Thursday, January 24, 2008

Another attack on another central bank

The prudent investor submits:
Rising tensions in the Eurozone banking system begin to show in the balance sheet of the ECB. Checking the latest weekly financial statement of the ECB one notes shifts in the asset positions that may indicate that the ECB is taking on more subprime collateral that would not be accepted in the regular repos.

This results in a dramatic explosion of the total volume of the balance sheet which blew up by more than 30% since Dec 30, 2005 and now stands at €1.35 trillion. It is interesting to see that the Eurozone economy, limping along with economic growth rates in the 2% area, needs 16% more ECB credit every year since 2006. Is real inflation closer to 14%?

My worries focus on "other assets" (Pos. 9.) This trash can has ballooned by 128% from €145 billion to €332 billion since the end of 2005. The position other assets is a collective item...... Again, that can be any kind of paper debt, valued at the discretion of the ECB. For my part, I feel uncomfortable with this long term trend in declining asset quality that may show that the banking system may be broken beyond repair. Is this the beginning of the end of the Euro? I am tempted to take bets.

I like the part with ''is real inflation closer to 14%?". It sure feels like it on both sides of the Atlantic.
latest weekly financial statement of the ECB

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