Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

The Dearth of Safe Banking Collateral in the Euro, US Dollar


Why the shrinkage? The Fed and other central banks hold much of it, or it is now encumbered via direct bilateral funding agreements or by sitting at the central bank drawing liquidity.

A chart that few are looking at explains the concept of the dearth or shrinkage of so called safe collateral in the Euro and USD. The reason is that the Fed and other central banks hold much of it, or it is now encumbered via direct bilateral funding agreements or by sitting at the central bank drawing liquidity. At the same time a large chunk of sovereign debt has been downgraded. The end result is that the banking system holds more and more junk assets and less in acceptable securities to use as collateral. Even more incredible is that most of the remaining publicly held "safe collateral" consists of US Treasury Old Maid Cards. How ironic! What does this mean?

From an article from Cardiff Garcia:

A shortage of acceptable collateral would have a negative cascading impact on lending similar to the impact on the money supply of a reduction in the monetary base.

In the minds of the masters of the universe who run this travesty, the idea is to issue even more "safe collateral" and hope the credit agencies play along. This also illustrates in spades what the effect will be of ratings downgrades for France, Germany and especially the US. And what would be the effect on the "safe assets" if the Fed buys them and takes them out of the market? The answer is that I am not so sure that the Fed will be able to buy much of the remaining "safe" collateral. Instead the Fed will enter into the markets via the IMF, focusing on European sovereigns, notably the big names such as Italy and Spain. The ECB will fund France directly after its downgrades, which I covered in Fed Sovereign Loan Plan: From the Frying Pan Into the Fire?

This IMF talk is one rumor that makes sense to me. This is highly controversial politically, but since when has that stopped the Fed and the current administration? The main characters, Obama, Geithner and the doves on the Fed have another year to carry these bailout schemes out. As the great protest comedian Lee Camp says, don't even use the word bailout, use heist. This is not to say the heist execution will be easy, it won't be, but that won't stop the attempt. The idea is to endrun funding from IMF members, and run some kind of back door bankster lending heist. Incidentally while all this is being ramped up, Brent oil is already over $110.

As for the Fed, Societe General points out, there are three so-called hawks on the Fed that are on the way out, to be replaced with sycophants.

Editor's Note: This article was originally posted on Wall Street Examiner.

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.

< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos