Stock markets perked up today partly at the announcement of new coordinated liquidity arrangements by the big central banks. (There were some modestly encouraging private-sector payroll numbers too.) Reaction to the central-bank initiative could have gone either way, I think. Since the move shows how anxious the monetary authorities are about what might be coming next from Europe, I wasn't especially reassured. If you see emergency workers stockpiling sandbags and bottled water, is that good news or bad?

James Hamilton at Econbrowser has a nice clear explanation of what the central banks' announcement really amounts to.

No action by a central bank can solve the problem of a debt that's not going to be repaid. But central banks can help avoid the added economic damage that is caused when markets for all loans, good or bad, get disrupted by the uncertainty. In the fall of 2008, the Fed successfully figured out how to navigate that fine line. Let's hope they have the wisdom to do so this time as well.

Or better yet, let's hope the new facilities don't need to be used at all.

I second that.