The markets had another big day yesterday - the Dow Jones average posted its biggest single-day gain since March of 2009, and European markets were up strongly as well - and the financial press rushed to give credit for the upswing to coordinated action on the part of the world's central banks. But what exactly did they do?
Two things happened: First, the Federal Reserve and the central banks of Europe, England, Canada, Japan and Switzerland announced that they would coordinate efforts to reduce the cost for banks around the world to borrow money from their nation's central banks. The idea is to keep money flowing freely throughout Europe, and trying to sure that the banks there don't get caught short and they end up with another Lehman Brothers collapse on their hands.
At the same time, China announced it was cutting the reserve requirements for its banks, after raising those requirements six times earlier this year. That should permit China's banks to lend money more freely, which is ultimately good for economies around the world. While it's always risky to read too much into one day's market moves, it does appear that investors around the world do like these developments.
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