Hyperinflation Madness: The ECB Dumps Over $500 Billion into Banking System

(LPAC)--The European Central Bank (ECB) announced today the latest unprecedented move, probably destined to be unprecedented until tomorrow. As part of the deal struck by five central banks last week, unlimited amounts of short term money are being made available to any bank, at the cheapest possible rate of 4.21%. This is bare 21 points above the European official interest rate, and way below the interbanking rate which has recently been around 4.9%. The Financial Times reported that the ECB expected a demand for the two-week money of Euro 260.7 billions, but by mid-afternoon they were reporting that Euro 348.6 billion - $502 billion - had been grabbed up.

This is the largest single money injection by the ECB in history. Last week's announcement of auctions for about $100 billion had been judged "too little" by the financial markets.

Parallel to the ECB's idiocy, today, the Fed will start the first of a series of "universal" money auctions, i.e. where all banks can participate and borrow anonymously, for an amount of $20 billion. This is also the first auction in which the Fed will really implement the decision (announced last August) of accepting subprime and CDO assets as collateral, despite the fact that no one knows what they are worth, if anything at all. All this money is theoretically to be returned to the lender, but in practice such loans will be refinanced again and again, so that the money stays in the system and feeds hyperinflation.

While liquidity injections keep the corpse of the financial system on a life-support scheme, the general insolvency of the system cannot be cured. An extraordinary summit of the heads of state and government of Britain, Germany and France has been called by Gordon Brown during the first two weeks of January, in London, to address the financial crisis.