(Since I hate embedded sounds, you can play this if you choose:
As we noted earlier today, the Fed, along with a slew of other Central Bankers, warmed up the whirlybirds and went out and about for a little joyride.
Contrary to some accounts, they were not responding mad pleadings of JC. Rather, the Central Bankers around the world responded to a sudden surge overnight of interest rates. When the US and Eurpean rates suddenly spiked — far above their Overnight Lending Rates — the central bankers are compelled to act. Early Friday, markets had pushed the rate charged on overnight loans between banks to 6%. By day’s end the Bankers’ maneuver brought it down to 5.25%.
Here is a round up, courtesy of Real Time Economics, of their actions the past few days:
Thursday: $24 billion
Friday: $38 billion (tranches of $19 billion, $16 billion and $3 billion)
European Central Bank
Thursday: €94.84 billion ($130 billion)
Friday: €61.05 billion ($83.56 billion)
The Bank of Canada
Friday: 1.64 billion Canadian dollars ($1.55 billion).
Bank of Japan
Friday: one trillion yen ($8.39 billion)
Swiss National Bank
Friday: two to three billion Swiss francs ($1.68-$2.51 billion) [estimate]
The Reserve Bank of Australia
Friday: 4.95 billion Australian dollars (US$4.18 billion)
The Monetary Authority of Singapore
Friday: 1.5 billion Singapore dollars (US$986.1 million)
The authorities in Malaysia, the Philippines and Indonesia intervened in foreign-exchange markets to support their currencies against the U.S. dollar.
Any thoughts as to how far this goes? Will the Central Bankers keep the liquidity infusion flowing? What’s the impact on Markets, the Economy, Risk appetites?
What say ye?
Central Banks React to Liquidity Crisis
WSJ, Real Time Economics Blog, August 10, 2007, 11:12 am