All ords down 222.5pts

Like... What the hell instigated this? This isn't all because of MBL and their sub-prime mortgage funds going sour or wateva is it?

 

probably... US markets hit because of the sub prime stuff, and our market tends to follow the US.

 

Yeah thats what i've been told... It seems a little weird to me, can't our market think for itself..?

 

apparantly not.. The U.S is a big economy though. hold on tight and maybe do that asx online course so you can identify trends...

 

Sketchy,

Can you please ease up on the bold formatting of 90% of your posts?

 

Read this and be afraid! (or at least a little stunned or intrigued!)

ECB pumps $130bn into money markets | The Australian

Timbo

 

If it will help you sleep better at night.

 

Yeh, dosen't make much sense to me at all... Its all jibberish.

 

If I understand it correctly, is the reserve bank, ensuring liquidity but increasing inflation?

 

The reserve bank is continually pumping money into the market and taking it out in a balancing act to set an 'artificially-fixed' benchmark cash interest rate. The market in question is often called the short term money market - basically how the banks and large institutions exchange money.

The issue is that some banks/insitutions haven't been so keen to lend out their money as the *perceived* risk has increased, so to keep the interest rate at the current fixed rate the reserve bank needs to put some more cash in - supply and demand is all it is.

 

Is this keeping cheap money flowing so punters can borrow to buy the junk securities supposedly "backed by a mortgage" ?

The argument is that the banks are trying to prevent a credit squeeze - but surely the cheap credit is part of the problem ?

Rob

 

the idea is to keep the fixed cash rate that the RBA announces. I.e. they take funds out of the money market or put more funds into the money market to balance interests rates at 6.5%. If the RBA did not do this the rates would continuously move up and down as per supply and demand...

The root cause of the current issue was something along the lines of offering people home loans that could not afford it (in the U.S.) - same sort of thing goes on here but not to the same extent. Because a large number of these loans are defaulting and the financial companies that offered them have sold the risk elsewhere (ie the collaterised debt obligations you'll here them talking about), the financial institutions now want a higher interest rate to lend out their money to other financial institutions (or they don't want to lend at all - hence the liquidity issue) because they perceive that there is more risk that they won't get their money back. This is what the central banks (RBA) don't want because it alters their delicately balanced interst rate - hence they need to pump more funds into short term money market to re-adjust.

You can read all about the ongoing operations that the RBA get involved with to set interest rates and alter the currency from time to time on their website.