Global central banks in panic action to free up credit, will this work?
Posted on 30 November 2011 with 8 comments from readers
Global central banks have thrown analysts today with a coordinated action to boost the availability of funds to banks, particularly in the eurozone where several major banks are thought to be close to technical insolvency.
The knee-jerk market reaction is to send stocks higher and bonds lower. But the more reflective response maybe less positive. It is surely not good news when central banks panic. They can buy time for markets but printing money does not usually solve problems for long.
Pre-Lehman deja vu?
This is reminiscent of the run-up to the 2008 collapse of Lehman when central banks also struggled to find ways to paper over the cracks in a failing system. It did not work then and you have to wonder how it could possibly work now.
In the meantime, money will flow into real assets. Gold and silver are big winners, equities will bounce too. But remember what happened in late 2008 when the real crisis arrived!
Flash back to May 2008 and a rather less well presented ArabianMoney saw the same scenario emerging (click here) and while some called us alarmist or even insane that proved to be a correct assessment of the situation. Actually the real crisis feels closer than four months, perhaps two now.
8 Comments posted by readers:
I do very much agree that it is not good news when “central banks panic”. In fact, I also think that it is not good news when “central banks exist”!
Having taken action which is consistent with your advice to buy g & s, I feel able to sit back with the excitement at all that is happening without the personal worry and anxiety. A great position to be in!
I looked back at your May 2008 article to see, not only what you said then, but in what way it was “rather less well presented”. I noticed that you were using the first person singular then but not nowadays. I think you made a good decision to switch to “us” and “we” from “me” and “I”. I don’t know why but the plural is easier to read than the singular. I shall ponder why.
Perhaps your writing is easier to follow now than then. Maybe you are not putting so much into each article. But I am not criticising. Just following your own assessment of “rather less well presented” then compared to now.
And when Lehman happens again, the same thing will happen; gold/silver takes an “arsevheepeeng.” You must understand that the average investor still does not view gold/silver as being money, but an asset to be used in situations like this. It’s a minor asset, so they will sell that along with most other things to cover margin calls and losses. Just watch. It’ll happen again. My feeling is that silver may hit $20 from $32 in the short-term or $30-35 after falling from $50 in a few months. Hopefully, I’ll be wrong.
The 64 cent question is: “will this work?”
The logical answer is “no.”
Central banks have tried “massive, and well coordinated action” way back in September 2011, and that didn’t work either. Here’s an interesting graphic on this subject.
http://www.zerohedge.com/news/here-what-happened-after-last-global-coordinated-central-bank-intervention
Interestingly, the markets are going crazy once again, yet nothing has changed! The Spain and Italy bonds are still over 7%, European structural problems have not been addressed, yet the global central banks delude themselves into thinking that they can solve the problems.
PM’s will correct on flight to liquidity but not like ‘08.
gold explosion starting july 5 proved that.
the world has changed since 08′….tho nothing like it will in the next 4 years.
Do not forget the $13 drop in May, however. They can do that again, anytime. They’ll let the price run up, sell short, and then issue margin calls to trigger the selloff just as the stock market runs into more trouble again. The further you can make something fall from any point on a chart (and get out at that point), the more money you can make. As long as this is allowed, in fact sanctioned by the gov’t, this will always happen.
The only way to stop this is not through gov’t nor the courts, but you and I. We have to find a way to stop these people ourselves. It would be through the coin shops and getting customers out of the exchanges and bourses around the world. I would not be surprised to find that the new Chinese bourses lying flat-out about gold and silver backing their instruments is just another part of the movement to keep people stuck in paper.
@ Stephanie, regarding your first comment:
I agree with you, in principal, that when the next “Leyman event” hits us again, PMs will correct, due in part to the reasons you cited. However, unless the S&P sinks to 600 (which I don’t believe will happen in the near term), I believe Boatman’s point is noteworthy. The next correction will not be anywhere near as “deep” (i.e. not 25% to 30%), and the bounce will be quicker than before.
@ Stephanie, regarding your second comment:
Very well said! Readers of Arabian Money should re-read your second comment carefully!!!
we now have cramer with gold on his buy list.
at some point soon the private gold market gets big enough to overcome or minimize ’sheep shearing’ by JPM.
and you notice CME doesn’t REDUCE margins ever…..every increase brings us closer to the point of the futures market NOT being margined at all.
its an election year ben has the helicopter warmed up n pre-filled with $100’s.
do you think the elite wants ‘audit the FED n sound money’ ron paul in there?
not that he couldn’t win(old squeaky guy gonna have a tough time-too bad he’s not a blind black woman w/a cane)…….n i thats not ‘old people’ smack—he’s not THAT much older than me.
its going to take armegedon and 5000$ gold for the ‘whats lindsey lohan doing’ people to demand change.
but at 1% of 401k’s in gold all its going to take to explode the price is another 1%
because that DOUBLES the paper gold market long investment.
imagine 10%
I checked the Editor’s link to his article of May 2008. Let us check te recommendations therein:
1. Buy gold at $860 per oz. Not a bad call!
2. Buy gold stocks. A good idea whose time has not yet come!
3. A stock market crash is coming. Spot on again.
4. UAE real estate. Whoops, you can’t win them all.