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Central Banks Provide Band-Aid for Europe's Ills
Published: Thursday, 15 Sep 2011 | 2:19 PM ET
Text Size
By: Patti Domm
CNBC Executive News Editor
17
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The arm-in-arm effort by central bankers to increase U.S. dollar liquidity in Europe is essentially a band-aid solution, and the euro is already backing off its gains.
"They're taking care of the symptoms, but the underlying illness is still out there. On the margin, it's positive. Until Greece defaults and we clear this whole thing up, they're still treading water," said Win Thin, senior currency strategist at Brown Brothers Harriman.
Euro bills and coins
AP
Just ahead of the Wall Street open Thursday, the European Central Banj, along with the U.S. Federal Reserve [cnbc explains] , Bank of England, Bank of Japan and Swiss National Bank announced they would offer three-month dollar loans to Europe's commercial banks, easing dollar funding constraints.
European banks need the greenback to fund loans to U.S. customers and also to repay their own dollar borrowings. But the funding was becoming more difficult to come by as usual U.S. sources, such as money-market funds [cnbc explains] , provided less dollars as the sovereign debt crisis flared up.
The ECB said it would hold three fixed-rate operations between October and December. The ECB offers seven-day dollar loans each week, and it was tapped by banks this month for the first time since February.
Thursday's announcement sparked a move higher for risk assets, with European bank stocks and equity markets leading the way higher. The euro touched a high of 1.393, before backing down to 1.386 in morning trading. The German and French stock markets finished the session more than 3 percent higher, and U.S. stocks climbed more than 1 percent at midday, despite a poor showing on U.S. economic data Thursday.
Analysts said, for now, the euro will probably remain in its current 1.35 to 1.40 range. The euro moved to this lower range after the ECB turned away from its interest-rate hiking policy last week.
"This is not a game changer. This is a tourniquet on an open wound. It's a backstop measure for banks," said Foreign Exchange Analeptics analyst David Gilmore on CNBC's "Squawk on the Street." "It restores some of the confidence in the banking system in Europe, but the bigger issue of solvency in periphery government debt balances—Greece, Portugal, Ireland, Spain, Italy—those are still on the table and they have not been resolved."
The announcement also comes ahead of a Friday meeting between Treasury Secretary Timothy Geithner and European finance ministers, who are meeting in Poland for the Eco Fin conference. There was speculation that Geithner would be pushing European officials to find other ways to use the European Financial Stability Facility (EFSF) to help support its banking system.
"What can he do? You can't help a group of leaders that can't help themselves," Gilmore said in a telephone interview. He added that euro zone countries could help themselves by setting up some type of centralized fiscal authority that would take on the role of rescuing countries and helping banks.
Gilmore said the EFSF will be used to purchase sovereign debt [cnbc explains] and also provide a way for euro zone governments to provide funding to banks. Its original purpose was to provide funding for debtor countries in need of funds. The enhanced powers of that fund must be approved by all 17 countries in the euro zone. The fund is also smaller than analysts believe is needed, holding just 400 billion euros ($554 billion).
Boris Schlossberg of GFT Forex said the very announcement by the central banks adds some transparency to what had been a murky situation surrounding Europe's banks.
"It's going to be difficult for the euro to climb above 1.40. It all comes down to credit risk. Until they can create some sort of structural solution for this, I think the market is going to take everything with a grain of salt," said Schlossberg.
Markets respond favorably to talk of a pan European bond, and the euro rose after European Commission president Jose Manuel Barroso said Wednesday the commission would present options for a European bond.
German Chancellor Angela Merkel, however, reiterated her opposition to such a bond. "The problem is Merkel cannot sell it to the Germans right now. The Germans are feeling like they're forced to float all these debtor neighbors," said Schlossberg.
Date: Sat, 17 Sep 2011 12:43:36 -0700
From: runlv2@yahoo.com
Subject: Fw: Federal Reserve: Bail Out European Commercial Banks
CC: vanhelsing@moonbattery.com; d.warren@mindspring.com; eponine24601@yahoo.com; gia@buttonladyonline.com; chuck@chuckmuth.com; r.ewart@comcast.net; cannonk@knology.net; zoilandon@msn.com; jaghunter1@gmail.com; tartanmarine@gmail.com; ticktock35613@yahoo.com; support@teapartypatriots.org; TheUnrepentantPatriot@gmail.com; postmaster@usasurvival.org; mail@conservativebyte.com; merin.seo@gmail.com; nathanhuckaby@bellsouth.net; wfinley11@live.com; director@jihadwatch.org; battleacre@gmail.com
POSTED
Conservative Patriot
http://conpats.blogspot.com/
----- Forwarded Message -----
From: DONALD HANK
To: zoilandon@msn.com
Sent: Saturday, September 17, 2011 4:50 AM
Subject: Fw: Federal Reserve: Bail Out European Commercial Banks
----- Original Message -----
From: Jerry Stith
To: Donald Hank
Sent: Saturday, September 17, 2011 12:38 AM
Subject: Federal Reserve: Bail Out European Commercial Banks
The Federal Reserve Is Using Your Money To Bail Out European Commercial Banks Once Again
The Economic Collapse
Sept 16, 2011
Fed
For a moment, imagine that there is a privately-owned organization in the United States that can create U.S. dollars out of thin air whenever it wants and can loan that money to whoever it wants to. Imagine that this organization is able to act with the full power of the U.S. government behind it, but that nobody in the organization is ever elected by the American people, and that for all practical purposes the organization is not accountable to the president or to Congress. Imagine that the organization is able to make trillions of dollars of secret loans to banks, to foreign governments and even to their close friends without ever having to face a comprehensive audit. Does that sound preposterous? Well, such an organization actually exists. It is called the Federal Reserve, and today we found out that once again the Fed is going to be taking huge piles of your money and loaning it to commercial banks in Europe. The Congress cannot overrule this decision. Neither can Barack Obama. Because it has so much power, many refer to the Federal Reserve as “the fourth branch of government”, but unlike the other three branches of government, there are basically no significant “checks and balances” on the Federal Reserve. If you don’t like the fact that the Federal Reserve is racing in to help big foreign banks survive the European debt crisis that is just too bad. The Federal Reserve pretty much gets to do whatever it wants to do, and the folks over at the Fed simply do not care whether you like that or not.
So what in the world just happened today? The following is how an article onCNBC explained it….
Just ahead of the Wall Street open Thursday, the European Central Bank, along with the U.S. Federal Reserve, Bank of England, Bank of Japan and Swiss National Bank announced they would offer three-month dollar loans to Europe’s commercial banks, easing dollar funding constraints.
It must be nice to do whatever you want without having to get the approval of anyone else.
What do you think Barack Obama would give for such power right about now?
The Federal Reserve and other major central banks around the world decided that lending big European banks gigantic piles of dollars would be a good idea, so they are just doing it.
No debate, no votes and no democracy – they just tell us how things are going to be and that is that.
It is a bit ironic that all of this happened on the third anniversary of the collapse of Lehman Brothers. It is almost as if the central bankers of the world are trying to send some sort of a message.
So how much money is going to be loaned out?
Well, according to an article in The Daily Mail, big European banks are going to be able to borrow an “unlimited” amount of money….
The deal announced yesterday means banks will be able to borrow ‘any amount’ of money in three separate auctions in October, November and December. Banks will have to put up collateral, or security, to tap the emergency funds.
Wow – I wish someone would offer to lend me an “unlimited” amount of money.
But of course this really is not going to solve anything in the long run. You can’t solve a raging debt problem with more debt.
Yes, it will help the big European banks with their short-term liquidity problems, but it will do nothing to fix the long-term structural problems that are tearing Europe to pieces.
Win Thin, a senior currency strategist at Brown Brothers Harriman, said essentially the same thing to CNBC today….
“They’re taking care of the symptoms, but the underlying illness is still out there. On the margin, it’s positive. Until Greece defaults and we clear this whole thing up, they’re still treading water”
So, no, the financial problems of Europe have not been solved.
Just think of this latest move as a temporary band-aid.
So why get upset about it?
Well, what all of this shows is just how arrogant the Federal Reserve is.
The Federal Reserve gets to throw around trillions of dollars without any accountability to the American people.
As I have written about previously, the Federal Reserve made $16.1 trillion in secret loans to their friends during the last financial crisis.
This was revealed in a GAO report, and members of Congress such as Ron Paul and Bernie Sanders tried to get people to pay attention to this. The following is a statement about this report that was taken from the official website of Senator Sanders….
“As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world”
So how much of that money went overseas? Well, it turns out that approximately $3.08 trillion of that money was loaned to big banks and major financial institutions in Europe and Asia.
Barack Obama can’t lend trillions of dollars to foreign banks.
So why does the Federal Reserve get to do it?
Sadly, most Americans know very little about the Federal Reserve. In the United States today, most Americans graduate from high school without ever learning much of anything about the Fed.
But if you really want to understand what is going on with our economy, it is absolutely critical that you understand the Federal Reserve.
The following are some more reasons why you should be upset about what the Federal Reserve has been doing….
*The Federal Reserve is a perpetual debt machine. Today, the U.S. national debt is 4700 times larger than it was when the Federal Reserve was created back in 1913.
*The Federal Reserve has recently been actually paying banks not to make loans. Right now banks can park money at the Federal Reserve and make risk-free income without having to make loans to the American people.
*Current Federal Reserve Chairman Ben Bernanke has a track record of failurethat is legendary, and yet George W. Bush and Barack Obama both backed him 100%.
*The Federal Reserve system is designed to create inflation. The truth is that the United States has only had a persistent, ongoing problem with inflationsince the Federal Reserve was created back in 1913.
*Since 2008, what the Federal Reserve has been doing to our money supplyhas been absolutely insane. Eventually this is going to have very serious consequences for us.
*The U.S. government has handed over the task of “centrally planning” our economy to the Federal Reserve. The Fed decides what the target rate of inflation should be, what the target rate of unemployment should be, what interest rates are going to be and what the size of the money supply is going to be. This is quite similar to the “central planning” that goes on in communist nations, but very few people in our government seem upset by this.
*The Federal Reserve picks “winners” and “losers” in the financial system. For example, when the last financial crisis hit, the Fed bent over backwards to help out the big Wall Street banks, but hordes of small banks were left out in the cold.
*As mentioned above, the Federal Reserve has become way, way too powerful. The Fed is able to do a lot of things that the three branches of government are simply not able to do. Fortunately, there are a few of our leaders that are alarmed by this. For example, Ron Paul once told MSNBC that he believes that the Federal Reserve is now more powerful than Congress…..
“The regulations should be on the Federal Reserve. We should have transparency of the Federal Reserve. They can create trillions of dollars to bail out their friends, and we don’t even have any transparency of this. They’re more powerful than the Congress.”
As long as we continue to use a debt-based currency that is controlled by a privately-owned central bank, we are going to continue to have permanent inflation and government debt that expands at an exponential pace.
The “central planning” done by the Federal Reserve has created bubble after bubble after bubble. Our dollars is on the verge of dying and our financial system is about to collapse.
The Federal Reserve system simply does not work.
Hopefully we can start sending more politicians to Washington D.C. that will be willing to stand up to the Federal Reserve.
But for now, the Federal Reserve is going to keep running around doing whatever it wants to do whether we like it or not.
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