Daily Archives: June 29, 2015

3spoken: Greece and the Art of Liquidity

Secondly the ECB is about to undertake €60bn of QE every month starting ‘no later than March 5’. What that means is that the overall system will become short of income earning assets as government bonds are drained by the central banks. Greece may be excluded directly from this process for the time being, but importantly it is the only government in the Eurozone that is on an expansion footing. Everybody else is busily digging their own graves by reducing deficits and other such nonsense and so is issuing as little as possible.

So that leaves new Greek government bonds as pretty much the sole source of anything resembling an interest rate in the whole Eurozone. It will be a very interesting test of ‘liquidity preference’ to see whether all this money that costs banks money to hold on deposit will stay there or whether they will be tempted by the Greek offering.

In other words it ain’t over until the Fat Lady fails to show up at the bond auction.

via 3spoken: Greece and the Art of Liquidity.

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Per Kurowski (ex WB executive director) – Tea with FT blog

The problem though is that, may we say naturally, because of conflicts of interest, too many in Europe, like government employees and/or statist ideologues, are too interested in keeping the flow of these easy credits going. In other words, too many have found redistribution and cleaning up debris after the storm to be a politically more rewarding activity than producing or building more storm resistant houses… and this guarantees the continuance of Europe’s “deeply flawed governance”.

Secondly, allowing banks to hold less equity against the borrowings of “the safe”, than against the borrowing of “the risky”, signifies a subsidy to those who already have more and cheaper access to credit, and a regulatory tax on those who already have less and more expensive access to bank credit. And this translates into an odious and dangerous distortion of the allocation of bank credit to real economy, and which also, by negating opportunities to those most in need of it, is an important driver of inequality. Not wanting to understand this could be explained in terms of intellectual and moral procrastination… and in Europe, I am sad to say to many seem to be engaged in that.

via Tea with FT.