Monday, February 13, 2012

"The central bank intends for banks to use the money to lend to businesses and support the economy. That is especially crucial in Europe, where banks, rather than capital markets, are the main source of credit for corporations.

But analysts suspect banks are using much of the cash to buy government bonds. That would help explain why interest rates on Spanish and Italian bonds have plunged in recent weeks.

Borrowing from the central bank at 1 percent and using the money to buy bonds paying many percentage points more is a nice trade for the banks — as long as the issuers remain solvent. And it raises the chances that Italy or Spain will be able to continue servicing their debt, by holding down their interest payments."

**Problem is, the banks have this "safe trade" and then they don't make loans to companies who need them to expand and hire. And the FED has told everyone they will hold down rates at 0% for another 3 years....that will be almost 6 years of 0% rates......but don't worry that couldn't possibly cause problems.....


No comments: