Implications of Survey and Spot Currency
The European Repo Market Survey is a true picture of economic activity because it relates to private banks and markets and because repo rates and lending activity, due to the safety of this market, are a clear sign to determine future economic activity. Higher repo rates and reduced lending activity can only lead to a decrease in the amount of government bonds brought to market by central banks, which restricts their own ability to finance their own operations. It is a downward spiral that leads to periods of deflation where piles of cash stand idle, markets turn down, shorter term finance rates such as LIBOR and Eurodollars in Europe rise, and the value of currencies fall.
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