Cash Glut in Eurozone Drives Dollar Demand
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Re: Cash Glut in Eurozone Drives Dollar Demand
#2Believers in the Dollar Milkshake Theory are lacing up their shoes for some victory laps.
Re: Cash Glut in Eurozone Drives Dollar Demand
#3Re: Cash Glut in Eurozone Drives Dollar Demand
#4Believers in the Dollar Milkshake Theory are lacing up their shoes for some victory laps.
What’s the dollar milkshake theory?
Re: Cash Glut in Eurozone Drives Dollar Demand
#5The article explains the eurozone banks' rush from Euros to Dollars by the difference in interest rates. What puzzels me is that it should be the other way around when you take inflation into account:
Euro central bank interest rates: -0.5 % [1]
Euro inflation (Nov.): 4.9 % [2]
This yealds a Euro netto interest rate of -4.95 %
Dollar FED interest rates: +0.05 % [3]
Dollar inflation (Nov.): 6.8 % [4]
This yealds a Dollar netto interest rate of -6.75 %
[1] The article mentions -1 %, but I couldn't find a confirmation for this.
[2] https://ec.europa.eu/eurostat/documents/2995521/11563387/2-3...
[3] Per article.
[4] https://tradingeconomics.com/united-states/inflation-cpi
Re: Cash Glut in Eurozone Drives Dollar Demand
#6...and a dollar glut in America is driving demand for everything, including virtual beanie babies apparently.
Re: Cash Glut in Eurozone Drives Dollar Demand
#7The article says EU banks can borrow at up to -1%. The article also says, "put that cash into the Federal Reserve’s reverse repo facility, which allows banks to park cash for a return of 0.05%."
They get paid to borrow and then paid to deposit what they just borrowed. Anyone see a problem with this risk-free infinite money mechanism?
Re: Cash Glut in Eurozone Drives Dollar Demand
#8Believers in the Dollar Milkshake Theory are lacing up their shoes for some victory laps.
What’s the dollar milkshake theory?
It's a theory by wealth manager Brent Johnson that the next big recession will trigger an enormous demand for dollars. The dollar will rise against most other currencies and non-US bonds thus sucking up all the liquidity (that's the milkshake part).
He's been on many podcasts to explain his theory and provide updates. I will link you an interview at realvision from september 2020 timestamped at 51:55 where he goes through it in summary: https://www.youtube.com/watch?v=h_HCIyc6MaA&t=51m55s
Re: Cash Glut in Eurozone Drives Dollar Demand
#9The article says EU banks can borrow at up to -1%. The article also says, "put that cash into the Federal Reserve’s reverse repo facility, which allows banks to park cash for a return of 0.05%." They get paid to borrow and then paid to deposit what they just borrowed. Anyone see a problem with this risk-free infinite money mechanism?
No. Both sides are getting what they wanted, at a price they set.
Re: Cash Glut in Eurozone Drives Dollar Demand
#10The article says EU banks can borrow at up to -1%. The article also says, "put that cash into the Federal Reserve’s reverse repo facility, which allows banks to park cash for a return of 0.05%." They get paid to borrow and then paid to deposit what they just borrowed. Anyone see a problem with this risk-free infinite money mechanism?
They are not getting paid, because those are nominal interest rates, not real interest rates.