by Bill Kavanagh: A European agreement, made this weekend at their Paris summit, has had a major effect on Asian and European markets in early trading. The Euro countries have agreed to follow the British initiative of partial nationalization and also to guarantee interbank lending. Their plan takes the lead, while the Treasury and Fed here in the U.S. are in the unfamiliar position of following along.
It appears that the Fed is doing the next best thing to guaranteeing interbank lending: they are increasing swap lines with European central banks that are guaranteeing overnight loans. The reaction in Asian and European stock markets is encouraging, as they are buying for the first time since the crisis gripped them.
The Federal Reserve is increasing those lines “to accommodate whatever quantity of U.S. dollar funding” the central banks demand. It’s encouraging to the extent that it will lend security to the global financial system.
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