Fed Releases a Flood of Dollars Part Deux

Here is the latest version of the Bloomberg story about the Fed and its 'flood of dollars.' It has its own link now here.

Interesting twist, on the Bloomberg News headline page here, the subject title has become "Fed Lets Europe Central Banks Offer Unlimited Dollars, Removes Swap Limits"

Don't mind us, we're just getting a chuckle out of the Bloomberg's editorial changes trying to strike a politically correct description of what the Fed is doing.

We think its the right thing to do by the way, since it will relieve the highly artificial short squeeze in dollar over in Europe because of their regulatory failures.

We will be much more impressed if, after they relieve the short term credit squeeze, they actually do something about it besides setting more useless standards that remain unenforced. The failure of the European Union banking regime is breathtakingly ironic given the hubris they had been proudly wearing as late as three or four weeks ago.

And listen up, cats and kittens, no matter what Paulson and his global crew of merry pranksters do in the short term, the US economy is in an absolute mess. A stronger dollar is going to strangle exports, but continue to strengthen the financial sector. That is not a prescription for change, but rather more of the same malinvestment and destructive wealth transfers with less stability.

Whoever become the President next year will get to start with a $2 Trillion deficit, largely wasted on consumption, profitless war, and golden parachutes for Wall Street.


Fed Releases Flood of Dollars, Market Rates Fall (update 3)
By John Fraher and Simon Kennedy

Oct. 13 (Bloomberg) -- The Federal Reserve led an unprecedented push by central banks to flood the financial system with as many dollars as banks want, backing up government efforts to revive confidence and helping to reduce money-market rates.

The European Central Bank, the Bank of England and the Swiss National Bank will offer European banks unlimited dollar funds with maturities of seven, 28 and 84 days at fixed interest rates against ``appropriate collateral,'' the Washington-based Fed said today. The Fed had capped at $380 billion the currency it would swap with the three central banks.

Global economic leaders have redoubled efforts to unfreeze credit markets and avert the worst worldwide recession in thirty years after last week's 20 percent slide in the MSCI World Index. Policy makers from the Group of Seven nations are committed to taking ``all necessary steps'' to stem a market panic, and European and U.S. governments today outlined plans to avoid banks failing.

``Like high waves that have gathered tremendous pace, global policy initiatives are coming to crash on the markets' shores,'' said Alex Patelis, chief international economist at Merrill Lynch & Co. in London. ``A turning point could be reached.'' (What is going to crash on our shores are a wave of dollars and Treasuries as the world realizes that there is a penalty in carrying an excess of our currency. But that step is yet to come, when the Treasuries plunge as we have said before. - Jesse)

The cost of borrowing in dollars for three months today fell to 4.75 percent from 4.82 percent, the highest this year. The rate for euros over the same timeframe declined to 5.32 percent from 5.38 percent...

The First Victim in an Economic Crisis is Truth

Yves Smith over at Naked Capitalism first picked up on this story from Bloomberg and blogged it here.

The reason for the short term need for US dollar overseas is explained here.

Bloomberg seems to have subsequently pulled this story and replaced it with an optimistic statement from George W. Bush here.

We do appreciate the little touch of irony but the frontpage of Bloomberg still carries the old headline over this new news story. Shoddy work at the Ministry to say the least.

To the experienced eye, there are other unmistakable efforts this morning to calm the markets with a false enthusiasm and the somewhat heavy handed management of key market signals.

When the going gets weird, the weird become ..... weirder.


Fed Leads Unprecedented Push by Central Banks to Flood Market With Dollars

Oct. 13 (Bloomberg) -- The Federal Reserve led an unprecedented push by central banks to flood the financial system with dollars, backing up government efforts to restore confidence and helping to drive down money-market rates.

The ECB, the Bank of England and the Swiss central bank will auction unlimited dollar funds with maturities of seven days, 28 days and 84 days at a fixed interest rate, the Washington-based Fed said today. All of the previous dollar swap arrangements between the Fed and other central banks were capped.

``By providing unlimited dollar funds they are acting on the back of the G-7 plan to ensure the system is fully liquidized,'' said Lena Komileva, an economist at Tullett Prebon Plc in London. ``We're going to see even more liquidity provided and more aggressive rate cuts are coming.''

Leaders of the world economy have redoubled efforts to unfreeze credit markets and avert the worst global recession in thirty years after last week's 20 percent slide in the MSCI World Index. Policy makers from the Group of Seven nations pledged at the weekend to take ``all necessary steps'' to stem a market panic and European governments are today announcing plans to avert a banking collapse across the region.

The cost of borrowing in dollars for three months today fell to 4.75 percent from 4.82 percent, the highest this year. The rate for euros over the same timeframe declined to 5.32 percent from 5.38 percent.....

``Taken together, the latest moves increase the chances that we will begin to see some relaxation of the intense funding stresses,'' Dominic Wilson and other economists at Goldman Sachs Group Inc. wrote in a note today. ``This is because bank solvency risk should decline as the government offers protection.''

As well as slashing interest rates in concert last week, global central banks are expanding their toolkits to push down money-market rates. The Fed on Oct. 7 said it will create a special fund to buy U.S. commercial paper and the ECB last week said it would offer financial firms unlimited euro funds. The Bank of England is scheduled to revamp its own money-market operations later this week.

Charts in the Babson Style for 13 October 2008

A technical bounce is overdue at this point, and we are likely going to get it today on Monday.

Getting long stocks here is only for short term traders.