Fed May Inject Over $1 Trillion To Bail Out Europe

Tyler Durden's picture

As first reported here, two weeks ago European banks saw the amount of USD-loans from the Fed, via the ECB's revised swap line, surge to over $50 billion - a total first hit in the aftermath of the Bear Stearns failure prompting us to ask "When is Lehman coming?" However, according to little noted prepared remarks by Anthony Sanders in his Friday testimony to the Congress Oversight Committee, "What the Euro Crisis Means for Taxpayers and the U.S. Economy, Pt. 1", we may have been optimistic, because the end result will be not when is Lehman coming, but when are the next two Lehmans coming, as according to Sanders, the relaunch of the Fed's swaps program may "get to the $1 trillion level, or perhaps even higher." As a reference, FX swap line usage peaked at $583 billion in the Lehman aftermath (see chart). Needless to say, this estimate is rather ironic because as Bloomberg's Bradely Keoun reports, "Fed Chairman Ben S. Bernanke yesterday told a closed-door gathering of Republican senators that the Fed won’t provide more aid to European banks beyond the swap lines and the discount window -- another Fed program that provides emergency funds to U.S. banks, including U.S. branches of foreign banks." Well, between a trillion plus in FX swap lines, and a surge in discount window usage which only Zero Hedge has noted so far, there really is nothing else that the Fed can possibly do, as these actions along amount to a QE equivalent liquidity injection, only denominated in US Dollars. Aside of course to shower Europe with dollars from the ChairsatanCopter. Then again, before this is all over, we are certain that paradollardop will be part of the vernacular.

Historical ECB swap line usage with the Fed, and projected assuming $1+ trillion in use. Just to put it all into perspective.

For all those lamenting the ECB's lack of willingness to print, fear not: the almighty Chairsatan has vowed to valiantly take his place when needed. As in 2 weeks ago. From Bloomberg:

European financial companies led by Royal Bank of Scotland Plc were borrowing about $538 billion directly from the Fed when the central bank’s emergency loans to all banks peaked at $1.2 trillion on December 2008, according to a Bloomberg News examination of data released by the Fed under last year’s Dodd- Frank Act and earlier this year under court-upheld Freedom of Information Act requests.


The Fed hasn’t provided any estimates of how large the swap lines might get, said David Skidmore, a Fed spokesman. He declined to elaborate.


“To get above $600 billion wouldn’t be a stretch,” said Desmond Lachman, a former International Monetary Fund deputy director who’s now a resident fellow at the American Enterprise Institute, a conservative public-policy center in Washington. “You’re talking about a European banking system that is huge in relation to that of the United States.”


Josh Rosner, a banking analyst with New York-based Graham Fisher & Co., said the Fed’s swap lines may end up helping Europe support banks that might not deserve emergency loans.


“As a result of this commitment of financial support, we’re now supporting undemocratic approaches implemented largely by authorities who have demonstrated an ongoing inability to either recognize the scope and scale of the problems or come to a consensus on the proper approach,” Rosner said.


The ultimate size of the swap lines is “unknowable at this point,” he said.

For those wondering what all this means, we remind you that there was a roughly $6.5 trillion synthetic (duration mismatch) USD short as of 4 years ago, as we reported at the time. That short has gotten substantially larger following a 4 year regime of the USD as a funding currency courtesy of ZIRP. Which means that any time the liquidity shortage threatens to collapse the system, the first thing to go stratospheric will be the USD as the global financial system scrambles to cover its short. It also means that anything the Fe and/or ECB can do from a pure printing standpoint will be peanuts compared to the utter carnage unless the dollar short is not preserved. Which naturally means that it is up to the Fed to continue drowning the world in either nominal dollars, or swapped ones, such as under the form of a USD-EUR swap, which is nothing but a forward operations. In essence, with the FX swap lines, the Fed engages in the ultimate currency warfare tool: it sells dollars to the entities most needy. And it does so, because if it doesn't, said needy entities will implode, and the hollow financial dominoes will topple, leading to a mess that not even infinite synthetic or real printing of binary of paper dollars, euros, or anything else will do to fix.

Which is why all those wondering if gold should be bought now or the second after the ECB starts printing, we have one piece of advice: just look at the chart above. It says all one needs to know.

Lastly, since the Sanders testimony is worth a read in and of itself, we recreate it below. Some of the choice selections:

The Eurozone is teetering on collapse and it has been decades in the making. The cause of their problems is 1) excessive government spending leading to 2) excessive government debt coupled with 3) slow GDP growth.


If we look at Household and Financial Debt in addition to Government Debt, the UK’s Debt to GDP ratio exceeds 900%. Japan is over 600% and Europe is almost 500% Debt to GDP. The U.S. is over 300%. In summary, Euro, Japan and the U.S. are drowning in debt. And a recent article from economists at the ECB that finds:


The European Union will unify, break up or downsize. But regardless of what option they choose, they still have too much spending and debt relative to the ability to pay for it: GDP growth. But additional debt is not the answer. It is the problem.


The obvious solution is austerity (reduction in government spending). But  making loans to the European  Central Bank or individual countries doesn’t solve the underlying structural problems; it only makes the Debt to GDP problem even worse. It is simply a short-term solution and actually encourages the  Eurozone to delay making the hard decisions.

Full testimony:

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Spitzer's picture

Dollars to be printed to bail out Europe.

The ECB has the Fed by the balls.

Ahmeexnal's picture

Gold is collateral in this particular bailout.

Who's the smartguy here, Bernanke or the ECB?

All euro gold are belong to Ben!

High Plains Drifter's picture

no, all gold belongs to the rothschilds in the city of london...........

LasVegasDave's picture

couldnt resist another anti jewish dig, could you?

Man those Jews really have you beat down, dont they?

Cant say I'm surprised.

The Big Ching-aso's picture



 Europe will just give us I.O.U.'S.      I.O.U.'S in Europe stands for I Owe U Shit.

goldfish1's picture

Jim willie has a great essay on these events:


Pathogenesis of Central Bank Ruin

GetZeeGold's picture

Taxation without representation.....seems we've been here before.


Time to bring out the muskets again.....just in time for the new Gitmo law.

vipobviously's picture

Damn, I'm fresh out of flintlocks... anybody seen my powderhorn around here, I hear hostilities are afoot and I still need to sew my trouser button back onto me trousers. At least i figured out a way to eat gold

RemiG2010's picture

Well, it can be used as a fertilizer so defacto it's priceless!



Spitzer's picture

France destryed the gold standard by pulling out of the London gold Pool. They sent a ship to New York to pick up the gold.  It will be no diffrent this time.

The Fed needs to bail out Europe to save primary dealers.

Ahmeexnal's picture

like they saved MFGlobal?

dick cheneys ghost's picture

The fed will claim a bailout of europe, but the fed is only acting to protect the big banks that it serves........


jim rickards interview.........from friday..........



LookingWithAmazement's picture

The opposite: the French sent a ship for their gold because and after the Yanks destroyed the gold standard. De Gaulle was right.

Spitzer's picture

The LGP collapsed when france pulled out

Scottj88's picture

Ho Ho Ho....

Looks like there will be plenty of paper for the bonfires to keep us warm.


Here comes the Santa-Claus rally....

Long-John-Silver's picture

1 FED note = 12.44 BTU

This allows easy calculations of how many dollars you'll need for the stove.


phungus_mungus's picture

How the fuck does anyone really think they are going to pay this back? 

SAT 800's picture

Please, don't be naive. Who gave you the idea anyone was going to pay anyone back?

xela2200's picture

Just like the Jones next door. Once they realized that they won't be able to pay their debts, they maxed all credit cards before declaring bankruptcy.

vipobviously's picture

Could you name a time when any govt. has paid back its debts.. well i guess germany did that whole reparations thing, then sent the survivors repaid a tax bill with penalties for not declaring their"profits"

SAT 800's picture

"On the Fed side, it is clear that loans to the Eurozone could be problematic to the taxpayers"; uh-huh. Yepp. I call it bailing out the bond owning class at the expense of the taxpaying class.

johngaltfla's picture

WHEN, not IF they do it, the end of U.S. sovereignty can now be declared once and for all.

Perhaps a review of the Boston Tea Party story would be in order also.

Dr Paul Krugman's picture

That's ridiculous.  The Fed is swaping dollars for Euros.  It is an investment from which both will benefit.  The Euro will rise, making the Fed money, and Europe has liquidity, which they need to fund their banking system.

Since the Euro technocrats weren't going to solve the problem someone had to.  It's a good thing if the Fed has stepped in.

q99x2's picture

The Fed has lost its ability to support politicians. A new year is around the corner. God damn Mayans.

redpill's picture

Ben Bernanke should be tried for treason.

The Big Ching-aso's picture



Maybe he thinks the U.S. isn't his country so he can't be tried for treason.

xela2200's picture

The Fed and the Treasury with SDRs have in effect shorted the dollar. Euro under 1.30 for extended period of time will force the FED's hand. The currency war is a race to the bootom after all.




StychoKiller's picture

The Stupid is strong with this one...

jcaz's picture

Wow Dr Paul-  you're a really smart guy.... Doctorate?  Of what-  Religion?


my puppy for prez's picture

"Solve the problem" should immediately be replace with "kicked the can down the road".

vipobviously's picture

Hey John,

Does this mean states begin printing continentals or the like again? Do individual states loose soverienty, or just corrupt us gov departments? Do the people loose soverienty?


"...at the Revolution, the sovereignty devolved on the people; and they are truly the sovereigns of the country, but they are sovereigns without subjects...with none to govern but themselves; the citizens of America are equal as fellow citizens, and as joint tenants in the sovereignty." CHISHOLM v. GEORGIA (US) 2 Dall 419, 454, 1 L Ed 440, 455 @DALL 1793 pp471-472

The people of this State, as the successors of its former sovereign, are entitled to all the rights which formerly belonged to the King by his prerogative. Through the medium of their Legislature they may exercise all the powers which previous to the Revolution could have been exercised either by the King alone, or by him in conjunction with his Parliament; subject only to those restrictions which have been imposed by the Constitution of this State or of the U.S.
Lansing v. Smith, 21 D. 89., 4 Wendel 9 (1829) (New York)
"D." = Decennial Digest
Lansing v. Smith, 4 Wend. 9 (N.Y.) (1829), 21 Am.Dec. 89
10C Const. Law Sec. 298; 18 C Em.Dom. Sec. 3, 228;
37 C Nav.Wat. Sec. 219; Nuls Sec. 1`67; 48 C Wharves Sec. 3, 7.
NOTE: Am.Dec.=American Decision, Wend. = Wendell (N.Y.)

AssFire's picture

Oh the ECB is TBTF as well?? Those slimy bastards are well on there way with the open window. This should cause an uprising.. calling all balls, calling all balls!

hack3434's picture

Oh the ECB is TBTF as well?? 


Well yes...at 50X or so leverage  (LT)ECB  IS the world's 2nd biggest hedge fund. 

honestann's picture

End all central banks.
End the federal reserve.
End all fractional reserve practices.

my puppy for prez's picture

Great ideas.  But the PROBLEM is this:  You have a world full of people who have ZERO knowledge about these evils, so they don't have the first clue that they should only elect politicians (like Ron Paul) who are passionate about doing the above!

As long as governments are full of fiat-enablers, there will be NO real solutions!

And that is tragic...

rocker's picture

And Why Isn't Big Ben in Jail?

MsCreant's picture

Because he has the printer.

gbresnahan's picture

Surely not. Wouldn't this be considered treason?

user2011's picture

Is 1 Trillion is enough ? Greek, Spain, Portugal, Ireland, Italy, etc...

I thought it needs may Trillions.. 1T will only kick the bucket down a bit further.

If 1T fixes everything, China would have stepped in and buy some heroic points. I thought China, with 3T reserves, wouldn't even touch Europe with a long pole.

Someone correct me if I am wrong.

max2205's picture

Np... 1 trillion at 40x leverage = 40 Trillion. Problem solved

FEDbuster's picture

Rehypothecation, bitchez.

goldfish1's picture


rosiescenario's picture

"Now notional GDP is not the same as real GDP.  In other words, notional GDP is real GDP plus inflation.  If the Fed targets NGDP, what they are really saying is they don’t care about inflation anymore, they’ve given up.  I’ve said all along the Fed wants inflation and this is a way of getting it.  It’s also a way of destroying the debt by cheapening the dollar."


All you really need to know are the answers to these 2 questions:


1). Who benefits most from inflation...the debtor or the creditor?

2). Who has the printing press?


Though with this circle jerk of the Fed. buying Euros and the foreigners printing same as quickly as possible, maybe one doesn't need one's own printing press???

xela2200's picture

Jim Rickards makes a lot of sense. This video is a little dry at the beginning, but it gets very interesting at the end. This is the presentation he did for the military and other "intelligence" agencies. After watching it, I HOPE we really have gold at Fort Knox.


NumNutt's picture

So let me understand this...The FED will print a large some of monopoly money and give it to their European gang members at the ECB, so that they can then hand it out to the fools that run the in debt Euro nations. They will then in turn spend it like drunken sailors until it is gone in say..... a year? Maybe?  Then what? Oh yeah that's right now I remember! Then all of us tax payers can bend over and take it in the ass.  Hope they provide us all with the local rape crises 800 number so we have someone to talk to after this happens.

goldfish1's picture

After an infusion of $40 trillion monopoly money, they can buy your little house and hotels easily  now...all they gotta do is up the property tax so you HAVE to sell. Game over.