6 ms·

> 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 inte

> 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. Demand for dollars is on a tear, sending the value of the dollar higher. You can see this in the DXY, an index of the dollar's value against a basket of other currencies: https://www.tradingview.com/chart/?symbol=dxy https://www.tradingview.com/chart/?symbol=dxy This inconvenient fact about the strengthening dollar is swept under the rug by those focused on inflation and their claims that the US is headed for 1970s stagflation at best, or Weimar 1920s hyperinflation at worst. Also conveniently swept under the rug are the deeply negative yields on 10-, 20-, and 30-year treasuries. And then there's gold, which has failed spectacularly as an inflation hedge. If the inflation threat is real, gold doesn't give a flip about it because the price hasn't moved in one year. For that matter gold is about the same price in nominal terms that it was ten years ago. These three markets, gold, treasuries, and the dollar, don't fit the money printer go brrr narrative. What gives? 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. The dollar, debt, and gold markets are signaling that the next major move is toward slower growth and lower inflation. Maybe a lot lower. Whatever the Fed announces or doesn't announce tomorrow is mostly theater.

landemva 5y ago
I thought Treasury stopped issuing longer term notes some years ago. Can buy up to 10 years here https://www.treasurydirect.gov/indiv/products/prod_tnotes_glance.htm https://www.treasurydirect.gov/indiv/products/prod_tnotes_gl... Gold was captured and centralized in WW2. Formalized with Bretton Woods. Formally repudiated by Nixon in 1971. Gold and silver demonetization has been happening for decades and the gold bugs can't see it. Fed hot air is stupid show and provides reporters something to publish.
- lettergram 5y ago
  I find it interesting Russia has 5x their reserves of gold since 2008 https://tradingeconomics.com/russia/gold-reserves https://tradingeconomics.com/russia/gold-reserves and appears to be divesting form the dollar https://www.cnbc.com/2021/06/03/russia-to-remove-dollar-assets-from-national-wealth-fund.html https://www.cnbc.com/2021/06/03/russia-to-remove-dollar-asse... China has also 4x the reserved gold since 2008 https://tradingeconomics.com/china/gold-reserves https://tradingeconomics.com/china/gold-reserves That being said, I generally agree the "gold standard" has been shattered. That said, the future is likely something like crypto that can be tracked and monitored closely.
splittingTimes 5y ago
The scandals if the last 5-10 years showed that Libor - interest rates ISDAfix - swaps Platts - oil prices WM/Reuters - FX High-Frequency Trading - equities Commodities - Gold, Silver Stock indices Are all rigged. So these markets will not give you a truthful signal on what is going on.
- wsc981 5y ago
  Yep ... https://twitter.com/wmiddelkoop/status/1470997851052429320 https://twitter.com/wmiddelkoop/status/1470997851052429320 These companies that manipulate the commodity prices, they occasionally settle or are forced to pay some (relatively) small amount of money as punishment and then they continue business as usual. Because apparently the benefits outweigh the costs ...
pmorici 5y ago
"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 created money. In the modern system they don't literally print paper money they do it through the expansion of credit. Their bond buying absolutely explains low bond yields. https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/treasury-securities/treasury-securities-operational-details https://www.newyorkfed.org/markets/domestic-market-operation...
- BozeWolf 5y ago
  Commercial Banks print money. Central banks dont do that. Commercial banks create money with loans. If you pay back a loan, your money is removed from the system. Read this: https://themacrocompass.substack.com/p/tmc-6-all-they-told-you-about-printing https://themacrocompass.substack.com/p/tmc-6-all-they-told-y... Banks wont lend (=print) more because of risk/reward ratios. Credit worthiness and yields. I like the terminology “inside money” and “outside money” as well.
  - pmorici 5y ago
    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 else with. Bond buying drives down rates and to the extent rates are kept low because of the bond buying causes other assets like stocks and real-estate to inflate in price because instead of buying another bond the investor buys some other kind of asset. People then take out loans collateralized by these inflated assets and there is your inflation. So long as you always keep total borrowing on an uptrend over time you basically create permanent inflation.
chewz 5y ago
Dollar strength is nicely explained by Brent Johnson's Dollar Milkshake Theory. https://www.youtube.com/watch?v=P4lz2NF6qkc https://www.youtube.com/watch?v=P4lz2NF6qkc And more broadly with zombification of EU economy and balance sheet recession as explained in Richard Koo The Holy Grail of Economics. https://www.goodreads.com/en/book/show/3689019-the-holy-grail-of-macroeconomics https://www.goodreads.com/en/book/show/3689019-the-holy-grai... The dollar in this situation is just less bad then other currencies. There is no broad demand for gold because no one has gold-denominated debts. And Weimar style hyperinflation had always been a fantasy (plus no one mentions that Weimar economy was huge impulse for modernization of German industry at the time).
pjc50 5y ago
> gold is about the same price in nominal terms that it was ten years ago Wouldn't that indicate it working as an inflation hedge? :) But yes, you're absolutely right, I bought some gold half-sovereigns as a chaos hedge back in 2008 and occasionally note the lack of significant action in their price. Nice shiny objects, though. People talking about inflation on the internet are mostly stopped clocks endlessly repeating a narrative to each other. If you look out the window at some real prices you can see there's been a real supply shock but the dollar economy remains absolutely central.
- martinko 5y ago
  > > gold is about the same price in nominal terms that it was ten years ago > Wouldn't that indicate it working as an inflation hedge? No, you want it to hold value in real terms.
- impendingchange 5y ago
  I think it indicates that the gold price is manipulated. If the cost of milk has gone up, why hasn't the cost of gold?
lkrubner 5y ago
"What gives is that the Fed isn't printing money and lacks the authority to do so." The Feds only job is to oversee the creation of new money. It was given that power by Congress in 1913: https://en.wikipedia.org/wiki/History_of_central_banking_in_the_United_States#1907–1913:_Creation_of_the_Federal_Reserve_System https://en.wikipedia.org/wiki/History_of_central_banking_in_... "The Federal Reserve System — also known as the Federal Reserve or simply as the Fed — is the central banking system of the United States today. The Federal Reserve's power developed slowly in part due to an understanding at its creation that it was to function primarily as a reserve, a money-creator of last resort to prevent the downward spiral of withdrawal/withholding of funds which characterizes a monetary panic."
dragonwriter 5y ago
> What gives is that the Fed isn't printing money and lacks the authority to do so. This is narrowly literally true of physical currency (the Bureau of Engraving and Printing prints the Federal Reserve Notes that are US currency, the Fed just distributes them), but it otherwise completely misses the point of money creation via monetary policy.
xiphias2 5y ago
Gold is failing as an inflation hedge because Bitcoin is much more liquid and easier to transport through space. I myself took part of the system of biying ,,physical'' gold eithout really touching it myself, thereby helping the system of paper gold.
_xnmw 5y ago
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.

landemva 5y ago

I thought Treasury stopped issuing longer term notes some years ago. Can buy up to 10 years here https://www.treasurydirect.gov/indiv/products/prod_tnotes_glance.htm https://www.treasurydirect.gov/indiv/products/prod_tnotes_gl... Gold was captured and centralized in WW2. Formalized with Bretton Woods. Formally repudiated by Nixon in 1971. Gold and silver demonetization has been happening for decades and the gold bugs can't see it. Fed hot air is stupid show and provides reporters something to publish.

lettergram 5y ago
I find it interesting Russia has 5x their reserves of gold since 2008 https://tradingeconomics.com/russia/gold-reserves https://tradingeconomics.com/russia/gold-reserves and appears to be divesting form the dollar https://www.cnbc.com/2021/06/03/russia-to-remove-dollar-assets-from-national-wealth-fund.html https://www.cnbc.com/2021/06/03/russia-to-remove-dollar-asse... China has also 4x the reserved gold since 2008 https://tradingeconomics.com/china/gold-reserves https://tradingeconomics.com/china/gold-reserves That being said, I generally agree the "gold standard" has been shattered. That said, the future is likely something like crypto that can be tracked and monitored closely.

splittingTimes 5y ago

The scandals if the last 5-10 years showed that Libor - interest rates ISDAfix - swaps Platts - oil prices WM/Reuters - FX High-Frequency Trading - equities Commodities - Gold, Silver Stock indices Are all rigged. So these markets will not give you a truthful signal on what is going on.

wsc981 5y ago
Yep ... https://twitter.com/wmiddelkoop/status/1470997851052429320 https://twitter.com/wmiddelkoop/status/1470997851052429320 These companies that manipulate the commodity prices, they occasionally settle or are forced to pay some (relatively) small amount of money as punishment and then they continue business as usual. Because apparently the benefits outweigh the costs ...

pmorici 5y ago

"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 created money. In the modern system they don't literally print paper money they do it through the expansion of credit. Their bond buying absolutely explains low bond yields. https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/treasury-securities/treasury-securities-operational-details https://www.newyorkfed.org/markets/domestic-market-operation...

BozeWolf 5y ago
Commercial Banks print money. Central banks dont do that. Commercial banks create money with loans. If you pay back a loan, your money is removed from the system. Read this: https://themacrocompass.substack.com/p/tmc-6-all-they-told-you-about-printing https://themacrocompass.substack.com/p/tmc-6-all-they-told-y... Banks wont lend (=print) more because of risk/reward ratios. Credit worthiness and yields. I like the terminology “inside money” and “outside money” as well.
- pmorici 5y ago
  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 else with. Bond buying drives down rates and to the extent rates are kept low because of the bond buying causes other assets like stocks and real-estate to inflate in price because instead of buying another bond the investor buys some other kind of asset. People then take out loans collateralized by these inflated assets and there is your inflation. So long as you always keep total borrowing on an uptrend over time you basically create permanent inflation.

chewz 5y ago

Dollar strength is nicely explained by Brent Johnson's Dollar Milkshake Theory. https://www.youtube.com/watch?v=P4lz2NF6qkc https://www.youtube.com/watch?v=P4lz2NF6qkc And more broadly with zombification of EU economy and balance sheet recession as explained in Richard Koo The Holy Grail of Economics. https://www.goodreads.com/en/book/show/3689019-the-holy-grail-of-macroeconomics https://www.goodreads.com/en/book/show/3689019-the-holy-grai... The dollar in this situation is just less bad then other currencies. There is no broad demand for gold because no one has gold-denominated debts. And Weimar style hyperinflation had always been a fantasy (plus no one mentions that Weimar economy was huge impulse for modernization of German industry at the time).

pjc50 5y ago

> gold is about the same price in nominal terms that it was ten years ago Wouldn't that indicate it working as an inflation hedge? :) But yes, you're absolutely right, I bought some gold half-sovereigns as a chaos hedge back in 2008 and occasionally note the lack of significant action in their price. Nice shiny objects, though. People talking about inflation on the internet are mostly stopped clocks endlessly repeating a narrative to each other. If you look out the window at some real prices you can see there's been a real supply shock but the dollar economy remains absolutely central.

martinko 5y ago
> > gold is about the same price in nominal terms that it was ten years ago > Wouldn't that indicate it working as an inflation hedge? No, you want it to hold value in real terms.
impendingchange 5y ago
I think it indicates that the gold price is manipulated. If the cost of milk has gone up, why hasn't the cost of gold?

lkrubner 5y ago

"What gives is that the Fed isn't printing money and lacks the authority to do so." The Feds only job is to oversee the creation of new money. It was given that power by Congress in 1913: https://en.wikipedia.org/wiki/History_of_central_banking_in_the_United_States#1907–1913:_Creation_of_the_Federal_Reserve_System https://en.wikipedia.org/wiki/History_of_central_banking_in_... "The Federal Reserve System — also known as the Federal Reserve or simply as the Fed — is the central banking system of the United States today. The Federal Reserve's power developed slowly in part due to an understanding at its creation that it was to function primarily as a reserve, a money-creator of last resort to prevent the downward spiral of withdrawal/withholding of funds which characterizes a monetary panic."

dragonwriter 5y ago

> What gives is that the Fed isn't printing money and lacks the authority to do so. This is narrowly literally true of physical currency (the Bureau of Engraving and Printing prints the Federal Reserve Notes that are US currency, the Fed just distributes them), but it otherwise completely misses the point of money creation via monetary policy.

xiphias2 5y ago

Gold is failing as an inflation hedge because Bitcoin is much more liquid and easier to transport through space. I myself took part of the system of biying ,,physical'' gold eithout really touching it myself, thereby helping the system of paper gold.

_xnmw 5y ago

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.