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.



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176 Comments:

  1. Its only a matter of time before Obama sensors your internet, YouTube is freespeech and allows you to speak hatred about him, that's a felony now.

    Infowars.com

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  2. You JUST proved my point. CHILD. stop acting ghetto UN fabulous and start thinking for yourself and do some REAL research. " bully me" LOL. grow up little spanky. NO one here of any real intelligence cares to cater to your problems. This isn't your therapy session. This youtube video had nothing to do with that. Practice what ya preach kid. Give your finger joints and your brain a rest. After all, you gotta save what's left of your pee brain for voting for barry seotoro nov 5 2012.lol.

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  3. dumb fuck. You have to SNEAK attack the enemy from within. this isn't your " world of warcraft" or other gaming scenario kid. IT'S REAL LIFE. YOu haven't a damn clue wtf ron paul has to deal with. NON of us regular citizens do.

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  4. I've decided to share with you ONLY articles and videos on Ron Paul.

    Here a 3 articles and videos in the past two days:

    Exposed: Concerted Effort by Establishment to Steal Ron Paul’s Delegates
    http://www.infowars.com/exposed-concerted-effort-by-establishment-to-steal-ron-pauls-delegates/

    Ron Paul Suspects Supreme Court Will Rule “Monstrosity” Obamacare Constitutional
    http://www.infowars.com/ron-paul-suspects-supreme-court-will-rule-monstrosity-obamacare-constitutional/

    Ron Paul To CNN Anchor: ‘Stop Pestering Me With Silly Questions”
    http://www.infowars.com/ron-paul-to-cnn-anchor-stop-pestering-me-with-silly-questions/

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  5. dumb cunt go vote for the man i voted for in 2008, Barack isn't going to do you any favors, you are not wealthy, you're a mule

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  6. Bitch, you belong in jail, after all you have no right to free speech

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  7. your pitiful excuses don't justify ron paul's corrupt behavior, he belongs in jail

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  8. So who working in DC doesn't? at least he votes against more spending, can you find anyone in that hell hole of a capital who isn't in one way guilty of something? Go read about special interest groups and stop whining

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  9. Ron Paul is a hypocrite he claims to defend our rights and liberty yet he wants to change our 14th amendment rights of citizenship this is our law respected and defend it and Paul is pushing for one world currency look it up he is a sell out a puppet of greed what a fraud he almost had my vote what a hypocrite. stand up against those who threaten your rights. us bill of right baby! 14th included love it or leave America.

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  10. ron paul talks out of both sides of his mouth

    on the public side he rails against corruption and government spending

    on the crooked side he takes campaign funds and funnels them to his family and cronies

    ron paul is a crook, he belongs in jail

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  11. of course it pays to be in Congress it is just like any other job im sure u can get paid to clean toilets buddy so why would some1 not get paid at all to govern the country?

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  12. Ron doesnt go after the Fed like he really should or I could say the New World Order. If he really wanted to expose them he wouldnt have asked why is it the Feds responsibility to bailout foreign banks, he would of asked why would they WANT to do that. Ron is not the answer, even if he is the people running the U.S. wont let him win.

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  13. God bless Ron Paul. Please take him seriously, don't be fooled by the bought out media. Please understand that not getting first place in every beauty contest does in no way mean he is losing. He has had 9 second place finishes and got a first place finish in the Virgin Islands and is collecting more delegates than anyone and that's what matters. Please donate whatever you can to his campaign because he doesn't have billionaire backers and the lobbyists that the other Obama's have.

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  14. CREW is a Soros / Media Matters front group. Media Mattes is an Obama front group. So what you're telling me is that Obama doesn't like Ron Paul? What a shock revelation.. *eye roll*

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  15. google: "Study: Ron Paul's House seat enriches his family"

    By Ed O'Keefe

    Turns out it pays to serve in Congress — if you're the lawmaker's [brother], son, grandson, niece or cousin.

    A new report by Citizens for Responsibility and Ethics in Washington (CREW) found "an extraordinary compendium of creative accounting, self-interested budgeting and generous expense reimbursements" by lawmakers in the last two election cycles.

    face it ron paul is a crooked, lying politician

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  16. don't feed the trolls, it only encourages them lol.

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  17. are you freakin kidding me. he's the only honest one of the bunch. you're talking through your asshole. dipshit.

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  18. on the other hand... just read The Big Short. Who was milked for US housing scam and Goldman Sachs et al if not German pension funds? Fed is just giving a nickel of it back...

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  19. why is Ron Paul so good at letting us know how we are getting distracted by trivial issues almost everyday when such important things like FED printing euros happens? Truth seeking economists must be yanking their heads off with these things going on!!

    Go Ron Paul!! from Peru :)

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  20. No one knew who the problem was back then. Today's a new day. No one touches Dr. Paul. No one.

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