Record lending to troubled Eurozone banks has ballooned the European Central Bank's (ECB) weekly financial statement, a pro forma balance sheet for Europe's biggest fiat money creator, to a never seen before €2.031 trillion as of October 31.

To put this mind-boggling figure into a context: In 1999 the ECB started out with an initial consolidated balance sheet that totalled a mere €697 billion. So within 9 years the Eurozone has been showered with almost three times the money it started out with while long term GDP growth rates helped grow the Eurozone economy only some 20% in the same 9 years.

In comparison to the end of 2007 the ECB balance sheet grew a hefty 33% year-to-date.

Two culprits are responsible for this unprecedented bout of monetary inflation: Banks who lent their funds to high-risk debtors and the ECB itself as it never hesitated to fuel runaway monetary supply in order to prevent a systemic banking crash.

Drilling down the latest figures has a blood-chilling effect: More than 60% of the ECB's "assets" are lent to banks, roughly 10% is gold and then there is the trashcan of so called "other assets" that stands currently at €381 billion or almost five times the initial amount from 1999.

Growth rates are appalling: Only last week the ECB expanded its balance sheet with a new special refinancing operation to the tune of €103 billion, bringing the amount of money borrowed to alleviate the credit crunch to a hot €500 billion.

Money supply M3 has receded a bit and I wonder how to interpret ECB president Jean-Claude Trichet's statement that M3 figures would understate the effects of the credit crunch. Does he mean on the upside or on the downside?

According to the ECB's figures money supply M3 growth declined in September 2008 to an annual rate of 8.6% after 8.8% a month earlier.

Labels: crisis, ecb, eurozone, M3, monetary inflation, money supply

Toni Straka

Editor, the Prudent Investor

Toni Straka is an INDEPENDENT Certified Financial Analyst (OeVFA, EFFAS) who worked as a financial journalist for 15+ years and now evaluates global market trends. Analyzing financial and political news permanently he wants to share his insight with those who understand that we are in an era of global redistribution of wealth. The US-European centric approach does not work anymore. Five billion people in the developing countries now demand their fair share of the world's resources.