Massive Intervention by European Central Bank Today
August 10th, 2007The big guns came out today. Printing credit at will.
Via: Financial Times:
The European Central Bank scrambled to head off a potential financial crisis on Thursday by making an emergency injection of €94.8bn ($131bn) worth of funds into the region’s money markets, after signs that liquidity was drying up.
The level of funds markedly exceeded the ECB’s only previous major intervention on the day after 9/11 when it lent €69bn followed by €40bn over subsequent days. Even more striking was its one-day pledge to meet 100 per cent of all funding requests from financial institutions.
This liquidity injection was designed to ensure that money markets continued to function and did not succumb to a credit freeze. The Federal Reserve followed suit although in far less dramatic fashion.
The ECB did not offer any detailed explanation for its move, which caught markets by surprise, but simply said it was now seeking to “assure orderly conditions in the euro money marketâ€. However, it came as several financial institutions, such as BNP Paribas, admitted they had suffered significant losses as a result of investments linked to the credit markets. Many of these are linked to problems in the US subprime mortgage sector.
It also came amid signs that liquidity has recently evaporated from parts of the European inter-bank market, pushing overnight borrowing rates sharply higher. Ed Marrinan, head of credit strategy at JPMorgan, said: “This appears to be a prudent, pre-emptive step to head off any possibility of liquidity problems.â€
Here is the comically clueless headline from the nzherald web site this afternoon:
“Sharemarkets down, down after Wall St crash”
http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10456927
so, our well-informed friends at the herald (or NZPA–who knows, the article is completely uncredited) think a 2.9% drop is a “crash”. Hahahahahahahaha! smoking too much kiwi green, eh?
here’s a clue for the clueless: 2.9% either up or down is nothing–it’s just business as usual. 10% down in a day or 30% in a week, that might be a crash. but a real crash with icing on top is when the market loses 70% or more in a month or two. a crash means no buyers, only sellers, which is what the ECB fears the most.
Quite true, tochigi. If I remember right, the crash of 1987 was about a 30% drop.
However, I’d say things are getting ominous. Bush has countered the Chinese threat to nuke the US economy with an insult–calling them “foolhardy.” Reminds me of the way Roosevelt deliberately antagonized the Japanese during the lead-up to the Pearl Harbor attack. I sense that Bush is deliberately provoking the Chinese.
There are some cogent arguments out there that the Central Banks are about ready to make the economic collapse they’ve been so busy engineering become a fait accompli.
I think we have only about one year left before all hell breaks loose.
My daughter has just moved into her own apartment in the city. I had to bite my tongue to keep myself from advising her what to do in a worst-case scenario: the evacuation orders, so to speak. “Load up your sister and all the food in the apartment, head for your dad’s house in the snooty suburb, because the roads will be safe longer, and plan a safe route to my house from there.”
But I didn’t say it. It’s not yet time to panic. But we’ll be having this conversation by Christmas.
Yeah sharon, the timing is certainly going to be interesting. Two or three years ago, someone told me they thought that the Chinese government would not pull the plug until after the Beijing Olympics, at the earliest. It makes a lot of sense. It also coincides with the US elections, which you would think They would either try and hold off the crisis for or use the crisis as an excuse to cancel.So I have had that date in the back of my mind ever since: after October-November 2008, all bets are off.
But the problem is, the world is a really messy place. We have the Iraq/Afghanistan fiascos, Peak Oil, the subprime mortgage meltdown, the collapsing property bubble, the yen carry trade and all sorts of other unpredictable factors at work. Not to mention hurricanes, earthquakes and assorted anti-empire blowback.
The way things are looking at the moment, autumn 2007 is looking decidedly dodgy. But who knows, the PPT may live to fight another day.
Tinfoil hat time: I’m not an economist, but could this thing be a false-flag operation in order to give the “big guns” an excuse to pump a lot more cash into the system? I don’t know what this would buy them, i.e., other than their stated goal of increasing liquidity, but I thought I’d throw that out.
I was watching CNBC this afternoon after having a long while since I watched it last time. The people in the studio when the US market opened tried to talk all sort of bollocks about markets being fine after central bank cash ‘injections’. I couldn’t stop thinking that how they can be so wrong about it. Especially the point where guy was talking about that this is Bernar test as the 87 crash was Greenspan test, made me smile. I lived through the recession in Finland, and this one that US is having is not much far from it. Top of everything, I have this feeling that USD is going to float soon, and it has been very long way to see that happen.
My two pence is that sooner the recession happens, better it is for all of us. Long death of the USD is agonising and not worth of it.
All we need now is a second major “event”.
I think the salient point, touched on in the previous thread, is whether or not the Chinese still need the US, and our phony money, to keep buying their goods. If other markets are sufficient, they may dump.
Yeah, tochigi, fall 2008 will be tense. The question for those of us in the US is: when it’s time for BushCo to leave, will they? Any crisis, whether military, terror-based, or economic, could be the excuse to postpone an election until “things settle down.”