Good news-
The Fed line item believed to be the swap line advances fell a bit to 608 billion from 615 billion the week before.
Not sure, for example, if they are valuing the dollars extended to the ECB or the euros held by the Fed as collateral.
The lines are set to expire in April.
And no way to tell whether the foreign $ borrowing is to fund $ assets already on their books, or whether they are funding beyond that.
The swap lines take some pressure off the process of covering dollar losses by selling local currencies to buy dollars to cover dollar losses.
This helps support, for example, the euro vs the dollar.
However, uncovered dollar losses grow with any depreciation of the local currency, so that risk remains until the currency aspect of the losses are ‘covered.’
This is still completely off the Congressional radar screen.
No one even asked why the Fed would loan over 600 billion to foreign central banks which can be used to support their auto industry at our expense.
And no one indicated that what the autos need most are buyers who can afford the new cars.
A payroll tax holiday would give the automakers and financial sector what they need most- consumers who can afford to make their payments.
(And how about those Democrats critical of companies paying high wages- time have changed!!!)
(Also, Congress could change tax laws to the point of eliminating corp. travel by private jet if they wanted to. Instead they give tax advantages and then
are critical of their utilization. But that’s another story…)
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Warren,
The fed’s forex holdings are valued as to current exchange rates. It’s stated on their statement under a footnote.
-Mike
It could also be that some of the swaps were settled and not rolled over. This could be an indication of easing of dollar funding pressures. Bad for USD.
Looking at gold this morning it seems like some base has been put in. Gold may be anticipating a renewed decline in the dollar.
agreed in general with all above,
but I don’t have much conviction right now with all the liquidations and cross currents.
markets could start discounting an obamaboom if he starts giving some regular hints on what he’ll be doing
Right. Foreign CBs who engaged in swaps with the Fed could have sold their currency and bought dollars in forex to satisfy the needs of local institutions. There need not have been asset sales for that to happen. The dollars the Fed has provided have been funneled through CBs anyway. This is outrageous! No need for the Fed to do this!!!
And if the Fed “lost” $8.6 billion due to exchange rate adjustments, then where is the public outcry about the taxpayers being on the hook?? Nothing!!
By the way, the Fed’s “Maiden Lane Portfolio,” which was set up in July to purchase the assets of Bear Stearns has lost less than $2 billion, but the swaps have already lost the taxpayer $8.6 billion. Again, where is the outcry??
With swap lines the foreign cb’s post more of their currency to make up for any losses.
that’s where the fun come in. as their currencies fall vs the $ the fed gets more and more of their currency to sell, which makes the currency go down even more, etc.
hopefully they just repay the dollars in april so the fed never does have to sell their currencies…
With the swap lines now at $600B, Ive been trying to compare open market ops at some of the larger CBs to this $600B number and have been coming up short.
The ECB has $224B out via auctions, but the BOE, Swiss NB, and BOJ dont seem to be having large allotments at their respective auctions.
BOE
http://www.bankofengland.co.uk/markets/money/documentation/usdrepo.htm
Swiss
http://www.snb.ch/en/ifor/finmkt/id/finmkt_usdollars
BOJ
http://www3.boj.or.jp/market/en/stat/ba081119.htm
If you add these up its about $50B, well short of $600B. The CBs could just be holding on to the $US, or instead of auctions, it looks like the Swiss CB is making direct investments in banks.
Soon after the Fed announced major increases to swap lines on Sept 29,
http://www.federalreserve.gov/newsevents/press/monetary/20080929a.htm
the Swiss put $60B in UBS ($60B is amount the Fed advanced the Swiss)
http://news.bbc.co.uk/1/hi/business/7673159.stm
So this may be another avenue Foreign CBs (not ECB constrained) are using to get the US$ into their systems. If the swiss didnt have the $60B to give UBS before the Fed gave it to them, I wonder how they are going to get it back from UBS by April 30, 2009? If these us$ investments dont make the news, its sort of impossible to see what FCBs are doing with some of the us$. At least the ECB auction process is somewhat transparent at the top level.
Resp,
Follow up to my comments above,
This is an IMF site that looks like it tracks foreign currency holdings of the different countries, in this case Switzerland:
http://www.imf.org/external/np/sta/ir/che/eng/curche.htm#I
If this is all the $ the swiss had, it looks like they indeed did not have the $60B for UBS, but had $44B of total foreign currency in September. So Fed to the rescue?
Resp,
looks like you’re on to something- keep digging, thanks!
BTW…Matt Franko is one of my radio show listeners. Intelligent and educated group we have, no??
-Mike Norman
Japan sends $100B to IMF:
In the Feds swap press release here:
http://www.federalreserve.gov/newsevents/press/monetary/20080929a.htm
The Fed Identifies a min. $120B swap with BOJ. (Japan probably has alot of US$ so this is puzzling)
In an IMF press release commenting on the recent G-20 meeting here:
http://www.imf.org/external/np/tr/2008/tr081115.htm
the speaker identifies a recent transfer of $100B from Japan to the IMF. Excerpt:…..”if the crisis becomes more and more severe to answer increased demands of our membership. And not only the principle has been admitted, but as you may know, you certainly know, the first step has been done, a very significant one, by one of our members: Japan committed itself to an increase of $100 billion. So we’ve already increased our resources by $100 billion and many, I shouldn’t say many, some members today already said that they are going to consider the same kind of process, but maybe not for such a big amount…..”
This looks unusual as this link says no transactions have previously taken place between Japan and the IMF since 1984:
http://www.imf.org/external/np/fin/tad/extrans1.aspx?memberKey1=520&endDate=2008-10-31
So maybe Japan didnt really need the swap $ so they decided to just give it to the IMF to help out in the crisis?
Resp,
Yes, one can call it anything one wants, but you’ve identified the outcome. The US has indirectly funded the IMF for 100 billion
And Japan is probably making a substantial interest rate spread between the two?