Comments by "Curious Crow" (@CuriousCrow-mp4cx) on "Eurodollar University"
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Lol and Hayek wasn't an Economist? Please stop treating serious stuff like a football game. To say Hayek is right about everything is as false to believe that any body is 100% right about everything. What is really sad is that you haven't even read George DiMartino's paper, or you would have realised that mainstream economics as practiced is the dismal science, because it's really more like a religion, and that includes Hayek. Economics as a discipline isn't practised as a social science. It's practised as a social science trying to convince everyone else it's a "hard" science that can produce empirically tested and proven facts without experimentation. That's bunkum. Economics is about human behaviour around resource allocation. But mainstream economics ignores that. It tries to pretend that every one is objective,rational and that they don't suffer from greed or bias. Hayek sadly falls into that groupthink. And his thought was more ideological than empirical. Real Science is supposed to describe or predict reality, not prescribe it. And don't get me wrong. Mainstream economists of whatever school tend to suffer the same problem, because the discipline's founding thinkers were ideologues too, who were concerned with "shoulds" and "oughts" instead of "what is." And we are all ill-served by that, because it ignores human nature. It's why no economic school of thought has yet predicted major economic catastrophes like 1929 and 2008. That fact alone should make you a bit more sceptical about how economics is practiced. I'm not saying to ignore your values, but what I am saying is, that your values are not necessarily reflecting the reality of how economies are run in the real world. Indeed, the idea that markets can be self-regulating is proven to be dubious by the fact alone that we can't get rid of greed and folly as human traits. How seriously can you take any body of thought that ignores greed and folly? Isn't that kind of naive? And Neoliberal economics has failed because of those tendencies, because of naive ideological beliefs. So however much you like a set of beliefs, don't cling in to them too tightly until they have solidly proven their utility in the real world. Because Madame Reality is a real bitch who takes no prisoners when she's ignored. Just ask the UK about Brexit. The people who promoted that were Hayek ideologues too. And the free financial markets flipped them the bird, and the UK economy is still punch drunk from the beating Reality is still giving it. The same will happen to any untested theory. And economics is full of them. So, the heretics in economics need to be listened to, and thought deeply about because they're pointing out the Emperor is a bit naked. But the same can happen when they become the new Emperor.
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What caused the prices to increase? There's Supply-side inflation = egg supply down due to Bird Flu culls of egg-laying hens vs. Demand-side inflation, where too much money is chasing too few goods, for example, luxury goods, like Louis Vuitton luggage. Nobody goes hungry when it's Demand-side inflation, because it's inflation in Discretionary spending. But when it's Supply-side inflation, Non-discretionary spending has to fall, and people are eating porridge for dinner, instead of meat and 2 veg. And the consumption in the economy right now is being mostly done by the top 10% of the Income Distribution. That's not enough consumption to grow the economy. Why? Rich people don't spend all their income as workers and poor people do. Inflation measures the speed of price increases. But that doesn't matter if your wages and other income is keeping up with price increases. So cutting Interest Rates by the Fed doesn't change that relationship. What the Federal Funds Rate cut is doing is signalling to the Market that more lending is needed, but the Market can ignore that signal. Why? They may perceive that it's too risky to lend more at that time. So, unless your credit rating is stellar, you might not get a loan. And even if you do, it will cost more during such times. Anyone with limited or no assets will have experienced falling living standards since 2008. And now, the Wealth Transfer from those people to the Asset Wealthy is so acute, it's killing the job and growth creating parts of the economy. And the Asset Wealthy don't want to stop sucking up more money. It's crazy, but greed is crazy unless it's controlled. And the Fed can't do anything to control it. What's needed is not more 5ax cuts for the wealthy, but more tax increases on speculation, and more tax credits on productive investments in industry. Without that, the US economy is in trouble.
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Sorry, but that's not true. Petrodollasr are the payments in USD for oil. Oil pool producers markets other than other BRICS pay for that oil in USD. So where do OPEC+ put those USD? Straight into the Eurodollar Market, which is worth $12trn in market cap. So sorry, but you are putting the cart before the horse. BRICS+ whilst trading in gold between each other, has to use USD with everyone else. So they put that money into the Eurodollar Market, because it's returns are better than onshore banks. And it's liquidity is greater. So... Petrodollars aren't dead, they're still in the machine that is the global financial system. And, as oil production is falling in response to stagnating global trade, the BRICS countries are trying to diversify in part, but they can't move away from USD, because gold is not as liquid as USD. When Gold can be used in a McDonald's, then things might be different. But until then, USD Is still the global reserve currency that can be sent anywhere in the world in a matter of minutes. That's why you're still in a USD world, and are likely to be for a good while yet. After all, you can be sure all the BRICS+ countries are still holding dollars or US Treasuries. That's how China is paying for all the credit their throwing at their dysfunctional banking system, by selling them, probably to the Japanese. That's just how it is.
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Not true. The West has always traded with the Far East, and it's money would be moving with the merchants travelling from East to West and versa, and the Mediterranean was the region that allowed African commodities to reach the west. And if you looked at a globe how Spain's problems became everyone else's by the logistics of Trades in between markets and the knock on effects of the deflation of silver. Especially as some large commodity suppliers only took payment in Gold or silver like China.
Economic History seems not to inform investors, and so beliefs are thought to trump facts. If you understood NY even bigg traders like China who loved silver and gold, still had to resort to paper money, just like the goldsmiths in Europe. And until gold can travel around the world as fast as bank credits, it is no longer logical to consider it as money. Yes, you can sell it for money, but you can't use it without intermediate steps, costs time and money. And as international money it's lack of liquidity relative to other forms of money, and it's inability to allow national economies to manage inflation easily, makes it a has been as international money. We need to step away from national currencies as international money. And the technology is already there to do so, but the faith isn't. Nobody trusts anyone anymore, so there are few nations which would be prepared to deal in a currency that was open but not controlled by governments. But we haven't evolved to be the kind of world where that would happen.
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Aswath Damodaran just dropped a video entitled "Fed Up With Fed Talk? Central Banks And Interest Rates: Fairy Tales And Facts", where he lays out his data analysis of the impact of the Fed on interest rates and the S & P 500. He concludes:
"There is an ancient story about a rooster named Chanticleer. Chanticleer was anointed the ruler of the farmyard that he lived in, because the other barnyard animals believed that it was his crowing every morning that caused the sun to rise, and that without him, they would be destined for a lifetime of darkness. That belief came from the undeniable fact that every morning,
Chanticleer's crows coincided with sun rise and daylight. The story now takes a dark turn, when one day, Chanticleer sleeps in and the sun rises anyway,
revealing his absence of power.
¨ The Fed (and every other central bank) in my view is like Chanticleer, with investors endowing it with powers to set interest rates and drive stock prices,
since the Fed's actions and market movements seem synchronized.
¤ As with Chanticleer, the truth is that the Fed is acting in response to changes in markets rather than driving those actions, and it is thus more follower than leader.
¤ That said, there is the very real possibility that the Fed may start to believe its own hype, and that hubristic central bankers may decide that they set rates and drive stock markets, rather than the other way around."
He has a link to download his analysis, if anyone wants to look at his evidence. Aswath Damodaran teaches Financial Valuation at NYU Stern, and is an investor himself.
I remember Jeff when you made your case that the Fed is in reality a janitor attempting to clean up after the mess created by others, and cannot proactively prevent their mistakes. This video is just restating that view, and you are not alone in your view. You've been validated by an investor who knows how to value companies and invest wisely in the Stock Market.
Keep going. Ignore the bot farms and the naysayers.
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The Eurodollar markets are the global offshore market for USD capital. In capitalisation it's about 1.5 - 2 times bigger than the US domestic economy. It's no surprise that countries outside the US are following its financial sector cues, because as the major global reserve currency, everyone uses USD to finance their banking sectors. So when securitisation evolved in the US, those securities weren't just sold to US banks. They were sold and used as collateral in the Eurodollar Markets as well. So the risk contagion was global. Hence, the damage done by greedy and credulous US financial institutions in 2008 damaged the global financial system. It's broken it, as can be seen by the stagnation in the global economy since the GFC. And that interdependency was the product of the US-driven financial globalisation initiated by the US after World War II at the Bretton Woods Conference. But, it's arguable that becoming the global financial hegemon then was storing up issues for the US in the future. Being the major global reserve currency is a two-edged sword, because now your economy gets cheaper capital, but you have to supply the global demand for your currency. It's arguable that the US postwar policies were well-meaning but short-sighted, because it became a problem for the US economy thereafter to supply those USD.
it was then the currency was geopoliticised, and caused issues. The postwar boom in the US increased the demand for imports, increasing inflation in the US, to which the response was capital controls to control the amount of USD leaving the US. This had the knock-on effect of reducing the amount of USD available in the rest of the world. That caused problems for everyone else, as they needed USD to pay for their imports, from the US and elsewhere, as well as producing their exports. It was that problem that bought about the evolution of the Eurodollar market between British and continental European banks, lending offshore deposits in their vaults to governments and each other.
Demand for USD outstripped supply, and those banks in London and Europe made a huge profit. It came to the attention of US investment banks, who got around the Capital controls by setting up subsidiaries in London and Europe. Together with the Europeans they connived with governments to keep the trade unofficial and deregulated, which made them even more money, but also made the size of the market opaque to Uncle Sam. This probably contributed to him not taking it that seriously. So, since at least the Mid 20th century, the global economy has been interdependency because of reliance on USD to fund global trade.
Financial globalisation is barely on the radar of those discontented with globalisation. But it exists in the similarities and synchronicities between national economies. E.G. Every developed economy has a housing bubble; trade in debt both consumer and commercial has ballooned, all have embraced privatisation to a degree, and all has problems with wealth inequality, aka the slow death of the middle class and social mobility, etc. Indeed, the level of financialisation within their economies correlates strongly with the degree of their adherence to Neoliberal economic tenets. (It is no surprise the worst impacts are in countries that fully committed themselves to those economic beliefs. The more sceptical, the less corrosion in the economy for the ALICEs - Asset Limited, Income Constrained Employees.) So, bad ideas spread just like viruses, and the chances of recovery depend on national economic beliefs.
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Not really. The Bank of International Settlements has a database which tracks Credit owed to the non-financial sector, and credit owed by governments to the financial sector. Both these swamp the sums central banks deal with. And their balance sheets are central bank reserves, which is purely electronic money. The people who have the wealth is not the central banks, but the banks, non-bank financial institutions, and corporations, and their owners. Central Banks don't control money; the money markets control money. And money comes in 3 types. The smallest in value are Central Bank Reserves, which are only about 3% of the total, then there's Currency aka Cash, which is only about 3 percent of the total, the other 95% is Bank Credit, money that is created by banks, and appears in the ledgers of each bank. This is created by the issuing of loans, and is destroyed when loans are repaid. That's the biggest and most valuable form of money in the world. The Eurodollar Market is the global unregulated wholesale money market, where once banks have run out of deposits to lend out, they go to borrow cheaper capital to make more loans. This is why Debt is the most important financial asset, and why the Global financial system runs on credit. But there's a problem. Money is about trust, and when trust is broken, financial systems stop working efficiently. That's why there are more crises, because there is a perennial shortage of trusted collateral for the loans needed to keep the global financial engine running. Nobody trusts each other anymore since 2008. and so the cost of money should be going up, if governments had let the greedy banks suck up the mess which they created. Instead, governments bailed out the banks, and the cost was placed on tax peers with the promise that their money would regain its value. But, that hasn't happened because the banks are still broken, and theirs not enough collateral to finance the real economy - the one that provides jobs. Instead the banks are funding speculation like crypto, and other asset bubbles. And the illusion of telephone number house prices disguised the issues, the forever climbing stock market, and the Ponzi scheme that is crypto is go up in price, that is assets, but the price of labour is surpressed to encourage works to subsidise their lifestyles with debt. So, central banks are just MCs, not the band who is playing the music, while your life gets harder as your purchasing power goes down. Why? The people who own all the debt and all the securities, and assets are the only ones getting rich. The Central banks are the public face of each country's cabal of plutocrats. The banks are parasites, because debt and speculation chases out productive investment. Debt is sucking the life out of the economy. And if you read some financial history, you would realise that the control of money and debt has been at the centre of a struggle between rulers vs oligarchs and plutocrats throughout the history of finance. It destroyed Greece and Rome, and unless someone, somehow bites the bullet and call a mulligan, it's not going to get better. And if you're an American, both parties know that this is a problem, but the asset owners are in charge because they can fund politicians to do their bidding. So Jay Powell is a messenger boy to the public, to keep them calm, and the Fed follows the credit market, rather than lead it any where. And the Eurodollar Market is controlled by the dealer banks. And there are people who know this, and Jeff is one of them. Michael Hudson is writing a trilogy on the history of debt, and David McWilliams has just written a popular history of money, called "Money". And there are academics now who realise we're just the modern version of the late Roman empire financially. It can be fixed, but the wealthy don't want to give up their power. So, again, perhaps through tariffs, you and everyone else who isn't isn't asset wealthy, are paying the price for that.
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