ECB Has Now Diluted Its Reserves By 16%

Central banks continued to flood capital markets with fresh money on Monday. After a start by the Bank of Japan which created 600 billion Yen or $5 billion the European Central Bank kept the tap wide open and supplied an additional 47.5 billion Euros. The Fed saw markedly lower interest for its overnight repo and accepted only $2 billion from $52 billion in bids, the WSJ reported.

The ECB succeeded in its short term goal of stabilizing the interbank market. According to a Bloomberg story, "the overnight rate at which banks lend Euros to each other fell to as low as 3.95 percent from 4.16 percent earlier today. It spiked to 4.62 percent on Aug. 9, a six-year high. The ECB's benchmark refinancing rate is 4 percent."

But this looks like a pyrrhic victory. The ECB has now created 201.3 billion Euros since Thursday, or 674 Euros for each of the EU's 312 million citizens. This far exceeds the gold reserves of the ECB which stand currently at 172 billion Euros and equals 16.8% of its total reserves of 1.196 trillion Euros. Call that dilution.

Depending on the speed at which the ECB will drain these new funds they could lead to a 2.5% jump in money supply M3. The ECB will release its weekly financial statement on Tuesday.

China Reports Inflation @ 10-Year High
China reported a new 10-year high in inflation. Consumer prices rose an annualized 5.6% in July after a 4.4% rise in June. According to the official Chinese website the rise came mainly from foodstuffs which rose 15.4% YoY.