Fed Ch Bernanke's STEALTH QE3 per WSJ - 9-16-2011

.
In addition, please refer to the "Original Proposal" two sections above, because it contains a wealth of information.

Click here for, inter alia, (A) information about what Bloomberg News discovered as a result of its Freedom-Of-Information-Act lawsuit regarding QE-1 which the Federal Reserve fought all the way to the US Supreme Court including how in 2008-2009 the Fed printed $7.7 TRillion and loaned it to banks on three continents, providing them with $13 billion in profits, (B) Fed Reserve Chair Bernanke's own explanation of QE-2, and (C) Fed Reserve Chair Bernanke's STEALTH QE-3 only 2 weeks after his Jackson Hole WY speech promising there would be no QE-3 (per Q&A-24/First Quiz calculations located in "Participant Comments" above), QE-3 comprised printing as much as $2.9 TRillion more dollars to keep Italy and Spain afloat through 12/31/2011.
Post Reply
johnkarls
Posts: 2034
Joined: Fri Jun 29, 2007 8:43 pm

Fed Ch Bernanke's STEALTH QE3 per WSJ - 9-16-2011

Post by johnkarls »

.
Wall Street Journal – 9/16/2011

Central Banks Pour Dollars Into Europe
BY BRIAN BLACKSTONE

FRANKFURT—The world's leading central banks joined forces to offer Europe's beleaguered banks easy access to dollars Thursday, acting to quell fears that the region's lenders could fall victim to the euro-zone's government debt crisis.

The European Central Bank said it would coordinate with the U.S. Federal Reserve, Bank of England, Bank of Japan and Swiss National Bank to ensure banks unlimited dollar funding through the end of the year.

The rare coordinated move buoyed markets. European financial stocks, which have been battered in recent weeks, surged as concerns eased over some banks ability to raise enough dollars to meet their obligations.

But the action also demonstrates that stresses on European banks have intensified to the point that central bankers are reactivating programs used in 2008 and 2009, the depths of the biggest financial crisis since the Great Depression. That underscores worry outside of Europe that the two-year-old crisis, which has already infected some of the Continent's core economies, could quickly spread beyond Europe's shores and imperil the global economy.

Many European banks have substantial exposure to government and consumer debt in markets along the euro-zone's troubled periphery, including Greece and Spain. Concerns that Greece could be forced to default on its debts have focused attention in recent weeks on how a Greek bankruptcy could affect Europe's banks, especially those in France, which are heavily invested in the region.

The joint action came after two euro-zone banks tapped the ECB's existing seven-day dollar window for €575 million ($791 million) on Wednesday, only the second time in six months that type of funding has been used.

European banks need U.S. currency to fund loans they have made in dollars to companies and consumers around the world, and securities they hold that are denominated on dollars. They have tended to tap short-term markets, including money-market mutual funds, for the dollars they lend out, and need to frequently repay or roll over those borrowings. They would turn to the ECB for help only if they were unable to raise the funds elsewhere.

Banks on the Stoxx Europe 600 index posted a 4.1% increase on the day, leading the broader index up 2% at close. Shares of France's BNP Paribas SA rose 13% and Société Générale SA advanced 5.4%. The euro rose against the U.S. dollar as tensions eased over the debt crisis and demand for safe German government bonds fell. U.S. shares Thursday rode the wave higher, with the Dow Jones Industrials up 1.7%. Asian shares traded up Friday morning; Japan's Nikkei average rose 1.6%, Australia's S&P/ASX 200 jumped 2.0% and South Korea's Kospi Composite climbed 2.9%.

The last time these five central banks jointly decided to make longer-term dollar funding available was May 2010, at the height of the Greek debt crisis. The most striking case of joint action came in October 2008, when many of the largest central banks jointly cut interest rates in the wake of Lehman Brothers' collapse.

Though markets rose Thursday, analysts warned that the measures would do little to resolve the deeper challenges facing the region.

"This will not change the root of the problems with banks, which is the debt crisis," said Marco Valli, economist at lender UniCredit. "That requires a political solution."

Some economists saw Thursday's move as further evidence that the once-mighty arsenal of central bankers has grown thin after years of fighting recession, deflation and slow growth. With interest rates near zero in the U.S. and U.K.—and other steps such as asset purchases having little effect so far—central bankers can make sure banks have access to adequate short-term loans, but they don't have the tools to spur new spending and investment.

Of the central banks involved in Thursday's announcement, only the ECB has room to meaningfully lower interest rates if needed. The ECB's main policy rate is 1.5%. The other four all have rates closer to zero, making dramatic action, such as the joint interest-rate reduction in October 2008, impossible.

Thursday's action "is positive in the sense that central banks are moving in tandem," said Sara Johnson, economist at consultancy IHS Global Insight. "But realistically there is very little room to maneuver."

Analysts cautioned that reactivating a single tool is unlikely to change the underlying dynamics for banks and the broader economy. The euro zone still faces a potentially lethal mix of stagnation and austerity in much of its fragile periphery, with strains in the banking system that could limit the availability of new consumer and business loans.

In a sign of ongoing stress, euro-zone banks borrowed €3.4 billion from the ECB's emergency window Wednesday, the highest level in more than one month. Overnight deposits parked at the ECB also grew, suggesting banks aren't willing to lend to each other.

The central banks' joint statement comes after weeks of discord within the euro zone that raised concerns over Europe's ability to handle its debt crisis.

Members of German Chancellor Angela Merkel's coalition have openly mused about the possibility of a Greek debt default. Finland has insisted that Greece post collateral for new loans. Proposed changes to Europe's bailout fund to give it more power—changes the ECB say are needed immediately—still languish in parliaments.

"We are in an environment where governments are acting too slowly...it's clear central banks have to carry the burden of bringing confidence back to the market," Mr. Valli said.
Governments are trying to show their own signs of unity. Ms. Merkel had a conference call Wednesday with French President Nicolas Sarkozy and Greek Prime Minister George Papandreou after which the leaders declared Greece's future "is in the euro zone."

U.S. Treasury Secretary Timothy Geithner, who has pressed his European counterparts for a more decisive crisis response, is attending meetings of European finance ministers this weekend in Poland, just days after meeting his G-7 counterparts in France. Fed chairman Ben Bernanke was in Marseille, France, and Basel, Switzerland, last week for meetings with finance officials and central bankers.

The Fed plays a central role in the decision to make dollar funding more widely available to banks overseas. Under an arrangement that was established during the financial crisis, the Fed makes the dollars available to the other central banks—for repayment with interest at slightly above-market rates—which in turn lend the money to banks under their jurisdiction.

In the depths of the financial crisis in late 2008, foreign central banks turned to the Fed for more than $600 billion in such loans.

The Fed sees the loans as very low risk—it is the other central banks that are on the hook to the Fed to pay back the loans, and not the commercial banks that ultimately get the cash.

These swap lines were originally set up as a temporary arrangement, but they have been extended several times during and after the financial crisis. In June, Fed officials extended provision of seven-day loans through August 2012.

Fed officials have been watching developments in Europe closely for months, with an understanding that the lines might be put back into use as the terms for short-term dollar loans to European institutions gradually worsened.

U.S. and European officials don't expect these markets to become too chaotic in part because the facilities are in place. These officials also argue that European financial institutions have plenty of collateral that they can pledge in exchange for short-term dollar loans, another reason they're not expecting a sudden crisis.

Post Reply

Return to “Reference Materials - Balanced-Budget Amendments & Redeeming National Debt With “Wallpaper” In Both Europe and the U.S. - December 14th”

Who is online

Users browsing this forum: No registered users and 2 guests