Currency Swaps Spell Trouble?

Friday, May 14, 2010, 2:23 PM
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It was recently announced that the Fed planned to re-open lines with other central banks, allowing them to swap for dollars.  We've been down this path before.  I want to review what happened last time, because if that pattern repeats, we are about to begin a brand-new stage of financial system stress and stock market losses.

To begin, you should review this article I wrote on September 25, 2009, which describes currency swaps and does a post-mortem on the relationship between dollar swap volumes and strength in the US dollar index.  The correlation was pretty tight.

Here's the primary image from that article with some of the text that followed it:


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