Friday, June 26, 2009
ECB $622 billion injection: A lesson in reserve accounting
The other day the ECB injected $622 billion into the European banking system.
IN ONE DAY!!!
Yet, there was no outcry in Europe about the ECB "printing money" or that it was, "debasing the euro," claims we so often hear in the U.S. It took the Fed months to expand reserve balances by the amount the ECB did in one day and all we heard were cries of "taxpayer on the hook."
There is something striking about the ECB move and, hopefully, educational, for anyone believing that when a central bank injects liquidity that the taxpayers are the ones on the hook. The ECB has no taxing authority, nor is there any Federal Government of Europe that has an over arching taxing capability. Yet, the ECB came up with $622 billion in an instant.
How did they do it?
Simple, by the stroke of a key on a computer. That's all there was to it. A bookeeping entry.
It came and it went without any hullabaloo and there was no rush to sell the euro as would have been the case if the Fed did anything similar. Without question an action of such magnitude by the Fed would have set of a firestorm of criticism in the media and on Capitol Hill, and speculators around the globe would have sold dollars feverishly.