Emil calling this the 'Silent Depression,' having started in 07 and currently ongoing is probably one of the best terms I've ever heard to describe this situation.
Emil reiterated a point that he and Jeff often make; the banks involved in the eurodollar system don't print dollars. They create promises to get dollars if and when someone needs them. Question: Is the U.S. responsible for providing those dollars if there is ever a "run" on eurodollar banks? If not, then why did the Fed extent their bailouts to so many international institutions during the liquidity crisis of 2008-2009?
Not necessarily. Those liabilities usually end up causing some interbank default in whatever country or system of countries the eurodollar bank operates in. Not to say it wont end up in America, but not necessarily. The fed does operate a foreign repo pooling facility, which is used to provide liquidity in some treasury and other agency tripple aaa rated securities but not every bank that participates in the eurodollar system has access to the foreign repo pool. There is so 'official' eurodollar system its just a collection of banks outside the US that have access to dollar funding. Some banks have deeper more reliable access than other banks.
@@wajraja5005 I was just wondering why the Fed extended emergency loans to foreign banks via liquidity swaps during the 2008 crisis. Figured we were either responsible for backing up those eurodollars or the Fed just wanted to contain the contagion.
@@EmilKalinowski So the Fed was just trying to provide liquidity to the global market, hence the liquidity swaps. I get a little confussed by the role that U.S. Treasuries play in the whole eurodollar world. I'm starting to understand that the U.S. isn't responsible to backstop the dollar-denominated promises that eurodollar institutions are make to one another, but it seems that U.S. Treasuries are still very much involved in the whole system and when I hear treasuries I think U.S. obligation..... Thanks.
@@2010COpall I usually think of US treasuries as the best low volatility asset where you can find buyers and sellers almost anytime at higher probability than any other asset on the planet. IE the chances of the USA falling as empire is extraordinarily very low compared to other assets which haven't even lasted 100 years before been liquidated to zero.
Let me get this straight... Jeff is saying the global monetary system broke in 2007 and that neither he or anyone else has a clue about how to fix it. Moreover, every current proposal to fix things (like MMT) will only make things worse.
Thereabouts. I would only add that due to the length of time this monetary malaise has festered, it has infected the political and social realms too. What was once a monetary, then financial and economic crisis worsened such that economics and society are also debilitated. A monetary solution is no longer enough, it will require a new social contract between government, households, businesses and the wealthy a la the 1930s and 1860s in the USA and 1930s, 1840s, 1810s in Europe.
I’ve been working on crypto project for last 2 years. I think I have a solution not entirely but pretty good foundation to start up. How can I reach you guys? I watched almost all interviews of Jeff on TH-cam and I’m so impressed with his insights and knowledge about past and current monetary situation. Im happy to share my ideas of solutions whoever is interested.
By listening more if Jeff's work...you will find out that ledger money is way old. Eurodollars were a way for banks to circumvent the legislations of any jurisdiction. Banks are "allowed" to do their "business" as long as it they don't involve "DIRECTLY" the citizens if that jurisdiction where they are legally based.
In a strange kind of way, it is crypto like. Offshore to overcome regulations, distributed across 140+ countries, manage debt contracts for energy and real economy needs of billions of ppl. It took almost 100 years to develop that infrastructure.
@emilkal can you guys do a run through of this again, but in a specific episode about exactly what was going on with the banks during the collapses of bear and Lehman? I'm having trouble finding how JPM "margin" called. That and the differences between the banks under the FED Umbrella and not Also an episode on specifically LTCM would be really good
What is high-powered money? Is it real cash? Or the fundamental cash of the system? @24:00 when Adam is talking about derivatives that these European banks are using to cover their risk. Can someone give me an example of this? Is this as easy as buying US dollars on FX or is there more to this? Who / What are dealers? Banks and hedge funds? @32:00 Jeff says how does cutting the FEd rate help in the situation he layout before. Wouldn't it help because the spread you would need to pay for the Treasury would go down? Because banks earn less with Repo? (assuming all banks park treasuries into the REPO for the yield?) Also when Jeff is talking about theFED only doing swaps with other central banks. How do they not have counterparty risk? Wouldn't they have debt in other countries other than their own? And at the core have the same pathway of failure for counter-party risk? Even though I do understand they have a country backing them. When Jeff is talking about QE @44:30 he says that banks don't give the FED their Treasuries and get pushed out the Risk curve they just buy additional treasuries. Is this why QE doesn't really do anything except inflating Asset prices? Because they just stay on the Bank's Balance Sheets? Thanks for this amazing video, Jeff just providing a Master class on banking.
Question: If the problem was a shortage of the pristine collateral, why did the US Treasury not just issue more treasuries to solve the collateral shortage? Yes, the US Treasury would increase its liability by issuing more treasuries, but it would offset that by taking bank reserves from the banks. As long as the Treasury does not spend this bank reserves and instead, just leaves the reserves in its account at the Federal Reserve, there is no increase in deficit or the national debt.
They'd have to understand how the current/old/dead system was setup. The people that made said system are long-gone. Even with their notes, assuming there were any, their thought process and long-term analysis of where they were and where this would go likely doesn't exist, either. Considering many believe the petrodollar is the standard and not the Eurodollar (assuming Jeff and Emil are correct), it'd be no wonder why no analysis on why 07/08 happened hasn't happened.
Great question. Lack of leadership; lack of insight. Professional corruption and/or incompetence. Also, and perhaps most likely - just banal institutional inertia / bureaucracy.
It's uninformed to date the eurodollar system to postwar. It is an inherent part of economic activity. It deals with time, and all the consequences related to time.
@Emil Kalinowski , do you think that the Eurodollar is directly or indirectly responsible for the economic destruction of the rust belt? It seems that by creating dollar debt (that is to say imaginary "ledger" money + interest) outside the US, you create a vacuum for dollars which can only be cured by selling goods into the US. Since the US could make the goods, you must always be cheaper than the US, so the rust belt loses jobs. If you take away that ability to sell goods to the US (say a war, banking shock), then the US dollar goes up in order to delete the ledger owed + the additional interest. Today's ledger money + interest is always greater than the previous ledger (due to time), so the ledger must grow to delete the old interest or more money must be pumped out of the US via "profits". Thus the US gov't can spend excess money without creating inflation, as their excess money gets pumped outside the US. Only if the pipes in/out of the US get frozen up does the excess money create monetary inflation. So the US can print to give to the rust belt for the jobs lost as long as the vacuum exists. Is that right? What is wrong with that story, if anything?
This guy is a wordsmith - he's saying everything while saying nothing. The Eurodollar = US Global Reserve Currency - its nothing new but I love the way he dresses it up and he's not wrong other than the Eurodollar is not a thing its just the Dollar
Jeff's OK on this subject, but he has no direct measures--only proxies--for black box biparty (nonbank) repo, and that is overwhelmingly the system, with notional outstanding upwards of $20 quadrillion. So he winds up saying contradictory things, above all, that the Fed is irrelevant--but then he's constantly discussing the latest "action" by the Fed. That's a waste of time. Also, his social policy ideas are adolescent. He's still into Bagehot! Hasn't read Sraffa, which means he doesn't know anything about twentieth century economics. Which means he is constantly having to reinvent the wheel, discovering concepts which have been known for a long time.
Fed actions are perception marketing scheme to see which fund, desk, warehouse or bank like entity is going to be gullible enough to believe the FED and blow their balance sheets so that the market participants create "inflationary conditions". The FED in the global market place is irrelevant. Hell even FED actions do not even dictate trades of dollar claims and supply to natural gas and oil contracts that affects funding to European countries of goods and energy which Putin has control over without Powell's academic opinions. Additionally 20th century pre depression era of banking does not exist. That was already organized in the market post WW2. Even in my country we already acquire funding for transporting billions of dollars for transport infrastructure that is probably in China's Development Bank balance sheet to create dollar loans. Powell is not in the equation and we have been doing this for decades. We're all have to accept the truth that the dollar is not a US currency it's a global currency and it's a network of banks that delegate the processes not the FED
On top of that, the quadrillion of dollarized transactions in the large scale of global trade is only important for major transaction on the condition that it has to be liquid enough. A vast majority of those assets are not even liquid enough to be posted on trade balance sheets of warehouses that would be willing to offer US short dated securities(the most liquid asset in the world). If you have assets worth hundreds of billions of dollars that you have to fund to market to service your trades and on the day of that critical trade no one wants to buy your asset at almost any interest rate, your asset is functionally worth zero dollars due to facing liquidation to find the best market price that someone is willing to transact for that asset. The quadrillion is just initial or notional value of the asset. It does not tell you the liquidity profile of the asset, what rate the market is willing to buy(borrow/lend) to get your risk return rate as the profit. No offshore entity with large balance sheets of these assets with the most prestigious mathematicians, asset managers and lawyers is willing to let anyone come to get trillions of dollars worth of banking and asset trading information especially when they benefit from potential inside trading of global traded assets. This is why you have to use the market as a proxy to check the transaction especially at extremely liquid markets to tell you the trade activity of countries, corporations and banks ie what is the lending/borrowing rate for sovereign bonds, eurodollar futures or currency swaps and who is transacting.
Emil and Jeff are the best. They know the system inside out.
Super! Thank you.
Horse crap. They never mentioned crypto until this last month. There are more holes in Jeff’s analysis than Swiss cheese
So insightful, insane that this stuff is free on TH-cam
We are looking to charge exorbitant fees as soon as we figure out how....
Emil calling this the 'Silent Depression,' having started in 07 and currently ongoing is probably one of the best terms I've ever heard to describe this situation.
Fantastic content right here. Emil knows his stuff.
Amazing episode.
Pretty good. Comment for algorithm.
Love it Jeff.
Jeff is the goat
No he is a more of a carnival barker
Emil reiterated a point that he and Jeff often make; the banks involved in the eurodollar system don't print dollars. They create promises to get dollars if and when someone needs them. Question: Is the U.S. responsible for providing those dollars if there is ever a "run" on eurodollar banks? If not, then why did the Fed extent their bailouts to so many international institutions during the liquidity crisis of 2008-2009?
Not necessarily. Those liabilities usually end up causing some interbank default in whatever country or system of countries the eurodollar bank operates in. Not to say it wont end up in America, but not necessarily. The fed does operate a foreign repo pooling facility, which is used to provide liquidity in some treasury and other agency tripple aaa rated securities but not every bank that participates in the eurodollar system has access to the foreign repo pool. There is so 'official' eurodollar system its just a collection of banks outside the US that have access to dollar funding. Some banks have deeper more reliable access than other banks.
@@wajraja5005 I was just wondering why the Fed extended emergency loans to foreign banks via liquidity swaps during the 2008 crisis. Figured we were either responsible for backing up those eurodollars or the Fed just wanted to contain the contagion.
@@2010COpall Perhaps the Fed was worried that the trouble overseas would come to infect the homeland?
@@EmilKalinowski So the Fed was just trying to provide liquidity to the global market, hence the liquidity swaps. I get a little confussed by the role that U.S. Treasuries play in the whole eurodollar world. I'm starting to understand that the U.S. isn't responsible to backstop the dollar-denominated promises that eurodollar institutions are make to one another, but it seems that U.S. Treasuries are still very much involved in the whole system and when I hear treasuries I think U.S. obligation..... Thanks.
@@2010COpall I usually think of US treasuries as the best low volatility asset where you can find buyers and sellers almost anytime at higher probability than any other asset on the planet. IE the chances of the USA falling as empire is extraordinarily very low compared to other assets which haven't even lasted 100 years before been liquidated to zero.
Emil and Jeff are National Treasures: Rock Stars of the Global Financial System. Please please please invite them back.
You are high
How will quantitative tightening change the playbook?
Let me get this straight... Jeff is saying the global monetary system broke in 2007 and that neither he or anyone else has a clue about how to fix it. Moreover, every current proposal to fix things (like MMT) will only make things worse.
Thereabouts. I would only add that due to the length of time this monetary malaise has festered, it has infected the political and social realms too. What was once a monetary, then financial and economic crisis worsened such that economics and society are also debilitated. A monetary solution is no longer enough, it will require a new social contract between government, households, businesses and the wealthy a la the 1930s and 1860s in the USA and 1930s, 1840s, 1810s in Europe.
That’s correct. And the FED is not printing money and they don’t really control mid to long term interest rates.
I’ve been working on crypto project for last 2 years. I think I have a solution not entirely but pretty good foundation to start up. How can I reach you guys? I watched almost all interviews of Jeff on TH-cam and I’m so impressed with his insights and knowledge about past and current monetary situation. Im happy to share my ideas of solutions whoever is interested.
Eurodollars the original DeFi/Crypto?😀
By listening more if Jeff's work...you will find out that ledger money is way old.
Eurodollars were a way for banks to circumvent the legislations of any jurisdiction. Banks are "allowed" to do their "business" as long as it they don't involve "DIRECTLY" the citizens if that jurisdiction where they are legally based.
In a strange kind of way, it is crypto like. Offshore to overcome regulations, distributed across 140+ countries, manage debt contracts for energy and real economy needs of billions of ppl. It took almost 100 years to develop that infrastructure.
@emilkal can you guys do a run through of this again, but in a specific episode about exactly what was going on with the banks during the collapses of bear and Lehman?
I'm having trouble finding how JPM "margin" called. That and the differences between the banks under the FED Umbrella and not
Also an episode on specifically LTCM would be really good
Take a look through our catalogue on TH-cam: th-cam.com/users/EmilKalinowskifeatured
What is high-powered money? Is it real cash? Or the fundamental cash of the system?
@24:00 when Adam is talking about derivatives that these European banks are using to cover their risk. Can someone give me an example of this? Is this as easy as buying US dollars on FX or is there more to this?
Who / What are dealers? Banks and hedge funds?
@32:00 Jeff says how does cutting the FEd rate help in the situation he layout before. Wouldn't it help because the spread you would need to pay for the Treasury would go down? Because banks earn less with Repo? (assuming all banks park treasuries into the REPO for the yield?)
Also when Jeff is talking about theFED only doing swaps with other central banks. How do they not have counterparty risk? Wouldn't they have debt in other countries other than their own? And at the core have the same pathway of failure for counter-party risk? Even though I do understand they have a country backing them.
When Jeff is talking about QE @44:30 he says that banks don't give the FED their Treasuries and get pushed out the Risk curve they just buy additional treasuries. Is this why QE doesn't really do anything except inflating Asset prices? Because they just stay on the Bank's Balance Sheets?
Thanks for this amazing video, Jeff just providing a Master class on banking.
Question: If the problem was a shortage of the pristine collateral, why did the US Treasury not just issue more treasuries to solve the collateral shortage? Yes, the US Treasury would increase its liability by issuing more treasuries, but it would offset that by taking bank reserves from the banks. As long as the Treasury does not spend this bank reserves and instead, just leaves the reserves in its account at the Federal Reserve, there is no increase in deficit or the national debt.
I am betting that they are oblivious to this demand for collateral.
@@EmilKalinowski Thanks for responding, Emil. So, do you think what I suggested was a viable option to solve the problem?
Emil sitting there quietly like he's Alfred watching Batman work
How many games of minesweeper did you play Emil?
why doesnt the fed back test the theories and create a new model?
They'd have to understand how the current/old/dead system was setup. The people that made said system are long-gone. Even with their notes, assuming there were any, their thought process and long-term analysis of where they were and where this would go likely doesn't exist, either. Considering many believe the petrodollar is the standard and not the Eurodollar (assuming Jeff and Emil are correct), it'd be no wonder why no analysis on why 07/08 happened hasn't happened.
Great question. Lack of leadership; lack of insight. Professional corruption and/or incompetence. Also, and perhaps most likely - just banal institutional inertia / bureaucracy.
It's uninformed to date the eurodollar system to postwar. It is an inherent part of economic activity. It deals with time, and all the consequences related to time.
Very unique ?
@Emil Kalinowski , do you think that the Eurodollar is directly or indirectly responsible for the economic destruction of the rust belt? It seems that by creating dollar debt (that is to say imaginary "ledger" money + interest) outside the US, you create a vacuum for dollars which can only be cured by selling goods into the US. Since the US could make the goods, you must always be cheaper than the US, so the rust belt loses jobs.
If you take away that ability to sell goods to the US (say a war, banking shock), then the US dollar goes up in order to delete the ledger owed + the additional interest. Today's ledger money + interest is always greater than the previous ledger (due to time), so the ledger must grow to delete the old interest or more money must be pumped out of the US via "profits". Thus the US gov't can spend excess money without creating inflation, as their excess money gets pumped outside the US. Only if the pipes in/out of the US get frozen up does the excess money create monetary inflation. So the US can print to give to the rust belt for the jobs lost as long as the vacuum exists. Is that right? What is wrong with that story, if anything?
This guy is a wordsmith - he's saying everything while saying nothing. The Eurodollar = US Global Reserve Currency - its nothing new but I love the way he dresses it up and he's not wrong other than the Eurodollar is not a thing its just the Dollar
Jeff looks so much better with his nice haircut and shave.
Really embarrassing that you two weren’t able to pin down Jeff on so many inconsistencies.
Jeff's OK on this subject, but he has no direct measures--only proxies--for black box biparty (nonbank) repo, and that is overwhelmingly the system, with notional outstanding upwards of $20 quadrillion. So he winds up saying contradictory things, above all, that the Fed is irrelevant--but then he's constantly discussing the latest "action" by the Fed. That's a waste of time.
Also, his social policy ideas are adolescent. He's still into Bagehot! Hasn't read Sraffa, which means he doesn't know anything about twentieth century economics. Which means he is constantly having to reinvent the wheel, discovering concepts which have been known for a long time.
Fed actions are perception marketing scheme to see which fund, desk, warehouse or bank like entity is going to be gullible enough to believe the FED and blow their balance sheets so that the market participants create "inflationary conditions". The FED in the global market place is irrelevant. Hell even FED actions do not even dictate trades of dollar claims and supply to natural gas and oil contracts that affects funding to European countries of goods and energy which Putin has control over without Powell's academic opinions.
Additionally 20th century pre depression era of banking does not exist. That was already organized in the market post WW2. Even in my country we already acquire funding for transporting billions of dollars for transport infrastructure that is probably in China's Development Bank balance sheet to create dollar loans. Powell is not in the equation and we have been doing this for decades. We're all have to accept the truth that the dollar is not a US currency it's a global currency and it's a network of banks that delegate the processes not the FED
On top of that, the quadrillion of dollarized transactions in the large scale of global trade is only important for major transaction on the condition that it has to be liquid enough. A vast majority of those assets are not even liquid enough to be posted on trade balance sheets of warehouses that would be willing to offer US short dated securities(the most liquid asset in the world). If you have assets worth hundreds of billions of dollars that you have to fund to market to service your trades and on the day of that critical trade no one wants to buy your asset at almost any interest rate, your asset is functionally worth zero dollars due to facing liquidation to find the best market price that someone is willing to transact for that asset. The quadrillion is just initial or notional value of the asset. It does not tell you the liquidity profile of the asset, what rate the market is willing to buy(borrow/lend) to get your risk return rate as the profit.
No offshore entity with large balance sheets of these assets with the most prestigious mathematicians, asset managers and lawyers is willing to let anyone come to get trillions of dollars worth of banking and asset trading information especially when they benefit from potential inside trading of global traded assets. This is why you have to use the market as a proxy to check the transaction especially at extremely liquid markets to tell you the trade activity of countries, corporations and banks ie what is the lending/borrowing rate for sovereign bonds, eurodollar futures or currency swaps and who is transacting.