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MAJOR CENTRAL banks around the globe took coordinated action today to ease the strains on the world’s financial system, saying they would make it easier for banks to get dollars if they need them. Stock markets and the euro rose sharply on the move.
The European Central Bank, US Federal Reserve, the Bank of England and the central banks of Canada, Japan and Switzerland are all taking part.
As Europe’s debt crisis has spread, the global financial system is showing signs of entering another credit crunch like the one that followed the 2008 collapse of US investment bank Lehman Brothers. The possibility that one or more European governments might default have raised fears of a shock to the global financial system that would lead to severe losses for banks, recessions in the United States and Europe, and a stranglehold on lending.
‘Mitigate’
“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the banks said in a joint statement.
The central banks agreed to reduce the cost of temporary dollar loans they offer to banks — called liquidity swaps — by a half percentage point. The new, lower rate will be applied to all central bank operations starting on Monday.
Non-US banks need dollars to fund their US operations and to make dollar loans to companies that need the US currency. The dollar is the world’s leading currency for central bank reserves and is widely used in international trade.
“Obviously, these moves are designed to increase the flow of dollar liquidity to European banks, which are struggling to attract short-term funding because of questions about their exposure to potential losses on holdings of European sovereign bonds,” said Paul Ashworth, chief US economist at Capital Economics.
He explained that today’s move does not expose the Fed to propping up ailing European banks.
“The ECB actually makes the loans to these banks, so the Fed is not on the hook for any losses if a European bank failed,” Ashworth added.
Support
The central banks are also taking steps to ensure that banks can get ready money in any of their currencies if market conditions warrant by establishing a temporary network of reciprocal swap lines. Right now there is no need to offer non-domestic credits in currencies other than the dollar, the central banks said, but they “judge it prudent” to get such an arrangement in place ahead of time.
Stocks surged following the news. Germany’s DAX was trading 4.7 per cent higher, France’s CAC was up 4.1 per cent, and Dow futures in New York were up 2.2 per cent. The euro surged up 1.4 per cent to $1.35 and oil was immediately up $1.45 to $101.25.
Fears of more financial turmoil in Europe have already left some European banks dependent on central bank loans to fund their daily operations. Other banks are wary of lending to them for fear of not getting paid back.
Such constraints on interbank lending can hurt the wider economy by making less money available to lend to businesses.
A ratings downgrade by Standard & Poor’s for six major US banks yesterday added to fears that Europe’s woes would hurt the financial system globally.
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Making it easier to get dollars if they need them? So basically they don’t need to wait for a bank bailout they can personally rob us blind now. New World Order- Bank Style
All of this is window dressing in terms of the overall problem. The problem is public and private debt. Access to money may help the economy in normal times but the level of debt wont be accepted by the bond market. Countries cant get out of debt by borrowing more. Only way would be for ECB to print loads of Euro and Germany wont let them do that as they will be paying for it. This will only go away when debt is reduced by hyperinflation or deliberate write downs.
It really is that simple, treaty changes, this little show today and all the other plans are just window dressing.
Agree completely. Not happy that I’m agreeing with Tim Henchin though, I’ll be joining a union next….
@ Kerry…it won’t be enough. It’s a short to medium term relief for the banks to ease their funding problems. The final solution lies with the ECB beng ‘allowed’ (it is an independant organisation not meant to be politically interfered with…..somebody tell that to the Germans) to print money or buy bonds in unlimited quantities. I get the feeling that the Germans are coming to realise this and any minor or substantive treaty changes will have to pushed out for a year or two…there isn’t time to get all countries on board and so they’ve painted themselves into a corner. Over to you Frau Merkel…..
Your use of the phrase ‘the final solution’ is unfortunate In the historical context :)
Just saw that Andrew…no offence intended.
Time to withdraw my money, mattress bank is now the safest place!
Mattress money from a collapsed currency is just paper.
you would probably be better off buying more mattresses
Something positive at last
If the euro fails all domestic loans and deposits would be demoninated in the new currency. There would only be an exchange rate risk if you had borrowed in dollars or pounds.
When to buy? Property has still some way to fall. One would expect the bottom to be reached when the average house price is equivalent to about 5 time the average annual wage. Having reach bottom expect values to remain unchanged for a few years whilst unemployment gets back to reasonable level and thereafter to keep pace with wage inflation. That would be the ideal.
Maybe, maybe not. Truth is no-one really knows how a euro exit would play out. The big question is whether or not we would re-denominate our debts into new punts, especially personal mortgages. If we do, it will be a long, long time before anyone trusts us enough to lend to Ireland again. If we don’t, it will be a long, long time before our economy is strong enough to lend to. Damned if we do, damned if we don’t.
Sure that means all these privately owned banks have sovereign nations by the short and curlies. The economic war is ongoing and it looks like the people will lose out as governments seem determined to hand over natural resources, gold and other precious minerals to the banks. So no government will have any power just figurehead status. I am very angry with this but what can we do? Suggestions please!
So the solution to the “debt crisis” is more debt. Who would have seen that coming?
Question is will this be enough?
This isn’t even in the same country as enough unfortunately. Few days grace, and trying to build a bit of a firewall to prevent accidents happening and causing a cascade.
Face it folks, the West is fupped, the financial industry got too large, too bent and out of control.
is it good time to buy a house . I wonder
Not in Ireland the prices are still grossly over valued
People with mortgages would probably be one of the hardest hit if the euro fails.
The new currency would likely devalue significantly depending on how its introduced which would leave you owing the original sum value and you would only be earning a lower present value. Happened in iceland because they went a bit nuts taking out foreign currency mortgages
if you need a house to live in it might be and you have cash or earnings to support a mortage, if it’s investment there is probably still a bit more to go in the price drop. Location is more important than ever regards value
The last two major housing busts, Japan and America, now have house prices that are 36% and 20% below their long-term (since 1975) average levels relative to wages. Ireland house prices are now bang-on their long term average levels relative to income. Based on this, the fact that prices are still falling as fast as ever, and the impending euro doom, I’d hang on to your hard-earned cash.
House prices are not ” grossly overvalued”. Someone earning €60k can buy property for twice their annual salary with interest rates of less than 4%.
It has never been better!
That is a different way of looking at it. House prices are still out of line with long term trends, there is a bit to go yet. Someone earning 120k a year, and their live in lover, who earns 50k, can buy a house on less than a years wages. Just as irrelevant. It is all about the average. It is about value, your looking at it from the artificial point of view of the Septic Tiger years.
Interest rates are way too low, and disposable income and real income will fall for many years yet.
It might be if their 60K was going to be worth 60k in the years ahead and rates stay at 4.
ther’s something eerie about that term, ” It has never been better”
Sky breaking news prepare for eurozone breakup
It must be total bollo??ks so.
Having a risk management plan does mean the risk is going to happen. I have insurance on my home, but that doesn’t mean I believe it’s going to burn down next week.
Doesn’t
I just wonder why all the experts posting here are not in government to fix all the issues?
Indeed, I have been thinking likewise, as they say, a little bit of learning is a dangerous thing. Isn’t that the same as what the present government were doing before they got in – they had all the answers.
This is not a move to solve sovereign debt with debt. It’s about solving stagnant domestic economies with heretonow absent credit. Importers can’t get credit from banks to order goods with (which is a 6 month term). Retailers can’t get short term loans to fit out shops and take advantage of cheaper rents which would help them carry their upward only rented premises.
Households who used to borrow a few quid for Xmas and pay it off during the year can’t get it. Joe soap can’t get a car loan. Mr. & Mrs who just had their 3rd child and need to build an extension can’t get a short term loan.
All this will bring countries back into growth, create jobs and get this pyramid climbing again!
This is actually more of a move to help banks, particularly French banks, who have lots of US dollar assets but very little US dollar funding. There’s such a large amount of this imbalance that markets are charging a huge premium to banks that want to temporarily swap their euros into dollars. This move is just helping those banks swap into dollars at a lower premium.
Do people want to stop all this madness or are we just going to let them do what they want?
Nothing new, this was in the news last week.
it’s starting to sound like the weather forecast right enough
Who rates Standard and Poor now that all the banks in the world are downgraded
Would it make sense to transfer savings into a northern account – if a new lower value currency replaces the euro – would savings not be better off in a stronger currency?
Correct
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