- December 29, 2011, 1:10 PM ET
Yes, the Market is Getting What it Wants. The ECB is Easing.
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By Matt Phillips
Not too long ago, every trader and fund manager we talked to was squawking about the desperate need for the ECB open up the liquidity spigot by firing up the printing press. Printing euros however wouldn’t fly with the powerful German lobby at the central bank. But printing money isn’t the only way the central bank can pump liquidity into the market.
They can also go the backdoor route, by loosening their criteria for the collateral that they’ll accept in exchange for loans. Check out this chart which shows the balance sheet of the Eurosystem, which comprises the Frankfurt-based ECB and the 17 euro-zone national central banks. It grew by 239.43 billion euros last week, reaching 2.733 trillion euros.
http://s.wsj.net/public/resources/im...1229122554.jpgFactSet
As The Journal’s David Enrich and Sara Schaefer Munoz reported yesterday:Banks in Spain, Italy and France, among others, have borrowed hundreds of billions of euros from the ECB on a short-term basis, posting items including government bonds — often from financially weak countries such as Greece and Ireland that helped precipitate the crisis — as collateral.
Of course, you can’t escape the cyclical nature of this solution. The ECB is propping up the banks, and the banks are keeping the euro zone governments afloat by buying their debt. If it doesn’t sound sustainable. And it might not be. But it seems that the markets at least see a path for muddling forward in Europe, which wasn’t clear just a few weeks ago.
......anyone for a New Year's Rally??