for those of us who work in the OTC money market, the ECB made a big difference today. sterling was doing over 6.25% at about 11am, then fell to the 5.80s after lunch (London time). this kind of volatility is highly abnormal for 30 year bonds let alone overnight markets. ECB stepped in. there was just no liquidity now it's back, made life a lot easier for some colleagues of mine. too much money chasing too many goods and you get the 1970s, but what was happening this morning was way too little money chasing too many goods (aka the 1930s) - the ECB had to step in, money market was too thin to survive. I don't have a political opinion about it, it was a necessity. BNP also makes markets in just about everybody's commercial paper, I can see them losing their commission for that soon. Noticeable is that not only did they hint at liquidity issues but they refused to take the long side of the assets and let the investors sell. An admission of weakness if ever there was.
This is true. When people bag on the idea of a fiat currency and paper money injections into the system, they need to ask themselves one question. Would you rather have a 1970-80s or a 1930s? Inflation is a good thing. Hurts banking institutions and helps the holders of loans. You get a loan at 5% and a year later the rate is 10%. You come out on top. Bank is hurt. Conversely, if there is deflation... Banks are helped as they loaned out money at 5% and rates proceeded to drop. This doesn't really help them though, because the only way they can come out ahead is if the borrowers honor their agreements. In the first situation the FED can inject money to save the banks from collapse. In the second situation the FED can't inject money to save the consumer from default, and consequently the banks collapse. I'll take an 87' market crash over a 30's great depression any day.
There's some smart folk on this thread, so here's my stupid question. Doesn't anyone EVER learn that the more you screw with markets the worse it gets?
First, banks do not hold loans on their portfolio, they pack together the loans and then sell 'credit derivatives' to funds like the ones blowing up right now. Banks these days make their money from commissions, that is, quantity not quality of loans. So inflation is good for them: more money, more credit, more loans, more commissions. Second, that the 30s depression was caused by deflation is a huge misconception propagandized by exactly the same people advocating the need for central banks and 'accomodative' monetary policy. The 30s were just cleansing from the excesses of the previous two decades which was caused by: surprise! excess of liquidity. Once you convince people that deflation is the boogeyman (which is false), then you can easily sell them central banking and the system of fiat money.
Well, exactly, the ECB made life easier for some people, but at the same time screwing some other, like the Joe Schmoe on the street who can buy less and less food with his euro.
there were no liquidity for irresponsible crooks and thieves Euro_went_down big time against yen, dollar and any other currency Everyone was selling Euro So there are enough euros more than enough People just don't want to lend to thieves And what ECB did? It gave 100 bln Euro to thieves and screwed those who were responsible, who worked and saved their hard earned euros And now those people can judge someone for steeling from stores? I think screwing hard working people is the first step to the end and eventual anarchy