Why is Obama spending our non-existent money to bail out European banks?

I see Raoul has everything under control here.

First, Obama is not "spending money bailing out the European banks." That's just flat out wrong. This is the Federal Reserve, in coordination with other central banks, supplying dollars into the funding markets through dollar swaps to meet the demand for dollars so European banks can roll their dollar liabilities. A swap is not "spending money." It is a swap that supplies dollars now for euros to be reversed in the future. Zero dollars are spent out of the federal budget.

It is true that at its core, European banks are in trouble because they hold a mountain of crap sovereign debt on their balance sheet, caused by these countries having massive fiscal imbalances. But that is irrelevant now. Right now its a liquidity issue, not a solvency issue. (That's later.) A squeeze on dollar funding could cause a chain reaction, freezing up inter-bank lending over here. There is no reason to risk this. So the Fed is supplying dollars into the market, which they should.

It does pose an enormous risk of inflation though, which is a negative.

It doesn't increase the money supply QW. What's happening is that dollars are being withdrawn in Europe, so the Fed is supplying dollars into Europe and euros are being withdrawn. The swaps are for three months, I believe, and will be wound down like they were in 08.

European banks were funding themselves in the wholesale market, and the supply was coming from US money market funds. A few months ago, the Fed ordered the banks to reduce their lines to Europe because of concerns about the banks' assets, which has contributed to the crunch.

I actually think it is a good idea, and that the risk is smaller than some people think. that does not mean there is no risk, especially if Germany refuses to bail out Greece the way some hardliners there are demanding.
 

Why are you so incredibly freaking stupid that you don't post this in the politics forum where it belongs? :rolleyes:

WHAT is the bizarro fucked up EXTREME obsession with this place that people post political threads everywhere (instead of the political forum(s) where they belong) and worse spew political BS in damn near every thread, including those that having little if anything to do with politics?? Get a life already!
 

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