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Central Banks Save The Day?

In the wake of plunging global stock markets, central banks of Japan, the European Union, and the United States have been injecting huge sums of cash into the banking systems to increase liquidity and stave off panic. As of today, since last Thursday, the US Fed has dumped over $60 billion into the banks (including $2 billion at the start of today), the EU has dumped almost $280 billion into their markets, and Japan has added nearly $9 billion into theirs.

I’m no economist (even though I like to parse economic issues and try to understand their wider implications  ) but it seems to me that shovelling all this cash into the over-extende d banking and stock systems is kind of like putting band-aids on gaping chest wounds. And will it really help keep markets afloat as they try to navigate out of the murky waters of specious loans for inflated properties?

It would seem to me that such heavy infusions of cash into the system would only deflate the overall value of the currency in question (using the scarcity = value principal), so while the actions may provide an opportunity for banks to remain fluid while big investors draw out (or redirect) their holdings, for the little guy working the 9-5 I’m not sure how this can help. Sure, the bail-out may keep things floating a while longer, but once the big investors have recouped their own wads, what happens then? More cash infusions?

The problem with fiat currency (money backed up only by the word of the issuer) is that it’s only as good as the users believe it to be. If the central banks of the US, Europe, and Asia keep flooding their respective markets with more and more cash, inflation is the likely result. And who suffers most in inflationary periods? It’s sure not the big investors who have been given some time to ‘get theirs back.’

Things are getting interesting friends.

<tag>economy  , Fed, stock+market s </tag>


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3 Responses to “Central Banks Save The Day?”

  1. Ken:

    They want to drop interest rates. We’re in for it with these stupid sub prime loans and guys like you and me are in for it. Especially if we do something dumb like….move. I am thinking of moving in two or three years and I knew the market would deflate but now I am scared a little… I am safe, I bought at a low price and I got a good product but I’d have to wait maybe 10 years if there was a huge deflation…

    Dropping rates prevents more bankruptcies .

  2. http://recon stitution.us  /rcnew/?p=2 48#comment-1 183

    First sub-prime, then Alt-A, then Hedge Funds, now Commercial Paper. This is like a fifty-car pile-up on a foggy freeway where everyone is going way too fast and the FED is pushing on the accelerator.

  3. This is crony capitalism at it’s finest. Holler and yell about a free market until you get caught playing fast and loose in a money grab. Then have Uncle Sam, and all his tax paying niece’s and nephew’s bail you out. Free market = free to starve. Amazing that people can let this corporate socialism slide by, while decrying every other service, services that address the public interest.

    This country is staggering around like a drunk in Vegas, we’ve stumbled a few times already, and the spectators of the world have thier camera’s out, ready for the face plant.

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