The FEDERAL RESERVE announced it was extending the DOLLAR SWAP loans it has in place with several central banks. Earlier in the week, the market reported a shortage of DOLLARS in Europe as people were exchanging EUROS for DOLLARS and the commercial banks were caught short sending EUROBOR rates higher. BEN BERNANKE is nervous that a debt crisis in EUROPEAN banks will cause U.S. banks with exposure to the PIIGS’ sovereign debt major problems in the overnight lending facilities.
The FED is trying to get ahead of the problem by letting the market know that it is making DOLLARS available until August 2011 as to prevent the ill-effects of any immediate shortfall. Many in the U.S. are fully aware that the EUROPEAN crisis could easily cause the global banks severe problems.
The Financial Times reported that China has again offered to help the DEBT-stressed European peripherals. This is deja vu all over again. Last December, the Chinese purportedly were interested in buying 25 billion EURO GREEK BONDS only to defer at the last moment, resulting in the rapid rise of long rates in GREEK DEBT. A few months ago, Chinese President Hu Jintao was in Portugal promising to aid the Portuguese in halting the rapid rise of its long rates but the market is still waiting. Now, the Chinese are again offering to purchase EUROPEAN DEBT but it appears that there are strings attached. Beijing has requested that the EU grant China the status of “MARKET ECONOMY” and that Brussels also lift the long-standing arms embargo.
The importance of being designated a “NONMARKET ECONOMY” results in China being subject to arbitrary global prices when being accused of DUMPING (cases brought to the WTO under anti-dumping rules and countervailing duties result in a much broader interpretation for a country with a “NON-MARKET” status. As far as the arms embargo goes, China has been pushing for its rescission for many years as they desire to acquire more advanced military technology.
The Chinese have claimed that their bond purchases are not linked to politics but the GREEKS and others need to be leery of CHINESE BEARING GIFTS. The EUROPEANS keep hoping for new participants into their SOVEREIGN DEBT markets but every time the proposed deal fails the cost in interest rates goes higher. Europe needs to start creating the necessary policies and stop living on hope. The fantasy of an outside savior is becoming expensive.
Tags: Bernanke, China, Dollar, Euro, Eurobor, Fed, Greek bonds, PIIGS, WTO
December 22, 2010 at 4:16 pm |
frankly, with the Chinese, who knows?