U.K. economic crisis

Attack of the Central Banks Points to Impending Recession

attack puppet peopleThe Central Banks went on the move. Within 45 minutes of each other, the ECB lowered interest rates, the Chinese central bank did too and the U.K. just enacted more glorified quantitative easing. BoE increased their asset purchases by £50 billion to a grand total of £350 billion.

While it appears we have a global, coordinated plan of attack by Central banks, one might also notice we have a global coordinated plan to counter an economic slowdown. In other words, by all acting in concert, this gives more confirmation that we have a global economic mini-implosion going on.

We already know a U.S. recession is projected for 2013. The IMF not only scolded the United States but also is warning on a global economic growth downgrade, coming to a press release near you on July 16th.

Latest On The European Fiscal Adventureland Ride

melodramaLike a bad mini-series, the European non-events events just keep rolling on in. Here are the latest ones.

From the Financial Times, leaders failed to create a new treaty.

Leaders of the European Union’s 27 countries failed to agree to change the EU’s treaties in order to implement tighter fiscal rules and instead chose to create a new intergovernmental treaty which will likely have less teeth and be negotiated only among 23 of the bloc’s members.

Despite the division – which will leave Britain and Hungary out of the new pact, with the Czech Republic and Sweden still weighing participation – Mario Draghi, the European Central Bank president, signalled his approval, a key vote of confidence that could allow the ECB to move more aggressively in eurozone bond markets.

The U.K. was a major veto and the reason for the failure. Reuters:

"This is a summit that will go down in history," said Sarkozy. "We would have preferred a reform of the treaties among 27. That wasn't possible given the position of our British friends. And so it will be through an intergovernmental treaty of 17, but open to others."

Central Banks Make Swappin' Out Your Euro Cheaper

The headlines proclaim the DOW is up 400 points! Yippie, hurrah! But why?

In the middle of the night, the Federal Reserve moved to make it cheaper to swap Euros for dollars, in a coordinated move with Switzerland, Canada, England, the European Central Bank and Japan.

From the Federal Reserve press release:

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system.

This is supposed to stem a global liquidity crunch. In other words, to prop up the Euro's value.

These central banks have agreed to 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. This pricing will be applied to all operations conducted from December 5, 2011. The authorization of these swap arrangements has been extended to February 1, 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.

More interesting the Central banks are offering swaps in multi-currency denominations:

U.K. faces a disastrous economic scenario

The source of the problem is crystal clear - the banking bailouts are costing too much.

(Bloomberg) -- U.K. government support for the banking system has risen to 1.4 trillion pounds ($2 trillion) and may climb higher as the financial crisis spreads to building societies and economists warn lenders may need more aid.
The amount invested in, loaned to or pledged to back bank assets now equals Britain’s gross domestic product, or 22,800 pounds for every person in the U.K.

The amount of money spent propping up the British banking system is unprecedented, and unaffordable. There comes a time when this sort of deficit spending hits the wall, when the number of interested buyers simply runs out.