Money For Nothing
This past week, central banks around the world opened their war chests to prop up the financial markets from the sub-prime inflicted fall-out.
The move, similar to that after the September 11 attack on the WTC, is meant to restore confidence in the already battered financial markets. In turn, it did little to stem the stock market declines across the continents.
Led by the European Central Bank, a total of $317.2 billion (greater than the nominal GDP of oil-rich Saudi Arabia!) has been pumped into the global economy in the last few days. Other central banks around the world have also indicated that they might follow suit and release more money to ease the tightening credit crunch.
It's highly unlikely that the new money supply would ease the ongoing calamities in the financial markets as bearish sentiments continue to prevail with investors keen on pulling their money out of the markets. The measure is also unlikely to hold as it is because of increased global liquidity that has brought distress into the financial markets with all asset classes experiencing a bubble. In essence, pumping more liquidity only serves to postpone the problem.
Interestingly, there has been little change in the price of gold with the expansion of money supply. Could it be that traders or central banks are selling gold to raise funds?
*Bank of Japan, $8.4 billion; Reserve Bank of Australia, $4.19 billion; Federal Reserve Bank, $87.5 billion; European Central Bank, $214.5 billion; Bank of Canada, $2.6 billion
2 comments:
I don't understand why Bernanke is not considering Cramer's advice to lower interest rates. How do you explain refinancing a 5.125% with a 6.75% + closing costs? and that is if you have good credit! Donald Trump might be onto something when he noted that the US economy will def get into a recession.
Kim, If the fed cuts rates it saves the people in debt from foreclosure but in the overall scheme it will weaken the dollar further. The fed is caught up between a rock and a hard place.
The only way out is let the economy run its course. Personally, I think an increase in interest rates is what it will take to painfully get out of these mess.
That said, I think Cramer speaks for the fee based Wall street that is up to its eyeballs in margin. Why should they care? The guy is worth $300 million and he's crying like a baby on national TV.
I sure hope more than a couple of hedgies blow up.
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