Hitting the Economic Panic Button
By Larry Johnson on November 30, 2011 at 7:02 PM in Current Affairs
Europe is bleeding to death economically and the average American is oblivious to the crisis. Yesterday, while Europe teetered on the precipice of economic chaos, all of the US cable channels as well as the BBC were riveted on the judge’s ruling in the case of Michael Jackson’s doctor. I shit you not.
I understand why the cable news stations and even the mainstream news programs shy away from covering the unraveling of the Euro and the collapse of credit markets in Europe–there is nothing to show on TV. It would be one thing if folks were stepping out on the ledges of tall buildings and flinging themselves into the void. But that’s not happening. I am sure we would have coverage if a tall bank building was consumed by a fiery inferno or collapsed into a pile of rubble.
But just because you can’t show it as a tangible threat on the telly do not make the mistake of assuming this is not a big deal. The world economic leaders hit the fucking panic button today.
In an unprecedented move, the Federal Reserve bank and the banks of Canada, England, Japan, Switzerland and the EU, acted in concert to prop up the Euro and ensure that borrowing could continue:
The U.S. Federal Reserve, after a similar effort in September, will “lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points.”
Wednesday’s move from the Fed was matched by corresponding actions from the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank. The new pricing applies to operations conducted as of Dec. 5, and the authorization of the swap arrangements has been extended to Feb. 13. (Read the FOMC press release here.)
While the effort to provide more liquidity may temporarily soothe the symptoms of Europe’s debt crisis and allow financial institutions easier access to funding, it does little to address the underlying roots of overburdened governments that need to be propped up while they drastically cut spending.
Efforts to tackle the crucial issues at the heart of the crisis continue to move in fits and starts. The European Financial Stability Fund (EFSF) announced new leverage tools geared at increasing its lending capacity on Wednesday, but it still remains to be seen where the additional financing will come from for the public-private special purpose vehicles the EFSF intends to use to provide funding to sovereign governments through primary and secondary bond market purchases. That funding could in turn be used to recapitalize European banks that are at risk of crumbling due to their exposure to the region’s shaky credits.
Folks, this is the equivalent of the Captain of the Titanic ordering women and children to the life boats. It reminds me of the Japanese struggling to contain the meltdown of nuclear reactors in the aftermath of the earthquake earlier this year. Europe is in a death spiral. Their economies are stalled and they are not generating enough income to pay the growing public debt.
You want to know how bad things are? I have a close friend. He and his wife live in a home in Washington, DC that was worth $2 million in 2008 before the economic collapse. Their combined income is in excess of $600,000. They have an excellent credit rating (above 750). They are trying to refinance their home and are having trouble finding a lender willing to make the deal. If people like this–folks who have significant financial resources–are running into road blocks trying to get funding, what do you think is happening to folks in debt who have credit scores around 500 or to small businesses with limited cash flow? The credit markets are still frozen.
What is taking place in Europe is going to exacerbate the problem of getting credit. This is not going to make money more available to aspiring consumers. Don’t buy into the hype about the “soaring” stock market. It is a temporary surge. Until the fundamental problems of government debt and economic stagnation are solved, the crisis will continue to spread.
by Ronald Scott
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