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In an international game of 3-card Monty, it seems as though the Federal
Reserve’s Quantitative Easing (QE1/QE2) program has done little else but
to help capitalize insolvent European banks.
Take a look at the chart below, which shows the “coincidental” infusion
of nearly $700 billion into the balance sheets of Foreign banks at the
same time that the Federal Reserve pumped the same amount of money into
the markets via QE2.
It’s not clear exactly how the funds ended up on the balance sheets of the
European banks, but what is clear is that American banks experienced no
such balance sheet boost over the same period. Why is the Fed now
backstopping European banks? Well it’s pretty clear that Europe’s sovereign
debt issues are somewhat more advanced that America’s, so maybe Bernanke is
trying to quarantine those issues to the other side of the Atlantic.
In any event, the effect is clear, regardless of how it’s achieved.
And the lesson to be learned is now an old one: you can’t trust the Fed
or the banks.
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