Let's simplify this suckah:
As I appreciate it, the ECB will issue Euros against sovereign bonds purchased by the EFSF. I guess they will be levered because there is no telling to what extent the collateral will be deemed good, i.e., you know it won't be one-to-one but something higher.
In other words, if my interpretation is correct, we are talking about straight out debt monetization because sovereign bonds will be bought by the ECB and the proceeds go to the EFSF who will in turn hand over the cash to the debtor nation. I think it precludes the EFSF from going out and getting national approval for the increase in funds it was seeking.
Each EC country has a limit on how many Euros it can print, but I suppose that limit does not apply to the ECB. If the ECB can do this, it is straight out debt monetization and/or QE which, of course, is great for markets. Not so good for the Euro, so the Chinese will be pissed.
And gold, well, in the short run, good for gold in Euro terms as it appears that Euro money stock will be increased and interest rates should go down. But it will drive money into the USD, raising it, which is not so good for my gold, which is valued of course in USD.
It looks like the Euros are doing what we have done, just a few months later. They are beggaring everyone else's currency, but perhaps avoiding a blowup. We'll see.
All my guesswork, so take it with the requisite grain of salt. |
