Circular Finance of ECB & Europe's Central Banks | The Big Picture

KJ29 Says:
October 24th, 2012 at 9:04 am

The trouble is that they can make it as complicated as they like but sometimes it is the simple rules which catch up with you. Take a look at this from an article I spotted earlier.

?From Eurostat.

At the end of the second quarter of 2012, the government debt to GDP ratio (in the Euro area) stood at 90.0%, compared with 88.2% at the end of the first quarter of 2012.

So if we take the fairly safe assumption that the ratio is now over 90% and rising I am reminded of the work of Carmen Reinhart and Kenneth Rogoff which told us this.

First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more.

So we get an opportunity to see if their work turns out to be correct on the Euro area as a whole. It seems to be working right now but I am immediately reminded of the correlation does not mean causation argument.?

http://notayesmanseconomics.wordpress.com/

So we see signs of yet more trouble ahead for the Euro?

Born Again Says:
October 24th, 2012 at 11:05 am

Rehypothecation at its best. When the ECB cannot deal directly with its various sovereign central banks, this is what you get. Here in the US, however, our primary dealers are free to interact directly with the Federal Reserve.

What is worse, is that nearly everyone in Europe looks to be in denial. First, the request for a bailout starts off way to small and then grows overtime as unemployment skyrockets. Unemployment in Spain and Greece is 25%. If that were the case in the US there would be rioting in the streets. And you know what?

Source: http://www.ritholtz.com/blog/2012/10/circular-finance-of-ecb-europes-central-banks/

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