Wow. Now we are seeing some real heavy weightlifting! The world’s major central banks have embarked on a major coordinated credit easing operation.
This should be another "I told you so moment". As I earlier wrote
Global central banks and politicians have, in increasing signs of desperation, been intensifying the use of the nuclear option. Such concerted move is likely one of the many to come. Expect to see amplified market gyrations as consequence to the boom-bust policies of global central banks.
From Bloomberg, (bold emphasis mine)
The Federal Reserve cut the cost of emergency dollar funding for European banks as part of a globally coordinated central-bank response to the continent’s sovereign-debt crisis.
The interest rate has been reduced to the dollar overnight index swap rate plus 50 basis points, or half a percentage point, from 100 basis points, and the program was extended to Feb. 1, 2013, the Fed said in a statement in Washington. The Fed will coordinate with the European Central Bank in the program, which was also joined by the Bank of Canada, Bank of England, Bank of Japan (8301), and Swiss National Bank (SNBN) are involved in the coordinated action.
The move is aimed at easing strains in markets and boosting the central banks’ capacity to support the global financial system, the statement said. The cost for European banks to fund in dollars rose to the highest levels in three years today as concerns about a possible breakup of the euro area increased after leaders said they’d failed to boost the region’s bailout fund as much as planned….
The six central banks also agreed to create temporary bilateral swap programs so funding can be provided in any of the currencies “should market conditions so warrant.” Those swap lines were also authorized through Feb. 1, 2013.
The dollar swap lines were previously set to expire Aug. 1, 2012. The new pricing will be applied to operations starting on Dec. 5…
Separately, China two hours earlier cut the amount of cash that banks must set aside as reserves for the first time since 2008. The level for the biggest lenders falls to 21 percent from a record 21.5 percent, based on past statements.
The Frankfurt-based ECB, which says it is up to governments to stem the two-year-old debt crisis, unexpectedly cut its benchmark interest rate Nov. 3 as the turmoil threatens to drag the euro area into recession.
Yesterday the ECB allotted the most to banks in its regular seven-day refinancing operation in more than two years, lending 265.5 billion euros. The ECB offers unlimited funding to euro- area banks against eligible collateral.
“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,” the statement said.
Under the dollar liquidity-swap program, the Fed lends dollars to the ECB and other central banks in exchange for currencies including euros. The central banks lend dollars to commercial banks in their jurisdictions through an auction process.
Well, central banks are defying Walter Bagehot’s rule of lending freely but at penalty rate. Major central banks have currently been lending freely and promoting moral hazard which eventually will backfire.
The Fed will essentially be printing money to support the Euro through the ECB, as well as other major central banks.
Again central bankers are dabbling with Pandora’s Box of inflationism
No wonder gold prices, European and US stocks have been surging as of this writing.
Again profit from folly.