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stephan |
| 12-12-2007 |
The Federal Reserve, the ECB, the Bank of England, the Bank of Canada and the Swiss National Bank (SNB) have made a co-ordinated attempt to alleviate the liquidity squeeze in global capital markets. To help with the current shortage of US Dollars in the European money markets the Federal Reserve will create a temporary credit auction facility and enter into foreign exchange swap agreements with the ECB and the SNB. While this will certainly help towards unblocking the current credit squeeze, the real problems afflicting the US economy, and to a certain extent therefore the global economy, will not be addressed so easily.
These are, in no particular order, 1. the continuing writedowns in the sub-prime sector which are spilling over into other credit markets, particularly other asset backed secutities markets such as credit cards, 2. a collapsing real estate market facing an increasing number of ARM resets, record number of foreclosures and an exploding overhang of unsold properties, 3. precipitiously falling corporate profitability, and 4. soaring inflation due mainly to rising commodity and other input prices.
Sooner or later investors in the US equity market will wake up from their Fed induced easy money high with the sobering realisation that Helicopter Ben is pushing on a piece of string. Although market participants say that just as the Mounties always get their man, in the end the Fed always gets its way, in these circumstances I would not hold my breath. |
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