The latest news has it that stocks are surging in the US and Europe as a result of central banks stating their intention of flooding the market with dollars. This has led, once again, to a host of commentaries with Christine Lagarde leading the pack.
It is Lagarde’s contention that we are leading into what she calls a “dangerous new phase” and that the dysfunction in the political arena could be the ruin of recovery efforts. However, as the president of the International Monetary Fund she is pleased with the fact that banks are actually taking the initiative to work together. The path to recovery is still open, she states, but that path is narrow.
In this new move to stimulate the eurozone economy, banks will be able to bid for virtually unlimited amounts of dollars and the interest rates will be fixed. There will be a total of three auctions, the first of which is on 12 October. This decision is winning the favour of officials around the globe with the head of strategy for the National Australia Bank saying that this shows solid support for the world’s banking system.
He also notes that since there are growing concerns that Greece will at some point default, having these ‘unlimited funds’ in place beforehand will help to ease the pressure. Unfortunately, there is added pressure being placed on the finance ministers in Europe because the growth outlook is forecast as ‘poor’ by the European Commission.
Whether or not unlimited liquidity provided by pumping US dollars into the market will be the impetus needed to jumpstart recovery is unknown, but the US Federal Reserve, the BoE, the Bank of Japan, the European Central Bank and the Swiss National Band have all agreed that they will flood the market s with dollars in the months to come.
