The USD/Euro Currency Swap Unwind

A reader has asked me to comment on the announced unwinding of the $500 billion in currency swaps that were implemented by the Fed between the U.S. and the British, Japanese, EU and Swiss National Banks.  It's a really good question and given that Bernanke issued a statement, under oath in front of Congress, that he doesn't know how that money has been used or the specifics of where it went, then we have to assume that even Bernanke can't answer that question.  Let me make it clear that I believe Bernanke lied under oath.

The problem in analyzing the answer to this question is that, notwithstanding Bernanke's feigned ignorance, it would be impossible to know exactly how the money was used in the first place, so it is impossible to form judgements about what the unwinding of these swaps will look like.

I really want to avoid making educated guesses about this topic, because the bottom line is that it would just be guessing.  Perhaps our brilliant Senators should have forced Bernanke to disclose all of the details about these transactions before they voted on his reappointment. But given the trillions being printed by Bernanke and spent by Congress, what's a mere $500 billion among friends?  Having said that, I do suspect (and again we can never prove this) that the swaps conducted with the Bank of England were employed to help fund U.S. Treasury bond auctions during the past year.  And I am completely fascinated to watch how the Fed/Treasury is going to finance the $2+ trillion in new Treasury issuance that is coming this year ($2.2 trillion debt ceiling = $300 billion raise at Christmas + $1.9 trillion just approved by the Senate). 

What all this points to is the growing Orwellian nature of our Government and Central Banking system - AND the growing unwillingness of Congress, the Executive Office (that's you Obama) and the Judicial Branch, to reverse the process of the Government becoming MORE secretive (as opposed to LESS secretive, which Obama promised to do to coax votes and has failed miserably in doing).  All this is to say that I have no idea what the currency swap unwind will look like and I have yet to see anyone else offer a credible explanation.  Maybe if Congress held the Fed and Wall Street more accountable, we wouldn't even be having this discussion...