I kid you not (and I wish I was kidding), aBloomberg article used the word "spray" to describe last night’s
emergency injection of ~$250 billion dollars ($180 billion of that from
the Fed) by central banks into "the system" in an effort to provide some stability to the stock markets.
[quote]The Fed, which is adding $50 billion into its own banking system today, will spray dollars around the world via swap lines with other central banks. They can then auction them in their own markets. The ECB, Bank of England and Swiss National Bank allotted a total of $64 billion for one day today.
"The timing, so early in the trading day, shows both the severity of the strains in the interbank market and as well the authorities’ determination to resuscitate orderly functioning of the money markets,” said Julian Callow, head of European economics at Barclays Capital in London. [/quote]
Link to article
When even your most sedate US financial publications start using the word “spray,” it’s probably a pretty good indication that some of the reverence the Fed used to have has disappeared.
At any rate, after enjoying a 20 point pop in the S&P 500 right after the market open, that love has all worn off and the market is now in the red, below yesterdays lowest point, and sinking fast.
The article continues:
[quote] The Federal Reserve almost quadrupled the amount of dollars central banks can auction around the world to $247 billion in a coordinated bid to ease the worst crisis facing financial markets since the 1920s. [/quote]
Yes, it is a very bad sign when a quarter of a trillion dollars no longer buys you more than an hour of market buoyancy. A very bad sign.
Now for the puzzling part.
[quote] The Fed increased the amount of dollars that the European Central Bank, the Bank of Japan and other counterparts can offer from $67 billion "to address the continued elevated pressures in U.S. dollar short-term funding markets.” The Bank of England, the Bank of Canada and the Swiss National Bank also participated. [/quote]
The rest of the world combined came up with $67 billion while the Fed came up with another $180 billion for other central banks to use to try and keep things calm.
This is very odd, and I do not yet entirely understand why this move has been taken. Japan and the ECB are more than capable of creating infinite loans themselves, and both have been at least as aggressive, if not more so, than the US Fed at every stage of this crisis, beginning a year ago.
I can only speculate that this “additional US funding” represents a mechanism that will allow the central banks to more tightly regulate currency fluctuations, but that’s a raw guess. Otherwise, I have to assume that they are not willing to risk any more to help save the US system, and that, my friends, is a very desperate conclusion.
I am now elevating my concern of a market crash and shutdown by the authorities from yellow to bright orange.
by xflies