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Wednesday, November 30, 2011

What Have The Central Banks Of The World Done Now?

"The central banks of the world are acting as if it is 2008 all over again. Desperate times call for desperate measures, and right now the central bankers are pulling out all the stops. The Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, the Bank of Japan and the Swiss National Bank have announced a coordinated plan to provide liquidity support to the global financial system.

According to the plan, the Federal Reserve is going to substantially reduce the interest rate that it charges the European Central Bank to borrow dollars. In turn, that will enable the ECB to lend dollars to European banks at a much cheaper rate. The hope is that this will alleviate the credit crunch which has gripped the European financial system by the throat. So where is the Federal Reserve going to get all of these dollars that it will be loaning out at very low interest rates?

You guessed it - the Fed is just going to create them out of thin air. Our currency is being debased so that Europe can be helped out. Unfortunately, the impact of this move will be mostly "psychological" because it really does nothing to address the fundamental problems that Europe is facing. It is up to Europe to solve those problems, and so far Europe has shown no signs of being able to do that.

The major central banks of the world say that they want to "enhance their capacity to provide liquidity support to the global financial system." But essentially what is happening is that the Federal Reserve is going to be zapping large amounts of dollars into existence and loaning them out to the ECB very, very cheaply. Think of it as a type of "quantitative easing" on a global scale.

The decision to do this was reportedly made by the Federal Reserve on Monday morning. For the moment, this move seems to have stabilized the European financial system. It is quite unlikely that any major European banks will fail this weekend now.

But as mentioned above, this move does nothing to solve the very serious financial problems that Europe is facing. This intervention by the central banks is merely just a speed bump on the road to financial oblivion." (snip) ...

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At 4:00 AM, Anonymous Andrew said...

So world central banks continue to print more money. Interesting how no one is concerned about the inflationary pressures of this action. Everything time the Fed and other central banks tale a course of action, its always short term focused and never long term focused


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