Early this week, it was clear that the situation in Europe remained incredibly tenuous. With Standard & Poor's suggesting it may have to downgrade France and Moody's downgrading European banks, uncertainty was rampant. The future of the euro was becoming more and more questionable.

Still, it appeared to me that perhaps there were behind-the-scenes actions taking place that would unleash the European Central Bank in some way, shape or form, as clearly it is the printing press that rules world's bond markets at the moment.

Thus on Tuesday night, it was no surprise that what had been happening behind the scenes took center stage.

The first important news item to hit was from the People's Bank of China, which cut reserve ratios by about 0.5%, its first cut since 2008.

(As I have noted many times regarding concerns about China, policymakers there have been tightening for a couple of years; thus they have arrows in their quiver to go the other way, unlike the Western world, where interest rates are already basically zero.)

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Easing does it

That news was followed a couple of hours later by headlines announcing that the Federal Reserve and five other central banks (including the ECB) were going to cut interest rates on dollar liquidity swap lines to 50 basis points and extend the authorization through 2013. In and of itself, this move is not a huge deal. However, it does show a degree of coordination among the world's major central banks. Plus, I think those two maneuvers, combined with the creeping monetization that is already under way by the ECB, have caused folks to believe that more action from Europe's monetary masters might be forthcoming.

I was fortunate to have dinner this week with someone whose opinion on these matters I respect (and who happens to be European). He said he felt the possibility of the Germans getting some sort of budget veto power over other European nations might be enough to get the ECB to relent somewhat and indicate to European bond markets that it "has their back" (and by "their," I mean holders of European sovereign debt).

We may learn more about that at the next EU shrimp fest (summit meeting) on Dec. 9. And following that is the Fed meeting on Dec. 13. Given the recent hints, expectations are also running high for QE3, a third round of stimulus from the Fed. If the ECB can find a way to get into the money-printing act such that people feel like it can really be counted on, I would expect explosive rallies in European bond markets, and probably fairly chunky rallies in equities as well.

After all, at that point you would have the ECB, the Bank of England, the Fed, the People's Bank of China, the Swiss National Bank, the Bank of Japan and probably a few others all easing. It doesn't take much imagination to see that as a recipe for a real party, especially given how bearish folks have been, as it seems people continue to underestimate the will to use the printing press, not to mention its power.