Reader Patricia is wondering about a recent ZeroHedge article, The Global Dollar Funding Shortage Is Back With A Vengeance And “This Time It’s Different”.Â
 The last time the world was sliding into a US dollar shortage as rapidly as it is right now, was following the collapse of Lehman Brothers in 2008. The response by the Fed: the issuance of an unprecedented amount of FX liquidity lines in the form of swaps to foreign Central Banks. The “swapped” amount went from practically zero to a peak of $582 billion on December 10, 2008.
The USD shortage back, and the Fed’s subsequent response, was the topic of one of our most read articles of mid-2009, “How The Federal Reserve Bailed Out The World.”
As we discussed back then, this systemic dollar shortage was primarily the result of imbalanced FX funding at the global commercial banks, arising from first Japanese, and then European banks’ abuse of a USD-denominated asset-liability mismatch, in which the dollar being the funding currency of choice, resulted in a massive matched synthetic “Dollar short” on the books of commercial bank desks around the globe: a shortage which in the aftermath of the Lehman failure manifested itself in what was the largest global USD margin call in history. …
Another Margin Call?
Reader Patricia writes…Â
 I have believed for quite some time that the catalyst for the 2008 crash was the action of European Commercial banks. They got themselves into huge trouble by creating a huge mismatch in their asset and loan funding requirements. That led to a global US dollar shortage which the Fed mitigated using their special swap facility. So the Fed bailed out the rest of the would at the expense of US citizens.
So now it appears this problem is happening again. Will the Fed attempt to bail out the world once again? Zerohedge seems to think so, but they are sometimes on the wrong side of the inflation/deflation argument.Â
I know you are busy and may have more important things to write about, but maybe you could keep this issue on the back burner.
Thanks,
Patricia
