So much for Mr. Bernanke’s magic printing press:
Now we’re really in trouble:
The ECB failed to auction the €55bn in fixed term deposits it had planned to, and what it did auction (€31.86bn) was at a much-higher rate (0.54 per cent) than what it offered at the start of its Securities Markets Programme (SMP). The market seems to be holding tight to liquidity.
The wall has been hit.
This is a clear warning to the money-printing screamers (of which there are many adherents) and the “we can do this without impacting aggregates” crowd (commonly known as Central Banks with God complexes.) Sadly, as I have repeatedly pointed out, all Ponzi Schemes fail, and they fail at the most inopportune time, after you have spent the proceeds of your previous scamming and thus lack the ability to deal with the failure to sell your latest batch of whatever it is you’re attempting to do.
Oh, and by the way, it gets better. Much better.
See, the ECB has a rollover problem coming, in that they need to roll a significant amount of term liquidity deposits Thursday. If those rolls fail, the markets will crash. Both credit and equity.
As I have repeatedly paraphrased Bob Prechter, the problem with the Whiskey Zulu scenario is that neither Europe nor the USA have a paper money system. The debt money system requires that each new note find a borrower. But when the limits of demand for debt are reached, it’s not possible to continue to issuing more money. Furthermore, most money is created through the fractional reserve banking system, not the central bank, and creating that money also requires a constantly growing demand for credit.
Now, it’s true, the national governments could convert to a paper money system and this is one of the legitimate possibilities, but they cannot possibly do so fast enough to avoid a period of deflationary crash, especially when the politicians who would be responsible for the switch would have to brave the wrath of the financial powers who would be ruined by such a move.
Which is why it’s not going to happen. My best guess is that Plan A was another attempt to solve the problem through more centralization; devaluing the current currencies as they are converted to a regional or global currency. However, given that the global public is already furious with the banking establishment, this probably isn’t viable now. The stimulus plans were supposed to work well enough to give them time to smoothly transition to the next stage of monetary harmonization, but due to their reliance on a bad economic model, that obviously hasn’t happened.
Interesting times indeed.