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Fed Swap Lines Jump 59% In A Week As Japan Shows Its Hand

Tyler Durden's picture


It seems that it is not just the Europeans that are USD cash starved heading into year-end as the Swiss and Japanese gorged themselves on two-week maturity FX swap lines during the last week. The total outstanding under the Federal Reserve's USDollar Liquidity Swap Operations jumped from $62.599bn to $99.823bn - or more than 59% during the week ending 12/28. Admittedly, the size of the additional Swiss draw-down, $320mm more compared to $75mm the previous week, is a drop in the bucket compared to the ECB's additional $33bn this week. However, the more-than-$9bn additional draw-down by the Bank of Japan perhaps helps explain why USD-JPY cross-currency basis swaps eased so much this week (as the desperate need for USD through this counterparty-risk-exposed form of funding reduced by around 12bps or more than 25%). Perhaps it is time to take a closer look at some of the Japanese banks as while the stigma of borrowing from these lines is talked down, clearly there are funding/liquidity needs that are rising dramatically.

From the Fed's website, the scale of the jump in the swap lines is evident for Europe and Japan.

While the velocity of the initial moves is not quite as historic as the Lehman moments, it is starting to gather pace - now above the pre-2008-crisis starting levels.

And the rise (an improvement) in the USD-JPY basis swap up to the 12/28 break is very notable as banks preferred to spend a little extra (58bps for 15-days versus 32bps for 3-months) and avoid the longer-term currency exposure (and counterparty risk) of the basis swap in favor of the Fed's visible hand.


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Thu, 12/29/2011 - 22:52 | 2020868 trav7777
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75% of world debt, bitchez

Thu, 12/29/2011 - 23:41 | 2020963 phungus_mungus
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So, eseentilaly the worlds economy is being held together by baleing wire, duct tape and the Feds LSO's... wonderful 

Thu, 12/29/2011 - 23:49 | 2020973 Mr Lennon Hendrix
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Bernanke makes it rain like Lil' Wayne in da club!  Shots, bitchez!

Thu, 12/29/2011 - 23:55 | 2020977 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

....I guess I mean swaps....

Swaps, bitchez!

Fri, 12/30/2011 - 03:23 | 2021107 macholatte
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Hungary is poised to drive another wedge into a rift with the European Union and international lenders when its parliament on Friday passes a controversial law limiting the independence of the country’s central bank

Thu, 12/29/2011 - 22:53 | 2020870 old naughty
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...and you heard Japan is making billion-dollar deals with China and India, separately?  Hummmmm. All currency trades.

Thu, 12/29/2011 - 22:57 | 2020878 chump666
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Both China and India have been leaking liquidity for mths.  Especially China, a paranoid attempt at securing flows back into China, India, cross boarder swaps, loans in Yuan etc.  The whole world will go USD mad in 2012.  If there is a war in the middle east, China crash

Thu, 12/29/2011 - 22:58 | 2020881 old naughty
old naughty's picture

hummmmm, usd bullish, au correction continues?

Thu, 12/29/2011 - 23:30 | 2020943 chump666
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might be bid too. I think we are heading to war next year, either in Asia or the middle east. That the case, USD and gold will be bought en masse.

War bet: China vs India and Israel US vs Iran.  Odds?  High.  Time: Maybe early 2012 say Feb/March.



Thu, 12/29/2011 - 23:55 | 2020982 sitenine
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Israel US vs Iran!  Yes, it is inevitable.  Panetta will lead the charge:

China vs India?  I fail to see why or even how, as they are the closest members of the BRIC.  Perhaps you can share some insight on that assertion?

Fri, 12/30/2011 - 00:21 | 2021006 RichyRoo
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Iran v Israel wont work. Theyre too small, and it too obviously drags USA and China into direct conflict, which China knows it cant win. Russia is the wildcard there. The banksters dont like it because they cant lend money to Iran (no central bank) and so arent guaranteed a profit and it wont significantly reduce world population. Also its just too obvious a plot line, Iran is just a red herring distraction I reckon.

China v India: Has historical precedent, India are still pissed off about losing the war in the 1960's. It will likely be Pakistan (close China ally) who drags China into the fight. China cant get its troops accross the Pacific to USA, but it might be able to use its overwealming ground forces against India. So its a fight China might win. The banksters love it because they can lend money to both sides (cant do that in Iran, no central bank) and the elites generally love it because it clears up possibly 500,000,000 lives in the process reducing population pressure (theyre crazy about that shit) plus neither side is white or Jewish!

So I reckon the next big war will be India V China, with USA military industrial complex profiting supplying India with material (but not US troops), bought with money borrowed from fractional reserve banksters, who will also be lending to China. Oh and it has the added benifit of setting the two 'up and commers' for global dominance against each other which protects US dominance, win win win win for everyone who counts (sorry if ur an Indian or Chinese soldier or non-elite citizen though, for you its lose lose lose lose die).

Fri, 12/30/2011 - 01:00 | 2021035 eurusdog
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It won't be China provoking India, but the other way around. Water!

Fri, 12/30/2011 - 01:06 | 2021040 qussl3
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Those dams upstream of the ganges are pretty damn provocative if you ask me.

Fri, 12/30/2011 - 05:54 | 2021165 magpie
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As if the USA would still be "allowed" to sell India arms at that stage anyway.

Thu, 12/29/2011 - 23:16 | 2020916 fonzanoon
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Japan owns a trillion dollars worth of US fukin starved? WTF!?

Maybe sell some?

Thu, 12/29/2011 - 23:33 | 2020946 CreativeDestructor
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Anyone surprised by Japanese going full retard?!
And min fin tries to make JPY weaker without success for months?
Let them buy USD sell JPY you morons!

Thu, 12/29/2011 - 23:51 | 2020976 slewie the pi-rat
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this arrangement raises cash for japan and keeps the Ts off the auction block

i wonder what was "swapped"?  be funny if the chairsatan was only accepting US paper, eh?  maybe some of the US "problem (mortgage-backed/fraudulent) paper"? the fanny & freddie garbage that "snuck by" our trusty and vigilant public servants?  TEPCO paper or an isotope thereof?  mediterranean sausage?  sardine futures? 

if i think about what tf is out there for about ten minutes, i start thinking of visiting ye olde coyne shoppe!

Fri, 12/30/2011 - 00:33 | 2021019 Mr Lennon Hendrix
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pay the pirate some green

Thu, 12/29/2011 - 22:54 | 2020871 earleflorida
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one world,... one love - let's get together, it'll be alright

Thu, 12/29/2011 - 22:53 | 2020872 chump666
chump666's picture

Good post.

Yeah it's gathering pace, if Japan goes all USD Asia has been for the last 4mths.  We good see a lehman spurt.  As you mentioned pending Japan banks, but also Korean banks and China banks, Tawian etc etc etc

Thu, 12/29/2011 - 22:57 | 2020879 old naughty
old naughty's picture

nah, just cover up...war drum beating in NE Asia.

Thu, 12/29/2011 - 23:11 | 2020903 bobert
bobert's picture

The heir, Kim Jung Un looks ill.

I can't help but wonder what would wipe that desperately sad look off his face.

Perhaps someone should buy him an I Phone for his birthday.

Thu, 12/29/2011 - 23:39 | 2020959 Manthong
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Here he is in happier times.

Thu, 12/29/2011 - 23:46 | 2020972 Bindar Dundat
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Thu, 12/29/2011 - 23:12 | 2020887 DormRoom
DormRoom's picture

swap lines are hillbilly heroin for central banks.


One, or more CB increasses money supply, and swaps with another central bank, to prop up shadow banking.

World economy requires a cleanse to get rid of rampant mis-pricing and capital misallocation over the last 25 years (3 bubbles: {, real estate, commodity via 2xETFs & collateral trades}). worldwide, How much flow is going into unsustainable business ventures, or purely for finance churn, so the corprotocracy & big banks can collect bonuses, and exercise options.

see: latest web2.0 IPOs

What's missing is the link between money & flow to productive enterprises.  money has disassociiated with produciatiive value, and is now more anchored in synthetic 'trades'.


fiat currency is becoming like monopoly money,  since both are no longer rooted in any production, but games, and false ious.  Modern financialization has no productive value, other than setting up an elobarate game, to mask the fact that it is a game.


7 Trillion in derivatives speaks to this fact.

you can't argue with math. the day of reckoning is coming.  Either hyperinflaition or  a great deflation.  The mob will come.

shut it down.


Thu, 12/29/2011 - 23:14 | 2020910 bobert
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And now you understand more what is meant by, "the love of fiat is the root of all evil."

Thu, 12/29/2011 - 23:15 | 2020911 vast-dom
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productive enterprises? u jest, right? how much is on TeH Fed's shadow books in derivatives now? It is beyond illegal what TeH Fed is engaging in........ 

Fri, 12/30/2011 - 00:30 | 2021017 youLilQuantFuker
Thu, 12/29/2011 - 23:16 | 2020913 PulauHantu29
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Trillions printed but little has entered the system I'm thinking mostly due to pay down debt and avoid defaults. When these Trillions increase the trickle into circulation (velocity) we will see strong inflation.

Look at Vietnam where their CB prints to avoid deflation....>19% inflation. This is one reason Vietnam is encouraging its folks to buy gold from what I've read but you'll have to ask a Goldbug for those details.

Thu, 12/29/2011 - 23:22 | 2020931 DormRoom
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The Billion Prices Project is an academic initiative that uses prices collected from hundreds of online retailers around the world on a daily basis to conduct economic research

Thu, 12/29/2011 - 23:21 | 2020928 ThrivingAdmistC...
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I agree.  There is so much easy money following through the system with every government on earth just pumping more and more.   A systemic economic collapse will not be that far away imho.

Thu, 12/29/2011 - 23:27 | 2020936 DormRoom
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typo.. 700 Trillion in derivatives speaks to this fact.

Fri, 12/30/2011 - 11:42 | 2021632 Socratic Dog
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What's a couple of zeroes between friends?  I mean, a zero has no value, so just tack on a few, it makes no difference, right?

Thu, 12/29/2011 - 23:04 | 2020889 Eireann go Brach
Eireann go Brach's picture

Question of the Day? ...Where the fuck is Corzine and why has he not been beheaded Braveheart style with his ugly fucking head delivered on a platter at some Christmas Party in New York! Picture some politicians ugly old wife with a poodle stuffed down her shirt and her horrible old titties tucked into her shoes going to open the lid of the fine prime rib on display, and there is Corzine's head in full glory LOL!

Thu, 12/29/2011 - 23:07 | 2020896 Dingleberry
Dingleberry's picture

No major banker-wanker has gone to jail for anything yet......why should we expect Corzine to get his ass pummeled??? Someone wake me when the law applies to the Wall Street wankers and their City cousins......

Thu, 12/29/2011 - 23:31 | 2020944 ZippyDooDah
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Wank this, banker scum!

Thu, 12/29/2011 - 23:17 | 2020918 bobert
bobert's picture

Who's Corzine?

Mind numbed America's memory lasts only a few days.

Don't worry, however, everything will be alright.

Fri, 12/30/2011 - 00:57 | 2021033 Caviar Emptor
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Back in the day Corzine was easy meat for any ambitious politician, DA, lawyer to make a name for himself. But the world has changed. Prosecuting Corzine might get you JFK'd. 

Thu, 12/29/2011 - 23:03 | 2020892 Squishi
Squishi's picture

don't touch the sacrosanct 

Thu, 12/29/2011 - 23:14 | 2020897 Jlmadyson
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100B already, shiiiiiiiiiii.


Payday is going to be a B come March.


I think you mean 700 trillion in derivatives. Probably well over 8 heading for the big Q soon enough.

Thu, 12/29/2011 - 23:16 | 2020912 PicassoInActions
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amd USD is down vs JPY.. wtf..?

Thu, 12/29/2011 - 23:18 | 2020921 bobert
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Maybe Fukishima is fixed and all cleaned up.

Fri, 12/30/2011 - 00:29 | 2021014 Mr Lennon Hendrix
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Dollars have been lent and relent so the velocity has increased=weaker dollar

Bernanke is sitting on his foreign reserves like a fat man on a football

Thu, 12/29/2011 - 23:19 | 2020924 kito
kito's picture

Who knew the central banks were into bartering......

Thu, 12/29/2011 - 23:25 | 2020934 fonzanoon
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This just in:

"Japan to sell 500 billion of US treasury reserves to meet cash crunch, says it can't be concerned with impact on interest rates in US"

  - FT (Fonzanoon Times)

Thu, 12/29/2011 - 23:32 | 2020945 Mister Minsk
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Kamikaze style in full force!

Thu, 12/29/2011 - 23:37 | 2020950 AUD
AUD's picture

What would be really interesting to know is just what 'assets' are these banks holding that causing a need for USD loans from the central bank. Do they have a cross currency liability or is it USD denominated 'assets' going down the toilet?

Fri, 12/30/2011 - 01:00 | 2021036 Caviar Emptor
Caviar Emptor's picture

Methinks some psychological threshold was crossed where economic/political risks are spooking some into pulling out of JPY bank paper. This year was a game changer for Japan

Thu, 12/29/2011 - 23:35 | 2020951 non_anon
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Thu, 12/29/2011 - 23:38 | 2020952 steve from virginia
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Central bank 'printing' does not eliminate any debt, it only changes who has custody of it: from a commercial bank's balance sheet to the central bank's. The process annihilates CB's capital: when the central bank is effectively insolvent it cannot be recapitalized ... without the bank's 'host country' taking on (you guessed it) more debt (which is 'bad' on its face).

The central bank taking on debt devalues it (bad money for bad debt). This means a risk free security does not exist. A currency as 'debt money' ceases to exist at same time. There is no way out of this box other than restructuring.

Prob is so much debt that liquidating the debt (assets) also liquidates all liabilities, capital ... everything. That's reason for the establishment avoiding restructuring.

Consequently, restructuring/deleveraging will take place by itself.

Thu, 12/29/2011 - 23:45 | 2020970 Schmuck Raker
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OT - Interesting and balanced essay by former RP staffer:

Eric Dondero [h/t TBP]

It addresses the 'newsletter',  isolationism, racism/anti-semitism...or, lack there of.


Friends and foes alike may appreciate it.

Fri, 12/30/2011 - 09:21 | 2021299 trav7777
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gotta unchain your minds

Thu, 12/29/2011 - 23:53 | 2020979 Fastback
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It's time to strap down the toupee, secure the helmet and assume crash position?

Thu, 12/29/2011 - 23:53 | 2020980 Georgesblog
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It's poison spreading through the financial system. Celebrate New Year's while you can. A year from now is very unlikely to be this good.

Thu, 12/29/2011 - 23:57 | 2020984 gwar5
gwar5's picture

CNBC interview with Gerald O'Driscoll, former FED V.P., following up his article in the WSJ, and he steadfastly called out Bernanke for bailing out central banks: "It's a bailout, and he said he didn't have the intention or the authority to do that... and there is risk for the American Taxpayers." O'Driscoll must read Zero Hedge. » The Federal Reserve’s Covert Bailout Of Europe


Fri, 12/30/2011 - 13:01 | 2021867 Orly
Orly's picture

Trial balloon to see if we really care...

Fri, 12/30/2011 - 00:11 | 2021000 BigInJapan
BigInJapan's picture

I'll try, but I bet I'll have a really hard time finding this story in any Japanese media...


Fri, 12/30/2011 - 04:49 | 2021136 donpaulo
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the only thing we got "bankwise" this year was a form letter the day before yesterday saying that the BoJ was unhappy with Citibank and that Japanese who bank there may have some difficulty in the future. I haven't translated the entire letter but that is the basic message.

Strap your helmets on boys. Its going to get interesting

Fri, 12/30/2011 - 00:17 | 2021004 Gamma735
Gamma735's picture

The Bernanke "Put" does nothing but steal wealth from people to protect banks and sovereigns.   Easy money is worthless money.    I wish someone would do a video of Bernanke images while NIN- "Terrible Lie" plays on the audio track.

Fri, 12/30/2011 - 00:43 | 2021025 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Zackly.  Here are your future taxes at work, on loan to broke assed Japan and Europe.  I know, we're broke too.  I guess that is how the game works.  Race to the bottom, but all of a sudden no one wants to be first.  Instead, everyone wants to stay fed and have their cake.  I guess it is to the cake shop tomorrow, soes I can buy some more cakes.

Fri, 12/30/2011 - 01:03 | 2021037 Caviar Emptor
Caviar Emptor's picture

But if they all can swap into the infinite deep blue sea of Bernanke Bux then the race to the bottom cancels. Been sayin' their strategy shifted to if we all print together then we can't get into trouble. No race to bottom, we all sink at the same time

Fri, 12/30/2011 - 01:24 | 2021052 Mr Lennon Hendrix
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FIne, but they'll have to pull their green chutes sometime, or else it is splat on the ground for all.  And come to think of it, maybe that is the way they want it.

Fri, 12/30/2011 - 12:04 | 2021688 MachoMan
MachoMan's picture

Collusion never works on a long enough time line...

Fri, 12/30/2011 - 01:59 | 2021074 jimmyjames
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But if they all can swap into the infinite deep blue sea of Bernanke Bux then the race to the bottom cancels. Been sayin' their strategy shifted to if we all print together then we can't get into trouble. No race to bottom, we all sink at the same time


That's how they could avoid/prolong having any hyperinflation eruptions but the problem is-they all want to have the weakest currency-so i would expect there will be no end to the cheating that goes on with that plan-if it happens-

Fri, 12/30/2011 - 02:05 | 2021082 Caviar Emptor
Caviar Emptor's picture

i would expect there will be no end to the cheating that goes on with that plan-if it happens-

Yep. No need to overestimate how smart they are. They only kick the can for a month or two. No attention to consequences. They're just improvising at this point

Fri, 12/30/2011 - 01:09 | 2021041 Caviar Emptor
Caviar Emptor's picture

Tyler, add this to the list: (the gophers are busy) 

Japan and India are set to unveil a new currency swap agreement aimed at easing potential short-term liquidity problems.

The pact will allow them to swap their currencies for US dollars and tap into each other's foreign exchange reserves.

The move comes amid increased volatility in both the Japanese yen and the Indian rupee.

Japan's finance minister Jun Azumi was quoted by Reuters news agency, saying negotiations were in the final stages.

Fri, 12/30/2011 - 01:28 | 2021054 Mr Lennon Hendrix
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Incestuous.  Why don't they move to one currency and get it over with...oh yeah, cuz the volatility swings are making the only money on market in this Fiat Ponzi.

Fri, 12/30/2011 - 01:49 | 2021073 Caviar Emptor
Caviar Emptor's picture

It's their antidote to a race to the bottom: peg every currency to USD via shadow and print away

Fri, 12/30/2011 - 04:56 | 2021139 donpaulo
donpaulo's picture

The Japanese have shifted their economy to profit from Chinese market growth. Its been a good decision as corporations have earned good returns. With the relative high value of the yen, corporate Japan has engaged in some major foreign purchases at a "discount".

The main issue for Japan, besides its debt and failing ponzi scheme is that it imports over 60% of its food.

The Ponzi issues and the debt will eventually force a partial write off, which is overwhelmingly held by the Japanese people. Don't underestimate their ability to "take one" for the team.

I am frankly surprised the Japanese haven't done this sooner. I would think that Brazil is a no brainer as they have mutually fulfilling exports.

PM Noda has a limited time before his popularity bottoms out the carousel that is Japanese politics moves on to another candidate with a similar propensity to kick the can down the road one more time.

Fri, 12/30/2011 - 08:19 | 2021216 supermaxedout
supermaxedout's picture

This is the end of the US Dollar hegemony or its the time the US lets down its mask and shows the world its true face. The "face of war" is the true face of Washington/Wall Street. Dirty, ugly, hellish, cruel but as we all know and have learned democratic.

I wonder why nobody is realizing what the currency agreement between Japan and China is. Its simply the creation of a new world currency. Lets called it the "Yoin".  China and Japan have agreed on more or less fixed rate between Yuan and Yen thus it does not matter anymore if one has Yuan or Yen at hand  within Asians biggest economies, which are forming a block of greater importance than the Eurozone.

This formation cuts the power of Wall Street/London at least by half if not more. It is now nearly impossible for the US to speculate against the Yen since the Yen is now also backed by the Yuan. Just like in Europe the Euro, the Yen slipped also under the Chinese roof to be protected from the thunderstorm initiated by the flood of new printed US Dollars.

Now its clear for me to see why Iran is threatening to close the Strait of Hormuz, so that Japan can not gets its oil. And of course Iran also wants to close this narrow path because when its closed Iran can also not any longer ship its oil to China. The only remaining client. All others were already cut-off by the US.   Ha, Ha,Ha.    Its unbelievable how stupid the world seems to be, to believe the US propaganda that Iran wants to close the Strait of Hormuz.  

No its just the other way round in my opinion. The US is threatening Japan that the oil and energy needed for its economy is stuck on the way by action of these Iranian terrorist which are sprading terror and war all over the world. Nearly everywhere in this world is a war zone, whether a Currency War (cold war) or hot war like in Syria, and before Lybia not to mention Afghanistan and Iraq, Yemen, ..., ..., ....  And this is all the fault of Al Quaida and the Iranian terrorists which want to destroy Israel with nuclear bombs while Israel is ready to deploy a nuclear overkill to the whole region and Europe included if they want. Israel has more warheads than Britain and France combined as far I have read on the lovely internet. So it is clear that Iran is no danger to Israel at all because it would be suicide for Iran.

So this is now a time of great decisions and lets hope the best and be prepared for the worst. Happy New Year 2012.


Fri, 12/30/2011 - 08:38 | 2021229 Ghordius
Ghordius's picture

be careful with the assumptions - China is trying to have currency pegs with all other major currencies since years, I'd say this is the real focus of the current Currency Wars.

the Yuan/USD peg had the fortunate/infortunate side effect of a massive Yuan printing feast, while the Yuan/EUR peg is more or less balanced (in comparison)

remember how the Japanese reacted when China wanted to buy massive amounts of Yen Sovereign Bonds?

As for Iran, just have a look at their borders: Pakistan, Afghanistan, Irak. It just reminds me at the Italian decision to conquer Ethiopia "just because it was the last available african country". There simply is no space alien there for Krugman to declare war to...

Fri, 12/30/2011 - 09:53 | 2021346 Everybodys All ...
Everybodys All American's picture

The Fed has become the world's slush fund. I think Bernanke is on very thin ice here and if things go sour he is going to be villified.

Fri, 12/30/2011 - 13:10 | 2021377 spanish inquisition
spanish inquisition's picture

I am a bit comnfused on the swaps. Why would you trade yen for $ short term. Sounds more like they are putting up collateral for $ short term, but I can't find a definition of what the FED conciders a swap.

Edit: I would assume that countries are leveraging worthless paper, converting to their currency and tranferring to FED for $. These are ont your vanilla swaps.

Fri, 12/30/2011 - 12:15 | 2021722 split4to1
split4to1's picture

the fx swap could  be viewed from a technical perspective Daily Technical Analysis by FXCC 30Dec11

Sun, 01/01/2012 - 22:49 | 2025728 Charvo
Charvo's picture

The Bank of Japan did a swap with the Fed to GIVE yen to the Fed. I can imagine a lot of the samurai debt that was issued back in 2008 to 2009 is coming due right now. If there are issues with rollovers, the Fed actually needs to tap the Bank of Japan for yen.

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