America’s central bank, the Federal Reserve (Fed), in coordination with five other global central banks (Bank of Canada, Bank of England, Bank of Japan, European Central Bank, Swiss National Bank), surprised financial market participants with a surprise change to an already existing program related to US dollar swap lines (yes, swap: exchange one for the other).
This wasn’t an announcement of a new liquidity program, this wasn’’t printing of new money. This was simply a lowering of the price (interest rate) required to access an already existing US dollar liquidity program (US dollars swaps).
The countries that make up the European Union and use the Euro currency have serious sovereign debt problems: yearly deficits and massive national debt, in most cases more than 100% of their GDP. While the European Union shares a common currency and monetary policy, they do not share a common fiscal policy run by a federal government. It is on the fiscal side, the political side, where the real problems lie. Elected officials have spent more than 18 months failing to properly address the fiscal challenges they face and the resulting negative impact on European banks.
European banks are the primary holders of bonds issued by European countries (French banks own Italian and Greek debt; German banks own French and Spanish debt, etc.). Cross-holdings between banks and countries have made for easy financial contagion to spread around the European Union.
The Greeks, Italians, the Spanish, and now maybe France, won’’t be able to pay back their debt Euro for Euro. They don’’t have the money. Haircuts (cutting the amount of principle to be paid back…less than 100%) will occur. This means the value of the bonds held by European banks have to be marked down on their books: translation, the banks will lose billions of Euro’s on their debt bets. Consequently, European banks have reduced the amount of credit they extend to each other to trade with each other. This has caused a drop off in what is referred to as liquidity (access to money). Since banks won’’t lend to each other, central banks have stepped in (lenders of last resort).
Central banks have used swap lines before. Swaps involve exchanging currencies for a given period of time at a set exchange rate. The US dollar is the reserve currency of the world. Non-American banks use US dollars to manage their businesses and serve their customers in their home countries. European banks need US dollar liquidity on a daily basis, if they won’’t lend them to each other, central banks step in.
The US dollar swaps lines with Europe have been in place since 2008, and have been used in the past. The Fed has swap lines with most central banks on the planet. The action yesterday was nothing new, but simply the change in the pricing of an existing program in an effort to make it easier for European banks to fund themselves day-to-day during this difficult period of the end of big government in Europe.
The financial markets reaction was not a testament to some bold new “save the world” program.
Frank Roche
“The financial markets reaction was not a testament to some bold new “save the world” program.”
So then what was the financial markets’ reaction based upon? Hope and Change?
https://ncrenegade.com//editorial/the-fall-and-rise-of-the-nyse/
Frank
Anyone who has studied history knows the interrelationships known as “mutually assured economic destruction” which derive from the Bretton Woods agreement at the close of WWII.
We don’t need further explanation of this madness …
WE NEED CONDEMNATION OF THIS MADNESS
and a way to stop our government from the suicide of its participation.
Breaking Humor From the Currency Exchange:
Today’s word is…Fluctuations
I was at my bank today; there was a short line. There was just one lady in front of me, an Asian lady who was trying to exchange yen for dollars.
It was obvious she was a little irritated . . . She asked the teller,
“Why it change? Yesterday, I get two huna dolla fo yen. Today I only get huna eighty? Why it change?”
The teller shrugged his shoulders and said, “Fluctuations.”
The Asian lady says, “Oh yeah? Fluc you white people too”
Maybe the correct word of the day is “Fluctugovernments” …
The market reaction was computer algorithmic models kicking into action across all financial products over extending the discounting of new information that provides European banks with a whisper more room to work out their problems.
As for the explanation, I thought it necessary because all of the talk radio I heard, and most of the other media didn’t understand and explained it badly/incorrectly.
The Fed has done what it can, it’s time to let the chips fall where they may.
Computer algorithms …
What possible difference is there, whether the acts were done by human hands or cyber tools created by human minds ???
STOP EXPLAINING AND START CONDEMMNING THESE IMPROPER INTERVENTIONS.
END THE FED.