by ilene - December 21st, 2010 2:51 pm
Courtesy of The Pragmatic Capitalist
The Fed announced this morning that they will be extending U.S. dollar liquidity swaps through summer of 2011. This is basically their way of saying that they’re worried about the risk of a dollar funding crisis still. That’s not unreasonable given the elevated risks in Europe (it’s nice to see a more proactive Fed), however, it does expose the USA to a risk that it should never have – foreign denominated debt risk. They issued this useful primer on swaps along with the announcement:
Why has the Federal Reserve re-established temporary U.S. dollar liquidity swap facilities with foreign central banks?
The swap facilities announced in May 2010 respond to the re-emergence of strains in short term funding markets in Europe. They are designed to improve liquidity conditions in global money markets and to minimize the risk that strains abroad could spread to U.S. markets, by providing foreign central banks with the capacity to deliver U.S. dollar funding to institutions in their jurisdictions.
With which central banks has the Federal Reserve entered into swap facilities?
The Federal Reserve has established swap arrangements with the Bank of Canada (BOC), the Bank of England (BOE), the European Central Bank (ECB), the Swiss National Bank (SNB), and the Bank of Japan (BOJ).
How will the swap facilities function?
The swap lines with the ECB, BOE, SNB and BOJ will provide these central banks with the capacity to conduct tenders of U.S. dollars in their local markets at fixed local rates for full allotment, similar to arrangements that had been in place previously. The swap line with the Bank of Canada allows for drawings of up to $30 billion. The terms, structure, and operational mechanics of these swap agreements closely parallel the arrangements that expired on February 1, 2010. For reference please see the attached link.
http://www.federalreserve.gov/monetarypolicy/bst_swapfaqs.htm
For how long are the swap facilities expected to be operational?
These swap arrangements have been authorized through August 1, 2011. Central banks may request drawings on their swap lines up to the date of expiration.
Is the Federal Reserve exposed to foreign exchange or private bank risk in extending these lines?
No. Dollars provided through the reciprocal currency swaps are provided by the Federal Reserve to foreign central banks, not to the institutions obtaining the funding in these operations. The foreign central bank receiving dollars determines the terms on which it will lend dollars onward to
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Tags: boe, BOJ, debt risk, dollar funding crisis, dollar liquidity swaps, ECB, Europe, Federal Reserve, foreign central banks, SNB
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by ilene - August 19th, 2009 2:44 pm
Courtesy of Jan-Martin Feddersen at Immobilienblasen
Not quite an "Exit Strategy"……. This Cartoon on "Green Shoots" is spot on….. As long as the pound & gilts are not crashing this will continue…..I´m pretty sure Bernanke is watching the market reaction very closely…. Especially with the Fed running low on ammo….. Read A 300-year-old example of quantitative easing…. John Law, Alan Greenspan, Ben Bernanke… via The Mess That Greenspan Made as a reminder what can happen……
The governor’s insatiable appetite for QE FT Alphaville
The Governor invited the Committee to vote on the proposition that:
Bank Rate should be maintained at 0.5%;
The Bank of England should finance a further £50 billion of asset purchases by the creation of central bank reserves, implying a total quantity of £175 billion of such asset purchases. The Bank should seek to complete the additional purchases within the next three months.
Six members of the Committee (Charles Bean, Paul Tucker, Kate Barker, Spencer Dale, Paul Fisher and Andrew Sentance) voted in favour of the proposition. Three members of the Committee (the Governor, Tim Besley and David Miles) voted against, preferring to increase the size of the asset purchase programme by £75 billion to a total of £200 billion.
Yep, Mervyn King, together with Besley and Miles wanted the rate of monetary stimulus increasing, not just extending at the current rate of £50bn-a-quarter. That was good for half a cent off sterling versus the dollar and a third of a cent v the euro on Wednesday morning. Gilts, of course, spiked higher.
Somebody stop me Alice Cook from the great blog UK Bubble
The extraordinary thing about UK monetary policy today is how close it is shadowing fiscal policy. This year, the Bank of England printing presses will produce roughly the same amount of new money as this year’s fiscal deficit. Or to put it more bluntly, the private sector have, on a net basis, stopped lending money to the government.
The Casey Report
> The estimated issuance is based on this "optimitic" forecast…. Especially compared to the IMF, OECD, Bloomberg
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Tags: "quantitive easing", boe, british pound, competitive devaluation, exit strategy, fiat money, gilts, Gold, inflation vs deflation, Monetary Policy, printing press, UK
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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