Infographics: The ECB’s Big Bazookas (TLTRO & QE)

Tonight supposedly should be the ‘BIG night’ or the much awaited moment of glory of salvation. 

The Pavlovian dogs have all been anticipating the confirmation of the ECB's earlier hints to unleash the Big Bazooka which has been why global stocks have virtually gone parabolic. (aside from actions by the BoJ and the PBoC)

The Big Bazookas has been and will be part of the series of bailout measures adapted and implemented by the ECB that has failed to meet their goals. So it's like doing the same thing over and over again; but this time on a larger scale from which they expect different results

As I recently explained: 

Yet the ECB has been easing since 2008. The ECB has pared down interest rate from 4.25% in 2008 to merely .05% today. The ECB cut the Eurozone’s interest rate twice this year.

Not only that, the ECB has imposed negative deposit rates on banks last June in order to “stimulate lending”. Along with the negative deposit rates, the ECB likewise pumped liquidity to the banking system to promote loans to small and medium enterprises via the Targeted Long Term Re-financing Operations (TLTRO). The ECB expected at least €100 billion to be availed of by the banking system. Unfortunately, last September the first tranche of TLTRO only induced €82.6 billion worth of borrowings from 255 banks.

Obviously all these hasn’t worked, so despite interest rate cuts, negative deposit rates and the TLTRO, the ECB finally embarked on asset purchases initially involving covered bonds andasset backed securities (ABS) during the height of October’s selloff. In realization that that markets has been unsatisfied, the ECB floated the idea to include corporate bond

Below Visual Capitalist and Saxo Bank presents a splendid infographic of the ECB's highly expected QE.

First, here is the Visual Capitalist take on the ECB's road to QE (bold mine)

The Eurozone is on the rocks again. In November, business activity fell to its lowest point in 16 months as the Purchasing Managers Index (PMI) dropped to 51.1. The Euro is at a 27 month low against the dollar. Unemployment is stuck at 11.5%.

Making matters worse, deflation is also knocking on the door. In November, prices rose just 0.3% from the previous year, which is far below the 2% target. Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, says, “the data show(s) that the Japanification of the Eurozone remains apace.”

To combat this, The European Central Bank (ECB) has decided to pull out the big guns. The first big gun, in some of the best “Fedspeak” we’ve seen yet is called Targeted Long-Term Refinancing Operations (TLTRO). Banks are able to borrow from the ECB at very low rates if the money is eventually lent to companies, and not for mortgages or buying government debt.

However, since the TLTROs started, results have not been as the ECB has hoped. This is why Mario Draghi and his counterparts have hinted at a bigger bazooka, quantitative easing (QE), over the last few weeks. Tomorrow (Dec 4th) they may decide to finally pull the trigger at the ECB meeting, but some feel that is premature.

“Much like an elementary school student putting off their weekend homework in hopes of a ‘miracle’ snow day canceling school on Monday, the ECB can still hang it’s hopes on the mid-December TLTRO auction as a possible savior,” said Matt Weller, senior technical analyst at Forex.com, in a note.

Notice today’s raging bull markets haven’t been about "growth" but from momentum pillared by HOPES that money printing (credit and liquidity expansion) will prove to be the elixir to all economic ailments! Bad new IS good news!

Now for the infographics:

Courtesy of: Visual Capitalist