top of page
  • Writer's picturen ev

US Fiscal Update And Fed Swap Lines

Lots of talk around the $6.3bln being sent over to SNB as some entity in their system (probably Credit Suisse) has run short on greenbacks. For some context, $6.3bln sounds like a lot of money, but the swap of Swiss Francs for US dollars is a pretty safe bet. The question should be why are there not enough US dollars in the global system?

Back in 2008, the Fed's assets show that the swap lines between the Fed and Central Banks were a whopping $589.5bln

During this time, the global financial system was going through a massive credit crunch as liquidity dried up and collateral disappeared. Today's news may be something but it's hardly anything like we have seen before. There is a glitch somewhere and all eyes are looking at Switzerland.

As the rest of the market is talking about this, so we should too

The eurodollar curve is and has been showing trouble brewing in the months ahead. For about a year there has been an inversion that has progressively gotten more acute. A healthy system is depicted by a gradually rising curve from the lower left corner up to the top right corner. What we have seen since the rising CORE CPI data release is a further push higher in the near-term rates all the way out to the end of the curve. If this is the early warning, then the Fed swaps with other central banks is another shoe that has dropped.

Moving back to the USA, the fiscal flows as measured on a 10-daily average have risen steadily and are above the August lows. So more spending is currently occuring. These $'s get spent into the economy and then flow out to corporate profits.

Commercial and industrial loans are rising as are the Loans and Leases in Bank Credit, All Commercial Banks. So everyone is currently deemed credit-worthy enough. If the banks were particularly worried about holding the bag in a mass deleveraging event, they aren't showing it so far.

The US treasury is also not raising the level of taxation just yet and the above chart shows that the current level of taxation is below the trend.

The amount of money being spent and created in the US economy minus the tax deposits are sufficient enough to keep the US deficit alive. When the data has reflected a decline into surplus, the markets and in particular the benchmark index have declined.

The rising deficit could be enough to get the SPX out of the current descending channel. Technically I am always looking for channels to break in the opposite direction of travel. So the next break of structure could get the SPX back to 3900 at a minimum. What we don't want to see is more volatility around the central bank's decisions and panic around US dollar swaps. For that, the eurodollar curve is the canary in the coal mine for me.


Related Posts

See All


bottom of page