Fed Injects Record $100 Billion Cash Into Foreign Banks Operating In The US In Past Week

Zero Hedge ^ | March 9, 2013

[Zakeet]

Those who have been following our exclusive series of the Fed's direct bailout of European banks (here, here, here and here), and, indirectly of Europe, will not be surprised at all to learn that in the week ended February 27, or the week in which Europe went into a however brief tailspin following the shocking defeat of Bersani in the Italian elections, and an even more shocking victory by Berlusconi and Grillo, leading to a political vacuum and a hung parliament, the Fed injected a record $99 billion of excess reserves into foreign banks. As the most recent H.8 statement makes very clear, soared from $836 billion to a near-record $936 billion, or a $99.3 billion reserve "reallocation" in the form of cash - very, very fungible cash - into foreign (read European) banks in one week.

Furthermore, as we first showed, virtually all the "reserves" created by the Fed end up allocated as cash at commercial banks operating in the US: both domestically-chartered (small and large), but more importantly, foreign. And of the $1.884 trillion in very fungible cash parked in various domestic and international US banks, just half of it, or $949 billion is actually allocated to US banks. The other half, or $936 billion, is parked within, again, very fungible cash accounts of foreign (read European) banks operating in the US. This is shown in the chart below (green area is cash of foreign banks), and what is also shown is the total change in the Fed's excess reserves, which proves, once more, that the Fed continues to fund European banks with hundreds of billions in cash on a week by week basis. And what is perhaps most important, is that of the $250 billion in new reserves created under QEternity, all of it has gone to foreign (read European) banks.

It may anger American to learn that by the time the Fed is done with QEternity (if ever), all of the newly created cash will have gone to mostly European banks. Because with every passing week, whatever new reserves are created by the Fed in exchange for monetizing the US deficit, end up as cash solely at European banks: a sad reality we have seen non-stop since the advent of QE2 when US bank cash balances remained relatively flat in the ~$800 billion range, and every incremental dollar went straight to Europe.

As a reminder, we don't know how, via assorted shadow banking and other repo pathways, these banks manage to use said cash in other fungible activities. Recall that as we said, "So whether European banks will continue buying the EURUSD, or redirect their Fed-cash into purchasing the ES outright, or invest in other even riskier assets, remains unknown." It is also unknown is the Fed's reserves, reappearing as cash, and then siphoned over to European bank HoldCo via payables, is then used by, say, Italian and Spanish banks to purchase BTPs and Bonos, and give the impression that all is well. Because unlike before, keeping the EURUSD high is not as critical any more. But what is critical is to give the impression that Italian and Spanish sovereign risk is contained. And after all, let's not forget that as of January, Italian bank holdings of Italy state bonds just hit a record of EUR200 billion.

Is it possible that the Fed, in all its generosity, transferred over several hundred billion over to these same Italian banks, courtesy of the cover provided by QE, so that the same Italian banks may monetize Italian bank bonds? And the same for Spain. Any wonder then that we got news of how flyingly great Spanish and Italian bond auction were in the past week?

After all, in Europe Germany has a heart attack whenever anyone perceives the ECB as monetizing, or even greenlighting the monetization of local sovereign bonds. But Germany has never said what it thinks about the Fed, indirectly, doing the same, using Italian and Spanish banks as conduits.

Finally, while we don't know what the cash is being used for, we know that sooner or later, sometime around December 2013, when European, pardon, foreign bank holdings of US reserves, i.e., USD cash, hits well over $1.5 trillion, and when the Interest on Excess Reserves starts going up and the Fed is directly providing tens of billions in interest payment to European banks, some Americans may be angry to quite angry with that development.

But for now, everyone is blissfully unaware and even if they were, nobody cares. Why just look at the Dow Jones Industrial Average: how can one possibly allege that all is not well with the world...

[Zakeet]

For the benefit of you Freepers who do not already know:

• The Federal Reserve (Fed) is not a government agency

• The Fed is owned by an unknown number of big banks ... many of them foreign

• The Fed ownership is unknown because it has never been disclosed to the American public.

• The Fed possesses the full authority to take almost any action it deems in the best interest of the nation

• The Fed is a perpetual money printing machine

• The Fed is a perpetual interest rate rigging machine

• The Fed works closely with other central banks to rig foreign exchange conversion rates

• The Fed has destroyed more than 98 percent of the purchasing power of the dollar

• The Fed is paying banks not to lend money ... and these banks have collected more than $1.5 trillion since 2008

• The Fed can bail out whomever it want to with no accountability

• The Fed made trillions of dollars in secret bailout loans to the big Wall Street Banks during the last financial crisis ... more than $2 trillion went to foreign banks ... sometime check out the GAO audit report prepared as part of the requirement for enactment of the Dodd-Frank monstrosity

• The money paid to the foreign banks was used to prop up their free-spending socialist governments ... in other words, we are bailing out the French, Greeks, Italians, Spanish, Portuguese ... in addition to dozens of third world countries.

And now you know why I fearlessly predict that both the Fed and the U.S. dollar as we know it will cease to exist within the next few years.

[Chode]

[narses]

Note the spurios claims made by the poster regarding the Fed. It is the posting of claims like that which will marginalize all conservatives.

See http://www.usagold.com/federalreserve.html for a cogent explanation of the ownership, voting rights and governance of the Fed. Also see http://www.federalreserve.gov/faqs/about_14986.htm

[allendale]

This is tantamount to a huge transfer of wealth from American taxpayers to subsidize European debts and continued deficit spending in Europe. The MSM is so lame and it does criticize, examine or the policies of the Obama administration. Bernacke, the worst individual ever appointed to high office, is linking the US with the fate of the EU and is harming America.

[Bibman]

“We are the Dead!” Winston Smith “1984”

[TomasUSMC]

I was wondering where the 85 billion a month the Feds are printing was going.

[Pride in the USA]

ping

[mgist]

This is how despots in South America cleaned out banks prior to their defeat. I dont think any of them have been sooo brazen.

[JustTheTruth]

The Fed has to step up and do this (in their world-view) to prop up the international house of financial cards which is currently most acutely at-risk in the Eurozone... The reason is that the Germans won't allow this kind of totally irresponsible money-printing to occur there until AFTER the German elections in the fall, and the Fed knows full well that failure in Europe will trigger a collapse of the mega-leveraged, value-deflating debt bubble that engulfs America, Japan and some additional economies ...

Europe will then be free of interference for years from the "pesky" German voters...

The banksters' plan: a combination of money printing/debt monitization, and "austerity" (by which they largely intend to increase taxes on the poor and middle class to pay for the bailout of the banks and the bond markets which are largely owned by banks and uber wealthy).

Such a deal ...

The Fed and friends have taken control and intend to keep it that way. They need to make elections irrelevant to financial policy in the USA to keep the musical chairs going...

[Lorianne]

I wonder if this has anything to do with the Cypress bailout?