Wednesday, February 4, 2009

$259 billion of Fed forex swaps coming due in one week

On Friday the 13th, $259 billion of the Fed's "central bank liquidity swaps" (a.k.a. forex swaps) will be need to be settled. (Indicated in the latest Fed weekly statement.) The amount represents more than half of what is outstanding on the Fed's balance sheet at this time.

After settlement we could see a rally in foreign currencies versus the dollar as selling pressure in various currencies abates. However, this is likely to prove temporary because the Fed has indicated it will extend these dollar loans through October 2009.

With foreign central banks and institutions borrowing in dollars, pressure on currencies will remain and the dollar should stay strong.

As an aside, President Obama announced limits today on executive compensation. Any executive that works for a company that receives gov't aid cannot earn more than $500,000 per year. Ironically, the Fed's dollar loans to foreign institutions (banks, auto firms, etc) may very well be going to pay salaries far in excess of the $500,000 that U.S. executives are now allowed to earn. Where is the outcry over this? Where are the clueless reporters and biz show anchors and the hypocritical lawmakers?

Just wondering...

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