Bloomberg News reports that in the latest effort to prop up global stock markets, the Fed coordinated with central banks around the world to pump $180 billion into the financial system. This move reversed stock markets' 8% slide, leading to a small recovery. Specifically, the Fed got together with the European Central Bank, the Bank of Japan, The Bank of England, the Bank of Canada and the Swiss National Bank to make $180 billion more available to the markets.
Once again, the 100 Year Crash is exposing to the public parts of the financial system of which it had not been previously aware. The most recent new area is Credit Default Swaps (CDSs), which Phil "Americans are Whiners" Gramm, chief economic advisor to John McCain, helped expand. Today's lesson is what the New York Times calls "temporary reciprocal currency arrangements." These are also called "swap lines" and they allow banks "to borrow more dollars in markets at a lower rates," according to the Times.
It is these swap lines that are providing the source of the new dollars. I have never seen this kind of central bank action -- and it makes me wonder: Will central banks need to inject $180 billion a day to halt these knife-dagger plunges? Will they need to inject more every day to have the same effect? Won't all this extra currency cause the value of the dollar to plunge and drive inflation out of control?
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.
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Reader Comments (Page 1 of 1)
9-18-2008 @ 9:50AM
jwizz1 said...
Hey Pete.....ya think?? You claim you do not know the answer to the Fed FLOODING the markets with FIAT currency if it will lead to HYPERinflation??? Come on....economics 101 my man, what do you think......WAY too much worthless Govt sponsored currency ALWAYS leads to worthless currency & Inflation my friend!! BUY GOLD & SILVER....its the only REAL currency!!