The Fed's Bailout Of Europe Continues With Record $237 Billion Injected Into Foreign Banks In Past Month

Tyler Durden's picture

Last weekend Zero Hedge once again broke the news that just like back in June 2011, when as part of the launch of QE2 we demonstrated that all the incremental cash resulting form the $600 billion surge in the Fed's excess reserves, had gone not to domestically-chartered US banks, but to subsidiaries of foreign banks operating on US soil. To be sure, various other secondary outlets picked up on the story without proper attribution, most notably the WSJ, which cited a Stone McCarthy report adding the caveat that "interpreting the data released by the Federal Reserve is a bit challenging" and also adding the usual incorrect attempts at interpretation for why this is happening. To the contrary: interpreting the data is quite simple, which is why we made an explicit prediction: 'We urge readers to check the weekly status of the H.8 when it comes out every Friday night, and specifically line item 25 on page 18, as we have a sinking feeling that as the Fed creates $85 billion in reserves every month... it will do just one thing: hand the cash right over straight to still hopelessly insolvent European banks." So with Friday having come and gone, we did just the check we suggested. As the chart below shows, we were right.

Another way of showing what has happened: in the past 4 weeks, the Fed has injected a record $237 billion of cash into foreign banks with access to the Fed's excess reserves: a number greater than both the cash influx surge seen after the Lehman collapse, and faster and more acute than the massive build up of cash during the spring and summer of 2011 when all the Fed's brand new QE2 cash was once again, solely used to overfund European bank cash.

Another way of showing precisely what we said would happen, and what is happening: in the past month, as $237 billion in cash was being handed over by Ben Bernanke to foreign banks, cash to both small and large domestically-chartered banks declined.

The result is that of the record $1.8 trillion in cash sloshing within the US financial system (consisting of US and foreign banks), a record $955 billion, or 52.6% of total is now allocated to foreign banks.

Do we know that the cash in the US financial system is purely a result of the latest open-ended QE? Yes we do, because as the chart below shows, every dollar change in excess reserves created by the Fed is tracked tick by tick by the total amount of cash held by US and foreign banks. And as the yellow area - foreign bank cash - in chart further shows, all the cash generated by QEternity has gone straight to foreign banks.

Another way of showing this correlation: the change in excess reserves vs just the change in cash assets held by foreign banks. There is no doubt on which banks' balance sheets the Fed's "excess reserves" are appearing as cash.

Finally, as a reminder there was a second part in our forecast as to what these European banks will do with this fresh prop-trade funding cash courtesy of Bernanke - they will "push the EURUSD higher, until, as in the summer of 2011 it goes far too high, crushes German, and any other net European exports, and precipitates yet another wholesale bailout of Europe by the global central bankers. Just as the Fed did in 2011."

Sure enough, it required the intervention of none other than Mario Draghi last Thursday to stop the massive, sharp ascent in the EUR in the past two months, which as we showed in the morning before the ECB's announcement on Thursday, had resulted the EUR surge by over 10% on trade-weighted terms. The reason for this intervention: to prevent the collapse of what little is left of Europe's export economy. However, unlike previously, now that Japan is also actively crushing its own currency to promote its exports over those from Germany and France, things will be just a little bit more acute as everyone scramble to be the exporter of only resort to what little import demand remains in a world where everyone is desperate to grow their trade balance through currency manipulation.

So whether European banks will continue buying the EURUSD, or redirect their Fed-cash into purchasing the ES outright, or invest in other even riskier assets, remains unknown.

What is, however, known beyond a reasonable doubt is that at least through this point, the sole beneficiary of the Fed's open-ended quantitative easing which launched in September of 2012, and which was supposed to help lower US unemployment and raise inflation (it will certainly succeed in that eventually, and what a smashing success it will be), are once again solely foreign - read almost exclusively European - banks.

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Shell Game's picture

The Status mother-fucking Quo must go on..

JPM Hater001's picture

How do I qualify? I can speak like a frenchy if need be. The maid outfit may be needed

HoaX's picture

Soz, we got eight countries lined up already. Get in the back of the queue behind Albania.

Cheers, the EU.

Joebloinvestor's picture

Zero Hedge, showing others what they chose to ignore then realize they shouldn't.

They should at least give ZH credit.

Cdad's picture

Ben Bernanke and the Federal Reserve Bank have become nothing short of a massive national security risk.

sessinpo's picture

To who?


For you and I, yes. For them, no.

l.kimbot's picture

off topic, Tyler's, can we lose the supremely annoying  popup ads!

Silverhog's picture

Whats the matter with single asian girls trolling for a blog dork like me..................

Jacque Itch's picture

Yeah man.  That's the only action I'm getting this weekend.

From Germany With Love's picture

You don't use an ad blocker??

Motorhead's picture

I don't get any pop ups (well, sometimes Paul Krugman pops up)...might be your settings.

medium giraffe's picture

If you are using ie9, just go here (this list is specifically for ads):

Click on 'Add TPL'. It's legit and has MS blessing. Just adds a list of site exclusions to your browser, no software - tada! no more ads :)

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Info on MS site re. TPLs:

Simples! :)

chubbyjjfong's picture

Anger doesn't cut it any more.. its just plain sad.

falak pema's picture

the current Achilles heel to this Euro construct : the Feb elections in Italy.

Read this : Update: Italian Election Chart - Business Insider

What Pax Americana NWO  wants is soft, corpo, global corporism under CB coordinated control. But what could upset the apple cart NOW is Europe going viral  : into National socialist type narrow corpo fascism, à la Berlu/Farage/LepeN.

That is the NWO globalist nightmare in Eurozone. 

As far as the people of Europe are concerned its a choice between the Plague and the Cholera! 

Tyler Durden's picture

Or, one can stay away from tabloids, and find a far more in-depth analysis of the Italian elections on Zero Hedge:

An Italian "Hung Parliament" - Europe's Biggest Political Risk

Atomizer's picture

Another wall of mirrors the lemmings will walk down to support a bloated EU government expense.


Finding a new revenue source stream has turn out to be a US TV commercial.

Spray paint the debt problems away

Ham-bone's picture

IS this also a pass through for LTRO repayments???

FL_Conservative's picture

Congratulations, Hambone.  I was scrolling through here to see if anybody brought that up.  That's exactly what this is about.  The Fed funding LTRO repayments, making the world think that the Euro banking system is healing because they were able to repay more than what was anticipated.  I wonder how the average "Merkan" would feel if they knew that they were going deeper in debt to bail out Europe because the fucking Fed decided that was a good idea.  And some folks want to know why we want to audit the Fed.

medium giraffe's picture

Hey, good call Ham & FL, I was wondering where all the cash was coming from.  Dunno why I didn't put two and two together. Thanks.

Totentänzerlied's picture

"That is the NWO globalist nightmare in Eurozone."

Yes, having a few left-wing authoritarian client-states states become right-wing authoritarian client-states would be so awful!

falak pema's picture

there are no left wing authoritarian states currently in europe! Even France or similar "socialist" countries have their hands tied in bankrutpcy and are slaves of the oligarchy construct where all the money is ; until it isn't...

They are all on the Global page today, more or less! And the knee jerk is coming from national socialism, which is NOT social democracy. 

Thank you Tyler, I missed that post! 

And, about tabloids : Its never wise to not have a skeptical but open look on all sources of info, however good or bad...just saying. Nobody is perfect. 

disabledvet's picture

"slavery in the modern age." hmmmm. there is much to be argued for (as correct EMPIRICALLY...not morally) in this regard. the headline sounds outrageous...but when you realize the bulk of those excess reserves are then turned around and used to buy treasuries you really see how "this Scam of the Century" is happening...well, it's not as "un-American as it sounds" i guess i would say. A true "bitches brew" of debt debauchery. Doesn't change the reality of the USA having to "pay its bills"...or as Bruce has so rightly pointed out here vis a vis Social Security "our obligations." i still think the fly in this ointment is a COLLAPSE in prices however...and Venezuela is definitely a move in that direction. (not for Venezuelans of course.) Clearly someone in the USA has their (pure evil) thinking caps on though. "Sure smells like someone from New York City." Again i reiterate my position..."if i were advising the President i would be telling him to build the biggest Army and Navy imaginable." Since i am NOT advising the President however (at least not that i am aware of) i guess we'll just have to go "full on Bill and Hillary" here.

falak pema's picture

Kings and Emperors when they went bankrupt made war...just saying. Again and again in history. So you don't HAVE to pay your debts...

New Rome always has that choice; but its not a winning choice, based on self destruction of democracy and home middle class. If the US oligarchy feels thats an option then it will use it, if it can get away with it.

disabledvet's picture

"if it isn't being reported does it even happen." hmmmm. the whole thing sounded impractical...ludicrous...when they first started it. (QE 1). Point being "everyone has to be on board the US Treasury debt train." Certainly Japan and China would be all for it. When you go down the "list of thieves" its actually quite long. ANYONE who having made a product now wishes to sell THEORY...could be on that list as well. Clearly "they got lucky with equities." Once you get a boom in that space "that sucks up all the available product and moves prices higher at large." I still don't think they have an answer to falling prices though. "Outta bullets." Capitalism wins no matter how you cut it. "The State is nothing more than a vessel for debt containment." Sure..."cut the Social Security check." But everything else is a "for profit enterprise" with Barak Obama and the Clintons as "your patsy." Go long the Kennedy Center for Performing Arts i guess...

smacker's picture

There are only Left-wing authoritarian states in the European Union. Even those who label themselves as political 'conservatives' (eg Cameron's coalition in the UK, Rajoy's lot in Spain and Merkel's grupenzoids in Germany) are all in reality, Left-leaning at the very least. We have no political party anywhere in Europe that believes strongly in the principles of the Right, if we ever did. Economic collapse has forced them all to display their true colours.

nmewn's picture

Here's a "little" diddy...

"This is not to say that the Nordics are shredding their old model. They continue to pride themselves on the generosity of their welfare states.

About 30% of their labour force works in the public sector, twice the average in the Organisation for Economic Development and Co-operation, a rich-country think-tank. They continue to believe in combining open economies with public investment in human capital.

But the new Nordic model begins with the individual rather than the state.

It begins with fiscal responsibility rather than pump-priming: all four Nordic countries have AAA ratings and debt loads significantly below the euro-zone average. It begins with choice and competition rather than paternalism and planning. The economic-freedom index of the Fraser Institute, a Canadian think-tank, shows Sweden and Finland catching up with the United States (see chart). The leftward lurch has been reversed: rather than extending the state into the market, the Nordics are extending the market into the state."

"Why are the Nordic countries doing this? The obvious answer is that they have reached the limits of big government. “The welfare state we have is excellent in most ways,” says Gunnar Viby Mogensen, a Danish historian. “We only have this little problem. We can’t afford it.”

Well, yeah, there is always that one little

smacker's picture

The Nordics (not really part of Europe) are seeing sense, but they have some way to go after years of the top-down socialist model.

A documentary recently revealed that Finland (and I guess other Nordics too) suffers from a quasi-fascist mindset. On the say-so of a neighbour (perhaps with a grudge), there are stories of kids being forcibly taken away from parents by Social Services on spurious grounds of bad parenting and into State care. The State wants kids to be brought up strictly in accordance with its requirements (aka brainwashing) and are reducing parenthood to little more than a State means of producing future workers. The Secret Family Courts in Britain are doing similar things since the last Labour Govt.

Jason T's picture

The disintigration will continue.. and there is no power great enough to stop it.  

bankers will panic our of their asses soon enough. 

blindman's picture

job production!
price stability!
[KR404] Keiser Report: Wicked Debt Web

ekm's picture

When are you people going to believe what I've been saying.


QEs have only one and one goal only:

To monetize the bets, not the debts of the primary dealers.




These banks have done trillions in interest rate swap and credit default swap bets that the Fed is monetizing by order of the White House and Congress. Hence current hyperinflation in crude oil and food and commodities.


QEs never had a goal to fix the economy. The only thing QEs were and are good for, is to monetize the bets, not the debts.



Wake up. It's all about derivative bets, it has been, it is and it will be. And everything is in the hands of the White House and Congress, not the banks. The banks are screwed.

ekm's picture

Let me repeat this again:



ekm's picture

Debt can be easily handled. There are bankruptsy laws for that.


Bets with chinese and russian state owned banks are a geostrategic issue, not a legal issue, hence White House and Congress involvement.

Joe moneybags's picture

Too much shouting, and condescension, ekm.  You have a good point about the derivative nightmare, but don't talk down to the ZH audience.

ekm's picture

Point taken.

Bottom line, $85b/month is what western major banks need to pay for losses of derivative bets.

It is this simple.


Atomizer's picture

If a derivative falls in a forest and no one is around to hear it, does it make a sound?

ekm's picture

I love metaphors but this time I don't understand.

Please clarify.

Atomizer's picture

You don't understand your very own post?


$85b/month is what western major banks need to pay for losses of derivative bets


Simple mathematical equations have now become a job creation outlet for the Special Olympics.  Shakes my head!

ekm's picture

Ah I see.

Well, Atomizer, my formal education is engineering. Didn't pay much attention to learning about rhetorics. On of my biggest mistakes.

ekm's picture

And of course, all the other europian shit, like LTRO or ESM of anything else, has one goal only, pay for eurobanks derivative losses of bets.

Atomizer's picture


Not criticizing you, just poking you into the right direction. Just open your eyes, you can see it clearly.  many are scared shitless, hence the disarmament motive goals.

disabledvet's picture

"if it isn't reported on by ZH and ZH'ers did it ever actually happen?" In other words "if it isn't perceived as happening" don't we all just go on our merry way none the wiser? There is MUCH to be said...both in what you say ekm...and what has been said in response. "Par for the course" is acceptable in finance as well as golf? Hmmm. Boy. VERY interesting. Is the transportation space "the asset" used to back this whole debt boondoogle? sure...SOME banks get screwed (through the loss of the "borrow short to lend long" spread trade.) on the other hand if you're the Bank of North Dakota "it's like you died and went to heaven" They're sitting at a "crossroads" or "trading station" as it were...a place where goods are exchanged...and hence where capital is extended "freely." and CHEAPLY. They could build a space port out of their old ICBM launch silo's or something. anywho "i still thing Islam will order the attack." whatever the details "that has been the plan all along."

tip e. canoe's picture

if a Bearnank pays full price for a piece of shit security, does it still stink up the joint?

davidsmith's picture

You are absolutely right, and my God, how much in bets are we talking about now, $14 quadrillion? $21 quadrillion?  Let's see the research on THAT.  It's the only thing that matters.


There's revolution or starvation: no third way.

ekm's picture

It is gradually looking that way.


Increase of food stamps accompanied by executive order aiming to ban guns. It smells.

ekm's picture

700 trillions as per BIS as reported over and over and over by ZH.


I get enraged when some people say that the Fed has contained inflation. Whaaaat?

Crude oil is in hyperinflation, commodities are in hyperinflation. Food is in hyperinflation. And all because of lost bets.

If it weren't for the food stamps, you'd have had revolution by now.