The irony of a modern day bank run

Risk markets were all lower overnight and early this morning. Then Central bankers led by the US Fed announced emergency intervention to help lower the swap costs for US dollars needed by the ECB for Euro banks. As with all currency market interventions, this effort is almost certainly destined to be short-lived, but today at least it has succeeded in weakening the US dollar on the FX markets. The Euro crisis is driving investors out of the Euro in search of safer haven alternatives–they want dollars and they have been driving up its price. Euro-banks have been struggling to keep up with the demand. This has caused them to sell a weakening Euro and drain further liquidity from a banking system already in the midst of a massive (solvency) crunch. The greater the crunch, the higher the swap costs, the harder and more costly to get U$. Central bankers intervened today with a plan to ease pain and help the ECB get access to U$ dollars. But it does nothing to fix the financial crisis which is growing wider by the day. The Euro zone is facing the modern-day equivalent of a bank run. Meanwhile our dysfunctional markets driven by unregulated, high-frequency risk-trading-robots see U dollar down on the teeter totter and start hitting the ask on risk markets across the board. Apparently in 2011, bank runs in the second largest economic zone in the world are all good.

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5 Responses to The irony of a modern day bank run

  1. Gary T. says:

    Thanks for the comments Danielle!
    How ‘short’ do you suspect this intervention will last?
    I strongly anticipate the Euro collapsing eventually after all these minstrations – or at least a break-up with some countries being ring-fenced out. It seems inevenitable but the market is being prepared – avoiding a dramatic shock (read ‘crash’).
    I’d also be interested in your comments on Gold and Silver.
    Please keep up the important work…

  2. Harry says:

    I have been investing for 35 years. One of the oldest “rules” is do not fight the Fed. Even though there is obviously too much debt, the Fed has an unlimited supply of money. As long as interest rates are well below the inflation rate, I will continue to own gold.

  3. kenny says:

    Wow, love THAT commentary!

  4. michael says:

    Many times over the years I have said how astounding it is that one person or a very few at most can effect the lives of so many.
    What happened last night and the resulting market madness that followed has unfortunately assured that the final global economic collapse is no longer a question of if.
    The coming inflationary depression that the likes of the Bernank and his masters seem determined to create will ultimately lead to a new order but the collateral damage along the way will be profound.
    Having been employed for a brief time by a Government, (I couldn’t stand it I had to quit), I understand very well…..

    “Anyone who has ever worked in a large corporation has seen the empty suits that seem to inexplicably rise to positions of power. They talk a great game, possessing extraordinary verbal acuity, and ofen with an amazing ability to rise quickly without significant accomplishments to positions of great personal power, and often using it ruthlessly once it is achieved.
    Their ruthless obsession with power and its visible rewards rises above the general level of narcissism and sycophancy that often plagues large organizations, espeically those with an established franchise where performance is not as much of an issue as collecting their rents.
    And anyone who has been on the inside of the national political process knows this is certainly nothing exclusive to the corporate world.”

    The rest of the piece follows and is well worth the read…..

  5. dazzo says:

    I’ve owned some gold in the past but none currently. It’s obvious that the stock market is subject to outright fraud and manipulation. The gold market being much smaller is, I believe, at least as prone to manipulation. The “gold bugs” readily admit that the price of gold is manipulated, yet somehow feel that it will one day be able to beak free of that. Cognitive dissonance anyone?
    If things get really bad and gold does very well, there’s nothing stopping desperate governments from confiscating or taxing gold in an exorbitant fashion.
    It’s certainly been done before.

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