Bank of England under pressure to tackle crisis
"Topics don't come much more arcane than liquidity in the money markets. Last week, when Barclays rescued a struggling debt vehicle, its announcement contained the memorable line: "The restructuring has eliminated market-value triggers and the reliance of CHGF upon the ABCP market." Gibberish, yes, but it's now the City's first language.
Bankers fear the lack of liquidity - or available cash - may spread into the wider economy and are looking for anything that, in translation, hints at returning confidence.
Yesterday's jump in the three-month interbank lending rate to an eight-and-a-half year high told another story though. Confidence remains rock bottom.
Mysterious as it is, three-month interbank lending is critical for large companies. It is used to hedge exporters' exposure to currency fluctuations and by companies looking to improve their financing models.
Variable rate mortgages are largely funded off three-month Libor, as it is known, against which new company fundraisings for expansion are often priced.
"It is the instrument we used more than any other," one top banker, who asked to remain anonymous, said. "Now the three-month Libor market's shut down completely." Without it, "no company can hedge currency exposure or change financing through interest swaps", he added. "As their existing arrangements hit maturity, there will be trouble."
Bankers say there is no shortage of short-term liquidity, such as overnight and weekly borrowing, but repricing credit every seven days is an inherently insecure way of funding. "In the end, you just wouldn't want to extend new long-term loans to any business," he said. "It's prone to disaster. Lending would drop back to levels last seen in the 1920s and 1930s, with banks being incredibly cautious and only extending credit against retail deposits."
Clearly, such a retrograde step would be unworkable, which is why some bankers believe the Bank needs to inject capital into the three-month market.
The Bank, though, is quite happy to let the banks squirm a little longer. For about two years, central bankers have been telling institutions to rein in their lending. To no avail. Risk is finally being repriced, which "has had the effect of increasing interest rates even though the Bank has done nothing".
At 6.74pc, three-month Libor is now a full percentage point higher than base rate. The most risky products, such as Barclays' SIV-lites, are being shut down much to central bankers' delight. [emphasis added]
telegraph.co.uk
Finally, I would again point to the evidence of how central banks are actually conducting business. Yes, they provided emergency liquidity recently, but only for a few days. I constantly see commentary from the bullish shill apparatus AND the bear community (who hold gold and materials) about “big injections”, print, print, print. Both parties then fail to note that those injections were gone in a flash. Therefore if your theory is mostly about discounting helicopter drops and ignoring the effects of Ponzi unit collapse, it is important to get your facts straight about what is actually happening in the field, and that’s little if any monetary printing whatsoever.
wallstreetexaminer.com; [emphasis added]
One possible inference from the above is that central banks have decided to keep their member banks/owners solvent and let the devil take the hindmost. The notion that the Fed fears deflation so much that it will do anything to prevent it may be getting trumped today by the realization that survival by the banksters is the essential desired result, and if that can be accomplished without hyperinflation, more's the better. So the middle class gets wiped out and there's wreckage all over the landscape, so what? So long as the banksters survive and can feast on leavings the game can go on.
If that is not their intention, and the central banksters think they can finesse this situation, they are gambling that they know best how to maintain confidence. Seems like a pretty big gamble to me. |
