Friday, September 18, 2009

Which Foreigners got the 1/2 Trillion Bernanke?

Rep Alan Grayson (D) Florida asks the tough questions - question that cause Bernanke to tap dance and lie through his teeth.

Alan to Bernanke: Which Foreigners Got the Fed's $500,000,000,000? A nervous Helicopter man answers back: I Don't Know.

Alan: Who authorized it and under what legal authority? Bernanke: FOMC under long standing legal agreements (BS)

Alan: A 20% increase in nominal dollar exchange rate at exactly the same time you handed out 1/2 trillion to foreigners - a coincidence? Bernanke lying through his teeth after a pause - yes!

Alan: Does FOMC have Constitutional authority to act in such a manner?

Excellent questioning - Rep Alan Grayson should be commended.

Hat tip Izzy


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T Z said...

Well, Congress DID create the Federal Reserve to handle monetary policy, DID pass the associate law to give it complete authority without transparency and accountability, and DID permit an arrangement where major banks own the Fed and control its working.

So while the Congressman can ask all the tough questions, nothing will be changed unless Congress change the Federal Reserve Act. Either eliminate it by taking back its power to mint money, or replace it by a one modeled after the central banks of all other developed countries. Only the USA has a privately controlled central bank which, by law, cannot be controlled by the government.

Anonymous said...

The fall of America, it is all so entertaining. Don't worry I live here too. I suffer with you.

Willy2 said...

This $ 500+ bln. was a currency swap with e.g. the ECB and at a fixed rate. E.g. the ECB has lend the FED the same amount of EUR at a rate of say 1,40. If that money is to be repaid in the future that money (both USD and EUR) will have to be repaid at 1,40 as well.

When companies/debters need USD to repay their USD denominated debt then they must buy those USDs at the actual (e.g. EUR/USD) rate (today at 1,47) and not, as mentioned above, at 1,40. So, the fall of e.g. the EUR/USD was the result of debters buying USD to pay off their debts (in USD).

The weakness/strength of the USD is the result of three things:
1. The US runs a trade deficit and a current account deficit. So, the rest of the world is still accumulating USDs. And that's a force pushing the USD down.
2. The (perceived and/or relative) weakness/strength of the US economy. Are foreigners willing/able to invest in/lend the US their money ? Where are best opportunties to make money ?
3. The carry trade: borrow USD or Yen at (near) 0% and invest that money in higher yielding currencies/assets. This pushes the USD and Yen down and the EUR (in relative terms) up. Whereas the unwinding of the carry trade pushes the Yen or USD up against the EUR.

If the FED hadn't performed a currency swap with other central banks then the EUR/USD would have gone through the floor to say 0,80 or perhaps even down to 0,40. And that would have caused a complete breakdown of the entire economic system in the entire world.

The only thing the FED has to know is which central banks have those USDs. It's the responsibility of e.g. the ECB to know which commercial banks have borrowed those USDs.

So, IMO, Bernanke wasn't lying lees through his teeth than many think !