Wednesday, November 30, 2011

Now the Fed Monetizes Europe? Great!!

Perhaps DJIA loves auto-destruction of the US.  It's popped as much as +400 points today.


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.

Got that?

The Fed will trade fiat USDollars for fiat European currencies--which are going (soon) into the black holes of Greece, Spain, Italy, and Portugal.  Later, into Ireland.

Helluva deal.

HT:  Peter


steveegg said...

The motto of the Street is - Buy hearty today, for tomorrow we die.

J. Strupp said...

I'm still trying to digest this one.

Just not sure how providing more global liquidity is going to change the fact that periphery Europe is being destroyed by their adherence to a common currency. Nothing has really changed.

Dad29 said...

Correct. Nothing changed.

Greece is still BK, walking or not.

So when the Fed swaps USD for Euros, which devalue by 30% after Greece, Italy, and Portugal sink into their respective waterfronts, the Fed (the UStaxpayer) holds 30% less value.

J. Strupp said...

How are they gonna devalue the Euro vs. the dollar now Dadster? I'm not sold on the idea that the Euro, as a currency, simply dissappears from the world.

To your own admission, we're effectively devaluing by providing liquidity to the region. Plus you still have the ultimate inflation hawk at the helm in Europe. They're unwilling to devalue regardless of the periphery nation's status.

It's very possible that several periphery nations go BK and exit EMU, which leaves Germany in a better position to raise interest rates and combat their 1% inflation rate. This also might be the reason why you aren't seeing much pressure on the Euro right now.

The Eurozone is over as we know it for certain, but I don't see significant Euro devaluation happening. You gotta consider who's going to be left when the dust settles.

We'll see I guess.

Tim Morrissey said...

Yes, we WILL see. I'm thinking it ain't gonna be pretty.