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The problem is the Fed doesn’t see the risks involved in this program.
They are only seeing ‘success’ as USD interest rates fall for lesser credits around the world.
The question is why they would want USD rates to come down for lower quality borrowers?
This policy does not reduce international USD borrowings.
Instead, it supports and encourages increased USD borrowings with attractive USD rates and terms.
And in unlimited quantities for the ECB, BOE, BOJ, and SNB.
Yes, unlimited USD lending to anyone who can breathe in and out lowers rates.
And as it’s going to several entities that will probably never pay it back, it’s the largest monetary handout/transfer of wealth of all time.
It’s also a policy that, once implemented, historically has become more than problematic to shut down.
By David Lawder
WASHINGTON, Oct 29 (Reuters) – The Federal Reserve on Wednesday extended U.S. dollar liquidity aid beyond traditional markets, opening four new $30 billion currency swap lines with Brazil, Mexico, South Korea and Singapore.
The temporary arrangements, authorized through April 30, 2009, are aimed at easing global U.S. dollar funding shortages, the Fed said.
“These facilities, like those already established with other central banks, are designed to help improve liquidity conditions in global financial markets and to mitigate the spread of difficulties in obtaining U.S. dollar funding in fundamentally sound and well-managed economies,” the Fed said in a statement released in Washington.
The decision comes a day after the Fed established a $15 billion swap line with the Reserve Bank of New Zealand. The U.S. central bank now has 13 swap lines with foreign central banks.