Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Cash Glut in Eurozone Drives Dollar Demand

wsj.com

Post reply on HN
Print view View original

41–50 of 81 posts

Re: Cash Glut in Eurozone Drives Dollar Demand

#41

Post by neilwilson »

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 get paid to borrow and then paid to deposit what they just borrowed. Anyone see a problem with this risk-free infinite money mechanism?"

It's an exchange not a conversion, which means there has to be an equal and opposite flow in the other direction.

Euros borrowed cannot be put on deposit at the Fed because the Fed uses dollars. So there has to be an exchange with somebody who had Fed dollar deposits, and wants Euro deposits.

Re: Cash Glut in Eurozone Drives Dollar Demand

#42

Post by [deleted] »

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…

[deleted]

Re: Cash Glut in Eurozone Drives Dollar Demand

#43

Post by neilwilson »

Rexxar wrote: post #17
ummonk wrote: post #15

Earlier quoted context omitted.

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.

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.

Re: Cash Glut in Eurozone Drives Dollar Demand

#44

Post by pmorici »

BozeWolf wrote: post #38
pmorici wrote: post #34

Earlier quoted context omitted.

"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…

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 else with. Bond buying drives down rates and to the extent rates are kept low because of the bond buying causes other assets like stocks and real-estate to inflate in price because instead of buying another bond the investor buys some other kind of asset. People then take out loans collateralized by these inflated assets and there is your inflation. So long as you always keep total borrowing on an uptrend over time you basically create permanent inflation.

Re: Cash Glut in Eurozone Drives Dollar Demand

#45

Post by bserge »

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.

Well, that's what victory looks like. Maybe if it was a military one, the many PIGS would've been slaughtered, but you can't do that nowadays... yet.

I'm sure Doucheland is better off with those lazy subhumans in the union/eurozone than outside it, having potentially hostile nations at the border is never good.

Re: Cash Glut in Eurozone Drives Dollar Demand

#46

Post by landemva »

pphysch wrote: post #14
ViVr wrote: post #8

Earlier quoted context omitted.

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 b…

For item 2, you may want to consider how the Fed stepped in to hush up the reverse repo inter-bank lending in Fall 2019. That rolled into 2020 bailouts.

Re: Cash Glut in Eurozone Drives Dollar Demand

#47

Post by sebow »

I'm glad that my country hasn't switched to the disastrous euro despite being in EU.It's not for every country and economy, and in dire times(like these days) it's very unstable.

When I (and many other euroskeptics) said that eurozone in decline and you de facto had a recession in some european countries(See germany) BEFORE covid(looking back from at least 2018 through 2019, ironically slowing down due to covid), people "chuckled" because there was no press agreeing with this narrative.Yet a lot of european banks and institutions (DB,etc) had a lot of problems internally, and euro was mainly growing/floating due to developing parts.

I struggle to see how the situation improved on a continental-scale considering the fact that we've been locking down our society for 2 years, whereas China, Africa,even North America, all don't or didn't have nowhere near as many restrictions.

Re: Cash Glut in Eurozone Drives Dollar Demand

#48

Post by namdnay »

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?

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

Re: Cash Glut in Eurozone Drives Dollar Demand

#49

Post by im3w1l »

neilwilson wrote: post #39
pmorici wrote: post #34

Earlier quoted context omitted.

"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…

" They buy these bonds with newly created money. " They buy the bonds with different bonds. One bond is a (say) 25 year bond at 2.5%, the other is a perpetual bond at federal funds rate that can only be held by those with a Federal Reserve account. And all that does is change the composition of the asset side of a bank meaning they get less free income.

The perpetual bond is arguably money.

Re: Cash Glut in Eurozone Drives Dollar Demand

#50

Post by im3w1l »

namdnay wrote: post #48
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?

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?
Post reply on HN