Draghi Considers Money Helicopters

Draghi Considers Money Helicopters


It’s debatable whether or not the most recent move of the European Central Bank was unexpected, but it certainly sparks a lively discussion on the open market. Not only did the ECB reduce the lending rate on the refinancing facilities from 0.05% to 0% which basically means the banks that are part of the Eurosystem can borrow money for free, it also reduced the interest rate on the deposit facility by 0.10% to a negative 0.40%. Yes, -0.40%.

ECB Interest 2


As if this wasn’t enough, the ECB also announced it’s increasing the pace of the asset purchase program (‘APP’) by 20 billion Euro per month, to 80 Billion per month. This means the central bank will pump an additional 960 billion euro per year in the financial system, to force the banks to change their lending patterns. What’s really interesting is the fact the ECB is now also ready to start buying euro-denominated bonds issued by ‘non-financial entities’, which basically means the ECB will be buying corporate bonds.

ECB Interest 1


That’s interesting. The original intent of the ECB was to use the asset purchases to increase and improve the liquidity in the European banking system. However, we already warned in September  he trickle-down effect of these asset purchases were insufficient, as the real economy saw just a fraction of the total amount spent on the asset purchases. The ECB has now reached the same conclusion, six months later than we did, and adding the corporate bond sector to its Asset Purchase Program-list was the only logical step. You can’t say we didn’t warn you!

ECB Interest 3


The move to cut the interest rates and to increase the size of the asset purchase program to in excess of $1 Trillion (!) per year shows Draghi was willing to aggressively pursue a monetary expansion in the Eurosystem, but the question now is whether a cut from -0.3% to -0.4% will be sufficient to trigger that. The difference is only marginal, but what’s even worse is the fact Draghi himself has signaled he has now arrived at a point where he’s with his back against the wall. He acknowledged that future rate cuts would only happen under ‘extreme circumstances’ and whilst this obviously is a very grey zone, as ‘extreme’ isn’t really an objective measure, Draghi seems to be surrendering. A quote from the press conference:

helicopter money. It’s a very interesting concept that is now being discussed by academic economists and in various environments. But we haven’t really studied yet the concept. […] From today’s perspective, and taking into account the support of our measures to growth and the return to our price stability objective, we don’t anticipate that it will be necessary to reduce further rates. ‘

This basically is Mario Draghi throwing the towel. If a negative 0.40% doesn’t work, he seems to have no idea what will work, and the ECB is close to giving up on its monetary policies as the theories clearly aren’t working in the real world. Also keep in mind that not lowering the interest rates any further does NOT exclude the ECB reverting to a helicopter money strategy…

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The Next Fukushima? Active Fault Line Discovered Directly Below Japanese Nuclear Power Plant

Five years after the Fukushima disaster, things are getting worse.

As we reported last week, “the fuel rods melted through their containment vessels in the reactors, and no one knows exactly where they are now. Tepco has been developing robots, which can swim under water and negotiate obstacles in damaged tunnels and piping to search for the melted fuel rods.  But as soon as they get close to the reactors, the radiation destroys their wiring and renders them useless, causing long delays, Masuda said.”

More troubling was our assessment that the “2011 disaster will be repeated. After the Fukushima nuclear meltdown, Japan was flooded with massive anti-nuclear protests which led to a four-year nationwide moratorium on nuclear plants. The moratorium was lifted, despite sweeping opposition, last August and nuclear plants are being restarted.”

And now we have the candidate for the “next Fukushima” – as Japan’s Yomiuri Shimbun reports, one of the faults that run under the premises of Hokuriku Electric Power Co.’s Shika nuclear power plant in Ishikawa Prefecture can be reasonably concluded to be active, according to an evaluation compiled last Thursday by an expert panel at the Nuclear Regulation Authority.



According to the Shimbun, the No. 1 reactor at the Shika plant may have to be decommissioned under the new nuclear regulatory standards, which ban the construction of important facilities above an active fault. The fault in question lies directly under the No. 1 reactor building.


Eight faults run under the premises of the Shika power station. Of these, three faults called S-1, S-2 and S-6 have been subject to close scrutiny. The S-1 fault lies directly under the No. 1 reactor building, a facility designated as an important facility under the new regulatory criteria.

Although stratum slippage at the S-2 and S-6 faults does not reach the surface, these faults run immediately under the Nos. 1 and 2 reactor turbine buildings. This means the No. 2 reactor cannot be reactivated unless measures are taken to reinforce its safety, such as increasing the reactor’s earthquake-resistance level and changing the layout of its piping.

This being Japan, however, where Tepco was hiding for years the full severity of the Fukushima explosion and putting millions of people in danger in the process, denial is rife and the power company has already submitted an application for a safety inspection of the No. 2 reactor, asserting that the fault is not active, based on its own investigation. No difference in levels has been
discovered in other locations along the S-1 fault, according to the
company.  The utility also intends to file a similar application regarding the No. 1 reactor in the near future.

Because if you can’t trust a Japanese nuclear utility company who can you trust.

After taking the panel’s conclusion into account, the Nuclear Regulation Authority will make a decision during safety reviews as to whether the fault in question is active. We expect its opinion will be well greased by a modest monetary exchange under the table. What is most disturbing however, is that as the Amari bribe scandal showed, in Japan even when bribes are involved the amount of money is so modest that it hardly merits putting people’s lives in danger, and yet that’s precisely what will happen.

On the other hand, since global central bankers have made hope into a strategy, in fact the only strategy, why should the threat of another Japanese catastrophe be exempt?

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