The 'geniuses' at the European Central Bank and goverment politicians within the EU are going to print money to try and 'short squeeze speculators who are short selling the Euro (betting it down).
Essentially their futile and money wasting attempt is to create a buying trend on the EUR (Euro) and squeeze out the traders/investors/hedge funds that are shorting the EUR. Will it work? Short term it will stabilize the currency, as the majority on the buyers will be ECB and Goverment related departments, but in the mid/long term it will be failure. As the confidence will not return to buy a low yield currency connected to a huge sovereign debt issue (Europe), in the sense that the major problem is the high risk of investors to hold sovereign debt from European. It is expensive to insure ( increasing credit default swap yields) and unprofitable (no one will want to buy/trade), so investors see more value in short selling the EUR currency, not buying and holding the EUR.
The best thing the ECB could do is increase interest rates on the European cash rate, this will add value to the EUR and the market will buy and dump the US dollar.
And take the pain (the banks) as funding costs rise.
Eventually an oversold asset is usually bought back, as long as the value returns. Postpone and/or destroy that value, the pain will be longer and harder. This is what the ECB and the flunkies (European politicians) are doing.
More central bank intervention and more goverment intervention not only erodes confidence in the financial stability of the EU but also it won't work this time (as opposed to the massive monetary intervention in 2008/2009, dropping yields/funding costs). The debt problem in Europe is precisely the byproduct of that irresponsible attempt at flooding the ecomomies with liquidity and burdening the unfortunate citizens (at this point Greece), who have to endure governments short term and reckless disregard for financial stability and prosperity. What has happened in Greece (as far as a backlash against goverment) will resonate throughout the European ecomomy.
Update: ECB/EU/IMF have decided on a massive money printing exercise at (reported)600 Billion Euro.
It is almost comical, what needs to be watched if the yield spread on CDS falls to lows. Early days, but the whole deal sounds rushed, I would say it was aimed at squeezing short sellers. The market should maintain skepticism and I suspect selling pressure will remain on the EUR and interbank/CDS spreads should widen. The reasons for skepticism. How will this massive amount of money be distributed? And how will it help the broader ecomomy and it's people? Disastrous for the markets and the EU as to fund this bailout brutal austerity measures will be delivered to the PIIGS (Portugal, Ireland, Italy, Greece and Spain).
No comments:
Post a Comment