Overnight Commercial Paper Rates Rise as Bank Bailouts Spread

October 6, 2008 by · Leave a Comment
Filed under: Global News 

Everyone has this “whatever it takes attitude” and this is going to be the mess they leave us with. No one is talking about what happens when the economy contracts and we are left with all this excess liquidity? My bet is on massive inflation that has never been seen in this country. We are witnessing global debasement of currency that are trying to keep up with us which is futile because people feel more comfortable with our currency over other foreign currencies at this point.

At a point we should see a change in that attitude and then I would say instead of having a single reserve currency, we will see a basket along with some measure being put into place that ties the currency to gold in some way to serve as an indicator to show if there is a major expansion in any countries monetary base. .02

News Piece:

Corporate short-term borrowing rates soared as bank bailouts spread through Europe and the Federal Reserve said it would double its auctions of cash to banks to thaw short-term lending.

Yields on overnight U.S. commercial paper jumped 0.94 percentage point to 3.68 percent, according to data compiled by Bloomberg that stretch back to January 1996. That’s the most since the eight-month high of 3.95 percent set Sept. 30 after the U.S. House of Representatives rejected a plan to rescue banks; the bailout eventually was signed into law last week.

The rise in borrowing costs reflects concern that the latest government and central-bank measures won’t be enough to ease credit markets. European leaders meeting in Paris over the weekend pledged to bail out their own nations’ banks, stopping short of a regional rescue. The Fed said it will boost its auctions to as much as $900 billion and consider further steps as stock markets around the world tumbled, banks hoarded cash and companies had more difficulty borrowing.

“A skepticism still hovers over the market about just how effective these measures will prove to be in reviving” lending between banks, Don Smith, a London-based fixed-income strategist for ICAP Plc, the world’s biggest broker of trades between banks, wrote in a report today. “The market is now looking for aggressive rate cuts” in Europe and the U.K.

The London interbank offered rate, or Libor, that banks charge each other for overnight dollar loans rose 37 basis points to 2.37 percent today, the British Bankers’ Association said. The three-month rate stayed near the highest level since January. Asian rates increased and the Libor-OIS spread, a gauge of cash scarcity among banks, held near a record.

`Whatever it Takes’

The German government backed a 50 billion-euro ($68 billion) rescue package for property lender Hypo Real Estate Holding AG and U.K. Chancellor of the Exchequer Alistair Darling said Britain will “do whatever it takes” to help its banks.

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