Wednesday, November 30, 2011

"is this some giant giveaway to profligate Europeans of US taxpayer money?"

"Central Banks to the Rescue?

...what does the coordinated action actually do?

...the US central bank, or Federal Reserve,
agreed to provide cheaper dollar funding
to the European Central Bank
which can then provide cheaper dollar loans...

The participation of the central banks
of Canada, England, Japan and Switzerland
is more of an effort to show that all the central bankers
are working together...

The goal is to ease the credit crunch in Europe.

...Normally, central banks only make loans
in their domestic currencies.

But in times of international stress-the credit crisis of 2008,
for instance
central banks around the world set up swap lines
that allow them to borrow from each other,
creating the ability for them to make loans in other currencies.

...The ECB arranged to borrow dollars more cheaply from the Fed

So was is this some giant giveaway to profligate Europeans
of US taxpayer money?

...these are loans to the ECB...

...the Fed isn't lending out "taxpayer dollars" at all.

Rather, it is lending out newly created dollars
at very low interest rates.

That doesn't mean that US taxpayers are not risk here, of course.

The new dollars have the potential to spark inflation
which could result in higher interest rates and higher taxes
as the government combats inflation."


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