Fear Strikes the Central Banks as Events of March 7, 2020 To Repeat on Monday
March 19, 2023, 2022 (EIRNS)—Reuters had a terse report Sunday evening, March 19, that six big central banks issued a joint statement that they were beginning dollar repo operations at 8:15 GMT Monday morning—i.e., starting with the Bank of England—consisting in 7-day loans and using “new standing U.S. dollar swap lines.” These of course are really loans of dollars by the Fed to the other central banks; the “swap” by which the Fed receives pounds or yen or Swiss francs is later, and likely will not occur because the liquidity loans will keep being renewed or formal QE may start, or both.
This may look like a return of Sept. 16, 2019, the day after inter-bank lending began freezing up, when the Federal Reserve started its nightly “repo” liquidity loans which ran into the hundreds of billions of dollars. But it is more precisely a return to the actions of the Federal Reserve on March 7, 2020 and subsequent days. Clearly a worldwide dollar shortage is now feared and expected to occur as speculative holdings have to get hold of more dollar securities as collateral, and assets have to be sold in order to get out of collapsing debt positions by paying in dollars. From March 7, 2020 onward through that month a global dollar shortage did occur, and the Federal Reserve launched “QE infinity” because it effectively had to buy sliding assets denominated in dollars or secured by dollar instruments all over the world.
The six banks, according to Reuters, are Bank of England, Bank of Canada, Bank of Japan, European Central Bank, Swiss National Bank and Federal Reserve. The statement, which the Federal Reserve posted on its website, declared: “To improve the swap lines’ effectiveness in providing U.S. dollar funding, the central banks currently offering U.S. dollar operations have agreed to increase the frequency of 7-day maturity operations from weekly to daily. These daily operations will commence on Monday, March 20, 2023 and will continue at least through the end of April.
“The network of swap lines among these central banks serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses.”
Quantitative tightening is over and quantitative easing has resumed; nay, dollar diarrhea has set in. Sen. Elizabeth Warren’s emphatic televised statement earlier today, “Fed Chair Jerome Powell has failed,” now appears a gentle understatement. Yet Powell has the comfort of the company of, notably, Janet Yellen and Ben Bernanke. Alan Greenspan remains in a class of malfeasance all his own.
FDIC Chair Martin J. Gruenberg and Federal Reserve Vice Chair for Supervision Michael Barr will be called before the House Financial Services Committee Monday and Tuesday (March 20-21). Now, will the Federal Reserve, in spite of all, insist on raising rates again on Wednesday?