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Thanks, way up!

Probably means USD credit is tightening up for non-US institutions, and maybe the unlimited lines are starting to get used for a lot more than just funding previously existing assets.

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>   On Fri, Dec 12, 2008 at 9:53 PM, Cesar wrote:
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>   Fed swaps up $85.6 to $628B.
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9 Responses

  1. Warren,

    Welcome back (if you’re back).

    Looking at nominal levels of the Fed’s foreign currency position may not tell us much anymore because these are marked-to-market on a daily basis and reflect the movement in exchange rates over a one week period (the periodicity of the statement).

    With foreign currencies rallying sharply against the dollar now (as I said they would), the increases in the Fed’s currency position looks larger. (Forex profits. It’s good to be the Fed!)

    A better guide would be to look at the volume of new swaps and I don’t know where that info is available.

    -Mike

  2. thanks, and agreed.

    my concern is that the longer the ultra low interest, unsecured $ are dangled in front of the world’s cb’s the higher the odds of abuse.

    and once they figure out they don’t ever have to pay back the $- maybe as april approaches and the fed is ‘compelled’ to extend the lines’ it becomes a type of race to the bottom, where whoever borrows the most/soonest from the fed wins.

  3. Warren,

    With all due respect, I think you are confusing Fed lending with bank lending where there are capital constraints. At some point a bank has to stop. The Fed doesn’t and pretty much indicated that it won’t. The race to the bottom will be a one-horse race and it will be the dollar that goes down. Moreover, even if foreign cb’s have dollar shortfalls relative to what they have taken from the Fed, the Fed is making it easier for them to cover that by pushing the dollar down. The problem for the foreign CBs would come in if the dollar kept going up and their local currencies kept falling.

  4. ECB did a 28-day USD auction today.
    ECB current totals for USD$ operations:

    3 rolling 84-day auctions outstanding: $157.5B (67.5+70+20)
    28-day: $47.5B (most recent one Today)
    7-day: $57.5 (next one Dec 17, tomorrow)

    So they have decreased (slightly) the term funding this week.

    Totals of all outstanding auctions (3 maturities):
    $212B as of Nov 18
    $224B as of Nov 20
    $236.5 as of Nov 28
    $294B as of Dec 2
    $267B as of Dec 10
    $262B as of Dec 16

    Link here
    http://www.ecb.int/mopo/implement/omo/html/index.en.html

    Resp,

  5. Exactly the point, the fed doesn’t have to stop, and when/if the borrowers realize they ‘can’t’ stop because they are afraid to, it becomes a feeding frenzy where the borrowering accelerates out of control as the $ falls as you suggest.

  6. Warren & the Mikes,

    There seems to be lots of moving parts in this discussion.

    The open-ended $ swap lines appear to be dollar negative.

    But the demand for such swap lines can’t say much for the fiscal positions or economic outlook of the counterparties. And the weak dollar will only make matters worse. Furthermore, smaller countries within Europe are tapping into IMF funding and now face additional fiscal conditionality constraints (as Warren has pointed out).

    So can I conclude that the dollar will decline to the point where the Euro blows up!!

    Sounds like the 2009 trade is to get long volatility in the fx markets.

  7. yes, well stated.

    the swap lines/weak dollar are helping US output and employment somewhat at the cost of our real terms of trade, and at the same time further weakening the eurozone where they can’t/don’t use fiscal policy to sustain domestic demand.

    The Fed is probably hoping the ecb cuts rates and buys longer term securities to increase domestic.

    The ecb considers this an inflationary, beggar thy neighbor race to the bottom chain of events they want to break.

  8. ECB did a 1 week USD auction today.
    ECB current totals for USD$ operations:

    3 rolling 84-day auctions outstanding: $157.5B (67.5+70+20)
    28-day: $47.5B
    7-day: $41.5 (next one Dec 23, next week)

    So they have decreased (slightly) the term funding this week.
    Seems like US$ pressure is receding over the last week or two, perhaps not surprising that the Euro is up vs US$ over this time…

    Totals of all outstanding auctions (3 maturities):
    $212B as of Nov 18
    $224B as of Nov 20
    $236.5 as of Nov 28
    $294B as of Dec 2
    $267B as of Dec 10
    $262B as of Dec 16
    $247B as of Dec 17

    Link here
    http://www.ecb.int/mopo/implement/omo/html/index.en.html

    Resp,

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