Question re the FED- Aren't they actually "SHORT" dollars by printing money and can cover the position as econmy/dollar drops?

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amartin's picture
amartin
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Joined: Aug 11 2009
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Question re the FED- Aren't they actually "SHORT" dollars by printing money and can cover the position as econmy/dollar drops?

As the federal reserve sets interest rates and then lends prints money to banks, are not they actually poised to profit as the dollar drops and able to cover their position by purchasing dollars on the way down this making a profit ?  How does this all relate to the credit default swaps which were originally blamed for the crisis and then things slowly shifted to real estate as the cause and then passed to the fooolish consumer buyers?

If all of these financial institutions and banks lost trillion on these credit swaps , who is the seller or on the other side of the credit default transactions that collected the premium  or sold the contracts. ?

The market for any contract,stock, note or debt instrument consists of a buyer and a seller. thus with all of the credit default swap losses widely publicized in the trillion of dollars there has to be a happy investor who originally sold the contract on the other side to these institutions.

 

How are the above related to each other ?   was the fed basically covered or hedged based upon the loss in the credit default swap losses  and the shadow issuer or seller of the swaps?

 

 

 

 

naveen123's picture
naveen123
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Joined: Apr 15 2008
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Re: Question re the FED- Aren't they actually "SHORT" ...

There seems to be a HUGE misconception about the Fed "printing money". If you look at the Fed balance sheet, they are NOT printing money...they are buying all sorts of debt with Fed Funds. Printing money (i.e. printing actual green pieces of paper currency) is a dumb move for any Central Bank, because the yield on green paper is ZERO. All banks, including Central Banks, are in the business of generating yield. So what's happening now is that the Fed is "temporarily" expanding its balance sheet while it searches for the next sucker on the poker table. As the old saying goes...if you don't know who the sucker is, it could be YOU! I believe that either the bond market has to crack, or the dollar has to crash. But wait, the dollar already crashed, and the bond market has enjoyed a 25-year bull ride. So there you have it....the bond market is the last sucker at the table. Nobody is talking about the near DOUBLING of yields in 6 months, from late Fall 2008 to Summer 2009. IMHO, this is a precursor of fireworks to come. The bond bubble will be the last bubble to be punctured...and I think it has already started!

JAG's picture
JAG
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Joined: Oct 26 2008
Posts: 2492
Re: Question re the FED- Aren't they actually "SHORT" ...

amartin

Welcome aboard the SS Martenson. I didn't want to let your first post go unanswered, but I'm not clear what you are asking, so I'm not sure how to respond. Can you clarify and expand upon your question for me?

Thanks

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