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Schizophrenia: Bernanke (Stay Calm) vs. ECB (Panic)

Written by Gary North on March 1, 2012

On February 29, Bernanke gave a soothing presentation to a House committee. The stock market dropped a little. Gold and silver dropped like a stone.

The media focused on Bernanke’s hint that QE3 will not be necessary, that economic growth is slow. Conclusion: monetary stability.

At the same time, the European Central Bank injected $712 billion of fiat money into the eurozone. About 800 banks took this fiat money.

So, on this side of the Atlantic, all is calm. On Europe’s side, the ECB was in panic mode.

The West’s economy is schizophrenic.

The story about the ECB was given cursory coverage. Ho-hum.

It is not ho-hum. It is an indication that Europe’s economy is tottering at the edge of a crash. The ECB is in panic mode.

More crucially for eurozone governments, some banks in financially pressed countries such as Italy and Spain appear to have used the cheap money to buy government bonds. That has brought down borrowing costs, especially on shorter-term bonds, and taken some of the pressure off governments such as Spain and Italy. . . .

However, the first round had less effect on bank’s lending to the wider economy. Loans to businesses only stabilized in January after a steep fall in December.

ECB President Mario Draghi encouraged banks to take the credit, saying there was “no stigma” or sign of weakness associated with it and that participating was only a “business decision.”

The story added this: “Other ECB officials have indicated however that markets should not get used to such massive rescue operations from the central bank.” Nonsense. The ECB has capitulated twice. It will do so again. There is no stopping QE3 there. The ECB talks stability and then inflates massively.

It will never go back. The monetary base is up, and it will stay up.

Peter Praet, a member of the six-person executive board and the ECB official responsible for the bank’s economists, has said the bank will face a difficult balancing act in judging when to withdraw the additional credit. ECB governing council member Ewald Nowotny has said he sees no need for further action after the second installment of loans.

This is public relations flak. Of course the ECB will inflate. That is its job.

A German banker protested. German bankers have exactly zero influence.

Jens Weidmann, the head of the conservative Bundesbank, Germany’s central bank, has warned that overly generous liquidity could lead to banks investing in riskier assets.

“The crisis cannot be resolved solely by throwing money at it,” Weidmann warned in a speech last week. “While money can buy us time to tackle the crisis, it is imperative that we use that time in order to address its root causes. “

He is correct. He is also powerless.

Continue Reading on www.usatoday.com

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4 thoughts on “Schizophrenia: Bernanke (Stay Calm) vs. ECB (Panic)

  1. DockyWocky says:

    One thing you can say about Bernanke, he can sit there and lie like a champ.

  2. OdontBrakeForDems says:

    O'Blamo, Holder, Reid, Pelosi, the Bernanke….the best way to tell when their lying is to see if their lips are moving. We The People will find out our dollar is no longer worth the paper it's written on AFTER the poo hits the fan, and not a moment before. It's like a game of musical chairs: each time the music stops, someone gets screwed. The only way for the government to shift the hit is to make sure the PEOPLE are holding DOLLARS when the music stops, and the more the merrier. You know the old saying: 'He who dies with the most toys wins' well this is similar, only this game is 'He who is holding the most dollars loses' If you wait till the music stops, you already lost.

  3. Working people frequently ask retired people what they do to make their days interesting. Well, for example, the other day I went downtown and into a shop. I was only there for about 5 minutes, and when I came out, there was a cop writing out a parking ticket. I said to him, 'Come on, man, how about giving a retired person a break'? He ignored me and continued writing the ticket. I called him a 'Nazi.' He glared at me and wrote another ticket for having worn tires. So I called him a 'doughnut eating Gestapo.' He finished the second ticket and put it on the windshield with the first. Then he wrote a third ticket. This went on for about 20 minutes. The more I abused him the more tickets he wrote. Personally, I didn't care. I came downtown on the bus, and the car that he was putting the tickets on had a bumper sticker that said, 'I ♥ Obama.' I try to have a little fun each day now that I'm retired. It's important to my health.

    Semper Fi.
    Raymond

  4. May be calm on this side of the pond now, but once the PIIGS start defaulting — or the populations say "Hell no!" to more "austerity" measures by their governments — those credit default swaps will start triggering and they will take down Wall Street too.