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Alasdair Macleod: There's a herd of elephants in the room
By Alasdair Macleod
Head of Research, GoldMoney
via Schiff Gold, White Plains, New York
Thursday, September 21, 2023
Among the many problems currencies and markets face, there is one which is undocumented: the eurodollar market, which is yet another very large elephant in the room. This article quantifies eurodollars and eurodollar bonds, which are additional to US money supply and credit.
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Research by the Bank of International Settlements puts this market at $93 trillion, of which on-balance sheet debt (that is, customer deposits) of non-U.S. banks is $15 trillion, a sum that should be added to U.S. M2 money supply of $21 trillion for a truer picture of total dollar bank credit. Only a small of this debt is in other currencies.
In this article, I describe the origin of eurodollars and why they have grown to such an enormous quantity. They introduce unrecognised risks to capital markets, and particularly the dollar at a time of growing financial instability. While the factors leading to a Triffin-style crisis are already in place, the unwinding of eurodollar credit will be an additional, unexpected factor.
This will not necessarily be an easy crisis for investors to navigate. While a stampede of unseen elephants in the room looks increasingly likely to undermine the dollar fatally, experience is that the initial reaction to a global crisis is usually to strengthen the dollar before it faces its true crisis.
If this happens, it will be short-lived because foreign owners of up to $135 trillion of dollar obligations both in the United States and abroad are bound to turn sellers. ...
... For the remainder of the analysis:
https://schiffgold.com/commentaries/theres-a-herd-of-elephants-in-the-room/
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