Sunday, December 23, 2007

Crisis may make 1929 look a 'walk in the park'

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As central banks continue to splash their cash over the system, so far to little effect, Ambrose Evans-Pritchard argues things are rapidly spiralling out of their control

Twenty billion dollars here, $20bn there, and a lush half-trillion from the European Central Bank at give-away rates for Christmas. Buckets of liquidity are being splashed over the North Atlantic banking system, so far with meagre or fleeting effects.
# Read more from Ambrose Evans-Pritchard
# Is the crisis getting worse? Get the latest comment
# The financial outlook in 2008: Experts' predictions

As the credit paralysis stretches through its fifth month, a chorus of economists has begun to warn that the world's central banks are fighting the wrong war, and perhaps risk a policy error of epochal proportions.

The Fed's Ben Bernanke, the BoE's Mervyn King, the ECB's Jean-Claude Trichet
Faces of power: The Fed’s Ben Bernanke, the BoE’s Mervyn King, the ECB’s Jean-Claude Trichet

"Liquidity doesn't do anything in this situation," says Anna Schwartz, the doyenne of US monetarism and life-time student (with Milton Friedman) of the Great Depression.

"It cannot deal with the underlying fear that lots of firms are going bankrupt. The banks and the hedge funds have not fully acknowledged who is in trouble. That is the critical issue," she adds.

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