The ECB now leads the world’s central banks by quite a margin in terms of size and risk of her balance sheet. The ECB’s balancesheet, post LTRO2 has hit a whopping $4trn. It is a dark comedy that the financial crisis of 2008 resulted from Bank’s over inflating their balance sheet exposures. As we can see below policy makers have simply socialized the exposures from commercial banks to soverign governments and central banks.
The ECB’s swap loans (LTRO1 and 2) have accepted low quality collateral in return for new euro cash. LTRO1 even accepted Greek bonds (Issued under Greek law) as collateral for fresh ECB cash. Its a good question how these loans will ever be paid back and if they are not what the collateral is really worth.
The BOJ comes second with 30% of GDP as balancesheet exposure. Next up comes the BOE who, until recently, has been in the lead in terms of balance sheet speed of expansion. And lastly of the G4 the FED whose balance sheet is exposed to the tune of circa $3trn.
Here Bloomberg’s take on the story:
The consequences we would expect to find of bond vigillantes and a gold silver mania have not occured as yet. The other consequence of inflation, as money is debased, has, equally, not occured, in earnest, as yet. Central banks are taking actions to ‘smooth’ these indicators but for how long they will succeed will be a function of the ratio of new cash to existing cash. So long as the ratio stays in check this story of financial repression can continue a while.
Rich
(9 votes, average: 5.00 out of 5)
Loading...