817 sats \ 4 replies \ @TomK 16 Nov 2023 \ on: The "Trilemma" That Runs The World meta
Thanks for this interesting piece. The theory or better: this model is correct ceteris paribus. But one thing to his thesis on the USD strength: IMO this is the result of the once established and widely adopted system of the Petrodollar that amplified and stretched the Eurodollar market where the Fed materially has no policy impact. The increasing credit supply, based in offshore and often grey market activities, helped dollarizing a growing global economy that developed a rising hunger for USD. This is crucial to put into this model.
I always have trouble wrapping my head around the "eurodollar" concept, since it is a foreign banking system creature completely outside U.S. control, right? Of course the U.S. is happy to allow dollar demand without having to do any heavy lifting.
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Exactly. It all began with Bretton Woods and the Marshall Plan to rebuild the german industry. That was done with USD and the growing european economies (Germany) had a trade surplus while exchange rates where fix. So the flow of USD accelerated and the commercial banks leveraged them. That was the beginning. But now Powell's Fed really is attacking this by installing SOFR for example.
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Why would the U.S. want to change now(SOFR)? The price it pays for the exorbitant privilege of having the global reserve currency is that their export industries suffer, but that is more than made up for with the ability to export inflation and gain geopolitical control through the IMF and World Bank, no?
I guess none of this matters if the whole fiat debt house of cards is about to collapse?
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What they are doing now is rebuilding a domestic, soon regionally decentralized, capital market. Under the LIBOR regime European banks decided on a fixed interest rate that structurally was lower than the US yield would have been. So in every crisis they had in Europe the US banks were subsidising the Eurozone and in the meantime the yield manipulation held capital back from free floating to the states. I think this is the main focus - liberalizing from the City of London and the Eurozone
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