Happy Money Printing - ECB Floods Market With Cash

Friday, August 10, 2007

In an attempt to counteract the liquidity crunch embracing financial markets the ECB has injected another 61 billion Euros by a 3-day tender, bringing the creation of fresh money to a historically unprecedented 155.8 billion Euros. The ECB followed up its own words from a day earlier when it said it stood ready to bolster markets with unlimited cash. At the tender a day earlier the ECB had accepted all bids after interbank rates had shot up more than 50 basis points. Friday's tender resulted in a weigthted rate of 4.08% after 4.07% a day earlier.
With this action the ECB has created 510 Euros in new money for every of its 306 million citizens with mouseclicks, More paper, but no new value was created.
Many Europeans have less in monthly pensions than what is being salted away to "save" the "free markets". With the breath-taking doses of massive intervention by the Fed and the ECB I am asking myself where a free market can be found. Free market economy seems to come to an end as soon as the excesses cannot be hidden anymore.
Make Inflation a Class 1 Substance
Inflation is a very dangerous drug that should be scheduled a Class 1 substance. Inflation feels very well in the beginning when only the effect of good liquidity is noticed. But beware, one can get hooked in no matter of time, needing ever bigger amounts of liquidity to recoup the same good feeling.
The massive shot in the arm we witness theses days could easily lead to an overdose as more of the stuff will be needed to keep up the "don't worry be happy" mentality that was so arduously adhered to by the crowd of bulls.

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