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Fed Increases Dollar Swap Facilities by $330 Billion, More than Double

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The numbers attached to various emergency interventions just keep getting bigger and bigger. From Blooomberg:

The Federal Reserve increased the size of previously arranged currency swaps with foreign central banks to $620 billion from $290 billion to make more dollars available to banks worldwide.

Banks and brokers have slowed lending as they struggle to restore their capital after $554 billion in credit losses and writedowns since the mortgage crisis began a year ago. The bankruptcy of Lehman Brothers Holdings Inc. also sparked fears among banks they wouldn’t be repaid by counterparties, driving up the cost of short-term loans between banks.

“These steps are being undertaken to mitigate pressures evident in the term funding markets both in the United States and abroad,” the Federal Reserve said in a statement released on the Board of Governors website.

“By committing to provide a very large quantity of term funding, the Federal Reserve actions should reassure financial market participants that financing will be available against good collateral, lessening concerns about funding and rollover risk,” the central bank said.

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16 comments

  1. satan

    Put up a good ‘helicopter ben’ or ‘b-52 ben’ cartoon. We require some levity now. I have to start drinking early again..

  2. Anonymous

    Thanks for an excellent site that helps cut throught the crap – especially helpful for non-economists like me!

    Anyway, from what I have read moves such as these only seem to provide short term restbite from the continuing slide, do we think this will be the case here also? In addition, surely the feds resources have to be getting rather thin on the ground – should this not be of some concern (amongst everything else!)

  3. Scott Frew

    Yves–

    FYI, the TAF was just changed–added to–as well. Currently auctions are twice monthly. A two-day affair with $25 billion auctioned for 84 days on day 1, followed by $50 billion for 28 days on day two; and then 2 weeks later $75 billion for 28 days. The first day where $25 billion has been auctioned for 84 days is being changed to $75 billion.

    Additionally, they’re adding two more auctions into year end. Net effect, $900 billion being auctioned where the plan initially or formerly was for half that amount.

  4. Vox Sanus

    Hey welcome to Zimbabwe. This is starting to go exponential. What next week, the Fed putting out a trillion?

  5. Anonymous

    Please tell me that this time Bernanke is NOT sterilizing this by taking a matching amount from the broader economy.

    For once let him not rob from the poor.

  7. Anonymous

    Problem:
    Mark-to-market accounting.

    Solution:
    Mark-to-Hank.

    Mark-to-Hank accounting will bring great profits for the banks. Thanks Hank!

  9. spare some change?

    The technicals say ‘short term long’, the fundamentals say ‘stay short’. Lots of bad economic waves are cresting right about now. The news in financials is just the froth at the peak of the wave.

    Would not advise buying except to take profits on shorts, or to hedge.

  10. SlimCarlos

    The best way to get all this the money flowing again is to induce expections of inflation. In other words: use it or lose it.

    Piling all this dough up in the pantry gets no one anywhere.

  12. Brian

    anonymous … expanding the balance sheet, as was done last week, is essentially sterilization *if* you fund it through treasury debt auctions (which does not result in new money being created). There is also $480 billion of treasuries remaining in the Fed portfolio. So, we really cannot say yet that the Fed will be creating new money. We will need to see what transpires.

    Is it not your understanding that the bailout proposal is to be funded via treasury debt auctions?

  13. SlimCarlos

    >> yeah that worked well in Zimbabwe. Scare people into overvalued assets.

    My point is that this will happen anyway. The only way out from under the debt mountain is through inflation. Avoiding this eventuality will only drag down productive sectors of the economy along with the unproductive.

    Monetary authorities need to devalue hard and sharp and then reset the system so that this sort of excess does not happen again.

    But devaluation is coming, one way or another.

    ps – As for "overvalued assets" you now have solid nat gas companies trading for 2x cash flow and, if you think the ags are cheap, you try to go make money as a farmer at these "overvalued" levels. The baby is getting chucked with the bathwater.

  16. Anonymous

    Inflating to infinity is how this legal tender system works. The alphabet soup of funding mechanisms, enacting new laws, raising the debt limits are all minor details as the printing press keeps on turning.

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