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Yes, with their unlimited Fed swap lines euro credit is ‘improved’ but seems only for as long as the Fed keeps that window open?

Two problems with what the Fed is doing:

1. External currency (dollar) debt is moved from ‘private banks’ to the ECB if those banks fail.
If they hadn’t done this, bank failures would mean the banks default to their lenders who become general creditors and maybe equity holders when the smoke clears. The ECB can’t ‘fail’ without the entire europayments system shutting down. Before that happened it would probably sell euros for dollars to service it’s dollar debt if the Fed caps its lending to the ecb.
Yes, if the Fed never caps its lending to the ECB this can go on forever, with the ECB borrowing more and more to pay the dollar debt service, which is ponzi and will end one way or another.

2. It’s likely the Fed will be faced with rapidly increasing demands from the CB’s for the ‘unlimited’ dollar borrowings as the CB’s have banking systems that will utilize infinite USD loans if available to stay afloat and use new borrowings to service the old dollar debt unless/until they are declared insolvent, in which case the CB’s have the debt to the Fed.

3. This means the unlimited dollar lending will continue to grow until the Fed says no mas. Just like the classic emerging market dollar debt where it always tried to go parabolic before being cut off.

>   
>   On Sat, Oct 18, 2008 at 12:06 PM, wrote:
>   
>   Of course, they can now do everything, now that the Fed is
>   effectively backing them via these unlimited swap
>   arrangements.
>   


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5 Responses

  1. And of course, all this is accompanied by trumpeting in both the Euro and American press about how this proves the superiority of the “European model”…

  2. Fed lending to the rest of the world CB’s provides a way to ‘tax’ the world. To raise ‘taxes’ all the Fed has to do is raise interest rates.

    There has always been the connection between short-term interest rates and currency values? Globally the U.S. should have always insisted bank accounts denominated in dollars be borrowed from the Fed. Now the mechanism is public and therefore much ‘stronger’.

    The more the Fed opens its window, the stronger U.S. monetary policy becomes. An additional benefit is a smaller financial sector.

    The wasteful muncipal bond market could be wiped out tomorrow if the Fed opened the window to the States based on citizen population ($1000/citizen imply california would have access to $33 billion).

    Fed fund ‘taxes’ would accrue to the Federal government and would be set by the fed funds rate.

  3. I’m remembering a Monty Python sketch where various “men on the street” were asked what new taxes they would support, and one said that “For the good of the country, I’d tax all foreigners living abroad…”

  4. ‘tax’ the world.`

    Didn’t those euro boyz try to tax some founding father’s tea in Boston and everyone had a tea party? Why should anyone accept a tax that cannot vote and help influence government positions? Can a man in iceland or germany or ireland or switzerland vote in US elections? See how silly these globalists are – they think just because they can control paper money – that political/religous/social memes will fall right in line. That works until the people you are taxing pick up guns and start shooting your military/police representaves – or as Mosler said – the paupers of the world get tired of starving to death and start opening cans of whoopass – aren’t those African Pirate guys making elite militaries with drone robot tanks and AI remote controlled airplanes and nukular missles and cluster bombs and radioactice subs look silly?

    I think of a young boy in south america who died last year working in the silver mines from a cave-in. The silver he mined wound up on a young girls wrist named brittney spears in the USA who got it on a virgin island’s shopping trip with Sada Mosler and Mia Masters. Perhaps the rest of the world is getting “tired” of being taxed so that brittney and friends and go on nice shopping trips. Who cares about the young boys that die in the silver mines, they made the mistake of being born in the wrong part of the world. Their fault. It’s like this movie Jurassic Park – when the fences fall over – the dinosaurs start chewing you up – global joe ultralight three pack is getting hungry and licking his chops.

    Anyways with paulson and bernanke and friends looking at being fired with the new administration in just a couple months time – there is going to be a lot of chaos at the worst possible time. Jim Baird and Winslow R – do you think Obama is going to appoint people who can help him and his crony friends loot the treasury like previous crony crooks – or do you think he is willing to appoint people that will care about the dying boy in south america working in the silver mine and not care about his 2 spoiled princess daughters shopping til they drop at the mall of chicago?

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