Desperate times
Businesses of all sizes are hoping that a fresh injection of hundreds of billions of dollars into the global economy will increase the availability of credit and create a more benign trading environment.
The US Federal Reserve, European Central Bank, Bank of England, Bank of Canada and Swiss National Bank all had a whip-round to create another major injection of cash into a market still wary of lending.
You see, a few years ago someone in the US thought ‘why aren’t we lending more to people on low incomes or with poor credit ratings – we can charge them even higher interest rates than we charge rich people!’ Everyone else thought ‘good idea’ and joined in. Who could have foreseen that, when introductory offers expired and interest rates started rising, those poor people would stop paying their mortgages?
The uncertainty of the extent of exposure by the world’s banks to the US sub-prime mortgage crisis means that banks are reluctant to lend to each other. This has led to a drying up of credit available to everyone else and is what has made it necessary for central banks to act.
While it’s obviously too early to tell what effect this move will have at street level – the availability of credit to individuals and businesses – the world’s stock markets seem to have got pretty excited about it. The Dow Jones was up 3.5 percent and the Nasdaq up four percent.
