Wednesday, 26 November 2014
EU Add a Magic Money Multiplier to their Liquidity Diagram
The EU has announced a program to pump €315bio into the economy of Europe via a loan guarantee scheme. The actual amount they are stumping up is €21bio.
Full announcement here.
- That corporates want to borrow.
- That corporates are not lent to when they want to borrow.
- That corporates will spend borrowed money on things that are of benefit to others rather than just themselves.
- That if they are lent to and they spend on the right things the gearing for the economy will be 15x.
As I often have to say - "Assumption is the mother of all f**k ups"
It would appear that the sticking point is still within the corporates, who will be the recipients of this facility, where they need to spend on expanding their businesses. Providing yet more cheap credit for them to probably divert to M+A and share buy backs will be great for stock prices but doesn't necessarily mean that they are going to employ more people. The proviso that the loans are targeted at specific projects doesn't guarantee that project or finance substitution isn't going to take place within the recipient companies.
So here is the latest EU plumbing diagram with the EFSI and Magic Money Multiplier included.
Original diagram and explanation here
I do hope that any natural recovery in the European Economy is not mistakenly labeled as the successful application of these homoeopathically small doses of EU quackery.