Meet the Fed’s Global Plunge Protection Team

Growth in Federal Reserve's Foreign Central Bank USD Liquidity Swaps Versus Dow Jones Industrial Average

To understand why the stock market soared on Friday, the same day the Bureau of Labor Statistics reported the worst U.S. unemployment figure since the Great Depression, you need to understand what Fed Chair Jerome Powell was methodically setting in place in February.

By Pam Martens and Russ Martens of Wall Street on Parade.

The Dow Jones Industrial Average rallied 455 points by the closing bell on Friday. It seemed sadistic to average folks. One hour before the stock market opened, the Bureau of Labor Statistics had reported the worst U.S. unemployment figure since the Great Depression (14.7 percent) along with the staggering loss of 20.5 million jobs in just the month of April. Within the first half hour of trading, the Dow was up more than 300 points. It then added to those gains in afternoon trading.

None of the explanations offered by mainstream media to explain the incongruous stock trading were accurate. It was not because the stock market had anticipated worse or that the market was rallying because it thought the worst of the economic fallout was behind us. It was because the one emergency funding facility that the Federal Reserve has quietly ramped up more than any other, its Foreign Central Bank Liquidity Swap Lines, was working its magic on Friday.

To understand what happened on Friday, you need to understand what Fed Chair Jerome Powell was methodically setting in place in February.

Beginning on February 3, Powell started dialing the head of one central bank after another. We know this because his daily calendars are made public. Before the month of February was over, Powell had spoken to, or met with, the heads of 14 different foreign central banks. This was an unprecedented number of central bank contacts in such a short period of time for a man telling Americans everything was fine with our banks and our financial system.

Equally curious, it wasn’t just the biggest players that Powell spoke to, like Christine Lagarde, President of the European Central Bank (ECB); Haruhiko Kuroda, Governor of the Bank of Japan; Mark Carney, then Governor of the Bank of England; and Yi Gang, Governor of The People’s Bank of China. Powell also dialed up the heads of the following central banks: Canada, Netherlands, Brazil, Mexico, South Korea, India, Switzerland, Belgium, Sweden and France. All in one month.

Two weeks after the last phone calls were made in February, the Fed sprang into action.

On March 15the Fed announced that foreign central banks with regular U.S. dollar liquidity operations would “begin offering U.S. dollars weekly in each jurisdiction with an 84-day maturity, in addition to the 1-week maturity operations currently offered.”

On March 19the Fed announced that on top of its standing U.S. dollar liquidity swap lines with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank, it would be opening up “U.S. dollar liquidity arrangements (swap lines) with the Reserve Bank of Australia, the Banco Central do Brasil, the Danmarks Nationalbank (Denmark), the Bank of Korea, the Banco de Mexico, the Norges Bank (Norway), the Reserve Bank of New Zealand, the Monetary Authority of Singapore, and the Sveriges Riksbank (Sweden).”

On March 20the Fed announced that itself along with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank would be increasing the frequency of its 7-day swap line offerings from weekly to daily.

As the chart above indicates, the outstanding swap lines on the Fed’s balance sheet have grown from $45 billion on March 18 to $348.5 billion by April 1 and now stand, as of last Wednesday’s H.4.1 report from the Fed, at a stunning $444.89 billion

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