Worldwide Central Banks Pump Cash into Markets

Photograph outside Morgan Stanley's Times Square headquarters by Mark Lennihan/AP

Wall Street is poised for a rally as central banks around the world--from the U.S.'s Federal Reserve to the European Central Bank and Bank of Japan (and others)--put more cash into the markets. Per the NY Times:

The Fed said in a statement that it had authorized a $180 billion expansion of its temporary reciprocal currency arrangements, known as swap lines, to allow banks to borrow more dollars in markets at a lower rates...

The Fed also authorized increases in the existing swap lines with the European Central Bank, up to $110 billion from $55 billion, and the Swiss National Bank, up to $27 billion from $15 billion.

New swap facilities were established by the Fed with the Bank of Japan, for $60 billion; the Bank of England, for $40 billion; and the Bank of Canada for $10 billion.

Barclays' chief European economist Julian Callow said, "This is clearly a very significant help and central banks are showing decisive leadership here as risk aversion is hitting the private sector." Asian stocks fell, but European stocks gained upon news of the cash infusion.

Still, the Wall Street Journal, dubbing this "Worst Crisis Since '30s, With No End Yet in Sight," said the crisis "has entered a new, far more serious phase," noting the problem is beyond just subprime mortgage and there's a "growing sense of wariness about the health of trading partners."

Speaking of health, Morgan Stanley--"one of the two last independent U.S.-based investment banks"--is reportedly talking to Wachovia about merging. Morgan Stanley is also looking to raise cash from a Chinese bank. And Washington Mutual will put itself up for auction. The NY Times has an article about how Morgan Stanley and Goldman Sachs stock, in spite of reporting "respectable profits," fell almost 25% and 14% respectively, "underscor[ing] how quickly a sense of fear is spreading through Wall Street."

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By Jen Chung in News on September 18, 2008 9:03 AM

Comments [rss]

NannyState

It's deflationary but it's not really Deflation. And there are inflationary forces as well. it's really all about the inability to peg a value to anything. It's like a scene from a Kurosawa flick with a blinded shogun staggering around a smoking ruin. This market which for so long had decoupled from reality, is decoupling from itself. Even if the Fed steps in and rescues what's left, the damage is immense and we won't feel it for months.

starrygordon

I'm just hoping the deflation hits the housing market before my bank goes under.

Polemicist

Stagflation would be a godsend. What we are facing is the the past 5-7 years have been a Von Mises Crackup Boom.

It's all deflation for assets from here on out, which means debt service will become untenable, which means the financial system will collapse! Wait, isn't that happening already?

Does anyone think it's coincidental the banks are collapsing the moment oil dropped 50% in value? Could it be deflation is already here?

babyhitler

To put it simply: just buy gold bars. put your money in gold. It's easy to transport too. You'll probably yield 10% a year on it and you can look at it everyday under your bed and touch it and kiss it. That's what I do.

starrygordon

'... Billions of dollars was floating back and fourth without a care in the world. ...'

Mostly forth -- from the printing press, so to speak. Although most money today is credit money, that is, it's not even paper and can be made to appear and disappear instantly. A lot of credit is disappearing, so the government is producing more of it by fiat, but that, too, can only go on so long before people stop believing in it.

What I like is the sexy way they talk about it. "Pump", "infusion", "stimulus" -- it sounds like some kind of rubber-fetish orgy.

TK

Steven - sounds like NYC city council.

Steven

This should be a matter of the feds. Some of these CEO and workers should be thrown in prison. Nobody really knows what these people were truly doing in the market. Billions of dollars was floating back and fourth without a care in the world. As long as the money was coming in who cares what we were doing.

ides_of_march

The feds are all ex-Goldman Sachs big shots it seems. Why would they take a huge pay cut to work for the government unless it's to knock off Goldman Sachs's competitors and get a licence to shakedown Joe Taxpayer?

WesleySnipesAlot

Hooray! so next time I go to the casino with someone else's money, make stupid bets and spend way more than I should, I can just call the bank in the middle of the night and cry poor to not only get their money back but some for me as well? Glad to know that there is no longer hypocritical division of fiscal responsibility in this country.

eyekantspel

under normal conditions, you should expect inflation to go up. pumping all this money into the market should devalue currency. That's being reflected in some ways, primarily increases in oil and bullion- increases which are partly due to people looking for a safe haven for cash, and partly due to devalued currency.

However, since the bad economy is killing demand, inflation has been relatively under control at this point in time. However, the danger is that we end up with stagflation.

http://en.wikipedia.org/wiki/Stagflation

starrygordon

"Cash infusion" means the U.S. government is printing money and giving it to rich people. The hope is that they will use it among themselves to bid up stock prices, speculative real estate, collectibles and so forth, so that things will go back to post-1987 normal. However, if the rich try to trade the money for real stuff, which they probably will since they are losing faith in the system, there will be strong inflation. Furthermore, the dollar will fall on the currency exchange markets, making foreign goods, especially oil, more expensive.