"Recent activity has all but confirmed our suspicions: The Fed is “swapping” dollars for euros in a covert method to bailout Europe's big banks.
According to a former Fed official's op-ed in the Wall Street Journal, the Federal Reserve is indeed bailing out Europe by operating in the shadows, which is going mostly unnoticed by American citizens...
By participating in a currency swap, the Fed cannot technically be accused of loaning money to the ECB.
Former Vice President of the Federal Reserve bank of Dallas, Gerald O'Driscoll recently reported on the swap-situation in an interview with the Wall Street Journal:
The Fed is using what is termed a “temporary U.S. dollar liquidity swap arrangement” with the European Central Bank (ECB). There are similar arrangements with the central banks of Canada, England, Switzerland and Japan. Simply put, the Fed trades or “swaps” dollars for euros. The Fed is compensated by payment of an interest rate (currently 50 basis points, or one-half of 1%) above the overnight index swap rate. The ECB, which guarantees to return the dollars at an exchange rate fixed at the time the original swap is made, then lends the dollars to European banks of its choosing.
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The two central banks are engaging in this roundabout procedure because each needs a fig leaf. The Fed was embarrassed by the revelations of its prior largess with foreign banks. It does not want the debt of foreign banks on its books. A currency swap with the ECB is not technically a loan.
Watch this video to see why Mr. O'Driscoll believes this arrangement is wrong for various reasons:
This is especially risky to America because if the Fed loses money, the nation's taxpayers lose money. It's a simple philosophy and the risk is quite real and the consequences are imminent.
The ECB could struggle to pay the swaps back in dollars in due time...in which case, money is lost and everyone here suffers."