The US Federal Reserve last night resorted to pumping money into the system because it cannot drop interest rates any further - they're effectively at 0%.
While this shows the bank still has a role in influencing the economy, there are also ominous signs that global markets are increasingly edgy about funding the world's biggest economy.
The Fed will buy a massive $US300 billion ($440 billion) worth of US Treasury bonds over the next six months and another US$750 billion of mortgage-backed securities - the toxic assets at the root of the credit crunch.
A debate raging between analysts over whether the move amounts to printing money quickly gets technical, but it is clearly a response to rapidly declining economy and employment levels.
Stock markets rallied on the news, seeing it as another means of stimulating the US economy, but the reaction in currency markets was telling. The US dollar and the pound both sank, while Australia's dollar briefly jumped over 68 US cents and the Euro surged.
The chief economist at Nomura, Stephen Roberts, said currency investors were "punishing the printers'' and favouring the countries like Australia and Europe where such desperate measures are less likely.
Mr Roberts said one reason for the Fed's move was to reassure the countries that hold most of of US debt - big exporters such as Japan, China, and energy-rich nations in the Middle East.
In recent years these savers have posted massive current account surpluses, with which they funded countries that live beyond their means such as Australia and the US.
But with their exports fading, these surpluses have shrank from $US120 billion in September to $US80 billion at the start of this year.
Figures compiled by Westpac also show the currency reserves of these "savings gluttons'' are shrinking.
Growth in foreign exchange reserves tripled from $US300 billion a week in August 2003 to a peak of $US900 billion a week in 2007, but with global trade dropping it is now shrinking by $US300 billion a week, the figures show.
In the boom years this cash became a new force on financial markets - bundled in vehicles such as sovereign wealth funds and flowing into asset classes like commodities. But now this source of funding is dwindling.
"There's a lot less money searching for a home,'' said a senior currency strategist at Westpac, Sean Callow.
There are also signs the saving nations' spare cash could continue shrinking as trade slows further.
The Commonwealth Bank's chief currency strategist, Richard Grace, said forex markets might have over-reacted, but the Fed's move suggested it overlooked recent upbeat signs in favour of negative figures.
"In my view they've probably used the last quiver in their bow a bit too early.''
US imports are 16% below their levels of a year ago, but economists say this could easily slump to 30% in the coming months, further eroding the reserves position of savings countries.
A possible consequence is that countries dependent on offshore capital - such as Australia, which has imported its capital in nine of every ten years since Federation - could face further shortages of funds.
While this shows the bank still has a role in influencing the economy, there are also ominous signs that global markets are increasingly edgy about funding the world's biggest economy.
The Fed will buy a massive $US300 billion ($440 billion) worth of US Treasury bonds over the next six months and another US$750 billion of mortgage-backed securities - the toxic assets at the root of the credit crunch.
A debate raging between analysts over whether the move amounts to printing money quickly gets technical, but it is clearly a response to rapidly declining economy and employment levels.
Stock markets rallied on the news, seeing it as another means of stimulating the US economy, but the reaction in currency markets was telling. The US dollar and the pound both sank, while Australia's dollar briefly jumped over 68 US cents and the Euro surged.
The chief economist at Nomura, Stephen Roberts, said currency investors were "punishing the printers'' and favouring the countries like Australia and Europe where such desperate measures are less likely.
Mr Roberts said one reason for the Fed's move was to reassure the countries that hold most of of US debt - big exporters such as Japan, China, and energy-rich nations in the Middle East.
In recent years these savers have posted massive current account surpluses, with which they funded countries that live beyond their means such as Australia and the US.
But with their exports fading, these surpluses have shrank from $US120 billion in September to $US80 billion at the start of this year.
Figures compiled by Westpac also show the currency reserves of these "savings gluttons'' are shrinking.
Growth in foreign exchange reserves tripled from $US300 billion a week in August 2003 to a peak of $US900 billion a week in 2007, but with global trade dropping it is now shrinking by $US300 billion a week, the figures show.
In the boom years this cash became a new force on financial markets - bundled in vehicles such as sovereign wealth funds and flowing into asset classes like commodities. But now this source of funding is dwindling.
"There's a lot less money searching for a home,'' said a senior currency strategist at Westpac, Sean Callow.
There are also signs the saving nations' spare cash could continue shrinking as trade slows further.
The Commonwealth Bank's chief currency strategist, Richard Grace, said forex markets might have over-reacted, but the Fed's move suggested it overlooked recent upbeat signs in favour of negative figures.
"In my view they've probably used the last quiver in their bow a bit too early.''
US imports are 16% below their levels of a year ago, but economists say this could easily slump to 30% in the coming months, further eroding the reserves position of savings countries.
A possible consequence is that countries dependent on offshore capital - such as Australia, which has imported its capital in nine of every ten years since Federation - could face further shortages of funds.
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