Roger Nightingale: ECB has no cash so how can it buy bonds?

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Roger Nightingale: ECB has no cash so how can it buy bonds?

Roger Nightingale of Roger Nightingale & Associates is not a hopeful man. According to him, the world economy has burned its wings. “I am afraid we are with absolute certainty in a recession. There is a great possibility of a depression too,” he says in an interview with CNBC-TV18.

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Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets

Roger Nightingale of Roger Nightingale & Associates is not a hopeful man. According to him, the world economy has burned its wings. “I am afraid we are with absolute certainty in a recession. There is a great possibility of a depression too,” he says in an interview with CNBC-TV18.

According to him, politicians in Europe are aware of the problems that plague them but have no solutions to offer. “We have had lots of meetings over the last several months and none of them resolved any of the major issues,” he argues.

Nightingale says he fails to understand how the ECB can buy bonds? “The ECB doesn’t have any money. It can only buy bonds if it takes money away from other people.” He is amazed that they even consider this as a sensible proposal.

Below is an edited transcript. Watch the accompanying video.

Q: We have this meeting between Merkel and Sarkozy today. What do you think is the likely outcome? Do you expect to hear anything substantial that could prepare us for what is to come on Friday?

A: No not at all. We have had lots of meetings over the last several months and none of them resolved any of the major issues. In fact I am not even sure they are attacking the relevant issues. The big problem as I see it is that the world economy is in terrible trouble that applies to Europe and to the other parts of the world. I don’t think the politicians have any solution to the problem. I am afraid we are with absolute certainty in a recession. There is a great possibility of a depression. The politicians have absolutely no idea what to do about that; they realize the problems but have no solutions.

Q: What is this thin like of hope that the global markets especially European markets are clinging too? Don’t you live in the hope that perhaps some series of bilateral agreements will be reached on cutting of the fiscal deficit which might make the ECB open its kitty and buy more bonds?

A: I never understand what people are talking about on these things. How can the ECB buy bonds, the ECB doesn’t have any money. The ECB can only buy bonds if it takes money away from other people. If it takes money from let us say the consumer to buy these bonds, say to help the banks, it hurts the consumer and do you think it’s actually going to make the economy better if it hurts the consumer so as to help the bank? It is a zero sum game. You make one worse, you make one better but in fact you don’t improve the situation as a whole. I am amazed that they even consider this as a sensible proposal.

Q: Do you think Friday’s meeting is unlikely to mean anything significant? Are you not watching out keenly for what happens on Friday evening?

A: I watch very keenly indeed but I have been skeptical throughout the entire period and my skepticism is being justified. You have the meetings; the politicians claim they are resolving the problem and the media and the markets are nearly always impressed for about 24 hours sometimes as much as 36 hours and then it falls back again. As reality dawns, people realise that they haven’t solved any of the problems perhaps because the problems are more or less insolvable.

Q: Do you expect that even before today is out, the markets might start seeing a bout of profit taking?

A: They may. I don’t know exactly when they are going to descend back into reality but the issues are that the global economy is in very difficult circumstances, the banks are extremely stretched and what has been done to help the banks actually have hurt the rest of the economy.

I don’t think anything that will be done at the moment is going to change that basic picture. The picture is a very difficult one; you have got most of the Western world in trouble, you have got most of the developing world and India is very good example of this which is in pretty deep trouble as well and things are getting worse rather than better.

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