ECB Watch


#2081

There’s surely an important distinction between FX risk (particularly associated with bonds denominated in a loose/weakening currency) and default risk.

FX risk is always substantial, and doesn’t require any kind of triggering “event”. Check out the long term USD charts against GBP, JPY, CHF etc. Since the mid-20th century foreign holders of USTs have lost enormous amounts of the principal value of their bonds. Does that stop people buying USTs?

Reserve currency me arse!


#2082

Correct, I should have said CB’s can monetise their own debt.
Remember when Bernank denied monetizing the debt. God that was funny. Imagine how sour things would get in the US if they hadn’t intervened, good thing they did.
Now let’s see them continue to unwind from their position. I’m sure that’s the end of the monetization. GFC is over.


#2083

:laughing:

central bank is monopoly issuer of currency - sets price

So, in your world, market could move 3 mnth bill to 1% if it wanted?? :laughing:

Tell you what - you keep being wrong,
and I’ll keep being right BD.


#2084

Seriously DP, please elaborate if you are going to comment. If inflation was 3-4% then ye why wouldn’t it?
Do I think it will go to 1% tomo? Of course not. Do I think it’s going there… Considering the US government reaction to everything, ye of course.
Considering the biggest property bubble in history just popped a short number of years ago, we are currently exiting a deflationary environment… Due to the CB reactions, essentials are starting to rally in price.
CPI numbers are constantly being tweaked.

And most importantly, yes the market controls interest rates. Anything else is intervention.


#2085

So, the market could take 3 month treasury bills to 1% from where they are now (3bps). . . if they wanted . . ? :laughing:

The Fed sets the rate and says to market: ‘you want to challenge that, then go for broke’. That’s your “intervention”.

If Fed wanted to set 10Yr at 2% then they could do same. They choose front of curve to set rate, could pick anywhere on curve.


#2086

Perhaps I’m misunderstanding you. In the band pegging the the ERM zone, rates were not inherited - the rates outside of Germany reflected the devaluation risk and thus the punt and others had to set higher rates to say within the band.


#2087

No, you’re right. If you decide to peg then you are forced to alter rates to maintain that Peg. Usually that means you inherit the “master” currency rate but in ERM that was incrementally achieved over time i.e. it should be seen as ultimately achieving the “peg” of the single currency - and, the quid pro quo of no interest rate control for individual sovereigns!

E.G CHF currently has a floor with EUR at 1.20 – that can be maintained indefinitely by the Swiss Central Bank (as many shorts learned the hard way) but the SNB have resigned full control of their interest rates in implementing that peg; if they want to switch their monetary policy away from one aping the ECB then they will give up full control of the floor.


#2088

A second 10 bps repo cut coming in a few months? ECB’s Makuch says there is still room to cut benchmark rate.


#2089

Stress tests may be too tough

rte.ie/news/business/2014/0616/624137-ecb-stress-tests/


#2090

Draghi Deals a “Subtle Blow” to the Euro - -> bloomberg.com/news/2014-07-0 … -euro.html


#2091

FT: Europe now needs full-blown QE. ECB must take bold moves to lift growth across eurozone.

ft.com/intl/cms/s/0/be1a1056 … z3AeR2TCgy


#2092

Instead of giving QE money to the banks, can they not give it to the citizens in the form of a one-year savings bond ?

Imagine each citizen been given €10,000 each, but it must lie in a bank account for 1 years.

This would be counted as client deposits by the banks, making them more financially solid, then at the end of this period, some would spend their money, thereby stimulating the economy.

A stipulation could be added that the money must be used to pay down a citizen’s debt first.


#2093

I see you below to the same school economic as a well Trinity lecturer :slight_smile:

From the perspective of a bank’s balance sheet, an increase in deposits is an increase in liabilities.

Next you will be suggesting that these liabilities could be sold to a third party to fund the xmas party.


#2094

Yeah, tell that to Norma Lamont… The UST is almost certainly too big (as was the JGB), a small country is not.

A lesson in funding crises - short-term rates spike, then long-term auctions fail - see Hungary when it tried to peg interest rates and the forint a few years ago.


#2095

It’s an increase in liabilities only if there has been no deposit. The ECB ‘magics’ 10k for each citizen, that’s the deposit. It appears as both an asset and a liability once it is deposited.

Of course, that’s not QE, but it would be a more effective way of stimulating the economy than ever increasing debt.


#2096

Britain hopes to have a referendum on the EU monetary union, to stay or to go. This will have an effect on the Banks in London, with the possibility of some moving to Dublin as their EU Head office base. More investment coming into Dublin


#2097

The European Union to stay or go, if England leaves, it should become an opportunity for Ireland as being the only English speaking country in the Euro zone.


#2098

There is no advantage to that, the Scandinavians can speak English with better proficiency than Irish people can and on the whole English speakers world-wide are a dime a dozen. It is more likely that the departure of England would also coincide with a downgrading in Anglo-American relations with the EU and we would have a more German centric EU being the dominant power at the center of the European continent. In such a scenario Irelands poor foreign language support would be a disadvantage.

Wall Street banks plan move to Ireland if UK quits EU - -> independent.ie/business/worl … 14611.html

Sarbanes–Oxley Act - -> en.wikipedia.org/wiki/Sarbanes% … 3Oxley_Act

London Whale Settlement Sets Legal Precedent - -> fool.com/investing/general/2 … edent.aspx

Foreign Account Tax Compliance Act - -> en.wikipedia.org/wiki/Foreign_A … liance_Act


#2099

The EU is not the Eurozone and Britain is not England.


#2100

Cue Ireland’s GDP increasing without any great impact on employment figures. Still, at least it would be a filip for our debt/GDP ratio.