Tuesday, September 21, 2010

Global Liquidity Flood Gates Opening

While everyone assumes that the European debt crisis has passed with the European Central Bank (ECB) and International Monetary Fund (IMF) backing Greek debt, there are some new players entering the arena.

This past Friday there was an enormous scare in the Irish bond market.  Rumours abound regarding problems paying down debt and the Financial Times reported over the weekend that the ECB had to step in to support the market.

The ECB is their version of the Federal Reserve.  "Stepping in" means they printed Euros and bought bonds.

All eyes were on the Irish bond market this morning as they attempted to raise 1.5 billion euros.  They are now using these funds to backstop their banking system which is insolvent.  (Similar to the US only on a much smaller scale)  The auction was a percentage point higher, but ran smooth with the now official stamp of bail out approval in place with the ECB.

In addition to Irish troubles, there are rumblings coming out of Portugal.  The European leaders have been fast at work to back stop all coming problems in an attempt to stay ahead of the curve.

They have recently completed the European Financial Stability Facility (EFSF), which is a fancy word for the European Bail Out Fund. (EBOF)

Because Europe does not have actual funds to contribute, the money will come from the ECB and the IMF. (Printed)

The IMF is a global central bank and a few weeks ago their support to the European Union was raised from hundreds of billions to unlimited, similar to the unlimited support pledged to Fannie and Freddie last Christmas here in the USA.

Not to be outdone, Japan stepped into the action last week and announced currency intervention for the first time since 2004.  This means they plan on weakening their paper currency against competitors to help exports.

Switzerland, once the rock solid form of currency strength, has been doing the same thing as nervous deposits from Europe flood into their banking system.

Look for the ocean of printed liquidity to continue to flood the marketplace from government's around the world as we move forward.

Gold continues to look on with a watchful eye.

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