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Global Central Banks: Much Ado About Nothing?

Both the ECB and the Federal Reserve were expected to provide some sort of stimulus in response to the deteriorating finances of the European Union countries and the economic slowdown which is now evident in the United States. (5)(6)(7) In spite of bold talk by Mario Draghi, not much was done at the Euro summit meeting on August 1, 2012. The situation in Europe has been deteriorating for some time, so the markets expect that some stimulus will happen whether the ECB wants to do it or not. (1)(2)(3)(4) In the United States, the story is very similar although it is touted to be better than the European situation. Time will tell if this is really the case.

Typically, central bankers start with talk and no action. Once the value of the talk wanes into expectation, then small actions are provided. Sometimes the bankers will do an action without talk as a surprise move, but these actions become more closely scrutinized over time, and the recent market mayhem has widened the possibility of any action. This is akin to the idea of "nothing surprises me anymore". The "bazooka" is sometimes used, where the central bankers do something much bigger than expected as a type of surprise move, but after a few of these incidents the element of surprise is lost, and the market becomes immune to their effects. Since we have seen all of these strategies used in the last few years, is there anything that central bankers can do that would actually have a meaningful effect?

In spite of the apparent hesitation of the past week at the central bank meeting, there is a possibility that something is being planned but has not been announced yet. For now, it is "wait and see", but as time goes by, the unexpected becomes more expected, so time is a factor in any future moves than are considered.

Sources:

1) http://www.rte.ie/news/2012/0802/ecb-meeting-raises-hopes-of-action-on-euro-crisis.html

2) http://www.reuters.com/article/2012/08/02/us-markets-global-idUSBRE86F00620120802

3) http://www.reuters.com/article/2012/08/02/markets-europe-stocks-open-idUSL6E8J248D20120802

4) http://www.canadianbusiness.com/article/93813--asian-stock-markets-drop-after-ecb-fails-to-deliver-on-promises-of-action-to-end-debt-crisis

5) http://www.businessweek.com/ap/2012-07-31/fed-could-be-moving-to-more-bond-buying#p2

6) http://www.businessweek.com/news/2012-07-31/fed-seen-forgoing-next-round-of-asset-purchases-until-september

7) http://www.theolympian.com/2012/07/31/2193303/fed-could-be-moving-to-more-bond.html

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.