Tag Archives: Eurodollars

The War for the Dollar is Over Part II: The Fly or the Windshield? By Tom Lungo

Tom Luongo is not trying to be cute and his points and arguments are clear, which is not always the case. He takes a complicated set of issues and makes them understandable. This is one of his best. From Tom Luongo at tomluongo.me:

Live images flashing by
Like windshields towards a fly
Frozen in that fatal climb
But the wheels of time, just pass you by
-RUSH, “Between the Wheels”

In part I of this series I told you the war over the US dollar was over because the bane of domestic monetary policy, Eurodollar futures, lost the battle with SOFR, the new standard for pricing dollars.

The ignominious end of the Eurodollar system is a study in the evolution of markets, as a new system replaces an old one. Old systems don’t die overnight. We don’t flip a switch and wake up in a new reality, unless we are protagonists in a Philip K. Dick novel.

More than a decade ago I looked at the responses to President Obama cutting Iran out of the SWIFT system as the beginning of the end of the petrodollar system. The goal was to take Iran out of the global oil markets by shutting Iran out from the dominant dollar payment system.

Out of necessity Iran opened up trade with its major export partners, most notably India, in something other than dollars. India and Iran started up a ‘goods for oil’ trade, or as Bloomberg called it at the time, “Junk for Oil.”

The stick of sanctions created a new market for pricing Iranian oil and a way around the monopoly of US dollar oil trading. India, struggling with massive current account deficits because of their high energy import bill, welcomed the trade as a way to lessen the pressure on the rupee.

Iran needed goods. They worked out some barter trade and the first shallow cuts into the petrodollar system were made.

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Funding Markets Just Called The FOMC’s Bluff, by Jeffrey P. Snider

Yet another market that doesn’t seem to be dancing to the central bankers’ tune (see “Crisis Progress Report,” SLL, 1/29/15). From Jeffrey P. Snider at Alhambra Investment Partners:

Janet Yellen and her colleagues would like to welcome you, not unlike Tim Geithner’s 2010 expedition in this area, to the recovery. They have removed pretty much all language that would make you think there was anything like lingering destructiveness or erosion. In doing so, they make it very plain that they want you to believe that they will be ending ZIRP, just as they have done to QE.
There is the “solid pace” of economic expansion which has meant “strong job gains”, though, curiously, there won’t be any of the mainstream “inflation” that usually accompanies this outlook. The world may be concerned about oil and all that, but the FOMC wants you to know that you should focus on them instead of such distractions.
Yet for all the supposed expertise and the “best and brightest” that sit upon the monetary throne in the US, funding markets just rejected everything the FOMC proclaimed. Knee-jerks are usually conforming, at least in some manner, but the eurodollar market, in particular, traded in the “opposite” direction of what you might expect had the FOMC left any impression.


To continue reading: Funding Markets Just Called The FOMC’s Bluff