Fed's Central Bank Swaps Increase By $5.4 Billion To $6.6 Billion

Tyler Durden's picture

The Fed lent out $6.6 billion in liquidity swaps this week to foreign banks, of which the biggest beneficiary was the ECB, with a 1 week swap of $5.4 billion and an 84 day swap of $1.0 billion. The only other bank receiving Fed aid was the Bank of Japan, which got $210 million. What is funny is that the ECB is now an example of just how large the FX imbalance in Europe is: the ECB has had to lend out $6.4 billion in dollars even as banks have hoarded €320 billion in euro deposits with the ECB, a new all time record. In other words, nobody wants euros, and everybody is dying to get their hands on dollars. But somehow the market is supposed to believe the funding situation in Europe is ok. Lastly, the $6.6 billion in total Fed liquidity swaps $5.4 billion greater than the prior week's $1.2 billion. We wonder what spin will be applied to explain the 500% increase in world dollar funding requirements.



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SDRII's picture

Why is MBS up $4B W|W

Tyler Durden's picture

Ongoing settlements of executed trades.

SDRII's picture

Just checking, thought Ben had a late night relapse

inuver's picture

Maybe the European banks are in dire needs for dollars to cover losses from CMBS.

abalone's picture

DXY is forming a bullish ascending triangle.

topshelfstuff's picture

explained here, i pasted a piece of it, excellent:


Hidden Dollar Swap Hammer by Jim Willie, CB. Editor, Hat Trick Letter | May 26, 2010


USDollar swap lines have been revived, rejuvenated, and applied. They are critical in sharing the workload in monetary expansion, the inflation machinery. The US Federal Reserve issued the following press release on May 9th, heralding the facility. It enabled the printing of money for immediate usage by foreign nations, as they essentially print their own money but use the USDollar wellspring as conduit. See the USFed press story (CLICK HERE). This announcement should be viewed as a response to debt abuse, and an open license to continue the great game. The public balance sheets have systematically built up greater debt in order to rescue private banks from ruin. The government leverage upward has enabled a private bank leverage downward, with little success however, as perception of wreckage is pervasive and turning universal. The bond market recognizes the ruin has shifted attacks from banks to sovereign accounts, the government debt arena. So the USFed will produce mountains of new money, and gold notices the debasement process. The USFed press release read as follows.

"In response to the reemergence of strains in US dollar short-term funding markets in Europe, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing the re-establishment of temporary US dollar liquidity swap facilities. These facilities are designed to help improve liquidity conditions in US dollar funding markets and to prevent the spread of strains to other markets and financial centers. The Bank of Japan will be considering similar measures soon. Central banks will continue to work together closely as needed to address pressures in funding markets.

The Federal Open Market Committee has authorized temporary reciprocal currency arrangements (swap lines) with the Bank of Canada, the Bank of England, the European Central Bank (ECB), and the Swiss National Bank. The arrangements with the Bank of England, the ECB, and the Swiss National Bank will provide these central banks with the capacity to conduct tenders of US dollars in their local markets at fixed rates for full allotment, similar to arrangements that had been in place previously. The arrangement with the Bank of Canada would support drawings of up to $30 billion, as was the case previously. These swap arrangements have been authorized through January 2011. Further details on these arrangements will be available shortly."

This spigot is precisely what lifts the gold price along the powerful long-term trend. It is the great monetary inflation lever. However, in the last two weeks, the easy credit lines have been taken advantage of to supply funds to central bank agents who have a constant habit of selling huge contracts of gold futures, of course often naked short selling.

plocequ1's picture

Like I said, All the charts in the world mean shit when the fed is the worlds Broker. I'm tired of hearing what the fed can and can't do, Or if the fed does this and that, The world will explode. They are doing everything Tyler and K. Denninger says they can't do and it's working.

taraxias's picture

I was with you until the last word.


plocequ1's picture

Ok, Its somewhat working.

breezer1's picture

the delusion is working until it doesn't. what isn't sustainable won't be sustained. take your seat now. get physical gold and silver .