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The Fed, ECB, BoJ, BoE, Bank of Canada and Bank of Switzerland announce coordinated action to...

The Fed, ECB, BoJ, BoE, Bank of Canada and Bank of Switzerland announce coordinated action to boost liquidity, lowering the interest rate on dollar swap lines by 50 bps and extending their authorization through Feb. 2013. U.S. futures rocket: Dow +1.6%, S&P +1.9%.
Comments (43)
  • boatman
    , contributor
    Comments (662) | Send Message
     
    yipppeee-oooo-kyyy-aye M-F'r

     

    before its all over gold 5000$ bread 10$
    30 Nov 2011, 08:15 AM Reply Like
  • Tack
    , contributor
    Comments (14310) | Send Message
     
    Shorts on toast for breakfast.
    30 Nov 2011, 08:18 AM Reply Like
  • David Green
    , contributor
    Comments (108) | Send Message
     
    Wow, can't believe it when it actually starts to happen...but somehow expected it all along...
    30 Nov 2011, 08:43 AM Reply Like
  • The Last Boomer
    , contributor
    Comments (1011) | Send Message
     
    At the end of the day I can't decide if this is good news or very bad news. It's a recognition that things were much worse than anybody knew. Obviously a major bank or two were on the brink of disaster. The central banks are adding liquidity but this won't make the banks solvent. So, what's next? After a 5% up day shall we expect a 5% down day? It looks that we entered a period of extreme volatility.
    30 Nov 2011, 09:04 AM Reply Like
  • The Geoffster
    , contributor
    Comments (4230) | Send Message
     
    The dead end road has just been extended with paper paving. The can continues to roll.
    30 Nov 2011, 09:05 AM Reply Like
  • Hubert Biagi
    , contributor
    Comments (718) | Send Message
     
    Just remember that governments, the dollar, your wealth, are all ponzi schemes, when you get right down to it. After all, you are producing what, sitting there typing away? Trading stocks creates what wealth? What goods and services are you providing this morning? It's all about faith, credit, confidence.
    30 Nov 2011, 09:18 AM Reply Like
  • The Geoffster
    , contributor
    Comments (4230) | Send Message
     
    Way ahead of you pal. I'm hunkered down with PMs awaiting the inevitable.
    30 Nov 2011, 09:32 AM Reply Like
  • boatman
    , contributor
    Comments (662) | Send Message
     
    roger that G

     

    40 year debt/credit/faith bubble comes unglued over next two years at longest.
    30 Nov 2011, 09:43 AM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (9216) | Send Message
     
    This is good news. If inflation gets out of control we can deal with it. Inflation is not our problem right now. Deflation is. Deflation throughout the industrial world caused, in part, by creditor fears of inflation dominating global policy.

     

    Hey, banksters, Paulson made you whole. We know that now. Now make us whole in turn.
    30 Nov 2011, 09:59 AM Reply Like
  • Tack
    , contributor
    Comments (14310) | Send Message
     
    DB:

     

    ZIRP has been very bad for monetary velocity, as borrowers have been told there's no need for urgency, as rates will be kept low indefinitely. People only react when they sense a good deal will expire or be taken away.

     

    Tell Bernanke to can ZIRP, and you'll see interest in borrowing and lending rise simultaneously.
    30 Nov 2011, 10:03 AM Reply Like
  • The Last Boomer
    , contributor
    Comments (1011) | Send Message
     
    What Tack says is so counter-intuitive: raise rates to spur economic activity. Aren't we taught in economics exactly the opposite: central banks lower rates to encourage economic activity and raise rates to cool down an overheated economy? Why would I borrow if rates go up when I am not borrowing now when the rates are so low?
    30 Nov 2011, 10:09 AM Reply Like
  • David Green
    , contributor
    Comments (108) | Send Message
     
    Higher rates give banks more incentive to lend. Lower rates conceptually gives incentive to borrow, but with the banks stritctly tightening up their lending standards, how many people can borrow?

     

    What you are probably taught in most economics courses is to spend the way out of debt, which I think is far more counter-intuitive than what Tack just mentioned.
    30 Nov 2011, 10:24 AM Reply Like
  • Tack
    , contributor
    Comments (14310) | Send Message
     
    Boom:

     

    It may be counterintuitive, but it's exactly what happens when the rate curves hit extremes. There's nothing depressive about "higher" rates when they're at 2%. Get concerned when they hit 8-9%. We've even had booming economies at 8% rates.

     

    Human nature, being what it is, always waits for a) the better deal or b) feeling safer. Take housing, for example, buyers have been told endlessly that prices will be better tomorrow, so they hold off, not rush toward lower prices. Similarly, Bernanke has announced nobody need fear higher rates until 2013 or later, so borrowers have no sense of urgency to lock in low rates, now. Their fear of lower prices or other economic issues outweighs the attractiveness of those low rates.

     

    However, if people see or hear announced that ZIRP is ending and rates begin to rise, then, they will start to think about things differently and act accordingly. This phenomenon is well proven, as, for example, when rates start to rise after a period of declines, there's a big surge in refi's, etc.

     

    Borrowers, too, will get more interested in making loans when rates more justify the commercial risks involved.

     

    Absolute rate levels are not an issue at these low-rate levels, but the direction of rates is. Too-low rates, maintained too long, has a depressing effect on monetary velocity.
    30 Nov 2011, 10:39 AM Reply Like
  • The Last Boomer
    , contributor
    Comments (1011) | Send Message
     
    So when rates are higher banks have more incentives to lend but potential borrowers have less incentives to borrow. Thus the incentives on both sides cancel out each other and we end up in the same place. With real incomes going down or remaining flat, why would the consumers increase their leverage? Instead of playing games with the rates hoping to lure consumers into more leverage (as if they don't have enough debt already), isn't it more productive to focus the economic policies on how to increase real incomes? I guess with central banks and policymakers so preoccupied playing financial games, the idea of dealing with real economic phenomena like unemployment, incomes, and growth is somewhat novel.
    30 Nov 2011, 10:42 AM Reply Like
  • Tack
    , contributor
    Comments (14310) | Send Message
     
    Boomer:

     

    I don't think you fully grasp how it works.

     

    When rates are too low, monetary velocity is impaired, not increased. Everybody sits. It is oversimplistic to say that higher rates depress economic activity, no matter what. It does not work that way at all points on the rate curve. It's not a continuous function.

     

    If the Fed allows rates to rise, the private sector will increase, not decrease. And, the dollar will rise, which will stimulate imports, which will assist the situation in Europe, as well. Right now, way too much money is piled up in bank deposits, corporate balance sheets, mattresses, etc. It costs virtually nothing to do nothing with one's money, so there's no fear of opportunity loss or attraction to gain.

     

    Also, contrary to what you may think, consumer debt, as a percentage of GDP, has been steadily declining every single quarter since 2009Q2, right up to the present. So, those low rates are not, n fact, encouraging over-borrowing. The opposite, in fact.
    30 Nov 2011, 10:53 AM Reply Like
  • Positive Equity
    , contributor
    Comments (483) | Send Message
     
    Wake up ! Helicopter Ben just blinked and gave in to Merkel's bluff. The winner here will be the Germans who were successful in getting the US Feds to buy up some of the Euro's debt.

     

    Helicopter Ben will tell everyone it's a loan. They will pay us back later with interest. Keep in mind that the whole game is based on deflating the value of the money that is used to pay back the loan. That's right folks. The value of the loan will go down substantially when the Euro banks and government agencies pay back the loans. The tricks is to deflate the value so that the debt is reduced as much as possible. So the money that US tax payers will receive on these loans will be worth much less that the value of the original loan. Thus the burden of Euro debt will be effectively transferred to US tax payers. Welcome to Global Too Big to Fail Banking!
    30 Nov 2011, 10:34 AM Reply Like
  • moreofthesame
    , contributor
    Comments (743) | Send Message
     
    PE, try to look at the central banks as a separate country, the FED is not a US government institution as so many believe it to be. The FED along with other central banks is it's own entity. They operate outside the laws and regulations of congress. While they do follow some official rules in order to save appearances, what truly goes on behind closed doors nobody knows.
    To think of the FED as spending your money is not really correct, the central banks are controlling the wealth of the planet is a better way to see it. If Congress was to give money to Europe than it would be your tax dollars at risk but current Congress is a mere puppydog next to the central bankers. Sort of like a nuisance for them to deal with.
    30 Nov 2011, 11:43 AM Reply Like
  • Robin Heiderscheit
    , contributor
    Comments (2423) | Send Message
     
    Ron Paul 2012
    30 Nov 2011, 12:15 PM Reply Like
  • Zmartmoney
    , contributor
    Comments (1224) | Send Message
     
    To suggest that any of this is within the Fed's charter is ludicrous. They are using our money to do whatever they want. They are outside and above the law. They are their own govt, acting with our money, and we have essentially no say in the matter. Ron looks better every day.
    30 Nov 2011, 01:52 PM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (9216) | Send Message
     
    Gold is not money. Money is money. The Federal Reserve has had a responsibility of supplying money to the system, on our behalf, since 1913.

     

    Old Hickory ain't coming back, and I thank goodness for that.
    30 Nov 2011, 02:46 PM Reply Like
  • Norm Young
    , contributor
    Comments (16) | Send Message
     
    Before bitching about what's going on, consider what would happen if it didn't. Seems very fashionable to disparage the efforts to keep the world from going into depression these days, especially on SA. In such a scenario, it seems probable that more grim reminders of our violent past could could emerge; such as war. If globally we are all doing fairly well, or at least the path seems at least somewhat upward, most people will want to play along. Pull the rug out from underneath that hope, and despite being short the S&P, I'll bet an investors life will get considerably nastier over the next couple of years. Especially when the mobs start looking for someone to blame for their misery.
    30 Nov 2011, 10:58 AM Reply Like
  • whidbey
    , contributor
    Comments (3417) | Send Message
     
    This currency facility means not very much, it is liquidity, not debt level change. The liquidity means only that banks and governments can manipulate their debts and assets without too much concern for their transactions costs.

     

    Still hanging is the question of how debt levels get paid off over time and, of course, who pays the sovereign debt. This is the real issue.

     

    The rally is sort of misplaced since the liquidity changes very little compared to he much more troublesome debt issue, but we must expect the Feds actions to be misunderstood. The facility does not preclude QE3 which I suspect is more probable now.

     

    THe ADP jobs numbers are largely holiday jobs, not permanent jobs. This time of year is all about getting a good earnings year. When it is over, I suspect we lose most of the jobs gains. Why are others so quick to think it is a change of employment in general. It is not.
    30 Nov 2011, 12:26 PM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (9216) | Send Message
     
    It's not a question of "whether the debt is paid." It's a question of debt management.

     

    It's a mistake to think that countries are families. It's also a mistake to think they're businesses. They're countries.
    30 Nov 2011, 12:52 PM Reply Like
  • Zmartmoney
    , contributor
    Comments (1224) | Send Message
     
    It's an even bigger mistake to think that any behavior that we reward, we will see less. We are now officially rewarding the European Socialist model and underwriting its future "success," which means that we will see more of the same behavior, except now we're completely buying into it also. Obama wins whether he's re-elected or not, and we're the fools paying for it all.
    It's probably time to get that international treaty done that revokes the second amendment - that's next on his list.
    30 Nov 2011, 01:55 PM Reply Like
  • The Last Boomer
    , contributor
    Comments (1011) | Send Message
     
    Dana, the fact that they are countries does not repeal the laws of economics. Plus, the countries we talking about are not currency issuers, they are currency users. By agreeing to become currency users, they voluntarily put themselves in the same bucket where families and businesses are.
    30 Nov 2011, 02:01 PM Reply Like
  • Tack
    , contributor
    Comments (14310) | Send Message
     
    Boomer:

     

    Countries, and their Fed-like institutions, are not like "families and businesses" in the least. They can and do create currency, as needed, in unlimited amounts. They can create associated debt in this process with absolutely no technical risk of default, as they can print the servicing costs ad infinitum. And, they never need to pay back a single dime; the balance sheets can (and do) stay expanded in perpetuity.

     

    Now, one can argue that if the rate of debt or monetary expansion is all out of proportion with the growth of the economy, then, inflation may ensue, but how much inflation is also a outgrowth of what the monetary velocity is. Presently, for example, there's a sea of currency out there, but it's not moving very rapidly. Now, if that changes, then, the Fed can ramp up rates to depress economic activity and stem inflationary pressure. We're miles away from that problem, now, however.

     

    I would say, though, that over time inflation is perpetual, so that's the thing to consider in one's investing habits. Deflationary pressures are always interludes to otherwise perpetual inflation at varying rates.
    30 Nov 2011, 02:38 PM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (9216) | Send Message
     
    Central banks issue currency on behalf of countries or (in the case of Europe) groups of countries bound together by treaty. The fact that these European countries aren't currency issuers is a problem Europeans will address, either by unifying policy across the Eurozone or breaking it up.

     

    But you seem to be implying there is something like hyper-inflation going on. There isn't. The problem is there isn't enough money out there, in an economic system that is naturally deflationary, and given the fact that a lot of money has disappeared in the form of loans that will never, can never be repaid.

     

    So we deal with it.
    30 Nov 2011, 02:49 PM Reply Like
  • ebworthen
    , contributor
    Comments (2811) | Send Message
     
    So Dana; are countries made up of families and people or of oak chairs and lecterns?

     

    I seem to remember a lot of people dying, and families lost or torn asunder, over the Reichstag.
    30 Nov 2011, 04:21 PM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (9216) | Send Message
     
    That assumes that the leaders of Europe today are no better or different from Hitler. So I'm calling a Godwin's Law violation and ignoring it.
    30 Nov 2011, 04:55 PM Reply Like
  • ebworthen
    , contributor
    Comments (2811) | Send Message
     
    I'm calling a Douglas Adam's violation.

     

    Weimar republic?

     

    Great Depression?

     

    Tulipmania?

     

    Or is the history of humanity irrelevant because "this time it's different"?
    1 Dec 2011, 12:22 PM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (9216) | Send Message
     
    42.

     

    I once met the late, great Mr. Adams, at E3. Very nice man. He was very animated with me because I was, at the time, a reporter covering the space (video games) he was in.

     

    And I miss him. Glad you do, too. And thanks for the fish.
    1 Dec 2011, 02:28 PM Reply Like
  • bob adamson
    , contributor
    Comments (4562) | Send Message
     
    Norm Young and Dana Blankenhorn –

     

    I agree with much of what each of you are saying here. All this, however, is against a backdrop which is unique in our lifetimes (although the 2007/8 US investment banking crisis has some parallels).

     

    On the one hand, there is a high degree of pessimism, much of it well placed, centered now in Europe but also extending to North America and even Asia. On the other hand, it can be argued reasonably that:
    1. Except for an actual uncontrolled implosion of the European and global banking systems in the face of ongoing paralysis of central bank and political leadership. The markets have factored in the downside of the current economic situation which is largely political in nature.
    2. The political challenge is as Dana implies, the ongoing management of and, over time, the reduction to more manageable size, of the unparalleled credit/debt bubble in ways that don’t tip the world into a deflationary depression or divide the world into ever smaller antagonistic blocs.
    3. If the intense pressure represented by the markets perception of point 1 can be relieved significantly, if only in a preliminary and near term sense, by political initiatives by the EU leading figures (i.e. give some confidence that point 2 can be addressed), then a strong market rally is possible over the next quarter.

     

    In short, unless the European, and in particular the German, political leadership truly proves inadequate to the task before it over the next two or three weeks, we may have seen the bottom last Friday and, given the indications that the central bankers are up to the task they confront, if the EU political leaders come through adequately, then a ralley can be expected. This is not to say that a solution and blue skies are at hand even if the EU leadership makes constructive moves. The advanced economies across the world have difficult issues to face in managing and resolving the debt/credit bubble without inducing deflation or stagflation and this will be an ongoing challenge for the rest of this decade.

     

    Returning to the immediate challenges the following entries from both ‘The Economist’ and Spiegel collectively give a realistic picture of how the central bankers initiative November 30th helps but that the proverbial ball is now squarely in the political leaders’ court.

     

    http://econ.st/urJcc1

     

    http://econ.st/vqdSSo

     

    http://bit.ly/scAS7H

     

    http://bit.ly/rHx5DZ
    30 Nov 2011, 02:38 PM Reply Like
  • ebworthen
    , contributor
    Comments (2811) | Send Message
     
    True meaning of "liquidity", dollar "swaps", and "quantitative easing":

     

    The global debt orgy on the backs of children will continue.
    The vampire squid will continue to be fed the blood of the masses.
    The hegemony of the central banksters willl not be questioned.
    99% - Stay on your knees, the sodomy will continue.
    1% - Chill some more champagne, the party will continue.
    30 Nov 2011, 03:37 PM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (9216) | Send Message
     
    What global central banks are trying to do is protect the middle class. The rich can take care of themselves. And do.
    30 Nov 2011, 03:55 PM Reply Like
  • ebworthen
    , contributor
    Comments (2811) | Send Message
     
    Protect the middle class?

     

    By debauching the currency and putting trillions of debt on the backs of future generations?

     

    By propping TBTF banks, corporations, and insurers instead of households?

     

    By perpetuating parasitic socialism hand-in-hand with crony capitalism?

     

    Please explain.
    30 Nov 2011, 04:16 PM Reply Like
  • Josh Krause
    , contributor
    Comments (1361) | Send Message
     
    Protect the middle class by facilitating commodity inflation? The middle class will do super great if Gasoline increases in 2012 as much as it did between 2010 and 2011. I hear $4+ per gallon is a great price when your income has stagnated or declined.

     

    The rich make out as they already own all the hard assests that are benefitting from the inflation. With no wage inflation (and there won't be, thanks China!) the middle class will disappear as their purhasing power is destroyed through dollar debasement.

     

    When incomes increase faster than the CPI, then we can talk about the Middle class benefitting from this. How is that working out for the Middle Class right now?
    30 Nov 2011, 05:01 PM Reply Like
  • bob adamson
    , contributor
    Comments (4562) | Send Message
     
    Ebworthen and KrauserKrause –

     

    First, I really fail to see the inflation threat you fear being imminent any time soon. Rather, deflationary depression is the more immediate risk if the Euro zone goes into terminal crisis. When the economy strengthens in the future and the latent inflationary pressures that monetary easing now is creating becomes a real problem, monetary and fiscal tightening will be appropriate and effective.
    Second, I don’t see how deflationary depression and the massive uncontrolled defaults of both public and private sector debt will serve the interests of the middle class (which will shoulder the brunt of this catastrophe).

     

    I’m not saying that the alternatives to which you object are easy, sufficient, or cheap but they (if coupled with financial reform, sound management of the economy and steady nerves) at least allow for a better outcome.
    30 Nov 2011, 06:52 PM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (9216) | Send Message
     
    There are alternatives to gasoline coming on the market. The renewable revolution deserves your support, because the technology is real - it needs only capital and labor to make it happen.

     

    It's true that will do more to help Americans who are now out of work than anything a central banker can do.
    30 Nov 2011, 08:59 PM Reply Like
  • moreofthesame
    , contributor
    Comments (743) | Send Message
     
    I still don't know why the market is up almost 500 points today. Europe is still crashing and the US is following closely. So the central bankers are showing off their mighty fingers typing large numbers into a keyboard, is there anything else to report?
    30 Nov 2011, 04:02 PM Reply Like
  • ebworthen
    , contributor
    Comments (2811) | Send Message
     
    Markets up on extremely low volume.

     

    Retail money still fleeing stock market.

     

    HFT machines and trade desks making taffy and cotton candy while the QE (oh...I'm sorry..."liquidity swap") sugar flows.
    30 Nov 2011, 04:18 PM Reply Like
  • Dana Blankenhorn
    , contributor
    Comments (9216) | Send Message
     
    Those are real dollars being created, which will have an impact on the real economy. Investors see that and trade on it, like they trade on everything else.
    30 Nov 2011, 04:56 PM Reply Like
  • moreofthesame
    , contributor
    Comments (743) | Send Message
     
    The logic behind it sounds a bit like handing a parachute to a naked person at 35000 feet with the advice to cut holes out of the parachutes fabric to keep warm during the fall.
    30 Nov 2011, 05:41 PM Reply Like
  • moreofthesame
    , contributor
    Comments (743) | Send Message
     
    Sarkozy is begging ahhh demanding for Germany and France to save France ahhh Europe. Sounds like its all taken care of.
    1 Dec 2011, 02:24 PM Reply Like
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