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Drowning in Cash

February 29, 2012 – 6:52 pm

There was good news in the final revision of last year’s fourth quarter GDP which rose to 3% from 2.7%. That was better than the expected number of 2.8%. While that is good news it is backward looking. In the more immediate past it appears that the larger than expected ECB’s allocation of 529 billion euros provided a sufficient amount of short term liquidity to European banks to stem their cash crisis. This hints that maybe the ECB has an actual plan to ride out the storm of debt refinancing. Unlike the FED in the U.S. we just do not know what the ECB plan might be and without knowledge comes uncertainty.

The longer term issue is what will be the end result of all the hordes of cash the central banks around the world have provided. For the time being it is keeping societies afloat and it is obvious that the effort is buying time giving economies a chance to gain strength. That seems to be working. It is going to become a race i.e. growth in the economy versus pulling out the cash and paying down debt. Removing liquidity retards economies which slows job growth.

It is going to be a delicate balance.

Good Trading
Steve Peasley

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