Tuesday, December 13, 2011

More on the Stealth ECB Bailout

I have already suggested that that  the European Central Bank may be providing a backdoor by which European  banks can finance eurozone sovereign debt.

Ed Yardeni appears in the clip below to be thinking the same way about recent ECB financing changes. I hasten to add that while I agree with Yardeni's take on the stealth bailout method being employed by the ECB, I am not as convinced as Yardeni that the Chinese central bank is conducting anywhere near the money supply easing necessary for the bank to reverse the developing massive economic downturn in China. And while Yardeni may be correct in the short-term about the Fed being a "pretty powerful force" in keeping rates near zero, let's see how that works for the Fed when intensifying inflationary pressure starts to put upward pressure on rates.


  1. Notice how around the 4:40 mark, Yardeni equates the ECB's recent lowering of its reserve requirement with increasing capital. In truth, to the extent that this policy hinders saving, it does nothing of the kind. I would have expected such a comment coming from Roubini, not Yardeni.

  2. @Americonomist

    Yardeni is not talking about capital here in the sense of saving but the "capital requirement" that banks must hold and that is set by regulators. The fact that the reserve requirement was lowered suggests that the "capital requirement" will also be monkeyed with so that it won't apply relative to sovereign debt purchases.

  3. Thanks, Robert. This would then place them in a stronger position in the event of further turmoil in Greece and Italy.

    Based on your knowledge of Yardeni, do you think he accepts the Shostakian point about real savings being the fuel of real, sustainable growth? According to Shastak, it's not the capital requirements per se, but the quality of capital in terms of how much of it reflects the actual lowering of time preferences across society.

    I admire his optimism near the end of the interview, but it seems based on the assumption that our interventions in market forces, however egregious, will turn out to be relatively less harmful than those in other advanced economies. If he's right, the resulting growth will still be suboptimal and characterized by malinvestments that make an eventual future correction even worse.