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Cash Glut in Eurozone Drives Dollar Demand

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Re: Cash Glut in Eurozone Drives Dollar Demand

#71

Post by JumpCrisscross »

martinko wrote: post #51
pmorici wrote: post #44

Earlier quoted context omitted.

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.

> issue with reserves is that they are not money

When talking about money and banking, the word "money" is useless at best.

Reserves, Federal Reserve notes (i.e. paper money), coins, deposits, Treasuries, commercial paper, gold and wampum are each money. Central banks converting Treasuries and mortgage-backed securities into reserves lets commercial banks create deposits at greater scale. That ceteris paribus increases aggregate demand which can put pressure on broader price levels.

Re: Cash Glut in Eurozone Drives Dollar Demand

#72

Post by JumpCrisscross »

dragonwriter wrote: post #30
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?

> I never agreed for Federal Reserve to shovel free money to euro banks. That's objectively not happening. > When does the working class become a side in the equation of the purpose and value of stable money? When employment becomes part of the Fed mandate.

> When employment becomes part of the Fed mandate

It is [1].

[1] https://www.chicagofed.org/research/dual-mandate/dual-mandat...

Re: Cash Glut in Eurozone Drives Dollar Demand

#73

Post by vlovich123 »

landemva wrote: post #46
pphysch wrote: post #14

Earlier quoted context omitted.

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.

Any articles you can point me to? I can’t find anything about this.

Re: Cash Glut in Eurozone Drives Dollar Demand

#74

Post by bluecalm »

bko wrote: post #70
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…

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 no…

It's natural stocks go up if no one has to sell (because credit is cheap) and economic opportunities are limited. My read on the situation is that stocks were criminally undervalued for decades and just recently started reaching sane valuations. It's a good thing as well. It shouldn't be the case that you can earn 5%+ a year for doing nothing. P/e ratios in 30s and 40s are the new normal at least for big established companies.

Re: Cash Glut in Eurozone Drives Dollar Demand

#75

Post by pezzana »

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…

QE is an asset swap between the Fed and a bank. The Fed gets a treasury and the bank gets a reserve asset. The reserve asset can't leave the banking system. It can't be used to buy stocks. It can't fund pensions. It can't buy yachts or mansions. It doesn't pay salaries.

Almost every source focusses on the purchase of the treasury from the bank while completely ignoring the other side of the ledger.

No money creation occurs in QE. It simply converts a treasury held by a bank into a reserve asset held at the Fed.

It's easy to confirm that QE has little to no effect on treasury yields. Just look at the long term trend in the 30-year. If anything there is a negative correlation between Fed bond buying and long-term bond prices. That's the opposite of what should happen if the Fed were moving the market.

More than that, the long-term channel since the 1980s in yields hasn't budged, despite multiple rounds of QE. That's not control over the market.

Re: Cash Glut in Eurozone Drives Dollar Demand

#76

Post by bko »

bluecalm wrote: post #74
bko wrote: post #70

Earlier quoted context omitted.

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 no…

It's natural stocks go up if no one has to sell (because credit is cheap) and economic opportunities are limited. My read on the situation is that stocks were criminally undervalued for decades and just recently started reaching sane valuations. It's a good thing as well. It shouldn't be the case that you can earn 5%+ a year for doing nothing. P/e ratios in 30s and 40s are the new normal at least for big established…

> My read on the situation is that stocks were criminally undervalued for decades and just recently started reaching sane valuations.

PE ratio is pretty high historically, only higher briefly in 2000 and 2008, both before huge corrections

https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-ea...

Re: Cash Glut in Eurozone Drives Dollar Demand

#77

Post by _xnmw »

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…

If the dollar is getting stronger, then it means the inflation we are seeing now is actually worse than it looks. The fact that inflation is happening on a strengthening dollar actually means that the purchasing power of a dollar in the US is dropping even further than the suggested rate of inflation.

More evidence for the meme that the "real" economy is unrelated to the stock market and the bankers economy. For rich people, everything is going up. For ordinary people, everything is getting worse. These things are not mutually exclusive.

Re: Cash Glut in Eurozone Drives Dollar Demand

#78

Post by ViVr »

vlovich123 wrote: post #73
landemva wrote: post #46

Earlier quoted context omitted.

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.

Any articles you can point me to? I can’t find anything about this.

This september 2019 article from Financial Times might be a start.

Why is the Federal Reserve pouring money into the financial system? Answer lies in short-term issues and structural market changes https://www.ft.com/content/345da16e-d967-11e9-8f9b-77216ebe1....

Re: Cash Glut in Eurozone Drives Dollar Demand

#79

Post by neilwilson »

im3w1l wrote: post #49
neilwilson wrote: post #39

Earlier quoted context omitted.

" 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.

It's all money.

Money things are everywhere and are perpetually created and destroyed all the time.

Re: Cash Glut in Eurozone Drives Dollar Demand

#80

Post by neilwilson »

Rexxar wrote: post #69
neilwilson wrote: post #43

Earlier quoted context omitted.

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.

But that's a fallacy of first use isn't it.

Somebody has to hold the money in their ecb account at some point, because everything is merely an exchange.

You can't get rid of it. All you can do is move it around.

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