Temporary Relief

This past week I've been discussing the inter-relationships among a number of key indicators that drive the world economy. With the price of oil at near record highs and the fallout of the sub-prime mortgage crisis, the global economy was at an edge and was in danger of going into hyperinflation followed by depression. Thousands had lost their homes to defaults, and many banks were on the verge of bankruptcy due to the reduced cash flow from the defaults.

On Thursday Dec. 13th, the 5 major central banks from around the world (the Federal Reserve, the Bank of England, the European Central Bank, the Swiss National Bank, and the Bank of Canada), pooled $114 billion to prop up the global economy by injecting cash into the money markets. On Monday, the Fed will auction off $20 billion in loans and accept a wide range of collateral to spur on the economy. The Bank of England will auction off 11.35 billion pounds on Tuesday. "The banks hope that the new term auction facility at favourable rates will boost liquidity, ultimately benefiting their economies by making it easier for businesses and consumers to borrow money to invest and spend on goods and services."

This measure was announced a day after a further quarter of a percentage point cut in the federal funds rate by the Fed failed to ease concerns about the credit crisis and its potential impact on the global economy. What this all means is that the huge sums of money increasing liquidity into bank vaults is a last ditch effort to get the economy moving before it rolls right off the cliff.

This had a positive impact on the strength of the US dollar in the foreign exchange currency markets. The US dollar gained almost 4 cents against the Great British Pound, and more than 2 cents against the Euro and the Swiss franc. The US dollar index closed at 77.39, its strongest close in 6 weeks.

These measures will likely work for a brief period, but time will tell on how long it keeps the economy moving and the smaller banks open. Gold and silver fell in value this week, but just slightly. Gold closed at $793.10 per ounce and silver closed at $13.81 per ounce.

My personal take on this latest move is that the imminent collapse of the US economy was happening faster than expected. Drastic measures never taken before had to be implemented because some elements of the plan were not fully in place.

But when Pharaoh saw that there was relief, he hardened his heart and did not listen to them, just as the LORD had said. Exodus 8:15 (NASB)

If you have comments or questions, please feel free to contact me at the address below.
Email: DeltaInspire@panama-vo.com