How Europe's Stimulus Sausage Is Made: Ritholtz Chart
The European Central Bank announced its latest -- and belated -- program of quantitative easing last week. The ECB made fresh commitments to buy a series of asset-backed securities (ABS), various bonds and expanded its previously announced Long-Term Refinancing Operations (LTROs).
The ECB's brand of quantitative easing is an incredibly complex process. I could try to write 2,000 words explaining how the ECB uses bonds, loans and cash to prop up the European economy, stimulate lending and lower the value of the euro. But that mind-numbing exercise isn't necessary thanks to the flow chart below from Bespoke Investment Group.
According to Bespoke:
[The ECB's program] is a much more direct approach than the Fed's multiple rounds of QE in the U.S. The ECB is trying to turn banks into pass-through conduits for loans by giving them an end market for covered bond and ABS sales.
Marking last week's announcement, European equities rallied while the euro declined 1.5 percent against the dollar. The market's endorsement is encouraging. Whether it's temporary enthusiasm or the beginning of a successful stimulus/bailout for the ailing euro zone is unknown. Time will tell if the ECB's attempts at jump-starting credit and the economy catch up to the Federal Reserve's.
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Barry L Ritholtz at email@example.com