US taxpayers bail out the world
The mother of all bailouts just happened. A group of the world’s central banks joined the collective action, led by the Federal Reserve, but as the NYT report makes clear, this is all about America bailing out the rest of them:
The other central banks said they had also agreed to make similar loans of their own currencies as necessary, but they noted that the only extraordinary demand at present was for dollars.
Michael Brendan Dougherty tweets:
So I guess the Fed has a triple mandate now: 1) Low inflation. 2) Low unemployment. 3) saving Greek pensions.
This means that the global situation is far, far more dire than the talking heads have said. Luckily, when this step fails, which it will, Mars can always come and bail us out.
…RBC’s Michael Cloherty, who makes the astute observation that it is now cheaper for foreign banks to borrow dollars from their central bank than it is for a US bank to borrow from the Federal Reserve.
More reax later…
UPDATE: From the Telegraph’s live blog of the situation:
14.05 Turning back to this suprise coordinated move by the world’s biggest central banks to cut the cost of borrowing in dollars, Jeremy Cook, chief economist at foreign exchange company World First gives his explanation for the move:
Cutting swap costs is the equivalent of interest rate cuts. These banks are now basically providing unlimited US dollars to banks with which to fund themselves. The banks will be hoping this is a turning point in the crisis.
We do not know what caused this decision, we may never know, but the smart money is on the fact that yields on one-year German debt went negative this morning (paying Germany to lend it money).
This may have been a signal that the money markets were a short shove away from complete collapse.
(I see that Clare Krishan has just quoted from this same item in the comments thread. The Telegraph’s live blog is a good source for rolling info.)
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