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Cash Glut in Eurozone Drives Dollar Demand

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Re: Cash Glut in Eurozone Drives Dollar Demand

#51

Post by martinko »

pmorici wrote: post #44
BozeWolf wrote: post #38

Earlier quoted context omitted.

Commercial Banks print money. Central banks dont do that. Commercial banks create money with loans. If you pay back a loan, your money is removed from the system. Read this: https://themacrocompass.substack.com/p/tmc-6-all-they-told-y... Banks wont lend (=print) more because of risk/reward ratios. Credit worthiness and yields. I like the terminology “inside money” and “outside money” as well.

This article literally says, "The central bank created new reserves out of thin air" the premise of the article seems to be more about taking issue with the fact that the "money printer go brrr" meme popularized in the media doesn't tell the whole story and over simplifies the mechanism. The key point is that when the Fed buys a bond from an investor that investor has cash which they can then take an buy something el…

The issue with reserves is that they are not money, they have no way of getting into the real economy, they just sit on bank's balance sheets. At the end of the day, its up to commercial banks to create new, spendable money. The whole reserve thing is just to incentivize them.

Re: Cash Glut in Eurozone Drives Dollar Demand

#52

Post by dkjaudyeqooe »

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 a positive if you're holding a currency, because that suggests interest rates will go up and that currency will yield more be more valuable.

Inflation is only bad if you intend on spending that currency on goods and services affected by that inflation. Currency investors are not doing that, they'll just sell for another currency.

Re: Cash Glut in Eurozone Drives Dollar Demand

#53

Post by dkjaudyeqooe »

im3w1l wrote: post #50
namdnay wrote: post #48

Earlier quoted context omitted.

If the dollar drops by just 1.1% compared to the euro, that “risk free” trade has suddenly lost you money

Could you hedge that in the futures market?

Yes, but the margin on the futures contract may push you into a loss.

Re: Cash Glut in Eurozone Drives Dollar Demand

#54

Post by sumedh »

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.

What is the difference?

Re: Cash Glut in Eurozone Drives Dollar Demand

#55

Post by anm89 »

lumost wrote: post #20
sp332 wrote: post #9

Earlier quoted context omitted.

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.

>without consequence

Lol. No.

That's like saying "the US military is part of the government so it can bomb Canada without consequences"

Being related to a government does not absolve you of all consequences of your actions.

Re: Cash Glut in Eurozone Drives Dollar Demand

#56

Post by chewz »

pezzana wrote: post #27

> Cash-rich eurozone banks are rushing to change their euros into dollars by the end of the year, driving a key measure of demand for the greenback. > The interest rates on three-month euro cross-currency basis swaps, in which one party borrows a currency and lends their own in return, have turned more negative in recent weeks. That means traders in Europe are paying a premium to exchange excess euros for dollars. De…

Dollar strength is nicely explained by Brent Johnson's Dollar Milkshake Theory.

https://www.youtube.com/watch?v=P4lz2NF6qkc

And more broadly with zombification of EU economy and balance sheet recession as explained in Richard Koo The Holy Grail of Economics.

https://www.goodreads.com/en/book/show/3689019-the-holy-grai...

The dollar in this situation is just less bad then other currencies. There is no broad demand for gold because no one has gold-denominated debts.

And Weimar style hyperinflation had always been a fantasy (plus no one mentions that Weimar economy was huge impulse for modernization of German industry at the time).

Re: Cash Glut in Eurozone Drives Dollar Demand

#57

Post by pjc50 »

pezzana wrote: post #27

> Cash-rich eurozone banks are rushing to change their euros into dollars by the end of the year, driving a key measure of demand for the greenback. > The interest rates on three-month euro cross-currency basis swaps, in which one party borrows a currency and lends their own in return, have turned more negative in recent weeks. That means traders in Europe are paying a premium to exchange excess euros for dollars. De…

> gold is about the same price in nominal terms that it was ten years ago

Wouldn't that indicate it working as an inflation hedge? :) But yes, you're absolutely right, I bought some gold half-sovereigns as a chaos hedge back in 2008 and occasionally note the lack of significant action in their price. Nice shiny objects, though.

People talking about inflation on the internet are mostly stopped clocks endlessly repeating a narrative to each other. If you look out the window at some real prices you can see there's been a real supply shock but the dollar economy remains absolutely central.

Re: Cash Glut in Eurozone Drives Dollar Demand

#58

Post by pjc50 »

rsync wrote: post #24
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…

"What puzzels me is that it should be the other way around when you take inflation into account ..." You're not taking into account the very real risk that the Euro doesn't exist in 5 or 10 or 20 years. Many, many people in (PIGS)[1] do not appreciate being tied to the deutschemark. [1] No offense meant.

The most plausible time for this was 2008, and despite the worst possible circumstances Greece chose not to exit.

Re: Cash Glut in Eurozone Drives Dollar Demand

#59

Post by martinko »

pjc50 wrote: post #57
pezzana wrote: post #27

> Cash-rich eurozone banks are rushing to change their euros into dollars by the end of the year, driving a key measure of demand for the greenback. > The interest rates on three-month euro cross-currency basis swaps, in which one party borrows a currency and lends their own in return, have turned more negative in recent weeks. That means traders in Europe are paying a premium to exchange excess euros for dollars. De…

> gold is about the same price in nominal terms that it was ten years ago Wouldn't that indicate it working as an inflation hedge? :) But yes, you're absolutely right, I bought some gold half-sovereigns as a chaos hedge back in 2008 and occasionally note the lack of significant action in their price. Nice shiny objects, though. People talking about inflation on the internet are mostly stopped clocks endlessly repeati…

> > gold is about the same price in nominal terms that it was ten years ago > Wouldn't that indicate it working as an inflation hedge?

No, you want it to hold value in real terms.

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