How much money is the US printing? Europe : another 42 billion euro

[BelgianMadCow]

A byline in yesterdays news in Belgium made me go hmmmmm : the ECB decided to stick to 4% for the key interest rate, inflation is not under control and they will print 42 additional billion euros. This decision is based on the collapse in the US mortgage market. Hadn't heard of that collapse, you guys have? I did see an increase in foreclosures mentioned here on DU.

It also reminded me how the US government decided to no longer publish the "E3" amount of money printed if I remember correctly, any info on that?

I may be way off base here, but it would seem to me that printing large sums of money without advertising it would be a great way for the US admin to keep the market afloat when in reality it is crashing, thereby providing time for those in the know to bail out.

http://euobserver.com/9/24714?rss_rk=1
<snip>
EUOBSERVER / BRUSSELS – The European Central Bank (ECB) has decided to keep its key interest rate at 4% while taking stock of the full economic disruption of tighter lending that has emerged owing to a collapse of the US sub-prime mortgage market.
</snip>

http://www.standaard.be/Artikel/Detail.aspx?artikelid=DMF06092007_039
<snip>
De ECB zag daarmee af van een eerder bericht om de rente te verhogen in september. Door de problemen op de kredietmarkten stelde ze de banken donderdag nog eens 42,245 miljard euro ter beschikking.
</snip>

I also connect this to the divestment in US funds by foreign central banks, and the possibility of an attack on Iran.

[TreasonousBastard]

1. Where ya been-- mortgage collapse has been big...

around here.

Problem is that we don't actually have mortgages any more, but "mortgage backed securities" that are sold on closed markets. You get a mortgage, alright, when you buy your house, but the bank or mortgage company immediately cuts it into little pieces, bundles the pieces, and sells them. This, of course, leads to less control over lending practices, since nobody takes an obvious loss when the payments are late. When too many payments are late, though, this market acts like all markets and panics. It's panicking now that it sees what it did.

It's not E3 but M3 that's not being published any more. Many conspiracy theories about this, but the Fed maintains that the num,ber is too difficult to get accurately and no one uses it anyway. Like we believe that.

M3 is M1 and M2 (the total amount of cash, demand deposits and some other liquid assets) plus the amount of overseas cash that used to be known as Eurodollars. Nowadays, its all sorts of fancy repo agreements, bond sales, and other stuff in addition to dollars in the Bundesbank. Intersting thing is that M3 ties in pretty directly with our really, really, lousy current account numbers-- our trade balance is getting worse by the minute. Hence the conspiracy theories about this Fed move.

Some people think the Fed prints M3, and while that idea springs from ignorance about the way things work, it's not that far off the map when you add up all the letters of credit out there that have to be reconciled and then the notes the Fed sells to cover all those foreign orders.

[BelgianMadCow]

2. Thanks for the enlightenment

I have been in hiding indeed, absorbed with work and family...

Too bad about the mortgage crisis - I personally care about the markets in the sense that a lot of people's pensions are in there, and that's about it. But behind this crisis are a lot of sad stories of course...

I sure don't know how it all works over there with you, thanks for helping me along. I was wondering if in the absence of M3-numbers, there are any secondary indicators that would point out the direction. I figure that would be too easy huh.

regards
bmc

PS : part of my post was spurred on by a shopping trip I recently did - I really looked at all the prices, converted he back to our old currency and was flabbergasted. I have the sentiment our inflation is way underestimated. People I talk to about it feel the same - practically everybody agrees we have to work harder, and with two, to come even close to the standard of living of our parents.

[Richard Steele]

8. That's a well-phrased, simple & concise summary of a very complex SET of interlocking situations.

Well done! :applause:

[lapfog_1]

3. That's 42 Billion on top of the nearly 187 Billion

printed up in the last few weeks in the US and Europe to "stabilize the credit crunch".

This little bailout ($230 Billion and growing) isn't on the radar screens of JQ Public because its funny money... not tax dollars... but the inflation rate will tick up and the citizens will pay more for everything and watch their savings dwindle plus the folks on fixed incomes will suffer, at least until their colas kick in later... but we will pay for this. Oh yes, we will pay to bail out the mortgage companies and the house flippers and the builders that plunked down those cookie cutter developments with their "all the same" McMansion craptacular houses... drive through Phoenix or Tucson or Las Vegas sometime, it's just horrible what they've done.

Recession or worse is very likely.

[BelgianMadCow]

7. Exactly right - we will pay for this in the end

and thanks for adding the 187 billion to the thread. Don't know whether that increases or decreases the thread value:-), but I was actually lacking that kind of background figure in my OP. Should you have a link, I'll update it.

:hi:

[lapfog_1]

9. It was done in a series of moves when the stock markets

started reacting to banks not buying the subprimes from the mortgage companies... and then not buying basically anything but mortgages to people who don't need a mortgage (because they can pay cash if they want to).

Here is a link, I don't know if they cover all of the quick fixes that happened.

http://www.voxeu.org/index.php?q=node/460

[BelgianMadCow]

10. Excellent link about the August Fed and ECB Billions

both the Fed injections and those earlier by the ECB are covered, as are some basics about repurchase agreements for those not in the know like me.

Interesting bit near the end :
"Now, put yourself in the position of a European bank. Maybe you know something about what’s going on, maybe you don’t. In either case, when the ECB says that they are going to give you as much as you want on a day when they normally do nothing, you have to wonder what they know that you don’t."

Can't edit it in the OP anymore but thanks!

ps edit on McMansions, we used to have hardly any two houses the same over here, but now we have those too. Tiny plots, as big as possible a house on it, and some halfhearted attempt at theatrics on the outside while the crappy quality shines through.

[spindoctor]

4. Because the dollar is the de facto global payment standard (for the time being)..

...normal currency rules don't apply.

You would expect devaluation if a government prints limitless amounts of money, but basically that all went overboard when the US dropped the gold standard. The treasury now prints on demand.
With large stashes of cash all over the world, there is no telling how many bills are actually going around. But paper money has long since lost its significance anyway and is a fraction of the amount of dollars that exist only in the electronic minds of banks.

In God we trust is a very appropriate phrase, because if people ever lose trust in the virtual, not so mighty dollar, then the system will collapse like the house of cards that it is. But, as long as people accept the dollar as a promissory note and nobody starts demanding items of real value as payment, the illusion works. The alternative of gold talents and livestock will prove too challenging for electronic banking.

Maybe somebody who still believes that economy is a science cares to give a less cynical explanation.

't hei giene noam, eh.

(edited for style)

[BB1]

5. Kinda funny,

all that funny money. Billions and billions are being printed en masse. Where's all the money to go? Cause it's not coming to me...

ps how many dutch-speaking chaps are lurking around?

[BelgianMadCow]

6. thei giene noam??

das straf dadde :-)
:hi:

Cow trading would require substantial changes to ATMs, yes.
If paper money lost its significance, how come central banks use it to stabilise markets? Must have it's use somehow...
Sorry for trying to make sense of it all ;-)

[spindoctor]

12. They don't.

The 42 billion isn't actually printed.

They allow private banks to lend more money (42B more) from the central bank, thus keeping the money supply high and keeping the price (interest rate) low. By the time that money hits the streets it will have multiplied because private banks only need to have a fraction of their outstanding loans available.

Money is more or less a free market trading commodity now and its value is determined by the laws of supply and demand. The very purpose of Central Banks is to keep an eye on what is believable for the people on the market. That's all the sense that's left in the monetary system. It's a fragile eco system and one can wonder if it provides long-term stability.

Think of money as a religion. As long as enough people believe in it, it exists. Catholicism is going on 1500 years or so. The financial church should be good for at least another millennium.

[muriel_volestrangler]

11. Was that money really only just created now? Or was it reserves?

Not speaking Dutch, I can't tell what the Standaard article says, but I was under the impression that the funds were the reserves that the central banks keep for emergencies like caliming exchange markets - ie money already 'created' and accounted for.

[BelgianMadCow]

13. Good Q! Apparently, we are speaking abour repurchase agreements or repos

I didn't know about those either, before. It is not mentioned in the Standaard article by the way, I mainly wanted to source the number.

The link upthread by Lapfog_1 has the details, http://www.voxeu.org/index.php?q=node/460
in the end it also puts the number in perspective. It IS significant, the banks are hedging is what I read into it with my small mind, but it's nor newly printed money, which renders my thread title kinda misleading unfortunately.

[spindoctor]

14. How does one create money?

When the Central Bank lets commercial banks lend money from them, then that IS money creation.

Accounted for? Ha! I say. There is no connection anymore between anything of value and money.

[muriel_volestrangler]

15. No, it needn't be money creation

If the government taxes people, and then puts some of those taxes into the reserves of the central bank; and those reserves are later lent out, then it's not money creation - that was money that represented actual created wealth, which has been moved around. If paid back, it would be part of the reserves again.

If, on the other hand, they just say "OK, the commercial bank's balance at the central bank has just improved, because we say so" then it would be money creation. If the 'loan' from the central bank was then paid back, they'd either destroy it, or leave it as 'new money'.

I was under the impression that what is going on is the first case - but I could be wrong.

"There is no connection anymore between anything of value and money"
No less so than before. People have always had differing opinions on the value of money and goods - it's an integral part of commerce.

[spindoctor]

16. IT was an ECB decission. No government was involved.

Governments do not control Central Banks. Central Banks control governments.
The government is not required to have a reserve with a central bank. Other than Brunei, Palao and Liechtenstein, I can't think of a country that runs a surplus that allows for reserves. Commercial banks are required to keep a reserve at the Central Bank.

A country's money supply (regardless of which definition you use) should have a direct relationship with its GDP (value). If the two grow out of balance then you get inflation/deflation, at least thats how I understand it. The OP already mentions that there is a very noticable inflation going on in Europe, yet published numbers speak of next to nothing. It appears that there's some discrepancy there.

[muriel_volestrangler]

17. The origin of the money isn't so important

I took money that government gained through taxation as an example, but reserves that have come from commercial banks work just as well. The point is that this money that the ECB and other central banks are lending to banks may not be an increase in the money supply of the economies concerned.

The trouble with inflation is that everyone gets affected by it slightly differently, depending on what the spend money on. The way inflation statistics are compiled is important, and governments aren't above massaging the numbers to their advantage - so it' is important that everyone else eeps as good an eye on the figures as possible.