The European Central Bank (ECB) has injected more than 1 trillion euros ($1.3 trillion) into the banking system since December (yes, since December). As we have noted in the past, politicians can avoid difficult decisions when central banks continually bail out the system via the printing press. From Bloomberg:
ECB President Mario Draghi said after stock markets closed yesterday that euro-area governments should continue to take “decisive measures.”
“No single institution can carry the burden of addressing a set of challenges that are simultaneously economic, financial and fiscal,” Draghi said in Berlin yesterday. “The current stabilization should not make us pause in our responses.”
Mr. Draghi will be pressured to print money again; it is most likely just a questions of when. The markets and banks have stabilized after the $1.3 trillion gift from the ECB, but long-term problems remain, which is part of the motivation for developing a more sensitive risk model.
“Flash crashes” and “Lehman-type events” will likely rear their ugly heads again; it is just a question of when. For now, the German DAX appears to have stabilized again above its 200-day moving average (a good sign if it holds). Global markets remain in “risk on” mode.