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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

November 30, 2011 at 11:38 AM

Euro ‘rescue’: Curb your enthusiasm

The intervention by the Federal Reserve and several other central banks may give a short-term fix for Wall Street, but it does nothing to address the fundamental problems that have brought the Eurozone to the edge of the abyss. If anything, it shows just how serious the crisis is — some observers say the euro could face a collapse within 10 days.

Today’s move essentially injects dollars into the Eurozone to ease the liquidity freeze up that emerged over the weekend. But it only works for the niche of dollar liquidity swaps, where companies, banks and speculators are exchanging euros and dollars. It’s a help, but only temporary. It continues to show the limits of monetary policy, at least so far. Still, Fed Chairman Ben Bernanke had to act. The credit freeze was ominously reminiscent of the eve of the panic of 2008. Nobody trusts anybody, even for the overnight loans that keep the financial system functioning.

Here’s what the intervention doesn’t address: The huge overhang of sovereign debt facing many European nations, which will keep resetting at ever-higher rates; a gathering recession and the slow-growth from austerity that will make repayment difficult and contraction inevitable; weak European banks and their exposed counterparties, including American banks; the weakness of the European Central Bank; Germany’s inability or unwillingness to lead, etc.

So the crisis continues, even if some Eurodollar speculators made a tidy profit today.

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Today’s Econ Haiku:

Poor AT&T

Monopoly’s in its blood

But the call just dropped

Comments | More in China economy and business

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