The reader/investor who sent the link to this Bloomberg story provided the comments below. Not he does not resort to capital letters casually:
THIS IS HARD TO BELIEVE. THOSE CB’S DON’T HAVE UNLIMITED $’S,
SO IF TRUE, THEY WILL BE BORROWING THEM FROM THE FED VIA AN EXTENSION OF FED SWAP LINES,
THE FOMC HAS APPROVED LINES OF $620 BILLION AS LAST REPORTED
THIS IS FUNCTIONALLY UNSECURED LENDING TO THESE CB’S.
REPAYMENT CAN ONLY COME FROM SELLING THEIR OWN CURRENCIES FOR THE NEEDED $’S
(OR BY SOMEHOW NET EXPORTING TO THE US OR SELLING ASSETS TO THE US WHICH ARE HARD TO IMAGINE)
SOMEHOW THIS HIGH RISK, UNSECURED, ‘BACK DOOR’ LENDING HAS REMAINED UNDER ALL RADAR SCREENS.
AND, IF TRUE, WE WILL SOON SEE THE TOTAL $US FUNDING NEED IN THE EUROZONE.
So one consequence is a continued strong dollar (despite the rally in the euro due to relief over the coordinated rescue announcement yesterday), which will hurt the export sector, the one area of good cheer in recent economic news. Surprisingly, however. Dollar borrowing rates improved in Europe but remain at elevated leavls.
The Federal Reserve led an unprecedented push by central banks to flood the financial system with dollars, backing up government efforts to restore confidence and helping to drive down money-market rates.
The ECB, the Bank of England and the Swiss central bank will auction unlimited dollar funds with maturities of seven days, 28 days and 84 days at a fixed interest rate, the Washington-based Fed said today. All of the previous dollar swap arrangements between the Fed and other central banks were capped.
“By providing unlimited dollar funds they are acting on the back of the G-7 plan to ensure the system is fully liquidized,” said Lena Komileva, an economist at Tullett Prebon Plc in London. “We’re going to see even more liquidity provided and more aggressive rate cuts are coming.”
Leaders of the world economy have redoubled efforts to unfreeze credit markets and avert the worst global recession in thirty years after last week’s 20 percent slide in the MSCI World Index. Policy makers from the Group of Seven nations pledged at the weekend to take “all necessary steps” to stem a market panic and European governments are today announcing plans to avert a banking collapse across the region.
The cost of borrowing in dollars for three months today fell to 4.75 percent from 4.82 percent, the highest this year. The rate for euros over the same timeframe declined to 5.32 percent from 5.38 percent…..
“Taken together, the latest moves increase the chances that we will begin to see some relaxation of the intense funding stresses,” Dominic Wilson and other economists at Goldman Sachs Group Inc. wrote in a note today. “This is because bank solvency risk should decline as the government offers protection.”
As well as slashing interest rates in concert last week, global central banks are expanding their toolkits to push down money-market rates. The Fed on Oct. 7 said it will create a special fund to buy U.S. commercial paper and the ECB last week said it would offer financial firms unlimited euro funds. The Bank of England is scheduled to revamp its own money-market operations later this week.
Update 9:30 AM A later Bloomberg story show further improvement in money market rates but we will have to wait to see if interbank lending starts to go out to longer tenor than overnight:
Money-market rates in Europe fell after policy makers offered banks unlimited dollar funding and European governments pledged to take “all necessary steps” to shore up confidence among lenders.
The euro interbank offered rate, or Euribor, for one-week loans dropped 26 basis points to 4.37 percent today, the biggest decline this year, according to the European Banking Federation. The London interbank offered rate, or Libor, for three-month dollar loans dropped 7 basis points to 4.75 percent, the largest drop since March 17, the British Bankers’ Association said.