Cavalry to the Rescue

Today some optimism may be given a solid basis.  The world’s central banks, including the US Fed and ECB and China (!) have all decided they cannot wait any longer for politicians — they have begun a large scale push to increase liquidity in all major currencies.

This step does not solve any of the major sovereign debt issues, but it does buy time — the immediate problem of bank runs, a freeze on the interbank credit market have been averted.

The next step will be to either unleash the ECB or fortify the EFSF to cover European soveriegn debts.  If that is done before the end of the year, the worst of the immediate scare will be over, and policy-makers can focus on structural problems of unemployment and long-term coordination across markets.

Let’s be hopeful this week; this was a significant step in the right direction!

About jackgoldstone

Hazel Professor of Public Policy at George Mason University
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