Sebastian Janikowski Kicks The Can Down The Road

The ECB has fired it's biggest guns yet, starting a bond-buying program with no upper limit.

FRANKFURT—The European Central Bank unveiled its most aggressive plan to date to deal with Europe's nearly three-year-old debt crisis, promising open-ended purchases of short-maturity government bonds to keep borrowing costs down for Spain, Italy and other struggling countries.

Luckily, this won't result in inflation.

The central bank will continue to offset its purchases in full by taking an equal amount of money out of circulation. When the ECB purchases bonds, it's injecting liquidity into the financial system, effectively creating new money. In the past the ECB has absorbed this excess liquidity by accepting one-week deposits from banks for an equal amount of money. The process, known as sterilization, allows the monetary base, which typically consists of cash in circulation, plus banks' reserves at the central bank, remain the same.

Nothing has changed in any of the countries in question. Labor costs, both monetary and legal, remain high. Social spending is still unsustainable. Birth rates are still below replacement levels leading to more retirees supported by fewer workers. Sovereign debts are still enormous and growing larger as a percentage of GDP since all of these countries are in recession.

This is can-kicking of the highest order.

Update: Zerohedge is all over this as you'd expect, including this wonderful clip from CNBC. The good stuff starts at 4:20. As far as I can tell, what they're saying about sterilization is that you would trade in, say, Spanish bonds and receive back ECB bonds. No money changes hands, but the ECB would now be issuing the dreaded Eurobonds that the Germans and others have objected to and rightfully so. The only countries capable of servicing those new bonds would be ... Germany, Austria, the Netherlands and so forth.