The assistant editor of the London Telegraph penned a quietly hysterical article yesterday, which begins: “It’s not quite Creditanstalt, the Austrian banking collapse that marked the beginning of the Great Depression…,” and goes on to say that last week’s profit warning from the Austrian Erste Bank, on top of the insolvency of Austria’s Hypo Alpe-Adria bank earlier this year, is nonetheless very, very worrisome in terms of the future of the entire European banking system. While admitting that the ongoing stress tests of European banks are ridiculously mild, in the rest of the article Warner includes unconvincing phrases like “these latest banking mishaps appear at this stage quite unlikely to spark a repeat of the all-embracing, systemic crisis of two to three years ago,” and that it registered “a mere two on the Richter scale of banking earthquakes.”
After all this whistling past the graveyard, Warner gets to the point: What ECB head Mario Draghi has done so far with promises of various forms of monetary expansion and even quantitative easing is not enough, although the TLTRO (Targeted Long-Term Refinancing Operations) he announced on July 3 “looks rather more promising.” But more, much more is needed, Warner argues.
What Draghi did on July 3, was to announce a first installment of TLTRO of 400 billion euros, with a second installment by March 2015 which would bring the total to 1 trillion euros. That is huge liquidity pumping by any standard. It is the equivalent of $1.36 trillion, which is one-third more than the annual rate of quantitative easing at the height of Ben Bernanke’s $85 billion per month QE binge at the Fed (which is now being tapered down). So the ECB has indeed jumped into the breach to cover the gap created by the Fed’s tapering—and then some. This is the source of the funny-money liquidity which is driving global financial aggregates up to and beyond the $2 quadrillion barrier, on a fast track towards blowout.