Sunday, May 09, 2010

Swap Lines fully armed AND operational

The EU is throwing the kitchen sink at this, with QE, swap lines, loan guarantees, SDR requests, etc. An impressive array of financial weaponry on display. Of course "display" being the key word as this is about signaling. Sterilization of debt does not work. Japan has "sterilized" trillions of Yen in the past decade or so and still rates are no-where near what they should be if such "Qauntivative Easing" actually worked.

Violating many provisions of the various EU treaties as well as the ECB bank charter. Expediency rules the day here, and it is to my great dismay (handled in a previous post) that the Fed has agreed to re-establish swap lines with the ECB. A massive risk given the amount of turbulence in the FX markets for Euro...which, incidentally, was touted as a "reserve currency" not more than two quarters ago. NOTE that the only quantities given are with the Bank of other AMOUNTS thus far, although they will have to be disclosed.

Again, expediency rules the day here. This smacks of Cortez grounding his ships to indicate that there is no turning back or alternative to the status quo suitably rescued from disaster by socializing the risks involved.

Release Date: May 9, 2010
For release at 9:15 p.m. EDT

In response to the re-emergence of strains in U.S. dollar short-term funding markets in Europe, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing the re-establishment of temporary U.S. dollar liquidity swap facilities. These facilities are designed to help improve liquidity conditions in U.S. dollar funding markets and to prevent the spread of strains to other markets and financial centers. The Bank of Japan will be considering similar measures soon. Central banks will continue to work together closely as needed to address pressures in funding markets.

Federal Reserve Actions
The Federal Open Market Committee has authorized temporary reciprocal currency arrangements (swap lines) with the Bank of Canada, the Bank of England, the European Central Bank (ECB), and the Swiss National Bank. The arrangements with the Bank of England, the ECB, and the Swiss National Bank will provide these central banks with the capacity to conduct tenders of U.S. dollars in their local markets at fixed rates for full allotment, similar to arrangements that had been in place previously. The arrangement with the Bank of Canada would support drawings of up to $30 billion, as was the case previously.

No comments: