Thursday, May 13, 2010

ECB: New Bond Program Essential to Policy Execution

The European Central Bank said Thursday its new program to buy government bonds on the open market was “essential” to ensure that its monetary policy continued to have the intended effect, reports WSJ.

“The Governing Council considers the…measures essential in order to ensure the effectiveness of the monetary policy transmission mechanism,” the bank said in its monthly report for May. “In particular, the measures will help to mitigate the spillover of increased financial market volatility, liquidity risks and market dislocations in the access to finance in the economy.”

Uh, no kidding. Money printing is the key to the madness. How much printing? It will be Tuesday's with the ECB to find out.

Details are likely to only be available in the ECB’s weekly financial statements that are published every Tuesday.

1 comment:

  1. I have two comments on the Geoffrey T. Smith WSJ article:

    First comment: the new “Securities Markets Program”, creates an EU Treasury, which is supposed to prevent an excessive rise in government bond yields; it is monetization of debt, and this will eventually lead to a rise in yield and a decrease in value of that debt, and cause headline price inflation, corporate bond interest rates to rise, businesses to fold, and unemployment to soar. This ECB Treasury provides seigniorage aid to Greece and provides seigniorage redemption to ailing state debt.

    The WSJ goes on to report that another effect of the crisis has been to force governments into a radical rethink of their approach to regulation of the banking sector. A campaign to enforce tighter capital and liquidity standards is now underway, coordinated by the Group of 20 industrialized and developing nations, with the help of the Financial Stability Board and the Bank for International Settlements. The authorities aim to present by year-end a new set of standards, to be enforced over the medium term. The ECB said that such reforms will force it to look again at the “transmission mechanism” of its monetary policy–the time it takes for its actions to pass through to the real economy, and the degree to which its actions are “amplified” by the reactions of banks, governments and households to its decisions. Specifically, it noted that forcing banks to keep greater amounts of capital and liquidity would–all other things being equal–”make liquidity more scarce, thus having the same effect as an increase in interest rates on average, with restrictive implications for the economy of a magnitude very difficult to gauge.”

    Second comment, the May 2010 EU Finance Ministers’ Summit announced a sacrifice of national sovereignty to preserve the integrity of the Euro. The Leaders’ Announcement established a unified economic, political, fiscal, monetary and seigniorage government for the entire eurozone.

    The age of sovereign nation states in Europe is history; global governance has commenced. Leaders meet in summits and announce policy; then finance ministers and state leaders meet in workgourps to effect that policy; and the people follow.

    Citizenship is a principle of a bygone era; those living in the eurozone are simply residents in a region of global governance.

    The Leaders' Announcement requires budgetary surveillance in advance of national parliamentary legislation, to effect austerity measures, so as to assure reduction of state government deficit spending.

    The EU Ministers Euro Stability Pact provided seigniorage aid for Greece and seigniorage acceptance of PIIGS state debt by the ECB to preserve banking capital, as well as provided dollar swaps by the Federal Reserve to provide banking liquidity. These actions also established a unified world banking system; achieving what Timothy Geithner called for: unified regulation of banking globally as reported in the James Politi and Gillian Tett Financial Times June 8, 2008, article NY Fed Chief In Push For Global Bank Framework.