Any of you who are market oriented no doubt are all over the news of central bank coordinated liquidity efforts. This is from the Federal Reserve’s announcement:
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. 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.
These central banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points. This pricing will be applied to all operations conducted from December 5, 2011. The authorization of these swap arrangements has been extended to February 1, 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.
As a contingency measure, these central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant.
I’m not certain this changes things as much as markets assume. The ECB is ultimately responsible for creating euros. I’m not certain how much of a policy stance this move represents. If the ECB is committed to “printing”, then why the need to turn to other central banks for a coordinated effort?
In fact, what would help the Eurozone most is a MUCH cheaper euro, since the only way out of their fundamental problem (that of Germany running big trade deficits with periphery countries, but no longer wanting to fund the trade deficits that result) is by cheapening the euro greatly, so that Germany runs big trade surpluses with non-Euro countries, and the rest of Europe has more or less balanced trade. And the euro, which was not cheap, has rallied strongly today, amped up due to the 17 year high level of shorts outstanding.
The open question is whether this increases confidence enough to get major European countries through critical bond auctions, not just this week, but most important, a series of major refundings Italy has in February.
Analysis: Central banks buy wiggle room, not solution http://www.reuters.com/article/2011/11/30/us-banks-liquidity-idUSTRE7AT1QQ20111130
So Valissa, exactly. This move is the same as declaring that plaster of paris will be supplied without limit until further notice for whitewashing the corpus of the banking system while beneath that veneer of ever transient liquidity the mess rots by the day. Solvency has left the building(s). Liquification is not delayed by liquidity, only concealed . . . until the crust cracks and key counter-parties recoil at the stench.
Stocks leap on central banks’ coordinated action http://finance.yahoo.com/news/stocks-leap-central-banks-coordinated-144638713.html
Big U.S. banks were among the top gainers on the stock market. JPMorgan Chase & Co. jumped 6.4 percent; Morgan Stanley 7.3 percent, Citigroup Inc. 6.4 percent. Banks hold large amounts of European debt and would have the most to lose in the event of a default by a European country, something investors around the world have been increasingly fearful of.
The rescue plan http://philebersole.files.wordpress.com/2011/08/bailout-cartoon-2.jpg
You can almost smell the animal spirits…
Dow Jumps Most Since 2009 as Central Banks Take Action on Crisis http://www.businessweek.com/news/2011-11-30/dow-jumps-most-since-2009-as-central-banks-take-action-on-crisis.html
“They have put some more lubricant in the engine,” James McDonald, chief investment strategist at Northern Trust Corp. in Chicago, said in a telephone interview, referring to the global central bank action. His firm manages about $644 billion. “Stocks have been under considerable pressure over the fears that policy makers were not going to act. While this specific action isn’t a final solution, it does indicate their willingness to prevent significant financial dislocation.”
“They have put some more lubricant in the engine” … so how long will this quart or two of oil last, given the condition of the engine?
You’ll have to ask James McDonald Esq., Investment Strategist. According to him this is not a “final solution”. As for the final solution, it seems he’s keeping that information to himself.
I am very suspicious of final solutions discussed in relation to problems in europe. AT least this time it’s only a currency.
I thought of that when I was posting, but I really couldn’t avoid the term since it was a quote.
What is that tinny sound I hear? Could it be the sound of a can being kicked down the stairs and hitting next week’s door? And that pickpocket hand in my pocket? The face connected to it looks like the Bernak. QE III with no pretense that any of the stimulus will land in the pockets of the American unemployed rabble.
It would seem the Fed has been shipping free money to the Euromess for a while now. I guess they just decided to tack on a little interest now that the deck has been stack with the funds to off set the interest that they will be charging.
False Profit to the moon. The bank MF Global (aka?JP Morgan)was reported to leveraged out 38-40 times and that was before they came clean about the other billion or so. A lot of info on this link
Yves, just curious – the FED canceled today’s POMO operation due to “market difficulties”. I read this was a liquidity removing (or balance sheet shrinking) bond auction where the FED was to sell $8 billion of 2013 bonds. Why? Can liquidity be that tight? Even here?
Look at how the markets have been goosed by this kabuki. Why, its like the second coming. Everything is fixed now. Move on folks. Nothing to see here or under Assad’s carpet or behind Egypt’s military or anywhere else for that matter.
Hey global inherited rich that control the class based society of “Western Democracies”. The genie is out of the bottle. GFL getting things all tidied up…..your days are numbered now.
“Everything is fixed now.”. Absolutely. Markets only move on news from governments or central banks. Earnings reports are a quaint relic of the past. Wonder how many insiders (bankers, government officials, and those thereto connected) cleaned up on this news?
All the big banks in US, UK and Europe plus whatever hedge funds have good connections.
Now all they need is a gaggle of fools to pile in so they can realise their gains.
If they end up selling off to each other in 2 weeks time they haven’t made a cent.
I can’t see a real problem with this move by the Fed. True, it doesn’t solve the underlying issues of the sovereign debt crisis, but it isn’t intended to, is it? It’s a stopgap measure to halt the rush to the exits of sovereign bondholders. I should think that’s a good thing right now.
It also buys time for the Eurozone to try cobble together a fiscal authority. Good luck with that, though. I can’t see the southern European populations sitting still while their governments bow their heads to the yoke.
Those of you who know about currency exchange, what will it mean for the dollar going forward? Also, does the U.S. take on additional risk with this move?
Anybody with half a brain knows that the stock “market” resembles a free market about as much as i resemble Jesus Christ. It is in fact a casino operated by and for hedge funds and “investment banks” like Goldman and Morgan. 75% of the daily volume is from instantaneous program trades scalping up loose pennies. The majority of the rest of the volume is conducted by institutional computer algorithims competing against other teams of programers. Outside of the players stand so-called investors like pension funds and private citizens, better known as marks. They provide the losses that prevent it from becoming a zero sum game between the players. The players use “news” like today’s liquidity pumping to clean out short positions and set the market up for next week’s play. When somebody like Paulson or Geithner can be bribed to signal policy in advance, so much the better for the players who can front-run the market.
Buy. Then hold still while we fleece you.
This is just another coordinated central bank manipulation in the midst of a cyclical bull market of fakery, fraud and corruption. It will eventually fail but not soon enough for me.
Crazy Horse and psychohistorian summarize this nicely. The Fed has announced a new pixie dust program that really just looks an extension of an existing pixie dust program. Market fixers, err that is traders, go crazy with canned excitement as a result. I can’t help thinking that US markets will react to any announcement positively so that they can use it as an excuse to push markets up for those all important end of the year bonuses.
This doesn’t help European debts denominated in euros at all since these are dollar swaps. What it does do is replace Money Market financing which has fled European banking and provides cheap dollars to banks, especially French banks, and so forestalls for now a lockup in short term credit.
We were talking recently here about how the TARP/Fed funds were not paid back because they loaned out at below market rates and so amounted to a subsidy for banks. This is what we are seeing here only the subsidy this time is going directly to European banks. This raises the question of why American taxpayers are supposed to take a hit (making less on this deal than market conditions warrant) simply to bail out a bunch of rich bondholders on another continent.
Right on target with everything. One thing I believe is left out. The news was a real nothing burger and the swap lines which already existed have hardly been pulled on. I wonder if the real news is what was not said and whether this was just a chaff dropping to hide what really happened. Someone started buying on the news. Now anyone with half a brain would know this was no news so this buying was just a goose to get the algos trading. So was the real unnews a coordinated buying of futures by central banks or their proxies! The press release just gave them cover to say wow look what happened.
Unfortunately, the future buying happened all over night. From what I can tell there was no follow through buying in the market. Once the markets open, after the initial pop we have seen flat lining for the rest of the day. This has been true for a while. This makes me believe people have left the market over the last months believing the casino is rigged. If so the Politburo (opps mean central bank) did not get its desired results and the animal spirits remain road kill!
Gap moves happen overnight for a reason. Market volumes are so thin that it only takes relative pennies to make the market. Not a bad setup if you know the policy direction the day before because somebody in Treasury or the Fed has tipped you off. That gives you time to load up on a few billion $ in the right options and futures contracts, then invest the necessary funds in the overnight futures market to move it in the direction the news will drive it. By the time the marks wake up at market open all you have to do is feed your holdings back into the market at a rate that doesn’t spook the marks. Funny how often markets flat line after huge overnight moves—-.
Ho Hum, another billion profit for the day.
—just a hunch but I don’t think this particular gambit is going to buy the endangered sovereigns—or the banks that will go down with them— too much time. Maybe enough to get to the European Summit though on December 9th. In fact, not to be too cynical but I think that’s the plan. Lenin had a five year plan, these guys have a ten day plan.
Someone of the FT site claimed this is a backdoor QE by the Fed to the tune $600B of base money creation and transfer to the Eurozone. Makes sense to me but would like to hear from experts.
I forgot to add a question I have asked in the past. What happens to euros the Fed is holding if and when the eurozone blows up? How does increasing its exposure in this area do anything other than set us up for large and unnecessary losses, losses which should land, not on us, but on rich European bondholders?
I think it all depends on your derivative position in the new global casino.
Yup, a global version of this casino http://1.bp.blogspot.com/_5wCCEKT9GdI/TSvdAs1llaI/AAAAAAAAAKI/Q-ISyodp_q8/s1600/too-big-to-fail.jpg
You will see, I don’t know how soon, interest rates start to spike up all over thew globe.
Anyone else have “waiting for collapse fatigue?”
Definitely! Just making it worse when it comes
Death is a process too
…which ends, given time.
The big fake out is that it already happened. Old fashioned commerce and trade have been replaced by injections of liquidity in a no growth economy. We aren’t going to go back to the debt for growth model. We are just going to give banks money and let them play with it to give the BRICs time to appreciate their currency. Otherwise the BRICs will crash before we do. In 10 years there will be a global dollar.
“I think the major monetization is already occurring in the Eurodollar markets, and an ongoing stealth bailout of European debt, in order to save the big money center banks at home and broaden the reach of the Dollar.” ~Jesse
Oh, this “Cafe Americain” must be paid very handsomely by Hill & Knowlton or other to serve such platitutdes to the shivering masses: “God and country” pie to be washed down with Starbucks triple-skim cappucino mocha latte *mitt schlag*, while we adjust to our servitude en masse.
LBR, I can’t tell if you’re trying to be funny here or are simply unfamiliar with Jesse’s oeuvre.
It is a painful affliction.
If Europe is where the US was in 2008, then there could be a huge rally from here if the ECB steps in with the SCAM (Sovereign Continuity Asset Mechanism) and creates LIES (Liquidity Incentive Enhancement Securities) or FRAUDS (Financial Reconstruction Asset Underwriting Debentures).
But I’m too scared to jump in. And so I sit here and do nothing. There could be market full of two-baggers before the final collapse. It’s hell trying to get rich quick without any risk, not really knowing what you’re doing. I guess you just have to take a leap with a shallow stop loss and hope.
Look at the charts, they will always tell you where we are going.
Are you in the “elite” category of *no risk uber alles*? Place your bets according to your station in life.
Hey – you are very smart and cynical enough for these markets! And you saw it coming. It is not so much if and when to join (yes and probably still now) – the question is when to get off (unknown).
But it does not pay to ask to many questions in advance. The fix is in. How far it will take us will be decided later.
The markets didn’t really go anywhere. The bottom fell out of the currencies.
BRILLIANT !! But not too many have noticed that so far. Behave accordingly …..
This is primarily a psychological move. For months we have been told that coordinated action is needed. Now we see a coordinated action. So we are supposed to think that we are now seeing the intervention that we needed. That is all well and good, but it does not change the fact that you cannot resolve a solvency crisis by providing liquidity.
“…but it does not change the fact that you cannot resolve a solvency crisis by providing liquidity.” Ding ding ding, we have a winner!
we have another idiot, listening to the sound of her voice when she says “it is a solvency crisis and not a liquidity crisis”. no, italy is solvent, spain is solvent, the US dollar market is where there was manipulation to create a liquidity crisis for the european banks (most notably bnp and sg) that is gone, through a stealth QE operation by the FED that levies a tax on the lines. it is a manufactured liquidity crisis thinking they can turn the sovereigns into the equivalent of US subprime. But most sovereign in eu are responsible while the US subprime was real greed. MOVE ON, nothing to see here.
The hysteria is mildly amusing
Yes, you’re right for the most part. This is a psych move and it worked. Pretty much a band aid that fixes nothing.
But it does fix quite a lot. What investors are looking for right now is quite simple. The want a sense that there is “someone” in charge. That someone is an emergent world financial system that appears to be on the road to pledging some kind of unity by creating a base on which the world economy can operate. The derivative insanity destroyed the base and they’ve been trying to put it back together–cobbling it by using duct tape and now the duct tape is not enough so they have to actually create some solid and, btw, expensive changes.
We’ll see whether the world economy holds together and what the deals are between the various powerhouse players. It shows me that they are thinking about the future. Since currencies are all fiat—anything can happen wealth can be, basically, pulled out of a hat if you understand the complexities of misdirection. Right now the psychology is of paramount importance because it is what keeps everything going. The whole system is a game, a magic act and magic is the only solution–it just has to be better, integrated and the fundamentals have to be agreed upon. The IMF will be critical in helping organize all this as I think it has been in this crisis. We’ll see if it comes off.
You prove my point, Banger, by saying it’s all smoke and mirrors. It doesn’t fix anything. Just changes the rules.
It is as you say a game and the “common people”, the people on the street, working hard to meet basic needs, are the pawns on the chess board.
By having the power to create money out of thin air they have the power to benefit their own selves and their own goals. Which is the problem with fiat currency, it doesn’t really belong to the guy on the street.
Hal, make that “psych-ops” move.
“Psych-ops” move. LOL, LeonovaBalletRusse, you’re right I’m sure. What we are seeing unfold before us is a currency war in action.
Glass is 1% full: coordinated action to ensure orderly markets
Glass 99% empty: bank run(s) require(s) central bank response to prop up the status quo
So, there you go. Problem solved. Now, safe to go in and buy those Italian bonds. (You go first!)
Better yet, buy the 1-year Greek bond. Current yield a robust 313%. Après vous!
The reason the markets are up as the FED now has a toe in the water.. it isn’t what the FED is doing at this point (the pros and cons of currency swaps blah blah) but that they ARE IN! No way the FED just walks away at this point – whatever needs to be done, will be done. As if it could happen in any other way?
Take a deep breath and relax. Let’s see what happens tomorrow.
My guess the Dow will be up a piddling 25 points or so and the default rumblings will be underway, again.
There will be more bad news from MF Global trustee or some other banker. More people will close euro accounts, take their funds out of the EU and buy Swiss francs. More real estate ‘investors’ will go bankrupt. Word will be that pre-Christmas sales are tepid at best.
The only way to ‘profit’ by the frantic rallies is to know about them in advance. Sorry, you aren’t in the correct club …
The Fed is doing the right thing, BTW: several hundred billion in US banking system is flight capital from Europe. It needs to go back where it can be put to some profitable use.
Watch crude prices. Right now Brent is a bit down for the week as part of both a longer- and short term bear market. If cash is to ‘hit the system’ there will be a push on crude prices … which will tighten the screws on the fuel-using economies. One more desperation shot @ $150 crude and a new bull market is possibly in the system but I doubt it.
In the Spring, $130 crude was a bridge too far. Right now, $120 looks out of reach. The world is simply too broke.
My thinking. What matters are the bond markets. Everything else is a sideshow.
This sounds extremely fishy, in terms of timing and the way the announcement is phrased.
Did a bank or two in the Euroland almost Lehman’d?
Yeah this was the rumor.
I’m convinced now the ‘Euro will go down with bad news in Europe’ is a sucker bet. Just like with the Japan disaster, the Yen strengthened.
I have to admit I’m not completely clear how these swaps work. These are loans in dollars with Euros as collateral? Or can they use Italian/Greek bonds as collateral also?
No. This is from Wikipedia:
The Federal Reserve and the central bank of a developed or stable emerging economy agree to exchange domestic currencies at the current prevailing market exchange rate & agree to reverse the swap at the same exchange rate at a fixed future date. The aim of central bank liquidity swaps is “to provide liquidity in U.S. dollars to overseas markets. “
So as indicated above, it can and probably will help funding stress of Eurobanks as far as their DOLLAR funding is concerned. It does nada as far as EURO funding stress is concerned.
Could it be a mechanism designed to take the exchange rate risk out of buying Euro debt with American loans. Say, some bank or something borrows money from a US bank, they get dollars, they swap for Euros and take those Euros and lend to Italian/Greek/Spanish banks or governments. Then at maturity (maybe the next day), they get Euros back, and swap back to dollars to pay back the US bank. Keep the change.
No, wait, but this goes the wrong way. We’re saying these are ways to get dollars for euros now and exchange back later. It seems in the short term European banks are going to be desperately looking for Euros to prevent a run. They don’t need dollars. Hmm.
This has nothing to do with February and everything to do with right now. The euro is done. There is a run away from not only on EU debt but € itself. Witness, bond sale failures in DE. Instead of placing capital controls on EU members, which wouldn’t likely work, CB’s have taken to greasing the skids. If ECB won’t print everybody else will. Once everybody is out of € sovereigns can default and nobody but CB’s suffer. And they can monitize losses.
stop shitting your pants, it is annoying. There is no Euro liquidity crisis, there was however a dollar liquidity crisis orchestrated since the summer (early sept) that was just put to death. The central banks just put an end to the dollar shortage. As simple as that, the rest is just psychological market bullshit feeding on itself and creating opportunities for the smart money hedge funds that know how to silence the non-sense and can ride out the irrationality (to that end Corzine was right but couldn’t ride it out, but that is another topic). Since there is no solvency crisis to begin with in italy and spain and this is pure market panic (witness the german auction having problems, what a joke). putting an end to the liquidity crisis will prevent the banks from going to a solvency crisis. in the meantime the banks are still unloading solid paper on the markets because of regulations amid a manufactured panic. This is how the game is played boys and girls, most people here are marks. Scare the idiots into letting go of the paper at a discount, let them blab in forums and buy whatever comes out at the other end. End of game.
Felix Salmon’s whitewash is a must-read – “This is what a lender of last resort looked like, the system worked!”. Links to Bloomberg, not a word on “Yes, there was a bailout. Yes, we are taking 2-digit billion dollar gifts to the financial institutions that were extracted as bonuses.”
Inflation erodes debt and wealth.
The Federal Reserve has dedicated itself throughout its history to fight inflation at all cost.
In other words, the Federal Reserve raison d’etre is debt and wealth protection.
The economy needs a reduction of debt and wealth inequality.
Why would anybody expect the Fed (or the ECB) to be part of the solution, instead of being part of the problem?
Past performance does predict future results. The whole governmental support system for international finance has been designed to preserve debt, of course these fools will cut our throats to bleed us dry.
Italy’s still above 7, last time I checked. But the rally around something like this is perfectly normally, though not logical. It’s not like the market was pricing in the risk of a credit crisis anyway…
The word “coordinated” is meant to obscure the fact that the Federal Reserve is now the Bailer Out of Only Resort (or BOOR). Unfortunately, this situation can go on for a long time. Guess who gets to pay?
Quite a BOORish solution if ever there was one, right? Well played…
I am interested is having Yves on The Power Hour for an interview – please contact me via the email address provided. Thank you!
Meh. I’m going to respond to this bullcrap announcement by buying more physical silver. The more they keep splashing the water on this sinking ship, the more silver I want to buy. Too bad I don’t have enough $ to buy up some palladium, gallium, etc, too. Nothing else is worth time or effort (other than copper in the form of sharpened cylinders about 1-1/2 inches long and clad in brass cylinders another 3 inches or so long, full of a dark, explosive powder).
This is not a surprise. It’s not so much this particular action, as the signal it sends, i.e., – these supreme bastards will do whatever it takes to keep “markets” happy. And since they ARE the “markets” that means Them.
Here’s a piece of my post on NC the other day:
In the very near-term (2-3 years) though, I think it likely we see Obama re-elected comfortably, with an outside shot of gaining the House. It will also be the lowest turnout ever. I think the Euro crisis will linger, but there’s already been enough planning private and public to handle whatever comes (since They are the problem, I rather think the solution is at hand when they’ve got what They want). I have no fear of a total meltdown NOW whatever. One way or another, a ton of money is going to be thrown at this, perhaps including from the US (Fed). And I think the “official” economy leading up to the election will do better than is thought, i.e., not just no recession, but continuing at first about this level (and remember, they can squeeze 1% in any direction they want and revise later, if need be) but in any case gaining momentum as the effects of the inevitable huge infusion (one way or other printed) are first seen in anticipatory activity, and then kick in.
And once elected, Obama will toss a couple of jobs bones out (corporate tax repatriation anyone?)while waiting for the fact that the US is the last one standing to express itself in another Wall Street asset bubble. This will knock unemployment down at least into the “7′s” and maybe high “6′s”. It will be deemed a great success “as we sit here this Thanksgiving Day 2014.”
Though this “new normal” has seen a permanent slide down the ladder for tens of millions, it’s accepted, because, after all, it’s not a “financial crisis Armeggedon”, is it? And “So you pathetic little boobs won’t mind if we just go ahead and eat your future, will you?”. Which they far more likely will with a partially placated public than with an angry one.
That’s my fear. That’s why I actually think it certainly would have been better if Republicans had won last time, and if they won this one. The public, for whatever reasons you care to ascribe, just is not pissed enough yet to DEMAND real change in the numbers needed to make it so. From where I sit, a re-elected Obama is the greater threat to the prospect of REAL change – he’s the best black Republican President ever. The make-or-break-it election for any viable electoral challenge is 2016 – if there’s any chance at all.
I’ll add this: It is absolutely vital that those who care about the future NOT be silenced by what will appear to be “things getting better”. APPEAR is the operative word. It will again be temporary, and again blow apart. We absolutely must not be caught sleeping again. When it goes, and I’m thinking 2015 (to set it up so of course the country will “throw the O-bums out” to give it to Reps who will finish the job of turning the country and world into a Darwinian jungle) we have to be in the streets immediately, and millions strong. It will be our last opportunity.
If the EURO collapses, there’s going to be a lot of collateral damage, and this would surely create the dreaded double dip. So the cost to the US economy of the Fed action might be less than the disaster it prevents.
I’m just still trying to wrap my brain around what exactly they’re doing.
I see this as a two step Shock Doctrine event.
The outcome of the first step of course is to gut the social safety net in all the EU countries and it would have been harder to do if the EU stayed together but it they are apart they can be played off each other more easily.
The second step which may partially overlap with the first is to do the same to what is left of the social safety net in the US.
More whip-saw … taking out the shorts so now the real players can get their shorts on the cheap …
Isn’t it possible that this is not an offensive measure solely intended to help the Euro/Euro zone? Rather, is it possible this is mostly a defensive measure? As I recall , during the depths of the 2008 financial crisis, asset devaluations led to a general lack of confidence in bank collateral. This effect prevented the banks from accessing the overnight markets. If memory serves, the repo markets froze, banks could not get cash, there was a subsequent liquidity squeeze, and there was a real threat that those lending to the banks (money markets funds, etc) would break the buck. Bank customers (including large US corporations) also faced a threat, in that they weren’t sure they’d have access to the working capital cash normally available from the banks in their bank accounts or from the overnight markets for those companies that made that part of their daily treasury management process. Consequently, there was a brief period of time during that crisis whether anyone would be able to pay bills or make payroll.
I could be wrong, but it seems to me this announcement could be no more than a proactive attempt to increase confidence and keep another liquidity trap from springing shut.
You go to tthe head of the class. A+. Absolutely correct.
Anon…you are correct.
This is the way currencies end
This is the way currencies end
This is the way currencies end
Not with a bang but with a swindle.
Robespierre, my man, bravo.
There is less here than meets the eye.
Nothing has been fixed.
The stock exchange action is a short-squeeze.
The Fed is repatriating euro-dollar deposits which is what central banks do, it is the Fed’s job. The Fed is a central bank not a cash management firm for the frightened wealthy. EU needs the liquidity, it’s theirs in the first place.
Big dealers (Blackrock) hold billions in euro sovereign bonds, the Fed will buy these later, either as Operation Twist or part of a asset buyback scheme (not necessarily QE) but the amount won’t be enough to scare the horses (so it won’t make a difference in the EU).
The EU needs €3 trillion to pause (not end) the crisis, the Fed can’t cough it up. There is no mechanism for the ECB to put euro-denominated liabilities onto the Fed balance sheet.
The IMF can do so but this would a) require an act of Congress, b) would be the effective end of the euro. The EU would die of mortification as an IMF bailout of the core would be an admission of the uselessness of the EU management.
The Fed can buy foreign bonds directly. The Bernank said so as far back as 2002 (saw the quote on ZH the other day). The Fed is also quite capable of acting without reporting it to anyone (but insiders, of course), as it did IN SPADES in 2007/2008/2009.
In any case, while this action isn’t the Fix, the “market” reaction to the mere prospect of Fed intervention will not go unremarked in Germany. This buys time, and with the jobs report Friday, an elevated “market” through the holidays (which will open up all those wealthy wallets). In the new year, we’ll all see which way Germany chooses.
I hope they choose what is best for all the peoples of Europe and that is to themselves leave the Euro to form a smaller core with or without France, allowing the Southern nations to default etc., and for ALL of them to toss their elites out on their asses. That’s my heart. My mind says Germany will cave via some face-saving mechanism and the printing begins in earnest no later than March. The Fed will find a way to participate as well, and we’ll have the basis for the last bubble in an even nominally democratic country.
The last couple weeks the financial media has been full of end of the world comments regarding the Euro and its possible implication, generally dire! What I found interesting was how little interest the primary players namely Germany/France seemed to have regarding these black outcomes. Well now its clear that the U.S. Central Bank was always engineering another corrective play. The Equity market rally on Monday then was based not on the trumped up Black Friday numbers but the leaked actions by the FED. The Black Friday numbers should have been a tip off that something larger was pending as the financial sector works only from positions of strength.
money markets were, “a short shove away from complete collapse
Amid persistent rumors that yesterday the money markets were, in the words of economist Jeremy Cook, “a short shove away from complete collapse”, all the world’s central banks got together and decided to lower the cost of pushing US dollars across the globe.
Translation: billions of dollars more -albeit in short-term loans- were injected in what Alan Grayson yesterday depicted as “Russian Roulette” (he was talking about earlier Fed loans, same difference).
My guess is that unsecured USD funding is unavailable at any price to one or more large EU banks.
“In other news, major central banks today jolted the rotting, putrid corpse of globalized finance with another 150m-volt charge. The stock-markets around the world, looking on during the exercise, noted, “It moved, I saw it move!” and stocks duly shot up around the world showing the markets renewed confidence in magical thinking.”
The worse the explanation, the better the move (Bruce Kovner, if I remember correctly). As you constate Yves, the swap lines are a very bad explanation.
The bears were speculating that the system in Europe (or Italy) would break. And then what? HOw to cash in, if all goes down?
The ECB will find a way to paper Euros over the problems – this is a safe bet, otherwise there will be no ECB going forward.
Now, from a moral plane, this whole thing is disgusting.
But in markets, one should not judge by morals but by opportunism. I have made this mistake many times (2009 in the US!). Be careful!!