The U.S. Fed Just Became The World’s Banker

by | Mar 31, 2020

From Marketwatch

“The Federal Reserve on Tuesday said it was establishing a temporary repo facility for foreign central banks that will help make U.S. dollars available in their jurisdictions. In the new facility, the central banks will be able to temporarily exchange their U.S. Treasurys held at the Fed for U.S. dollars. “This facility should help support the smooth functioning of the U.S. Treasury market by providing an alternative temporary source of U.S. dollars other than sales of securities in the open market,” the Fed said. It should also ease strains in global U.S. dollar funding markets, the central bank said. All central banks and foreign monetary authorities with accounts at the Fed are eligible.”

The “repo market is a lending facility for banks to use collateral for short term loans – simplest explanation; it is like a payday loan for banks.  The U.S. Fed is now trying to manage the worldwide dollar shortage.  Analyst Lyn Alden explains it here; foreign countries own $39 trillion in U.S. assets (treasuries, bonds, real estate, stocks)  and in the last week they sold $136 billion in U.S. treasuries.  The U.S. Fed is trying to prevent a fire sale of U.S. assets by foreigners, so they are providing a mechanism for foreign entities to raise dollars without having to sell U.S. assets.  All because we have gone from being a “creditor” nation to a “debtor” nation – the question is who is going to bail us out when the time comes?

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