Bellerbys Economics - Mr Stephenson

Wednesday, March 12, 2008

Impotent Central Banks

The Central Banks of the OECD countries have clubbed together to inject trillions of dollars into the banking system once again because they are worried about the crisis of confidence the banks are showing in lending money to each other - an essential part of the 'liquidity' of the system - getting money to where it's needed most quickly - a form of allocative efficiency.

However, with so many banks and financial institutions carrying high-risk debt in a way that can hardly be described as transparent, everyone is being ultra-cautious.

But the central banks' action is very limited. They can't print new money (risk of inflation already too high), they can't buy back treasury bills or government stock in bulk (they'd have to pay way over the market value) so loans to banks are their only option.

It's unlikely the banks will jump with glee at taking on more debt.

The only real solution will be if the rich Arab nations or the sovereign wealth funds of China and Russia start investing in the west - which brings us back to yesterdays' posting!!


  • Why should other 'Sovereign Wealth Funds'want to invest in dodgy Western banks that nobody here is willing to trust ?

    By Blogger bairuide, at 1:23 pm  

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