ALERT - Central Banks Go Insane, Offer Unlimited $ Refinancing

Monday, October 13, 2008

If it were possible to pinpoint the beginning of hyper inflation in the Western world, this Monday October 13 stands good chances to become a historical milestone in hindsight.
Investors woke up to a joint announcement of the major central banks that said that the Fed, the ECB, the BoE and the SNB would provide unlimited $ refinancing.
The BoE, ECB, and SNB will conduct tenders of U.S. dollar funding at 7-day, 28-day, and 84-day maturities at fixed interest rates for full allotment. Funds will be provided at a fixed interest rate, set in advance of each operation. Counterparties in these operations will be able to borrow any amount they wish against the appropriate collateral in each jurisdiction. Accordingly, sizes of the reciprocal currency arrangements (swap lines) between the Federal Reserve and the BoE, the ECB, and the SNB will be increased to accommodate whatever quantity of U.S. dollar funding is demanded. The Bank of Japan will be considering the introduction of similar measures.
By now the statement,
Central banks will continue to work together and are prepared to take whatever measures are necessary to provide sufficient liquidity in short-term funding markets.
raises more fears instead of the calm they are meant to establish in financial markets.

Weimar Comes Alive Again
The new wave of unlimited cash may prevent a seize up of credit markets, but this will only temporarily alleviate the symptoms but not the root of this crisis which was too easy money in the first place.
Weimar is alive again. In 1923 the German government trumpeted similar news. Lacking computers then, Germany announced that it had installed a total of 23 money printing presses all over the country which would print money 24/7.
What was then a German phenomenon - that ultimately led to the rise of Adolf Hitler - will now happen in a global dimension. There are more parallels. The Nazis organized a huge rearmament and public works program to bring down unemployment rates exceeding 30%. The USA resembles this move with its limitless spending on its military apparatus that has grown exponentially in this millennium.
In the battle to maintain unbacked Federal Reserve Notes (FRNs) as the world reserve currency the Fed pushes more of its freshly digitized money into the market with the welcome side effect of gaining forex reserves that can be used at a later stage to prop up the dollar once fundamentals set in again. And the fundamentals tell us that the USA is the most indebted country in the world sliding into a severe recession, if not depression. Any dollar strength mirrors only the structural problems in the Eurozone, where easy money has led to the same problems as in the US banking sector.

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