Fed Offers Bailout of European Banks
FORECASTS & TRENDS E-LETTER
IN THIS ISSUE:
2. See My Blog Posting on Fed Meeting Tomorrow
3. The Latest Census Bureau Report on Poverty
4. Food Stamps Hit New Record High
5. Be Sure to Join My Blog
The news this week will be dominated almost entirely by the Fed Open Market Committee (FOMC) policy statement tomorrow afternoon (Wed). Why? News broke late last week that the US Fed has agreed to make unlimited loans (swaps) to the European Central Bank (ECB) in US dollars to help with Europe’s banking crisis. But I doubt we will see anything about this in tomorrow’s Fed policy statement.
The FOMC is expected to formally announce its so-called “Operation Twist” policy aimed at further reducing medium and long-term interest rates. All eyes will be focused on the Fed’s policy statement tomorrow afternoon. Whatever comes out tomorrow, I will post my thoughts and analysis on my BLOG sometime tomorrow afternoon at www.GaryDHalbert.com. You can go there to subscribe, it is very simple and best of all, it’s free.
Following that discussion, I will bring you the highlights from the latest Census Bureau report showing that a record high number of Americans are living at or below the poverty level. Also, a new Department of Agriculture report tells us that more Americans are dependent on food stamps than ever before. Almost 15% of Americans and families now rely on food stamps.
Finally, I want to once again encourage you to sign up for my new BLOG. If you want to have access to everything I write, you need to go to www.GaryDHalbert.com and register to get my Blog. I have written seven different articles in the last month that you have not seen unless you have subscribed. Best of all, it is free and it is very simple to sign up.
One might conclude that the big news this week was President Obama’s speech on Monday when he called for higher taxes on the wealthy and corporations, which he says will trim an estimated $1.5 trillion from the national debt over the next 10 years. But that is hardly big news since the president has been urging this frequently since he took office.
Tomorrow (Wed.) afternoon, the Fed Open Market Committee (FOMC) will announce its latest monetary policy at the conclusion of an expanded two-day meeting. The Fed is widely expected to announce its so-called “Operation Twist” which is designed to lower long-term interest rates even further – a move which may or may not prove successful on several levels.
Yet the really big news came last Thursday when the Fed agreed to make unlimited loans (swaps) of US dollars to the European Central Bank (ECB), which will in turn make short-term loans to European banks that are believed to be in trouble. This swap arrangement was initially set up during the financial crisis in 2008 but has been idle in recent years. Now it appears that the floodgates are about to be reopened in a big way.
While most of the Fed loans will go to the ECB, the Fed indicated that it may make other loans directly to large banks in Europe through “swap lines” whereby the Fed accepts equivalent amounts of euros as collateral. While it’s probably safe to assume that the Fed knows how to hedge this currency risk on the euros it will accept in exchange for US dollars, the greater concern is default risk.
Some US officials downplay the default risk and argue that the loans have no risk since the ECB has supposedly “guaranteed” that the Fed won’t lose money on these loans. Guaranteed by what? Euros? You’ve got to be kidding! Sadly, no.
It is clear now that Treasury Secretary Geithner’s last-minute trip to Europe on September 9 was to meet with the G-7 leaders and assess just how bad the financial crisis is in Europe. Obviously, the assessment was VERY BAD, although Geithner has not said so publicly since he returned to the US on September 10, following the G-7 meeting.
This explains the announcement last Thursday that the Fed will make unlimited amounts of US dollars available to the ECB, and perhaps directly to European banks, at least until the end of this year. The decision was made as an effort to solve the acute US dollar shortage in Europe and to hopefully stem the growing financial crisis across the pond.
In my view, the Fed is taking a huge risk with our money. And we don’t even know remotely how much money the Fed plans to make available to the ECB and banks in Europe. An unusual amount of attention is focused on tomorrow’s FOMC policy statement with the thought that the Fed may say something about this latest swap arrangement with the ECB.
However, I doubt that the Fed will say anything in the policy statement tomorrow about making new US dollar loans to the ECB and European banks directly. This new, unlimited commitment by the Fed is being kept very quiet, and the mainstream media has ignored it for the most part (another good reason to read my E-Letters and blog posts).
Most likely, we’ll have to wait until mid-October when the minutes of tomorrow’s FOMC meeting are released. It will be most interesting then to see the banter between the various members of the FOMC regarding this new commitment of unlimited US dollars for the ECB and European banks.
Given the importance of tomorrow’s Fed announcement, I will post my thoughts and analysis on my BLOG sometime tomorrow (Wed.) afternoon. If you want to receive those comments, go to www.GaryDHalbert.com and subscribe.
The Latest Census Bureau Report on Poverty
Last Tuesday, the Census Bureau released its annual report on poverty for 2010. The number of people living in poverty was the highest ever. On a percentage of population basis, it was the highest since 1993. Note that the current poverty level is $22,314 total yearly income for a family of four. Here are some of the highlights of the report, with some comments to follow:
Income, Poverty and Health Insurance
Forecasts & Trends E-Letter is published by ProFutures, Inc. Gary D. Halbert is the president and CEO of ProFutures, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert, Mike Posey (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, ProFutures, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.