Bank funding crisis deepens

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By David Malone

So as European leaders admit they can’t find the money to make the EFSF (Europe’s bank bailout fund) anything like the size they all said it had to be, but they are saying nevertheless that the EU gives itself 10 days to fix the crisis. The latest plan is to turn to the IMF for help.

By David Malone

So as European leaders admit they can’t find the money to make the EFSF (Europe’s bank bailout fund) anything like the size they all said it had to be, but they are saying nevertheless that the EU gives itself 10 days to fix the crisis. The latest plan is to turn to the IMF for help.

Normally I would see this as just yet another empty attempt to manipulate the news the populace with the twin idea that there is a desperate crisis but luckily governments are at full steam taking those hard decisions to deal with it. Decisions like cutting all public spending but doing nothing about corporate tax avoidance or the tens of billions still locked up in insolvent banks (Think the bad bank part of Northern Rock or RBS).

But combine the tight deadline with the announcement that 6 central banks have just agreed to lower the cost of US swaps lines by 0.5% and it takes on a whole other character. The swap lines are essentially how the Fed lends money (dollars) to European banks.

The central banks press release is that this is to ease liquidity. Which they are quick to say there is no need for except in dollars. All domestic currencies they say are in fine supply. As if domestic currencies being fine is some sort of good news.  That’s like saying on a sinking ship that there aren’t enough life vests but luckily there are plenty  of  beer mugs.

The substance is that the banks are now facing a lock up of short term funding. The just announced bank downgrades have made short term funding for the banks even more desperate. The reason for making Fed swaps cheaper isn’t because there just happens to be some short term blip in the need for dollars. It is, as I have been saying, that the banks are on the very edge of a full blown funding crisis and no one but the Fed has money.

The ECB is not buying up ‘enough’ (from a banker’s point of view)  of the bank’s and nation’s rotten debt and the debt markets are wary of buying any debt even German debt at prices anyone can afford. So the Fed and the others have agreed to use the Fed and the dollar as the emergency funding conduit. How this will play inside America in its domestic political scene is anyone’s guess. But I don’t think it will be pretty.

The global slowdown is here. Growth is a fiction. China’s exports to Europe have according to a report in Bloomberg, “Fallen off a cliff”. China has responded by lowering reserve requirements for its banks suddenly reversing all the work it was doing to cool property speculation. Why? Because they are caught in the downdraft and are now worried about a hard landing of sudden credit contraction which would implode the unstable banking and property bubble. So they are choosing instead to stoke up the engines of speculation and easy money make the problem much worse but to be dealt with later. Because right now they are on the edge of our crisis and don’t like the view.

Meanwhile in Europe itself  the politics of massively divisive and unfair austerity for the masses and  ’soft touch’ for the wealthy is just hotting up. According to

European Central Bank Executive Board member Juergen Stark …. the only way for the region to exit its debt crisis is for governments to reduce budget deficits and embrace wage cuts and other structural changes.

“There is only one instrument left, which is adjustment in relative prices in wages, in salaries, in costs,…

Wages and pensions are what he means by costs. In other words European workers must now be forced to compete toe to toe with Chinese labour costs even though the cost of living in Europe is vastly higher than living in China. Of course the obvious solution to that conundrum is to make the cost of living here more like that of living in China. Which is a simple matter of doing  away with workers rights, health care, education and any sort of pension at all. The outlines of a plan emerging here I think.

This is a BANK funding crisis, but it is nations of ordinary people who are being blamed and forced to pay for all the corruption, stupidity, greed and lies which caused it and are still causing it.

 

Courtesy of David Malone – http://www.golemxiv.co.uk

David Malone is the author of the book Debt Generation. You can read and listen to excerpts from his book here: http://www.debtgeneration.org/index.php