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Cash Glut in Eurozone Drives Dollar Demand

wsj.com

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Re: Cash Glut in Eurozone Drives Dollar Demand

#11

Post by landemva »

SantalBlush wrote: post #10
landemva wrote: post #7

The 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.

The original loan is fixed, other than the -1% interest which is basically a loan paydown gift. They pay back the nominal they borrowed.

They are getting paid for risk-free paper shuffling.

Re: Cash Glut in Eurozone Drives Dollar Demand

#12

Post by landemva »

sp332 wrote: post #9
landemva wrote: post #7

The 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.

I never agreed for Federal Reserve to shovel free money to euro banks.

When does the working class become a side in the equation of the purpose and value of stable money?

Re: Cash Glut in Eurozone Drives Dollar Demand

#13

Post by the_hob_code »

ViVr wrote: post #8
JumpCrisscross wrote: post #4

Earlier quoted context omitted.

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 th…

I hadn't heard of the theory before but in googling it I came across this video[0] from mid 2019 where he claims the demand for US dollars will be driven by rising interest rates and a shortage of dollars. Obviously things went a very different direction in in the past year and a half or so as the Fed has kept interest rates low and monetary supply has increased. So it's odd to see him arguing in the video that you linked from late last year that the same outcome will result from very different circumstances.

[0] https://www.youtube.com/watch?v=2qTOWuL7Zco

Re: Cash Glut in Eurozone Drives Dollar Demand

#14

Post by pphysch »

ViVr wrote: post #8
JumpCrisscross wrote: post #4

Earlier quoted context omitted.

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 th…

1. 2008 recession was offset by both US Fed, PRC, et al. buying lots of UST and stimulating global economy.

2. 2020 was offset by US Fed buying tons of UST and USG printing USD. However, global economy cannot magically expand by 40% or whatever is required to balance that expansion of USD. Hence a persistent supply chain crisis.

In current geopolitical climate, no foreign state will buy lots of UST. US Fed is still buying lots of UST, causing a liquidity glut causing inflation. Global economy physically cannot expand at the necessary rate to absorb this inflation, so stagflation or financial collapse is the only way forward for America.

Re: Cash Glut in Eurozone Drives Dollar Demand

#15

Post by ummonk »

landemva wrote: post #12
sp332 wrote: post #9

Earlier quoted context omitted.

No. Both sides are getting what they wanted, at a price they set.

I never agreed for Federal Reserve to shovel free money to euro banks. When does the working class become a side in the equation of the purpose and value of stable money?

In this case it seems more like the ECB that's shoveling free money to the Euro banks.

Re: Cash Glut in Eurozone Drives Dollar Demand

#16

Post by janmo »

Archelaos wrote: post #5

The 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 Dol…

Inflation is calculated in a different way in the US and in the EU. If the calculation was the same, the inflation number would be quite similar.

Re: Cash Glut in Eurozone Drives Dollar Demand

#17

Post by Rexxar »

ummonk wrote: post #15
landemva wrote: post #12

Earlier quoted context omitted.

I never agreed for Federal Reserve to shovel free money to euro banks. When does the working class become a side in the equation of the purpose and value of stable money?

In this case it seems more like the ECB that's shoveling free money to the Euro banks.

I don't think it's in this direction: negative interest rates means that banks lose money when they let their money on ECB account so they have to use it somewhere else. Here, they use it to buy dollars.

Re: Cash Glut in Eurozone Drives Dollar Demand

#18

Post by sp332 »

landemva wrote: post #12
sp332 wrote: post #9

Earlier quoted context omitted.

No. Both sides are getting what they wanted, at a price they set.

I never agreed for Federal Reserve to shovel free money to euro banks. When does the working class become a side in the equation of the purpose and value of stable money?

So unless I misread this, the Euro banks are lending the Fed a bunch of money and only asking for 0.05% interest?

Re: Cash Glut in Eurozone Drives Dollar Demand

#19

Post by JohnJamesRambo »

landemva wrote: post #12
sp332 wrote: post #9

Earlier quoted context omitted.

No. Both sides are getting what they wanted, at a price they set.

I never agreed for Federal Reserve to shovel free money to euro banks. When does the working class become a side in the equation of the purpose and value of stable money?

When the working class exits this system en masse into auditable, borderless, transparent hard money- cryptocurrency.

Re: Cash Glut in Eurozone Drives Dollar Demand

#20

Post by lumost »

sp332 wrote: post #9
landemva wrote: post #7

The 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.

The fed and ecb are pseudo government organizations. They can set the prices at any point they want without consequence to themselves either positive or negative.
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