Fed Bailing Out World’s Banks
Risky loans to foreign bankers could end up bringing down U.S. house of financial cards
By Christopher J. Petherick
For Alan Greenspan and Ben Bernanke, it’s the stuff that dreams are made of. The Federal Reserve is now acting as the central bank to the world, loaning billions of U.S. dollars to foreign banks and propping up the entire global system of debt.
It’s no secret that bankers around the world meet periodically to coordinate their efforts and keep the private banking industry booming. Almost every month, high-level meetings take place under the cover of organizations such as the Aspen Institute, the Group of Seven, the World Bank and the Bilderberg Group.
In this time of severe economic turmoil, however, “the Fed” has been accused of putting the entire U.S. economy at risk by loaning billions of dollars to shaky foreign central banks in an effort to keep them solvent.
Known in banker parlance as a “currency-swap arrangement,” or CSA, the Fed has so far made an estimated $30 billion in direct loans to foreign banks in South Korea, Mexico, Brazil and Singapore purportedly to protect the countries from slash-and-burn currency speculators, who are moving hundreds of billions of dollars out of foreign currencies and into the U.S. dollar and Treasury bills.
Federal Reserve officials say they are simply coming to the aid of what they call “emerging markets.” The foreign banks are purportedly being overrun as currency traders seek a hedge against failing currencies. But what the Fed is really doing is trading U.S. greenbacks for pesos, wons, reals—and any other currency out there no matter what it is worth.
What is more troubling is that these supposed temporary reciprocal CSAs are not just going to Third World countries. For example, New Zealand, which up to this point had a stable economy, is looking at $15 billion in loans from the Federal Reserve. In addition, the Fed has lifted loan limits on swap arrangements with the European Central Bank, the Bank
of England, the Bank of Japan and the Swiss National Bank. It is also maintaining unlimited lines of credit with the central banks of Canada, Norway, Australia and Sweden.
There are many problems associated with CSAs both for the countries that receive them and for the United States. The risk for smaller countries is that they are forced to saddle themselves with short-term loans in order to stave off the collapse of their currencies and to keep their banks from going insolvent. And while these loans are meant to be temporary, the reality is Third World countries will likely be paying interest on them for decades to come.
For the United States, the usual risks apply: Inflation, higher consumer prices and a weakening of the dollar as the Fed turns on the printing presses, churning out more dollars in an effort to keep already-failing economies on life support.
More troubling still is that these sorts of fiscal policies, which further dollar hegemony, also intertwine the U.S. economy with those that are currently on life support—a dangerous prospect that could take down the whole financial house of cards.
For Main Street America, the bottom line is that the Fed’s actions will only cheapen the dollar and risk its collapse. At this point, the question Americans should be asking themselves is why should they have to bail out
the entire world, while the big banks, which created this mess in the first place, exploit the dollar to ensure their profits for years to come?
Christopher Petherick is a journalist and publisher based in Maryland. For more information, see his website at www.brandywinehouse. us or write directly to BRANDYWINE HOUSE BOOKS AND MEDIA, P.O. Box
638, Cheltenham, MD 20623. Petherick encourages all readers with Internet access to sign up for AFP’s free weekly email newsletter. It’s loaded with house news and special offers available only to newsletter recipients and AFP web site users. See AmericanFreePress.net.
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(Issue # 46, November 17, 2008)