2011-12-28implode-explode.com

Via Bloomberg (snarky remarks from us at bottom) --

The European Central Bank's balance sheet soared to a record 2.73 trillion euros ($3.55 trillion) after it lent financial institutions more money last week to keep credit flowing to the economy during the debt crisis.

Lending to euro-area banks jumped 214 billion euros to 879 billion euros in the week ended Dec. 23, the Frankfurt-based ECB said in a statement today. The balance sheet increased by 239 billion euros in the week and was 553 billion euros higher than three months ago.

...

The ECB last week awarded 523 banks three-year loans totaling a record 489 billion euros to encourage lending to companies and households and prevent a credit shortage. Barclays Capital estimates the loans injected 193 billion euros of new money into the system...

If the balance sheet release was the reason for the euro'sdecline, "it shows you how thin the market is at the moment," said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London. "Nobody who's following the ECB should be surprised that the balance sheet is at that level as it has been continuously adding liquidity. Almost three trillion is a relatively elevated level, but it is collateralized lending, so it's not a huge concern at the moment."

...

In addition to offering longer-term funds, the ECB has also widened the pool of collateral banks can use to obtain the cash. The central bank will offer a second three-year loan on Feb. 28.

That whole statement that "because the loans are collateralized they're not a concern" is a big 'LOL'. It appears the ECB has take a page from the Fed's book and has realized it can get away with much greater monetization without the unsightly immediate effects of outright money-printing by accepting trash "collateral" from the banking system to buy it some time. How can we be sure it's trash, you ask? Because if anyone else was willing to take it in exchange for the cash banks need, they would have long ago (and yes, we include Euro-area member countries' sovereign debt in this smear).

At any rate, now the ECB rivals the Fed, both in balance sheet size, and its dubious composition. Like the Fed, we don't see an "exit strategy" down the road other than outright printing.


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