The actions of the Central Banks signal how desperate the situation is. Nothing was done to help Greece, Spain or the other insolvent European sovereigns. Yesterday was an attempt to keep the dysfunctional world financial system going awhile longer.

From Monty Pelerin’s World

Yesterday was a big day in the stock market! The Central Banks of the world came to the rescue of Europe, at least that is what you are supposed to believe. In reality, nothing positive happened yesterday unless you were long the stock or commodities markets.

The actions of the Central Banks signal how desperate the situation is. Nothing was done to help Greece, Spain or the other insolvent European sovereigns. Yesterday was an attempt to keep the dysfunctional world financial system going awhile longer. Banks were increasingly unwilling to lend to other risky banks. This condition precipitated the 2008 debacle.

Central Banks flooded the system with liquidity, or at least the potential for liquidity. There is one important difference between now and 2008 — the financial system is much weaker today. Despite the trillions of taxpayer and central bank created dollars, euros, etc., banks in the US and Europe are closer to failure today. Everything done has failed to improve the dying financial system.

Stock markets around the world “approved” central bank actions by rising dramatically across the board. Increased liquidity or the promise of same always produces a Pavlovian response in financial markets. But that response is likely short-sighted because the recent actions did nothing but buy time, a quantity we are rapidly running out of. Here is what was unaffected by yesterday’s policy actions:

• The sovereign insolvencies called Greece, Spain, etc. did not benefit from the Central Bank action. Nothing was accomplished with respect to strengthening the weak governments of the EU.
• The economies of the world are in just as bad a shape today as they were before the action. Nothing was accomplished regarding growth, employment, etc.

All that happened was a concerted action by governments of the world to defer the collapse of the financial system. It was an attempt to prevent another Lehman-type event.

What does it all mean? It means several things, none of which you are supposed to know or understand:

• Governments are desperate and will do anything to prevent the havoc which they created from surfacing.
• Extend and pretend is in full flower. No attempts are being made to solve problems.
• Inflation, as many suspected, is the vehicle chosen to extend the unsustainable.
• A Depression is inevitable. Whether it is preceded by a hyperinflation cannot yet be determined.

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