Fed Action May Be Global Bailout
December 1, 2011 by Sam Rolley
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank (ECB), the United States Federal Reserve and the Swiss National Bank on Wednesday announced a coordinated attempt to provide liquidity support to the global financial system to avert further global financial distress.
The Federal Reserve, in a morning press release, said that it will take measures to provide easier access for European banks that hold dollar-denominated currencies for dollar loans to U.S. currency. The banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points, effective until Feb. 1, 2013.
“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,” the Federal Reserve said.
The actions of increased liquidity of the dollar are aimed at easing reservations banks have regarding lending to one another and individuals while the United States receives other currencies, including the battered euro, for dollar-denominated loans.
Critics of the measure say that calling the plan “coordinated action” is a farce, because it masks and fails to address address deeply rooted European financial weaknesses. A Market Watch opinion piece by Washington Bureau Chief Steve Goldstein says that the move is little more than global quantitative easing, meaning a global Federal Reserve bailout.
That money printing, called quantitative easing, is old hat at the Fed, as well as at the Bank of England and the Bank of Japan. The results are admittedly debatable, but in ECB circles it’s unthinkable to contemplate, as the ghost of the Weimar Republic continues to haunt German policy makers.