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ECB Enters Dangerous Attempt To Hyperinflate the Already Hyperinflating Debt Bubble

March 9, 2015 (EIRNS)—The €60 billion/month money-printing, government bond-buying spree of the European Central Bank (ECB) has gotten a somewhat rocky start, succeeding so far only in reducing the value of the euro, to $1.08 and falling.

The Frankfurt-based ECB is ploughing the same hyperinflated, speculative security-markets ground the Fed and Bank of Japan have been ploughing for a decade. The government bonds of the United States, European countries, and Japan have already become the chief speculative securities and collateral instruments of all these markets. The ECB is simply entering these markets as a very big "Frankfurt whale" ready to buy into the hyperinflationary "top" before the crash.

So the ECB has hit two problems. First, although it is buying new debt issues directly from the German, French, Italian, etc. governments, this is not nearly enough for its money-printing targets. Hundreds of billions in bonds, out of the ECB’s EU1 trillion target for 2015-16, will have to "come directly from euro-area banks and investors seeking higher yields abroad, while the lion’s share will come from foreign sellers" (Bloomberg, emphasis added). So much for any of this QE resulting in investment in European economies.

Secondly, even long-term (10-year) government bond interest rates in many European countries are already near zero after years of hyperinflation by central banks; everything less than 10 years already bears negative interest rates. So the ECB would be "buying losses," buying bonds which will require it to pay interest to governments—and its charter supposedly does not allow it to give any "fiscal aid" to governments. ECB President Mario Draghi very punctiliously cited this charter point on Feb. 4 in refusing to backstop Greek banks in buying any more Greek government debt. Therefore the ECB must now at least appear to be avoiding purchasing any negative-interest-rate bonds in its QE.

The punch line, is that if the ECB can’t find the bonds to buy and fails by a long margin to meet its money-printing target for this big QE—as it just did with its smaller, failed program of buying asset-backed securities—that in itself could trigger a bond-market crash.

Meanwhile the Austrian Hypo Alpe Adria bank blowout is spreading. An alarmed article by Jeremy Warner in the Telegraph March 9, "Austria Is Fast Becoming Europe’s Latest Debt Nightmare," calls the situation "a new Greece about to go off in Europe’s heartland." On March 6 Moody’s and/or S&P downgraded a dozen Austrian banks for their loss-exposure to this ongoing bail-in default. The south Austrian province of Carinthia is almost certain itself to go bankrupt from guarantees of these now-worthless assets, says Warner, and this will trigger other bank problems including in Germany.

"Essentially," he writes,

"what the Austrian government is doing is cutting loose an entire region, rather in the way the federal authorities in the U.S. allowed Detroit to go bust a number of years ago.... I suspect neither financial markets nor policymakers have yet caught onto the full significance of the latest turn of events."