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Super Mario Cocks the Bazooka
Be prepared for the next great transfer of wealth. Buy physical silver and storable food.
hindecapital.com / By Claus Vistesen / September 7, 2012
The strong reaction of risky assets in response to the ECB unveiling its new OMT programme (Outright Monetary Transactions) may seem odd at first. After all and despite the ECB outlining potentially unlimited bond purchases the bazooka was not fired, but merely cocked. Still, there is plenty to suggest that this will indeed be a game changer in so far as goes the fact that the ECB now seems to stand unconditionally behind backing the euro. Draghi’s comment that journalists would have to guess the identity of the lone dissenter on the governing board was almost comical. After Axel Weber left the ECB and despite Weidemann’s ongoing quibbles in the press against the ECB, the anti-inflation crowd and the Bundesbank itself have been steadily pushed into the periphery of eurozone monetary policy making.
In that sense, the market response and follow up Friday morning is logical. A grave tail risk now seems to have been contained and the extent to which risk asset markets were pricing such tail risks, there is now room for re-rating prices. However, a more pertinent point is that the ECB is now, by far, the most aggressive central bank in the world in terms of providing stimulus and acting as a counterparty or actual buyer in private and sovereign securities markets. It is important to understand the basic dynamic here. Potentially unlimited purchases of government bonds means exactly what is says on the tin, namely the potential for an unlimited expansion of the ECB’s balance sheet.
Thanks to BrotherJohnF
2012-09-07 16:29:56
Source: http://silveristhenew.com/2012/09/07/super-mario-cocks-the-bazooka/
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