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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trav7777's picture

75% of world debt, bitchez

phungus_mungus's picture

So, eseentilaly the worlds economy is being held together by baleing wire, duct tape and the Feds LSO's... wonderful 

Mr Lennon Hendrix's picture

Bernanke makes it rain like Lil' Wayne in da club!  Shots, bitchez!

Mr Lennon Hendrix's picture

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

Swaps, bitchez!

macholatte's picture


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


old naughty's picture

...and you heard Japan is making billion-dollar deals with China and India, separately?  Hummmmm. All currency trades.

chump666's picture

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

old naughty's picture

hummmmm, usd bullish, au correction continues?

chump666's picture

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.



sitenine's picture

Israel US vs Iran!  Yes, it is inevitable.  Panetta will lead the charge: http://www.nytimes.com/2011/12/21/world/middleeast/pentagon-officials-qu...

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?

RichyRoo's picture

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).

eurusdog's picture

It won't be China provoking India, but the other way around. Water!

qussl3's picture

Those dams upstream of the ganges are pretty damn provocative if you ask me.

magpie's picture

As if the USA would still be "allowed" to sell India arms at that stage anyway.

fonzanoon's picture

Japan owns a trillion dollars worth of US fukin treasuries.....cash starved? WTF!?

Maybe sell some?

CreativeDestructor's picture

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!

slewie the pi-rat's picture


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!

earleflorida's picture


one world,... one love - let's get together, it'll be alright

chump666's picture

Good post.

Yeah it's gathering pace, if Japan goes all USD crazy...like 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

old naughty's picture

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

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.

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: {dot.com, 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.


bobert's picture

And now you understand more what is meant by, "the love of fiat is the root of all evil."

vast-dom's picture

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........ 

PulauHantu29's picture

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.

DormRoom's picture

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


ThrivingAdmistCollapse's picture

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.

DormRoom's picture

typo.. 700 Trillion in derivatives speaks to this fact.

Socratic Dog's picture

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?

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!

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......

bobert's picture

Who's Corzine?

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

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

Caviar Emptor's picture

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. 

Squishi's picture

don't touch the sacrosanct 

Jlmadyson's picture

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.

PicassoInActions's picture

amd USD is down vs JPY.. wtf..?

bobert's picture

Maybe Fukishima is fixed and all cleaned up.

Mr Lennon Hendrix's picture

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

kito's picture

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

fonzanoon's picture

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)

Mister Minsk's picture

Kamikaze style in full force!

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?

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

steve from virginia's picture

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.