THE COLLECTIVE SIGHS OF the world’s financiers was extra-large today after the US Fed announced it was joining with banks around the world to save – well, banks and give them a little higher wall to give shelter from the tsunami expected to result from Europe’s massive debt crisis.
According to Reuters, “Central bank action on Wednesday to ease severe funding strains for the world’s private banks may help cushion a brewing global credit crunch but it only buys some wiggle room for governments trying to resolve the euro debt crisis and keep banks lending.”
A statement from the Fed said, “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.”
Stock markets rose as did the value of the euro, even though the ECB is expected to lower interest rates sometime in the next few days.
Reuters quoted Sarasin’s chief economist who pointed out that the bank action “is not the cure” for Europe’s financial problem, which ultimately can be solved only by cutting spending sufficiently to avoid creating more debt. The known world, it seems, is broke.
Before serious spending cuts can be made, however, the ECB will be empowered to simply print more money. At the same time, European financial experts will go to Beijing and ask for help.
The alternative is to admit the European experiment has failed.
– Calamo.
