Central banks seek to avert global meltdown

From World Socialist Web Site: http://www.wsws.org/articles/2011/dec2011/bank-d01.shtml

By Nick Beams

1 December 2011

Yesterday’s move by six major central banks to boost liquidity for European banks makes clear there is a growing fear in leading financial circles that the eurozone crisis threatens to set off a meltdown of the entire global financial system.

The emergency action, led by the US Federal Reserve, will cut the interest rate on dollars loaned to European banks. They have been hit by the withdrawal of funds and the drying up of credit because American and other banks fear that European authorities are losing control of the situation.

In another sign that the crisis is spreading, Chinese authorities yesterday cut the amount that the nation’s banks must set aside as reserves—the first such move since 2008.

The intervention by the Fed, together with the European Central Bank (ECB) and the central banks of Japan, Britain, Canada and Switzerland, boosted share markets around the world. Wall Street’s Dow Jones index rose by 500 points in its biggest one-day rise since March 2009.

While providing short-term relief, the measures have done nothing to overcome the underlying crisis, which is one of insolvency, not liquidity.

Jon Peace, head of European bank research at the Japanese finance house Nomura, told the Guardian: “It is an evolution of the crisis from three years ago, when countries took on the risks of the banks. Back in 2008, there was a lender of last resort—countries bailed out the banks. This time it is governments that need a lender of last resort—but there is no obvious lender of last resort.”

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