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Back From the Brink?

New York, December 5, 2011
By John Stephenson

The global economy took a big step back from the brink last week as the world's major central banks, led by the U.S. Federal Reserve, rode to Europe's rescue pledging to lower the cost of emergency loans in U.S. dollars. The move should help shore-up the global banking system by ensuring that the system remains flush with the cash needed to make good on any obligations and to keep the credit taps open. For months, Europe's financial crisis has crept from Greece to Ireland and Portugal and then towards Italy and Spain as politicians have dithered. Stock markets surged as investors bet that the move by central banks would serve as the necessary breakthrough solution to the rampant debt woes in Europe.

With credit markets showing signs of strain as the cost of borrowing for European banks had risen to its highest levels since the Lehman Brothers collapse, central banks felt compelled to act. And with coordinated efforts on the part of six of the world's most important central banks, the message was clear—we are working together to forestall a recession by boosting the supply of money.

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