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Grayson Grilling Bernanke On Half A Trillion In Foreign Liquidity Swaps And The Constitutional Basis For Such
Grayson asks Bernanke about the $550B (as of 12/31/08) in liquidity swaps with foreign central banks. Who got the money? How did the Fed lend this much money without the consent of Congress? Did these loans push up the value of the dollar?
- At minute 1:30, Bernanke can’t say which financial institutions got the money.
- At minute 3:19, Bernanke says that the 30% rise in the dollar which took place at the same time as the Federal Reserve lent out $500B to foreign central banks was just a coincidence.
- At minute 3:45, Bernanke and Grayson discuss the Constitutional basis for the Federal Reserve lending a half a trillion dollars to foreigners.
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trillions are the new "thousand" ...and we're going to get the money back? is that before or after Hawaii gets auctioned off?
I'd rather go to Jamaica anyway.
Is it just me, or does Ben very nervous?
I am not sure why Ben is lying. I heard he is a honest person living on his salary.
To earn a salary once he's out of the FED... from "THE WALL STREET"!
also have you noticed the change in style of answering questions .... he seems rather honest here .. i mean saying who got the 500 billion, and not stalling with the answers ... also he looks kinda nervous .... who knows maybe someone told him before this testimony to become more " populist " in hope that would gain some sympathy for the FED .... i dunno, I'm just speculating, but this testimony is definitely different than the previous ones ..
Yup. Definitely looks like he either shit or pissed (or both) his pants.
Imagine if Schiff were to be elected to the senate. I would love to see the back and forths between him and Ben. That sht would be PPV worthy.
I thought you meant purchase price variance and then realized that didn't make sense. Maybe I need to go home.
if I may: schiaffathon.com
gotcha: (-24) times X equals 312?
are you serious?
without the i
Goldman's trading desk in London never saw a penny of it.
I would love to see this guy having 2 hours to debate this issues with him and Timmy. I guess is not going to happen though
i WOULD LOVE TO HAVE 2 HOURS IN A DARK ROOM WITH HIM AND tIMMY, AND A PIPE WRENCH.
i AM cHUMBAWAMBA, AND i AM TOO LAZY TO FIX MY CAPS LOCK ISSUE.
the so called 'grilling' was a joke
good finance articles
Mr. Grayson has been educated by knowledgeable people. Markets are range-bound because of this sleight of hand. When central banks can agree to maintain a range of exchange rates, there cannot be a threat of a currency crisis, therefore locals are reassured that their currencies hold purchasing power. It only exposes itself when they have to issue the local debt to pay for the swaps. If CB's ever get this power, WATCH OUT!
"When central banks can agree to maintain a range of exchange rates, there cannot be a threat of a currency crisis, therefore locals are reassured that their currencies hold purchasing power."
Absolutely false. In the extreme, if all central banks uniformly increased their currency in circulation by tenfold, exchange rates might remain the same, the USDX might not move, but do you think oil would still be $65 a barrel? Your statement is what the central bankers assert, and what they want us to believe, but I do not believe it.
Think about what I'm saying. If your euros are worth the same as a USD and vice versa, then no one holds an advantage. You won't exchange local currency for foreign currency because you won't get the exchange appreciation or earn a higher interest rate. These swap lines allow CB to rig the currency flows and exchange rates to a range.
That implies, though, that everyone in the financial system must play along. And I mean EVERYONE, or it beings to fall apart.
Good luck with that theory.
Don't trust me. Pull up some currency charts from the G-8 countries and look for yourself. Pretty range-bound. Plus, look at the FED website to get the countries with swap lines open.
Why wouldn't capital levels and savings devalue by the same factor then? People hold fixed reserves, they don't multiply in accordance with the total supply. So you're ignoring the fact that the money exists other than in central bank coffers. I know that I'm simplifying it, but it appears that you're ignoring more of it than I am. I welcome any correction that shows me where to get more information, but I currently don't have any reason to think that this kind of thing goes on, without affecting people outside of governments signing central bank 'deals' behind green curtains.
They are devalued. Google "Bond Market" and "Monetize debt".
How about you:
(a) take 30 seconds and make a username,
(b) actually write a response (or at least post links) to address the objections raised on your claim (rather than cite vague search phrases that yield millions of hits), and
(c) conduct discourse like you're an adult.
I really have nothing more to add. The legal tools of the FED were supposed to be quite limited, but smart men have developed sneaky workarounds, using the independence argument as a shield. It doesn't take much research to figure out how the FED passes along it's cost of doing business, all in the name of globalization. So, turn off "American Idol" and educate yourself. It's the only hope we have.
I think a lot of what Bernanke is doing is supporting dollar loans overseas. The Fed is piffle compared to the currency flows but dollar loans from foreign banks are part of the endless and ongoing expansion of the Fed's black hole universe of bad loans. Overseas banks have the same capital 'problems' that US banks have and would need dollars.
There is a carry trade in dollars anyway, what difference does it make if Bernanke signs the check or not? What else is a ZIRP good for?
I would rather find out about the quality of the collateral the Fed has been accepting in exchange for liquidity. One would have to say the Fed is just another 'Too Big to Fail' insolvent bank.
I remember here last year some wag suggested TARP was a means for the Treasury to recapitalize the Fed. Ha, ha ha!
You are forgetting the eternal currency, gold as a currency. If irrational investors just moved in and out of the fiat currencies yes.
I agree. It's a mechanism to cut side deals outside the realm of the international currency markets, thus eliminating significant impacts on exchange rates. I don't see what's preventing the central banks on either side of the transactions to print the money out of thin air, creating artificial liquidity without impacting official exchange rates. It will not be inflationary, to the extent that it's used to plug holes on banks' balance sheets (behind the scenes). And what guarantee is there that the numbers reported are correct (given that the only players in this high-stakes game are the CBs of the world)?
@SWRichmond - Agreed.
Lets recap this:
- Lehman goes bankrupt and gets sold to foreigners on pennies to a dollar...
- Handouts to AIG also go to foreign banks...
- TLS... handouts to foreign central banks...
So, going by the earlier post on Barney Frank, it's a fair assumption - US will become the global bailout manager; and it's banks and lawyers will net-net charge around a gazillion dollars in fees. Nice: Man American Taxpayers are screwed every which way.
I could watch that kind of grilling 24h a day!!!
i am glad to see concern for the constitution but i am sure it will be found billowing with penumbras and emanations which carry away any last vestige of concern.....
and then again, it wasn't constitutional for us intelligence to destroy the world trade center with military grade nanothermite from skandia labs but that didn't stop them from blowing up three buildings....
In the future (not far off), people who have a constitution in their hands and demand answers will be called "Terrorists".
Isn't that happening already? GATA has already been called terrorists (although I can't recall who said it).
Lay off the tin foil dude(tte?). Also, methinks you mean Sandia Nat'l Labs, but that's neither here nor there...
So what would have happened if he had not lent out the money to the foreign central banks is the better question.
agreed
Since they were the suckers on the bottom of the totem
pole (End buyers for the most TOXIC crap) it would
have bye-been bye-bye Eurozone/Switzerland,that's what.
If euro CBs were the ones as beneficiaries at the end of the line, and that it meant curtains for them if the US didn't bail them out, then (from a purely US-centric viewpoint) why didn't we stick them and end up undisputed kings of the world? It would've been like post-WWII but with less bombing.
seems to me that this is unjustified populist banter by the congressman... i could be wrong. when he brings up constituionality, he should have read the Federal Reserve Act first. ridiculous. again, i could be wrong.
read http://www.federalreserve.gov/aboutthefed/section14.htm
You don't even know what you are citing. I think the key words though are "Open Market Operations". These are bilateral, private transactions. Nothing open about it.
"Unjustified populism." .55 trillion dollars of debt that for all we know is entirely unsecured is given to foreign banks, who (for all we know) gave it to subsidiaries or debtors of Goldman et al... and asking where the money went and why it was lent and whether it was done to boost the dollar is unjustified populism.
I think it's clear that we, as the people who will foot the bill if the money isn't repaid, deserve to know where that money is going, and a senator who doggedly pursues the bankers in order to find these things out is simply somebody who's doing his job. Maybe for the sake of votes, but that's what democracy was supposed to be all about.
Come on lettuce!!! You have got to be kidding!!!!!
Why would the dollar rise from these swaps? It would seem that it would decline. More dollars in foreign central banks, more supply of dollars. Demand is relatively constant, so price goes down. It would seem that not until we get the dollars back, therefore reducing supply, would the price appreciate. Could someone please clarify how this reasoning is wrong?
bernanke notes in the opening that the banks held short positions against the USD (long in other currencies). this allowed those shorts to be covered.
that was my question too.
the only thing I came up with is that the dollars going to the foreign central banks covered their shorts (no forex market action there) but the Fed used the euros it got to buy dollars.
that would have been a good follow-up question, if the Fed still holds the foreign currency, sold it, or lent it.
is there anyway to get insight into that based on the data the Fed publishes?
tyler? anyone?
Well, one way to look at things is to figure the Fed is trying to export loose monetary policy to higher rate countries (like New Zealand) to support commercial banks and the CB's are conduits.
Another way is the Fed is a trade agent, trying to gin up some business for US exporters by adding even more dollars to a world already flooded with them. It's a no- lose proposition for Ben since the dollars will do their bailout magic before they wind up in China. Again, the CB's are simply dollar laundromats.
Despite contrary noises the Chinese are still buying dollars (otherwise their reserves wouldn't be growing to + $2 trillion. We export our inflation to China with every dollar they get their hands on and buy some of their growth - probably why the US hasn't slipped into depression already.
<blockquote>
There is a parallel yuan dilemma as well that centers around the dollars that it holds. This is actually a great problem for China as it cannot make up its mind about the value of these dollars, even as it accumulates more and more of them. It is tormented by the dollar dilemma. Are the dollars worth little because there are so many of them, or are they valuable because of what they can buy?
If they spend the dollars will what they buy with them be worth what they paid? Would they be worth more tomorrow? Would they be worth less? What would the impact be in China of spending them?
This tension has torqued Chinese currency and trade policy even as its neo- Keynesian stimulus plan and lending- bloat leveraged against those dollars has pitched the argument in the direction of the dollar being valuable. The continued strong economic 'growth' depends on the increase in dollar reserves. This makes these dollars proxies for Chinese growth. Each dollar printed by Bernanke is buying some of it. Seeing this and measuring the value the dollars have to China, the US Federal Reserve is massively inflating the number of dollars it issues, trying to buy some Chinese growth."</blockquote>
Ergo, Ben's remarks.
http://economic-undertow.blogspot.com/2009/07/greshams-law-writ-large.html
So any substantial twitch in the effective dollar (fical or monetary hiccups) will scare the sh*t out of the Chinese, they'll dump dollar assets into what becomes the liquidity trap of all times. EOFTWAWKI.
I want to believe in this and Barofsky's efforts as IG. I just worry that this is theater, making it look like we are trying to get to the bottom of things to buy time both with J6P and foreign investors.
U.S.A. is falling down, falling down, falling down,
U.S.A. is falling down, My fair lady.
Build it up with CDS, CDS, CDS,
Build it up with CDS, My fair lady...
U.S.A. is falling down, falling down, falling down,
U.S.A. is falling down, My fair lady.
Build it up with more BS, more BS, more BS,
Build it up with more BS, My fair lady.
Just let it all come falling down, falling down, falling down,
let it all come falling down, My fair baby!
Nice poem. So true.
good finance articles
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by Anonymouson Mon, 07/20/2009 - 22:05
#10864 Are they going to assume the roll of the bankrupt Fannie Mae and Freddie Mac? Is the 'Shadow System' taking a bank holiday? WTF! A complete sham. Caterpillar's revenue is down 66% (40-some% last year!) and they have laid off 20% of their employees. BAC upgrades from neutral to buy. thus the stock is up 15% over the past 5 days. GTFO!
Caterpillar is completely dependent on the US government's ability to extract $$$ from the tax-payers and foreigner investors and funnel it into projects such as bridges to nowhere.
Watching the market over the past week has been excrutiatingly painful. The absolute ridiculousness of it
Now i will have London bridges in my head all night, and that is such a sad little tale.
Great work by Rep Grayson!!
When are these loans to be repaid.
Not so much loans as swaps (or maybe with an agreement as to when these unwind we could call them "dollar repos."
What I want to know is "What happens to the dollar when (if) we unwind the swaps?"
and more importantly:
does the Fed still own the foreign currency, or does the Fed need to buy them back using dollars.
So, if the FED was fighting the appreciation of the dollar and therefore the depreciation of the other currency(let's say EURO), why were foreign govts. encouraged to lower rates? Wouldn't they have to raise their rates to encourage capital not to leave? The exchange rates are being rigged to benefit no one, in order to buy time.
I'm aware of the "supposed" correlations. But are risk and return independent now? If interest rates don't reflect an actual rate of risk/return, what do they measure? We should just tear off price tags and send them to the FED to fill out.
They are indeed fighting dollar strength. And that is going to continue for quite some time. The Fed cannot provide all of the global liquidity necessary. The issue isn't if the Fed withdraws these swaps as someone above remarked. The issue is what if foreign central banks are unable to fulfill their counterparty obligation to these swaps. That is a very plausible outcome in the new global economy.
The risks to the Fed balance sheet are likely behind the President's desire to fund the IMF as reported on ZH today. In my estimation we should be trying to unwind these swaps and replace them with IMF loans. The quicker the better. Additionally, the Fed isn't going to enter into swap agreements with the communists in China. Ain't happening. That's just a simple example. But, that is why the IMF is so important to providing liquidity to the markets. And, were it not an emergency that Bernanke responded to, that is likely where they would have gone in the first place. in other words, even though I thoroughly enjoy Grayson's pontificating, Bernanke did the right thing. And, if anyone understood what was going on instead of simply badgering anything and everything Federal Reserve, they would have done exactly what Bernanke did.
Regardless, the dollar is not going to collapse. It's an uninformed argument put forth by uninformed people. The reality is neither the IMF or the Fed can supply all of the liquidity needed in the world today. That's bullish for the dollar.
May I suggest you take a look at Nail fergusan's (sp) on PBS about the histrory of money and the 4 part series. you may think differently after that.
Well, I really don't think so re Asian currencies. This is another topic no one understands. China's economic miracle started with a massive currency devaluation in the mid 90s. The peg policy is unsustainable because China is going to run into a sustained liquidity crisis. So continuing to artificially peg the yuan is going to become prohibitively expensive and they won't have the dollars to do it. So, the only way to deal with their coming liquidity crisis is to devalue the yuan once again. Or, should they be unable to hold the peg because of lack of liquidity needed to do so, the market will devalue the yuan for them. In other words, China's currency is going to collapse.
Re the remark about the history of money and your superior knowledge gained via PBS, get a life. I'm talking about reality. You are feeding some intellectually lazy argument based on some hazy untruth. I am well aware of the history of monies going back thousands of years and many empires. The dollar is far from dead. Although the U.S. is surely going to get its ass kicked. But, what does that have to do with the dollar or macro factors unfolding?
Well Andy, you know I grew up about 15 miles from where that movie was shot. That prison is right out of a graphic of hell. So, there is no way China can get any consumption going in its economy. The chances are between zero and one percent. We agree on everything but this point. And, I have a few factual aces up my sleeve as to why it won't happen. But, regardless, the U.S. has been exporting its deflation since around 1995. The world is going to change drastically. And the race to the bottom of the barrel can't be won.
Agreed.
People need to educate themselves on Central Bank Liquidity Swaps...the fed did these swaps to provide liquidity to those banks when banks wanted US dollares. IT IS A ZERO BASIS TRADE FOLKS .... The rate is locked when the swap is locked and unwound at the same rate (REGARDLESS OF THE REVEALING RATE)
When banks panicked around the world they got out of their currency and went into dollares (ie the supply/demand drove the market up) ...they were subsequently unwound as ZH has showed...once the panic has easied
I think this was put in place because these banks (and countries) were in fear and total panic mode....who wouldn't be with the garbage securities being peddled by every crook on Wallstreet. The US should have blown up (financially that is) but didn't ...we now found out why (23.7 Trillion reasons why it didn't)
Guy in background behind Benny: you should know you're going to be on film before taking a nap in the Hearing Room.
Beyond that - erroneous line of questioning. Liquidity swaps are commonplace. It wasnt some bailout or handout. Most likely we wouldve seen the dollar sink in Q4 while equities were tanking - and wouldve exacerbated both moves.
correct...strong dollar = market in toilet...weak dollar = market higher...
they mitigated a short squeeze and a rush to cover...
goal is to have market go higher because average population wont realize impact of weaker dollar, but instead will be happy that their 401's are recovering...
given the correlation existing in the market and mid term elections coming up, i strongly expect a weaker dollar a year from now in an effort to get the equity markets higher so as to give the impression of green shoots...
right you are
All ponzi scheme's require continuing investor confidence. Or, an ignorant brainwashed populace, as the case may be.
I couldn't find any provision that would allow any such program like TALF, Maiden Lane or Currency Swaps in the Federal Reserve Act of 1913. In fact, you can only say that the Fed has that power if you assume the Congress delegated absolute power to the Fed to do or not do anything it chooses. However, if you assume that, then the FRA would be in itself illegal.
http://zeropointfield.wordpress.com/2009/07/17/the-legality-of-the-feder...
In addition did I get that right that other Central Banks are now on the hook as well? What happens if the banks that the CBs lent out their dollars to can't repay for some reason?
I think the phrase "exigent circumstances" is the equivalent of the Fed's trump card... not that it's legally correct.
Hhm, not sure. First that's a concept from criminal law for law enforcement for not having to get a warrant first if danger is imminent.
If that concept held here, the Fed would still have to ask for authorization from Congress after the fact to make it all legal.
My guess is that the Fed thinks the FRA is a carte blanche that lets them do anything they want without having to ask anyone. If Congress indeed did that in 1913, which I doubt, than that would be an unconstitutional delegation of power making the FRA itself illegal.
Aside from the fact that exigent circumstances apply only for an instant... this "process" is a long, drawn-out affair... at some point along the line, there would have to be a "step back and contemplate the surroundings" requirement... which we're way beyond. (Think of it like cops smelling fumes from a meth lab, then raiding it, then confiscating everything, then subjecting the subsequent, unrelated tenants to random searches and seizures for nearly a year)
Maybe, maybe you can make the argument for Paulson getting his Merrill buds a payday > $0 via BoA... but the ongoing affair has long since passed its exigency.
Nope, you can make the argument but there is still no legal reason for a bankrupt company (MER) to get 80% of a cash cow share (BAC) for each of their shares...this was a monumental scam performed on the BAC shareholder.
By the way, this discussion is making my day--thank you zeropointfield, assetman, and anony.
Grayson is a take charge type of guy. Very impressive.
right up until an auction fails - which will never happen becasue GS/MS are batting cleanup...all part of the strategy
Love the tie
No where in Section 14 does it allow the Fed to exchange currency (even at rediscount) to foreign central banks or any foreign bank. And certainly there is no implied intent to allow what they did. I agree they did it to keep the dollar from going through the roof..........but it's not an excuse for getting themselves in this mess in the first place nor is it ok just because nobody called them on it before.
Purchase and Sale of Cable Transfers, Bank Acceptances and Bills of ExchangeAny Federal reserve bank may, under rules and regulations prescribed by the Board of Governors of the Federal Reserve System, purchase and sell in the open market, at home or abroad, either from or to domestic or foreign banks, firms, corporations, or individuals, cable transfers and bankers' acceptances and bills of exchange of the kinds and maturities by this Act made eligible for rediscount, with or without the indorsement of a member bank.
[12 USC 353. Part of original Federal Reserve Act; not amended.]
Hondo, r u a lawyer, or do you have any lawyer friends who you could please ask what we can do about this?
Wouldn't the most interesting question be "How could it ever happen, that 500 bln dollars emergency swap-lines were necessary to prevent the meltdown of the US financial system (after the meltdown of the European one an hour earlier)?" What caused the build-up of such large positions?
Why is Ben sure that the Europeans will not need a couple of billions in the next months again? Are all dollar denominated credits repaid?
Can someone with expertise walk us through the mechanics of a Fed currency swap?
How can anyone be in short supply of electronic currency????
When we're talking in the range of billions for a transaction, these aren't cash, physical bills.
When a CDS needs to be paid, you click a button and transfer the money, adjusting for FX.
I wonder which bank handles the wire transfer from the Federal Reserve to the ECB.
http://en.wikipedia.org/wiki/Bank_for_International_Settlements ??
Just some legal documents and an accounting entry on both ends
Central Bank Liquidity Swaps
The FOMC authorized the FRBNY to establish temporary reciprocal currency swap arrangements (central bank liquidity swaps) with the European Central Bank and the Swiss National Bank on December 12, 2007 to help provide liquidity in U.S. dollars to overseas markets. Subsequently, the FOMC authorized reciprocal currency swap arrangements with additional foreign central banks. Such arrangements are now authorized with the following central banks: the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Canada, Danmarks National bank, the Bank of England, the European Central Bank, the Bank of Japan, the Bank of Korea, the Banco de Mexico, the Reserve Bank of New Zealand, Norges Bank, the Monetary Authority of Singapore, Sveriges Riksbank, and the Swiss National Bank. The activity related to the program is allocated to the other Reserve Banks. The maximum amount of borrowing permissible under the swap arrangements varies by central bank. The central bank liquidity swap arrangements are authorized through October 30, 2009.
This is from the Financial Statement of the Philly Fed - no reference to where in the Fed Act this power resides
There was and still is a massive shortage of US$. Firms have all borrowed US$ and used it to buy risky assets. The problem is that those USD have to be repaid at some point and to do that people need to exchange those risky assets into hard currency. By doing the currency swaps the Fed was able to kick this particular problem down the road a ways.
Grayson is not going to let this one go, nor should he.
where's the strong dollar talk now...
That video made me angry. What has happened to our republic?
The Bankers ate it for breakfast in 1913...
Does anyone else ever have fleeting thoughts that there's a giant rope-a-dope underway and that we are rapidly moving towards a single currency known as the U.S. dollar, with the Federal Reserve as central banker to the world?
The Fed is swapping half a trillion out, they're funneling billions through AIG to prop up European banks, the Chinese economy and reserves are tied to the dollar...
Or maybe they're just trying to knock the Korean won out of competition for the micropayments market.
Last fall during the height of the meltdown, on a Friday afternoon, the Fed did a currency swap with the Swiss central bank. Shortly thereafter the injection of dollars was sent to UBS for some collateral of toxic assets.
Why did US taxpayers bail out UBS?
I think that might have been when we got UBS to agree to divulge info about private deposits in Swiss banks.
UBS is leveraged well in excess of Swiss GDP. I suppose the Fed didn't want the Swiss to be a nicely dressed Iceland.
On the topic of manipulated exchange rates creating a loose monetary environment that leads to a bubble see this:
http://narrowtranche.blogspot.com/2009/07/asia-next-big-bubble.html
I think it is time for TD to look at the Federal Reserve Act that Bernanke is leaning on. I am not un USA or I would try to find that myslef. It is nice to see the Constitution menationed in all this! Seems it gets forgotten an awful lot.
"Bugsy" Ben is turning into "Squeaky" Ben with pressure and heat from Elliott Ness, I mean Alan Grayson....
After seeing this, i can hope for justice and the real economy that will come back with our country's reputation!!!!!
TO DO LIST:
1) HR1207
2) Indictments galore
3) Recall all the liar acronym projects that have slipped out into ether land in the name of "saving the world" when we really were just keeping alive corrupt entities.
4) Rebuild our country's integrity.
Maybe it's just over for us. I've never really considered that until today. But what if we've jumped the shark and it's all downhill from here? Damnit.
Ah. I see you begin to appreciate this grand illusion, grasshopper. Now forget that distracting apparition and instead ask yourself: What is the sound of a world without money? Once you sense the answer to that, then will you glimpse true enlightenment.
Zen Master Cougar
thank you for the reminder ZMCougar_w!
thank you for the reminder ZMCougar_w!
agrotera,
you forgot #5 (or #1 depending on your flavor), rebuild US's industrial base. a mighty tall task since we make very little any more.
thats great thank you, and i would put it number one.
I would edit the comment with your essential addition but since there are replies, i am not offered the option to edit anymore...
The FED contempt is just mind blowing!!!
On a point of procedure: you can deep-link to specific times on YouTube videos - see http://help.youtube.com/support/youtube/bin/answer.py?hl=en&answer=116618
SORRY GUYS IM I DUMB HERE THESE ARE CURRENCY SWAPS, WHERES THE CREDIT DOH!!
WHY IS BEN NO ABLE TO ARTICULATE THIS -- WHATS GOING ON???
Agreed, the contempt shown is quite shocking and shows how far down the rabbithole we have gone.
to paraphrase a previous thread from yesterday, a system corrupted as thoroughly as ours cannot be fixed. it's like having a fatal error on your hard drive. only one solution, system reset (liquidation/deflationary spiral/depression) (buy a new computer for the cheesy metaphor I used).
I know it sounds simplistic but it's not like the world has never been down this or a similar road before. This time it's just on a grander scale.
I believe that Representive Alan Grayson is in the Ron Paul camp. Go Grayson!
Okay go bonkers at me but I cannot see what he has done wrong.He has lent money to american investors ... it is the USD that is invested in these countries that he is propping up and the value of the assets that the USD had acquired.
Assume everyone pulled their USD from NZ (which they did do) .. wow who is going to replace that?
Only one country .. the US .. simple logistics.
So by funding the Central Banks then the availability of the american investors to withdraw their monies and convet back to the USD was guaranteed...along with other investors of course but the capital flows had to be supported in those instances.
I believe a key concern (far from the only one) is that the currency swap lines highlight the fact that the Fed has been 1) creating massive sums of money (in defiance of Congress' perrogative as appropriators) and 2) entering into international agreements unilaterally with said printed dollars.
Greyson was not questioning the purpose or efficacy of swap lines but asking Bernanke on what authority he was taking those actions.
Thats it! I'm moving to fucking New Zealand!
Don't .. you have to learn the language first
Six = Sex
Then you have Fish and Chips ... umm not going to go there ...
Then the culture .. do you understand sheep?
Sure, because they never screw with their currency or fudge the truth about it!
Yesterday:
http://online.wsj.com/article/BT-CO-20090721-700330.html
"It (Kiwi) lost some ground after New Zealand Trade Minister Tim Groser told CNBC that the Kiwi's rise is a "point of concern."
However, asked if New Zealand might intervene to weaken the Kiwi dollar, Groser said: "We just haven't got the money. I mean, the idea of little tiny New Zealand using its peashooter to take on world currency markets is a joke. We made a decision 25 years ago to have a floating exchange rate, and we'll stick with that."
Two years ago (after they intervened in their currency market):
http://www.beehive.govt.nz/node/2970111 June, 2007
Comment on RBNZ currency interventionFinance Minister Michael Cullen said the Reserve Bank today exercised powers the government gave it in 2004 to reduce excess volatility in the dollar.
"The bank is exercising its powers in accordance with the legislation and the policy targets agreement," said Dr Cullen.
"Dr Bollard has been saying for some time that he sees the exchange rate as exceptionally high and unjustified on the basis of New Zealand's medium term fundamentals.
"The Bank clearly felt the current situation met all the criteria for intervention that it has previously publicly discussed, namely:
the exchange rate must be exceptionally high or low;
"Today's action is a reminder to people if they over invest in the New Zealand dollar they could suffer losses," Dr Cullen concluded.
Although I have to say that I fricking like the idea of the Kiwi Gov't calling themself the Beehive !
This was all a trade for the money tied up in illiquid Real Estate in the US. They had to loan the money out.
I don't see any authorization for foreign currency swaps in Section 14 of the Federal Reserve Act.
Maybe some of you folks can find it.
http://www.federalreserve.gov/aboutthefed/section14.htm
(e) To establish accounts with other Federal reserve banks for exchange purposes ...
Yup. I was looking for "central bank". In other places in the Act, "Federal reserve bank" means another bank in the Federal Reserve System.
He looks nervous because he doesn't want the truth to come out. The whole monetary system is broken. Europe is in deep debt, the US is in trouble so is Japan, New Zealand etc. The longer he is able to delay maybe someone will be able to fix it. In the meantime GS books record profits takes all their salaries and goes home.
Well the system is not broken just operating as it should.
The majority of Central Banks have sold their AU and hold a swag of currencies from major partners.
Now we have a global economy and each investor will invest in that country that gives the maximum return. When the crap hit the fan everyone sought to switch to USD by effectively pulling out of their offshore investments.
The effect was instantaneous (capital flows) and no county would have been able to make these payments / conversions without a corresponding pool of money.
A fair amount was invested in NZ and without the assistance of the US Fed no money would have left the country fullstop.
You then look at why the USD is in NZ and look no further than NZ interest rates at that time.
Outlay the Yen carry trade whilst you are in this tirade, as that in itself is one of the causes of the USD / Yen strengthening. The unwinding by all majors created thsi systematic warp in lesser countries currencies...
The problem with Bernanke - from the establishment's point of view - is that he just isn't a very good liar. He would make a terrible poker player.
He definitely needs to be replaced. But by whom? - maybe Ron Paul. Could they buy off someone like Paul? - not in a million years.
Yep, this is going to lead to another World War - get your helmets on.
Great, now these countries will start using these dollars to hoard commodities. $300/barrel oil here we come. $9/gallon for gas - sure no problem. $2K/oz for gold - heck yeah, yee haw!!
You have the wrong end of the stick.
How can they invest in anything when all of the foreign currency has been pulled out of the country?
AU nutter?
Must be nice being a US citizen - unlimited trade deficits, credit galore, higher and higher standards of living. Wait until that reserve currency status shifts to the EU or maybe China, maybe Japan. Then they have the golden stick and the US is on the outside looking in - at least for the middle class.
Are you effing serious? Japan reserve currency status? Is that the Japan with a bigger public debt to gdp than the US? The Japan with a completely FUBAR demographic curve?
The Japan that had a housing bust in 89 that led to a stock market now worth just 25% of what i was at the peak almsot 20 years ago? The Japan that lost its AAA status due to 13 stimulus packages in the last decade that have done nada?
Oh ok.
Dont even talk about EUR as a reserve currency. I just cant even be bothered to go into that. I do apologise but i really shouldnt be wasting time repsonding to such ignorance. Its just a bit of venting , a release of sorts.
China is light years away from a reserve status. A billion communists that export plastic sht to the rest of the World?
Sounds great , lets make them the Worlds Central Bankers!
The US might be in a sh*thouse state but its still the only economic and military superpower with a legal framework worth supporting. Sure it sucks right now. But thats life. Vote out Obama in a few years and reduce the Govn and Feds tampering and with some hardwork we can look forward to another 50 years of growth. It aint happening anywhere else.
As a principled "populist", I gotta say that while nobody enjoys seeing Bernanke sweating more than me, I was disappointed in Grayson's appeal to the lowest gutter of populism with his theme of (feel it foul your mouth before you spit it out) "Foreigners."
http://www.youtube.com/watch?v=97CnRWj2Y6c Ron Paul opening statement 21 July 2009. Texas style.
Can't help but wonder who is the amused blonde bird sitting on Ben's shoulder?
What we have is a new breed of power brokers in Washington. They answer to no one and spend the people's without concern for outcomes. But, this is the result of our apathy. We know what's coming but we hope that each of us individually will be spared of the problems. How sad.
It makes me happy that SOMEONE in Congress is asking these type of questions about the Fed and its operations.
Bernanke (paraphrase): We are doing something base on a 95 year old law. In addition, we think its a bad idea to be audited.
That's like saying you drive 75,000 miles on the same belts, oil and tires.
I agree with Whacked and am very disappointed in the majority of the comments on this page. Grayson is just politicking and trying to make Bernanke look bad (to paraphrase -"why are you giving $3,000 to each New Zealander instead of to US citizens who need the money") but it isn't working. Anyone that works in finance, or at least fixed income would understand the purpose of the currency swap arrangement. It's not a bailout of New Zealanders. And Grayson is trying to trap Bernanke with ridiculous questions because Grayson doesn't understand a thing. Leave it to a congressman from Florida, one of the more messed up States in this crisis to try and put blame on Ben. Anyway, people on the forum should really cut the whole global conspiracy theory routine and focus on fundamental facts adn figures. I used to enjoy the pieces and even some of the comments a month and more back but after reading these threads lately, it's a waste of time to read. I'll just stick to Rosenberg and other real analysis than what's been here.
Good day.
Anyone who works in finance should be able to see this crime for what it is. What is the purpose of the interbank market if central banks make agreements outside of it? Who makes up the difference in cash flows for these agreements? Does the FED send the bill to Treasury to issue the debt, so America can pay for the shortfalls when they are unwound? Is that why the Treasury Sec. has to be a banker now? A currency swap for a company and one for a Central Bank is night and day. Someone that works in finance should be able to see the difference.
dude, it's a swap, not a loan. with all this talk about usd losing value as we borrow too much save too little, shouldn't us be happy that other banks are actually willing to swap our usd with their currencies?
c-span 3? really? can't imagine there's THAT much going on to have at least three networks covering the action. i can't wait for "the ocho" a la dodgeball (the movie).
give 'em hell, alan!!!
Apocalypse now-
The line of questioning is important on Principle related to the authority of the secret/independent Fed. A better question would be related to the payments to foreign banks and corporations through the conduit known as AIG at 100 cents on the dollar despite typical counter-party risks. Also follow the money on all TARP payments and see where it leads. Had heard a rumor that we had exported our toxic AAA rated securities garbage throughout the world, and that a significant threat came back that was personal to individuals at the top. War or death if they were not made whole as it was considered financial war. Individual investors don't have that kind of power.
Someone will correct me if I am wrong, but this is what I believe happened: there was a glut of dollars worldwide over the last few years, and a belief that the dollar could only fall. Thus, many borrowers in Emerging Markets borrowed dollars from banks around the world (including tiny NZ), assuming that as their own currencies strengthened vs. the dollar the borrowers would be paying back in a declining asset.
Many of these emerging market borrowers were commodity based, and ALL of them started real estate bubbles within their own countries. When it all turned over and went bad, they could not pay back their borrowings. There became a dollar shortage, as well as fear of doing business with any other bank (all of whom were/are heavily exposed to emerging markets). Dollar Libor soared, and with it the dollar itself.
Bernanke's liquidity swap creation, which peaked at more than $550 billion (from $0 in November 2008) eventually put a stop to the dollar rise, saving (temporarily) the European banking system and guaranteeing a certain amount of inflation in the US, and re-igniting markets in oil and copper. So the US taxpayer takes the heat of higher energy and commodity prices all to help borrowers in Latvia, the Czech Republic, Hungary, Poland et al, and to help Euro Banks whose EM exposure varies from 25-80% of each individual country's GDP (UK, Sweden at 25%, Switzerland at 30%, Austria at 80% in GDP equivalent EM exposure).
What a hero, Ben!
Maybe Ben wants the dollars back before the euro crashes!