Re: ECB ending Fed swap lines!

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(email exchange)

>   On Fri, Dec 19, 2008 at 9:25 AM, Scott wrote:
>   ECB says to discontinue US dollar swap OPS from end Jan.
>   I guess they don’t want euro to strengthen!


This is the new century version of ‘competitive devaluations.’

Paulson moved first by talking foreign CB’s out of buying USD reserves.

Bernanke thought he was helping with rate cuts.

China said ‘no mas’ a while back started ‘letting’ the yuan depreciate, probably via USD purchases.

Japan recently announced ‘no mas’ and that they were prepared to resume USD buying to abort yen appreciation.

If the ECB in fact cuts off its banks ‘cold turkey’ from the Fed’s $ the shock can be enormous.


Upward pressure on USD LIBOR.

Downward pressure on the euro.

Upward pressure on eurozone credit default premiums.

Falling US equities.


ECB to Discontinue Dollar Swap Tenders From the End of January

By Jana Randow

Dec. 19 (Bloomberg) — The European Central Bank said it will discontinue its euro-dollar foreign exchange swap tenders at the end of January due to “limited demand.”

Right! Only $300 billion outstanding.

The ECB will continue to loan banks in Europe as many dollars as they need for terms of 7, 28 and 84 days in exchange for eligible collateral, the Frankfurt-based central bank said in a statement today. Dollar swaps “could be started again in the future, if needed in view of prevailing market circumstances,” the ECB added.

Those circumstances being the strong euro?