U.S. Taxpayer QE2 Money Went to European Banks − How Nice of YOU

by Ken Kappel on June 21, 2011

Here again we’re taking you to the Use Foreclosure Law − Graduate School of Macro Finance. Sometimes you simply must get a taste of the larger picture — the Macro — particularly when it directly effects U.S. Homeowners, and frankly, your mortgage loans in a significant way. The likes of this article will not be in the Major Media. Why Not? They don’t want you to know about it.

Yet, we’re pulling our punches, and not presenting the entire article, because − well − it may be a bit tricky with all the charts and deep numbers. Etcetera. While you don’t really really need to read the whole thing, you do need to understand the basics of how the Fed is taking care of not only U.S. Banksters, but, foreign Central Banks as well.

If all goes to plan, they will then buy some of our U.S. Treasuries (no one else wants to buy them anymore − not considered safe with dollar descending − default ahead) with some of the money left over. That is your money. That money is added to the national debt, and at “profit” interest for the banking elites.

By the way, the money didn’t really exist, they counterfeited it with a buncha computer bits and bytes.  We’d say, a Big Byte, out of your backside. Well us too, actually, and that may explain why we’re so gosh darned pissed off. There we said it. First time cursing here − we think. Mea Culpa. While the money didn’t exist (they just said it did − and meant it), the interest you’ll be paying on it, will be real and will come from you. That will not be manufactured outta bits and bytes, not legal for you to do that.

In a piece by Tyler Durden of Zero Hedge fame, Business Insider offer the following article: “Where Did All of the QE2 Money Go?” Click on the link to see the entire article.

To the article, we don’t trust our self to say more, because − well − we’re really pissed off.

“Courtesy of the recently declassified Fed discount window documents, we now know that the biggest beneficiaries of the Fed’s generosity during the peak of the credit crisis were foreign banks, among which Belgium’s Dexia was the most troubled, and thus most lent to, bank. Having been thus exposed, many speculated that going forward the US central bank would primarily focus its “rescue” efforts on US banks, not US-based (or local branches) of foreign (read European) banks: after all that’s what the ECB is for, while the Fed’s role is to stimulate US employment and to keep US inflation modest. ”

“And furthermore, should the ECB need to bail out its banks, it could simply do what the Fed does, and monetize debt, thus boosting its assets, while concurrently expanding its excess reserves thus generating fungible capital which would go to European banks. Wrong. Below we present that not only has the Fed’s bailout of foreign banks not terminated with the drop in discount window borrowings or the unwind of the Primary Dealer Credit Facility, but that the only beneficiary of the reserves generated were US-based branches of foreign banks (which in turn turned around and funnelled the cash back to their domestic branches), a shocking finding which explains not only why US banks have been unwilling and, far more importantly, unable to lend out these reserves, but that anyone retaining hopes that with the end of QE2 the reserves that hypothetically had been accumulated at US banks would be flipped to purchase Treasurys, has been dead wrong, therefore making the case for QE3 a done deal. ”

“In summary, instead of doing everything in its power to stimulate reserve, and thus cash, accumulation at domestic (US) banks which would in turn encourage lending to US borrowers, the Fed has been conducting yet another stealthy foreign bank rescue operation, which rerouted $600 billion in capital from potential borrowers to insolvent foreign financial institutions in the past 7 months. QE2 was nothing more (or less) than another European bank rescue operation!”

“For those who can’t wait for the punchline, here it is. Below we chart the total cash holdings of Foreign-related banks in the US using weekly H.8 data.”

“Note the $630 billion increase in foreign bank cash balances since November 3, which just so happens is the date when the Fed commenced QE2 operations in the form of adding excess reserves to the liability side of its balance sheet. Here is the change in Fed reserves during QE2 (from the Fed’s H.4.1 statement, ending with the week of June 1).”

“Above, note that Fed reserves increased by $610 billion for the duration of QE2 through the week ending June 1 (and by another $70 billion in the week ending June 8, although since we only have bank cash data through June 1, we use the former number, although we are certain that the bulk of this incremental cash once again went to foreign financial institutions).”

“So how did cash held by US banks fare during QE2? Well, not good. The chart below demonstrates cash balances at small and large US domestic banks, as well as the cash at foreign banks, all of which is compared to total Fed reserves plotted on the same axis. It pretty much explains it all.”

“The chart above has tremendous implications for everything from US and European monetary policy, to exchange rate and trade policy, to the current account on both sides of the Atlantic, to US fiscal policy, to borrowing and lending activity in the US, and, lastly, to QE 3.”

“What is the first notable thing about the above chart is that while cash levels in US and US-based foreign-banks correlate almost perfectly with the Fed’s reserve balances, as they should, there is a notable divergence beginning around May of 2010, or the first Greek bailout, when Europe was in a state of turmoil, and when cash assets of foreign banks jumped by $200 billion, independent of the Fed and of cash holdings by US banks. About 6 months later, this jump in foreign bank cash balances had plunged to the lowest in years, due to repatriated fungible cash being used to plug undercapitalized local operations, with total cash just $265 billion as of November 17, just as QE2 was commencing. Incidentally, the last time foreign banks had this little cash was April 2009… Just as QE1 was beginning. As to what happens next, the first chart above says it all: cash held by foreign banks jumps from $308 billion on November 3, or the official start of QE2, to $940 billion as of June 1: an almost dollar for dollar increase with the increase in Fed reserve balances. In other words, while the Fed did nothing to rescue foreign banks in the aftermath of the first Greek crisis, aside from opening up FX swap lines, one can argue that the whole point of QE2 was not so much to spike equity markets, or the proverbial “third mandate” of Ben Bernanke, but solely to rescue European banks!”

“What this observation also means, is that the bulk of risk asset purchasing by dealer desks (if any), has not been performed by US-based primary dealers, as has been widely speculated, but by foreign dealers, which have the designation of “Primary” with the Federal Reserve. ”

“….”

Ken here. We’re stopping the article, without further comment, because we’re fuming, but, to read the whole thing (we certainly did) go here.

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