Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Market Election Year Cycles – What to Expect? - 4th Jun 20
Why Solar Stocks Are Rallying Against All Odds - 4th Jun 20
East Asia Will Be a Post-Pandemic Success - 4th Jun 20
Comparing Bitcoin to Other Market Sectors – Risk vs. Value - 4th Jun 20
Covid, Debt and Precious Metals - 3rd Jun 20
Gold-Silver Ratio And Correlation - 3rd Jun 20
The Corona Riots Begin, US Covid-19 Catastrophe Trend Analysis - 3rd Jun 20 -
Stock Market Short-term Top? - 3rd Jun 20
Deflation: Why the "Japanification" of the U.S. Looms Large - 3rd Jun 20
US Stock Market Sets Up Technical Patterns – Pay Attention - 3rd Jun 20
UK Corona Catastrophe Trend Analysis - 2nd Jun 20
US Real Estate Stats Show Big Wave Of Refinancing Is Coming - 2nd Jun 20
Let’s Make Sure This Crisis Doesn’t Go to Waste - 2nd Jun 20
Silver and Gold: Balancing More Than 100 Years Of Debt Abuse - 2nd Jun 20
The importance of effective website design in a business marketing strategy - 2nd Jun 20
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20

Market Oracle FREE Newsletter


Euro Dollars - The Great Dollar Overhang and Missing M3 Component - Gold and Silver

Currencies / US Dollar Dec 03, 2011 - 03:54 AM GMT

By: Jesse


Best Financial Markets Analysis ArticleThese figures are from the Preliminary BIS Reports of November 2011 which reflect reporting bank positions as of the Jun 2011 quarter. Obviously therefore they do not yet reflect the recent Fed expansion of the swap lines for dollars. The first chart represents the total dollars held by banks as 'foreign currency.'

As you will recall, a 'euro dollar' is any US dollar being held overseas, in currency or in electronic digits, whether in Europe or Asia. I should add that a certain amount of physical dollars in private hands overseas are held outside the official banking system, particularly in the illicit substances and materials sector.

The 'Euro Dollar Gap' Chart which is the second chart reflects the difference between the reporting banks Liabilities and Assets in foreign held dollars. This gap can cause a Eurodollar short squeeze such as we had seen in 2008, and to a lesser extent in 2010. We are also in a eurodollar short squeeze now, as exemplified by the recent Central Bank effort to make more dollar swaps available to Europe. The BIS figures have obviously not yet caught up with this yet, but they will in time.

As discussed previously, one of the reasons that European Banks require Dollars is because customers were demanding the return of their dollar deposited financial instruments while the Banks dollar assets had markedly decreased in value because of bad investments in Dollar denominated Collateralized Debt Obligations.

In the third chart I compare the Fed's Eurodollar figures in the series that was discontinued in the beginning of 2006. Although the lines are relatively similar, it should be noted that the magnitudes of the numbers just do not match, with the BIS reporting significantly higher numbers even though the relative changes in the lines are similar. I do not know, for example, if the Fed was including Central Bank Reserves or not.

But I think one takeaway is that the amount of Eurodollars are significantly higher now than they have ever been as a result of the growth of the dollar bubble in US financialization of debt, much of which had been purchased by European banks.

The gap between Dollar Assets and Liabilities creates short term demand spikes, as we have just recently seen in the actions by the Fed and a few other Central Banks to make more US dollars available in swaps.

There is another set of BIS reports I am examining that render higher figures with current Eurodollars in the neighborhood of 3.2 Trillion. I am trying to figure out what these amounts include that the other measurements do not. In the interim I am using the lower of the two.

The bigger picture is that this enormous growth in Eurodollars is a result of the US financialization, more colloquially known as 'The Credit Bubble' and the US ownership of what is still the world's reserve currency.

I have some queries into BIS to understand if these figures include official reserves held by Central Banks. I do not think they do.

However, IF the dollar is supplanted by something else, or some combinations of things, as the world's reserve currency, there are obviously going to be an excess of US dollars looking for some place to go from their current havens overseas. And it is mostly likely that they will come home to roost.

I am sure that the Fed has a plan to sterilize this expansion in dollars available for domestic use. Whether that plan can work is another matter altogether. I do not believe that there is any precedent for it.

But one thing that is clear to me is that since 2002 'we aren't in Kansas anymore, Toto,' at least with respect to the growth of the US dollar overseas. And I think there is a linkage between this and the rather impressive bull market in gold and silver.

By Jesse

Welcome to Jesse's Café Américain - These are personal observations about the economy and the markets. In providing information, we hope this allows you to make your own decisions in an informed manner, even if it is from learning by our mistakes, which are many.

© 2011 Copyright  Jesse's Café Américain - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules