US Tax Payers bail out Europe!
Posted May 11, 2010on:
Check out this head line then read the story and determine for yourself how much “risk” is involved. But then I an quoting CNBC in this post. I started to use other more sane articles but noticed that although CNBC tries to put a pretty face on it they do accurately state the salient facts, so decided to give you another point of view as I am tired of being called a racist, bigot and intolerant to name the nicer things said to me. 🙂 BB
The US is a participant in the IMF,(International Monetary Fund which is a sort of world piggy bank) which has agreed to work with the European Union to help countries that come under debt duress.The IMF has pledged a one-third share of the 750 billion-euro ($952 billion) rescue package—typical of the fund’s arrangements with central banks in such cases.
That would come to 250 billion euros, though that is only a rough figure and dependent on a variety of circumstances, according to an IMF official who spoke on condition of anonymity because of the uncertainty still involved.
The US would be responsible for 17.09 percent, or $54 billion, of the cost using a quota contribution system the IMF uses in such instances. The US is the leading contributor under the quota setup.
But pinpointing the exact figure is difficult because all loans are not created equal, and will depend on the currencies in which they are issued and the arrangements between the parties.
Also, the basis of the loans won’t be solely on the quota calculation, which accounts for only half the formula. The other half is a pro-rated basis for which the US does not currently have an agreement but is likely to in the future. That pool comes from wealthier countries with “useable resources,” with the typical arrangement for the US being higher than the 17 percent for the quota share.
The US also is exposed in currency swaps, where the Federal Reserve loans dollars to foreign banks in exchange for euros, ( Of course the Europe is on the brink of collapse and the euro is its currency. I guess from this the Feds would even be willing to take Monopoly money. BB)
That arrangement, too, has drawn criticism in part because of the danger of default and worries over the rapidly devaluing euro.
But these swap trades are virtually without risk as the ECB is the entity responsible for backing up the swaps. The ECB is responsible for returning the money to the US along with a slight interest appreciation on the loan. (but the ECU European Central Bank is about the same as our Federal reserve and we know what shape the Federal Reserve is in, so maybe this: European Central Bank to intervene in bond markets
– AP via Yahoo! Finance – May 10 05:13amAlarmed by the risk to the euro, the European Central Bank exercised what analysts called its “nuclear option” Monday, announcing it would buy government bonds to... full story
“These (swaps) operations will be a net positive for fiscal conditions,” said Zach Pandl, economist at Nomura Securities International in New York. “They contain no credit risks whatsoever. The counterparty is the foreign central bank. There’s basically no debt. The European Central Bank is going to pay back the loan.” (Where have we heard this before? You can not bleed a turnip or a bankrupt coalition of countries people! BB)
The swaps, though, will make the Fed’s balance sheet grow to perhaps $2.5 trillion from its current $2.3 trillion, said Delta’s Pento.
Putting more US money into circulation at a time when the central bank is trying to shrink its balance sheet will only add to inflationary pressures down the road, he said.
“With an over-$2 trillion monetary base, the damage is already there,” Pento said. “You’ve lit fire to a building that is already burned down.”
Pandl said the swaps transactions could total as much as $100 billion, “which is nothing to sneeze at. But compared to the Fed’s balance sheet, it’s still a relatively modest sum.”
Correction: An earlier version of this story overstated the risk that US taxpayers face in the European bailout fund. In both loans to the IMF and currency swaps, the risk to taxpayers is limited.© 2010 CNBC.com
2 Comments TotalCOMMENTS
ivan1969 | May 11, 2010 12:36 PM ETDo we get our own little piece of Europe?!
Realitycheck1 | May 11, 2010 12:36 PM ETWhat a laugh. 50 billion in American taxpayer money and another couple hundred billion in swaps so Greek hairdressers can fully retire at age 50. Let’s see if Europe is there for us when it comes time for our bailout.