ECB QE could theoretically surpass €2 trillion according to reported program details - page 4
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I cannot believe the idiocy that continues here. Actually for some people, it's not idiocy, it's looking to be the beginning of what they did in the U.S.
Political decisions in a totally controlled media - we do not stand a chance
ECB will print money for years - the same as FED - all in all 6 years (and they still did not stop - whatever they tell)
ECB Draghi: QE Works. Basta
The recently kicked off bond-buying scheme by the European Central Bank (ECB) will boost recovery in the euro zone, the bank's President Mario Draghi said on Thursday, adding there was already evidence that the program was taking effect.
"Monetary policy is reinforcing the cyclical recovery. I insist in saying 'cyclical' because this recovery is not structural," Draghi told an Italian parliamentary committee hearing.
The recent stream of economic releases "are comforting about the contribution that monetary policy is supplying to reinforce the cyclical recovery," he claimed.
Euro comments
Draghi especially pointed out the development in the euro exchange rate, acknowledging the currency's steep depreciation against its major peers.
"The effect on the exchange rate has been undoubtedly significant," he claimed, also noting the decline in long-term interest rates.
The single currency hit a 12-year low below the $1.05 threshold against greenback at the start of last week, but has since recovered to around $1.09.
Reform need
At the same time, however, he repeated his mantra that governments in the bloc had to do their part to boost productivity and growth by implementing necessary structural reforms.
"Low potential growth creates macroeconomic imbalances and the vulnerability which arises has reverberations in other countries of the area," he said.
Shifting focus to Greece - or more precisely, to its exclusion from the QE framework (together with Cyprus) he said: "QE does not buy Greek bonds for three reasons. The first is that it doesn’t buy bonds of countries that are in a program with the IMF and the European Commission when the review of this program has not been completed. As you know, in Greece the review was suspended."
Draghi Says ECB Will Reach QE Target Even in Shorter First Month
European Central Bank President Mario Draghi said he’s confident that his bond-buying program will hit its targets in the first month of operation.
“We count on reaching” the target of 60 billion euros ($65 billion) though the operation only started March 9, Draghi told Italian lawmakers in Rome on Thursday. “All feedback we have from markets tell us that there are no difficulties in carrying out these operations.”
The central bank started a quantitative-easing program this month that aims to buy 1.1 trillion euros of public-sector bonds by September 2016. The monthly target includes programs of asset-backed securities and covered bonds that have been under way since 2014.
The ECB said on Monday that, as of March 20, it had settled public-sector purchases of 26.3 billion euros.
While recent data point to an accelerating euro-area economy, Draghi warned that the recovery remains “cyclical” and needs to be underpinned by structural reforms.
At the same time, recent data signal that ECB stimulus is finally reaching the real economy. The central bank said on Thursday that lending to companies and households rose for a fourth month in February.
“Interest-rate reductions are being transmitted to the whole financial intermediation channel and credit contraction is receding,” Draghi said in the Italian parliament. “The falling cost of financing makes investment opportunities interesting that in the past were not profitable.”
While QE has already brought down sovereign yields, the single currency remains at risk from events related to Greece, where the government is in negotiations with creditors amid concern the country could run out of cash in early April.
In his comments in Rome, Draghi repeated recent calls for stronger European fiscal integration and structural reforms.
“Our union remains fragile because responsibility for reforms remain at the national level,” he said. “Fiscal rules are a consequence of this, as one country’s default would damage all others. I think this is clear today and I think the same principle should be applied to structural reforms.”
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Market Perspectives The Monetary Illusion
The long-term consequences of global QE are likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity.
As economic growth returns again to Europe and Japan, the prospect of a synchronous global expansion is taking hold. Or, then again, maybe not. In a recent research piece published by Bank of America Merrill Lynch, global economic growth, as measured in nominal U.S. dollars, is projected to decline in 2015 for the first time since 2009, the height of the financial crisis.
In fact, the prospect of improvement in economic growth is largely a monetary illusion. No one needs to explain how policymakers have made painfully little progress on the structural reforms necessary to increase global productive capacity and stimulate employment and demand. Lacking the political will necessary to address the issues, central bankers have been left to paper over the global malaise with reams of fiat currency.
With politicians lacking the willingness or ability to implement labor and tax reforms, monetary policy has perversely morphed into a new orthodoxy where even central bankers admittedly view it as their job to use their balance sheets as a tool to implement fiscal policy.
One argument is that if central banks were not created to execute fiscal policy, then why require them to maintain any capital at all? Capital is that which is held in reserve to absorb losses. If losses are to be anticipated, then a reasonable inference is that a certain expectation of risk must exist. Therefore, central banks must be expected to take on some risk for policy purposes, which implies a function beyond the creation of a monetary base to maintain price stability.
Global Nominal GDP Growth, as Measured in Dollars, Is Projected to Decline
With a surging U.S. dollar and growth remaining sluggish in much of the world, Bank of America Merrill Lynch forecasts that world output measured in dollars could fall in 2015 for the first time since the financial crisis. Over the past 34 years, this has happened just five times.
What kinds of risk are appropriate for a central bank? Well, the maintenance of a nation’s banking system would plainly be in scope, given the central bank’s role as lender of last resort. The defense of the currency as a store of value and medium of exchange is another appropriate risk. This was the apparent motivation of Mario Draghi, European Central Bank president, for his famous promise to defend the euro at all costs in the summer of 2012. The central bank balance sheet has proven a flexible tool limited in use only by the creativity of central bankers themselves.
In response to those who argue against the metamorphosis of monetary policy into fiscal policy, one need only point toward the impact of quantitative easing (QE) on interest rates. The depressed returns available on fixed-income securities, largely as a result of QE, are acting as a tax on investors, including individual savers, pension funds, and insurance companies.
Essentially, monetary authorities around the globe are levying a tax on investors and providing a subsidy to borrowers. Taxation and subsidies, as well as other wealth transfer payment schemes, have historically fallen within the realm of fiscal policy under the control of the electorate. Under the new monetary orthodoxy, the responsibility for critical aspects of fiscal policy has been surrendered into the hands of appointed officials who have been left to salvage their economies, often under the guise of pursuing monetary order.
The consequences of the new monetary orthodoxy are yet to be fully understood. For the time being, the latest rounds of QE should support continued U.S. dollar strength and limit increases in interest rates. Additionally, risk assets such as high-yield debt and global equities should continue to perform strongly.
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ECB on Track to Meet First Monthly QE Target
The European Central Bank (ECB) appears to be on the road to meeting its monthly QE target, data showed on Monday.
The Frankfurt-based bank purchased bonds worth €41.016 in the seven days ended with March 27.
Separately, the asset-backed securities purchases rose to €4.646 billion. Covered bond purchases stood at €62.862 billion during the reported period.
According to data released on the ECB's web site, the bond purchases totaled €26.3 billion as of last Wednesday, March 18.
QE baby
On January 22, the ECB announced a massive €1.14-trillion bond purchase program, known as quantitative easing or QE, which will take place over at least 18 months.
Under the framework, the bank aims to buy some €60 billion of bonds.
The program kicked off on March 9, with the aim to pump liquidity into the financial system to kick-start lending and push up the rate of inflation, currently below zero.
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ECB QE continues full steam – EUR/USD set to fall?
The bond buying program of the European Central Bank is entering its fourth week. Towards the launch of the program and during the first week, there were fears that the ECB would not have enough bonds to buy, that its goal of 60 billion per month was somewhat too ambitious.
Well, the latest weekly release shows that the central bank is certainly on track, with 41 billion euros under the belt, the money continues to flow, also outside of the zone.
Crunching the numbers
41 billion euros in 21 days means nearly two billion euros per days, which is around 60 billion per month. If we count working days, the results look the same: 41 billion in 15 days is around 60 billion in 21 working days.
Mario Draghi said that the lower rate for bond yields is the negative deposit rate that the Bank set: minus -0.20%. In some countries and for some maturity lengths, these bonds are already out of reach for his institution. This is relevant for single digit German debt for example.
However, for longer maturities and for enough countries, there is plenty of stock out there. Adding Greek debt, once it happens, will not make a great impact, nor will keeping it out of the program.
We have learned that German inflation is lifting its head above 0% and we might see the same for the whole euro-zone probably later in the year. But yet again, Draghi insisted that the more optimistic forecasts his staff published fully depend on the implementation of the program: there will not be any let down anytime soon.
EUR/USD
What does this mean for the euro/dollar? The pair has already weakened significantly due to converging monetary policies by the ECB and the Fed. Some think it has gone too far and see the recent correction from below 1.05 to 1.1050 as a change of course for the world’s most popular currency pair.
However, with this flow of money continuing from Frankfurt, it is hard to see it all reach the real economy in a direct manner. Some of the money that the ECB crowds out of bonds goes into European stocks, some goes to lending to the real economy and some just goes out of the zone.
Those from outside who have invested in bonds can now take profits and leave. The extremely low interest rates in the euro-zone, a policy of the ECB of course, make the single currency the single funding currency as well.
Ball moves to the US court
At current levels of 1.08, the pair is still looking for a direction within the wide range it is trading in. From the euro side, the money keeps flowing. From the other side of the Atlantic, it depends on the Fed’s timing of the first rate hike and the pace of the hikes.
We will get another hint for that in the upcoming Non-Farm Payrolls release.
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Euro-Area Price Drop Slows as Draghi Implements QE Plan
A slump in euro-area consumer prices eased in March, offering respite to the European Central Bank after it ramped up stimulus to fend off a deflation threat.
The annual rate of inflation in the 19-nation bloc climbed to minus 0.1 percent from minus 0.3 percent in February, the European Union’s statistics office in Luxembourg said on Tuesday. That’s the fourth consecutive reading below zero and in line with the median estimate in a Bloomberg survey. Unemployment fell to 11.3 percent in February from a revised 11.4 percent the previous month.
The Frankfurt-based ECB pledged to buy 1.1 trillion euros ($1.2 trillion) of assets including government bonds through September 2016 to fend off deflation. ECB President Mario Draghi, who pushed the program through against resistance from Germany, has already signaled that he expects victory and presented forecasts showing inflation back in line with the bank’s mandate of just below 2 percent in 2017.
“The inflation rate is set to rise again over the course of the year, mainly because oil prices will start increasing at some point as well,” said Marco Wagner, an economist at Commerzbank AG in Frankfurt. “The latest ECB measures might of course have an effect as well, but it’s probably minor.”
Bundesbank President Jens Weidmann, who opposed the program, has argued that consumer prices would pick up anyway as the drop in energy costs adds to previous ECB action in stimulating the economy.
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Why Weeks After The ECB QE Started Many Are Already Calling For Its Taper
Two days into Mario Draghi’s PSPP we noted that talk of a “taper tantrum” had already begun. Essentially, Citi looked at what it would mean for supply if the ECB lifted the issue cap to 50% on non-CAC bonds and expanded the list of eligible SSAs. Their conclusion:
Now, not even a month into Q€, some analysts seem to believe that the ECB will begin to scale back its asset purchases as early as the end of this year. Here’s Reuters:ECB's Mersch: We Are Free to Adjust QE if Inflation Overheats
The European Central Bank (ECB) is free to adjust its QE framework if the economy and price growth advances faster than expected, Yves Mersch told German paper Boersen-Zeitung in an interview published on Tuesday.
"If we were to see that this process brings us to our goal earlier, then we are naturally not so tied to our decisions that we could not adjust things," Mersch, who sits on the six-member Executive Board that forms the nucleus of the ECB's rate-setting body.
"In neither direction are we resistant to reality," he said.
Plan adjustment
March ECB staff forecasts for inflation see price developments moving closer to target by 2017, Mersch suggested.
"Should we see that we are overheating then of course it would be appropriate to ask whether we should adjust out plan," he added.
He also warned against using the weakening euro as a tool to lift the bloc's competitiveness, warning that this would breach EU law.
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