Saturday, 3 December 2011

Euro Failure Is Systemic

Mervyn King: the eurozone crisis is 'systemic' (Video embedded in link)

The Bank of England Governor Sir Mervyn King urges banks to brace themselves for a potential eurozone collapse amid fears that Britain is caught in a second credit crunch.

Sir Mervyn said financial systems around the world are vulnerable to the eurozone debt crisis and its underlying causes - but warned a resolution was "beyond the control" of any UK authority.

Appearing in his role as chair of the interim Financial Policy Committee, the Governor said: "In the UK, we most try to bolster the resilience of our financial system to better withstand the storms that may come in our direction."

The report comes after Downing Street warned last night that Britain was in the grip of a second credit crunch, and six central banks, including the Bank of England, acted to encourage lending between banks and stave off economic stagnation.
'Central Banks' Coordinated Move Has Solved Nothing'

Global stock markets on Wednesday were euphoric after the major central banks around the world made it easier for banks to access dollars. But the euro-zone debt crisis rages on nonetheless. At the most, say German commentators, Wednesday's move merely buys some time -- but not much.

On the one hand, Wednesday's coordinated effort taken by central banks around the world provided a needed shot in the arm to uneasy global stock markets. It was a clear message that the European Central Bank, the US Federal Reserve, the Bank of England and the central banks of Canada, Japan and Switzerland were not going to leave the global economy in the lurch.

And the effects were instantaneous. Germany's leading DAX index spiked by more than 5 percent, in France the jump was over 4 percent and the Dow in New York likewise made gains. Even the euro jumped in value against the dollar.

On the other hand, however, Wednesday's announcement is a clear sign that the problems facing the global financial system are serious. The move will lower the interest rate charged on short-term dollar loans among banks, an attempt to keep the supply of dollars flowing, which is critical to overseas business transactions. But the last time such a measure became necessary was in October 2008, at the height of the financial crisis that erupted in the wake of the collapse of investment bank Lehman Brothers.

Indeed, European Central Bank President Mario Draghi warned on Thursday that the ongoing debt crisis rocking the euro zone may spill over into the real economy. "Downside risks to the economic outlook have increased," he said in a speech to the European Parliament. The comments were enough to put a brake on the stock market rallies seen in Europe on Wednesday.

Seen on Macrobusiness by a poster named "flawse":

you are placing bets on decisions that are being made by people who don’t know how we got to where we are, don’t know where we are and haven’t a clue where to go from here.

Thats it in a nutshell.

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