Central Banks Coordinate Global Cut in Interest Rates

Central Banks Coordinate Global Cut in Interest Rates
Carter Dougherty And Edmund L. Andrews
Oct 08, 2008

http://www.nytimes.com/2008/10/09/business/09fed.html

In a move of unprecedented scope, the world’s major central banks lowered their benchmark interest rates Wednesday, a coordinated effort to halt a collapse of share prices and a freeze in credit markets that threatens to set off the first global recession since the early 1970s.

The action failed to calm gyrating markets, however, amid the growing realization that a serious and prolonged recession may be difficult to avoid.

The Federal Reserve, the European Central Bank, the Bank of England and the central banks of Canada and Sweden all reduced primary lending rates by a half percentage point. Switzerland also cut its benchmark rate, while the Bank of Japan endorsed the moves without changing its rates.

In another monetary first, the Chinese central bank joined the effort — without explicitly saying it was doing so — by reducing its key interest rate and lowering bank reserve requirements to free up cash for lending.

The Fed’s benchmark short-term rate now stands at 1.5 percent. The European Central Bank’s is 3.75 percent.

Taken together with other moves in the United States, Britain and Continental Europe in the last few days, the rate cuts look like part of a broader, global strategy that embraces aggressive use of monetary policy and taxpayer recapitalization of ailing banks, generating cautious optimism among crisis-weary analysts.

Credit market conditions remained extremely tight, with the gap between yields on safe, three-month government securities and the rate that banks charge one another for loans of the same duration rising to more than 4 percentage points not long after the central banks acted — showing financial institutions remained deeply concerned about lending to one another.

The cut came despite what had been a divergence of views between the United States and Europe ever since the financial crisis erupted in August 2007. The European Central Bank had been much more reluctant to lower interest rates, because policy makers there tended to see the mortgage meltdown primarily as an American problem with secondary ripple effects in Europe.

But any lingering comfort outside the United States evaporated in the last week, as money markets froze up around the world and major corporations and banks across Europe began suffocating from their inability to do even routine financial transactions.

Making matters worse, none of the epic emergency measures taken in the United States — the passage of a $700 billion bailout plan to buy up distressed securities; a doubling and redoubling of emergency loan facilities at the Fed to $900 billion on Monday; and the Fed’s unprecedented decision on Tuesday to start buying up short-term commercial debt for businesses of all types — had prevented the stock markets from plunging at vertigo-inducing amounts day after day.

The central feature of the acute credit crunch, which began in the United States and is now spreading rapidly in Europe, is the reluctance of banks to lend at any rate because they have taken such heavy losses already and are hoarding cash.

Not only does that interrupt the normal flow of credit for activities as basic as modernizing production lines or meeting payrolls, it gums up the normal mechanisms central banks use to ease credit and stimulate economic activity.

After a rushed series of rate reductions last fall and early this year, bringing the overnight Fed funds rate down to 2 percent in April, the central bank had concentrated its efforts on injecting hundreds of billions of dollars into the financial system to keep banks lending to one another and to their customers. But policy makers held back from further reducing interest rates, which reduce the overall cost of money, because they were worried about rising inflationary pressures.

Consumer prices have climbed sharply, largely because of huge increases in energy and commodity prices. As recently as the Fed’s policy meeting three weeks ago, the central bank’s official position was that its concerns about slowing economic growth were roughly equal to its concerns about rising prices. In reality, many policy makers were more worried about the onset of a recession — which many private economists say has already arrived. But there were still disagreements among members of the Federal Open Market Committee, which sets interest rates.

Loose Money And the Roots Of the Crisis

Loose Money And the Roots Of the Crisis
Judy Shelton
Sep 30, 2008

http://online.wsj.com/article/SB122273029076687929.html

The world is not ending. Despite the wrenching turmoil in global financial markets and morbid allusions to the death throes of capitalism, it ain't over.

But the whimpering is real, and justified, because it hurts to have your world come crashing down. And global financial markets are definitely crashing, even when the impact is momentarily softened through massive injections of artificial money -- "artificial" because the fiat money does not represent a store of genuine value but rather an airy government claim to future wealth yet to be created.

It is the money that is broken.

Mr. Greenspan is also the man who was awarded the Presidential Medal of Freedom and whose honorary titles include Knight Commander of the British Empire and Commander of the French Legion d'honneur.

So how does such an accomplished central banker turn out to be a monetary doofus?

Think of it: Nothing is more vital to capitalism than capital, the financial seed corn dedicated to next year's crop. Yet we, believers in free markets, allow the price of capital, i.e., the interest rate on loanable funds, to be fixed by a central committee in accordance with government objectives.

Whatever well-intentioned reasons existed in 1913 for creating the Federal Reserve -- to provide an elastic currency to soften the blow of economic contractions caused by "irrational exuberance" (and that will never be conquered, so long as humans have aspirations) -- one would be hard-pressed to say that the financial fallout from this latest money meltdown will have less damaging consequences for the average person than would have been incurred under a gold standard.

The entire world has been affected by the breakdown of the U.S. financial system, thanks to the globalization of investment capital. But the free flow of capital -- along with free trade -- is a good thing, the best path to global prosperity. The problem is that the role of the dollar as the world's primary reserve currency has been called into serious question, both by allies and adversaries.

Fed Pumps Further $630 Billion Into Financial System

Fed Pumps Further $630 Billion Into Financial System
Scott Lanman and Craig Torres
Sep 29, 2008

http://www.bloomberg.com/apps/
news?pid=20601087&sid=ahwz_k5JvuB8

The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

The Fed's expansion of liquidity, the biggest since credit markets seized up last year, came hours before the U.S. House of Representatives rejected a $700 billion bailout for the financial industry. The crisis is reverberating through the global economy, causing stocks to plunge and forcing European governments to rescue four banks over the past two days alone.

European governments have rescued four banks in two days and the Federal Deposit Insurance Corp. said today it helped Citigroup Inc. buy the banking operations of Wachovia Corp. after its shares collapsed. The Standard & Poor's 500 Index fell 3.8 percent and the cost of borrowing dollars for three months rose to the highest since January. The rate for euros hit a record.

The Bank of England and the ECB will each double the size of their dollar swap facilities with the Fed to as much as $80 billion and $240 billion, respectively. The Swiss National Bank and the Bank of Japan will also double their dollar swap lines, while the central banks in Australia, Norway, Sweden, Denmark and Canada tripled theirs.

Bailouts will lead to rough economic ride

Bailouts will lead to rough economic ride
Ron Paul
Sep 23, 2008

http://www.cnn.com/2008/POLITICS/09/23/paul.bailout/index.html

Many Americans today are asking themselves how the economy got to be in such a bad spot.

For years they thought the economy was booming, growth was up, job numbers and productivity were increasing. Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression.

Unfortunately, the government's preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention.

Ever since the 1930s, the federal government has involved itself deeply in housing policy and developed numerous programs to encourage homebuilding and homeownership.

Government-sponsored enterprises Fannie Mae and Freddie Mac were able to obtain a monopoly position in the mortgage market, especially the mortgage-backed securities market, because of the advantages bestowed upon them by the federal government.

Laws passed by Congress such as the Community Reinvestment Act required banks to make loans to previously underserved segments of their communities, thus forcing banks to lend to people who normally would be rejected as bad credit risks.

These governmental measures, combined with the Federal Reserve's loose monetary policy, led to an unsustainable housing boom. The key measure by which the Fed caused this boom was through the manipulation of interest rates, and the open market operations that accompany this lowering.

Who Is Really Printing Money?

Who Is Really Printing Money?
Boris Sobolev
www.ResourceStockGuide.com
August 11, 2008

http://www.gold-eagle.com/editorials_08/sobolev081008.html

During a credit crisis which is characterized by a steep slowdown of credit creation, growth of money supply in the financial system slows as well. It is silly to think that the Fed can replace the whole system of commercial banks by creating money itself from thin air. What the Fed can do is influence money supply by adjusting interest rates creating more or less incentive for the fractional-reserve lending by the commercial banks.

Going forward, gold will likely resume its up-trend due to one of two reasons:

(1) Another spell of problems in the financial system will cause gold (and the US treasuries) to once again take the place of safe haven investments, as was the case in the second half of 2007.

(2) Fear of deflation and a further slowdown in the US will spread around the world. As a result, a vicious wave of competitive devaluation will cause not only price shocks (oil, food, etc.) but also spiraling monetary inflation, eventually raising long-term bond yields. This will be the beginning of a real gold bull market when gold outperforms all other major classes of assets including most hard assets.

The Final Globalization Of The U.S. Banking System

The Final Globalization Of The U.S. Banking System
By Joan Veon
July 8, 2008
NewsWithViews.com

http://www.newswithviews.com/Veon/joan54.htm

The entire financial and business cycle of market highs and lows is controlled by how much money the Feds pump into or glean from the banking system. When they add money to the system, interest rates fall and the market rises and when they take money out of the system, interest rates rise and the stock market falls or corrects. In doing so, this private corporate structure allows for an elite group of people to literally buy low and sell high, thus transferring the wealth into their pockets while those who continue to hold take the “hit.”

The globalization of our financial system goes hand in hand with the need for a global stock exchange and global accounting system to harmonize the cross-border activities of transnational corporations and banks. To facilitate this process is the interdependence, or mutual dependence between countries, which came about as the barriers fell. With a globalized stock exchange, insurance system, and accounting system, we will need a GLOBAL REGULATORY SYSTEM to accommodate the changes from national to international. This will all fit in with recent calls for a global central bank.

The End of the Anglo-American Empire?

The End of the Anglo-American Empire?
http://www.australia.to/index.php?option=com_content&view=article&id=348:richard-c-cook&catid=1:latest
Aug 3, 2008

Another gang has been those among the world’s money-lenders who became experts at parasitic high finance and got rich through the explosive growth of fractional reserve banking. These people have dominated the economies of nations through such institutions as the Bank of England, the Federal Reserve System, the Bank of International Settlements (BIS), and other central and commercial banks, currency and commodity exchanges, and stock and bond markets.

The bankers on the one hand and the political racketeers on the other merged over a century ago under the oversight of figures associated with the creation of the Anglo-American Empire, such as Cecil Rhodes, Lord Milner, Colonel House, Winston Churchill, the House of Windsor, and, as examples of families involved, the Rothschilds, Schiffs, Morgans, Harrimans, Rockefellers, Myers, and Bushes. Among the major projects of the empire in recent decades have been the creation and maintenance of both the kingdom of Saudi Arabia and the state of Israel as Western bridgeheads of influence, power, and wealth in the Middle East .