Marshall Auerback — The Amazing Growth of the ECB's Balance Sheet

We continue to be amazed by the growth of the ESCB balance sheet. It appears to be as high as 50% of the total euro zone GDP.  I would have thought that was impossible.  No one has focused on this.  Now, perhaps one can question whether this is a properly a net consolidated number as it is supposed to be.  But there is little doubting the trend, which clearly points to a much more expansionary role by the ECB than the markets have hitherto appreciated.

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The Amazing Growth of the ECB's Balance Sheet
by Marshall Auerback

Perhaps the ECB is finally grasping the nettle.  If these numbers are anywhere close to being accurate, then it is surely the case most of the problem debt must have been absorbed.  There can't be that much of it.  Which would imply that the systemic threat posed by the euro zone is potentially overstated by the markets.  That would be a HUGE plus for global stock markets and global stock market activity this year, if true.

Are TPTB in the EZ finally coming to grips with the crisis as the EZ stares into the abyss? Let's hope so.

French downgrade by S&P imminent and ECB is selling bonds!

The word is that S&P will downgrade France and a number of other European countries. Market reaction has been ho-hum. French bond yields have hardly moved. Looks like people think this will play out the same way it did when S&P downgraded the US. Treasury yields fell sharply after that.

But is a downgrade of France (and other Euro nations) the same as a downgrade of the US?

Absolutely not. European countris are credit sensitive by virtue of the fact that they are not currency issuers. They do need external funding.

And here's the kicker...what has the ECB been doing in the last two weeks? Selling bonds! They've sold 50 billion euros worth of bonds in that time, reducing the size of their balance sheet.

Looks to me like investors don't know this is happening. Also looks like we're in for another round of funding crisis fears.