Global stock markets soaring overnight (with Australia joining in this morning) on the news ‘ coordinated action central bank to increase liquidity in the financial system ‘.
US Fed, ECB, Switzerland’s National Bank, Bank of Canada, Bank of England and the Bank of Japan have all agreed to ‘ work together to ease the strain on the financial markets and thus mitigate the effects of strain on the supply of credit to households and businesses and so help encourage economic activity ‘.
This action would be helpful if the world is suffering from liquidity problems. But it’s not. This is a matter of solvency. Credit cycle has changed. The world is in phase are deleveraging. But the central bank is still trying to reverse the process and give more credit to households and businesses? They really only have one game in the guidelines.
This jolt of liquidity is great for short-term confidence. Bankers who are considering upstairs out now have more time on their hands. Bankruptcy can be hidden to them a little longer.
Meanwhile, speculation is getting another lease of life. The Bank now able to pledge assets that are almost extinct in exchange for near costless large amount of cash from the central bank. They can then take this money and punt away.