Economics Tricks

The unprecented intervention of the world's central banks yesterday, must have given hope to home owners and borrowers who were set to see the cost of credit rise. The Bank Of England, The Fereral Reserve, and the Central Banks of Canada, Europe and Switzerland are set to pump billions into the international money markets in a desperate bid to stave off the credit crisis.

This is the first time the world's major central banks have taken co-ordinated action to pump extra money into the financial markets and it highlights the depth of concern over the global economy.

To have these banks club together so openly underlines that it is a global credit crisis we are all facing. It also may herald a move towards an international framework for markets and financial controls, a 'New World Order' as it were.

However, will this injection of cash actually rescue us from recession? Despite recent interest rate cuts, and this latest intervention, America still looks poised to return to dark days, as the reach of sub prime mortgage scandal still cannot be accurately predicted.

Banks are suffering a loss of confidence in the market and in each other, and as they stop lending money to each other, they all suffer a shortage of credit, and the higher cost of borrowing is then passed down to ordinary consumers. Many have yet to pass interest rate cuts onto their customers, a sure sign they're hoarding their stash.

The massive cash injection may ease the markets short term, but it will also have another, less attractive side effect. Huge liquidity injections like this floods the market with cash, thus devaluing the currency, and so we get inflation. Prices already feeling the pressure because of high oil and food costs may soon start rising.

So what can we do? The first thing is to reduce your credit holdings as much as you can as quickly as you can. Take control of your money and be careful where you invest. If you can, teach yourself how money works, open your eyes to the credit economy and true venal nature of the banks.