ECB Will Continue To Print Money by the Truckload - So Who Is About To Fail?

Sunday, August 12, 2007

Call it dousing a fire with petroleum. The European Central Bank (ECB) will continue to feed freshly minted money in unlimited amounts to banks, trying to prevent the painful readjustment called asset deflation it helped create in the first place with expanding the mony supply at a rate of more than 10% for more than 2 years.
In an interview with the French regional paper Ouest France ECB president Jean-Claude Trichet said "I said on Thursday 2 August, reporting on the meeting of the Governing Council, that we would “continue to pay great attention to the developments in the markets over the period to come”. This is what we have been doing since then and what we are doing by granting the markets the appropriate liquidity."
Monday will see the replacement of the ECB's emergency weekend repo that led to to the creation of 155.8 billion Euros within 48 hours. To put this in a relation: The Eurosystem's total gold reserves have a value of 172.8 or a mere 17 billion Euros more than the money created in their electronic ledger in only 2 days.
Is the Euro in Bigger Danger Than the Dollar?
The panicky reaction of the ECB by saying it would lend "unlimited" - and did indeed so last week - leads me to the conclusion that the ECB is trying to prevent the collapse of one or more banks at literally all cost.
Seeing that the ECB came up with a multitude of new money compared with the Fed's emergency measures, creating as much money as the economies of Portugal or the Czech Republic or Norway produce in a year is a tell-tale sign that something will go bust when market rates turn higher.
We begin to see the other face of capitalism: When a consumer or a company go bankrupt it is their problem. When a bank collapses because its "experts" engaged in risky speculation backed up by pseudo sciences like technical analysis or rocket physics applied to options - as if a chart could signal fundamental events - it will be saved with the taxpayers' money. I guess everybody could live very well with such a business model. Like a car with airbags: Now you can crash at ever higher speeds and escape unharmed. Today this analogy applies to the banking sector. What happened to free market economics since Thursday?
Investmentwise I would say buy real money in gold or silver for your fiat currencies and short the European banking sector. As said before, the ECB would not inject the biggest amounts of "liquidity" (new debt) into markets if it did not have a very grave reason to do so.


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