Monday, May 31, 2010

The Fake Bailout: Extreme Edition

The European Central Bank has announced that it will withdraw  €35 billion in liquidity from the system via a one-week variable-rate tender capped at 1%, to be conducted on June 1 at 11:30 am. 

This is the exact amount of government bonds purchased by the bank in the prior week, thus the fake bailout continues. This is the third and so far largest "sterilization" conducted in the past three weeks: the first and second were for €16.5 and €26.5, respectively.

At most the ECB is redirecting funds to the PIIGS debt markets, but the sterilization drains means the money is being removed from other sectors of the economy.

The volatile markets and economy should come as no surprise given this roller coaster money policy activity by the ECB.

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