Ron Paul: Stop the Fed’s Covert Bailout of Europe

by Ron Paul

This week, my congressional committee will hold a hearing to examine how the Federal Reserve bails out European banks, propping up spendthrift European governments in the process. Unfortunately this bailout comes at the expense of American citizens, in the form of higher prices and diminished savings down the road.

A good analysis of the Fed’s “swap” scheme first appeared in the Wall Street Journal back in December, in an article by Gerald O’Driscoll entitled, “The Federal Reserve’s Covert Bailout of Europe.” 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.

  • http://www.youtube.com/profile?user=robertpires87 robertpires87

    US has bailout Europe before after world war 2 through the Marshall Plan.It is not a new thing

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  • John

    EVERYONE should sign this petition to get Ron Paul on 60 minutes
    http://www.change.org/petitions/cbs-news-60-minutes-get-ron-paul-on-60-minutes

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    • TimmyTruth

      Hahahaha – They won’t do it live. NO WAY!!!! They will tape it and make him look like a fool and idiot. That’s what they do to people who like telling the truth.
      The ground swell for this man does not need the main stream news, not at all!

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  • TimmyTruth

    The Truth is:

    “Everyone” and I mean “Everyone” I speak to now is voting for Ron Paul. The other candidates are “ALL” very creepy with deep deep closets. It makes no difference if you are a republi-can’t or a demma-don’t, this election is going to be a real embarrassment to the vote thieves, and media whores, and the little men behind the curtain. This is going to be shaping up to become a real revolution with all the time left to go.
    It’s a hoot!! I mean NO ONE is voting for anyone but Dr. Ron Paul, the only man running for President.

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  • Jack

    Bailouts…what a joke, if you fool around with money, if you are not careless and you GO BROKE, then take responsability and change the policies or methods, liquidate the debt and start over, why in the hell someone else has to pay for your stupid mistakes?

    https://play.google.com/store/apps/details?id=com.uncledroid.ronpaul2012.free

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  • French Canadian

    QUESTION: Who is behind the “bailouts”?

    ANSWER: The jews.

    QUESTION: Where do they get their power?

    ANSWER: From a private money-printing scam.

    QUESTION: Why does any government take loans from private jewish bankers? Why go into catastrophic debt? Why become Greece? Why can’t we have a public central bank, and just print our own money?

    ANSWER: Because politicians don’t want a public central bank, as this would force politicians to be accountable. Why ELSE do you think this horror continues?

    If we had a public central bank that served the people, then politicians would have to show how they spend money and run the economy. They would have to earn their pay.

    By contrast, with a privately owned central bank, politicians and their jewish cronies can make up any lie they wish, and get limitless money for any purpose (e.g. war, which makes the rich richer), while they dump the debt on the masses in the form of austerity (e.g. slashed social programs).

    JEWISH CORRUPTION
    This is the essence of jewish corruption.

    A private jewish central bank is a sealed black box. No one may look inside it, and (most) politicians don’t want anyone to see inside it, since politicians can claim that the nation must have a “balanced budget” (i.e. the masses must accept more and more poverty).

    Of course, the budget can never be balanced, since the debt can never be controlled. Jewish bankers and politicians don’t want it balanced. They prefer to rule as gods, and their pleasure is enhanced by mass poverty.

    Politicians and jewish central bankers are totally in bed together. Politicians say, “Don’t blame me; blame the central bank.” Jewish Central bankers say, “Don’t blame me; blame the politicians.” Both rule with no accountability.

    When the central bank is private, then politicians get the money, while the masses get the debt. This lets politicians and their jewish banker cronies build giant monopolies, while the debt forces the masses to accept more and more theft (i.e. austerity). Hence private jewish central banks always create a vast and ever-widening gap between rich and poor. If politicians and speculators make bad bets with money given them by the private central bank, then again they dump all losses into the masses.

    If, by some miracle, the masses overthrow the private jewish central bank, then the politicians simply create another one, whereon the game resumes. When Congress passed the Federal Reserve Act of 1913, the jewish bankers did not swindle the politicians. No, the jewish bankers and politicians together swindled the public. Any politician that protested was marginalized by all the others, and was not re-elected. Any politician that protests too loudly is sent to prison, and physically tortured.

    Any government that declines to play this evil game is vilified, and targeted for regime change. The jewish bankers first weaken it with sanctions, and then launch a military attack (e.g. Iraq, Iran, Nazi Germany, Libya, Syria, Venezuela, etc).

    So RON PAUL – what are you gonna do about it?

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  • robin

    Encouraging everyone who has not voted yet, to write letters to the editor in their communities in support of Dr. Paul. We are doing this in our community. Put why Ron Paul is the choice of the people and why you are voting for him.

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  • robin

    Just read that the AmericanElect.com site is a scam and you do not want to go there, especially if you are a delegate. If you have done so, it will prevent you from participating, so make sure to take your name off the list.

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  • http://www.youtube.com/profile?user=jameshedleyturner jameshedleyturner

    Christ, don’t bailout europe… let us default and show all of our economically illiterate politicians and economists a big lesson.

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  • http://www.youtube.com/profile?user=SpinozicTroll SpinozicTroll

    If any other candidate is elected as president, then something is wrong, cause all I hear about is Ron Paul and no other candidate.

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  • http://www.youtube.com/profile?user=iNvRG iNvRG

    Ron Paul isn’t a politician, he’s an American

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  • http://www.youtube.com/profile?user=lexbvl lexbvl

    look up Nigel Farage; doing the same as Dr. Paul, but on the other side of the pond.

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  • http://www.youtube.com/profile?user=youusedmyname youusedmyname

    I think the only sane politician in the world is Ron Paul…. your vote is for all of us.

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  • http://www.youtube.com/profile?user=SkitzLdN SkitzLdN

    So basically this is the next step in the new world orders plan? They control the whole of Europe and then after they deal with Iran and control the whole middle east and amazingly bail out Europe even though USA goes in Billions of dollars of debt DAILY. Hmmmmmmm suuuuuuure : S

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  • http://www.youtube.com/profile?user=SL1200Ltd SL1200Ltd

    Drop dead zionist dumbass, down with your lies and smokescreens there are no antisemites just people who are awaken to see the real enemy of humanity, and people are tired of you whiny lying bastards ruining the world for everybody else than your satan worshipping posse.

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  • http://www.youtube.com/profile?user=az99920 az99920

    Kuwaiti right! :) * Thanks

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  • http://www.youtube.com/profile?user=campaign4liberty campaign4liberty

    Down with tyranny!
    LibertyPoet(dot)com

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  • http://www.youtube.com/profile?user=YehudLand YehudLand

    Palestinians are no Humans for example and i think you all antisemitist are also not.

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  • http://www.youtube.com/profile?user=Loafy1212 Loafy1212

    It’s the video that is currently autoplaying on my channel! Check it out and share it!

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  • http://www.youtube.com/profile?user=TrippingTheTube TrippingTheTube

    I can’t believe we are allowing multi billionaire bankers to steal money from working people to bail out their friends.

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  • http://www.youtube.com/profile?user=Loafy1212 Loafy1212

    Could Mitt Romney Be A Psychopath?
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    It’s time to take the GOP’s favorite down.
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