Gasp at the sheer size of El Tro,
the €1 trillion money storm raining down on Europe's banks...
The FATTEST PRIZE in the world's
biggest lottery, El Gordo – the "Fat
One" – just keeps getting fatter, according to its promoters.
even the fattest total of prizes to date – some €2.5 billion at
Christmas 2011 – looks a tin-ribs next to El Tro, the storm of money now raining down on Europe's
Long Term Refinancing Operation took the grand total of giveaway money to
more than €1 trillion, pumped out by the European Central Bank and
known by the acronym LTRO. It is christened El Tro
by us here at BullionVault today via the Catalan
for "thunder". Because that's just what people keep calling it
– El Tro.
can't argue with [that]," reckons one Credit Agricole
analyst, nodding at the €530
billion which El Tro will hand to
commercial banks when the latest chunk of cheap-money loans is settled on
Thursday. But he should add two exclamation marks (¡the first upside
down of course!) and do PR for the Spanish lottery's El Gordo
El Tro – Europe's money storm – demands
a far stronger sales pitch than that.
just two operations in barely 11 weeks, the ECB has created an additional 10%
of the Eurozone's entire money supply,
lending out €3,084 for every soul in the 17-nation union. Throw in the
non-Euro banks scrabbling to scoop up El Tro's gifts on Wednesday, and this latest offer was
met by some 800 different institutions. Even the cash raised
from shareholders by all US and Eurozone banks added together
during the crisis of 2007-2010 fails to match the size of El Tro's gifts.
make no mistake: the LTRO is a gift. Even if price-inflation subsides to
average the ECB's annual target of 2.0% between now and start-2015, the
central bank will make a loss of €44.7bn in real terms. Inflation stuck
(or pushed above) the latest reading of 2.6%
would cost the Frankfurt lenders nearer €62bn...a
full 6% of the €1,018 billion now lent out in total.
bank looking to book an instant profit meantime can simply stick the cash
into 3-year government bonds and turn their 1.0% annual cost into 1.10% with
Finnish debt, 1.55% with Belgian debt...or a massive 5.41% per year with
Italian debt. Hell, you could buy German Bunds and
make risk-free money on anything above 6 years to maturity.
c'mon! Everyone's a winner with El Tro. Except the
central bank, of course. And the banks themselves, if Belgium, Italy or one
of the rest fail to make good on their bond repayments. Which the banks
already have a very clear interest in avoiding, seeing how they're backed by
state guarantees, whether stated or implicit.
does one play El Tro? To get a ticket you need a
banking license inside the European Union. Then the central bank pings you an
email, and makes you an offer you really cannot refuse:
loans for 3 years at a cost of 1% per year!
December, the prize draw totaled €489
billion. This week the cash pay-out totals €529bn. Apparently that's
your lot. ECB president Mario Draghi says today's
giveaway was the last. But a trillion Euros will be a lot of money to find
when the loans need repaying at start-2015, even though they'll no doubt be
worth much less in real terms. We wouldn't bet against a new offer –
and with fatter prizes – in the next couple of years. Anyone wanting to
bet on it might think buying gold or silver a smart move. But they'll likely
need nerves of steel, especially at first.
as with US and UK quantitative easing, buy-the-rumor,
sell-the-news also applies to Europe's LTRO. Gold tumbled more than 3% on
Wednesday, and silver slumped almost 9% at one point, despite the biggest
1-day deluge of money ever seen in history so far. But such volatility is to
be expected, we're coming to learn. Trying to fatten the money supply of the
world's largest economic region by 10% in one morning is sure to make
everyone queasy. And net-net, quantitative easing and El Tro
look very similar. The aim looks exactly the same.
is handed to banks on terms they wouldn't dare have imagined pre-2008.
Officially, the plan is to boost lending to small businesses. The central
banks all promise that this cash injection is only temporary (3 years for
LTRO, undated for QE and clearly indefinite in the case of Japan) and will be
withdrawn in future. A good chunk of it winds up in government bonds. Very
little, if any, reaches what TV news anchors calls the "real
idea that the long term repo operations have eased the supply of finance to
small businesses in the Euro area is a myth," as Bank of England
governor Mervyn King to UK politicians in London
it has done is to provide a source of funding to banks particularly in the
southern member countries of the Euro area which were experiencing a bank
run, enabling them to fund the withdrawal of funds."
that our Mervyn didn't say the loans were a
round-a-bout way of keeping Spain afloat, even though Spanish banks –
heavy players of El Tro the first time –
accounted for 97% of the increase in Eurozone government debt held by all
Eurozone banks in the 3 months to Feb. Because note too that, by the end of
next month, the Bank of England itself plans to hold one-third of all UK government
bonds in issue.
pot, kettle and all that. And just as with the US Fed and Bank of England's un-ending queasing, so
the ECB's unlimited loans look likely to become a permanent and regular
feature for gambling fans.