To the Rescue: Central Banks Slam Liquidity Into Banks; Stocks Take Moon Shot; Europe Still Faces Collapse
After a near collapse of global stock markets in recent weeks on fears of a European Debt collapse, central banks took action this morning to rescue the system:
Stocks soared in morning trading Wednesday after major central banks acted together to support the global financial system by cutting short-term borrowing rates.
The Dow Jones industrial average jumped more than 400 points in early trading Wednesday, and was up 392 hour after the opening bell.
The central banks of Europe, the U.S., Britain, Canada, Japan and Switzerland eased banks’ access to dollars by reducing their borrowing rates. They were responding to fears that a European country will default, touching off a credit crunch similar to what followed the 2008 collapse of Lehman Brothers.
Banks need dollars to fund their daily operations. Their access dried up as U.S. money market funds reduced their lending to European banks.
Source: Associated Press
Thus, now we know why stock markets around the world are soaring. Financial pundits seem to think that all of those underlying issues facing the too-big-to-fail mega banks exposed to the unpayable sovereign debt of European countries have somehow been resolved as of this morning. As his been the case for the last two years, this is nothing more than a 24 to 72 hour news cycle maneuver to suck even more money from unsuspecting investors.
Forget what the central banks did this morning. None of that matters. What matters is this:
Via the AP article cited above:
The move by central banks does not address the fundamental problem posed by heavily indebted European nations. European finance ministers in Brussels have been meeting since Tuesday but have failed to deliver a clearer sense of how the currency union will proceed.
Nothing has changed from last week when Europe faced what Polish finance minister Radoslaw Sikorski referred to as nothing short of an “apocalyptic” breakup of the Euro Zone. Echoing the seriousness of the crisis on Monday, OECD Chief Economist Pier Carlo Padoan warned that a Euro collapse would have “highly devastating outcomes.” Same story, different week, despite what equity markets are doing, because remember that the problem is not with stocks (right now), it’s a problem with massive amounts of debt that cannot be repaid.
The best insight we have into what’s really going on is that the last several weeks have seen major lenders unloading their positions in European debt holdings, which is effectively a run on the banks in the sense that investors are liquidating their positions – tens of billions of dollars worth. This is why we have seen stock markets dropping up until this week. The smart money has been heading for the hills for weeks!
The world’s lenders are increasingly deciding that it’s better to be safe than sorry, and they’re pulling their money out of Europe.
Importantly, once runs like this get started, they can accelerate fast
Source: The Daily Sheeple
Today’s move by central banks changes nothing except the ticks on the Dow Jones. The debt is still there. The people are still broke. The system is still collapsing.
Believe the mainstream hype at your peril.
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Date: November 30th, 2011
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