Fed Fix for Foreign Banks

The lead article in today’s New York Times, “Six Central Banks Act to Buy Time in Europe Crisis,” provides some long needed good news for a possible solution to the European sovereign debt crisis. The Fed made it easier for foreign banks to borrow U.S. dollars, buying more time until a meeting in Brussels on December 8-9. By then, it is expected that a final solution will be reached to prop up the euro, reduce borrowing by Euro zone members and convince investors that the debts of Greece and Italy are manageable.

Of course, almost anything that Ben Bernanke does is open to criticism in the current political environment. Newt Gingrich predictably said that Bernanke shouldn’t be lending to foreign banks when our own economy is so weak. This analysis, of course, fails to account for the impact that the sovereign debt crisis has on U.S. growth.

Of course, this solution is only temporary as it does not address the fundamentals of the situation, just provides some liquidity. But the breathing space may be just what Euro zone nations need, especially through the prevention of a panic that could have taken down the world financial system.

Stocks markets around the world soared at this good news, and we can only hope it will be followed by more.