Central banks, spear headed by the U.S. Federal Reserve, launched a massive joint effort to provide liquidity to a European banking system that was teetering on the verge of collapse.
The six central banks involved in the emergency lending program were the U.S. Federal Reserve, the Bank of Japan, the Swiss National Bank, the Bank of England, the Bank of Canada and the European Central Bank. The central bank actions provided European banks with cheap access to funding through U.S. dollar swap lines. Under dollar swaps, the U.S. Federal Reserve supplies dollars to foreign central banks which in turn lend the dollars to banks that need U.S. dollars to meet funding needs denominated in U.S. dollars.
In a joint statement, the six central banks said "The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity." As one European bank after another appeared to be on the verge of collapse, the calls for central bank intervention to "save the world" had become deafening. Today, the central banks obliged, effectively endorsing the theory that more debt is the solution to the debt crisis.
In an early day interview on CNBC, Ron Paul gave his take on the massive central bank intervention, calling it "a form of worldwide quantitative easing."
Ron Paul also noted that the central bank actions "penalize the American people" and that the Federal Reserve actions will simply result in "more debt and more inflation."
Ron Paul said the Fed is doing the same thing that it has done for the past 40 years. "Spending excessively, running up debt, printing up money, and manipulating interest rates. We're up against the wall now, it doesn't work anymore. Lowering interest rates is essentially impossible. That's what they're desperately trying to do today. But, you know, when our interest rates to the banks are down to zero, what are they going to do next? Used to be that Congress would just spend more money and that would help. How can they spend more money when there's no more money in the Treasury?"
The answer to Ron Paul's last question is obvious and should deeply concern every American. Funding needs of the Treasury will continue to be supplied by the Federal Reserve with printed money and the U.S. currency will continue to lose value. The rising price of gold has reflected the systematic destruction of our currency. Based on the predictable response of central banks worldwide to print their way out of the debt disaster, there is effectively no upside limit to the price of gold.
