A lot of folks are calling out ECB chief Jean-Claude Trichet for his claim that buying European government debt on the secondary market is not the same as quantitative easing.
Yesterday John Hussman called him out, noting that despite plans to “sterilize” the purchases by withdrawing liquidity, there’s still the phenomenon of rotating the ECB’s balance sheet away from healthy debt to toxic debt.
BofA’s Jeffrey Rosenberg (via ZeroHedge) sees the same thing:
We believe undermining the Euros valuation vs. the dollar stands the threat of indirect debt monetization of Greek and other periphery debt. Despite its claims to the contrary, today’s ECB announcement on operational details of its Securities Markets Programme of direct secondary market purchases of sovereign debt suggests the possibility the ECB could end up effectively sterilizing its own sterilization. This occurs as the term deposits used for sterilizing the EUR16.5bn of purchases last week itself are eligible as collateral against ECB repo liquidity. To us that means that the liquidity drain of collecting deposits from banks could be effectively unwound in the scenario whereby the bank used those term deposits as collateral against ECB repo lending, a possibility explicitly permitted in today’s announcement. While we believe such a scenario is highly unlikely, the perception it creates of debt monetization nevertheless is the larger issue to the near term outlook for the Euro, in our view.
The only thing mitigating the likelihood of “reprisals” is the fact that the Germans already know they’re getting screwed.
Remember, they call themselves the “schmucks of Europe” (or at least the famous Bild headline did) because they’re bailing everyone else out.