"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister

"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."

- Daenerys Targaryen

"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"

- Tyrion Lannister

"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."

- Jorah Mormont

"These bad people are what I'm good at. Out talking them. Out thinking them."

- Tyrion Lannister

"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."

- Michael Barone

"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker

Tuesday, November 15, 2011

Occupy The Bundesbank by Yglesias

News Analysis: Lending a Hand to Banks, but Not to Nations by Jack Ewing

Informative piece on the ECB.
Correction: November 15, 2011

An earlier version of this article mischaracterized the practices of the United States Federal Reserve.  It does not buy government bonds directly from the United States Treasury; it does so on the open market.
As a central bank, the E.C.B. could theoretically use its ability to print money to buy huge amounts of debt from Italy and other countries. That would drive down their borrowing costs and ensure that they could continue to service their debts — that they would remain liquid, in other words.
The central bank’s charter does not allow it to buy bonds directly from national treasuries. And yet, the central bank can and does do essentially the same thing, by buying government bonds on the open market.
Since last year, the bank has spent 187 billion euros intervening in bond markets. But the relatively modest sums, less than 10 percent of the central bank’s total balance sheet, have not been enough to prevent yields on Italian bonds from rising.
[Except that after breaching 7 percent last week, the Italian 10-year did head back down because of the E.C.B. I assume. It might have been reported, I can't remember. But it's back up even after Berlosconi was replaced with a technocrat.)
If the interest rates that Italy must pay to borrow remain at their current levels, the government could eventually go bankrupt.
The only limit to the central bank’s ability to create money is a psychological one — the fear of setting off too much inflation. Mainstream economists, though, do not see any risk of significant inflation under current circumstances. The euro area is headed for recession, unemployment is rising and factories are not producing as much as they could. That is why economists tend to encourage the bank to put more money into circulation.
Seems to me that that the ECB could be the lender of last resort by buying up Italian bonds.

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