These are comments taken from Warren Mosler's website regarding the open ended dollar funding of foreign central banks by our Fed.
Functionally, the Fed seems to have agreed to lend USD to the ECB in unlimited quantities unsecured and non-recourse.
This defies comprehension.
It’s potentially functionally a fiscal transfer.
Interesting they have the authority to do that.
They wouldn’t even do it for the US banks where the Fed demands collateral for loans.
It opens the door to widespread fraud and corruption as the ECB can now lend USD without supervision or regulation and in any quantity.
Somehow this got under Congress’s radar screen.
Watch for the size of the first USD auction.
The ECB and other CB’s are going to set a rate and fill all requests at that rate.
Could be over $1 trillion?
Should bring USD LIBOR down to near the Fed funds rate.
Helps the euro vs the USD at first.
However, the primary way they pay the Fed back is for someone down the line to sell euros and buy USD.
USD debt is external debt for foreign CB’s, so they are in much the same position the emerging market nations used to be in when they were choked with USD debt.
Still trying to comprehend all the ramifications, but they are very large.