Tyler Durden explains why the latest Eurorescue deal is not only smaller than it looks, but even more ludicrous too:
On the day of the 3 Year European LTRO, in a whim of fancy we wondered if contrary to all expectations, the European banks would not instead of using the money for any real releveraging (carry Trade) or deleveraging (switching out of expensive into cheaper debt) purposes, just park it with the ECB’s deposit facility, an outcome which would be the worst possible case as it simply recycles ECB cash from on pocket into another without any incremental velocity. As it turns out, we were only half kidding: as of yesterday, the day after the LTRO, European banks parked almost half of the free €210 billion (recall that while gross LTRO proceeds were €489 billion, only €210 billion was net), or €82 billion, with the ECB’s deposit facility…. And that is what monetary policy failure is all about.
In other words, the ECB loaned $640 billion to 532 banks, but $365 billion simply went to roll over existing debt. Of the remaining $275 billion, $110 billion was simply deposited… in the ECB. That means that the much-publicized $640 billion in “new loans” meant to stimulize the global economy was actually $165 billion.
This behavior is in sync with that predicted by the debt-deflationist position. The money for loans is available, but there simply isn’t anyone who wants to borrow the money, even at interest rates that are effectively zero. In an inflationary environment, people are inclined to borrow as much as they can.