When the meltdown in the sub prime mortgage market occurred within the United States, the repercussions were felt all around the world. Because of the large percentage of the world’s economic wealth that resides within the United States, when property and currency values go down in America, they tend to pull values elsewhere down with them.
This meant that the other economic powers within the world and in particular the European Union had a stake in maintaining liquidity within the markets, and Jean-Claude Trichet, the President of the European Central Bank, proceeded to do exactly that. Along with the help of other central banks from around the world, 410 billion euros were injected into the market in order to help make up for the losses from the sub prime debt which an OECD estimate currently puts at 215 billion euros.
As a result of the liquidity that was injected into the market, Trichet feels that the economic picture of the future is bright. He indicated that economic growth had remained strong and was expected to remain positive in spite of not only the turmoil that is going on in the market, but also in the face of increasing prices for various commodities.
He feels that the action of the banks has kept the price of borrowing money down and because the economies of the western nations are tied to the continual production of credit this has ended up positively benefiting the world economy.
In spite of this, Trichet was not willing to comment one way or the other as to whether the banks would have to inject more money into the system in order to maintain liquidity and borrowing costs at current levels, but said that the banks are keeping in close contact with each other and are monitoring the situation closely as well. He finished by calling on individual participants in the market, telling them that they were responsible for doing their part to help.
