Swaps with NZ central bank questioned by US lawmaker
Nearly three hours into a testimony before a United States House of Representatives committee by Federal Reserve chairman Ben Bernanke in Washington on Tuesday US time came a curly question about New Zealand.
Representative Alan Grayson, a Florida Democrat, was pursing a line of questioning about currency swaps between the US Federal Reserve and central banks around the world.
He opened by referring Mr Bernanke to a table on page 26 of the Monetary Policy Report to the Congress before the House Committee on Financial Services showing an increase in central bank liquidity swaps from US$24 billion at the end of 2007 to US$553 billion at the end of 2008.
Mr Grayson's ultimate point was to question why the US was lending half a trillion dollars to foreigners without the approval of Congress.
He wound up to it by asking "what's that" in reference to the swaps figures in the table.
Mr Bernanke said they were swaps done with foreign central banks.
"So, who got the money?" said Mr Grayson.
"Financial institutions in Europe and other countries," said Mr Bernanke.
"Which ones?" said Mr Grayson.
"I don't know," said Mr Bernanke.
"Half a trillion dollars and you don't know who got the money," said Mr Grayson.
Mr Grayson went in for the kill with a question referring to New Zealand.
"One of the arrangements is $US9 billion for New Zealand -- that works out to $US3000 for every single person who lives in New Zealand," Mr Grayson said.
" Wouldn't it have been better to extend that kind of credit to Americans, rather than New Zealanders?"
Mr Bernanke countered that the Fed was lending to US financial institutions.
He said the swaps existed because foreign central banks were short of US dollars and came into the US market, driving up interest rates.
"We swap our currency dollar for their currency. They take dollars and lend to banks in their jurisdiction."
There was a longstanding authority under US law allowing the swaps, Mr Bernanke said.
A Fed's report on monetary policy is delivered in February and July and the chairman is called to give testimony on it. It is a major event for financial markets.
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Comments and questions3
Looks like the Dems protectionisim against us to be extended from agriculture to money.
Just goes to show how the Yanks speak out of both corners of their mouths at the same time
they are nothing but a bunch of protectionist wimp
Look at their auto industry Failed even thou it was propped up by the US taxpayer long after its used by date.
Pathetic
Swaps arent loans, they are exchanges of cash flows. If the government is paying out more in US dollars they are receiving more foreign currency.
I would not rely on a house rep for economic/finance information.
http://www.federalreserve.gov/monetarypolicy/bst_liquidityswaps.htm
Michael,
The House rep questioning Bernake is one of the smmartest, Harvard educated. He is not saying the US loaned the money, but the Fed could have used the money as loans to american institutions. At a time when Banks have cut of loans, the Fed helps provide additional capital to increase lending. But instead, the ded used some of their resources (%500 B) to help out other countries. The fed got back foreign currency but that can't help here at home.
I am not saying it was a bad decesion, I think Bernake has done a good job of trying to keep the whole world from depression...and we already seem to have hit bottom. But the he has done this with no one supervising him, no one to report to basically. It's a lot of power and the representative should question him. This time, I believe Bernake was right.
Mark
San Francisco
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