I was joking about this on Twitter last night but I've looked it up and I think that it would work, legally and economically. The idea is that the USA doesn't actually have to restrict itself to moaning from the sidelines about Europe's inability to get its act together.
The ECB and Fed have mutual, unlimited currency swap arrangements in place. These were intended to be used for alleviating European banks' shortages of dollar liquidity, but there's nothing legally mandating that they can only be used for that purpose.
So, the Fed could carry out, under its programme of quantitative easing, an operation whereby it created US$500bn of new money, swapped it with the ECB for EUR300bn, used the EUR300bn to buy the entire outstanding debt of Greece and then tendered it back to Greece at a 99% haircut.
The only reason this can't be carried out is that it would represent an absolutely massive unilateral trampling over the Eurozone's national sovereignty. But the USA explicitly maintains a foreign policy doctrine under which it is allowed to intervene anywhere, at any time, unilaterally, in defence of what it considers to be its vital national interests. Doesn't it?
Which vital national interest would be served here? By which I mean "whose pockets would be lined"?
ReplyDeleteThe USA has a massive national interest in avoiding the kind of financial clusterfuck that would accompany a disorderly Greek default (the effects of which would be very unlikely to be confined to the euro area)
ReplyDelete... oh all right I admit it, that's a bit weak, but remember that we are working to the standard of the Iraq War rationales here
This is of course what D^2 was getting at when he decided to banhammer the world. It doesn't make sense to have a massive depression and a ton of unemployment and misery because otherwise, a bank might get some money.
ReplyDeleteThat's what the password protection's about? And here I thought we were starting a new secret society.
ReplyDeleteActually I am toying with the idea of doing something which would stand in the same relation to a global-macro hedge fund which a re-enactment society bears to the Roundheads. Does anyone know of a spread-betting firm which doesn't require you to take such ridiculously high leverage?
ReplyDeleteIsn't that on a par with "anyone know of a loan shark who won't break your knees?"?
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ReplyDeleteBy the way, I am finding it totally hilarious that this idea is now practically mainstream!
ReplyDeleteThanks for letting me join the secret society :)
ReplyDeleteThis scheme reminds me of the "$2trn platinum coin" idea that was floating around the last time the US hit the debt ceiling. That it's gone mainstream shows just how weird things have got in the Eurozone tbh.
It could probably be made palatable simply by constructing it as an 0% financing facility and calling it a new Marshall plan. Agree to roll over Greek debt at near-zero for a decade on the grounds that it's just a liquidity problem. Has the advantage of not appearing to be a money giveaway.
Today's Bank of England statement.
ReplyDeleteThe Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.
..
These central banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points. This pricing will be applied to all operations conducted from 5 December 2011. The authorization of these swap arrangements has been extended to 1 February 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.
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As a contingency measure, these central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant. At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise. The swap lines are available until 1 February 2013.
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The introduction of the network of temporary swap lines will enable the Bank of England to provide sterling to the other central banks if required, as well as enabling the Bank of England to provide liquidity, should it be needed, in Japanese yen, euro, Swiss francs and Canadian dollars (in addition to the existing operations in U.S. dollars)
I note that the last paragraph implies that the Bank of England itself could do the job. The financial equivalent of the independent nuclear deterrent, or something.