April 24, 2012 By gpc1981
we discussed the political fall-out for German Chancellor Angela Merkel
regarding revelations that the Bundesbank has in fact
Today we need to consider how those same revelations will impact the Bundesbank itself. Already we’re seeing its head Jens Weidmann (also a policymaker at the ECB) taking a hard-liner approach to dealing
Weidmann says not ECB’s
job to tackle
Spain should take a rise in its bond yields as a spur to tackle the root causes of its debt woes, not look to the European Central Bank to help by buying its bonds, European Central Bank policymaker Jens Weidmann told Reuters.
Weidmann, who has led a push by some policymakers from core euro zone countries for the bank to begin planning an exit from its crisis mode, said no ECB policymakers favoured using the bank’s bond-buying plan to target specific interest rates on sovereign bonds, and ECB board member Benoit Coeure was simply stating a fact by saying last week that the programme still existed.
In a wide-ranging interview, Weidmann, who turns 44 on Friday, also said he saw no reason to discuss a third LTRO, the funding instrument with which the ECB has pumped over 1 trillion euros into financial markets since late last year.
Weidmann, who is head of Germany’s Bundesbank, which gives him a powerful voice on the ECB’s 23-man Governing Council, spoke to Reuters against a
backdrop of growing tensions in
Relations between the ECB and Bundesbank have been deteriorating for some times now. Disgusted with its monetary profligacy, two Bundesbank officials Axel Weber and Jürgen Stark, resigned from the ECB last year. Since that time Weidmann and the Bundesbank have fired a warning shot across the ECB’s bow.
have major implications for monetary union, dashing hopes in Southern Europe
Andreas Dombret, a key board member of the Bundesbank, said the body would be given powers to check “excessive credit growth” and impose “maximum leverage ratios” to nip economic overheating in the bud.
The Bundesbank will be able to impose “counter-cyclical capital
buffers” on lenders, and use “macro-prudential haircuts” in the securities
markets. It is understood that the menu of new tools will include limits on the
loan-to-value on mortgages along the lines of those used in
framework – introduced by German government in a draft law this week – is
partly inspired by the Bank of
German house prices
rose 5.6pc last year after a decade of stagnation. Officials in
Frankfurt are watching the property data closely, fearing that
“The Bundesbank does not want to be blamed for making the same
mistakes as central banks in
The German authorities are in effect preparing a form of quasi-monetary tightening to offset ECB largesse…
“If the eurozone is to adjust, southern countries must be able to run trade surpluses, and that means somebody else must run deficits,” said Dr Speyer.
“One way to do that is to allow higher inflation in
recognizes a warning shot when it sees one. Indeed, ECB President Mario Draghi knows that if inflation rises in
Draghi Says Inflation Risks Prevail as Economy Stabilizes
European Central Bank President Mario Draghi said policy makers are prepared to act against inflation threats if needed, while assuring investors that the ECB doesn’t plan to withdraw emergency stimulus any time soon.
“All the necessary tools are available to address upside risks to price stability in a firm and timely manner,” Draghi told reporters in Frankfurt after the ECB held its benchmark rate at a record low of 1 percent today. At the same time, it’s premature to talk about the ECB’s exit strategy, Draghi said, adding that the economic outlook is subject to downside risks and inflation will remain contained in the medium term.
The ECB is
balancing the threat of inflation in
[ECB President Mario Draghi] declined to comment on recent wage settlements in Germany, where 2 million public service workers are set for a 6.3 percent raise over two years, according to the Ver.di union. It would be the biggest increase negotiated by the union since 1992. IG Metall, Europe’s biggest labor union with about 3.6 million workers, is demanding 6.5 percent more pay.
And so the
ECB has found its hands tied: if it continues to monetize aggressively,
inflation will surge and
doing this would score MAJOR political points for both Merkel and Weidmann who have both come under fire for revelations that
the Bundesbank has in fact put
backdrop, it’s quite clear that the EU’s banking system remains under extreme
duress. Case in point, European financials have in fact wiped out all of the
gains produced by LTRO 2 in just one month’s time. Small
wonder. When we take a big picture perspective of
Consider the following:
So we’re talking about a banking system that is nearly four times that of the US ($46 trillion vs. $12 trillion) with at least twice the amount of leverage (26 to 1 for the EU vs. 13 to 1 for the US), and a Central Bank that has stuffed its balance sheet with loads of garbage debts, giving it a leverage level of 36 to 1.
And all of this is occurring in a region of 17 different countries none of which have a great history of getting along… at a time when old political tensions are rapidly heating up.
As bad as
the above points may be, they don’t even come close to describing the REAL
With that in mind, I’m already positioning subscribers of Private Wealth Advisory for the upcoming EU collapse. Already we’ve seen gains of 6%, 9%, 10%, even 12% in less than two weeks by placing well-targeted shorts on a number of European financials.
And we’re just getting started. Indeed, we just opened five new trades on last Friday. Already ALL FIVE of them are up in less than a week.
you’re looking for the means of profiting from what’s coming, I highly suggest
you consider a subscription to Private Wealth Advisory. We’ve locked
in 49 straight winning trades since late July (thanks to the timing of our
trades), and haven’t closed a single losing trade since that time. And we just
opened five new trades to profit from
the level of my analysis as well as my track record, my work has been featured
Business, CNN Money, Crain’s
Chief Market Strategist