WORLD - Quartet on World Credit and Central Banks

"Stocks Surge as Central Banks Move to Ease Credit Crunch" (Part-1) PBS Newshour 11/30/2011

JEFFREY BROWN (Newshour): Stock markets roared their approval today after the U.S. Federal Reserve led a global move to head off a new financial panic originating in Europe.

The Dow Jones industrial average gained 490 points to close at 12,045, up more than 4 percent. The NASDAQ rose more than 104 points to close at 2,620, also a 4 percent gain. Traders responded instantly to word of the new effort to make bank loans easier to come by.

The coordinated action was announced in the middle of the European trading day and just before U.S. markets opened. And it gave investors a jolt.

STEPHEN GUILFOYLE, Meridian Equity Partners: Well, we had an old-fashioned morning, the kind we used to love to have, an opening old-school, running around like a bunch of chickens without heads and having a good time trying to trade.

JEFFREY BROWN: Six central banks, the U.S. Federal Reserve, the banks of England, Canada, Japan, Switzerland and the European Central Bank, announced they would make it cheaper for commercial banks in Europe to borrow U.S. dollars.

The move was intended to stem a mounting credit crunch in Europe, where bank lending is grinding to a halt as the sovereign debt crisis deepens.

ROBERT HALVER, Baader Bank (through translator): This means that the banks are back in business. They can provide loans. They are now liquid again.

JEFFREY BROWN: Dollars will be loaned or swapped for euros by the Federal Reserve under an existing program that will now be extended into early 2013.

In a statement, the Fed and the other central banks 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."

For months, the focus of the European crisis has been on countries Greece, Italy and others facing huge debt burdens and potential default. Those problems continue. But, today at least, investors worldwide breathed a sigh of relief.

"Soaring Markets Reveal Clues About Big Banks' Levels of Trust, Comfort" (Part-2)
PBS Newshour 11/30/2011


ALSO

"6 Central Banks Act to Buy Time in Europe Crisis" by BINYAMIN APPELBAUM, New York Times 11/30/2011

"Inflation Fears Easing, China’s Central Bank Turns to Lifting Growth" by KEITH BRADSHER, New York Times 11/30/2011

Excerpt

China’s central bank, in a surprise move on Wednesday, shifted its economic focus from fighting inflation to stimulating growth by freeing the nation’s commercial banks to lend more money.

The bank’s move was separate from the subsequent announcement by central bankers in the United States, Europe and Japan that they would pump more dollars into the European banking system. And Western officials said Beijing’s move was not done in coordination with theirs.

COMMENT: Note the following.....

Excerpts from video

CATHERINE MANN, Brandeis University International Business School: Well, the markets have been -- the markets are basically run by algorithmic trading these days or traders. Nobody's making investments in the stock market thinking they're getting a long-term investment in the company that they're buying a stock for.

So all we're looking at is trading on news. This was big news. And so when the market opened here in the United States, the market just responded to that news in a very positive way. I think, though, that one of the downsides of this additional liquidity being put into the global marketplace is that it provides more ammunition for the traders in the marketplace who want to bet against the central bank -- or against the European Central Bank in particular, or want to bet against some of those sovereign governments in Europe that are running some difficulties.

So this excess liquidity or a lot of liquidity does have a downside. And I think that we aren't thinking exactly how that ammunition is going to be used. We're thinking it's going to be used for good, but there's no guarantee that it's going to be used for good.
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DAVID SMICK, author "The World is Curved: Hidden Dangers to the Global Economy": It's a little bit like the house is on fire, and...

CATHERINE MANN: Right.

DAVID SMICK: But, also, the pluming is backed up. Well, today, we took care of the plumbing, but the house is still on fire.

... see the key word in Catherine's statement? As I've said before, stock markets are just the world's biggest gambling casinos.

Also, David's statements are very, very accurate. Someone just called Roto-Rooter (we'll unclog your drain).