Tuesday, October 11, 2011

ECB Slows Down Government Bond Buying Further

Last week in Frankfurt, Germany, the European Central Bank bought 2.3 billion euros ($3.1 billion) in government bonds in an effort to keep pressure off the shaky governments suffering from the eurozone debt crisis.

In response to the debt crisis, the ECB has been lending substantial amounts of cash against collateral to the banks so that they can operate day to day.

Despite the effort to keep the banks afloat, the bond purchases have caused controversy between bank officials, resulting in the resignation of Juergen Stark, the bank’s chief economist.

The bond purchases are a high risk for banks. If they cannot be paid off, it will put the ECB in an uncomfortable position of supporting faltering governments.

This has forced Beligum, Luxembourg, and France to rescue Dexia because of their ownership in large amounts of Greek and Italian bonds. Greece's Proton Bank has already been taken over and is under reconstruction from the country's bank rescue fund.

Banks are fearful that the debt crisis could spiral out of control if Greece and other governments default on their payments.
Consequently, banks are depositing more and more money into the ECB. European banks have already deposited 255.6 billion euro ($347.1 billion), this is the highest it has been all year, and has surpassed the previous year’s amount.

European banks feel more secure after depositing money into the ECB rather than lending it to each other.

If Greece can’t pull itself out of debt, how could this affect the price of gold? 

Call in for our Collapse of Gold Prices report to find out.

See Link: http://finance.yahoo.com/news/ECB-slows-down-government-apf-4128206917.html?x=0

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