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Article Abstract

AT EASE? IMAGE1 The new year--the 100th anniversary of the founding of the FEDERAL RESERVE System, as every schoolboy knows--steps out with confidence. Target2 balances at the Bundesbank, a key barometer of stress in the monetary union (Grant's, June 1), fell by €59.5 billion ($77.9 billion) in December, to €655.7 billion. The Swiss National Bank's portfolio of foreign currencies, another handy worry gauge, leveled off to Chf. 427.2 billion ($461.4 billion) in December from Chf. 427.4 billion in November. Measures of market-based volatility, too, are flashing green, not amber (still less red), with the VIX reading 13.62% vs. a long-term average of 20.3%, and the MOVE Index, a measure of bond volatility, registering 59.9 basis points vs. a long-term average of 101.6 basis points. People can't be very worried: Since 2008, Bloomberg reports, "hedge funds that use computers to follow trends" have gained $108.2 billion in assets. But who programs the computers? The old year closed with a slower gait of money printing in Europe, Britain and the People's Republic. The pace of dollar creation, too, has slackened from the white-hot days of early QE, though there seem to be plenty of greenbacks to go around: Foreign exchange swaps between the Fed and other central banks plunged to $8.9 billion on Jan. 2 from $109.1 billion as recently as Feb. 15, 2012. "Broadly," says a friend of this publication who works in counterparty risk, "you get the sense in the market that central banks have basically taken the tail risk ...

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