Short-term financing costs for euro zone struggler Spain more than halved late last month (Dec 2011) as banks lapped up debt at an auction, with much of the purchasing power said to come from cut-rate money to be lent by the European Central Bank.
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Usual bottom of the real estate cycle scenario, where the debtors really struggle, but central banks do ultimately come to the rescue. “And the banks were saved but the people ruined…”
An historical note: “In the 4 years after 1933, the value of gold held by the Fed almost tripled, to $12 billion, in part due to the higher value of the existing stock of gold, in part to new inflows of gold abroad… Some of this was drawn from other central banks. But most came from the ground, as the higher price spurred the mining industry… A high fraction of this additional liquidity went into building up the reserves of banks, which, scarred by the years from 1931 to 1933, took a long time to regain their nerve.” Lords of Finance, page 474.
Rebuilding 2012 style: “European banks parked a record amount of funds at the European Central Bank’s overnight deposit facility Tuesday…”
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We’ve seen this before. At the bottom of every real estate cycle, the banks are in desperate trouble. The debts either have to be paid off, wiped off, or as the bankers themselves have found, transferred from themselves to the taxpayer. This is what is happening again. It is in the interests of the bankers to talk down the European situation, to ensure we the taxpayer save them from themselves.
“And the banks were saved but the people ruined…”