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BusinessDesk: Scepticism grows that big ECB action will ease liquidity or ease the EU sovereign debt crisis

BusinessDesk: Scepticism grows that big ECB action will ease liquidity or ease the EU sovereign debt crisis

Initial euphoria about the European Central Bank's bigger-than-expected generosity towards the euro zone's banks quickly faded amid concern the cheap three-year loans won't fix the fiscal crisis.

Europe's central bank has lent 489 billion euros to the region's banks to bolster their liquidity. That exceeded the median forecast for 293 billion euros in a Bloomberg survey of economists and the 310 billion euros expected by traders polled by Reuters.

Initially stocks and the euro strengthened amid hopes the increased liquidity would ease the strain of borrowing in the euro zone, with Europe's Stoxx 600 Index rising as much as 1.4 percent. However, it didn't take long for concern to get the upper hand, and the Stoxx 600 Index ended the day with a 0.5 percent decline.

The euro was last 0.2 percent weaker, after climbing as much as 0.9 percent after the ECB announcement, according to Bloomberg News.

"While this might help to address recent signs of renewed tensions in credit markets and support bank lending, we remain sceptical of the idea that the operation will ease the sovereign debt crisis too," Jonathan Loynes, chief European economist at Capital Economics, told Reuters.

Bonds of debt-laden nations dropped. Yields on Italian two-year notes rose as much as 27 basis points to 5.25 percent, while Spanish debt yields with the same maturity increased 27 basis points to 3.5 percent, according to Bloomberg News.

Economic data didn't help, with consumer confidence in the euro zone dropping to the lowest level in more than two years.

The sombre mood hit home across the Atlantic too. In afternoon trading in New York, the Dow Jones Industrial Average fell 0.80 percent, the Standard & Poor's 500 Index shed 0.73 percent and the Nasdaq Composite Index dropped 2.21 percent.

Oracle paced losses in the Nasdaq, with the stock dropping more than 13 percent at one point after its latest profit results missed expectations.

While the latest data on US home sales showed signs of promise, a revision to earlier numbers proved just how bad things really were. The National Association of Realtors today said it had overstated home sales from 2007 to 2010 by 14.3 percent and that sales bottomed at a 3.30 million-unit pace in July 2010, rather than 3.86 million.

The group also said that sales of previously owned homes climbed 4 percent last month from October to an annual rate of 4.42 million units.

"The housing market is finding its bottom, and that will translate into more growth in GDP and less of a drag on consumer confidence," Robert Dye, chief economist at Comerica in Dallas, told Reuters. "But we still have a long, long way to go."

(BusinessDesk)

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6 Comments

Most people who read this site, and the owner of it, will read this, rightfully aghast, because it's what got Europe into the mess in the first place, yet, these same people will still continue to advocate the centrally banked, Big Brother State to run their lives.

Crisis Part III coming to you in the New Year: bigger, better, faster than both the two crises before. See whole nations wiped out.

Crazy.

We need an economic collapse , collapse is OK . It will clear away the accumulated toxins created by governments , central bankers , and too-big-to-fail corporations ....

.... left to it's own devices , capitalism thrives , it survives ..... the spirit of free enterprise will re-surface , and once again , growth & innovation will occur ....

..... but we require real growth , none of this artificial boosting  of the figgers by government " work programmes " ......

From the ground up , small businesses and individuals create the wealth , not government and mega conglomerates from the top down ...

Most people who read this site are intelligent enough to realise that ECB liquidity has no effect in Europe until it leaves the financial institutions, e.g is borrowed and enters the european economy.

If you are actually correct and there is a big brother state then maybe this would actually happen because big brother would immediately give orders to borrow money and begin production. But in reality there is no force directing anybody to in Europe to borrow money which points more to banker cronyism, not stateism. No doubt, a point missed by anybody who believes in the existance of a big-brother state influence. Well at least there is a state even if it has not that much influence.

In a laizze-faire fantasy world of course the deities are somewhat more fanciful. In this world (which only exists when markets are 'free-enough', or in selective cases when free-marketeers want to claim responsibility for retrospective market results) the confidence fairy will show up and encourage people to borrow money from these banks as a result of the banks increased liquidity (meaning ability to lend).

In the real world however there is no desire for people in europe to go further into debt and so the liquidity supports only bank profits. Maybe a bit of state spending at such a time would be a way to increase the amount of money actually circulating in the european economy.

No doubt Tribless will attribute the lack of a recovery as further evidence for the 'not free-enough' fantasy rather than the debunking of his 'pervasive state influence' fantasy. But this would depend on the rather strange belief that confidence is higher in a de-regulated environment (with fewer rules or enforced rules), than in a well regulated environment with more rules and better enforced rules. To my own naive self it seems that more people have lost confidence in the financial system (and therefore do not want to be in debt to it, or invest in it) after seeing how much fraud and deceipt it is involved in.

Any thinking person will of course note that there is a claim in the previous post that Crisis stage I was some how caused by the first set of bank bailouts. This shows a typical level of chronological accuracy, attributing the crisis to an event occuring well after the crisis had long since started in the relatively de-regulated US interbank lending markets. I expect further claims that the first great depression and events beginning in 1929 were caused by Franklyn Roosevelts new deal policies beginning in 1933.

 

 

Has the first crisis ended yet?

How Europe can be pushed into serfdom:

http://www.youtube.com/watch?v=EPcWHBPYOSU

And some of the wording is identical to the statutes of the IMF or Worldbank.

Immune to persecution by whom whatsoever.

Mark Faber on Derivatives:

http://www.zerohedge.com/news/mark-faber-i-am-convinced-whole-derivative...

Also on zerohedge

And it's official: US debt to GDP passes 100%

Hungary downgraded to junk

 

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