The Federal Reserve has announced that it will re-establish the temporary U.S. dollar liquidity swap facilities with the Bank of Canada, the Bank of England, the European Central Bank (ECB), and the Swiss National Bank that it first implemented in the early part of the financial crisis.
Further details on these arrangements will be available shortly. It appears, though, that for all practical purposes, the Fed has agreed to bailout the world. Essentially, foreign central banks will print up any amount of money they want in their currency and the Fed will print up an equal amount of dollars that they will then loan to the foreign central banks (against the foreign banks newly printed money)who will then loan the funds to the banksters who will use as collateral the securities of the PIIGs, to gain the dollars.
Needless to say this is complete and utter madness. It is potentially extremely inflationary on a global scale.What's more, outside of banksters, no one in America will benefit from this move. Every one in America could suffer from the potential inflationary consequences.
The size of these swaps must be watched very closely. It does not appear that these funds will be stored as excess reserves. This means they will be out in the system. Every $100 billion added to the system in this manner (unless somehow sterilized by money drains elsewhere) will mean an immediate increase of 1.16% in M2 money supply. But this $100 billion would be high powered money. This means the final impact would be a multiple of the initial Fed money creation.
Given that the U.S. financial situation is delicate, and the Fed is likely to be called on to bailout the Treasury Department within a short-time, for the U.S. to be a major player in the bailout of Europe is sheer madness. It's the taller drunk holding up the shorter, eventually they will both collapse.
Bottom line: The Federal Reserve bank is on the edge of pushing the financial nuclear button, and print money in reckless abandon. Even if this were done for Americans it would be a terrible policy, but to do this for foreigners, where there would be little benefit for Americans reflects the extraordinary madness of the elite bankers.
The full Fed statement is in the EPJ vault, here.