On the Greek default and easy money from the ECB

Below is a video of my latest appearance on Capital Account with Lauren Lyster. We spoke specifically about the situation in Europe; and that means Greece in the first instance. We also talked a lot about the ECB’s LTRO program which I see as a back door sovereign monetisation scheme as much as a bank liquidity program. And this is exactly why Investors will buy Italian bonds after ECB monetisation as I predicted in November.

Can it last though? Well, when Spanish yields rise due to the problems they are having, that’s when we shall see. I think the EU will come up with a ‘swag’ on Spain that allows them to flout their deficit targets since they aren’t in a formal IMF program and are also too big to fail. In the meantime, financial repression is killing pension fund returns and so there is ample incentive to pile into Spanish or Italian bonds as long as the ECB continues to signal it supports these countries. As soon as this support disappears, yields will climb.

Video below

  1. spc says

    Arghhhh ….. She’s so annoying ! God…

    1. Sabu says

      Her glasses need adjusting (left side higher than right side) but I don’t find her annoying at all.

  2. David Lazarus says

    You are very right about financial repression and the impact on pension funds. This has been my concern for the last four years. The ECB efforts to forestall a deflationary crash will not work and all it will do is impoverish pensioners eventually. Pension funds need higher returns to cover pension liabilities and without such returns they will have to lower future pensions. This will mean that either pensions become the preserve of the rich or the state has to step in to make good pensions. This will not help governments deficit reduction plans. It is causing the end of final salary schemes in the UK and as people come to discover that money purchase schemes are not making sufficient returns to retire adequately that either means retirement becomes a thing of the past or pension contributions increase dramatically. This will create the paradox of thrift as pension contributions rise, and the tax collected falls as pension contributions rise. That will slow the economy down as governments try to get growth. It simply does not add up.

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