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Exclusive: The Fed's $600 Billion Stealth Bailout Of Foreign Banks Continues At The Expense Of The Domestic Economy, Or Explaining Where All The QE2 Money Went

Tyler Durden's picture


Courtesy of the recently declassified Fed discount window documents, we now know that the biggest beneficiaries of the Fed's generosity during the peak of the credit crisis were foreign banks, among which Belgium's Dexia was the most troubled, and thus most lent to, bank. Having been thus exposed, many speculated that going forward the US central bank would primarily focus its "rescue" efforts on US banks, not US-based (or local branches) of foreign (read European) banks: after all that's what the ECB is for, while the Fed's role is to stimulate US employment and to keep US inflation modest. And furthermore, should the ECB need to bail out its banks, it could simply do what the Fed does, and monetize debt, thus boosting its assets, while concurrently expanding its excess reserves thus generating fungible capital which would go to European banks. Wrong. Below we present that not only has the Fed's bailout of foreign banks not terminated with the drop in discount window borrowings or the unwind of the Primary Dealer Credit Facility, but that the only beneficiary of the reserves generated were US-based branches of foreign banks (which in turn turned around and funnelled the cash back to their domestic branches), a shocking finding which explains not only why US banks have been unwilling and, far more importantly, unable to lend out these reserves, but that anyone retaining hopes that with the end of QE2 the reserves that hypothetically had been accumulated at US banks would be flipped to purchase Treasurys, has been dead wrong, therefore making the case for QE3 a done deal. In summary, instead of doing everything in its power to stimulate reserve, and thus cash, accumulation at domestic (US) banks which would in turn encourage lending to US borrowers, the Fed has been conducting yet another stealthy foreign bank rescue operation, which rerouted $600 billion in capital from potential borrowers to insolvent foreign financial institutions in the past 7 months. QE2 was nothing more (or less) than another European bank rescue operation!

For those who can't wait for the punchline, here it is. Below we chart the total cash holdings of Foreign-related banks in the US using weekly H.8 data.

Note the $630 billion increase in foreign bank cash balances since November 3, which just so happens is the date when the Fed commenced QE2 operations in the form of adding excess reserves to the liability side of its balance sheet. Here is the change in Fed reserves during QE2 (from the Fed's H.4.1 statement, ending with the week of June 1).

Above, note that Fed reserves increased by $610 billion for the duration of QE2 through the week ending June 1 (and by another $70 billion in the week ending June 8, although since we only have bank cash data through June 1, we use the former number, although we are certain that the bulk of this incremental cash once again went to foreign financial institutions).

So how did cash held by US banks fare during QE2? Well, not good. The chart below demonstrates cash balances at small and large US domestic banks, as well as the cash at foreign banks, all of which is compared to total Fed reserves plotted on the same axis. It pretty much explains it all.

The chart above has tremendous implications for everything from US and European monetary policy, to exhange rate and trade policy, to the current account on both sides of the Atlantic, to US fiscal policy, to borrowing and lending activity in the US, and, lastly, to QE 3.

What is the first notable thing about the above chart is that while cash levels in US and US-based foreign-banks correlate almost perfectly with the Fed's reserve balances, as they should, there is a notable divergence beginning around May of 2010, or the first Greek bailout, when Europe was in a state of turmoil, and when cash assets of foreign banks jumped by $200 billion, independent of the Fed and of cash holdings by US banks. About 6 months later, this jump in foreign bank cash balances had plunged to the lowest in years, due to repatriated fungible cash being used to plug undercapitalized local operations, with total cash just $265 billion as of November 17, just as QE2 was commencing. Incidentally, the last time foreign banks had this little cash was April 2009... Just as QE1 was beginning. As to what happens next, the first chart above says it all: cash held by foreign banks jumps from $308 billion on November 3, or the official start of QE2, to $940 billion as of June 1: an almost dollar for dollar increase with the increase in Fed reserve balances. In other words, while the Fed did nothing to rescue foreign banks in the aftermath of the first Greek crisis, aside from opening up FX swap lines, one can argue that the whole point of QE2 was not so much to spike equity markets, or the proverbial "third mandate" of Ben Bernanke, but solely to rescue European banks!

What this observation also means, is that the bulk of risk asset purchasing by dealer desks (if any), has not been performed by US-based primary dealers, as has been widely speculated, but by foreign dealers, which have the designatin of "Primary" with the Federal Reserve. Below is the list of 20 Primary Dealers currently recognized by the New York Fed. The foreign ones, with US-based operations, are bolded:

  • BNP Paribas Securities Corp.
  • Barclays Capital Inc.
  • Cantor Fitzgerald & Co.
  • Citigroup Global Markets Inc.

  • Credit Suisse Securities (USA) LLC

  • Daiwa Capital Markets America Inc.

  • Deutsche Bank Securities Inc.
  • Goldman, Sachs & Co.
  • HSBC Securities (USA) Inc.
  • Jefferies & Company, Inc.
  • J.P. Morgan Securities LLC
  • MF Global Inc.
  • Merrill Lynch, Pierce, Fenner & Smith Incorporated

  • Mizuho Securities USA Inc.
  • Morgan Stanley & Co. LLC

  • Nomura Securities International, Inc.

  • RBC Capital Markets, LLC

  • RBS Securities Inc.

  • SG Americas Securities, LLC

  • UBS Securities LLC.

That's right, out of 20 Primary Dealers, 12 are.... foreign. And incidentally, the reason why we added the (if any) above, is that since this cash is fungible between on and off-shore operations, what happened is that the $600 billion in cash was promptly repatriated and used by domestic branches of foreign banks to fill undercapitalization voids left by exposure to insolvent European PIIGS and for all other bankruptcy-related capital needs. And one wonders why suddenly German banks are so willing to take haircuts on Greek bonds: it is simply because courtesy of their US based branches which have been getting the bulk of the Fed's dollars in 1 and 0 format, they suddenly find themselves willing and ready to face the mark to market on Greek debt from par to 50 cents on the dollar. And not only Greek, but all other PIIGS, which will inevitably happen once Greece goes bankrupt, either volutnarily or otherwise. In fact, the $600 billion in cash that was repatriated to Europe will mean that European banks likely are fully covered to face the capitalization shortfall that will occur once Portugal, Ireland, Greece, Spain and possibly Italy are forced to face the inevitable Event of Default that will see their bonds marked down anywhere between 20% and 60%. Of course, this will also expose the ECB as an insolvent central bank, but that largely explains why Germany has been so willing to allow Mario Draghi to take the helm at an institution that will soon be left insolvent, and also explains the recent shocking animosity between Angela Merkel and Jean Claude Trichet: the German are preparing for the end of the ECB, and thanks to Ben Bernanke they are certainly capitalized well enough to handle the end of Europe's lender of first and last resort. But don't take our word for this: here is Stone McCarthy's explanation of what massive reserve sequestering by foreign banks means: "Foreign banks operating in the US often lend reserves to home offices or other banks operating outside the US. These loans do not change the volume of excess reserves in the system, but do support the funding of dollar denominated assets outside the US....Foreign banks operating in the US do not present a large source of C&I, Consumer, or Real Estate Loans. These banks represent about 16% of commercial bank assets, but only about 9% of bank credit. Thus, the concern that excess reserves will quickly fuel lending activities and money growth is probably diminished by the skewing of excess reserve balances towards foreign banks."

Which brings us to point #2: prepare for the Bernanke hearings and possible impeachment. For if it becomes popular knowledge that the Chairman of the Fed, despite explicit instructions to enforce the trickle down of "printed" dollars to US banks, was only concerned about rescuing foreign banks with the $600 billion in excess cash created out of QE2, then all political hell is about to break loose, and not even Democrats will be able to defend Bernanke's actions to a public furious with the complete inability to procure a loan. Any loan. Furthermore the data above proves beyond a reasonable doubt why there has been no excess lending by US banks to US borrowers: none of the cash ever even made it to US banks! This also resolves the mystery of the broken money multiplier and why the velocity of money has imploded.

Implication #3 explains why the US dollar has been as week as it has since the start of QE 2. Instead of repricing the EUR to a fair value, somewhere around parity with the USD, this stealthy fund flow from the US to Europe to the tune of $600 billion has likely resulted in an artificial boost in the european currency to the tune of 2000-3000 pips, keeping it far from its fair value of about 1.1 EURUSD. If this data does not send European (read German) exporters into a blind rage, after the realization that the Fed (most certainly with the complicity of the G7) was willing to sacrifice European economic output in order to plug European bank undercapitalization, then nothing will.

But implication #4 is by far the most important. Recall that Bill Gross has long been asking where the cash to purchase bonds come the end of QE 2 would come from. Well, the punditry, in its parroting groupthink stupidity (validated by precisely zero actual research), immediately set forth the thesis that there is no problem: after all banks would simply reverse the process of reserve expansion and use the $750 billion in Cash that will be accumulated by the end of QE 2 on June 30 to purchase US Treasurys.


The above data destroys this thesis completely: since the bulk of the reserve induced bank cash has long since departed US shores and is now being used to ratably fill European bank balance sheet voids, and since US banks have benefited precisely not at all from any of the reserves generated by QE 2, there is exactly zero dry powder for the US Primary Dealers to purchase Treasurys starting July 1.

This observation may well be the missing link that justifies the Gross argument, as it puts to rest any speculation that there is any buyer remaining for Treasurys. Alas: the digital cash generated by the Fed's computers has long since been spent... a few thousand miles east of the US.

Which leads us to implication #5. QE 3 is a certainty. The one thing people focus on during every episode of monetary easing is the change in Fed assets, which courtesy of LSAP means a jump in Treasurys, MBS, Agency paper, or (for the tin foil brigade) ES: the truth is all these are a distraction. The one thing people always forget is the change in Fed liabilities, all of them: currency in circulation, which has barely budged in the past 3 years, and far more importantly- excess reserves, which as this article demonstrates, is the electronic "cash" that goes to needy banks the world over in order to fund this need or that. In fact, it is the need to expand the Fed's liabilities that is and has always been a driver of monetary stimulus, not the need to boost Fed assets. The latter is, counterintuitively, merely a mathematical aftereffect of matching an asset-for-liability expansion. This means that as banks are about to face yet another risk flaring episode in the next several months, the Fed will need to release another $500-$1000 billion in excess reserves. As to what asset will be used to match this balance sheet expansion, why take your picK; the Fed could buy MBS, Muni bonds, Treasurys, or go Japanese, and purchase ETFs, REITs, or just go ahead and outright buy up every underwater mortgage in the US. This side of the ledger is largely irrelevant, and will serve only two functions: to send the S&P surging, and to send the precious metal complex surging2 as it becomes clear that the dollar is now entirely worthless.

That said, of all of the above, the one we are most looking forward to is the impeachment of Ben Bernanke: because if there is one definitive proof of the Fed abdicating any and all of its mandates, and merely playing the role of globofunder explicitly at the expense of US consumers and borrowers, not to mention lackey for the banking syndicate, this is it.



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Sun, 06/12/2011 - 17:29 | 1363520 samsara
samsara's picture

You have to look at who OWNs the FED. 

In who's interest are they serving.  If you keep looking at it as if it has any connection to what is good for the US you will arrive at erroneous conclusions

The Same eight families that own the EU banks getting bailed out.

This is just money from one pocket to another as far as the Warburgs, Rothchilds, Rockefellers, et al are concerned.

The Federal Reserve Cartel:  The House of Rothschild

Their methodology is spelled out completely by Michael Hudson.

A World at Financial War

Sun, 06/12/2011 - 17:51 | 1363538 rapier
rapier's picture

Since the 'excess' reserves that member banks, not primary dealers mind you, have increased by a similar amount over the period of QEII the conclusion here is a bit dodgy. Since member bank holdings of Treasuries have fallen I believe in the period it follows that they in fact have been liquidating them with QE directly or indirectly. 

At any rate it is probably a mistake at this point to put too much emphasis on thecountry of any banks home just as it is a mistake to focus too much on the origin of any corporation.

The famous New World Order that gripped the imagination of the populist right in the early 90's was being institutionalized by their Party and their 'Let's Make a Deal' president the first Bush.  The anti government tick that is the obsession of the right has been used to create defacto soveringty of multi national corporations.

Meet the new boss, same as the old, except you don't have a vote. Jokes on you.

Sun, 06/12/2011 - 18:02 | 1363551 Reese Bobby
Reese Bobby's picture

You seem like the definitive expert on Federal Reserves.  So is it a coincidence that Cash Assets of Foreign Banks increased lock-step with overall Fed Bank Reserves?   While Cash Asset of Domestic Banks are approximately unchanged?  Pretty big numbers involved here.  Finally, can you provide an provide an alternative explanation to ZH's.  Fire away, and thanks.

Sun, 06/12/2011 - 19:00 | 1363637 rapier
rapier's picture

I don't know but the coincident near equal increase in excess reserves suggests thathat what is causal and what is conincedental may take some more facts.  As in alist of the parties and the amounts of the Feds customers.

Sun, 06/12/2011 - 19:49 | 1363714 Reese Bobby
Reese Bobby's picture

I'm all for some more facts.  It would make sense to me if the Fed had to supply them in return for the total control of our fiat currency.

Sun, 06/12/2011 - 20:51 | 1363799 Kayman
Kayman's picture

Since these are balance sheet components, knowing the transactions, period over period is the real story.

Sun, 06/12/2011 - 17:45 | 1363539 Madcow
Madcow's picture

what legal entity would be responsible for prosecuting High Treason against the United States? 



Sun, 06/12/2011 - 19:25 | 1363680 cosmictrainwreck
cosmictrainwreck's picture

There's a guy named Eric.... Eric, uh...Holdcock, I for the Justice Department. Try him. But I'll warn you, he's pretty busy, maybe not have time

Sun, 06/12/2011 - 18:03 | 1363558 Howard T. Lewis III
Howard T. Lewis III's picture

   We beat the crap out of England for doing this before. Then we formed the U.S. to avoid fattening up the royal families, bankers,popes, and priests at our unavoidable expense and now the CFR's smokescreen by TV-set has conned America into putting up with it. Like the old adage advises and the TSA follows. "Get them by the balls and take their money".

  A temporary hiatus in constitutional continuity has been undertaken at their satanic majesty's request. I suggest another one be undertaken to make sure the royal head never dares rise again. They are obsolete, bloodthirsty, nasty,murderous, high maintenance, stupid and dishonest backstabbing criminals. Send in the Marines. Arrests followed by appropriate behavior mod programs. Like the one they gave Lady Diane.

Sun, 06/12/2011 - 19:39 | 1363702 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Problem is the marines are owned by the globalists.  As proof the marines are helping the Taliban grow opium in Afghanistan.  Just web search Geraldo Rivera Fox New marines growing opium.



Sun, 06/12/2011 - 18:19 | 1363574 10kby2k
10kby2k's picture

Its hard for me to believe that a few banksters haven't been assasinated by now.

Sun, 06/12/2011 - 18:22 | 1363582 topcallingtroll
topcallingtroll's picture

The fed must always be a reliable lender of last resort, otherwise the usa loses the benefits ( and the burdens) of managing the dominant currency.

If the devil ran a bank the fed would have gone through a complicated series of repurchase agreements so that the devil was liquified to.

To maintain confidence in the world the fed cannot discriminate based on who we like and dont like.

Sun, 06/12/2011 - 19:27 | 1363676 Ajaxromeo
Ajaxromeo's picture

Here are the mechanics:

1) Foreign bank sells worthless PIIG's bonds to Fed for dollars the Fed prints.

2) Foreign bank then buys treasury bills with these dollars.

3) Treasury now spends dollars on medicare, endless wars and gizmos to keep eye on sheep.

4) Foreign bank then sells new Treasury bills back to Fed for more new dollars.


Everybody's happy - Foreign banks have gotten rid of bad debt, treasury has the money it needs to fund Goverment and the Fed's balance sheet is bigger.


What could possibly go wrong with such a well thought out plan?





Sun, 06/12/2011 - 19:54 | 1363734 Reese Bobby
Reese Bobby's picture

So obviously the Fed is the largest owner of PIIG bonds by now, right?


Mon, 06/13/2011 - 04:56 | 1364220 falak pema
falak pema's picture

You know, think of it this way : Emperor Comnenos, in 1176, to buy support in West  for wobbling Byzantine Empire "sold" his niece Eudoxia, 'his golden headed she-camel', to Prince Alfonso of Aragon, new rising star of Euro monarchy. It didn't work out, but that's another story...She ended up marrying the Count of Montpellier. But you get the gist...Today, the Eudoxias of the world are "PIIGS bonds"...sealing "famiglia" alliances as in Suvretta gathering celebration....Capito? What's new in the Oligarch's world...!

Sun, 06/12/2011 - 20:09 | 1363750 trainrobbery
trainrobbery's picture


What really troubles me is the fact that they international loans being made in dollars to hide the EU bank troubles are going to be worth less and less which will just perpetuate the problem.  I need more cash accross the Atlantic because the dollars are worth less and less


Congress will stop this and the EU banks ponzi scheme will dry up...

Those long dated Dutche Bank puts are starting to look very attractive.

Sun, 06/12/2011 - 20:23 | 1363771 Ajaxromeo
Ajaxromeo's picture



Don't you think an audit is called for?

Sun, 06/12/2011 - 22:51 | 1363942 Reese Bobby
Reese Bobby's picture

Of course.

Sun, 06/12/2011 - 20:59 | 1363812 Paul67
Paul67's picture

So Tyler (or anyone) let me understand, this isn’t about the first wave of money given to foreign banks starting in fall of 2008 as outline in the exchange before Congress with the Ben below;


……but the second one (not approved by Congress?) that is shown starting about January 2011?


As Ben indicates he believes that the Federal Reserve Act gives them broad powers?  Plus being an emergency Act passed back in 2008 I’m sure it had alot of open ended (make the pain stop now) type clauses on top of that.


So is this an issue with the Law or the Fed action or both?



Sun, 06/12/2011 - 21:01 | 1363815 steveo
steveo's picture

I am taking a vote of my (10) "indicators", here they are:  The 3.26 is
moderately bearish.   5 would be neutral.   However, many of the
indicators are "perched" on a line,  so saying that the market is at a
critical juncture is not overblown.   It could move big in any

10 Charts here, and the summary.

Sun, 06/12/2011 - 21:30 | 1363840 What_Me_Worry
What_Me_Worry's picture

QE3- For the people, by the people!

Approx. 150MM tax filers in US.  Let's go with an even $1T and divide it up even.

That's about $6700 each.  If we are going down anyways, let's at least go down in style.

The inflation rate on hookers/blow will be through the roof.

Sun, 06/12/2011 - 22:00 | 1363876 Yen Cross
Yen Cross's picture

  I think it's fine time to hire Lockheeds Skunk works, accounting department.

Sun, 06/12/2011 - 22:06 | 1363889 Council of Econ...
Council of Economic Terrorists's picture

I sent a message to my senator informing him of this information, that this might be outside of the Fed's mandate, and asked if he knew or would find out any collateral or concessions the the US taxpayer received in return for this help. Anxious to read the response.

Sun, 06/12/2011 - 22:17 | 1363904 I am Jobe
I am Jobe's picture

Don't hold your breath is all I can say.

Sun, 06/12/2011 - 22:19 | 1363911 I am Jobe
I am Jobe's picture


How many Americans knows what is going on at this point in time ? Still watching Real Housewifes and crap tv shows and stuffing thier faces I am sure and ignorant of the fraud and the theft.


Sun, 06/12/2011 - 22:20 | 1363914 RecoveringDebtJunkie
RecoveringDebtJunkie's picture

I'd say this is further (and quite damning) evidence that "re-capitalization" efforts for both "domestic" and "foreign" financial institutions (those terms have little meaning now) in the developed world must be carried out through fiat currency/debt mechanisms, and specifically through the Treasury and USD markets.

The Future of Physical Gold, Part IV - Deflationary Canyons and Caves

If this process of short-term (within the next 10 years) debt-dollar deflation is likely to occur within developed economies, then one should not be surprised to see both paper and physical gold holdings liquidated along with other investment assets as investors are forced to meet their margin requirements, and average workers are forced to pay their consumer debts, bills and expenses, all of which are denominated in fiat currencies (primarily the U.S. dollar). A gold price collapse in dollars could occur just as it did in 2008, since nothing has fundamentally changed in financial markets since then, except there is more debt and less ability of governments and central banks to intervene.

We could even see several large institutions, such as central banks and governments in Asia, Europe or Japan, flood the markets with (sell) a portion of their gold holdings to temporarily relieve pressure from their dire private and public funding situations. The sheer momentum of financial capitalism will lead them to conduct their "re-capitalization" efforts through established fiat currency and debt mechanisms, rather than through an ongoing revaluation/monetization of gold by central banks such as the ECB (as argued in FOFOA's Reference Point: Gold - Update #1 and Update #2).

Darbikrash provides us with another insightful observation of why such a MTM revaluation and monetization process is practically precluded by the "coercive laws of competition" in a capitalist system, through the example of "competing" currencies, with my emphasis in bold [Chris Martenson's Forums - John Rubino Thread]

Darbikrash: "Beyond these points, competing currencies violate one of the fundamental requirements, that of universality. Note we all currently have access to competing currencies, we can use dollars, yen, francs, German marks etc. if we are so disenfranchised with any particular flavor of fiat. But then we face the onerous task of currency conversion, due to lack of universality. We must convert one currency to another, and suffer devaluation risk as well as a arbitrage fee to operate between currencies.

The notion of free market forces attempting to migrate patrons to a common system based on perceived stability or any other inherent advantages is not practical and subject to the same coercive laws of competition that any other unregulated commodity will precede. This means regulation is needed, and we come full circle back to the eventuality of regulatory capture, centralization and consolidation, and ultimately fewer choices for the consumer and just another, slightly varied distribution of the same wealth."

Seems like there are very few differences between major US banks and major European banks, and almost as small of one between institutions such as the Fed and the ECB. ZH's analysis is very good, though, and I would not have suspected that almost ALL of the QE2-generated dollar flows would be sitting in the reserves of European banks.

Sun, 06/12/2011 - 22:33 | 1363928 Yen Cross
Yen Cross's picture

  I love that new IMF head. (PUN INTENDED) Soo politically correct. Maybe she can take Hillary under her wing?

Sun, 06/12/2011 - 23:13 | 1363965 Yen Cross
Yen Cross's picture

 Awe did I upset a Liberal?

Sun, 06/12/2011 - 22:45 | 1363937 blindman
blindman's picture

Explaining Derivatives, And Goldman's Dominance Thereof, In Four Simple Charts
Submitted by Tyler Durden on 06/30/2010 18:27 -0400
American International Group
Collateralized Debt Obligations
Discount Window
Dumb Money
John Paulson
Morgan Stanley
Prop Trading
notice date: 6/30/2010.
the time period on the chart above, from 6/1/10 - 10/1/10 or there
about seems to present an anomaly of correlation between the (green)
foreign cash trend and the fed bank reserve trend, black line. and then about 10/2010 then correlate back very well.
it is dramatic, the volume and distribution of the fed bank reserves
and foreign cash reserves.
fractional reserve derivative basis?
could this represent an attempt at a cash basis for clearing a/the emerging derivatives market/s?
the fed holds the treasuries and the foreign banks get the free cash?
or do the foreign banks hold the treasuries and the fed hold
some derivatives that no one wants?
or what is on the fed balance sheet that correlates with the increase of foreign bank holdings from nov./2010?

Sun, 06/12/2011 - 22:46 | 1363940 Thalamus
Thalamus's picture

The Fed is mostly European owned so what did you expect?

Sun, 06/12/2011 - 23:00 | 1363945 Reese Bobby
Reese Bobby's picture

I used to expect the Fed to follow the dual mandate it is legally supposed to pursue.

I now expect the Fed to target asset prices as directed by the Global Bank Cartel.

So your point is well taken by me.

Sun, 06/12/2011 - 23:20 | 1363977 Yen Cross
Yen Cross's picture

 Europe is mostly Fed Owned! Last time it was bodies on beaches. This time it was homeless wanderers. Get your facts straight. The EURO was comsummated in early 90's.


    I liked Gates most recent comment to NATO. Perhaps you ASS clown should read it.

  Secondly, I pick on my breathern out of disgust! You pick on the carcusses of your neighbors!  You SLUG!

Sun, 06/12/2011 - 23:54 | 1364029 RMolineaux
RMolineaux's picture

A  pair of facts you seem to need:  The euro was fully issued in 1999.  Robert Gates is an ass-kissing, opportunistic bureaucrat and traitor.  His opinions are not worth listening to.  NATO accomplished its mission with the demise of the Soviet Union and should be disbanded.  NATO was always seen by Europeans as a simple tool of the US.  Gates is angry because Europe refuses to be a simple tool of the US.


Mon, 06/13/2011 - 00:09 | 1364051 Yen Cross
Yen Cross's picture

 The EURO was planned by your buddies in the IMF/WMF in the early nineties.  


    Gates spoke up finally, because he is tired off your LEECHING asses. Your oppinion is nothing more than a crying call from those WHITE CROSSES on cliffes that gave you the opportunity to run your mouth!

     I suggest you take advantage of that FED Reserve of the United States (EURO) and travel.  

Mon, 06/13/2011 - 04:17 | 1364206 bk1037
bk1037's picture

Yen, check out who really owns the Fed, you might be surprised, LOL.

Sun, 06/12/2011 - 23:28 | 1363993 I am Jobe
I am Jobe's picture

we just need more wars to keep the debt and support the banks period. All hail the NWO and don't fight the tape.

Sun, 06/12/2011 - 23:45 | 1364014 RMolineaux
RMolineaux's picture

Tyler did not mention Bernanke's prime motivation for steering the new money to European banks:  They were threatening to force back all the fraudulent mortgage securitizaions onto the securitizers - the big Wall Street banks and investment houses.

Mon, 06/13/2011 - 00:15 | 1364061 Yen Cross
Yen Cross's picture

 Humor me FROG boy! Humor me.

Mon, 06/13/2011 - 00:00 | 1364032 MacGruber
MacGruber's picture

Maybe I'm the slowest mower in the toolshed, but doesn't this run counter to narrative that the Fed was buying treasuries to boost stocks? I thought the $600 billion was being used by the prop desks to pump the market. How could that be true AND have this be true? Am I missing something?

That said this is the biggest news I've read in a long time, the implications are huge.

Mon, 06/13/2011 - 00:15 | 1364058 cosmictrainwreck
cosmictrainwreck's picture

I think it's not either/or, but both, and here's my scientific/economic analysis: gazillions of $$ sloshing around, finding every crevice and nook, just like water... aka "liquidity". I don't think the wizards are near as smart as they (or we) think.... control limited & targets both moving & unprecise 

Mon, 06/13/2011 - 03:03 | 1364167 ebworthen
ebworthen's picture


There is no acconting or accountability.

Who is going to stop them?  Who is going to say no to them?  Who will take them to task?

No one.

The bailouts and endless liquidity to any bankster and kleptocrat that needs it are infinite - no one has control over the FED, the ECB, the Banks, the Politicians; NO ONE (no one but them - and they have no control over themselves).


Mon, 06/13/2011 - 04:17 | 1364205 bk1037
bk1037's picture

It;s OK, there is a lot to grasp with the lines the Fed passes out. Consider in spite of the magnitude of the $600 billion in QE2, that other foreign buyers still exist for Treasuries, although agreed it's on a declining scale. I seem to recall Tyler was on a trail of some suspicious looking stuff out of the UK some while back, if I recall and as an example. It is tough to rethink these questions I'll agree, consider the true monetization may be actually much greater, say double for example or 1.2 T and then 600B funnels back into the USA through back channels to be funded by the Fed with rogue transactions. Perhaps these foreign buyers of Treasuries along the way had a wink and an agreement with the US that they would be funded for their supposed purchases. This kept the QE2 advertising to acceptable political levels when the actuality is they were monetizing much greater amounts. We still likely do not know the whole enormity of what the Fed is actually doing, even to this day. What I do know is I only believe what can be verified, not what we're being told.

One needs to try to think outside of the box if possible and as much as possible for creative ways the financial elite may be generating to funnel western capital around to bolster the financial system. Don't think nationally, think internationally with these things, the elite and the Fed certainly do. And I would suggest not to accept anything theyt purport to publish. Remember the Fed oeprates with secrecy, and the European bailout info was only drawn out last year by act of Congress and for no other reason. As long as the Fed does not have to publish regularly in ways that auditors could review, expect all of this to continue.

Mon, 06/13/2011 - 11:34 | 1364882 MacGruber
MacGruber's picture

Cool, thanks for some clarification guys. It sounds like there are still more Fed provided "presents" to be unwrapped.

Mon, 06/13/2011 - 00:10 | 1364054 Luke 21
Luke 21's picture

I thought the Fed purchased treasuries with qe 2. Except for commissions it does not matter a whole lot who the Fed purchased these treasuries from. The foreign banks just serve as the middle men for the Fed to print money to be lent to the US government. Outside of commissions how do the foreign banks specifically benefit from this? Are you suggesting the Fed did not monetize treasuries but actually monetized European debt? Tyler, please explain your logic.

Mon, 06/13/2011 - 01:03 | 1364093 mt paul
mt paul's picture

you couldn't make this stuff up

if you were paid to...

well...maybe you could ..

badger whacking 101...

whack or be whacked

Mon, 06/13/2011 - 01:08 | 1364100 The Grifter
The Grifter's picture

Chart #3 in your article is the eye opener.   Hard to deny the correlations in cash assets and where the money all went.

I believe those who drunk at the Fed spigot made a ton of money flipping bonds and re-investing back into equities, driving up markets using the newly minted 1's and 0's as they saw fit.  And since 12 out of 20 primary dealers are foreign based, they then made the most profit at the expense of the future US taxpayer, but not enough to explain the rise in capital assets equivalent to the total amount printed up by our wayward academic chairman.

So riddle me this.... if the total amount of QE2 was used to purchase treasuries, to fund the massive US entitlement based debt, then how does the same amount of QE2 dollars show up as cash assets sitting on on foreign banks ledgers?

Not sure I want to know the answer.

Mon, 06/13/2011 - 04:00 | 1364199 bk1037
bk1037's picture

Consider the possibility that things are much, much worse than what is presented with Fed reporting. Every deficit is actually much greater than official government reporting, consult for further information for indepth analysis of true deficit and debt presentations.

Mon, 06/13/2011 - 01:15 | 1364112 Yen Cross
Yen Cross's picture

 A paradox!?

Mon, 06/13/2011 - 01:21 | 1364115 The Grifter
The Grifter's picture


Mon, 06/13/2011 - 01:23 | 1364117 Yen Cross
Yen Cross's picture

 The best Threads run very LATE. Thanks grifter.


         Yen Cross.

Mon, 06/13/2011 - 02:22 | 1364154 iPood
iPood's picture

So the Fed monetizes US debt (direct and agency) by purchasing it from U.S. branches of foreign banks (designated as Primary Dealers), which convert their dollar denominated excess reserve balances into their local currency for repatriation. Problems in the EU are preventing the more rapid dollar depreciation that would normally occur as a result of that repatriation. (Compare the USDJPY rout after Fukushima.) If you really believe that the helicopter dollars used in the Fed's monetization process are worthless, this sounds like a pretty good plan! Buying in some of our foreign debt with overvalued, flight-to-quality dollars (aka "electronic cash"). When the shizz hits the fan, the Fed will likely be a more accommodative creditor than Merkel and Co. LOL.... Go ahead, I'm ready for the onslaught, but somebody had to take the other side of this trade...and the resulting "junk" keep things interesting.

Mon, 06/13/2011 - 03:55 | 1364198 bk1037
bk1037's picture

And don't forget Tyler's post from a few days ago about some new apparent funny business involving AIG once more and European exposures. There are two lines of attack clearly in play, fiscal with potential and likely future bailouts of AIG, and monetary which Tyler details here. One way or the other, the American taxpayer will bear much of the brunt of financial assistance to western banks, The USA continues to get the s*it end of the stick with all of these transactions, and the global elite will be continuing to mastermind these efforts. Their main concern is whether Obama will get handcuffs to continue to operate in Libya and elsewhere, the elite want this instability since it is all a control and manipulation game to them.

Mon, 06/13/2011 - 03:28 | 1364192 hungarianboy
hungarianboy's picture

big wow Mr. Durden. If this is true some shit is going to fall on Bernanke's head. :-)

It does smell like the Bildeberg group is alive and kicking. Who are the members of the Bildeberg group again?

The dutch queen, bernanke, and so on. aha definiteley smelly.


Mon, 06/13/2011 - 08:17 | 1364212 nathan1234
nathan1234's picture

The Fed's owners sit in Europe. If they dont bail out their real masters, who will?

Already well known where TARP money went.

All money being sent is being paid by American taxpayers. If even after this Americans keep quiet and idle they deserve what they get.

Mon, 06/13/2011 - 05:48 | 1364234 Vito Corleone
Vito Corleone's picture

it's only printed paper, - don't worry about where they send it. 

Mon, 06/13/2011 - 05:48 | 1364235 nathan1234
nathan1234's picture

Sorry earlier post got repeated


Mon, 06/13/2011 - 06:55 | 1364268 Greyhat
Greyhat's picture

This is cheap compared to German TARGET2 loans to failed EC economies. ;)

Tue, 06/14/2011 - 10:16 | 1367471 jdbutters
jdbutters's picture

The argument here is not easy to follow, but I think I can summarise it as follows:

1. The effect of QE2 has simply been to hand reserve balances to foreign banks, with no increase in the reserves of US banks. That is why US banks have not been lending.

2. The mechanism for this transfer has been the purchase of Treasuries from the foreign banks who are registered as primary dealers.

The argument is based on incomplete data -- hence the use of cash holdings as a proxy for reserve balances in the piece. That is problematic because cash is created by various means other than an increase in the liabilities of the Federal Reserve. For clarity and simplicity I will consider the argument using the Q1 flow of funds data, from which the Zero Hedge argument can be made equally well.

It is true that the increase in foreign banks' reserves mirrors the Fed's asset purchases in the available data. The flow of funds tables ( show that foreign banks added $325.8bn to their reserve balances at the Fed between Q310 and Q111, which pretty much matches the expansion of the Fed's liabilities in that time ($333.1bn). This is the essence of the Zero Hedge argument. However, US banks added to their reserve balances to the tune of $119.7bn in the same period, which tells us that the argument that US banks have not been lending because they were unable to lend does not stand up: both foreign and US banks added to their reserves during the period. This disposes of point 1.

I have also looked into the implication in the Zero Hedge piece that QE2 has simply been an exercise in buying Treasuries from foreign banks. In the course of the six months, the Treasury holdings of foreign banks have hardly moved at all (they have actually increased from $73.4bn to $74.6bn). Foreign banks have reduced their bank credit and holdings of corporate and foreign bonds and moved the proceeds to the Fed; they have not sold out of Treasuries. This disposes of point 2.

Now, you might ask how the banking system was able to increase its reserves at the Fed by more than the increase in the Fed's liabilities. The answer is that there are other moving parts in this system. I have had a look at the composition of the Fed's liabilities in the flow of funds. What happened between Q310 and Q111 was that deposits were withdrawn from the Fed, mainly by the Federal government whose deposits fell by $191.7bn. If you were feeling mischevious, you could argue that foreign banks have helpfully allowed the Fed to have a stimulative balance-sheet expansion at a time when the American government was withdrawing balances from the system.

I suspect, however, that the reality is that one cannot consider parts of the system in isolation as Zero Hedge has done. I need some more time to think through how to expand on that; but the main point here is that the Zero Hedge argument does not stand up.

Tue, 06/14/2011 - 11:41 | 1367574 blindman
blindman's picture

ok, so what is it about the month of july
2009 and 2010 and i guess 2011 that results
in the fed balance sheet contracting and the
foreign bank cash holdings are increased?
sunspots? crop ..... circles.... cycles?

Tue, 06/14/2011 - 11:47 | 1367834 blindman
blindman's picture

Dude! Where’s My Recovery?
by Steve Keen on June 11th, 2011 at 11:27 am
Posted In: Debtwatch
.."The empirical fact that “loans create deposits” means that the change in the level of private debt is matched by a change in the level of money, which boosts aggregate demand. The level of private debt therefore cannot be ignored—and the fact that neoclassical economists did ignore it (and, with the likes of Greenspan running the Fed, actively promoted its growth) is why this is no “garden variety” downturn.

In all the post-WWII recessions on which Lazear’s regression was based, the downturn ended when the growth of private debt turned positive again and boosted aggregate demand. This of itself is not a bad thing: as Schumpeter argued decades ago, in a well-functioning capitalist system, the main recipients of credit are entrepreneurs who have an idea, but not the money needed to put it into action:

“[I]n so far as credit cannot be given out of the results of past enterprise … it can only consist of credit means of payment created ad hoc, which can be backed neither by money in the strict sense nor by products already in existence…

It provides us with the connection between lending and credit means of payment, and leads us to what I regard as the nature of the credit phenomenon… credit is essentially the creation of purchasing power for the purpose of transferring it to the entrepreneur, but not simply the transfer of existing purchasing power.” (Joseph Alois Schumpeter, 1934, pp. 106-107)

It becomes a bad thing when this additional credit goes, not to entrepreneurs, but to Ponzi merchants in the finance sector, who use it not to innovate or add to productive capacity, but to gamble on asset prices. This adds to debt levels without adding to the economy’s capacity to service them, leading to a blowout in the ratio of private debt to GDP. Ultimately, this process leads to a crisis like the one we are now in, where so much debt has been taken on that the growth of debt comes to an end. The economy then enters not a recession, but a Depression.

For a while though, it looked like a recovery was afoot: growth did rebound from the depths of the Great Recession, and very quickly compared to the Great Depression (though slowly when compared to Post-WWII recessions).

Clearly the scale of government spending, and the enormous increase in Base Money by Bernanke, had some impact—but nowhere near as much as they were hoping for. However the main factor that caused the brief recovery—and will also cause the dreaded “double dip”—is the Credit Accelerator.

I’ve previously called this the “Credit Impulse” (using the name bestowed by Michael Biggs et al., 2010), but I think “Credit Accelerator” is both move evocative and more accurate. The Credit Accelerator at any point in time is the change in the change in debt over previous year, divided by the GDP figure for that point in time. From first principles, here is why it matters.

Firstly, and contrary to the neoclassical model, a capitalist economy is characterized by excess supply at virtually all times: there is normally excess labor and excess productive capacity, even during booms. This is not per se a bad thing but merely an inherent characteristic of capitalism—and it is one of the reasons that capitalist economies generate a much higher rate of innovation than did socialist economies (Janos Kornai, 1980). The main constraint facing capitalist economies is therefore not supply, but demand.

Secondly, all demand is monetary, and there are two sources of money: incomes, and the change in debt. The second factor is ignored by neoclassical economics, but is vital to understanding a capitalist economy. Aggregate demand is therefore equal to Aggregate Supply plus the change in debt." ..

Tue, 06/14/2011 - 13:39 | 1368188 AldoHux_IV
AldoHux_IV's picture

These institutions are broke and bankrupted, and there is nothing out there these policymakers can say or do to change that.

Contagion = realization of the truth the system has failed.

Market participants have consolidated and it's a game of flinch with players that have no interest in flinching.

In the end, nothing really matters until we overthrow the current system.

Wed, 06/15/2011 - 03:20 | 1370162 scopelabs
scopelabs's picture

here 4 those in doubt as 2 the premise that we r fuKed! here i sum it up pretty fast:



ps the Bennie part in 2nd 1/2 if u get bored

Wed, 06/15/2011 - 18:37 | 1372889 cara leaf
cara leaf's picture

Bailouts do one thing: make the inevitable become fifteen years of Chinese torture, instead of seven years of pain and high fever.

With their bankruptcies as evidence, we'd already voted GM, Bear, Lehman, B of A, Merrill, Citi, et al, out of business.  The government thus overturns the will of the people.

Thu, 06/16/2011 - 03:50 | 1373719 Mediocritas
Mediocritas's picture

At least I now understand why my short EUR trade never performed. Dammit, Bernanke, you OWE me for that one!

Sat, 06/18/2011 - 06:06 | 1379852 dennishis
dennishis's picture

Reading this zerohedge article i was stunned. Though i didn't understand how to connect the dots between: QE2 was used as 'POMO' to buy stocks , using G.S. and at the same time using this money for european banks.
Hope you can help me out with this one.

Sat, 06/18/2011 - 12:39 | 1380266 viadyello
viadyello's picture

My opinion about QE2 600bln USD is

And I hope I'm not completely wrong because I never read or hear anything that sounds similar.

FED creates 600bln$ at times with near zero interest rates

for the purpose to buy back old treasuries (bonds) with a lot higher interest rate

from foreign banks !

Seems to be a good deal for the FED to pay in the future much less for Interest-payments !

Perfect <Dept Restructering - Debt funding>


Sun, 06/19/2011 - 09:46 | 1380270 blindman
blindman's picture

mere mind games with smoke and mirrors
based on book entries with no books or entries,
just shadow entries with invisible and disappearing
ink from a squid that sits on your back and sucks the blood from your jugular vein when thirsty as in
parasitic, sovereign, arbitrary, lawless power as long
as the anesthetic continues to work and the attachment
mechanism is not disturbed by the senses and thoughts
of the host, as the parasite strives to become its own
host? or it is financial societal cannibalism, the serpent eats
its own tail. start somewhere around here and you can't
go wrong !
the flow of "book" entries is global and shadow based.
not even the shadow knows, regardless, it sits on the back waiting for the impulse to feed.
leverage of base money in shadow markets, magic power.
turn this way up and prepare for your future !
Witch of the Westmoreland
Covering Delta Interviews Dr. Kiriakos Tobras
Posted on June 18, 2011 by stacyherbert| 17 Comments
Stacy Summary:From Covering Delta, a blog doing some amazing coverage of the crisis in Greece. Here he talks to Dr. Kiriakos Tobras, an economist who is suing several derivatives traders and individuals from the government for their roles in financial fraud.

Do NOT follow this link or you will be banned from the site!