Wednesday, December 21, 2011

The European Central Bank Catches the Fed Disease

From today's Open Europe news summary:

Huge demand for new ECB long-term bank lending;
The ECB this morning launched its first three-year lending operation with 523 banks requesting €489bn in loans, well above the expectations of between €250bn and €350bn. The previous largest amount requested was €442bn in one year loans back in June 2009. The aim of the long term lending operation is to provide secure long term financing for banks which can no longer gain funds from the usual avenues, in turn hopefully boosting lending in the wider economy and possibly purchases of sovereign debt. It was widely expected that demand above €400bn would prompt a positive market response. Open Europe’s briefing on the role of the ECB and the potential consequences for its long-term lending featured in the Telegraph, on EUobserver and on Zerohedge. The FT reports that US money market funds, formerly a key source of funding for European banks, have now cut their European exposure to record lows.

There is a reason that some banks "can no longer gain funds from the usual avenues.." There is only so much money that they can squander before the market has had its fill of their poor business choices. But our central bankers will not accept the legitimate judgment of those who invest their own money, so they print fiat money and make the taxpayer pay. This will lead only to higher prices and a continuation of the international raid upon capital that goes under the guise of "providing liquidity to the banking sector". It is nothing more than stealing purchase power from existing money holders in order to protect politically connected constituents. But that is not all. The real damage will be done in the years ahead as more capital is squandered in another credit-induced boom that will inevitably lead to a bust. The world need savings, real savings, not fiat money masquerading as savings.

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