Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

SELLING OUT OF PRECIOUS METALS AND BUYING BITCOIN…. Very Bad Idea
By: Steve St. Angelo

The Bitcoin Bubble Explained in 4 Charts
By: Jake Weber

VXX Sends an Awesome Message from Another Galaxy
By: Rick Ackerman

Asian Metals Market Update: November-22-2017
By: Chintan Karnani, Insignia Consultants

Gold Seeker Closing Report: Gold and Silver Gain With Stocks
By: Chris Mullen, Gold Seeker Report

Ira Epstein's Metals Video 11 21 2017
By: Ira Epstein

Bitcoin, Bail Ins And Bullion
By: Mike Maloney

Tactics For The Gold Bull Era
By: Stewart Thomson

Dow Peaking? The Quick Guide to Diversifying Your Stock Profits
By: Jeff Clark

What History Says for Gold Stocks in 2018-2019
By: Jordan Roy-Byrne CMT, MFTA

 
Search

GoldSeek Web

 
A Global Eurodollar Shortage


 -- Published: Monday, 27 February 2017 | Print  | Disqus 

By Gordon T Long

The World Bank just released a telling report entitled "Trade Developments in 2016: Policy Uncertainty Weighs on World Trade". Though they deflect the problems in global trade to areas such as excessive regulatory initiatives and policy uncertainty (which is true), what is to be found buried in the appendix are the two un-annotated charts below. I suspect the World Bank didn't compare them directly (they are shown separately) because it would cast a spotlight on an even larger political 'football'.

How does global trade ship ~10% more trade volume but receive ~12% less revenue over a 5 year period? The answer has traditionally been significant improvements in productivity. However, the productivity numbers by country don't even come close to supporting such a premise.

We believe the actual answer is that a strong US dollar is choking global profits and wealth creation because of a dollar shortage and a lack of real global economic growth! It went "critical" when 'TAPER' ended. You can see this inflection point in an endless array of economic charts.

US DOLLAR SHORTAGE HAS CREATED US DOLLAR DEMAND AND EXCHANGE INCREASES

The Bank of International Settlement (BIS) believes the concerns with the US Dollar are now such that it has replaced the VIX as a "Fear Gauge" for global banks.  This development has occurred since QE3 and "TAPER" came to an end in December 2014.   At that time the dollar exploded higher, commodities fell, global trade stalled and emerging markets with ~ 9 Trillion in US dollar denominated debt became saddled with higher debt financing charts on falling revenues.

SINCE “TAPER” ENDED WE HAVE AN ALREADY AGGRAVATED GLOBAL DOLLAR SHORTAGE

The US dollar as the Global Reserve Currency absolutely still dominates world trade payments & settlements. Additionally, the fact that because of the Petrodollar agreement with Saudi Arabia, oil can only be transacted in US dollars, this has assured the required for US dollars around the world in what is termed "Eurodollars".

  • Trade, Shipping Finance, Settlement etc  is conducted in US$
  • World Requires Dollar Credits (Usually Sourced  from US Debt Obligations)

THE REDUCED US TRADE DEFICIT HAS ADDITIONALLY COMPOUNDED A WORSENING PROBLEM!

What many don't fully appreciate is that US debt liabilities become foreign bank assets and as such as part of their capital ratios become a basis for increased foreign fractional reserve lending. Reduced US trade deficits and improving current account deficits place a 'choke hold" on available foreign US denominated  lending.  This is a well documented phenomenon referred to as the "Triffin Paradox".

THE PROBLEM IS TEMPORARILY BEING “HELD TOGETHER” BY THE USE OF US DOLLAR LIQUIDITY SWAPS

Few realize that in a stealth manner Liquidity Swap Agreements are replacing foreign currency funding in the market place with foreign currency credit provided by the central banks.

My friend Thorstein Polleit via The Mises Institute, recently  published the graph below (annotations are mine) and outlined:

The graph shows the Fed’s supply of newly created US dollar liquidity sent to other central banks around the world. It also shows the so-called “euro cross currency basis swap,” which can be interpreted as a “stress indicator”: If it drops into negative territory, it means that euro banks find it increasingly difficult to obtain US dollar credit in the free market place. The Fed’s injection of new US dollar balances into the financial system has helped to reduce the euro currency basis swap. Since late 2016, however, it has started to venture again into negative territory — potentially signaling that euro banks are again heading for trouble.

The financial and economic crisis 2008/2009 has increased further the dependency of the world’s financial system on the US dollar. As early as December 2008, the Fed provided so called “liquidity swap agreements.” Under the latter the Fed is prepared to lend newly created US dollars to other central banks around the globe. For instance, the European Central Bank (ECB) can obtain US dollars from the Fed and lend the funds on to shaky domestic banks in need for US dollar funding. In other words:

Liquidity swap agreements can easily replace foreign currency funding in the market place by foreign currency credit provided by central banks.

Meanwhile, all major central banks around the world — the European Central Bank, the Bank of Japan, the Chinese central bank, the Bank of England, and the Swiss National Bank — have joined the liquidity swap agreement club. They also have agreed to provide their own currencies to all other central banks — in actually unlimited amounts if needed.

It is no wonder, therefore, that credit default concerns in financial markets have declined substantially. Investors feel assured that big banks won’t default on their foreign currency liabilities — as such a credit event is considered politically undesirable, and central banks can simply avoid it by printing up new money.

Watch for the Federal Reserve to soon issue another round of massive US dollar liquidity SWAPS to the ECB.

All of the above are signs that global imbalances have created such distortions and complexity that the global economy is increasingly exposed to the inevitability of a "Black Swan" event!

https://matasii.com/

 


| Digg This Article
 -- Published: Monday, 27 February 2017 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2017



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.