Article on Zerohedge

Hi all,

Came across a very interesting article on the internet on Zerohedge. (http://www.zerohedge.com/article/how-federal-reserve-bailed-out-world)

This article states that last year there were even more severe problems for the world economy than thought before. According to the article the entire European Banking system was about to collapse, but the FED saved us.

What happened?

In the period between 2000 and 2007 European banks took more foreign assets on their sheets en those were primarily based on the USD. Those assets were financed by short-term credit in Dollars.

But when Lehman Brothers collapsed there was a shortage of dollars. There was a gigantic need for dollars but nobody wanted to sell it. This caused some problems and according to the article there was a budget deficit of up to 6,500 Billion USD!

De extraordinary demand for dollars resulted in the forces liquidation of assets. Shares and money market funds were sold to whatever price they could get to get the dollars.
Without the FED financing the entire banking system was about to collapse.
However: the FED did finance for 582 Billion USD (over half a trillion) for foreign central banks. These central banks divided the dollars over the banks.



Problem solved? No, today the carry trade in of the dollar is very volatile causing the threatening budget deficit to be way bigger at new problems than the 6,500 billion.
Zerohedge states that this ‘liquidity crisis’ may cause a “potential massive and historic short squeeze”.