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According to the WSJ , the ECB has been bullied into doing more QE. Thus far, the ECB buying your bonds has been a death knell — everything they touch goes above 10% — however if they are sufficiently determined, they may stabilise things. But, it’s going to have HUGE to achieve that end.

If they could get consensus, now would be the perfect time for a Euro-Bond. Yields are low, and there is a shortage of top-notch collateral in the world. They could finance this entire project with 3% money.

In other news, it seems the G7 finance ministers have hit the panic button – they have told the WSJ that they will also conduct a meeting and release a statement this morning.

So that’s the BOJ, SNB and ECB all expanding their balance sheet further to try to stabilise markets. It will be interesting to note if the ECB has sufficient credibility with markets to catalyse a QE-trade (equities, commodities and rates all rallying at once).

If they can’t get things started, my bet is on the BoE and Fed undertaking similar balance sheet expansions in due course.That ought to do the trick.

Once the dust settles, these actions are likely to deliver hotter EM economies, higher commodity prices, a higher AUD, and higher inflation.

That’s a devil of a problem for the RBA.


  1. ECB buying your bonds = kiss of death.
    Plus the Italian bond market alone is so large, I bet they will achieve even less than before.
    We are talking about the third largest EU economy.
    Regarding the European Financial Stability Facility, if Italy and Spain are to be supported, it will need to be entirely financed by Germany, France and the Netherlands only. Unfeasible.
    Euro bond seems the only way out, but will it work in a politically divided Europe?

  2. ricardo once mentioned that these are the birthpains of fiscal union in eu. i wonder to what extent these punctuated crises are being used to prep the populace for this, given how invested the political class is to the unified euro.

    my bet is that euro as we see it know will split. germany + one or two. then the rest. these would possibly extend monetary union into fiscal union. what would germany + france gdp be as a % of us? germany + france + netherlands vs us? this is about an eco unit competitive in clout with us.

    1. Germany + Netherlands + France? It will never happen without the rest. History is not forgotten. Europe needs those country that are now called “periphery” to exist.

      1. can you expand on “History is not forgotten. Europe needs those country that are now called “periphery” to exist.” i know eu history. i dont see the link.

        1. France and Germany never got along very well….. Netherlands and Germany neither. And still they don’t. It’s all the European nations as a group that build the Union. The Union can only survive as the group of European nations. I do not think it will break. If it will, it won’t be reduced in size: it will simply break-up in the singular pieces like before.

      2. Perhaps complete disunion is more likely. However, I disagree. Inter EU relationships have improved significantly since the wars. France spit the dummy re NATO early on, but they are moving back into the fold. I think the relationships between the Three is much like the relationship between a North-Eastern, Mid-Western & Southern state in the US. It is doable. The analogy breaks down when it comes to language. But many in the Three speak English fairly well (even the French – they just don’t like to admit it).

        1. > Inter EU relationships have improved significantly since the wars.

          OK, improved, but not to the point of wanting to be in a smaller group, IMO.
          Euroscepticism is alive and well.

      3. The sense I get is that euroscepticism is alive and roaring in the UK. it is absolutely sceptical. on the continent the situation is a bit more nuanced: scepticism by the core of the peripheral but not more generally at the euro project.
        NB: i was born in the eu core and have most of my family in the eu core.

  3. Oil is getting cheaper by the minute and if Ben wants to stop all of this with his printing he’s nuts!

    1. I would have thought that someone with your knowledge would know that monetary easing that is temporary (or perceived to be temporary) would have little stimulatory effect. You can’t have the Fed doing LSAPs and then talking about reverse repo draining of that (+ positive IOER) and expect the market to think their operations are going to remain permanent. This is why the Fed’s LSAP had negligible effects. They don’t have a framework within which these operations anchor nominal expectations. Same goes for Europe (if not more with their ueberhawks).

      Source: http://www.themoneyillusion.com/?p=9627

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