The World's Central Banks Unite

     At least for one day and the world markets have soared.

     "The attempt by major central banks to ease strains on Europe's credit markets certainly cheered financial markets on Wednesday, but what does the coordinated action actually do?"

      Good question. "In essence, the US central bank, or Federal Reserve, agreed to provide cheaper dollar funding to the European Central Bank—which can then provide cheaper dollar loans to cash-strapped European banks. (For a fuller explanation of how the ECB borrows from the Fed, click here.)"

      http://www.cnbc.com/id/45492184

     The markets love it. The German market was up 4% today and the U.S. is currently up 400 points. Of course what do equity markets know? In addition though, "This morning there was a sudden jump in (Treasury) interest rates all across the yield curve (except the short end where they are pegged at near zero, and were unchanged.)"

     http://www.themoneyillusion.com/

    When the Treasury market is impressed you have something. Yes, of course, Scott Sumner the biggest proponent of monetary action around is impressed: "It’s much too little, but not at all too late."

     "The participation of the central banks of Canada, England, Japan and Switzerland is more of an effort to show that all the central bankers are working together than any expectation that there will be lots of dollar borrowings under their facility."

      "The goal is to ease the credit crunch in Europe. Lots of European banks make dollar denominated loans, in part because US interest rates are so low. The banks do not usually finance these loans in the way you might think—by lending out the deposits of their retail customers. Instead, the loans are financed by short-term borrowings from other financial institutions."

      The last time we saw action like this was in September 2008 during the Lehman Crisis. This action was successful in bringing down the Libor spreads. Today's action suggests this newest central bank coordination may be similarly successful. Add this to the the good jobs report this morning-208,000 new private sector job in November-and you can understand how the Dow is up by 400.