managed to fund its €25 billion in sovereign debt maturities. Of course, the European media took that as a sign of strength and from that point on it was off to the races for the EUR. Yet it appears the celebration was just a little premature. We learn today that virtually all of the maturities were funded indirectly by the ECB: in other words the monetization shell game so well mastered by the Fed is now being conducted by European banks everywhere. In September Irish bank borrowings surged from €95 billion to €119 billion, a €24 billion increase, and virtually a euro-for-euro match for all the new Treasury issuance. And since no demented monetization ploy goes unpunished, the action raised Irish ECB borrowings to 9% of liabilities, the same as Portuguese banks. As for the balance, as readers will recall we highlighted that last week the ECB purchased €1.4 billion of government bonds directly, therefore confirming that every single Irish bond auction would have been a 100% failure had it not been for Jean Claude Trichet’s direct and indirect monetization scheme. But yes, somehow the euro is considered more viable than the dollar.

One day Germany will say “monetize away, Weimar be damned.” That day will be very memorable for the dollar which has now become the funding currency of choice. That is the day when Europe will officially retaliate against endless US FX aggression, and the currency war will be really on.

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by Nolsgrad
on Sun, 10/10/2010 – 20:23
#639962

no Donkey Kong?

Login or register to post comments by Fish Gone Bad
on Sun, 10/10/2010 – 21:50
#640132

Ireland isn’t even a real country, so their problems don’t count.

Login or register to post comments by SpeakerFTD
on Sun, 10/10/2010 – 20:31
#639972

While I can understand people being bearish the dollar vs. gold, I simply cannot comprehend the bullishness on the Euro.   All the same liability problems facing the U.S., plus a political structure with virtually no legitimacy in the eyes of the worker bees.   It is a disaster that has been waiting to happen since the creation of the Euro, and it is just a matter of time until the sweet-scented balsa foundations of the Euro collapse.

My prediction:  Not only will there be nothing like a Euro in ten years time, but we will see another major land war involving Western Europeans players within that time period.

Login or register to post comments by Itsalie
on Sun, 10/10/2010 – 20:54
#640011

The euro is in equally bad shape as the toilet paper dollar, and I would add Yen in that basket – all 3 have structural problems well beyond resolution in the next 10 years. The market is gyrating to the tunes of the central bankers, and more importantly to the momentum and stories spun by the likes of Goldman – whose sole interest is to ramp up trading volumes in forex and fixed income – they have found the hedgies trading forex to be better providers of income than even their prop desks. And of course wall street love the retail traders – just think about it, daily turnover in FX is nearly $4tr last June, growing at over 20% yoy compounded since 2005, compared to less than $50b on NYSE (and shrinking fast). That is $400m of income per day at the most conservative 1 pip spread, at least $80b per year of virtually riskless income for the Goldmans of the world. It is the fastest growing industry the world has ever seen. Why wouldn’t they issue reports every week to encourage this and that trade? 

Login or register to post comments by RockyRacoon
on Sun, 10/10/2010 – 20:36
#639981

Some transparency would be nice in all markets, but then I’m not sure that we’d like what we’d see.  This mushroom economic strategy is proving to be irritating.  (Kept in the dark being fed shit all day.)

Login or register to post comments by nuinut
on Sun, 10/10/2010 – 21:17
#640053

aw, c’mon, the mushrooms like it.

Login or register to post comments by RoRoTrader
on Sun, 10/10/2010 – 21:19
#640055

This mushroom economic strategy……….Kept in the dark being fed shit all day.

 

LOL……most excellent choice of words, and wish I had thought of that.

Login or register to post comments by VK
on Sun, 10/10/2010 – 21:38
#640106

Mushroom cloud economic strategy is more like it. It’ll all go kaa-boom!

Login or register to post comments by Freebird
on Sun, 10/10/2010 – 21:47
#640125

Yup. Kept in the dark being FED shit all day.

Login or register to post comments by Charles Mackay
on Sun, 10/10/2010 – 20:44
#639988

While it is true that the ECB has been basically monetizing 100% of new Irish debt,the ECB’s regular open market operations have been cut back significantly.

As compared to the US, Japan, and China, the ECB is much more conservative in creating new money over the last year.

Therefore I do not find it at all surprising the Euro has rallied greatly the last few months.

Granted a new crisis of Euro confidence could start any time, but then we also have a new mortgage fraud crisis about to go mainstream here in the States – not to mention how is California going to make it through the next year.

 

 

 

 

 

 

Login or register to post comments by Tyler Durden
on Sun, 10/10/2010 – 20:45
#639995

You are correct: indirect operations in which the ECB operates via host country bank borrowings lend much more credibility of the system.

Login or register to post comments by Charles Mackay
on Sun, 10/10/2010 – 20:54
#640010

But I agree, at some point the ECB just won’t want to the Euro any higher.

It’s not clear though, if at first, they will resort to some form of QE to compete with the US – or will just try to interviene in the forex markets.  Eventually total debt problems will escalate enough that the ECB becomes the lender of first and last resort to all individual members – but probably not right away (the PIG countries not being a true test of how soon they bail out all of Europe).

 

Login or register to post comments by nuinut
on Sun, 10/10/2010 – 21:20
#640061

at some point the ECB just won’t want to the Euro any higher.

about 1.50, I’d say.

Login or register to post comments by huggy_in_london
on Mon, 10/11/2010 – 00:58
#640360

well, they are already making noises at 1.40 so its unlikely to be 1.50 before they act

Login or register to post comments by wisefool
on Mon, 10/11/2010 – 02:01
#640408

On the american news program called “This week with Christiane Amanpour” they had a French Lady who was some big shot finance minister. She basically said that Europe will implement austerity. And the Euro will rise. Not quite limit up, but the context was:

a) People feel bad about deficits/sovereign debt. Implying that despite the protests, the euros want the tough love after the temper tantrum. What was weird was her tone: Very patronizing along the lines of “The plebs are dumb if they thing Deficts/Debts are and issue, but we will respect their wishes”

b) She stated that people are protesting raising the retirement age 2-5 years, but People have been given 15 more years longevity since the age of retirement was set.

c) She sincerely and humbly stated that women are finally getting into the ranks of the super elite decision making bodies. And that will change policy. She did not say how. But she said things will be different moving forward.

I don’t have the link to the video but it is probably somewhere on abcnews.com.

I am going to get back in the game with a couple hundred bucks and go long Euro.

Login or register to post comments by anonnn
on Mon, 10/11/2010 – 02:40
#640432

You meanFrenchFinance Minister Christine Legarde?

For a wierd, nay, telling time, go to this 2008 photo of the G-7.

http://en.wikipedia.org/wiki/G7

The US reps, Bernanke and Paulson, appear as some kind of unwelcome outliers.Really.

Click the pic into full resolution, dload/magnify it and see what you make of the personalities. Each G-7 country’s respective  FinMin/TreasSec and head of CB/Bank of X is identified. The polite ostracism is not well hidden. I’m sure it’s my active imagination.

Login or register to post comments by huggy_in_london
on Mon, 10/11/2010 – 01:00
#640364

The cut back is in part by specs not taking up more money to enjoy greater carry.  Bit hard to do if schatz are yielding 80bp and you are uncertain of what you are going to have to fund them at next year.

Login or register to post comments by surfsup
on Sun, 10/10/2010 – 21:51
#640136

It will be interesting to see what effect Foreclosure Gate “realized” will have on USD.  Being that FASB has allowed asset prices to remain well above market, what would happen if suddenly market prices were realized?  If yet more FRN’s are basically taken out of existence there are fewer of them going around.   The intellectual notion of weak USD in relation to the “hypothetical” aspect of foreclosure gate is one thing — court discoveries leading to greatly diminished asset values may be another.  Look at it this way — if any sort of mark to market were initiated there would be a massive black hole of USD’s — thus driving up their value as they chase the ever exponential amount of debt in the system as a whole.   

As it is, I’m sure Boeing is not complaining about current cross pond currency disparity!  747-8’s just got a 10-12% discount compared to A-380’s over the last few weeks!    

 

Login or register to post comments by AUD
on Sun, 10/10/2010 – 23:02
#640239

Your assumption of a increase in the purchasing power of the USD, chasing “the ever exponential amount of debt in the system” is based on the quantity theory of money, which is erroneous.

The value of any liability is given by the quality of the asset which ‘backs’ it. The quantity of dollar denominated debt existing does not automatically mean a rise in the value of the dollar upon default, even against an equally as worthless liability of the ECB.

Login or register to post comments by Madhouse
on Sun, 10/10/2010 – 23:26
#640282

 Czech Republic156.9-3.21,8782 Ireland131.1-7.15213 Germany115.8-3.29,5554 Australia109.9-7.61,6785 Austria108.3-3.68556 United Kingdom99.0-3.65,9207 Belgium93.0-4.79708 Denmark89.9-9.84869 Finland85.011.743710 Luxembourg84.4-0.53911 Slovakia84.1-8.545612 Spain83.80.93,37613 United States81.6-0.323,974

I see our problem. We have to drink more beer. We are 13th for cripes sake…a bunch o goddam wimps…

Per Capita Beer Consumption:

1Czech Republic 156.9 -3.2 1,878

2  Ireland 131.1 -7.1 521

3  Germany 115.8 -3.2 9,555

4  Australia 109.9 -7.6 1,678

5  Austria 108.3 -3.6 855

6  United Kingdom 99.0 -3.6 5,920

7  Belgium 93.0 -4.7 970

8  Denmark 89.9 -9.8 486

9  Finland 85.0 11.7 437

10  Luxembourg 84.4 -0.5 39

11  Slovakia 84.1 -8.5 456

12  Spain 83.8 0.9 3,376

13  United States 81.6 -0.3 23,974

Login or register to post comments by gwar5
on Mon, 10/11/2010 – 01:22
#640383

I’m pulling for the Irish. Greece has had enough history for one country.

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