Monday, May 17, 2010

Does the ECB Want an EU Collpase?

Remarkably, the European Central Bank appears to be about to extract all the money it pumped into the system last week, if their most recent press release is to be believed.

The ECB release says: "As decided by the Governing Council on 10 May, the ECB will conduct specific operations in order to re-absorb the liquidity injected through the Securities Market Programme." The amount of the extraction takes "into account transactions with settlement at or before Friday 14 May."

There is a lot to be said for stable money, but the ECB is run by a bunch of Keynesians who don't believe in such. Yet, the ECB announcement suggests they will carry out a one week variable rate liquidity operation on Tuesday of as much as €16.5 billion. That means they are going to yank funds from the system that they put in last week.

Note to non-central bankers: The way you re-ignite a panic is to withdraw all the money you pumped in last week to quell panic.

The ECB, in other words, continues to play the Big Bluff. They aren't serious about bailing out the PIIGS with real money. If the markets buy that the ECB stands ready to rescue, all well and good. If not, well let the damn thing collapse.


  1. Show how does the Feds liquidity swaps fit into this ?

  2. Right now we know about $9 billion in swaps. Only time will tell to see how much they grow and whether the Fed sterilizes them also.