Once a month Sprott Asset Management LP puts out a letter that really should be on the lists of anyone who’s interested in keeping abreast of macroeconomic trends and implications. This month their offering is stellar. You’ll find an excerpt and link below.
There shouldn’t be anything particularly new in a broad sense, but certainly a fresh perspective and affirmation of much of what we’ve discussed in the past. And, of course, Eric Sprott & David Baker have a much better grasp of what makes these wheels turn than Another Joe.
I should have another article for you today as well, to finish off our week. Today I was informed that an article I submitted to Seeking Alpha was approved. If it’s published today I’ll include an excerpt and link. If not, I’ll post it as soon as it’s available. Either way, thanks for reading and have a fantastic weekend.
By Eric Sprott & David Baker:
2012 is proving to be the ‘Year of the Central Bank’. It is an exciting celebration of all the wonderful maneuvers central banks can employ to keep the system from falling apart. Western central banks have gone into complete overdrive since last November, convening, colluding and printing their way out of the mess that is the Eurozone. The scale and frequency of their maneuvering seems to increase with every passing week, and speaks to the desperate fragility that continues to define much of the financial system today.
The first major maneuver took place on November 30, 2011, when the world’s G6 central banks (the Federal Reserve, the Bank of England, the Bank of Japan, the European Central Bank [ECB], the Swiss National Bank, and the Bank of Canada) announced “coordinated actions to enhance their capacity to provide liquidity support to the global financial system”.1 Long story short, in an effort to avert a total collapse in the European banking system, the US Fed agreed to offer unlimitedUS dollar swap agreements with the other central banks. These US dollar swaps allow the other central banks, most notably the ECB, to borrow US dollars from the Federal Reserve and lend them to their respective national banks to meet withdrawals and make debt payments. The best part about these swaps is that they are limitless in scope – meaning that until February 1, 2013, the Federal Reserve is, and will be, prepared to lend as many US dollars as it takes to keep the financial system from imploding. It sounds absolutely great, and the Europeans should be nothing but thankful, except for the tiny little fact that to supply these unlimited US dollars, the Federal Reserve will have to print them out of thin air.
Don’t worry, it gets better.