The big news this week: the world-wide liquidity crisis. Via The Perplexed Investor, Latin American Banks Use Reserves to Save Currencies
Oct. 9 (Bloomberg) — Latin American central banks are being forced to draw on record foreign reserves built up during the six-year commodities rally to stop their currencies from sinking in the worst financial crisis since the Great Depression.
Brazil sold dollars for the first time in five years and Mexico sold $2.5 billion in the spot market between yesterday and today, helping their currencies pare losses. Chile may follow suit, Barclays Capital analyst Rodrigo Valdes said.
The worst currency meltdown in Latin America since the emerging-market economic crises of the 1990s is causing companies’ dollar debts to swell as well as sparking derivatives losses, and may stoke inflation. The decision to intervene came after central banks in the U.S., Europe and Canada cut interest rates in a coordinated effort to boost confidence.
There is not much Latin America can do about the leadership vacuum in the U.S. or Europe. But it can anchor its own ship. Serious Latin economies — obviously we don’t mean Argentina, Venezuela, Ecuador, Nicaragua, Honduras or Bolivia — have spent the past two decades preparing for such a moment.
Market reformers began their work in the late 1980s, though Chile started earlier. Over time their efforts put an end to profligate state spending and runaway inflation. Today dollar reserves are high, net foreign debt is low or nonexistent, and banks are healthy. State-owned firms have been sold and trade is more open than it has been in 80 years.
Go read every word. Here’s Mary’s video:
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Special thanks to Jeff, Kate, Larwyn, Maggie and Maria
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