Unlimited lines of credit to just about everybody

QE3 has already begun in Europe

By Jonathon M. Trugman

The Fed chief authorized a coordinated action that lowered pricing on US “dollar swaps” by 50 basis points (0.5 percent) to its key allies in central banking. The Bank of England, the ECB, the Swiss National Bank, the Bank of Japan and the Bank of Canada are each a party to the agreement.

This was done, purportedly, “to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and to help foster economic activity,” the Fed’s release said.

In reality, though, the Federal Reserve has just extended essentially unlimited lines of credit, camouflaged as a swap to the world in US dollars.

And now the strapped European Central Bank can and has tapped the Fed for very cheap money — cheaper than US consumers can borrow for, if they can get access to credit at all.

Essentially, we just bailed out Europe’s banking system with the full faith and credit of the United States.

On Dec. 21, the ECB put some of our money to work and lent out 489 billion euros to 523 different banks for a full three years.

So now, through the Fed, we are invested in a circular, circumventing fashion in 523 of Europe’s weakest banks — at all-time low interest rates, no less. And the ECB has chosen to withhold the names of these banks.

To sum it up:

* The Fed essentially borrows or is backed up by US taxpayers, already in debt through mortgages, credit cards, student loans.

* The ECB in turn borrows from the Fed and then leverages that money up under its ECB umbrella.

* The ECB then lends it out to 523 of Europe’s most overleveraged banks.

* The desperate banks keep some to fortify their balance sheets, and use the rest to buy sovereign debt in some of the most overleveraged countries in the world, like Italy and Spain, which were just downgraded Friday by S&P.

So after the long laundering of US dollars, the Fed now is investing in and lending to Europe’s most desperate banks, which have in turn invested some of that money in the debt of some of Europe’s weakest countries.