US Federal Reserve Admits Bailout of the Eurozone

The US Federal Reserve finally admits or officially confirms of their bailout of the Eurozone

The Bloomberg reports,

Federal Reserve Bank of New York President William Dudley said that the central bank holds a very small amount of European sovereign debt and that he sees a “high bar” to additional purchases.

The standard for buying more European sovereign debt “is extraordinarily high for the U.S., for the Federal Reserve, to actually go out and buy foreign sovereign debt for its own portfolio, apart from the very small foreign exchange holdings that we have,” Dudley said today to a House Financial Services subcommittee hearing.

And US intervention in the EU has been no dollop, they consist of nearly hundred of billion of dollars of which ups the stake of US taxpayers on the EU. Well, billions in a bailout world of trillions does look like a "very small amount", but this would be linguistic misrepresentation.

The US has been expanding its ‘imperialist’ interventions formerly limited in the scope of foreign policies (military and geopolitics), which now seems to be swiftly expanding to cover finance and banking aspects.

In other words, the US is not just a policeman of the world, but also the world’s lender or banker of last resort.

Ron Paul recently wrote to expose on this central banking legerdemain

Essentially, beginning late last year the Fed provided U.S. dollars to the European Central Bank in exchange for Euros-- sometimes as much as $100 billion at a time. The ECB then funneled those dollars to European banks to provide liquidity and prevent crises from bank insolvencies. Since the currency swap was not technically a loan, the Fed did not have to embarrass itself by openly showing foreign bank debt on its balance sheet. The ECB meanwhile did not have to print new Euros and expose the true fragility of big European banks.

The entire purpose of this unholy arrangement was to obscure the truth: namely that the Fed was bailing out Europe with U.S. dollars.

But why is it the business of the Federal Reserve to bail out European banks that find themselves short of dollars to pay their dollar-denominated contracts? After all, those contracts often were hedges taken to protect banks against weakness of the Euro. Hedges are supposed to reduce risk, but banks that miscalculate should suffer their own losses accordingly. It’s not our business if the ECB chooses to create moral hazards by providing liquidity to European banks, but why should the Fed prop up Europe’s bad decisions!

The Fed has promised to provide unlimited amounts of dollars to the ECB, should circumstances require it. It boggles the mind. Of course when Fed officials first entered into these swap agreements with the ECB last September, they did so quietly. The American public only found out via websites of the ECB, the Bank of England, or the Swiss Central Bank.

The Fed already has pumped trillions of dollars into the economy since 2008, and US banks currently hold $1.5 trillion of excess reserves. So why don't American banks lend those excess trillions to European banks if they really need dollars? If US banks could earn 1 or 2 percent on those loans, they might just be interested. But they can't compete with the ½ percent interest rate charged by the Fed to the ECB. That's one glaring example of the harm caused by the Fed's ability to create money and loan it at below-market interest rates.

The Fed argues that these loans will be temporary, merely providing a little boost to get Europe over the hump. But that's what they thought a few years ago when such lines of credit to the ECB were set to expire, only to see the Fed reauthorize them. What happens if the European financial system collapses? Will the Fed be left holding a bunch of worthless Euros? Will the ECB simply shrug and turn over the collateral it received from European banks, maybe in the form of bonds from Ireland, Italy, or Greece? Have the 17 individual central banks backing the ECB pledged their gold holdings as collateral?

The Fed has placed a hundred-billion dollar bet on the future of the Euro, with the strength of the dollar on the line. This is absolutely irresponsible, and directly contrary to market discipline. Let private banks, European or otherwise, take their own risks. Let foreign central banks inflate their own currencies and suffer the consequences. In other words, it’s time to apply market principles to banks and money.

Clearly, Fed policies have not been designed to "devalue" the US dollar, which many in the left alleges as meant to promote exports (putting lipstick on a pig), but to survive the incumbent the crumbling unsustainable welfare-central banking and banking cartel based political institutions.

The world operates in a de facto US dollar standard or a banking system whose currency reserves have been built mostly on US dollar holdings. This means that Fed policies does not only expose US taxpayers to undue burden from policy risks, Fed policies has far reaching consequences which needlessly exposes the world to destabilizing financial and monetary risks that could ripple throughout national economies.

This also shows how centralized actions engender systemic risks.

This is just one fundamental reason to abolish the FED.

End the Fed. End central banking and the politicization of money.