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Alan Grayson Seeks To Moderate Fed-Mandated Currency Swaps Which Bail Out Foreign Central Banks Shorting The Dollar

Tyler Durden's picture




 

One month ago, Zero Hedge did an exhaustive examination into the topic of over half a trillion of foreign FX liquidity swaps to central banks issued by the Fed, and how by administering this unprecedented incursion into international monetary policy, Ben Bernanke became the lender of last resort not only to US institutions on the brink, but to all those foreign central banks, and thousands of foreign financial institutions, who were massively short the dollar the last time the bubble popped (ring a bell?). Since we have ended up in the same boat promptly once again, and since the ponzi scheme can only continue so long before all those short the dollar scramble to cover shorts at some point in the future, as Roubini has predicted, it is merely a matter of time before the Fed will need to disburse another trillion or so of FX swaps to bail out all those who are shorting the US middle class into oblivion. We ignore the ethics of bailing out those who have done nothing but piggyback on the dollar carry trade, and in doing so, have decimated the purchasing power of America's working class, which is precisely what Ben Bernanke did. Buying stocks may be patriotic but bailing out those who want your dollar to purchase less tomorrow than it can today, sure does not pass the sniff test (Bernanke, of course, being at the top of that particular food chain).

In order to make sure that the overlord of the Fed will never again risk massive taxpayer money to bail out foreign banks, who only know how to take Barclays' "short the dollar" phone pitches and trade accordingly, Florida Congressman Alan Grayson has introduced an amendment that would moderate  unlimited lending to foreign banks by the Fed, and would need Treasury sign-off. If Mr. Grayson can give this the proper patriotic spin, this amendment should have little trouble passing. Yet if it does, watch for the dollar carry trade to implode immediately, as foreign CB's will know they can not rely on the Fed to pump them full of dollars when the margin calls come crashing in and there are no more dollars to be bought in the free market. As the BIS estimated: the total amount of potential dollar funding shortfall could be as high as $6 trillion. Take the Fed out of the equation, and you get just one word: panic.

 

 

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Wed, 11/18/2009 - 15:29 | 134842 D.O.D.
D.O.D.'s picture

As I've said, if Babylon Burnz, Don't Look Back.

Wed, 11/18/2009 - 16:38 | 134974 D.O.D.
D.O.D.'s picture

Dragon Tribe myself, thanks for the link!

Wed, 11/18/2009 - 15:33 | 134853 Anonymous
Anonymous's picture

Wow, there are actually other people in that room...

Wed, 11/18/2009 - 15:34 | 134855 ArkansasAngie
ArkansasAngie's picture

He is my hero. 

I'm a hoping and praying that these yahoos don't get away with this odoriferous material

I cannot believe these turkeys are actually turning me nto an activist.  I've never even had a bumper sticker in my life.  If this keeps up ya'll might have to bail me out of jail -- for locking myself to a dad gum hand rail or something equally passive -- like voting.

woooo ... tin foil hat is firmly in place.

Have I mentioned lately that I have tin foil hats for sale :-P

Wed, 11/18/2009 - 16:00 | 134874 D.O.D.
D.O.D.'s picture

"...or something equally passive -- like voting."

+100

 

May I suggest however you upgrade to the gold leaf cap:

It has a much more "designer" oriented motif, and seperates the free thinkers from the cooks.( =] ) 

The concentration of free electrons in gold metal is 5.90×1022 cm−3, therefore gold is highly conductive to electricity (silver is even more conductive per volume, but gold has the advantage of corrosion resistance).  Unlike a tin foil hat which deflects everything, not to mention it's complete lack of originality, a gold leaf cap allows you to "tune in" to those frequencies that you are most comfortable with.

Just a thought...

Wed, 11/18/2009 - 15:34 | 134856 faustian bargain
faustian bargain's picture

"prohibit unlimited lending" ...what is his proposed cap? Unlimited divided by 3?

Wed, 11/18/2009 - 15:39 | 134867 pooplagrande
pooplagrande's picture

It's pretty easy to write some witty prose here...

But fuck that...

Bernake is screwing us all right up the pooper and there isn't a thing we can do about it except write stupid comments on a blog? Man is that frustrating.

If anyone has any REAL suggestions on how to deal with this blatant cornholing...please advise.

 

Wed, 11/18/2009 - 15:46 | 134879 faustian bargain
faustian bargain's picture

vote with your dollars: buy PMs, get out of the system as much as possible. Educate your network. Support Ending the Fed. Take care of yourself and family because noone else will when things get worse.

Wed, 11/18/2009 - 16:00 | 134899 WaterWings
WaterWings's picture

Anyone believing that anything less than restoring the gold standard, and forever abolishing fractional reserve banking, is better off watching Dr. Phil and getting deep-fried drive-thru for breakfast, lunch, and ******* dinner.

Go find your power animal, Mr. Grayson. Instead of posturing, why don't you directly support Mr. Paul, you ******* tourist.

Grayson is a repeat.

 

Wed, 11/18/2009 - 16:14 | 134933 Anonymous
Anonymous's picture

I kind of feel the same, Why don't you support Ron Paul's to audit the fed? It will serve the purpose.

I am afraid that those congressmen are just a bunch of children playing with each other, and forget what they are elected to do, like they always do.

As our big Ben, the whole game is to fuck the savers, fuck the good guys, and save those thugs who dragged down the whole economy by giving them billions of hard-earned dollars. .

Wed, 11/18/2009 - 18:09 | 135083 Don Smith
Don Smith's picture

I'm a Ron Paul fan, but Grayson's a democrat, and is seeking, IMO, to avoid being seen as a Paul Piggybacker, which would instantly vaporize any credibility he has.  We should be happy that he's driving a second vehicle down the same road.  Soon, we'll have a convoy.

Wed, 11/18/2009 - 18:10 | 135086 Anonymous
Anonymous's picture

He actually supports Audit the Fed...he got Paul the democrat votes...so he is not posturing.

Wed, 11/18/2009 - 18:13 | 135097 Anonymous
Anonymous's picture

He actually supports Audit the Fed...he got Paul the democrat votes...so he is not posturing.

Wed, 11/18/2009 - 16:06 | 134921 Enkidu
Enkidu's picture

As I live in Montreal I'm not able to participate in demos etc. but do very much support all US citizens who do. With regard to doing something, I feel like that too, frustrated and dumb - but I have reduced my credit card limit by 20K (it had just been added there) and also my overdraft limits. I don't really understand how this banking and fiat business works but I've read that they use 'borrowing limits' to further leverage their balance sheets. I also do not use cards now so that they can't charge shop-keepers. I would appreciate other suggestions to disengage from the banking bastards.

Wed, 11/18/2009 - 15:45 | 134876 Anonymous
Anonymous's picture

anyone know the details of this bill so can track it?

Wed, 11/18/2009 - 20:53 | 135336 Anonymous
Anonymous's picture

HR1207 - http://www.govtrack.us/congress/bill.xpd?bill=h111-1207 - It's being held up in the committee led by Bawney Frank...that fat mumbling douche bag.

Wed, 11/18/2009 - 15:45 | 134877 Catullus
Catullus's picture

Welcome back, adults.

Wed, 11/18/2009 - 15:47 | 134882 Anonymous
Anonymous's picture

I honestly don't see any big improvement in letting those clowns in congress interfere with FED decisions.

Not that I'm in favor of the Federal Reserve, but I prefer to see uncle Ben and his 40 thieves taking care of things than a mentally impaired Barney Frank and his comrades screwing up things even more.

I guess the FED as it is, right now is the lesser of two evils.

Wed, 11/18/2009 - 15:52 | 134891 bburkava
bburkava's picture

It sounds like the Amendment would just require the Treasury Sec. to concur with Bernanke. With Turbo Tim, what would the amendment even do?

Wed, 11/18/2009 - 15:56 | 134896 Anonymous
Anonymous's picture

Grayson might need a few Republican votes, but the way he has bashed them, that might be tough to get.

Wed, 11/18/2009 - 15:57 | 134898 Commander Cody
Commander Cody's picture

I think I'm just gonna go give Alan G. a hug and another thou for his campaign fund.  Now, that's action politicians, banksters, and even Cash-for-Cronies Ben know well.

Wed, 11/18/2009 - 16:48 | 134994 callistenes
callistenes's picture

He doesn't really need your money, he's one of the 17 richest in all of congress. Net worth north of 150mil

Wed, 11/18/2009 - 16:51 | 134997 Commander Cody
Commander Cody's picture

Then why does he solicit?  Oh, silly question.

Wed, 11/18/2009 - 17:10 | 135023 Jim B
Jim B's picture

He's a jerk, but even a jerk can be right occasionally.....

PS.  He can spend some of his own MILLIONS to run for re-election....

Wed, 11/18/2009 - 18:25 | 135122 Careless Whisper
Careless Whisper's picture

love your avatar. did you get it here?:

http://www.menwholooklikekennyrogers.com/gallery05.html

 

Wed, 11/18/2009 - 16:04 | 134910 onelight
onelight's picture

I have to admit I am just learning how the dollar swap function works. The FOFOA guy has this interesting explanation at his site:

http://fofoa.blogspot.com/2009/11/money-talk-continued.html

12) Here is the big problem. Each of these sub-systems has its own currency which its CB can print at will... flexibility! But with the dollar being the global reserve currency, there are lots and lots of dollar-denominated assets held by financial institutions in many non-$ sub-systems. So when there is turmoil in the dollar-denominated markets, the non-dollar sub-systems run into a clearing problem because they can't print dollars to help banks that owe other banks more dollars than they have. So they turn to the BIS, who also can't print dollars. Only the Fed can. So the Fed ends up being the de facto CB to the world. But it is not the clearing house for the world, and it does not take assets onto its books from those foreign banks that got into trouble. Instead, it lends directly to the other CB's which print some of their own new currency and send it to the Fed in exchange. This is why it is called a "swap" instead of Quantitative Easing. They are swapping freshly printed currencies instead of assets for currencies. All base money! The same as cash. TWICE as potentially inflationary as QE on a global scale because two sides are now exposed to currency risk.

All that being read, I guess what I don't understand is how to break out the utility factor of occasional Fed swaps helping foreign banks hold $-denominated assets as part of a healthy investment program (which helps us) versus the carry-trade dogpile factor that arguably hurts the USD and makes Fed swaps a dangerous thing that sets up the feared implosion.

FOFOA's implied point is that this is just the way the USD as reserve currency factor must work.

And thus the only way to keep that healthy is to not debase the USD to where the carry trade dogs want to pile on, since that makes occasional Fed swaps a systemic risk, ie. QE squared..

It would be interesting to see some scenarios sketched, showing how a USD rise and Yuan rise would affect relative market asset values and economic outcomes, versus a USD decline and Yuan no change would do, and other possibilities.

It would make it clearer what USD-outcome preferences would imply for what all the other moving parts would experience.

Wed, 11/18/2009 - 16:05 | 134917 Anonymous
Anonymous's picture

this is just...ridiculous... I don't mean what Bernanake has done, but this entire post just reeks of misinformation.

These aren't mysterious things that you can't understand. In fact, the Fed has gone ahead and been kind enough to post an explanation of what these liquidity swaps are -

http://www.federalreserve.gov/monetarypolicy/bst_swapfaqs.htm

apparently Alan Grayson can't do a simple google search.

Swaps eventually wash out at a maturity date. The money created is then paid back in full as obligations come due and it becomes a wash. Providing market liquidity is something I believe people we used to call "market specialists" do as well, in order to keep an orderly market. Yes they put themselves in a precarious position at times (especially during market dislocations) but that is their job. Just as it is the Fed's job to keep an orderly FX and bond market and monitor inflation and unemployment.

Wed, 11/18/2009 - 16:07 | 134922 Anonymous
Anonymous's picture

BOOZE BITCHES!!!

I am Chumpawamba.

Wed, 11/18/2009 - 16:13 | 134931 Souverainiste
Souverainiste's picture

I don't understand, why would anyone who is short the dollar need to be bailed out?  They're on the good side of the broken currency trade, they can't lose.  Surely we're not expecting dollars to appreciate.  Or am I missing something?

I'm confused.

Wed, 11/18/2009 - 16:20 | 134946 trav777
trav777's picture

We NEED DOLLAR SHORTS, ok?

Without them, deflation CRUSHES the government!

GFD, can't people ADD these days?

Interest costs are #3 or #4 budget lineitem, and growing geometrically.  At some point in the event of deflation, receipts fall below even interest costs and it's LIGHTS OUT that minute!

So they either print or else it's Over.

Listen, we can all supposedly do basic math.  We can all accept that our government and nation are bankrupt, right?  There are two manners of sovereign bankruptcy, sudden stop collapse, and the inflation route; both end up in the same place.

Minor nations seem to get the former, major ones the latter.  The USSR was different because it spontaneously decomposed into minor nations.  In either event, their currency becomes worthless.

Wed, 11/18/2009 - 17:17 | 135030 pocomotion
pocomotion's picture

Trav777,

Good thoughts you shared.  We may have no choice but to split up into 4 or 5 new entities or, have Canada and Mexico expand a bit.

Tough times filled with tough decisions ahead for sure.

Wed, 11/18/2009 - 16:26 | 134954 Commander Cody
Commander Cody's picture

The problem is that none of this "money" is asset-backed.  CBs print it on a whim thereby devaluing it.  "Money" given to financial institutions and to each other by CBs, who then place bets at the casino with leverage, should not be bailed out by the Fed.  This is ludicrous and not how a reserve currency should work.  The global financial system works only for oligarchs supported by peons.

Wed, 11/18/2009 - 16:39 | 134977 trav777
trav777's picture

fiat money only works so long as the growth expectations are realistic in order to pay the interest mandate.

the system was set up to lend to sovereigns in exchange for a parasitic share of future production in the form of interest.  And the power was bestowed to conjure these loans out of thin air.

In essence, Central Banking is the charging of a fee just to HAVE money.  Once exclusivity was given to the FRN, every bank has been allowed to charge you to have or use money.  This is a pernicious oligarchic system at its very core.

The Framers gave monetary power to Congress; bankers bought it back.  Bribes go a long way, look at Menem and de la Rua.  You can pay leaders enough to sell their own country away for pennies on the dollar.

The bankers use their interest receipts to actually own real things. Real gold, real land, real production, real assets.  That is what banking has done for us, TAKE a share of what's produced just for the "privilege" of using their bullshit notes they printed up on a freaking press.

Over the centuries, fractional reserve has gotten people lynched, hanged, burnt, run out of entire countries, nevermind the type of kiting the present banks are doing or the abomination the Fed is.

Wed, 11/18/2009 - 16:29 | 134958 Stevm30
Stevm30's picture

Lord Acton: "The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks."

Wed, 11/18/2009 - 16:36 | 134969 Anonymous
Anonymous's picture

As I understand it, foreign banks and foreign corporations had borrowed short term dollars, to invest in America. They borrowed those short term dollars from US banks. When our banks ran short of cash, and panic spread through the system, the US banks called in these loans. That created a huge demand for dollars, which were not available. The problem was solved through the Fed swap to foreign central banks, which then provided the dollars to their banks and corporations, so they could pay back their loans to the US banks. So, in a sense, Bernanke was also bailing out the US banks, which would otherwise have seen a default on their massive loans.

Is my understanding correct? And shouldn't the Fed have made those loans, to deal with the panic? And shouldn't they do it again if necessary?

Wed, 11/18/2009 - 18:54 | 135164 Bruce Krasting
Bruce Krasting's picture

I think Bernanke did us a diservice when he said, "Foreign banks were 'short' the dollar.

I think he should have said,"the foreign banks had a shortage of dollars".

So I think it was as you describe on these swaps. Bernanke saw the system was freezing up. So he flooded it with swap liquidity. These were done with foreign central banks. The Bank of England,Spain,Germany,Japan etc. were the other side to this. Our dollars did not go to bailout foreign banks and companies.

If the major CB's are not good for what they owe on this then it would have been the end of the world. But the end of the world would have happened if the emergency steps were not taken. It was a smart bet that the Canadian CB was good for the dough.I think this was a lay up decision for Ben. He knew the CBs were money good.

These swaps have now been largely unwound. They achieved the desired objective. So I think it is a mistake of Grayson to push this issue. The CB to CB swaps are as old as money. Getting the Executive side of the equation into this desision making process would just be a mistake.

There are at a least ten different areas of the Feds activity that are much more troubling to me. I wish that Grayson would focus his efforts on some of those. This one is a canard.

 

 

Wed, 11/18/2009 - 16:39 | 134976 Nathan Smith
Nathan Smith's picture

"In order to make sure that the overlord of the Fed will never again risk massive taxpayer money to bail out foreign banks, who only know how to take Barclays' "short the dollar" phone pitches and trade accordingly, Florida Congressman Alan Grayson has introduced an amendment that would moderate  unlimited lending to foreign banks by the Fed, and would need Treasury sign-off. If Mr. Grayson can give this the proper patriotic spin, this amendment should have little trouble passing. Yet if it does, watch for the dollar carry trade to implode immediately, as foreign CB's will know they can not rely on the Fed to pump them full of dollars when the margin calls come crashing in and there are no more dollars to be bought in the free market. As the BIS estimated: the total amount of potential dollar funding shortfall could be as high as $6 trillion. Take the Fed out of the equation, and you get just one word: panic."

 

1) they need treasury consent.....from Geitner...done.

 

2) Take the Fed out of the equation, and you get just one word: panic- see 1)

Wed, 11/18/2009 - 16:45 | 134985 Orly
Orly's picture

Go Grayson!

I want to be long USD/JPY when this thing unravles.  The former economic minister of Japan said that when the DollarYen unwinds, it could trade as high as 2!  It is 0.89 and change now.

Holy schmokes!  Can you say ka-ching?!?!?!

Wed, 11/18/2009 - 17:05 | 135014 pocomotion
pocomotion's picture

Orly, you mean - go long japanese currency?

Wed, 11/18/2009 - 18:06 | 135078 Orly
Orly's picture

Oh, no, poco.  I mean short the yen, go long dollars.

See, when it becomes apparent that the equity markets are going to falter from their massive reflation thanks to trillions of pumped-up money, investors will realise that the markets are headed for a fall, possibly a very massive one.

That's when everyone looks around and asks themselves where they want to place their money to keep it safe.  Like it or not, the USD is still the most liquid and "safe" way to keep your money.  If you want dollars to hold it longer, buy Treasury certificates.

When people also realise that the Japanese debt levels are nearly twice as bad as the United States, they will bail out of yen faster than you can say, "Bonzai!"

When the S and P starts to tank in the middle of February and the USD reverses, it is going to be one helluva push upward.  A two-thousand pip move is not out of the question on USD/JPY.  In fact, I fully expect a rebound of at least 1500 basis points in that trade.

:D  I am ready.  Are you?

Wed, 11/18/2009 - 21:28 | 135380 Johnny G.
Johnny G.'s picture

Everyone is calling the Feb crash.  Makes me feel like it might happen a bit sooner.

Wed, 11/18/2009 - 17:07 | 135018 onelight
onelight's picture

Yes, and when rates in Japan go from zip to 5%, considering what that would do to their economy, you can then add the term, "kersplat"..

Wed, 11/18/2009 - 18:24 | 135119 Orly
Orly's picture

And in the immortal words of The Fonz:

Exactamundo!

Wed, 11/18/2009 - 16:46 | 134991 buzzsaw99
buzzsaw99's picture

Grayson's gonna get suicided or JFKed if he doesn't cool it.

Wed, 11/18/2009 - 17:59 | 135065 Tommy
Tommy's picture

Huey Long'd

Wed, 11/18/2009 - 17:03 | 135011 Gimp
Gimp's picture

Bankstas are going to watching this cat in the house. You know they hate for anyone to stop their casino operation.

Wed, 11/18/2009 - 17:09 | 135020 Careless Whisper
Careless Whisper's picture

You mean the Fed will have to ask Congress before printing & lending out another $500 billion to foreign central banks? 

Getting out my Fed Excuses Playbook here; ...crash the system, ...cause more unemployment, ...atm's won't dispense money, ...politicians telling the Fed what to do, ...will wreck our strong dollar policy, ...will increase interest rates, ...will cause a double-dip recession, ...will cause an electronic run on banks, ...Martial Law.

 

Wed, 11/18/2009 - 17:10 | 135024 Anonymous
Anonymous's picture

"If anyone has any REAL suggestions on how to deal with this blatant cornholing...please advise"

Lord Acton already told us what needs to happen:

"The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks."

It is simply a matter of time until the people get sufficiently engaged and pissed off at the GANGSTER BANKSTERS.

Wed, 11/18/2009 - 17:18 | 135033 SimpleSimon
SimpleSimon's picture

Being as skeptical as I am of our highly intelligent Congressmen, could this be viewed as an attempt to divert acccountability?  After all, if bothh Tim and Ben agree to it, then one can't blame Ben alone, right?

Wed, 11/18/2009 - 17:51 | 135049 ArkansasAngie
ArkansasAngie's picture

Actually I've been wondering something like that myself.  Could it be that Congress doesn't want to know (wink, wink) so that they can't be blamed

And ... of course ... the Fed can't be blamed because whatever they did that we don't know about was obviously done for the greater good.

It just might upset everybody's apple cart -- the Fed's and politicians

Wed, 11/18/2009 - 17:51 | 135051 JohnKing
JohnKing's picture

Why did Benny screw Iceland with no swap deal?

 

http://money.cnn.com/galleries/2009/fortune/0909/gallery.witnesses_meltd...

Wed, 11/18/2009 - 18:44 | 135155 delacroix
delacroix's picture

bingo!! that cherry was for UK

Wed, 11/18/2009 - 18:17 | 135107 Anonymous
Anonymous's picture

Why and how do they get away with this? Where is everybody?

Wed, 11/18/2009 - 18:29 | 135129 Anonymous
Anonymous's picture

Nicholas Biddle would love this age of power and greed!
Also, pansy assed politicos!

Wed, 11/18/2009 - 19:11 | 135197 Anonymous
Anonymous's picture

Wow, a rubber stamp on top of another rubber stamp. That's the solution?

Wed, 11/18/2009 - 19:15 | 135202 Prophet of Wise
Prophet of Wise's picture

By the time this notion of "audit the fed"/"reign in the malfeasance" sees the light of day they will have turned out the lights. They are going to just blaze right past anything Amero and go for broke. The next world reserve global currency will soon be housed in the globalist IMF and monitored by the globalist BIS and underwritten in carbon privaleges. The privalege to participate in their global economy will be tied to the underbelly of global "climate change" hysteria. Just look for the tells. They're everywhere all around you. What better way to usher in the last and final revival of Nimrod Semiramis Great Babylonian Beast Holy Roman Empire. Read John Jacob Astor's book A Journey in Other Worlds: A Romance of the Future, pub. 1894 Ch. 15: Mother Earth

"rich and poor, free and bond, to receive a mark in their right hand or in their foreheads, and that no man might buy or sell, save that he had the mark, or the name of the Beast, or the number of his name; that is, the mark, or the name AATEINO£ or the number thereof, 666. All others were excommunicated." -- Observations Upon the Prophecies of Daniel and the Apocalypse of St. John by Sir Isaac Newton 

Thu, 11/19/2009 - 01:36 | 135526 Anonymous
Anonymous's picture

just read chap XV. not yet pickin up what u're puttin down. another clue, por favor?

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