You are a free subscriber to Me and the Money Printer. To upgrade to paid and receive the daily Capital Wave Report - which features our Red-Green market signals, subscribe here. Money Printer 208: Those Sweet, Sweet Liquidity Swaps that Scott Bessent Wants (And a NFL Mock Draft 2026)Answering a question from today's article is fun and educational... but this answer is brought to you (unofficially) by Mellow Corn... the right corn. And an NFL Mock Draft.
Editor’s Note: “Garrett, what do you do in your free time?” Well, my friends and I sit around and create NFL Mock Draft events where we only take players from movies… and write recaps and try to make one another laugh… That’s a good example. Here’s an oldie, but a goodie on the day of the NFL Mock Draft day of the year… This has nothing to do with finance… just things that my friends and I find funny…
Dear Fellow Traveler: A reader asked in the comments today the following question:
This comes after Scott Bessent sat down at a Senate Appropriations hearing yesterday and told Congress that “many” U.S. allies in the Persian Gulf have asked for currency swap lines due to the Iran war. Said Bessent:
The key part of that line is “to prevent the sale of U.S. assets in a disorderly way.” Bessent said on camera… in a Senate hearing… that swap lines are needed to stabilize dollar funding markets… The use of swaps reduces the need for foreign holders to sell Treasuries for cash. That’s the quiet part that really doesn’t come out that often. Honestly… a lot of people would bury this explanation in a white paper. Bessent said it out loud and kept moving… like we weren’t supposed to notice… or really care. It’s my job to explain what swap lines are, why they matter, and why Bessent (the salesman of the GENIUS Act) is pushing to “print” dollars for the United Arab Emirates. What is a Swap Line?A swap line is a process… Basically, the Federal Reserve creates new U.S. dollars and sends them to a foreign central bank (such as the European Central Bank or the Bank of Japan). In exchange, the Fed receives the foreign currency at the current exchange rate. The foreign central bank lends those new dollars to its commercial banks. The swap deal is then supposed to flip back, with the U.S. getting its dollars back anywhere between 7 and 90 days (though your mileage may vary). That’s it. It’s just a few hundred billion dollars getting wired across the system. The Fed creates them as reserves and lends against foreign-currency collateral. Yes… It does expand the Fed’s balance sheet. It’s technical and temporary in its nature. But it’s also “temporary” in the way that you just keep extending your hotel stay indefinitely, which is basically what’s happened in every crisis since 2008. As we’ve learned, “temporary” means nobody’s bothered to admit it’s permanent yet. Back in 2008, outstanding swap lines peaked at around $580 billion. During COVID, they hit about $450 billion. In those periods, the “temporary” injections coincided with major inflection points in global risk assets. Now some people will say that this isn’t Quantitative Easing… or “permanent” money printing. And I’ll agree with that. But it aims to achieve the same outcomes of QE. That means stabilizing funding markets and keeping a bid under global assets, especially Treasuries. It’s just a nice little treat for the market… a summertime flavor.
When the Fed buys Treasuries here in the U.S., people yell about it on cable news for three years. When it creates the same dollars and sends them to Frankfurt or Tokyo, it’s called a “temporary liquidity arrangement,” and nobody says a word… because no one really understands what is going on. That’s on purpose. This stuff is boring and confusing... The game is actually pretty simple. The Fed provides liquidity when funding tightens, suppresses forced selling, and keeps the Treasury market functioning. Call it plumbing, call it policy… the outcome is the same. Why the Gulf Needs Dollars Right NowDisruptions in the Strait of Hormuz and oil revenues are cratering across the region. Gulf nations depend on energy exports to fund their economies. Now, they’re suddenly short on cash. But the global oil market runs on U.S. dollars. The barrels traded, the contracts settled, and the sovereign wealth fund’s investment… are all heavily linked to the dollar. If oil revenue dries up, dollar revenue dries up. And when dollar revenue dries up, governments start looking at their dollar-denominated assets and thinking about selling. That’s what Bessent is trying to stop. It’s not really that he’s worried about the UAE’s liquidity. It’s what the UAE and others will sell when their assets dry up… They’ll sell U.S. bonds. If Gulf sovereign wealth funds start dumping Treasuries to raise cash, yields spike, financial conditions tighten, and the liquidity framework that’s been supporting U.S. asset prices starts running in reverse. Swap lines are the Fed’s way of saying: “Here are some freshly printed dollars. Please don’t sell our bonds.” At its core, it’s self-preservation… But there’s another side to this that should bug people… The Iran war is already costing American taxpayers over a billion dollars a day, gas prices are up, food prices are up, and now the Treasury wants to extend a swap line to the UAE. It looks bad. It should. The UAE has one of the highest per capita incomes on the planet. So… the Fed creates dollars. Gulf central banks receive them first. Gulf commercial banks get them second. The institutions that hold dollar assets benefit third. American consumers paying higher gas prices benefit last, if at all, because they’re the ones ultimately funding and stabilizing the system after the fact. The swap line stabilizes the system. It prevents a Treasury dump. It keeps yields from spiking. But the dollars flow to sovereign wealth funds in Abu Dhabi before they flow to a family in Ohio. That’s how the system actually functions, whether anyone bothers to explain it that way or not… Look… I’m not going to sit here and pretend this is fair. It’s not. It’s a big club, and we ain’t in it. George Carlin said that decades ago, and somehow it’s become truer every single quarter since. It’s all the same printer. Just now… It’s in a bigger room with better excuses… Pay attention to MENA ETFs… Middle East and North Africa… they’re worth watching as momentum trades if this plays out. Funds such as the iShares MSCI Saudi Arabia ETF (KSA), the iShares MSCI UAE ETF (UAE), and broader MENA-focused funds are heavily weighted toward banks and energy companies. If the swap lines stabilize dollar funding and oil revenues start normalizing, those names are closest to the injection point. That’s the system doing exactly what it’s designed to do. You don’t have to like how the system works, but you do have to stop being surprised by it and start positioning accordingly. Stay positive, Garrett Baldwin About Me and the Money Printer Me and the Money Printer is a daily publication covering the financial markets through three critical equations. We track liquidity (money in the financial system), momentum (where money is moving in the system), and insider buying (where Smart Money at companies is moving their money). Combining these elements with a deep understanding of central banking and how the global system works has allowed us to navigate financial cycles and boost our probability of success as investors and traders. This insight is based on roughly 17 years of intensive academic work at four universities, extensive collaboration with market experts, and the joy of trial and error in research. You can take a free look at our worldview and thesis right here. Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. 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