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The Global Dollar Funding Shortage Is Back With A Vengeance And "This Time It's Different"

Tyler Durden's picture




 

The last time the world was sliding into a US dollar shortage as rapidly as it is right now, was following the collapse of Lehman Brothers in 2008. The response by the Fed: the issuance of an unprecedented amount of FX liquidity lines in the form of swaps to foreign Central Banks. The "swapped" amount went from practically zero to a peak of $582 billion on December 10, 2008.

The USD shortage back, and the Fed's subsequent response, was the topic of one of our most read articles of mid-2009, "How The Federal Reserve Bailed Out The World."

As we discussed back then, this systemic dollar shortage was primarily the result of imbalanced FX funding at the global commercial banks, arising from first Japanese, and then European banks' abuse of a USD-denominated asset-liability mismatch, in which the dollar being the funding currency of choice, resulted in a massive matched synthetic "Dollar short" on the books of commercial bank desks around the globe: a shortage which in the aftermath of the Lehman failure manifested itself in what was the largest global USD margin call in history. This is how the BIS described first the mechanics of the shortage:

The accumulation of US dollar assets saddled banks with significant funding requirements, which they scrambled to meet during the crisis, particularly in the weeks following the Lehman bankruptcy. To better understand these financing needs, we break down banks’ assets and liabilities by currency to examine cross-currency funding, or the extent to which banks fund in one currency and invest in another. We find that, since 2000, the Japanese and the major European banking systems took on increasingly large net (assets minus liabilities) on-balance sheet positions in foreign currencies, particularly in US dollars. While the associated currency exposures were presumably hedged off-balance sheet, the build-up of net foreign currency positions exposed these banks to foreign currency funding risk, or the risk that their funding positions (FX swaps) could not be rolled over.

... And then the subsequent global public response:

The severity of the US dollar shortage among banks outside the United States called for an international policy response. While European central banks adopted measures to alleviate banks’ funding pressures in their domestic currencies, they could not provide sufficient US dollar liquidity. Thus they entered into temporary reciprocal currency arrangements (swap lines) with the Federal Reserve in order to channel US dollars to banks in their respective jurisdictions (Figure 7). Swap lines with the ECB and the Swiss National Bank were announced as early as December 2007. Following the failure of Lehman Brothers in September 2008, however, the existing swap lines were doubled in size, and new lines were arranged with the Bank of Canada, the Bank of England and the Bank of Japan, bringing the swap lines total to $247 billion. As the funding disruptions spread to banks around the world, swap arrangements were extended across continents to central banks in Australia and New Zealand, Scandinavia, and several countries in Asia and Latin America, forming a global network (Figure 7). Various central banks also entered regional swap arrangements to distribute their respective currencies across borders.

The amount of the implied dollar short was also calculated by the BIS.

The major European banks’ US dollar funding gap had reached $1.0–1.2 trillion by mid-2007. Until the onset of the crisis, European banks had met this need by tapping the interbank market ($432 billion) and by borrowing from central banks ($386 billion), and used FX swaps ($315 billion) to convert (primarily) domestic currency funding into dollars. If we assume that these banks’ liabilities to money market funds (roughly $1 trillion, Baba et al (2009)) are also short-term liabilities, then the estimate of their US dollar funding gap in mid-2007 would be $2.0–2.2 trillion. Were all liabilities to non-banks treated as short-term funding, the upper-bound estimate would be $6.5 trillion (Figure 5, bottom right panel).

 

One thing to keep in mind as reading the above (and the linked article as a refresher), is that the massive USD synthetic short, and resulting margin call, was entirely due to the actions of commercial banks, with central banks having to step in subsequently and bail them out using any and every (such as FX swaps) mechanism possible.

* * *

Why do we bring all of this up now, nearly 6 years later? Because, as JPM observed over the weekend while looking at the dollar fx basis, the shortage in dollar funding is back and is accelerating at pace not seen since the Lehman collapse.

The good news: said shortage is not quite as acute yet as it was in either 2008/2009 or on November 30 2011 (recall "Here Comes The Global, US-Funded Liquidity Bail Out") when just as Europe was again on the verge of collapse, the Fed re-upped the ante on its global swap lines when it pushed the swap rate from OIS+100 bps to OIS+50 bps.

The bad news: at the current pace of dollar funding needs, it is almost certain that the tumble in the dollar fx basis will accelerate until it hits its practical minimum of - 50 bps, which is the floor as per the Fed-ECB swap line.

But the real news is that unlike the last time, when the global USD funding shortage was entirely the doing of commercial banks, this time it is the central banks' own actions that have led to this global currency funding mismatch - a mismatch that unlike 2008, and 2011, can not be simply resolved by further central bank intervention which happen to be precisely the reason for the mismatch in the first place.

In other words, central banks have managed to corner themselves in yet another policy cul-de-sac, six years after they did everything in their power to undo the last one.

Here is how JPM's Nikolaos Panigirtzoglou frames the problem:

The decline in the cross currency swap basis across most USD pairs in recent months is raising questions regarding a shortage in dollar funding. The fx basis reflects the relative supply and demand for dollar vs. foreign currency funds and a very negative basis currently points to relative shortage of USD funding or relative abundance of funding in other currencies. Such supply and demand imbalances can create big shifts in the fx basis away from its actuarial value of zero. Figure 1 shows that the dollar fx basis weighted across eight DM and EM currencies, declined significantly over the past year to its lowest level since mid 2013, although it remains well above the lows seen during the depths of the Lehman or the Euro debt crisis.

 

It does indeed, for now, however read on for why the current basis reading just shy of -20 bps will almost certainly accelerate until and unless there is a dramatic convergence in the policies of the Fed and the other "developed world" central banks.

First, what are currency and fx swaps, and why does anyone care? "Cross currency swaps and FX swaps encompass similar structures which allow investors to raise funds in a particular currency, e.g. the dollar from other funding currencies such as the euro. For example an institution which has dollar funding needs can raise euros in euro funding markets and convert the proceeds into dollar funding obligations via an FX swap. The only difference between cross currency swaps and FX swaps is that the former involves the exchange of floating rates during the contract term. Since a cross currency swap involves the exchange of two floating currencies, the two legs of the swap should be valued at par and thus the basis should be theoretically zero. But in periods when perceptions about credit risk or supply and demand imbalances in funding markets make the demand for one currency (e.g. the dollar) high vs. another currency (e.g. the euro), then the basis can be negative as a substantial premium is needed to convince an investor to exchange dollars against a foreign currency, i.e. to enter a swap where he receives USD Libor flat, an investor will want to pay Euribor minus a spread (because the basis is negative)."

One read of a substantial divergence from par in the fx basis is that there may be substantial counterparty concerns within the banking system - this was main reinforcing mechanism for the first basis blow out of the basis back in 2008.

Both cross currency and FX swaps are subjected to counterparty and credit risk by a lot more than interest rate swaps due to the exchange of notional amounts. As such the pricing of these contracts is affected by perceptions about the creditworthiness of the banking system. The Japanese banking crisis of the 1990s caused a structurally negative basis in USD/JPY cross currency swaps. Similarly the European debt crisis of 2010/2012 was associated with a sustained period of very negative basis in USD/EUR cross currency swaps.

As noted above, the fundamental reasons for the USD shortage then vs now are vastly different. Back then, financial globalization meant
that "Japanese banks had accumulated a large amount of dollar assets during the 1980s and 1990s. Similarly European banks accumulating a large amount of dollar assets during 2000s created structural US dollar funding needs. The Japanese banking crisis of 1990s made Japanese banks less creditworthy in dollar funding markets and they had to pay a premium to convert yen funding into dollar funding. Similarly the Euro debt crisis created a banking crisis making Euro area banks less worthy from a counterparty/credit risk point of view in dollar funding markets. As dollar funding markets including fx swap markets dried up, these funding needs took the form of an acute dollar shortage."

And as further noted above, while there is no banking crisis (at this moment) unlike virtually every other year in the post-Lehman collapse as commercial banks are flooded in global central bank liquidity (now that central banks are set to inject more liquidity in 2015 than in any prior year, 2008 and 20099 included) the catalyst for the current shortage are central banks themselves:

Given the absence of a banking crisis currently, what is causing negative basis? The answer is monetary policy divergence. The ECB’s and BoJ’s QE coupled with a chorus of rate cuts across DM and EM central banks has created an imbalance between supply and demand across funding markets. Funding conditions have become a lot easier outside the US with QE-driven liquidity injections and rate cuts raising the supply of euro and other currency funding vs. dollar funding. This divergence manifested itself as one-sided order flow in cross currency swap markets causing a decline in the basis.

Who would have ever thought that a stingy Fed could be sowing the seeds of the next financial crisis (don't answer that rhetorical question).

For those who are curious about where this mismatch is manifesting itself in practical terms, look no further than the amount of USD (expensive) vs non-USD (i.e., EUR, i.e., very cheap thanks to NIRP) denominated cross-border debt issuance:

Do we see these funding imbalances in debt issuance? The answer is yes if one looks at cross border corporate issuance. Figure 2 shows how EUR denominated corporate bond issuance by non-European issuers (Reverse Yankee issuance) spiked this year as percentage of total EUR denominated corporate issuance. Similarly Figure 3 shows how Yankee issuance, the share of USD denominated corporate issuance by non-US companies, declined sharply this year. In other words, cross border issuance trends are consistent with higher supply of EUR funding vs. USD funding. We get a similar picture in value terms. Reverse Yankee issuance totaled €47bn YTD which annualized is twice as big as last year’s pace. Yankee issuance totaled $41bn YTD which represents a decline of more than 30% from last year’s annualized pace.

 

Which makes sense: why would US multinationals, already hurting by the surge in the USD on their income statement, also suffer this move on the balance sheet abnd pay about 50 bps more for the same piece of paper issued in Europe? They won't, of course, however in the process they will hedge fx, and push the basis even further into negative territory. JPM explains:

Does this cross border issuance have a currency impact? It depends. For example, if a US company issues in EUR and swaps back into USD to effectively achieve cheaper synthetic USD funding rather than issuing directly in US dollar funding markets, the transaction has no currency impact. This synthetic USD funding especially attractive right now as credit spreads over swaps are much tighter in Europe than in the US by around 40bp-50bp for A-rated corporate currently in intermediate maturities, which more than offsets the negative fx basis. This means there is a significant yield advantage for US companies using synthetic USD funding (i.e. issuing in EUR and swapping back into USD rather than issuing in USD directly). In theory, the USD-EUR credit spread difference of Figure 4 suggests that the fx basis has room to widen by another 20bp, i.e. to decline to -50bp before the yield advantage of synthetic USD funding disappears. For the EURUSD, the basis cannot go below -50bp as this is the floor implied by the ECB’s FX swap line with the Fed.

 

And there you have it: all else equal, there is at least enough downside to push the fx basis as far negative at -50 bps: this would make the USD shortage the most acute it has ever been, at least as calculated by this key metric!  And since this is essentially a risk-free arb for credit issuers, and since there are many more stock buybacks that demand credit funding, one can be certain that the current fx basis print around - 20 bps will most certainly accelerate to a level never before seen, a level which would also hint that something is very broken with the financial system and/or that transatlantic counterparty risk has never been greater.

Unlike us, JPM hedges modestly in its forecast where the basis will end up:

Whether the above YTD trends continue forward is a difficult call to make. The widening of USD vs. EUR credit spreads shown in Figure 4 has the propensity to sustain the strength of Reverse Yankee issuance putting more downward pressure on the basis. On the other hand, this potential downward pressure on the basis should be offset to some extent by Yankee issuance the attractiveness of which increases the more negative the basis becomes.

JPM's punchline:

In all, different to previous episodes of dollar funding shortage such as the ones experienced during the Lehman crisis or during the euro debt crisis, the current one is not driven by banks. It is rather driven by the monetary policy divergence between the US and the rest of the world. This divergence appears to have created an imbalance in funding markets and a shortage in dollar funding. It is important to monitor how this dollar funding shortage and issuance patterns evolve over time even if the currency implications are uncertain.

And to think the Fed's cheerleaders couldn't hold their praise for the ECB's NIRP (as first defined on these pages) policy. Because little did they know that behind the scenes the divergence in Fed and "rest of the world" policy action is leading to two things: i) the fastest emergence of a dollar shortage since Lehman and ii) a shortage which will be arbed to a level not seen since Lehman, and one which assures that over the coming next few months, many will be scratching their heads as to whether there is something far more broken with the financial system than merely an arbed way by US corporations to issue cheaper (hedged) debt in Europe thanks to Europe's NIRP policies.

If and when the market finally does notice this gaping dollar shortage (as is usually the case with the mandatory 3-6 month delay), watch as the Fed will once again scramble to flood the world with USD FX swap lines in yet another desperate attempt to prevent the global dollar margin call from crushing a matched synthetic dollar short which according to some estimates has risen as high as $10 trillion.

Until then, just keep an eye on the Fed's weekly swap line usage, because if the above is correct, it is only a matter of time before they are put to full use once again.

Finally what assures they will be put to use, is that this time the divergence is the direct result of the Fed's actions, and its insistence that despite what is shaping up to be a 1% GDP quarter, that it has to hike rates. Well, as JPM just warned it in not so many words, be very careful what you wish for, and what you end up getting in your desire to telegraph just how "strong" the US economy is.

 

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Sun, 03/08/2015 - 18:17 | 5867800 gdogus erectus
gdogus erectus's picture

Thank got there wasn't a quiz after this article.

"As we discussed back then, this systemic dollar shortage was primarily the result of imbalanced FX funding at the global commercial banks, arising from first Japanese, and then European banks' abuse of a USD-denominated asset-liability mismatch, in which the dollar being the funding currency of choice, resulted in a massive matched synthetic "Dollar short" on the books of commercial bank desks around the globe: a shortage which in the aftermath of the Lehman failure manifested itself in what was the largest global USD margin call in history. "

I think of myself as a pretty smart guy but one there are more than three linkages and schematics are required....my pea brain can't keep up.

I guess this is what "they" count on.

Sun, 03/08/2015 - 18:48 | 5867882 Self-enslavement
Self-enslavement's picture

A lot of propaganda gives me a headache.

Sun, 03/08/2015 - 19:28 | 5867953 boogerbently
boogerbently's picture

Switching from DUST to NUGT.

Sun, 03/08/2015 - 20:34 | 5868062 cnmcdee
cnmcdee's picture

This is a Shemitah Year - it will not disappoint.

(For those who might not know - 'The Shemitah Year : Long Title' by Johnathan Cahn.)

 

The thing I realize is the <entire economy> could be obliterated eventually like Greece, people living in the streets and in tents, macho nutsack cops running all over the place shooting the homeless and the reality is the Fed and the central banks will still fund themselves back into 'solvency.'  The Ron Paul audit showed that $16.7 TRILLION in the 2008 crisis was sent to offshore banks around the world.  That was the entire SIZE OF THE NATIONAL DEBT! 

But it is almost like a bunch of bankers playing a game of monopoly amongst themselves.. it is meaningless to the public. 

Sun, 03/08/2015 - 23:15 | 5868419 Tall Tom
Tall Tom's picture

The thing I realize is the <entire economy> could be obliterated eventually like Greece, people living in the streets and in tents, macho nutsack cops running all over the place shooting the homeless...

 

The people of Greece have no weapons. Not only do many here posting have weapons (peashooting guns which will not penetrate armored vehicles) but even the homeless can get the materials, or already have the materials, to make bombs and poison gases which do penetrate armor. (I go out of my way to teach them.)

 

There are many more homeless hordes than there are macho nutsack cops.

 

Sooner or later a tipping point will be reached. And the homeless have the edge over the people who live in homes as they already know how to survive.

 

Yes it will be a firestorm bloodbath...especially in the urban battlespace.

 

Are you prepared?

Mon, 03/09/2015 - 01:00 | 5868547 Squid-puppets a...
Squid-puppets a-go-go's picture

as money is made more and more worthless and capital increasingly destroyed, the infighting within the oligarchy and their nutsacks will also increase. It looks like one big wall to the little people now, but soon it will look like a pile of bricks

Mon, 03/09/2015 - 01:10 | 5868561 Tall Tom
Tall Tom's picture

Yeah. That is pretty damned sad.

 

It just did not have to turn out this way. But it did. Their own greed does them in. And all of the intellect which they supposedly have just cannot seem to stop those inate, instinctual, genetically hard wired urges.

 

I guess that it is no different between the little people and the oligarchs other than the scale of economies.

 

What a waste.

Mon, 03/09/2015 - 02:36 | 5868634 Squid-puppets a...
Squid-puppets a-go-go's picture

i think greed alone isnt the most pertinent motivating factor. i think just as much is this reckless, relentless competitivity. like james dean racing other hoons to the edge of the cliff. Certainly that seemed the major dynamic in the 2008/9 meltdown when the merchant banks were outrisking each other with derivatives.

america pursuing russia to within 300 yards of its border? Why on gods earth is that remotely necessary from any sane sense of self defence? It isnt of course, its relentless competitivity, a compunction to dominate. Its not so much about greed/gain, its about seeing your rivals downtrodden and humbled

Mon, 03/09/2015 - 08:30 | 5868904 VisionQuest
VisionQuest's picture

New Age education in the U.S.A. teaches children to think of people in ways that don't comport with reality. A syndicated cartoonist, Jimmy Hatlo, made a career of lampooning foibles of the human condition https://duckduckgo.com/?q=Jimmy+Hatlo&iax=1&ia=images

The old funny papers used to teach kids who could read a few things about what it meant to be a grown-up. Are today's young gamers getting the same kind of input?

 

Mon, 03/09/2015 - 09:54 | 5869213 MachoMan
MachoMan's picture

I don't believe it is greed so much as hubris.  Self interest is a part of every human decision.  Differentiating between mere garden variety self interest and its overpowering kissing cousin, greed, can be quite cumbersome.  Frankly, I'm not sure this is a distinction with a difference.

The issue that they're faced with is the same issue all central planners face, power entails the responsibility to make decisions, and humanity is too dynamic and complicated to always choose correctly.  In this regard, you might consider many of the laws, propaganda, entrenchment, consolidation, and other power moves as ways to simplify the decision making process...  narrow the possibilities, in other words.  The ultimate goal of all political acts is to force your opponents into binary decisions, either of which benefit you.

The neat part about power and hubris is that if you have enough power, then the consequences of your hubris might be mitigated...  this is the whole "changing the rules of the game while we're playing" issue that most of us grew out of during grade school.  Eventually though, bad decisions compound, much like the debt so often used to make those bad decisions.

PS, it does have to turn out this way...  but I believe that society is developing the tools to break the cycle.  Fortunately or unfortunately, shovels don't dig ditches themselves.   

Mon, 03/09/2015 - 01:08 | 5868559 Zero Point
Zero Point's picture

Only a banker could make TEOTWAWKI boring.

Sun, 03/08/2015 - 18:52 | 5867891 orez65
orez65's picture

"... my pea brain can't keep up"

It's not your brain it is the most clever scam ever: "fiat money and fractional reserve banking"

If "real money", gold and silver, was used and fractional reserve banking was outlawed it would be very simple and honest.

But then nations would not be able to deficit spend without limit and bankers would not be able to steal.

Sun, 03/08/2015 - 19:19 | 5867943 illyia
illyia's picture

F*cking homework.

Sun, 03/08/2015 - 20:25 | 5868059 Bad Lieutenant
Bad Lieutenant's picture

Can someone clearify exactly what "same piece of paper" is being referred to in the part:

Which makes sense: why would US multinationals, already hurting by the surge in the USD on their income statement, also suffer this move on the balance sheet abnd pay about 50 bps more for the same piece of paper issued in Europe?

Kindly choose your words carefully.

Sun, 03/08/2015 - 22:38 | 5868325 TimmyM
TimmyM's picture

Piece of paper means issue corporate bonds in dollars rather than euros.

And one thing not mentioned in the article is that sovereign collateral used to cover margin calls in the swap market at negative yields has negative carry and contributes to the negative basis of the fx swap.

Sun, 03/08/2015 - 23:02 | 5868402 willwork4food
willwork4food's picture

Which, in English means massive deflation in the US..right?

 

Sun, 03/08/2015 - 23:22 | 5868434 Tall Tom
Tall Tom's picture

A massive deflation which the US Government cannot allow as the income stream from taxation dries up. Then they will have to print to pay their bills which will take away real wealth (Goods and services) from the economy which, subsequently, will result in price inflation.

 

Or they will have to default upon the underfunded and unfunded liabilities which is political suicide.

 

Right?

Sun, 03/08/2015 - 23:27 | 5868444 willwork4food
willwork4food's picture

I still don't know for sure whether to bet against massive deflation or inflation. Logically it would be deflation first (elite vultures @ work scooping up the remaining economic carcass), then inflation (due to subsequent lack of goods). That is what I'm going with for now.

 

Mon, 03/09/2015 - 02:35 | 5868633 All Risk No Reward
All Risk No Reward's picture

That is correct.  TBTF&Jail means just the right size to annihilate everyone else and take over the world.

They are looting trillions now.  When that operation is over, they will then crash the economy by restricting money from it.  Of course, they'll make money ont he way down, too.  They will then buy up the carcass of the West for pennies on the dollar.  This will take some time.  Part of this operation is to zero out bank and investment accounts over time - maybe not zero, but some harsh haircuts over time.  Once that that operation is over, their TBTF&Jail corporate fronts of the Debt Money Monopoly will be completely bankrupt.  They will then break the bond market (which already served its purpose to hand reality over to the Debt Money Monopoly) and hyperinflate.  This operation will "balance the books," as it were and then comes the long grind of the "New World Order" of Debt Money Monopolist Feudal Lords ruling over the serf classes.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert by secret agreements arrived at in frequent private meetings and conferences."
  -- Quote from Caroll Quigley's Tragedy and Hope

Mon, 03/09/2015 - 11:28 | 5869534 MachoMan
MachoMan's picture

To bet for one or the other boils down to a timing decision, which is a fool's errand unless you're the shot caller.  There are quite a few vehicles that hedge both ways, but most people would be best advised to reduce debt loads and purchase inflationary hedges without leverage.  Intangible financial instruments (that offer no natural utility) are the ones that stand to be hurt the most in the monetary whipsaw.  Don't put all your eggs in one basket unless you're on the inside (and if you have to ask...)

Mon, 03/09/2015 - 00:41 | 5868526 defender
defender's picture

Think of it this way:

If you go to the bank and get a loan, the document that they give you is called a "promissory note".  If the bank wants to talk to you about the loan, they ask you to bring the "note", since it contains all of the information in the loan.

The same thing is done with corporate debt, only instead of calling it a "note", it is called "paper".  Thus, if MegaCorp "issues paper", then they are selling a loan (with specific terms).

TL:DR The corporation got the same amount of money from a specific loan, i.e. same paper, without paying the higher interest.

Mon, 03/09/2015 - 02:37 | 5868635 All Risk No Reward
All Risk No Reward's picture

BTW, this is why "money" is called a "Federal Reserve Note."  We use Federal Reserve Debt receipts as "money."  This means society, including government, rents its money from a private, supranational international banking cartel.  Now you know who runs the rest - and it ain't cartoon caricature politicians!

Sun, 03/08/2015 - 20:45 | 5868094 Canadian Dirtlump
Canadian Dirtlump's picture

that was alot of jive talk to let us know that when the shit hits the fan, in a bizzarro world, in a room full of central banks, the US fed will jump on the grenade, and everyone else will die..

 

LOL..

 

p.s. great auto play ads on zerohedge featuring end of the world epic music and trendy mongoloids playing on monkey bars. Fuck sakes.

Sun, 03/08/2015 - 23:09 | 5868410 thinkmoretalkless
thinkmoretalkless's picture

Ok. Now in English.

Sun, 03/08/2015 - 18:39 | 5867858 tom a taxpayer
tom a taxpayer's picture

Holla' for a dolla'!

Sun, 03/08/2015 - 18:58 | 5867899 Luckhasit
Luckhasit's picture

Holla holla holla

Sun, 03/08/2015 - 17:52 | 5867752 fxpmtrader
fxpmtrader's picture

All Putin's fault.

Or the Europeans ... Greeks ...

Or ... else!

Sun, 03/08/2015 - 18:04 | 5867779 Dead Canary
Dead Canary's picture

Ooo.... I know! GLOBAL WARMING.

( racism? )

Sun, 03/08/2015 - 18:06 | 5867781 Thirst Mutilator
Thirst Mutilator's picture

It's Lucy Farrion's fault

Sun, 03/08/2015 - 18:08 | 5867785 Abitdodgie
Abitdodgie's picture

Putin has a death star.

Sun, 03/08/2015 - 20:23 | 5868058 cnmcdee
cnmcdee's picture

Putin has a star death - CIA (there fixed it for yah)

Sun, 03/08/2015 - 22:49 | 5868380 waterwitch
waterwitch's picture

Is it the star of David?

Sun, 03/08/2015 - 17:53 | 5867759 cossack55
cossack55's picture

How is it that most on ZH have identified BANKS as the real global problem and yet they continue on as if nothing happened.

Makes one wonder who really is in charge of the world? Not!

Sun, 03/08/2015 - 18:33 | 5867837 Anusocracy
Anusocracy's picture

Maybe because government is the problem?

Government runs the world: the idea that the few rule the many. Hasn't changed changed for thousands of years.

Sun, 03/08/2015 - 20:09 | 5868032 Usurious
Usurious's picture

 

 

the government is the bank and the bank is the government.......its just monetary masturbation

Sun, 03/08/2015 - 20:26 | 5868065 cnmcdee
cnmcdee's picture

Like the saying goes - Masturbation is like Procrastination, it might seem like a good idea at the time but in the end your just fking yourself.

Sun, 03/08/2015 - 21:03 | 5868122 Escrava Isaura
Escrava Isaura's picture

 

 

Anusocracy,

Usurious,

cnmcdee

You should know better by now.

It is the private money system, idiots.

 

It is always and forever an impossibility to pay down debts in a credit money system.  Our existing system is about 97% credit as money.

Therefore the credit as money that is created cannot return to destroy the debt instrument.  It is an impossibility because the instrument’s demands have now increased in ratio relative to money in supply. 

Hyperinflation is always an exchange rate problem. MEFOBILLS

 

 

 

Sun, 03/08/2015 - 17:57 | 5867764 Yen Cross
Yen Cross's picture

 It's all starting to unravel... Using the $usd carry as a funding currency isn't being long $usd until you have to cover the trade. (convert the funded counter currency back into $usd)

 Now, with liquidity drying up, the last thing the Fed. wants to do is raise rates.

Sun, 03/08/2015 - 18:07 | 5867783 Seasmoke
Seasmoke's picture

with all due respect YC, you were very wrong about the USD last week (as was I)

Sun, 03/08/2015 - 18:10 | 5867791 Yen Cross
Yen Cross's picture

 No, I wasn't. The $usd strengened vs the euro and pound. The yen and other majors and crosses are still in the same ranges they've been in for months.

Sun, 03/08/2015 - 21:03 | 5868143 Captain Jack Sparrow
Captain Jack Sparrow's picture

YC can you explain what you think will happen to the value of the USD.  Economics 101 says that if they are printing USD then there will be more supply so the value will decrease.  But this article says there is a shortage so the value will increase.  Is the shortage in the swaps greater than the amount they are printing? 

Sun, 03/08/2015 - 21:25 | 5868212 Yen Cross
Yen Cross's picture

 The supply will need to be expanded. The net result will be a softer $usd. The supply can be expanded through various mechanisms.

 Those mechanisms can include looser (longer term SWAP fixes) lending terms, and increasing supply from the money market, without printing initially. If things get ugly, they'll print. The problem is that the deficite has come back in. The Fed. doesn't want to be seen as monetizing debt.

 

Sun, 03/08/2015 - 18:10 | 5867792 SWRichmond
SWRichmond's picture

best article I've read in a while.  the quandary simply illustrates what happens when men that think they're smart distort the s*** out of a system.  

a long long time ago myself and others here at zero hedge started saying you can't fool math.  the situation described in this article is an illustration of that.  

Sun, 03/08/2015 - 19:00 | 5867864 Deathrips
Deathrips's picture

Agreed SWR,

 

He fought the tide valiantly, till he drowned.

The end.

And then there's math too.

RIPS

Sun, 03/08/2015 - 19:01 | 5867872 Deathrips
Deathrips's picture

Doublepost.

Sun, 03/08/2015 - 18:45 | 5867875 Mad Cow
Mad Cow's picture

May I have a piece of Pi?

Sun, 03/08/2015 - 19:55 | 5868001 Fukushima Fricassee
Fukushima Fricassee's picture

$5 for a peice

Sun, 03/08/2015 - 22:03 | 5868294 sapioplex
Sun, 03/08/2015 - 23:18 | 5868428 thinkmoretalkless
thinkmoretalkless's picture

The whole thing reminds me of the scientist who builds a nuclear weapon, he is in it for the scientific achievement...that is its own reward...kinda like profit...they really don't consider the consequences on dumb schmucks like me.

Sun, 03/08/2015 - 17:56 | 5867769 MarketMusings360
MarketMusings360's picture

The U.S. dollar is"king" in a deflationary environment and that's where the global economy finds itself.  The Fed is helpless to stop it.

Sun, 03/08/2015 - 18:00 | 5867773 Yen Cross
Yen Cross's picture

  I suggest you look at the USDX charts from late 2007-early 2009.

Sun, 03/08/2015 - 18:08 | 5867786 Winston Churchill
Winston Churchill's picture

Do you think this could preciptate UST dumping en masse YC ?

Its a whole different world now.

Sun, 03/08/2015 - 18:16 | 5867799 Yen Cross
Yen Cross's picture

  I think there's a real liquidity issue. If the e/m and others can't meet their obligations because of increased funding costs & shortages, then there will be big problem with global credit markets. The Fed. will have to make more supply available, which should drive the $usd down.

 People need to remember there's $12 Trillion more floating around, levered to the hilt, since the GFC. The $usd carry trade is massively overstretched.

Sun, 03/08/2015 - 18:22 | 5867812 Tinky
Tinky's picture

Thanks for your input, as always, YC.

Sun, 03/08/2015 - 18:40 | 5867861 Yen Cross
Yen Cross's picture

 Thanks Tinky. I might also add that the $usdx is at the 50% Fibi of it's 25 year chart. Additionally the $usdx basket was rebalanced in the early 2000's to reflect the euro, which contributed to the $usd selloff in the mid 2000's.(meaning that the $usd is even more overvalued currently.)

  The currency trade is looking alot like the equity trade. Pick your poison carefully.

Sun, 03/08/2015 - 22:00 | 5868287 Augustus
Augustus's picture

I don't know who is dumping What or the Why of it.  However the 10 yr rate is up  in UST and Bunds.

Pretty big move.  Something going on somewhere.

Sun, 03/08/2015 - 22:28 | 5868350 Yen Cross
Yen Cross's picture

 Keep an eye on the the Chibor rates and usd/cny Tokyo fix daily. The PBoC has been easing, but is also allowing the yuan to fix higher vs the $usd. ;-)

Sun, 03/08/2015 - 18:22 | 5867817 pendragon
pendragon's picture

there's fuck all movement in the early trade so just another zh false flag

Sun, 03/08/2015 - 18:47 | 5867881 schadenfreude
schadenfreude's picture

I fully agree to your assessment. Imagine the carnage on DAX when in a situation of "margin call" USD is going parabolic.

Sun, 03/08/2015 - 23:33 | 5868453 thinkmoretalkless
thinkmoretalkless's picture

Ok. For someone who avoided math and advanced Econ for that matter what is the cheat sheet. Multiple choice:

(A). Stack of $100 under your bed
(B). Gold
(C). Beans & Bullets
(D). A Divesified Portfolio of Finacially Strong Companies
Paying a reasonable Dividend. (Sarcasm on the side)

Sun, 03/08/2015 - 18:11 | 5867794 kaiserhoff
kaiserhoff's picture

That's my take as well.  The worst possible fiat, except for all the others.

It isn't just deflation.  It's depth of field, chaos in our trading partners, and probably a few damn fool things that will only be obvious after they happen.

Sun, 03/08/2015 - 18:50 | 5867886 disabledvet
disabledvet's picture

I think currency trading is a fraud.  Look at the Swiss Franc.  The stop pegging it to the euro...billions are vaporized instantly...and then the currency goes right back to where it was relative to the dollar when it was pegged.

 

My guess is there is no better way to steal gold than to short the Swiss Franc....especially if oil prices suddenly head to twenty bucks a barrel and natural gas back to two.  

 

Sorry but I don't trust ANY Banks right now.  They're all just tools of the State near as I can tell.

So what if gold drops to 800 bucks an ounce here?  It'll still be worth a lot relative to all the other so called money out there.

 

The supply of treasuries is starting to dry up again as well.  Bull market sell off's are always a big deal of course....

 

Mon, 03/09/2015 - 00:08 | 5868500 Augustus
Augustus's picture

While you are probably referring to T-bills in looking at supply,

increasing yields on the 10 yr seem to indicate that there is ample supply.

Withought going through the arguments about all currencies being trash, I don't see the USD as being lesser trash than the Euro, particularly with the EZ poitical stress and the Draghi promises to BUY, BUY, BUY bonds.  Front running the ECB buy buying into a declining currency does not seem to be the greatest trade.  Yield spread is increasing from both ends.  Lower rates on euro govt bonds and higher rates on UST.  Something about that does not compute.

Sun, 03/08/2015 - 18:24 | 5867818 MilwaukeeMark
MilwaukeeMark's picture

Of course once the dollar loses its reserve currency status, this will no longer be such as problem. And American's will barely notice the change as they walk to the dump everyday looking for food.

Sun, 03/08/2015 - 18:31 | 5867832 A Lunatic
A Lunatic's picture

Looks like I need to move closer to the dump......

Sun, 03/08/2015 - 18:37 | 5867854 e_goldstein
e_goldstein's picture

Start your own. Make them come to you.

Sun, 03/08/2015 - 19:56 | 5867997 tarabel
tarabel's picture

 

 

This article was entirely about the demand for dollars exceeding the demand for USD fx swap candidates.

That doesn't sound like the dollar is headed for non-reserve status. It sounds more like it is headed towards "wiping out its rivals and dancing on their graves" status.

The pay of a lowly American GI in Berlin, or Tokyo, or Seoul, or Saigon was a fortune to the locals. And it looks like it soon will be again. You think we got immigration problems now.

Sun, 03/08/2015 - 21:13 | 5868174 Oldrepublic
Oldrepublic's picture

Those days of GIs and king dollars is long gone. Today I understand that a civilian Japanese guard at a typical US military base in Japan makes more than a US Colonel!

Mon, 03/09/2015 - 02:27 | 5868628 tarabel
tarabel's picture

I didn't say today. I said soon, as in the near future after Japan gets through destroying its currency and everybody wants to be paid in Hershey bars and cigarettes or Abe Lincolns. 

Wed, 03/18/2015 - 09:47 | 5901755 weburke
weburke's picture

agreed, I thought recently the imf sdr was the future, but actual behaviors make it seem that the bric/imf-sdr/dollar dethronement is just a ruse.

 

Sun, 03/08/2015 - 23:26 | 5868439 MilwaukeeMark
MilwaukeeMark's picture

Walk across the street and watch the dollar parade correctly, as it's really moving in the opposite direction, it's just a Globalist's illusion you see it marching the right way.

Thu, 03/12/2015 - 01:01 | 5880467 Toxicosis
Toxicosis's picture

It still ends up with too many dollars chasing eventually too few goods.  More dollars, more dilution, higher prices, collapse of said currency.

Sun, 03/08/2015 - 18:28 | 5867826 Salah
Salah's picture

Akin to what Ambrose said back in December (he's been on this tack for 2 yrs)

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/113004...

Sun, 03/08/2015 - 18:33 | 5867839 Bossman1967
Bossman1967's picture

Hey plent of food in the dump we wastte 53 tons of food annually so food for all. Now seriously there is a story lke this every week now for 3 years and where is the collapse except in m account because i have played it safe and I feel like the sucker that is rich in metals poor in paper and the PM markets going down again. So where is this crash these pundits speak of

Sun, 03/08/2015 - 18:41 | 5867863 Winston Churchill
Winston Churchill's picture

Sorry about your premature evauation, but it sounds like a personal problem.

Sun, 03/08/2015 - 18:58 | 5867898 lincolnsteffens
lincolnsteffens's picture

For us, let's hope a change is beginning. For others, let's hope we have enough to help others when the tide goes out. This dude is way under water now. I can't complain too much as I made a years pay in the silver spike a couple of years back. the problem is the last year as nearly everything has leaked higher I leaked lower. 

Sun, 03/08/2015 - 21:50 | 5868175 Renfield
Renfield's picture

<<For us, let's hope a change is beginning.>>

What do all y'all think of HSBC closing all 7 of its vaults in London, just ahead of the opening of Shanghai's new gold exchange?

Been listening to podcasts about this all day and altho it seems like pretty big news all right, I have yet to see any commentary about it away from the bullion blogs.

My uneducated opinion is that this exchange opening signals the currency reset. (Or at least, official 'reset' of the gold price, which would cause a currency reset.)

Anyone read about this? Opinions?

For anyone in the dark, I'll link Andrew Maguire's interviews with KWN and Turd Ferguson, which I found the most informative:

http://www.silverdoctors.com/big-changes-coming-to-the-global-gold-marke...

http://kingworldnews.com/andrew-maguire-2-28-15

It's been a long time since I've given myself permission to get excited about gold. (It's been - what - 3 years? since I last found gold price even worth noticing.) Just stack on doggedly, day in to day out, while waiting for Godot to arrive. Dare I hope that price discovery for bullion is about to be a relevant topic again?

ETA: Here's a part of the blurb from Bullion Capital re: their new electronic exchange:

<<Fixing the precious metals price fixing

An electronic exchange is the most transparent approach to eradicating the front-running issues which a number of clients have been complaining from in past years. Bullion Capital’s solution has the capacity to take the power out of the hands of the very few precious metals market makers.

The terms of trade of precious metals are largely set by six banks in London, all the other banks in the world have to deal with these same six on order to get their deals done.

According to sources across the industry, there has been substantial frustration especially on the part of Asian banks with their orders being front-run. An anonymous marketplace where the liquidity provider can’t see the liquidity taker eliminates the opportunity for front-running and price manipulation.>>

http://forexmagnates.com/bullion-capital-track-revamp-physical-gold-mark...

Mon, 03/09/2015 - 01:14 | 5868568 Clowns on Acid
Clowns on Acid's picture

The global reset on gold will come. I truly think that Asia is ready to do it, as is Russia. It maybe early and I do not think that they want to do it so soon, and with such an incompetent US admin in place.

I think they will wait until the REP is President in 2016, like they waited for GW Bush before 9/11. The Clinton admin would have totally fucked it up and probably done something really stupid. I think that Asia and russia know that Obama is so incmpetent that he night blow up the world like he is the US. They will wait to spring the reset.... if they can.   

Sun, 03/08/2015 - 18:41 | 5867862 Dre4dwolf
Dre4dwolf's picture

12° 5' 20.87"N
104° 9' 6.80"E
Google Earth. . . 
? ? ? ?
Flight Mh370?

Sun, 03/08/2015 - 21:00 | 5868123 Consumer Farm
Consumer Farm's picture

Flight Mh370? - no I would say. That has two engines at the back from the look. Flight MH370 was a 777 https://en.wikipedia.org/wiki/Boeing_777 has it engines on the wings. Thats does look like a plane in the middle of nowhere though. Bit off topic perhaps.

https://www.google.co.uk/maps/@12.0892698,104.1527934,1679m/data=!3m1!1e3

links gets cut off at the = so put on sat view and zoon in a bit (or copy the entire link)

Sun, 03/08/2015 - 23:43 | 5868229 MollyHacker
MollyHacker's picture

Off the topic it looks very good and to elaborate on the black surrounding the pictured most likely the insect rampage of the crash site.

Maybe the NK Diplomat was moving the re-refined "black-gold-market" gold that was Beijing bound? Maybe now that the gold has been intercepted google released the coordinates.

Sun, 03/08/2015 - 23:51 | 5868478 actionjacksonbrownie
actionjacksonbrownie's picture

It's a commuter plane flying into Phnom Pen at low altitude approach.

Mon, 03/09/2015 - 01:01 | 5868546 daveO
daveO's picture

Small plane.

Sun, 03/08/2015 - 18:44 | 5867873 tom a taxpayer
tom a taxpayer's picture

Will S&H Green Stamps make a comeback?

http://en.wikipedia.org/wiki/S%26H_Green_Stamps

Sun, 03/08/2015 - 19:04 | 5867916 lincolnsteffens
lincolnsteffens's picture

Sure hope so. I still have all my mom's booklets full. Hope never dies. I left special instructions for my son just in case I don't live long enough :>)

Sun, 03/08/2015 - 20:00 | 5868011 quasimodo
quasimodo's picture

Ah the memories. I can still remember the cashier would use that gigantic dispenser.

Sun, 03/08/2015 - 19:07 | 5867921 rejected
rejected's picture

Those were fun... we had drawers full of the books and would only frequent merchants that gave them out. There was also Gold Stamps but the Green was the most popular.

Like everything else, business experts in corporate Merika ruined this too. Everything    'costs too much'    dontcha know.

Sun, 03/08/2015 - 23:51 | 5868480 thinkmoretalkless
thinkmoretalkless's picture

Got my first BB gun from S&H....don't tell Holder

Sun, 03/08/2015 - 23:59 | 5868490 thinkmoretalkless
thinkmoretalkless's picture

Alas S&H was the last market I made a killing in. And I have the blender to prove it.

Sun, 03/08/2015 - 18:55 | 5867894 MASTER OF UNIVERSE
MASTER OF UNIVERSE's picture

The Global Petrodollar funding is as stong as the straw that broke the Camel's back, frankly.

 

Tuesday March 10th 2015<------------>March 10th 2008 = 7 years.

 

Stay tuned for As The Petrodollar Turns & American Economics Burn!

Sun, 03/08/2015 - 19:32 | 5867960 Solarman
Solarman's picture

Huh, what we have is king dollar, and it is crushing all competitors. Nothing is stopping this train.

Sun, 03/08/2015 - 19:02 | 5867911 rejected
rejected's picture

Quick,,, more click money Ms Yellen...

Sun, 03/08/2015 - 19:15 | 5867935 q99x2
q99x2's picture

Get Yellen to print up 10 tril and don't forget to tell her to go up my FAFSA. They are globalists. Thats what globalists do.

Sounds like war to me and it sounds like now would be a good time to buy Gold and Silver.

Sun, 03/08/2015 - 22:49 | 5867992 RaceToTheBottom
RaceToTheBottom's picture

Funny no Russia indicated on the chart.  Wonder what direction that flow is, as part of their undeclared war with Russia???

Sun, 03/08/2015 - 19:56 | 5868004 OddFieldIsStrong
OddFieldIsStrong's picture

(Asking for help here)
Where is a good source to find current and historic dollar basis swap data? Did a quick google search but found no obviously good & free source of data. Thanks for a helping hand.

Sun, 03/08/2015 - 20:55 | 5868119 tom a taxpayer
tom a taxpayer's picture

Sorry, I do not have historic US$ swap data. I do have some personal historic data on swapping spit (French kiss currency)

http://www.urbandictionary.com/define.php?term=swap+spit

Sun, 03/08/2015 - 20:08 | 5868031 WTFUD
WTFUD's picture

Die Faster!

Sun, 03/08/2015 - 20:19 | 5868050 bentaxle
bentaxle's picture

American taxpayer having to bail out Europe and UK, again....?

Sun, 03/08/2015 - 20:58 | 5868125 post turtle saver
post turtle saver's picture

it's all how you look at it... where you see a bail out, some see extension of control...

Sun, 03/08/2015 - 20:23 | 5868057 holdbuysell
holdbuysell's picture

Does the taking on of hundred of billions of oil derivatives denominated in USD that are now needing USD to cover the margin calls (quietly behind the scenes) provide for an explanation of the current USD shortage?

Sun, 03/08/2015 - 20:41 | 5868090 Winston Churchill
Winston Churchill's picture

Good point.Someone is taking a bath right now behind the wizards curtain.

$22 tn in oil derivatives, is a ticking time bomb peeps are maybe forgetting about.,

Sun, 03/08/2015 - 20:46 | 5868096 dragoneyes74
Sun, 03/08/2015 - 20:54 | 5868117 aubreyfarmer
aubreyfarmer's picture
27). "I fear the Jewish banks with their craftiness and tortuous tricks will entirely control the exuberant riches of America. And use it to systematically corrupt modern civilization. The Jews will not hesitate to plunge the whole of Christendom into wars and chaos that the earth should become their inheritance." (Bismarck)
Sun, 03/08/2015 - 21:51 | 5868268 22winmag
22winmag's picture

Thank you sir. May I have another?

Mon, 03/09/2015 - 07:55 | 5868839 Harry Dong
Harry Dong's picture

Spurious quote much?

Sun, 03/08/2015 - 20:56 | 5868121 TheAntiProgressive
TheAntiProgressive's picture

I don't understand the math.  I don't understand much.  All I know is the whole "system" is manipulated.  All markets are being manipulated by the elites and I can't plan for my future, my familes future and to assure I maintain/keep at least even a lifes' work and savings.  These people at the top are all traitors to the brand called "America".  The "Dream", Cause you have to be asleep to believe in it.  Things are so fucked up.

Mon, 03/09/2015 - 00:12 | 5868502 Md4
Md4's picture

Yes, they are...

Just reading this long article gave me a headache (or was it today's piece on Greece's implosion tomorrow...then there was that Austrian bank thing making a sinkhole outta one of their states...).

All of this complexity negates any transparency.

Everything has to be so goddamded convoluted and tentacled to the point of near incomprehensibility.

I remember even Greenspan had trouble with the financial bullshit a few years ago, and said so.

If Greenspan has trouble...

m

Mon, 03/09/2015 - 00:23 | 5868514 TNTARG
TNTARG's picture

Yes. JP Morgan's report talks as if they had nothing to do with it.

They talk about Central Banks as if they were entities not controlled by the same guys. They own the entire fuck...g system and this is another "event" wich has, of course, a purpose.

 

Sun, 03/08/2015 - 20:58 | 5868128 nakki
nakki's picture

Bank run bitches. Better get to work Mr Yellen.

Sun, 03/08/2015 - 20:59 | 5868131 are we there yet
are we there yet's picture

J.P. Morgan and friends may be news pumping the market to create insider trading opportunities when they know first the fed response.

Sun, 03/08/2015 - 21:23 | 5868205 I Write Code
I Write Code's picture

I'll admit I don't know what the currency exchange situation was in 2008, but right now I assume it's money fleeing NIRP.  What I don't know is if this is a problem that needs to be fixed, from the US point of view.

As I say on all these threads, this time it *is* different.  And who knows, maybe it really is.

Mon, 03/09/2015 - 08:28 | 5868900 CHX
CHX's picture

To paraphrase Billy, it just depends on the definitions both what a) real and b) is are.

Sun, 03/08/2015 - 21:38 | 5868233 Kirk2NCC1701
Kirk2NCC1701's picture

Years ago, my CFP at EF Hutton said: "Long Treasuries, Cash and Gold, if you want to stay liquid. What one won't do for you, the other one(s) will."

Even though he and E.F.H. are long gone, his advice remains.

Sun, 03/08/2015 - 21:55 | 5868275 Herdee
Herdee's picture

Strange that it's at a time when the Baltic Dry Index is at record lows and less and less trade is being conducted in U.S. Dollars because of direct currency trading agreements in order to bypass the th U.S.All at a time of record U.S. debt and Obama to run her up tp 20 trillion.

Sun, 03/08/2015 - 22:48 | 5868379 the question
the question's picture

Does this mean the Fed must come up with a reason to start a new QE to 1) inject liquidity and 2) limit the strengthening of USD?

Mon, 03/09/2015 - 00:47 | 5868535 rojellio
rojellio's picture

I am a new subscriber to the hedge.  Can someone explaion to me the green and red arrows and their significance?

 

Mon, 03/09/2015 - 01:10 | 5868563 Savyindallas
Savyindallas's picture

green generally means the ZH stock is up, red means it's down. I expect ZH will do well the next 6 months. Buy all you can   -on margin. 

Mon, 03/09/2015 - 08:04 | 5868853 Multi
Multi's picture

hahahahahah... good one.

Mon, 03/09/2015 - 00:58 | 5868544 Clowns on Acid
Clowns on Acid's picture

Gimme, gimme, gimme.. that NIRP !

Mon, 03/09/2015 - 01:50 | 5868592 Aussiekiwi
Aussiekiwi's picture

Ok, read that.....now my head hurts, going to go and lie down for awhile, its still only fiat, right?

Mon, 03/09/2015 - 02:23 | 5868626 AbbeBrel
AbbeBrel's picture

Humm for 1 year chart click below.

The Euro is still in the lead on the race to the bottom in the Currency War, and will likely accelerate as Draghi hits it with liquidity shells from his Bazooka (-17%). Then the Yen which faded recently but is in 2nd place at -13%. Finally the pack come in with CAD loonie -10% Aussie -10% and the Great Pound at -9%.

http://goo.gl/yDDXCo

I am not smart enough to figure out just how this affects the all important stock buybacks in the USA - but clearly it is cheaper to borrow pretty much EVERYWHERE ELSE, and then buy some income generating thing in the US. So the stock buybacks are probably safe. Whew. Bullish.

Mon, 03/09/2015 - 02:39 | 5868638 scatha
scatha's picture

Few points in summary.

1. Allowing funding of transactions in foreign currencies, like buying houses or investing in business is setting up conditions for disaster and was prohibited not long time ago since this introduces parallel currency not under control of central bank of given country. It was another example of "financial engineering" of JPM gang to limit excessive rise of a currency while allowing massive direct investment.

2. 5 trillion $ FX is a joke, could not handle the demand for dollars. So to avoid dramatic dollar surge what they did? Scrapped the FX market. Market worshipers abandoned FX market in another "financial engineering" feat, FED swapping currency directly with CBs, no $ price discovery!!!!!! No dollar move. When China and Russia want to do that, to insulate themselves from FX manipulation, they are evil commies.

3. Why was it done? To bailout foreign investors rushing to the doors, dumping non-dollar dominated assets at their nominal prices, no loss, leaving CBs on the hook. The same happened in Europe with euro.

4. All of this because of ZIRP. It caused rat race for yield and massive speculative investment abroad while US economy investment collapsed.

5. We saw on chart FED feeding all major CBs but no Russia CB and China CB as swap offeror. They are outside of submission.

6. Conclusion. There are no foreign CBs there is FED and its affiliates abroad under its orders. The FED is THE WORLD BANKING SYSTEM in UNITY and rules all the CBs to submission. CBs are US entities in the heart of their economy and finances

7. Welcome to World Government run by incoherent grandma.

Mon, 03/09/2015 - 05:42 | 5868741 brunoaa
brunoaa's picture

Excelente post. You have it all summed up. China and Russia are excluded from this game, this is why they have to build a parallel system based on the SCO, but who will play the Fed/USD role? China or Russia? Gold though less flexible is politically easier and will also create a credible alternative to the USD.

Tue, 03/10/2015 - 00:41 | 5872210 hedgiex
hedgiex's picture

Yes. Asian "friends" have no choice but to dollarize their economies and hence share the debt burdens of US. Only forces in the globalized financail economy that defy Pax America are China and Russia.  China is an internal mess and too impotent to cut its nose to spite its face.

Tue, 03/10/2015 - 00:44 | 5872215 hedgiex
hedgiex's picture

Yes. Asian "friends" have no choice but to dollarize their economies and hence share the debt burdens of US. Only forces in the globalized financail economy that defy Pax America are China and Russia.  China is an internal mess and too impotent to cut its nose to spite its face.

Mon, 03/09/2015 - 03:42 | 5868677 redwater
Mon, 03/09/2015 - 07:44 | 5868822 erk
erk's picture

There is certainly not a shortage of $US in the world, if anything a glut of oversupply which has been going on since the 1970s

 

Wed, 03/11/2015 - 17:36 | 5879236 JenkinsLane
JenkinsLane's picture

Brilliant article, thanks Tyler.

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