ECB in 'panic'

According to a Telegraph article, former ECB chief economist Juergen Stark says the ECB is in 'panic' and acting well beyond its mandate.

Why?

Because the bank solvency led financial crisis has not ended and because of pressure from the Blob (aka, national policymakers, financial regulators, bankers and their lobbyists).

Regular readers know that monetary policy is not a tool for ending a bank solvency led financial crisis.  It is only a tool for buying time by keeping the financial system on life support.

Regular readers know that the only solution for ending a bank solvency led financial crisis is requiring the banks to absorb all of the losses on the excesses in the financial system.  This can only be done by overcoming and defeating the Blob.

"The break came in 2010. Until then everything went well," Juergen Stark, the German who resigned from the ECB in late 2011 after criticising its earlier round of buying up of sovereign debt, told Austrian daily Die Presse in an interview. 

"Then the ECB began to take on a new role, to fall into panic. It gave in to outside pressure ... pressure from outside Europe." 

Pressure from the Blob.

Mr Stark said the ECB's new plan to buy up unlimited amounts of eurozone states' bonds, announced on September 6, on the secondary market to bring down their borrowing rates was misguided. 

"Together with other central banks, the ECB is flooding the market, posing the question not only about how the ECB will get its money back, but also how the excess liquidity created can be absorbed globally," Mr Stark said. 

"It can't be solved by pressing a button....

If the problem could be solved by printing money, then Japan should have been able to solve the problem from its bank solvency led financial crisis 2+ decades ago.

He added that "panic" about the eurozone breaking up was "nonsense" but that the only way to end the crisis was for member states to bring down their debts and implement structural reforms to boost economic growth....

As shown by Iceland, the way to bring down the debts and implement structural reforms to boost economic growth is by adopting the Swedish model and requiring the banks to absorb all the losses on the excesses in the financial system.

To ensure that the banks recognize all the losses and that the Blob never causes another financial, banks must be required to provide ultra transparency and disclose on an ongoing basis their current global asset, liability and off-balance sheet exposure details.

With this transparency, market participants can exert discipline on banks and restrain their future risk taking.