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Wednesday, December 21, 2011

ECB/EZB grants European Bank EUR 500 Billion for 3 years at lowest level ever

Author Thomas Ramseyer 
ECB action only to save the banks' butts
It is very important to understand that there is NO fresh money resulting from this transactions. This like any other transaction done by Central Banks have to be collateralized in the case of REPO or there must be another countervalue such as foreign currencies sold to ECB or temporary swap arrangements.

ECB's goal is to step in for the vanishing investors
The idea is to grant the refinancing of the banks' debt to redeemed by the end of the next three years. It is said that rotten paper can be transferred as collateral to the ECB.

Banks need EUR 500 Billion for getting hurt due to investors' change of paradigm
As the banks need that money for refinancing themselves in revolving activities, the volume of their debtors' accounts do not change. Maybe ECB and the market participants dream about the banks passing the cheap money to their debors at substantial lower levels.

Low interest rates will not be passed to users
This will not be done. The banks will take the advantage to bolster their reserves by cashing higher interest spreads. Also they will roll over their government debt paper.

Investors will not trust the banks just because of some desperate measures taken by ECB and other Central Banks
Because of those desperate ECB-activities the investors' trust in the banks will not ameliorate. Most important there is the fact that the garbage collateral parked with the ECB for three years will come back upon redemption of the low-interest credits.

Remedy to cure national accounts is austerity
The only remedy to cure the sickness is the austerity of various peoples
All the countries shall reach the 60% - all of them are well above this border right now - of the GDP with a yearly maximum growthrate of 3% new debt. This goal will be achieved only through lower governmental expenditures and higher tax. The vicious cercle kicked off by politicians will lower the economic growthrates throughout Europe, in fact throughout the world. The rates may even become negative the GDPs to shrink.

Demand for credit low and lower
Faltering economy will have demand dying off. People will realize that if austerity is wanted they must lower their private debts as well, what they will do. If this not being done the private housholds are going to take the bash twice. They will end up staring at the shattered remnets of their wealth.

If proceeding like in the past the northern countries will face a much longer period of time with a zero or even contracting delta of the economies.

Recommendation and Advice
1) Citizens produce, consume, pay everything
Citizens must recognize that everything even down to tiny bits will weighing on their shoulders. What politicians do is having the souvereign shove the money from one pocket to the other. When it comes to redeem some debt they dig a hole to fill the other.

2) The rules of the forefathers to be re-implemented
Citizens must save before consuming; never consume before saving.

3) Whole population to pay down their debts to ban vulnerability
Citizens must pay down their debt - mortgage debt as well as credit card debt - to substantial lower levels thus to cut down the risk of being executed by financial intermediaries. 

4) As politicians are too timid people take back responsability
Citizens take back the initiative. They do not wait for politicians to act. They must start to clean their private houses also.

copyright Thomas Ramseyer