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Bernanke’s Bailout of Europe: You and I Will Pay.

Written by Gary North on November 25, 2011

The Federal Reserve System is called “the lender of last resort.” The trouble is, it is Europe’s lender of last resort. We have seen this repeatedly since 2008. Here is one example. Here is another.

Most Americans are not interested in the crisis of the euro. Spain? Italy? Greece? It’s irrelevant to them, they think. They’re wrong.

Bernanke dares not let the big European banks go down. Why not? Because they owe the FED money. The FED uses 21 banks to serve as its agents. The New York FED (privately owned) buys the bonds which it creates the money to buy. (Note: this is not done by the Board of Governors of the Federal Reserve System, which is owned by the U.S. government.) But the primary dealers buy these bonds first. Then they sell them to the FED at a nice profit. A list of these highly favored banks appears on the Website of the Federal Reserve Bank of New York. Read it here.

Very few people know that 14 of these 21 banks are foreign. You can click through the list that is posted on Wikipedia’s article on Primary Dealers. It’s here.

This is why we can be certain the the FED will bail out any large European banks that are facing bankruptcy.

Given the ECB’s reluctance to act, I suspect that the Fed will spearhead the formation of a Global Liquidity Facility (GLF) to avert a global financial meltdown. Fed Chairman Ben Bernanke demonstrated that he is a master at putting together such emergency measures back in 2008. In effect, it would act as the world’s central bank. Mr. Bernanke is clearly very worried about the prospect that the European sovereign debt crisis is a contagion that could spread to the US, as evidenced by his bizarre town hall meeting with troops returning from Iraq on November 10. The GLF would receive deposits from the Fed and other participating central banks, including the ECB. The funds would be used to buy the bonds of debt-challenged governments that would be required to accept strict supervision of their fiscal and regulatory policies by the IMF.

But what if Americans oppose this? They have no say in the matter. Congress never challenges the Board of Governors. The Board of Governors is only nominally in charge. The decision will be made by the New York FED. Count on it.

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