When in doubt monetize and let inflation take control. The ECB started buying Italian and Spanish bonds in an effort to solve the debt crisis. It should have a short-term demand effect but there is still the problem that the ECB is the central bank for all of the EMU and not just these two countries. There will be a fall in ECB creditability to match the poor creditability of EU governments.
An issue is that no one knows how much buying of debt will be necessary to stabilize the markets. If there is a unlimited buyer at these levels, there could be a lot of selling. All of this debt goes on the balance sheet of the central bank. If there is a default, there will have to be a capital infusion from the central banks of individual countries.
An issue is that no one knows how much buying of debt will be necessary to stabilize the markets. If there is a unlimited buyer at these levels, there could be a lot of selling. All of this debt goes on the balance sheet of the central bank. If there is a default, there will have to be a capital infusion from the central banks of individual countries.
No comments:
Post a Comment