Central banks in new credit move

Central banks in new credit move

news.bbc.co.uk

Central banks will pump billions of extra dollars into the banking system to ease the continuing credit drought.

The co-ordinated move by the US Federal Reserve and the European Central Bank, is the latest effort to stimulate bank lending stymied by the credit crunch.

Extra billions will be auctioned to banks in Europe and the US once every two weeks for an indefinite period.

(visit the link for the full news article)

Sometimes, I wish I'd payed more attention at school.

I read articles like this one and 'feel' that something is surely very wrong, but I can't tell exactly what it is.

Where, for example, is all this money the Fed and the ECB are pumping into the markets coming from?

And why has the Fed "agreed to extend an existing currency swap arrangement with the ECB and Swiss National Bank, providing an additional $26bn to European banks to help them pay down dollar-denominated debt"?

What does this mean?

Is the Fed essentially part-paying its own debt, thus creating new debt? If so, who's paying for that? And, since the Euro has strengthened so much against the USD over the past year or so, why do European banks need help paying USD-denominated debt?

The journalist who wrote this piece doesn't ask these or any other questions, so I assume they're dumb ones. But I'd still like the answers, not least because a part of me 'knows' that, whilst we - the general public - lose out during these difficult times, the banks need only trouble themselves with lower gains.

news.bbc.co.uk
(visit the link for the full news article)

Originally posted by coughymachine
Where, for example, is all this money the Fed and the ECB are pumping into the markets coming from?

believe it or not, out of thin air. I kid you not. They just create it.

And why has the Fed "agreed to extend an existing currency swap arrangement with the ECB and Swiss National Bank, providing an additional $26bn to European banks to help them pay down dollar-denominated debt"?

What does this mean?

The Europeans are not as bad off as we are, and have a shortage of dollars in the Euro zone, so the Fed and the ECB are doing a kind of currency shuffle to ease this bottleneck. Don't worry, it's all just numbers.

Is the Fed essentially part-paying its own debt, thus creating new debt? If so, who's paying for that?

In a way, yes. Everyone who has dollar-denominated investments, or who uses dollars will pay, through inflation and the further weakening of the currency, as these injections further dilute the value of the dollar.

And, since the Euro has strengthened so much against the USD over the past year or so, why do European banks need help paying USD-denominated debt?

As above, there is a shortage of dollars in Europe to pay for dollar-denominated goods. Instead of buying dollars on the open markets, the central banks swap their currencies to provide the funds and avoid skewing the markets.

LOL---Their printing presses engines must be running extremely hot over the past few months.....More protecting the big cheeses while the little guys suffer...Same old, same old.