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Cash Glut in Eurozone Drives Dollar Demand

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Re: Cash Glut in Eurozone Drives Dollar Demand

#61

Post by thow-58d4e8b »

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…

Very simple

They count on the following set of assumptions:

* The inflation we're seeing is transitory, and almost all of it has already materialized

* FED will give in to the political pressure and increase interest rates

* ECB is more isolated from politics and will not

Re: Cash Glut in Eurozone Drives Dollar Demand

#62

Post by thow-58d4e8b »

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 chance of seeing Eurobonds and EU-wide unemployment fund is significantly higher than any breakup of Eurozone

Re: Cash Glut in Eurozone Drives Dollar Demand

#63

Post by lkrubner »

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…

"What gives is that the Fed isn't printing money and lacks the authority to do so."

The Feds only job is to oversee the creation of new money. It was given that power by Congress in 1913:

https://en.wikipedia.org/wiki/History_of_central_banking_in_...

"The Federal Reserve System — also known as the Federal Reserve or simply as the Fed — is the central banking system of the United States today. The Federal Reserve's power developed slowly in part due to an understanding at its creation that it was to function primarily as a reserve, a money-creator of last resort to prevent the downward spiral of withdrawal/withholding of funds which characterizes a monetary panic."

Re: Cash Glut in Eurozone Drives Dollar Demand

#64

Post by dragonwriter »

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…

> What gives is that the Fed isn't printing money and lacks the authority to do so.

This is narrowly literally true of physical currency (the Bureau of Engraving and Printing prints the Federal Reserve Notes that are US currency, the Fed just distributes them), but it otherwise completely misses the point of money creation via monetary policy.

Re: Cash Glut in Eurozone Drives Dollar Demand

#65

Post by xiphias2 »

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 failing as an inflation hedge because Bitcoin is much more liquid and easier to transport through space.

I myself took part of the system of biying ,,physical'' gold eithout really touching it myself, thereby helping the system of paper gold.

Re: Cash Glut in Eurozone Drives Dollar Demand

#66

Post by ben_w »

pjc50 wrote: post #58
rsync wrote: post #24

Earlier quoted context omitted.

"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.

While I also have no reason to actually expect the Euro to disappear in such a timescale, there is a letter whose keywords I can’t remember well enough to Google, which went something like:

"""If you asked us what our biggest foreign policy concerns were in 1900, we would have told you to worry about war with the British Empire and keep close to France.

In 1920, we would’ve been friends with the British, and Germany would be crushed and humiliated.

In 1940, we’d be at war with Germany and it wouldn’t be a one-sided kerb-stomp[0], and we’d be allied with the Soviets against them.

In 1970, we’d be friends with the Germans and in an Armageddon race against the Soviets.

In 1985, the Soviets seemed unassailable but at least we weren’t going to blow each other into radioactive glass.

In 1992, the Soviets were gone."""

[0] None of this language is an exact quote, but especially not this bit. I think the original dates were aligned on either decades or 20s of years?

Re: Cash Glut in Eurozone Drives Dollar Demand

#67

Post by Rexxar »

dragonwriter wrote: post #31
Rexxar wrote: post #17

Earlier quoted context omitted.

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.

Negative interest rates mean that banks get extra money for taking short term loans to cover reserve shortfalls, which sounds a lot like having better-than-free money shoveled at them.

They don't take this loans from ECB, but from other banks that don't want to let their money on central bank account.

Re: Cash Glut in Eurozone Drives Dollar Demand

#68

Post by SantalBlush »

sumedh wrote: post #54
SantalBlush wrote: post #10

Earlier quoted context omitted.

They are not getting paid, because those are nominal interest rates, not real interest rates.

What is the difference?

The nominal interest rate doesn't account for inflation. Suppose countries A and B have nominal rates of -1% and 2%, respectively. Now suppose their inflation rates are 2% and 6%. That makes their real interest rates -3% and -4%, so if you borrow from country A and park the money in country B, you are losing money despite B having a higher nominal rate.

Moreover, what OP is describing (infinite money mechanism) is an arbitrage situation, so any risk-free profit opportunity would quickly vanish and parity would be reached.

Re: Cash Glut in Eurozone Drives Dollar Demand

#69

Post by Rexxar »

neilwilson wrote: post #43
Rexxar wrote: post #17

Earlier quoted context omitted.

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.

And the bank who had the dollars, why would they want money on account at the ECB on which they get charged? It's an exchange, not a conversion remember.

They have probably other reasons to buy euros (because they need them, not to put them on their ecb account). It's an exchange as you say, every participant has its own reasons to trade.

Re: Cash Glut in Eurozone Drives Dollar Demand

#70

Post by bko »

pmorici wrote: post #34
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…

"What gives is that the Fed isn't printing money and lacks the authority to do so. QE is not a printing press. It doesn't conjure money into being. QE can't cause inflation and its effects on long-term interest rates are questionable at best." You can go to the feds website and see the dollar amount of bonds they are buying every month. Where exactly do you think this money comes from? They buy these bonds with newly…

The poster is also mixing up a lot of concepts. There's a glut of cash worldwide so naturally that affects European banks as well, and they may choose to put it in USD since their rates are negative.

I like how someone can read a story about banks having too much money and not being able to lend it out fast enough, resorting to parking it in an incredibly low yield asset and the take away is "aha! see inflation is not and will not be a problem! Central banks don't actually print money"

Gold may be a shitty inflation hedge this go-around. But the stock market doesn't appear to be. Do you think its weird the stock market is up 30% from the peak prior to a global pandemic? Where do you think that money came from, or is that just optimism, because you know, we all handled this pandemic so well?

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