Interbank lending rates continued the downward trend noted this morning during today - as shown in the graph below. Three month dollar libor fell from 3.84 per cent to 3.54 per cent, and one month dollar libor from 3.53 per cent to 3.28 per cent.
But while the situation in the banks in the central core of the international financial system was, at least for the present, being stabilised the financial shocks waves were spreading outwards taking some more acute forms as they went.
Iceland's crisis is well known. An International Monetary Fund team has been sent to attempt to stabilise the Ukraine and Pakistan is also discussing a deal with the IMF. In Argentina the government has announced that it is taking over pension funds and there is fear among financial institutions of a state debt default - the interest rate on government bonds has risen to 31 per cent. Hungary today raised interest rates by three per cent following a 13 per cent fall this month in the forint's exchange rate - given that 66 per cent of Hungary's domestic debt is denominated in foreign currencies such devaluation places great strain on debt repayment.
The financial crisis is therefore logically, spreading from banks, to insurance companies, hedge funds and other financial institutions to now threaten countries.
While breakdown, although not recession, is at least for the present being contained in the central core of the global economy it remains to be seen if this can be achieved on its periphery.
A Note. In light of the importance of the position that China takes on the international financial crisis it is of some interesting to note that the New York Times reports that it refused to bail out Pakistan. The paper notes: 'The thin results from the China trip [by the Pakistan government] were of little surprise to Western donors. Asked about the likelihood of Pakistan winning the direct cash infusion it was seeking, a senior Chinese diplomat was reported by Western officials to have said, “We have done our due diligence, and it isn’t happening.”'