The Eurodollar Missing Link: Explaining The QE2-Related Cash Surge In US-Based Foreign Banks

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Tue, 06/21/2011 - 14:30 | 1389685 qussl3
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Hilsenrath was babbling about how the FED would likely renew the swap arrangements with the ECB this morning on CNBS.


Tue, 06/21/2011 - 14:49 | 1389739 NotApplicable
NotApplicable's picture

Given those are the only two participants in "the market," that the game will continue goes without saying. Which of course, is why they say it.

CNBS, master of the obvious, for all the wrong reasons.

Tue, 06/21/2011 - 16:54 | 1390201 hedgeless_horseman
hedgeless_horseman's picture

This is indeed a very long rally...Bernanke is like freakin' Agassi back on the baseline.

Wed, 06/22/2011 - 01:48 | 1391057 Problem Is
Problem Is's picture

The Bernank is like Tracy Austin on the baseline...

Bitch in a pink skirt with a weak, two handed backhand...

Tue, 06/21/2011 - 14:58 | 1389782 Bonesetter Brown
Bonesetter Brown's picture

An ECB draw on the FX swap line need not increase the Fed's balance sheet.  This could be qualitative easing (cf Willem Buiter)

Tue, 06/21/2011 - 15:41 | 1389914 Mr Lennon Hendrix
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It will increase M2.

Tue, 06/21/2011 - 15:57 | 1389962 Bonesetter Brown
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Not if Fed sells Treasuries to fund the deal, similar to what it did first time the FX swap line was used heavily.

Not saying it won't increase the balance sheet/M2, just saying the Fed can do the FX swap without increasing its balance sheet/M2.

Tue, 06/21/2011 - 16:23 | 1390081 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

You mean to write, 'not if the Fed monetizes Treasuries', which will not decrease, but rather increase M2.

Tue, 06/21/2011 - 16:35 | 1390147 Bonesetter Brown
Bonesetter Brown's picture

Monetizes? Sorry, I'm dense.

I see Fed sells Treasuries, collects dollars (reducing M2), turns around and hands those dollars to the ECB in exchange for Euros (M2 increases)

Net-net: no change in size of balance sheet, but Treasuries are replaced by Euros on the balance sheet.

Something like this happened in 2H08. Fed sold Treasuries and their holdings of Treasuries decreased, while FX swaps, MBS, and Maiden Lane were added. Or like QE1.0', where cash generated from MBS pay off was re-invested in Treasuries without increasing the balance sheet.

Tue, 06/21/2011 - 18:18 | 1390582 DutchZeroPrinter
DutchZeroPrinter's picture

In 2008 people were stupid enough to buy treasuries. 

Now the Fed is the only buyer. They can't sell that crap

Tue, 06/21/2011 - 18:42 | 1390621 Bonesetter Brown
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When the 10yr breaks its 30 year trend I'll agree with you wholeheartedly!

Tue, 06/21/2011 - 20:59 | 1390827 XPolemic
XPolemic's picture

I see Fed sells Treasuries

Wouldn't that cause the yield curve to invert?

Tue, 06/21/2011 - 14:34 | 1389686 Long-John-Silver
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Beans, Bullets, and Bullion, stock up now.

Tue, 06/21/2011 - 14:58 | 1389716 Michael Victory
Michael Victory's picture


B, B, B.. check.

Use temporary price declines to steadily accumulate the best PM stocks and your preferred form of bullion.

If not yet read: Are we running out of Silver? 


Tue, 06/21/2011 - 15:33 | 1389906 Fed_Printstone
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I much prefer:

Bernie's Bunk Buddy Bubba Bonk Bearded Bastard's Bunghole

Tue, 06/21/2011 - 14:54 | 1389691 Bam_Man
Bam_Man's picture

It appears that finally someone understands why trillions of excess bank reserves continue to sit patiently in accounts at the Fed.

They were never intended to be "lent out" to "Main Street borrowers".

They sit there, waiting to be deployed in the event of a bank run.

If the bank run materializes in Europe, these reserves will find their way into the European banking system. And they are doing just that.

Tue, 06/21/2011 - 16:06 | 1390016 Charles Wilson
Charles Wilson's picture


In another thread, I stated that this is Bernanke acknowledging that Friedman and Scwartz were right in their analysis of Great Depression 1.  The money IS sitting there, waiting for a Bank Run.  It was not intended for lending.  It's to lessen the downward slope of the Collapse, sorta' like a Slow Rollover mechanism in Guth's Inflationary Cosmology.

A Slow Rolling Depression.


Tue, 06/21/2011 - 17:10 | 1390295 davepowers
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It was not intended for lending...


not for lending into real economy perhaps, but the reserves were intended for interbank lending.. that's how the reserves flowed to one group of banks, in this case apparently the domestic affiliates of foreign banks. As this article finally agrees, this sort of interbank lending polishes the balance sheet of the borrowing banks, who appear to have hefty cash reserves. As Tyler pointed out in an earlier related post, no one even focuses on the liability side of the BS, where the debt for the apparent cash asset lies.

IN addition to balance sheet polishing, reserve lending back and forth is also likely a component of various securities lending/repo agreement transactions that support/fuel stock and commodity speculation. If true, then the apparently idle/just sitting there reserves are not only lent, but the lending has financial asset impacts, extending even to prices of 'stuff.' 

It might not be lending of the old sort that fueled real economy activities (one borrowed money to build houses), but it is a replacement lending/credit system, probably the best that can be cobbled up. Like a makeshift cooling system engineered to lessen the damage from the earlier destruction of our old complex and fully functioning lending/credit system. The Fed types the reserves into existence, the reserves support stock/commodity speculation but not real world economic growth.


Tue, 06/21/2011 - 17:14 | 1390313 Charles Wilson
Charles Wilson's picture

Zackly.  Well said.



Tue, 06/21/2011 - 21:14 | 1390840 XPolemic
XPolemic's picture

is also likely a component of various securities lending/repo agreement transactions that support/fuel stock and commodity speculation

Speaking of which, it would be great to see a story on ZH on equity repos. I'm sure there plenty of shenanigans there hiding illiquidity and pumping and dumping by wall street banks.

Wed, 06/22/2011 - 11:41 | 1391938 davepowers
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he should focus on the securities lending business, of which repos are a part (roughtly 20% I'd guess).

Securities lending, sponsored by major banks like State Street, has the potential to to be a future scandal/catastrophe of immense impact, because not only are pension funds caught up in this, but state investment pools as well.

State investment pools are where state agencies, local/city governments and school districts park their cash. 

Imagine the impact if, say, 10% of the tax collections and cash holdings of all the school districts in a state got erased because the state investment pool got caught holding the bag in a securities lending venture that almost nobody knew about and even fewer (including the state officials charged with monitoring the program) understood.

Stay tuned, because it could very easily happen in the next liquidity crisis.

Thu, 06/23/2011 - 21:18 | 1397204 XPolemic
XPolemic's picture

Thanks for replying with the (horrifying) details. From your description I guess that the state investment funds are lending cash, holding equities. My experience is that equity repos have about a 3 day time horizon. Is that true of all securities lending, or is it much longer?

If there were a sudden and massive drop in equity prices, I can guess which party will be left holding the bag.


Tue, 06/21/2011 - 14:34 | 1389699 tallen
tallen's picture

Cramer's proclaiming Greece is fine. Such a deja-vu moment:


Anyone remember Cramer and Bear Stearns:

Tue, 06/21/2011 - 14:39 | 1389700 apberusdisvet
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It's funny how criminality feeds on itself; just when you think that your shit really doesn't stink, the fan gets turned on.  A lesson from Capone.

Tue, 06/21/2011 - 15:23 | 1389870 The Fonz
The Fonz's picture

I too find farting into fans rather humorous :)

Tue, 06/21/2011 - 14:39 | 1389704 swissaustrian
swissaustrian's picture

This system is so damn fucked, now they even have ponzi schemes in reserves


Tyler, the pictures don´t show up for me...

Anyone else have the same problems?

Tue, 06/21/2011 - 15:17 | 1389832 gmj
gmj's picture

I don't see the pictures either.

Tue, 06/21/2011 - 14:41 | 1389722 baby_BLYTHE
baby_BLYTHE's picture

the banks are already flush with cash, the American people are the ones that are broke!

QE(s) have done absolutely nothing to create jobs in this country, it was a totally worthless endeavor.

in all honesty, as much as I despise the theory of printing money, wouldn't we have been better off if the FED printed up a trillion and divided it up to hand out to every American citizen to pay down debt, invest and/or spend in the economy?

I guess I can answer my own question as the FED really doesn't give a hoot about J6P nor the American economy at large

Tue, 06/21/2011 - 14:50 | 1389742 wombats
wombats's picture

Bush did that in '07 (maybe  '08).  I think he gave everybody a few hundred $.  It felt good at the time, but in the long run was not really worth it....kind of like drugs.

Tue, 06/21/2011 - 14:56 | 1389756 disabledvet
disabledvet's picture

not a very good drug apparently as "the kick" lasted but a minute.  how do you like this "drug of choice"?  hmmmm.  "Choice theory"...interesting concept

Tue, 06/21/2011 - 15:06 | 1389789 baby_BLYTHE
baby_BLYTHE's picture

yeah, I remember that. Marc Faber, at that time:

"The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy. The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part."

Tue, 06/21/2011 - 15:25 | 1389864 RobD
RobD's picture

My $600 went to Austria, I bought a Glock model 20 with it.

Tue, 06/21/2011 - 15:25 | 1389877 baby_BLYTHE
baby_BLYTHE's picture

perhaps nothing more American than what you did there. Nice!

Tue, 06/21/2011 - 14:48 | 1389750 SheepDog-One
SheepDog-One's picture

And theyre completely stuck, no way to unwind what has only served to stuff banks full of worthless FRN's.

Tue, 06/21/2011 - 15:00 | 1389775 Shell Game
Shell Game's picture

Looks like they're primed and ready for the coming, all out tangible asset buying spree..

Tue, 06/21/2011 - 15:06 | 1389791 LongBalls
LongBalls's picture

They are getting EXACTLY what they want. They are sitting on a crap pile of cash with no worries as all the hard assets of the world default back to their balance sheets. Cash means nothing to the money-changers. The markets are fixed and they can get cash when ever they want or ask the Fed for it. What they want is what YOU can produce, with what they want to pay you, with what medicine they want to give you, with what food they want you to eat. Anything left over the IRS will take care of that.

Tue, 06/21/2011 - 15:06 | 1389793 baby_BLYTHE
Tue, 06/21/2011 - 15:37 | 1389905 gmrpeabody
gmrpeabody's picture

Are those guys hockey players?

Tue, 06/21/2011 - 15:04 | 1389802 falak pema
falak pema's picture

If you were a banker you would be money-flush but your fingers would be Dutch like  pure bred puritans on rampage, like those of  Scrooge Mcduck...stingy, a mad vacuum cleaner, running wild. We are there now and it will take us all down. Suction gone mad. These guys don't believe in creating jobs for free willed persons.

Tue, 06/21/2011 - 15:13 | 1389831 THE DORK OF CORK
THE DORK OF CORK's picture

If people stated driving to work again and buying useless crap with their income inflation would skyrocket.

The global trade engine is broke - they have tried to artifcally keep it alive by reducing real capital investments over the years but now that all redundancy and logic has been extracted it cannot function efficiently when so much $s go up in smoke from some cargo vessel in the Middle of the Pacific - that energy is used by nobody.

The economic fabric is simply stretched too thinly.

Tue, 06/21/2011 - 15:45 | 1389937 Crab Cake
Crab Cake's picture

It's called a jubilee, and it is a concept the modern money masters hope that nobody remembers. Why? Simply put a jubilee would fix everything, but it would absolutely wipe out the power the banking elites have hoarded and built over generations in one fell swoop. So you ask would it be better? That's relative. For you, me, Main St, and the real economy; yes of course. For the Fed, Wall St, bankster families, the ultra wealthy, and the military/industrial/financial complex aka the American superpower empire... not so much; which is why the word jubilee is anathema.

The sooner the people of the US, and Western civilization in general, rise up to reclaim their governments and declare jubilee the better off those same people will be.

Tue, 06/21/2011 - 14:41 | 1389724 Cult_of_Reason
Cult_of_Reason's picture

The market is acting today as if Bernank will announce continuation/extension of QE2 tomorrow.

Tue, 06/21/2011 - 14:45 | 1389740 qussl3
qussl3's picture

Also read as the sharks are squeezing the shorts on a low volume session in front of a potential 1-2 punch event risk parade.

Tue, 06/21/2011 - 15:00 | 1389773 Cult_of_Reason
Cult_of_Reason's picture

You’re probably correct -- it is nothing more then algo assisted artificially engineered short squeeze and distribution into this artificially created forced short covering (violent mark-up and maintaining a price floor to keep a constant "squeezing" pressure on the shorts to force them to cover).

Tue, 06/21/2011 - 14:53 | 1389752 SheepDog-One
SheepDog-One's picture

Not really, just a POMO ramp of ES back over 150dma. Let anything go wrong tonite and the Euro falls, dollar shoots up, theyll lose all of this fake ramp plus a ton.

Tue, 06/21/2011 - 15:23 | 1389843 Cult_of_Reason
Cult_of_Reason's picture

Nothing will go "wrong" tonight, the vote has already been predetermined, a theatrical farce to make it appear as if there is still democracy in Greece (EU banksters are running the show in Greece -- Papa... is their puppet)

Tue, 06/21/2011 - 15:31 | 1389892 The Fonz
The Fonz's picture

I for one am counting on the Greek people to riot. If they stay in the streets it WILL escalate. After 3 weeks out there when the politicios spit in their peoples face there will be violence and suddenly all of those disparate Greek viewpoints amongst protesters will have the focus they need to team up.  If they fail at this, then the latinos can be counted on for a proper sence of rebelliousness in a few months.

Tue, 06/21/2011 - 14:56 | 1389760 Bam_Man
Bam_Man's picture

Up 40 points on the SPX in less than three and a half trading days. On no news.

Just the big boys running the stops on the shorts. This market is their plaything.

Tue, 06/21/2011 - 15:08 | 1389813 Cult_of_Reason
Cult_of_Reason's picture

Yes, they know where all the stops are (like shooting fish in a barrel). It does not take much of capital for PDs to use free POMO cash from Bernank to mark up ES and to activate the stops resulting in a short covering chain reaction.

Tue, 06/21/2011 - 15:23 | 1389855 alexanderstollznow
alexanderstollznow's picture

Yes, they know where all the stops are

really? perhaps you would like to say where "all the stops are", seeing as how it is so well known?

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