Swap Facility Backdoor for Quantitative Easing

Writes PIMCO’s Tony Crescenzi at the CNBC… (bold emphasis original) [hat tip Bob Wenzel]

Keep in mind that any use of the Fed’s swap facility expands the Fed’s monetary base: all dollars, no matter where they are deposited, whether it be Kazakhstan, Japan, or Mexico, wind up back in an American bank. This means that any time a foreign central bank engages in a swap with the Federal Reserve, the Fed will create new money in order to make the swap. Use of the Fed’s liquidity swap line in late 2008 was the main cause of a surge in the Fed’s monetary base at that time. The peak for the swap line was about $600 billion in December 2008. Some observers will therefore say that the swap line is a backdoor way to engage in more quantitative easing .

So there you have it, the foundations of QE 3.0 has been put in place. QE 3.0 seems now a matter of formality.