Former Fed official joins Ron Paul in accusing the bank of bailing out Europe

[cheguevara]

In late November, Presidential candidate Ron Paul wrote an article accusing the US Federal Reserve of implementing a backdoor bailout of European banks through the lowering of swap-rates between its currency and the US dollar. On December 28th, a former Vice-President of the Dallas reserve bank joined in agreement with the Texas Congressman, and specified that the Fed did actually use its power to bailout European banks through its currency swap program.

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. – Wall Street Journal

http://www.examiner.com/finance-examiner-in-national/former-fed-official-joins-ron-paul-accusing-the-bank-of-bailing-out-europe

[Winehole23]

http://online.wsj.com/article/BT-CO-20111221-704132.html

[boutons_deux]

Masters of The Universe, my ass.

They ain't even master of their own asses.

Ain't unregualated capitalism fantastic?

[cheguevara]

Euroggedon is almost here

[Winehole23]

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.

liquidity swaps became permanent, and unlimited, in 2013:



In the last few weeks, the ECB has been drawing on its liquidity swap line with the Fed (http://www.newyorkfed.org/markets/fxswap/fxswap_recent.cfm), first $308 million for a week, then $658 million for a week, and last week back down to $358 million. What’s that about?
It’s not such a large amount. Bank of Japan borrowed more in the past, $810 million in March and $1528 million in January. But the question then repeats, what was that about?


Both of these drawings are part of the new set of central bank swap lines linking what I call the C6: the Fed, ECB, Bank of Japan, Bank of England, Swiss National Bank, and Bank of Canada. On October 31, 2013 (http://www.federalreserve.gov/newsevents/press/monetary/20131031a.htm) these lines were made permanent and unlimited; contract details may be found here (http://www.newyorkfed.org/markets/liquidity_swap.html). Ever since then I have had a slide in my powerpoints saying “Forget the G7, Watch the C6.”

http://www.nakedcapitalism.com/2015/08/testing-the-global-central-bank-swap-network.html

[Winehole23]

The ECB is borrowing dollars from the Fed and lending them on to banks in Europe who have dollar liquidity needs. Here (http://www.ecb.europa.eu/mopo/implement/omo/html/20150080.en.html) is the tender documentation. Presumably it is doing this for banks who are unable, for whatever reason, to access dollar funding in the open market, or only at a premium that is higher than the ECB charges.


During the financial crisis, dollar funding needs like this got met by central bank liquidity swaps that rose almost to $600 billion, raising questions in Congress (https://www.youtube.com/watch?v=Rk56d6mPNG0). Now, in normal times, smaller sums are becoming a routine way of handling the normal stresses and strains of world funding flows.


For lack of a world central bank, we have a network of central bank liquidity swaps.

same