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.