Further Upheavals

Latest incidents on the credit crunch involve:

• Iceland backing up one of its largest bank - leading to the official currency plunged more than 10% in the past few days;
• Ireland guaranteeing all depositors of her six largest banks;
• Greece also guaranteeing all depositors of her banks leading to big rows with UK & France that this may become predatory practice that will hurt their banks if customers transfer deposits out of British and French system to Greek banks;
• California and Florida state govts unable to raise funds;
• the fixing by Germany's finance ministry to get 35b euro funding [27b govt, 8b from private banks] to HYPO was rejected by the private banks;
• further liquidity problems at Fortis

Europe is heading into financial catastrophe as there are just too many countries involved with no clear cross border recovery plan(s).

Expect both Europe and US central banks to cut interest rates further, even between target meeting dates, to help bolster their banks and stablize the financial sector. Will such cuts help, only if trust between FIs and between depositors/FIs come back.