Central banks across the planet worked in concert on Wednesday to orchestrate a massive loan program whereby the cost of borrowing dollars outside of the US for foreign countries—dollars that begin at the Fed window—will be cut in half. The loan will be available until February 2013.
“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the banks said in a statement.
At 9:30 a.m, stocks on Wall Street were up, an hour and a half after the announcement by the central banks. The S&P 500 rose 3.2 percent and European markets were up almost 4 percent in late trading on near-term profit based trading. ZeroHedge posted this graph to highlight the impact of the last global coordinated central bank intervention:
The Fed was joined by a litany of central banks from around the world, such as the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Canada and the Swiss National Bank.
As noted by ZeroHedge, Forbes might have touched on a reason for the sudden action by central banks to, first and foremost, prop up the Eurozone:
“It appears that a big European bank got close to failure last night. European banks, especially French banks, rely heavily on funding in the wholesale money markets. It appears that a major bank was having difficulty funding its immediate liquidity needs. The cavalry was called in and has come to the successful rescue.”
The Fed’s vice chair, Janet Yellen, highlighted on Tuesday “the urgency of strengthened international policy cooperation,” because “the global economy is facing critical challenges.”
An existing premium on US dollars for international purchasers through central banks has been lowered half a percentage point from 1% to %0.5
Paralleling the move towards easy money for Europe, London has ordered the immediate closure of the Iranian embassy in London and that Britain would close down its embassy in Tehran.
Hague said that Iranian diplomats “must leave the United Kingdom within the next 48 hours.”
The closure comes after the storming of the British Embassy in Tehran on Tuesday by student protesters. All UK personnel have left Iranian soil.
Hague said Britain’s move to close the Iranian embassy did not amount to the complete severing of diplomatic ties between the two countries.
“Such a flagrant breach of international responsibilities will not be tolerated,” he said.
As of 11 a.m eastern time Wednesday, Gold was up $27.64 on the day, and silver was up $0.88