….and German banks grab 50% of Draghi’s  LTRO

I’m pretty sure that Ben of the manicured Beard doesn’t read The Slog, but his generalised pronouncements on the US economy certainly mirror mine.

He reminded everyone that almost all the 2011 Q4 growth came from retailers building up stock. As I posted earlier in the week, final sales to domestic purchasers, a crucial measure of demand in the economy, are still showing no sign of pull-through to demand…especially in durables. Ben also damned the labour market stats with faint praise by describing them as “a little progress”, but regular Sloggers will know that the alternative interpretation – all hope lost by long-term unemployed people – is just as valid as the White House version, ‘we’re past the worst and returning to growth’. 

Gold slumped, on the lack of any QE3 policy promises, by almost 3%. But the world is not done degrading its currencies just yet. Demand  for it will continue to grow, and my gold mining shares bought last September still feel like a good bet. However, if Ben the Banker doesn’t come back in with some more QE soon, I think there’s a good chance the stock markets will have a Wile E. Coyote mid-air moment: their current positions are, after all, a  complete fantasy in real economic terms. They reflect free money delivering high dividends and thus stock rises –  not underlying economic health.

Also yesterday, you’ll have spotted that The Slog’s Bankfurt Maulwurf was not in good humour – and was particularly nasty about Mario Draghi. I still have no firm steer on how much of the German banking sector he represents, but his remarks to me echo those of the German Bundesbank’s Jens Weidmann exactly. He warned of increasing risk stemming from some ECB liquidity splurges, and of course potentially increased exposure for Germany – it being by far the eurozone’s biggest creditor nation. Others both inside and outside the bank also now fear that eurobankers are becoming as addicted to LTRO as the markets were to bond purchases from the Central Bank. I have to say, I’m one of them.

Look closely at the numbers yesterday, and you’ll see that the net liquidity delivered was the highest yet. But here’s an interesting comment on the many faces of Germany: German banks gobbled up a good half of the LTRO auction. Now there’s something to disturb Herr Weidmann’s sleep patterns.

Footnote: some months ago I pointed out the rather swollen nature of India’s credit sector. Largely unnoticed, Moody’s yesterday downgraded the Bank of India. I still have concerns about this sovereign: there is a sense of bubbly instability about its growth boom. Not as bad as Turkey’s…but something to watch carefully.


  1. Reading les Echos ( a pretty decent financial newspaper ) this morning : the BCE balance sheet is now equivalent to 32 pct of Eurozone GDP , compared to 21 pct for the UK and 19 pct for the USA .
    Even more intersetingly from my point of view , the ECB s balance sheet is full of rubbish that , if revalued properly, would cost a fortune . The Fed ( for the meantime at any rate ) has made plenty of money by pushing prices higher . Food for thought .


  2. Perhaps the German savings banks were ordered to bid for 50% of the LTRO to limit the damage to Germany when more money has to be chucked into the black hole of Club-Med.

    Thinking about it logically what better way is there than to burst Draghi’s bubble by pricking it and protecting your future bailout funds in your own institutions.


  3. I see Bundesbank President Jens Weidmann has written to Draghi expressing concerns: D Tel financial crisis blog
    “08.58 Bundesbank President Jens Weidmann issued a starker warning to Mr Draghi yesterday. He warned that the ECB’s relaxation of rules could endanger its reputation. Mr Weidmann also said that risks stemming from some ECB policies could prove costly to Germany, which has bankrolled much of the eurozone’s rescue operation.
    In a letter to Mr Draghi obtained by Germany’s Frankfurter Allgemeine Zeitung, he called for a return to the stricter rules in place before the financial crisis began. “


  4. how long can he keep this up, one wonders?
    ‘the best newspaper in the world’ that is.
    and free!
    au moins ça évite de mourir idiot!
    many thanks.


  5. I see that Merkel has now finally agreed in principle to boosting the EFSF/ESM in the future – the iron lady finally caved – one press report some weeks ago hinted that they thought this would be the deliberate strategy i.e. go to the wire.
    10.01 Bruno also highlights this admission by German Chancellor Angela Merkel in today’s Sueddeutsche Zeitung newspaper:
    Angela Merkel will agree to an increase in the eurozone’s bailout fund – but not at today’s euro summit.
    The German Chancellor told Sueddeutsche Zeitung that: “In the long run we cannot resist this pressure.” The dropping of Germany’s opposition will allow the temporary European Financial Stability Facility to be combined with a new permanent European Stability Mechanism in the summer, taking the euro bailout funds to €750 billion.
    The decision will allow the IMF to boost €150 million euros in promised resources form the eurozone to create a new €400 million facility for credit lines.
    It will be controversial in Germany – German exposure to the debt crisis will rise from €211 billion to €280bn.


  6. “Others both inside and outside the bank also now fear that eurobankers are becoming as addicted to LTRO as the markets were to bond purchases from the Central Bank.”

    Or as the DT called the Euro banks yesterday: “zombie banks“. Activities related to lending to real customers in their economies have been displaced by shuffling money around to protect themselves and make a profit from cheap ECB loans.


  7. Slightly off-thread but Ron Paul matches Obama in the polls: There must be areas of the USA where folk are not adhering to the recently passed laws which makes common sense illegal. Step in Obama: This criminal thinking must be stamped out. Jeeez! it could become a populist movement. I’ll bet its those anarchic 46% of young folk who are out of work and haven’t a hope in hell of finding some


  8. “….issued a starkers warning” would have read better. It’s very silly to go around not wearing any clothes at this time of year – I wonder why they are all doing it?


  9. Don’t compare yourself to The Bernak, as he’s a liar and a thief just like lil’ Tim at Treasury. He’s been wrong on all his forecasts starting in 2007, but my favorite was Congressional Tesimony where he said the FED wouldn’t do QE right before they did. If his mouth is moving, he’s lying.


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