Tag: central banks

Crypto isn’t the only clown show: Rest of the world has $65 TRILLION in US dollar liabilities — far more than previously estimated

i only have 6 fingers but i’m just a regular guy nothing to see here

Report comes from the BIS, which is like the Central banks’ Central bank. It also releases the best research, but Powell gets 100x more msm coverage, because Amurica.

Hidden leverage…liquidity issues…10x more debt than capital…reminds me of something 🤔. Only we’re talking TRILLIONS here, not a measly bankman fraud scam of just billions.

Full report here (it’s brief): https://www.bis.org/publ/qtrpdf/r_qt2212h.htm

Verbatim excerpts below:

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The missing dollar debt from FX swaps/forwards and currency swaps is huge, adding to the vulnerabilities created by on-balance sheet dollar debts of non-US borrowers. It has reached $26 trillion for non-banks outside the United States, double their on-balance sheet debt. Moreover, it has grown smartly since 2016, despite the often significant premium demanded on dollar swap funding. For banks headquartered outside the United States, dollar debt from these instruments is estimated at $39 trillion, more than double their on-balance sheet dollar debt and more than 10 times their capital.

Dollar dominance is striking in this FX market segment, greater than in any other aspect of dollar use. As a vehicle currency, the US dollar is on one side of 88% of outstanding positions – or $85 trillion. An investor or bank wanting to do an FX swap from, say, Swiss francs into Polish zloty would swap francs for dollars and then dollars for zloty.

Off-balance sheet dollar debt may remain out of sight and out of mind, but only until the next time dollar funding liquidity is squeezed. Then, the hidden leverage and maturity mismatch in pension funds’ and insurance companies’ portfolios – generally supposed to be long-only – could pose a policy challenge. And policies to restore the flow of dollars would still be set in a fog.

Arthur’s latest essay on Central Banks, yield curve control, and geopolitics

Very much worth a read if you’re interested in global macro.

Source: https://blog.bitmex.com/contagion/

Some snippets:

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Of all the types of money printing, the most disastrous for the value of fiat currency – and by extension, society – is YCC. […] Central banks that engage in YCC are essentially pledging to infinitely expand their balance sheets such that a particular interest rate metric does not rise above an unnatural ceiling set by the central bank. The market ALWAYS wins, and the market wins by inflicting crushing inflation on the entirety of human civilisation.

The entire goal of modern European history has been preventing Germany and Russia from joining forces. The manufacturing prowess of the Germans combined with cheap Russian commodities could be a game-changing force from a geopolitical point of view

The EU is an artifice – a political ploy of France to keep Germany down, which the Germans only went along with due to their guilt over WWII. The US shares France’s interests, and it too lurks in the shadows, standing ready to prevent any real alliance between Germany and Russia. A weak EU serves the political interests of America quite well

France, to its credit – and I find very few geopolitical things to give France credit for – actually did the intelligent thing and went all in on nuclear energy. Roughly 70% of electricity generation is nuclear powered. Therefore, their manufacturing base can withstand the cessation of Russian gas flows. Germany, on the other hand, cannot

America is self-sufficient in food, fuel, and people. China, Europe, Japan, and the UK are not so blessed. America can be an autarky if it pleases. As a result, the Fed has the luxury of being able to prioritise domestic political concerns regarding inflation over and above supplying the world (and most of its allies) with a constant flow of dollars. A constant flow of dollars allows the rest of the world to print their currencies and still afford to buy energy in USD terms. It’s a relative game, and if the strongest player goes their own way, everyone else is left to suffer.

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