Wednesday, November 30, 2011

The final fiscal dominoes begin to fall . . .

I've just read, via the Drudge Report, the news that the US Federal Reserve has reached an agreement with major foreign central banks to make currency swaps cheaper, easier and more freely available.

The Fed -- along with central banks of the eurozone, England, Japan, Switzerland and Canada -- announced a coordinated plan to lower prices on dollar liquidity swaps beginning on December 5, and extending these swap arrangements to February 1, 2013.

A swap takes place when the Fed provides U.S. dollars to a foreign central bank, in exchange for the equivalent amount of foreign currency from that central bank.

"These swap lines are being implemented as a contingency measure, so that central banks can offer liquidity in foreign currencies if market conditions warrant such actions," the Federal Reserve said in a Q&A about the plan.

Together, the six central banks also created a temporary mechanism, making it easier for them to exchange their foreign currencies -- not just U.S. dollars. That tool gives any of these central banks easier access to euros, Japanese yen, British pounds, Swiss francs and Canadian dollars, should they need those currencies to assist their region's banks in the event of a crisis.

There's more at the link.

What this means, of course, is that the Fed will make dollars available to those foreign central banks in exchange for their currencies - including the euro. The Fed will print billions, perhaps trillions of 'fiat currency' dollars against the supposed 'security' of those foreign-currency holdings (all of which are, of course, themselves 'fiat currencies' as well), all to benefit foreign countries. If the euro crashes and burns (as appears increasingly likely), it'll be left with worthless euros in its swap account. (Not that it cares, of course . . . the Fed hasn't exactly demonstrated any concern at all in the past over what 'printing money' might do to you or I, the hard-pressed consumers of America. The Fed will do its best to rescue its bankster buddies around the world - at our expense.)

In October, speaking about Europe's financial crisis, I pointed out:

The USA will be dragged into this whether we like it or not. Consider the behavior of the Federal Reserve in the recent past - lending trillions (yes, trillions) of dollars to US and European banks and financial institutions to help keep them afloat. You want to bet the same thing isn't on the cards right now? If you do, there's a bridge in Brooklyn, NYC I'd like to sell you. Cash only, please, and in small bills. The Fed daren't let European banks go down the tubes, because that would impact the entire global economy, including those who buy US bonds and thereby fund the operations of the US government (which borrows close to half of every single dollar it spends). Therefore, it'll print dollars like there's no tomorrow, and hand them out by the trillions to prop up a failing Europe, because it can't afford to let it fail. For you and I, the men and women in the streets, that means more inflation on the way, coupled with negative real interest rates and the collapse of our retirement savings.

Am I a prophet, or what?

I believe this is just about the last straw. Effectively, central banks around the world have now been reduced to propping each other up, in a desperate last-ditch attempt to prevent economic reality from working its way through the world's financial system. I don't believe they can succeed. Europe's heading deep into recession territory, if not a full-blown depression. That's over 20% of the world's economic activity, right there. A European collapse cannot fail to affect the USA and China; and when it does, more than half of the world's economic activity will be caught up in the crunch.

Here it comes, friends. Keep your powder dry.



Joe said...

Interesting that only a couple days ago, Obama made the comment that the economic crisis in Europe was not America's problem and then they turn around and do this.

Typical of the politicians nowadays, say one thing and do the opposite.

Peter, keep up the good work on posting all of this. Of course, after reading all of these articles, I want to curl up in the corner with my rifle.

Mikael said...

Joe, the federal reserve isn't actually part of the government, it's a private company.

Joe said...

Milael, I realize that but the interests of Fed and the .gov are closely aligned. The Fed is still subject to Congressional oversight and the board of directors is appointed by the President.

Stretch said...

Thankfully I have a wheelbarrow so I'll be able buy some bread ... for a while.

Anonymous said...

"economic crisis in Europe was not America's problem"
I remember a phrase almost like this said back in the 1930's.
"Hitler is Europe's problem."
Sure did turn out it WAS NOT Europe's problem but OURS.

SiGraybeard said...

Given the money the Fed commands, it's probably more accurate to think of the US Government as a wholly owned subsidiary of the Federal Reserve.

After all, they gave away/loaned $16 Trillion to the banks, US and foreign, in a year when the GDP of the US was $14T or so, and the federal tax revenue was about $2.

Old NFO said...

Have to agree, much as I hate to... sigh