The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.

And if you believe that you’ll believe anything. What they really mean is that the global financial/banking system is at the edge of the precipice or, in the case of large parts of Europe, already over it in true Wile E. Coyote fashion. If this were to be just a liquidity crisis and if the additional liquidity they intend to supply did end up in households and corporations then all would be just fine. But it isn’t and it won’t.

Most of this liquidity injection is for the benefit of European banks who can’t borrow to fund their day to day liabilities in the interbank market. The banks don’t want to lend to each other, even overnight, because they are terrified that one or more of them won’t be there to repay the loan in the morning. And why is this? Because most of them are insolvent. Fractional reserve banking almost guarantees insolvency when things get tough without the additional burden of holding large swathes of European sovereign debt of dubious quality.

So now that the central banks have provided yet another temporary back stop the equity markets are on a tear – “risk on” in the jargon – and the Santa Claus rally is off to a flying start. All that new liquidity that was supposed to find its way into loans to households and corporations ends up in the markets as was always the intention. This swap arrangement has been extended until February 2013 so they are buying some time but all the fundamental ills remain; sovereign debt, bank solvency, derivative obligations, economic growth, voter dissatisfaction and ever increasing government control over our daily lives “for our own good”.

America is in election mode and with Republican candidates like Rick Perry and “Bunga Bunga” Cain you almost have to feel sorry for them. The only one of a sorry bunch with any understanding of the economic realities is Ron Paul yet the pro-establishment press have already written him off. The “free” press is becoming a bit of a joke; try watching the “Faux” News channel and you will see what I mean…

China, on the face of it, has few problems. Economic growth is slowing, but still forecast at circa 8% for 2012. They have a notoriously long view on most issues, but with Europe almost certainly headed for recession and the US frantically massaging the data to create a semblance of normality, they must be having some sleepless nights. To be asked to help bailout Europe so that Greek civil servants can get their pensions and banks can keep vaguely close to solvency just doesn’t translate into Chinese.

The only logical way out of this global financial mess should be to take the medicine. If you can’t pay the bills then you are bankrupt and your creditors have to take a write down. Of course once that starts the domino effect kicks in and the lights go out, but how does borrowing more make things any better, other than in the mind of a politician?

Maybe the Italians have stumbled on the answer. Replace politicians with “technocrats”. The new cabinet will not include a single sitting member of their parliament. Sounds good until you realise that most of the new ministers are either ex-bankers or have very strong connections with that murky grey industry, which would suffer the most devastating loss of power should things go dark. Milan “OWS” is already up and running as the Italians quickly realise where this is all going.