The dynamic central banking duo – ECB balance sheet up over €3.1 trillion mimicking Fed balance that is close to $3 trillion. Shuffling toxic assets into darkness.
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You might have the vague memory that the European Central Bank reacted somewhat negatively to the Federal Reserve’s massive balance sheet expansion a few years ago. The ECB was not following in the same path as that of the Fed. Well fast forward to the current Euro crisis and the ECB now has a balance sheet that far surpasses that of the Fed. You have the two largest central banks in the world with over $6 trillion in unaudited funds and surely a good portion of that is toxic assets. This trajectory is unfortunately a natural consequence of our current banking system. These central banks focus on protecting their big banking allies and the crisis is still going on. Of course the working and middle class will be paying for this in a variety of ways for years to come. Ask the 25 percent unemployed in Spain and Greece how well the economy is doing. Ask young Americans how the economy is doing.
ECB does a Federal Reserve impression
The ECB has now gone into giant bailout territory with €3.1 trillion in assets on their balance sheets. Calling these bank loans “assets” is probably making the situation seem better than it really is:
European banks are flashing red. The Spanish banking system is virtually nationalized. Greece is buying a bit of sunshine with more loans but this is not helping the people. The Euro-zone unemployment rate is at all time highs. So of course the solution to all of this is to give banks more loans. The ECB is simply following in the same path that the Fed has undertaken:
Yet this is a long proposition. The Fed balance sheet has been over $2 trillion since 2008. Four years later it is close to $3 trillion. Even now, we still don’t have the full scope of what exactly is on the balance sheet of our central bank. Remember that the Fed is independent within the government and that is how they can expand their balance sheet with no questions asked. The ECB has embarked on a similar path.
Yet the core issue is too much debt being supported by too little production and growth. Simply adding more debt and buying more time is unlikely to produce quality results. Does anyone really believe that the US will ever payback the more than $15 trillion we owe? Europe is in poor shape and these bailouts are principally focused on helping the banking system and not the public. The good of banks has been far disconnected from the good of the public for years. The incredibly high unemployment across countries and the massive filtering of wealth to the banking class should give you a true picture of what is transpiring. If the economy were getting better, why in the world would the ECB take on such massive amounts of banking debt to their balance sheet when only a few years ago they criticized this same behavior?
“(SoberLook) Jean-Claude Trichet used to argue that unlike the Fed’s balance sheet during 2008-09 period, the Eurosystem assets were dominated by securities, gold, and foreign reserves, rather than loans to banks. That composition is changing quickly however. Here it the ECB’s balance sheet assets breakdown from a year ago – with circled items representing lending to Eurozone’s banking institutions under various programs.”
So much for keeping quality assets on the balance sheet.