I was reading the following article on Huff Post http://www.huffingtonpost.com/ellen-brow....
when the following item caught my attention:

In essence, it appears as if much of the monetary stimulus generated by the Federal Reserve System went into the Eurodollar market. This is all part of the "Carry Trade" as foreign branches of an American bank could borrow dollars from the "home" bank creating a Eurodollar deposit.


Now, from what I can see, the Euro may be headed to the toilet. If that is the case, have banks borrowed our QE2 and stand to lose a large portion of it by having invested in Euros that are falling compared to the USD? I see that the USD is up .92 (from 75.09 to 76.11) right now compared to the Euro. Could this make the European banks even more insolvent than they already are (if such a thing is possible)?

Tick, tick, tick, Ka-boom?

Wasn't this well known?

I knew that foreign banks had gotten the "benefit" of QE2. I didn't know what form it had taken, specifically that it had been converted into Euros. If they had held it as USD it would have been an entirely different story, they would be making money instead of losing it.

The carry trade has been going on for as long as I can remember. If you can get free money at 0% why would you not loan it to other countries at guaranteed rates. If they default, who cares? It didn't cost you anything and you made a bundle in the meantime.

I guess you could consider taking money from the Fed at 0 and loaning it at 3% to the US treasury a carry trade as well. Pretty good reason why you can't pay it back if they default. Right?