European Debt Crisis

The Fed, ECB team up to give banks more access to cash

Josh Brown Nov 30, 2011

Jeremy Hobson: Let’s get to the big reason markets are surging this morning and that would be the fact that the world’s major central banks — including the Fed — are launching a coordinated effort to stop a credit crunch from bringing the global financial system to a crawl.

Josh Brown is with Fusion Analytics, he’s with us live from New York as he is every Wednesday. Good morning, Josh.

Josh Brown: Good morning.

Hobson: So explain what these central banks are up to and why this was deemed necessary?

Brown: What the central banks basically did was they saw the governments were not acting and that rather than sit there and watch these acute liquidity problems become worse and worse, they’ve done something that allows money to be cheaper for the ECB, which in turn allows money to be cheaper — and more accessible, I think is the key — to the eurozone, bank sovereigns, etc.

Hobson: There was some sort of credit crunch that was starting to show up in some of the indicators that economists look at.

Brown: Italians simply could not sell debt for a reasonable rate. Banks stopped doing business with each other because nobody trusted each other, and it was spiraling out of control. So you saw the central bankers from around the world come together and say we are not going to let this whole thing go down just because of a lack of liquidity.

Hobson: And what’s the risk, Josh?

Brown: The risk is always the same. There are people that’ll say this is going to lead to inflation. We heard that in 2008, but of course inflation has been nonexistent since. It’s always possible. The other risk is moral hazard. I think that’s a lesser risk in this case, better to deal with that in the future.

Moral hazard is where people say well, we look we can take on as much risk as we want because there’s always going to be someone to come in and save us. Of course that’s a risk, but I think at this point the bigger risk is to just sit back and watch this thing become unsolvable, unfixable — which it looks like the global central bankers are not willing to do, so that’s a good think.

Hobson: Josh Brown of Fusion Analytics, thanks so much.

Brown: Thank you.

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