Wednesday, April 3, 2013 7:59:01 AM
This is a tricky thing to understand, admittedly I have trouble with it myself sometimes. A bond is nothing more than a IOU with a promise to repay the principle with additional interest, basically nothing but a promise. If we use Cyprus as the example, The Cyprus National Bank is buying up it's governments bonds allowing the government to run huge deficits. In return the government should have to pay more interest to the banks, yet now it isn`t as creditworthy but it is allowed to because it is considered to big to fail.
Cyprus had to pony up 5.8 billion Euros over the weekend or else they couldn`t have received any assistance from the ECB so the banks used the money they had on hand, the money of people who had their savings in the bank. That`s what you are talking about, but the ECB also infused 10 billion newly printed Euros once the 5.8 Billion seized was accounted for. Yet Cyprus is still in need of 3 billion Euros more.
Wednesday, April 3, 2013 6:47:53 AM
richanddead not so sure about what you say.In Cyprus for example money are taken directly from people's bank account, and the ECB grant the rest of money, i don`t think ECB print new money for that, ECB allready have money to cover this operation.