ECB's $500 Billion Loan Won't Help Solvency Problems
The cost to borrow in euros through the end of the year plunged after the European Central Bank added an unprecedented $500 billion to the banking system as part of a global effort to ease credit-market gridlock:
The amount banks charge each other for two-week loans in euros dropped a record 50 basis points to 4.45 percent, the European Banking Federation said today. The rate had soared 83 basis points in the past two weeks as banks anticipated a squeeze on credit through year-end.
"These are strong-arm tactics intended to show the market they're seriously committed to breaking the deadlock," said Marc Ostwald, a fixed-income strategist at Insinger De Beaufort SA in London. "The ECB is helping to bankroll banks out of a problem that they themselves created."
"$500 billion is an enormous amount of money. To put it into perspective, $500 bln is 5% of total US banking system assets.
Furthermore, everyone should remember that the $500 bln is funding just through year end. Come January this will need to be refinanced or rolled over."
If this $500 billion "emergency funding" was just a year-end phenomenon, that would be one thing. But this is not a liquidity issue this a solvency issue and a growing solvency issue as well.
You can't cure drug addicts by giving them more drugs nor can you cure insolvent credit junkies by dramatically increasing the size of the loans. I suspect the "emergency" is going to last a lot longer than the ECB thinks.
Another dark day for the Global Economy, and another red letter day for Inflation. Buy Gold and Silver while the sale, AND supplies, last.
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