European banks remain deep in the trenches, focused solely on shrinking their balance sheets and preparing for 600b euros of upcoming maturities in 2012. This is ever more evident as 485.9b euros were parked overnight with the ECB, another record high and just a few billion euros away from the total amount loaned for three years by the ECB. In one closet and then into another for a small fee but it seems the fee (the difference between the borrowing rate of 1% and the deposit rate of .25%) is a small price to pay to ease 2012 funding concerns. Just as seen in the US, in an environment of deleveraging, the cost of money just doesn’t matter in encouraging lending. Central bankers still believe otherwise as does a Fitch analyst who is stepping out of his job as a credit analyst and is calling for the ECB to print money as part of the solution saying they have “plenty of scope to expand its balance sheet without unleashing inflation in the euro zone.” Oh really? European bonds are rallying and interbank lending measures are narrowing again. Spain’s parliament votes today on the Dec 30th budget agreement. In the US, the MBA said purchases rose 8.1% and refi’s were up 3.3%. Also, investor sentiment continues to get more bullish as II said Bulls rose to 51.1 from 49.5, the highest since May 2011 and Bears fell to 29.8 from 30.5, the lowest since August 2011.

Category: MacroNotes

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

2 Responses to “In one closet and then into another”

  1. kms says:

    A good question is inflation for whom. The reason that the euro area is a bad place for a single currency is that what would be inflation for Germany would translate to less deflation for Ireland. And how much inflation are we talking about? 2% isn’t the only number in the world. And I hope this doesn’t go the way of pretending that virtuous Germany shouldn’t have to deal with inflation because of profligate nations with a current account deficit. Germany financed those deficits and therefore its own surplus. And since Germany’s economy is so large, a smidgeon of inflation there counters a fair amount of deflation abroad.

  2. Steve Hamlin says:

    Boockvar rebuts with “Oh really?” to a Fitch analyst who “is calling for the ECB to print money…saying they have ‘plenty of scope to expand its balance sheet without unleashing inflation in the euro zone.’ ”

    Boockvar is incredulous that a central bank can expand its balance sheet in the middle of a developed-world liquidity trap without sparking inflation.

    Oh Really? Has he seen developed-world inflation data recently? Boockvar even notes a record 500bn euros parked at the ECB – does he not understand that inflation generally stems from a combination of increases in unsterilized monetary base AND VELOCITY? Disinflation all over, JCT exiting the ECB looking like a blind fool for all of his inflation worries, and Very Serious People with scary tales of bond vigilantes just around the corner while refusing to see reality in front of them. “But, but, but, it’s coming, I’m just sure of it”, Boockvar and these VSP swear.

    Shorter Boockvar: Who are you going to believe, me or your own lying eyes?

    Continual advice to Boockvar: focus on market data and internals, and leave macroeconomic commentary and policy suggestions to those that know a lot more about those areas than you.