This page has been archived and commenting is disabled.
Former Fed VP Accuses Bernanke Of Bailing Out Europe Via Currency Swaps
First it was Zero Hedge. Then Ron Paul joined in. Now it is the turn of a former Dallas Fed Vice President, Gerald ODriscoll, to outright accuse the Fed of bailing out Europe courtesy of "incomprehensible" currency swaps, and implicitly accusing Bernanke of lying that he would not bail out Europe even as he has done precisely that. And not only that: by cutting the USD swap spread from OIS+100 to OIS+50, the Fed has made sure it gets paid less than ever for extended Europe the courtesy of bailing it out all over again. Incidentally, O'Driscoll says, "America's central bank, the Federal Reserve, is engaged in a bailout of
European banks. Surprisingly, its operation is largely unnoticed here." One thing we can say proudly - it has been noticed loud and clear here...
From the WSJ:
The Federal Reserve's Covert Bailout of Europe
When is a loan between central banks not a loan? When it is a dollars-for-euros currency swap.
America's central bank, the Federal Reserve, is engaged in a bailout of European banks. Surprisingly, its operation is largely unnoticed here.
The Fed is using what is termed a "temporary U.S. dollar liquidity swap arrangement" with the European Central Bank (ECB). There are similar arrangements with the central banks of Canada, England, Switzerland and Japan. Simply put, the Fed trades or "swaps" dollars for euros. The Fed is compensated by payment of an interest rate (currently 50 basis points, or one-half of 1%) above the overnight index swap rate. The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made, then lends the dollars to European banks of its choosing.
Why are the Fed and the ECB doing this? The Fed could, after all, lend directly to U.S. branches of foreign banks. It did a great deal of lending to foreign banks under various special credit facilities in the aftermath of Lehman's collapse in the fall of 2008. Or, the ECB could lend euros to banks and they could purchase dollars in foreign-exchange markets. The world is, after all, awash in dollars.
The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan.
The ECB is entangled in an even bigger legal and political mess. What the heads of many European governments want is for the ECB to bail them out. The central bank and some European governments say that it cannot constitutionally do that. The ECB would also prefer not to create boatloads of new euros, since it wants to keep its reputation as an inflation-fighter intact. To mitigate its euro lending, it borrows dollars to lend them to its banks. That keeps the supply of new euros down. This lending replaces dollar funding from U.S. banks and money-market institutions that are curtailing their lending to European banks—which need the dollars to finance trade, among other activities. Meanwhile, European governments pressure the banks to purchase still more sovereign debt.
This Byzantine financial arrangement could hardly be better designed to confuse observers, and it has largely succeeded on this side of the Atlantic, where press coverage has been light. Reporting in Europe is on the mark. On Dec. 21 the Frankfurter Allgemeine Zeitung noted on its website that European banks took three-month credits worth $33 billion, which was financed by a swap between the ECB and the Fed. When it first came out in 2009 that the Greek government was much more heavily indebted than previously known, currency swaps reportedly arranged by Goldman Sachs were one subterfuge employed to hide its debts.
The Fed had more than $600 billion of currency swaps on its books in the fall of 2008. Those draws were largely paid down by January 2010. As recently as a few weeks ago, the amount under the swap renewal agreement announced last summer was $2.4 billion. For the week ending Dec. 14, however, the amount jumped to $54 billion. For the week ending Dec. 21, the total went up by a little more than $8 billion. The aforementioned $33 billion three-month loan was not picked up because it was only booked by the ECB on Dec. 22, falling outside the Fed's reporting week. Notably, the Bank of Japan drew almost $5 billion in the most recent week. Could a bailout of Japanese banks be afoot? (All data come from the Federal Reserve Board H.4.1. release, the New York Fed's Swap Operations report, and the ECB website.)
»
- 25507 reads
- Printer-friendly version
- Send to friend
- advertisements -
If you are familiar with Jim Willie CB at www.goldenjackass.com you will understand when QE3 ended it did not really end there was no QE4 but a QE Global The other central banks started printing digital currency and our fed never stopped. When the collapse comes it will be global. Who knows how long it will go on.
It wouldn't be the first time in which Bernanke perjured himself. If sugar daddy, Ben Bernanke,will keep bailing out Europe what incentive does Europe have to clean up it's debt act? None. Keep coming back to sugar daddy Bernanke for more. Bernanke is on a mission to bail out the world with his printing press. It's time for the prudent countries to call on Bernanke's bluff and demand hard assets instead of paper debt notes!
I think the music is about to stop in this game of Musical Swaps.
It should...but it won´t..as long as you are on the recieving end of the free money...why would you want it to stop...so we creep up to the hundreds of trillions of printed money...the graphs will all look wierd...so will the paper bills....but 70% will be on welfare...and they will be fine as long as the paper keeps getting printing..they live day to day anyway...
It has to. See Weimar Republic. They got to the point that the printing presses and the ordering of new plates to create ever larger denominations couldn't keep up. Prices were rising at double-digit rates by the hour. Money velocity was out of control because nobody wanted to be left holding the worthless paper. Most wages never kept up with the pace of the hourly inflation. It all came crumbling down and a tyranical outlier of a leader came to power.
I am pleased that O'Driscoll agrees with me. Here is the Bloomberg write-up of the House hearing on the Fed/IMF bailing out Europe.
http://mobile.bloomberg.com/news/2011-12-15/fed-lifelines-to-overseas-ba...
My charts are here in my testimony:
http://confoundedinterest.wordpress.com/2011/12/14/my-house-oversight-testimony-on-the-eurocrisis-the-fed-and-implications-for-taxpayers/
Wow. Has Mr. O'Driscoll fired a shot across the bow? Will it lead to full on battle? Who would the participants be on this complicated battlefield?
Fed Reserve, led by General Bernanke, backed by US Gubmint and shadow banking and corporate forces, defending Europa?
vs.
the US Citizenry, backed by unorganized forces and led by a Mr. O'Driscoll and a doctor from Texas named Ron Paul, defending the Homeland?
Is the citizenry of the USA being opposed by its own government?
SO?
Seriously. Bernanke and his grand monteray policy experiment, is being conducted out in the open. Bailouts, swaps, ZIRP, monetary policy alphabet soup....All right there.
And the thing is the kleptocrats are all richer. This monetary policy experiment is working for them. Granted it is destroying the country, and perhaps the world (see arab spring) but for the puppet masters and their marionettes, it is working.
Since 2008, the power of the Fed has only expanded, no longer content to merely tinker with interest rates, it is now entirely consumed with what can only be termed as central planning. And yet the status quo, demands more of the same.
Regardless of who ends up in the White House, Bernanke will still be Fed Chairmen in 2013. That, my friends, is what really matters.
Yes, the chairs are being arranged on the deck of the Titanic. Nice music, too. Many of the machinations they are doing now will make much more sense once the cord is pulled. There are only so many life rafts. You have not been invited and they are full already.
Precious metals are now officially TOAST! Short the GLD!
I fart in your general direction
While admiring my reflection
In my shiny Silver bullion bars....
Short the fraudulent paper GLD....hilarious.....
As Ron Paul gets closer and closer to winning we are going to see more and more of these bankers having sudden "come to Jesus" moments like this.
Congress willingly gave the Fed the power to basically do whatever the fuck it wants to do. SO now it's doing it. Why do we even have a Congress? Everyone knew that when the ECB wouldn't print, then Uncle Ben would step in and do secret swaps from across the pond. This man has absolutely no inhibitions with printing, gauranteeing dogshit, etc, etc. SO now we have attached our economic horse to the likes of Greece. I am surmising that it is because we have a lot of Wall Street fucks trying to do what MF Global did, and lever up on the euro or insure it thru CDSs (without any reserves ala AIG). THis man is COMPETELY OUT OF FUCKING CONTROL. What is it gonna take for the masses, political establishment, etc. to reign this asshat in???? No private money is buying these bullshit bonds for a few percent. It's Fed money. YOUR MONEY.
this is win win for Barnank, because he bails out Europe, and he gets to trash the dollar, both at the same time, while the American media says duh. i heard Kudlow and Fisher presenting the Feds line of crap a few weeks ago, (though they aren't MSM really) Kudlow said, thank you for lying so well , and Fisher said, you're welcome.
The Federal Reserve was enacted on December 23, 1913. About a 100 years to destroy the US dollar.
Silver For The People Blog and YT channel are BLOWING UP
Calling all Silverbugs - check it out
http://brotherjohnf.com/
http://www.youtube.com/user/BrotherJohnF?feature=mhee
It should be noted that while it is true that this 'bails out' euroland banks to some extent, it is nonsense to frame it in this manner. What is inter alia 'bailed out' is the dollar's status as the world's reserve currency. Euroland banks are lending over $2 trillion to US corporations and households. If they could no longer fund their dollar assets, all these loans would be called in. What then? A credit crunch in the US - and this is what it is about. Moreover, if euroland banks were forced to sell or otherwise liquidate their dollar assets they would be extremely reluctant to resume lending and trading in dollars - this would eventually damage the dollar's reserve currency status.
So yes, it is a bailout of sorts, but there is very little risk to the Fed from doing it, and it can fully justifiy it on the grounds that it is really helping US debtors of the euroland banks.
Mind, the above does not imply 'agreement' on my part, I only want to clarify the motives, as I see them anyway.
Why is it that in this country that the regulations and paperwork required to build a house takes 4 months but illegal swaps, loans, etc. are done within a week...democracy my arse...
Another resounding endorsmant of Ron paul's platform... it is probably hopeless, he shows some spark in the polls and now he is a maniac and a racist... if he keeps up in the polls, they will do a DSK on him and that will be that. Things may get REALLY ugly soon, the American Spring? Probably necessary, nothing else will work as the asshole politicians are all solidly bought and paid for.
From edited report Published December 1 in Big Government
The U.S. Fed, ECB and China monetary authorities agreed to temporarily “dollarize” the euro. This is the equivalent to the virtual outsourcing of Europe’s monetary policy to the U.S. Federal Reserve and reestablishment of the U.S. dollar as the world’s only reserve currency.
Twenty years before, European nations sought to form their own reserve currency to limit the power of the U.S. and to control their economic destiny following post-World War II Marshall Plan that took control of European monetary policy by pouring over $50 billion of cash into the war shattered economies.
In 1971, President Richard Nixon exercised this domination in a trade dispute with Europe and Japan by suspending the convertibility of the U.S. dollar into gold, setting wage and price controls, cutting taxes, and placing a 10% surcharge on all imports in an effort stimulate the U.S. economy by devaluing the exchange rate of the dollar. U.S. stock markets had their largest one day rally in history; while foreign stock markets crumbled. Four months later; the United States forced agreements for currency appreciation by Japan of 16.9%, Switzerland of 13.9%, Germany of 13.6%, France of 8.6%, and Britain of 8.6%. This effective devaluation of the dollar is credited as creating 700,000 American jobs and cementing President Nixon’s reelection in 1972.
After introduction of the euro currency in 1999, Europe became the largest trading block in the world and the euro with €890 billion in circulation became the world’s second reserve currency. Prior to the introduction of the euro; the southern European nations of Portugal, Italy, Greece, and Spain (PIGS) regularly devalued their currencies to remain competitive with the highly industrialized and sophisticated northern European countries.
The euro currency seemed to be a huge success as Greece, Spain, and Portugal experienced huge real estate booms powered by low interest rates. With the southern nations forbidden to devalue under euro membership regulations; the sales and profitability of German and other northern companies increased due to their higher productivity growth against southern companies. But after the 2008 credit crisis; German banks demanded the PIGS pay higher and higher interest rates. These higher rates crushed real estate prices and devastated the economies of the PIGS.
The ECBmay have called itself the “Central Bank of Europe”; but it was incapable of stopping a system-wide run on the banks. In desperation; the ECB was forced to surrender its sovereignty back to the U.S. Federal Reserve by agreeing to engage in 90 swaps of euros for dollars.
Given that U.S. banks operate with half the leverage of the European banks; the short-term structure of these arrangements will put pressure on the European banks to deleverage or risk the Federal Reserve refusing to roll over the swap by demanding repayment of dollars. This “dollarization” of the euro seems likely to be a prelude to defaults in the south as one or more of the PIGS seek to devalue by re-issuing their currencies back to escudos, lira, drachmas, and pesetas.
But whatever happens; it seems clear that from now on decisions regarding European monetary policy will now primarily be made in Washington D.C.
If the United States nationalized the Federal Reserve ... would it solve anything?
Sure, former NY Federal Reserve President and current Treasury Secretary, Tim Geithner, would do things completely different.
Here , have my paper backed by nothing in exchange for your paper promises backed by nothing.
Ben is a LIAR.
He does whatever the fuck he wants to and no one finds out till its' too late anyway.
He says "no bailout" of the EU, but he can just say he is "investing in the EU" and buy their crummy bonds, or loan to a bank who does the same.
WTF is the difference?
"Surprisingly, its operation is largely unnoticed here."
o'driscoll - i am glad that you are speaking out but this statement shows how obtuse and out of touch you are....i have been aware of it for years - tarp and allied rape and pillage programs were used to bailout european banksters from day 1....
Old Man "Benji",... that ole man benji - he can't stop rollin,... i said, he can't stop rollin that debt ...
http://www.youtube.com/watch?v=VNjD9DYp33g
And so castles made of QE fall into the sea, eventually
Benji Hendrix
One World ATM has come to the Empire of the Fed and the Digital Zeros über Alles.
Nothing to see here, just business as usual.
If the ECB survives the tenure of these swaps, all it is doing is postponing the day of reckoning for the euro, because the ECB will have to buy dollars to pay Ben back. I guess the goal is that in the meantime there will be a change in market sentiment plus the kind of "growth" the US has experienced as of late (surging imports of oil and Chinese stuff), so that the market will want euros vs. dollars. That hope is probably misplaced.
It is useful to keep an open mind and not close it to the possibility that Bernanke will change/has changed his stripes. The Bernanke since OpTwist seems to be a different Bernanke than before it. A cursory look at the Fed's balance sheet might be deceptive. Yes, M2 growth has been high from July to November, but that may well be due to financial disintermediation. For example, there has been a huge shift toward liquidity and out of non-M2 items such as long term time deposits, suggesting a system wide liquidity problem. Bernanke has also made statements to the effect that elected officials now must do their part (cut spending and lessen deficits). It is even possible that Bernanke was sending a message when he told the WSJ reporter, who profiled Bernanke last month, that Bernanke's bedtime reading was about Germany in the period between the end of WWI and the beginning of WWII.
It might be that Bernanke sees a fork in the road ahead, with both routes leading over a cliff, but that he will only be blamed for one route taken. Thus, he'll take a deflationary depression with a surviving dollar over an inflationary depression and a collapsed dollar.
Hey, China and Japan wanna forget dollars, trade the yen/yuan. I'm American, I use dollars, too. Ben's plan was always to create NEED for dollars, with these swaps. It's not rocket science, I'm a f'in hs dropout, GED w/ "some college" finally self educating. The dollar sucks, but when it goes, US commerce sucks, OUR commerce sucks. I'm of two minds about Ben's loaning out bucks, abroad, and feel if you're American, you should be, too.
Looks like you're seeing trees, not the forest.
Fiat currencies are vehicles to transfer wealth from citizens to bankers (and governments to a lesser extent), with the central bank as the gatekeeper.
My belief is the '08 crash was caused by bankers to justify faster wealth transfer from citizens to bankers ...which has occurred.
Everything since then has transferred wealth from citizens to bankers (and governments).
This is why monetary maneuvers are used to address a solvency crisis. Providing more debt funding rather than enforcing less spending.
Fiscal restraint isn't the goal ...obviously. Wealth transfer is the goal. Looting citizens is the goal.
With this true goal in mind it's easy to see what will happen going forward, more currency creation, more debt funding, no fiscal restraint, as currencies are steadily debased.
Inflationary depression for citizens is the chosen path, because looting citizens is the goal.
Am I right in thinking the swapped dollars and Euros are concieved out of thin air? So the ECB gives the dollars to the banks but when it has to pay back the dollars to the Fed it probably just prints again, likewise the Fed in euros.