Although the euro is the dominant currency in Europe, a lot of debt in Europe is still denominated in dollars. The dollar being the world’s reserve currency and dollar markets being incredibly liquid, it just makes sense for a lot of companies to do business in dollars. But when a crisis hits and those businesses need dollars, they have to get a hold of dollars somehow. Banks in Europe have a limited supply, and once those dollars are gone, there is no dollar-printing central bank in Europe that can step in. Enter the Federal Reserve.
The Fed sets up liquidity swap lines with the ECB. These swap lines were, for many years, not highly publicized, and not even broken out as a separate category on the Fed’s balance sheet. That is, until the financial crisis hit and the swap lines rose to close to $600 billion. Even since the financial crisis they remain open, are periodically renewed, and occasionally still used, without much publicity.
A swap line is an agreement between the Fed and a foreign central bank to swap currency. For instance, the Fed creates new dollars, the ECB creates new euros, and they agree to exchange them. For the period of the swap, the Fed holds those newly-created euros as an asset, and the ECB loans those dollars out to firms that need dollars to make dollar-denominated payments. Presumably those firms are only in need of short-term dollar financing, and can pay those loans back. When the swap unwinds, the ECB then sends those dollars back to the Fed, the Fed returns the euros to the ECB, and the swap lines are drawn back down to zero. Sounds nice and easy, until there’s a problem.
Of course, there are many problems with swap lines. The inflationary effects of creating that new money and loaning it temporarily, the deflationary effects as it gets sucked back out of the system, and of course the fact that the central bank is picking winners and losers by determining which companies get to borrow those dollars. And those are just the problems when it is individual companies that are in danger of failing. Now we have an entire nation (Greece) that is in danger of failure, a nation that is in a currency union with all the other Eurozone countries. So what happens when (or if?) Greece implodes?
This drama has been going on for months, so maybe the big players have already minimized their exposure to Greece. Fed Chairman Janet Yellen seemed to downplay the importance of Greece when she was asked about it at her press conference on Wednesday. But what if this is a bigger problem than anyone realizes? I still remember getting called to a staff briefing in mid-2007, almost exactly eight years ago now, where committee staff on the House Financial Services Committee informed us that a little-known unit of Bear Stearns had gotten itself into a little bit of difficulty. Nobody seemed to think it was a terribly important issue, but they were going to monitor things. Little did we know that that incident was the harbinger of the financial crisis. Over the next year things went from bad, to worse, to catastrophic. It started small, but snowballed tremendously.
Now back to the swap lines. If you want to get a sense of the Fed’s involvement in Europe, watch the swap lines. Swap line data is published every Thursday afternoon on the Fed’s balance sheet, the H.4.1 release. If you look at the St. Louis Fed’s charts and data on swap lines, you’ll see the huge amount of swaps during the financial crisis, and then a smaller but still significant increase in swap lines during the first iteration of the Greek financial crisis back in 2012. While swaps have been relatively non-existent this year, there was a small blip back in April, likely Greek-related, and more importantly, another blip this week. While the amount, $114 million, is a drop in the bucket compared to what it has been in the past, this number needs to be watched. It could very well be an indicator of the Fed getting involved in Europe again. And if the doomsday scenario ends up taking place next week, expect that $114 million figure to skyrocket. The Fed seems to want the conversation to revolve around a possible upcoming interest rate hike, so it’s been relatively silent on the topic of Greece and its involvement in bailing out Europe. But even if the Fed doesn’t say anything about Greece, its money-printing to pump up the swap lines will do plenty of talking.
Hell yes it is all one financial and governmental system of economic interlinking corporations--fascists every bit as evil as NAZIs bitchez. And, they're planning to kill you but not me because the Q99X2 is/are headed to Peru.
WITH WHAT YOU MOOK!?
Oh yeah.. Central Planning will save EVERY FUCKING THING
Duh duh duh duh
Do you morons really believe THEY are so omnipotent ??
Idiots
Below is what I posted, in its entirety, 9 days ago on ZH (I bolded the most relevant part). I was only joking, but I guess the fucking joke is on me, as a US taxpayer. Unbelievable....
"Greece should be added as the 51st state in the US. Hell, why not, Greece is even better than the US at getting themselves in trouble over debt up to and past their fucking eyeballs, so Obama could learn from Greece how to fuck-up the US even more (which does seem to be his goal). And Greece's debt issues could be resolved with a QE rounding error for the US, easily absorbed. Pull Greece from the EU, tell Europe to stuff their euros up their asses, and use dollars as the new Greek currency. Then, let Putin run his gas line through Greece anyway, just so Obama can say he actually worked with Putin one fucking time. Greece could also be the new American getaway location for bored Floridian retirees desiring easier access to Europe - no passport needed for Greece ! .... Yes, I know, this is a crazy stupid idea and I don't even know why I wrote it up except it was fun to do and I've had a few too many Coronas today."
So why does Utopia always end in the Killing Fields ?
trick question.
FUCK THAT!! I am sick of US bailing out people.
It's standard procedure...
This is NOT ABOUT GREECE.
Douchebunk made some very bad bets on Oil Futures (Derivatives)
There is not enough money in existence to bail out the massive Derivative Market Collapse heading our way like a Tsunami.
The Goose has been cooked, but, I am sorry. There is not enough room at the table for you.
How do you like Crow? Well done I presume?
An old Klingon proverb tells us that revenge is a dish that is best served cold. It is very cold in space.
DB has more derivative exposure than the entire GDP of Germany. Worldwide derivatives are about equal to world GDP.
To visualize the derivative market, think about the mousetrap / ping pong ball videos seen on YouTube....lots of traps ready to spring and set off others. Will Greece be the starting ball? Or, will it be some other event?
It is nice choice, making more income $67 a hour from computer at home. My sisters friend has been earning 20k for a months and she works about 15 hour a working week. I make 10k last month, it is in real easy and meaningful , here you can checking... www.earnmore9.com
There is no money to bail them out, just print the fuck'en stuff " WHATS THE DIFFERENCE "
Cough...
How many Greece stories so far today? Kardasian ass. Dickless Jenner. Bankrupt Greece. Got it. Dancing with the Stars at least has the decency to change the freaks.
Just buy it bitches! https://finviz.com/futures_charts.ashx?t=CL&p=m5
We already are bailing them out. These banks get free money from the Federal Reserve... BNP Paribus, Barclays, Deutshce Bank, Credit Suisse, HSBC, RBS and UBS.. They are all foriegn banks. Who do you think has been buying all those bonds. Why the fuck do we give these banks money at all? Where is there a Paribus or Credit Suisse bank branch in the United States? Or any of these banks? They have an office on Wall Street and that entitles them to free FED funds.
These banks would never grow too big to fail without FED. Banksters for banksters.
I've seen Credit Suisse on Palm Beach island, see they do have branches.
Yes they will.....its all in the game....to save the system they will say...
The depth of american taxpayer pockets is exceptional.
Money for nothin and the risk for free.
Printing is the new Easy Button
There is only ONE central bank. You may think I'm crazy but in reality if a European, Japanese, or British bank can borrow money from the FED, simply by having a bank in the US, than there is only one central bank. Its the same families that own the banks and since the banks own the central banks, well you get what I'm saying.
Sure there might be different oligarchs around the world but the majority of corporations, and banks are owned by a minority of people. Its really quite that simple.
The author has written as if dollars equal to the notional amount of the swap is created out of thin air. ZeroHedge, is that true? then that is a huge huge problem ... why did not not correct the author otherwise?
http://just-a-thought-from-thinair.blogspot.com/
Can't rule out the following in my view:
1. DXY heads to 120 for several reasons to include the simple and literal demand for USD in a global extinguishing of USD denominated positions
2. Global margin call in essence that takes down all assets hard to include PMs in fact maybe even more so with PMs
3. Limp dick, semi-castrated Fed that for a variety of reasons can't yet pull another QE outta its ass or may never again be able to do so
Possibe, but WWIII will probably come before it happens.
Gold is the only currency in war.
Appears to be a swing and a miss so far with Ukraine and Syria.
Believe me I'm not inhaling a different version of hopium but there do appear to be signs that the Cabal's ability to snap its fingers and create war is weakening and hence the nonsense race baiting in Ferguson and this recent shooting (not to mention Ebola). Why the gimmicks if everything is business as usual (for the Cabal)?
"Who will pay The IMF? Why, that's simple, the good ol' American taxpayer thanks to The Fed's lifeline..."
The price of Empire?
{shrug}
Its a lil late to ask that question NOW after we've extended the EU trillions* of dollars in credit for their book of US immigrant loan fraud
Answer: Yes. It will be funneled through TPP. Guess who pays?
Bingo! And at some point in the near future we will be told that had it not been for the foresight of our dear leaders in passing this, there would be a depression in EU which would spread round the world. The day has been saved once again! Sure, there will be more "temporary" printing measures but the alternative is gloom and despair. And since there's no inflation anyways, the economy and the USD can handle a little extra cash sloshing around. Besides, it will wind up in the NYSE and your 401K will go up! Yea!
Moral Hazard Bitchez !!!!! Why wouldnt they allow default? Fed underwrites everything.
If??? Have already, we are just not privy to it, as the FED is above any petty transparency.
Leave no Eurotrash dependant behind.
I can care less, we warned you. Now you pay into Wealth Redistributing in the form of your paycheck.
I hate to tell you this but most countries have been paying these oligarchs for decades
Yes, will call it humanitarian aid. Must not let the Bears and dragons win.
Saudi Mercan I$I$ "backed" IOU blood-spattered USer toilet paper triple-ply fiat dollah of the Anglozionazi Empire of Chao$ printed ad nauseam is going to er.........bail out the €uromercan toilet paper clogging up the Ponzi crapper of the shaman banksters in the Potemkin Village of rigged market "Western capitalism"? That is bipolar BS!
Bring on the Goldman Suck$ tsunami of toxic derivative filth already and wash this sewer clean!
Your comment rates right up there with the best of Zerohedge.
It is clear, concise and to the point. Bravo!
I have a question:
Are the bail-Greece money going to US banks? Because EU and IMF gave Greek banks 240 billion euros to keep them alive and the money "disappeared" but many say that after 2010 the real owners of Greek private banks are some big Wall Street banks! So are the 240 billion euros already there in NY?
More to the point. Did it ever leave?
Sounds like the US is going to bail out the EU, then fight China/Russia, leaving just the EU to become the new empire.
The FED will do a GARP!!!!!!!!! The Greeks and Europe know this and all the rhetoric is just smoke and mirrors. Of course the Greek government may well sign over the rights to their mineral deposits off the coast. We FED bailed out Europe in 2012. Red vote me all you like it will happen. The banking system rules this planet and the sheeple cannot have the system collapse.