The Corporate Welfare Marshall Plan of 2011 – US Fed leads Euro bailout

Of course the whole purpose of this global monetary intervention is to allow stock market investors to temporarily feel better, believing that the global debt crisis is being solved by the banking “masters of the universe”

Send your comments and questions to roundup.editor@gmail.com, to Rocky at arrowbiz@texasorp.com or click on the "comments" at the bottom of the column

By Rocky Boschert
Financial Editor

The recent end of November stock market ascent was most likely a powerful bear market rally. We will know soon enough.

On Wednesday, November 30, the stock market bounce was big, only exceeded by one other day this year and likely one of the top ten performances of the decade. The DOW finished +4.24% (up nearly 500 points), the S&P 500 at +4.33%, the Russell 2000 at +5.94% and the banking sector at +7.21%.

The week of November 28 – December 2, 2011 is close to the greatest stock market advance since early 2009, when the massive Fed-manipulated corporate welfare banking bull market rout began. And all this buying was on the heels of the worst performing Thanksgiving week in 70 years.

In a surprising international banking move, the US Federal Reserve, European Central Bank, Bank of England, Bank of Japan, Bank of Canada and Swiss National Bank announced a joint, coordinated bond swap/loan facility to boost money market liquidity throughout the global banking system through February 2013.

searcheeze.com/europe crisis news

The premise is to provide large short-term liquidity, mostly in dollars (with a safety valve to distribute other currencies if necessary), to allow the world banking system a window for obtaining overnight and short-term money market funds – to continue normal operations and stave off a potential bank freeze.

But before we get too excited about this impressive one week stock market rally, it is important to understand that this intervention is primarily the US Federal Reserve Bank that will do the lending, forwarding dollar-denominated funds to the other five global central banks, who in turn can lend the money to their myriad of crony banking friends. The US Fed says these are “risk free loans” since they are between central banks that will always be “in business.”

An interesting side note is that the borrowing rates for this global central bank effort will be below the rate that our own U.S. banks borrow from our own US Fed. So not only is the U.S. Fed becoming the lender of last resort to the Europeans, it is doing this at preferential interest rates for foreign borrowers. It’s the 2011 Marshall Plan for European banks.

And where do all the dollars come from that the Fed will use to loan and/or buy up other currencies for the benefit of foreign banks and sovereigns? Ironically, they will simply become numbers on a ledger sheet, courtesy of another US Fed “printing press.”

A Weakening Dollar

What does this move do to the comparative value of the dollar? The dollar will fall and other currencies will rise, which is good for U.S. government borrowing – as the government can pay off foreign debt with cheaper dollars. And it is also good for US exporters, who essentially receive more dollars for their exported products via an exchange rate that favors U.S. manufacturers.

Unfortunately, it also forces commodity prices higher. Suffice it to say that the US dollar and commodity prices have an inverse price relationship due to various economic factors.

Hence energy costs and food costs will rise – as we clearly saw in the 2009-2011 bull market – in a difficult-to-manage commodity inflation cycle for citizens all over the world (including the 99% Americans). Since the U.S. taxpayer’s purchasing power goes down under this scenario (the falling dollar), and since wages are clearly not rising proportionately, this monetary trick by our U.S. Fed to help bail out Europe earns the private Fed shareholders (i.e. bankers) another source of interest income but becomes another inflation “tax” on U.S. citizens.

Here is a quote from the collaborative US Fed and the global central banks effort to inject liquidity into the global banking system:

“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity . . .”

According to the bankers, they want to have a smooth “supply of credit to households and businesses.” This phase is basically a bald-faced lie. Banks haven’t been lending to households and businesses. Most are not credit worthy in this new lending environment and those who are don’t need loans. In fact, market uncertainty has driven demand for credit to record lows.

A Global Bank on the Verge?

Though not a typically reliable source of “true” data, CNBC investment clown Jim Cramer leaked on Wednesday morning that possibly a large European bank was on the brink of immediately going down. This rumor was reinforced by an article in Forbes, and at Zerohedge.com.

Or perhaps the fact that the Standard and Poor’s ratings agency downgraded a number of the too-big-to-fail banks this week contributed to the Fed taking action now. It takes attention off the U.S. banking sector and allows analysts to jawbone the banking sector back into the black. Note that the banking sector led the gains. (Fed bankers protect bankers!)

Of course this is not the first time the Fed has intervened internationally in the banking system. Following the collapse of Lehman the U.S. Fed provided liquidity to nearly any banking interest in the world from 2008 through early 2010 (not counting any stimulus or formal QE program). Most of the details of this unpublished international assistance have come via Bloomberg’s freedom of information lawsuits to obtain Federal Reserve records.

While on the surface this new banking bailout plan seems big, in reality very little funding is expected to flow. Why? Because the mere existence of this funding facility during the next 15 months should allow banking confidence to return, confidence that “something is being done.” And that something is already driving the dollar down and the euro up. As long as these currencies stay in this agreement there is little need to extend short-term dollar loans in exchange for the euro currency.

But does this monetary intervention trick solve the Eurozone debt crisis? European leaders still need a way to provide sovereign bail out funding and/or some type of “quantitative easing” via the ECB. Perhaps this newly created multi-central bank funding source will morph into a Fed “quantitative easing” of dollars for the ECB, who can then distribute dollars instead of Euros and debts can be rolled over, settled in deflated dollars rather than inflated Euros.

Of course the whole purpose of this global monetary intervention is to allow stock market investors to temporarily feel better, believing that the global debt crisis is being solved by the banking “masters of the universe.”

Am I am becoming a conspiracy nut? Not sure; but this looks more and more like the beginning stages of a single global currency to me.