The joint announcement that major central banks liquidity injections made Bags and relaxing drives risk premiums.

The end of November has brought the reassuring news financial markets, which aims to improve liquidity in the system: the major central banks such as the U.S. Federal Reserve (Fed), the European Central Bank (ECB) and central banks Switzerland, Japan, England and Canada, have announced their firm intention to “support the global financial system”, through liquidity injections, to facilitate access to the money in dollars.

Preventing the collapse of the system

Euro zone problems have meant that, for months, interbank lending remains blocked, due to distrust banks have to lend money among themselves: hence this causes the credit does not reach the companies or citizens. The main measure taken by the central banks is to reduce the cost of the lines of dollar liquidity swap: thus seek easing of tensions in financial markets, so, so, these tensions have no effect on reception credit by citizens and businesses. The ultimate goal: the revival of economic activity.

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Reduced cost of getting dollars

This announcement liquidity to the system occurs through cost reduction. For the banks, it provides access to obtaining dollars. This leads to an incentive to put more money in circulation, and facilitate access to credit. Although not the final measure to help resolve liquidity problems, it does mitigate the needs and can be the start of a series of measures to help solve these problems largely. In the same way the announcement of the central banks, the Bank of China has announced that shall reduce the required guarantees to banks for deposits. This will boost credit search, to try to prevent stagnation of the economy: given that China is a country purely exporter if they fall by the global crisis, the Asian giant will notice.

The measure gives wings to the bag and reduces the risk premium

This type of advertisement is the “excuses” needed by investors to bring their money back to Europe. Immediately after the statement issued by the major central banks, the stock soared and the risk premiums of European countries were reduced. For example, the IBEX jumped 3.96% , 4.98% Frankfurt, London and Paris 3.16%, 4.22% Within the Spanish Stock Exchange, the highest increase, banks. And in risk premiums, the Spanish stood December 1 at 356 basis points, its lowest value since the end of October, Greece announced its intention to hold a referendum in the country to approve the measures imposed by the Euro zone.

Investors need a “push” to finish deciding

The euphoria following the announcement of the central banks have a clear interpretation: the markets and investors need to hear good news, seeing that European leaders announced measures to revive the system: they are serious about the recovery of the financial system of the Euro zone: if so, the money will return to Europe, where it should not go, if they had taken action at the time. In this regard, investors speculate the arrival of new measures, such as: the lowering of interest rates by the ECB, the increased credit period of this organism to banks, from one to three years and, above all, a possible announcement by Merkel and Sarkozy to enable the ECB to buy debt of countries affected by the crisis: measures that can serve as lifelines to the Euro zone, but the road is still long.