THE EURODOLLAR FUTURES CONTRACT REFLECTS THE L.I.B.O.R. INTEREST RATE (A BENCHMARK FOR THE INTEREST RATE AT WHICH MAJOR BANKS LEND TO EACH OTHER)! WHEN THE PRICE OF THE CONTRACT INCREASES, THE L.I.B.O.R. INTEREST RATE IS DECREASING, WHEN THE PRICE FALLS, IT IS INCREASING!
THE PERIOD I HAVE HIGHLIGHTED IN THIS POST IS THE PERIOD OF DOLLAR ILLIQUIDITY THAT OCCURRED IN THE LATE 00s-EARLY 10s! AS THE FEDERAL RESERVE INTERVENED AND PROVIDED LIQUIDITY, L.I.B.O.R. WAS SUPPRESSED, AND THE SIZE OF THE INTERVENTION ALMOST PUSHED THE RATE TO 0! THE SIZE OF THE INTERVENTION IS IMPORTANT IN THAT IT REFLECTS THE SIZE OF THE PROBLEM, INDICATING THAT THE GLOBAL LACK OF DOLLARS WAS SEVERE!
WHILE THE INTERVENTION SUCCEEDED IN SUPPRESSING L.I.B.O.R. OVERALL, THERE WERE SEVERAL PERIODS DURING WHICH THE LACK OF AVAILABLE UDS CAUSED LENDING BETWEEN FINANCIAL INSTITUTIONS TO CONTRACT, INCREASING L.I.B.O.R., CAUSING A NUMBER OF PROBLEMS AND FORCING FURTHER ACTION BY THE FEDERAL RESERVE!
THE 2008 GLOBAL FINANCIAL CRISIS WAS NOT NECESSARILY CAUSED BY A REDUCTION IN U.S. HOME PRICES, BUT BY A SYSTEMIC BANKING DOLLAR SHORTAGE! THE LACK OF UDS REMAINS, AND HAS EVEN INCREASED, HOWEVER ENTIRE NATIONS ARE AT RISK OF SUFFERING THE CONSEQUENCES, NOT ONLY THEIR BANKS!
NOW THE IMPORTANT QUESTIONS ARE:
1. IS THE GLOBAL ECONOMY NOW DEPENDENT ON THE FEDERAL RESERVE PROVIDING NEW UDS TO AVOID A COMPLETE DEFLATIONARY COLLAPSE? (MOST LIKELY YES)
2. IS THE FEDERAL RESERVE ABLE TO SATISFY THE INTERNATIONAL DEMAND FOR UDS, NOT IN TERMS OF AMOUNT, BUT IN TERMS OF DEPTH, REACHING FINANCIAL INSTITUTIONS AND CORPORATIONS NOT DIRECTLY TIED TO THE MAJOR U.S. BANKS? (QUITE POSSIBLY NO, BUT THEY WILL TRY THEIR HARDEST)
3. IF WE ASSUME THIS IS THE DEATH RATTLE OF THE DOLLAR'S WORLD RESERVE CURRENCY STATUS, WHICH IS THE MOST LIKELY OUTCOME, THAT IT IS INFLATED AWAY OR THAT IT IMPLODES ON ITSELF? (I WOULD ARGUE GIVEN THE FED'S ACTIONS, THAT IT WILL BE INFLATED AWAY)
4. REGARDLESS OF HOW THE LOSS OF RESERVE CURRENCY STATUS OCCURS, A CONSEQUENCE OF THIS PROCESS WILL BRING ABOUT A COMPLETE SELL-OFF IN THE U.S. TREASURY MARKET, FORCING THE FEDERAL RESERVE TO COMPLETELY MONETIZE THESE BONDS TO PREVENT INTEREST RATES FROM RISING: IF THIS UNFOLDS, CAN ANY OTHER POSSIBILITY BUT HYPERINFLATION BE CONSIDERED? (NO)
Great take I learned a lot from your post! Can you recommend any readings outside of TradingView to further my education on the EuroDollar topic? Write any articles about this?
UnknownUnicorn4195243
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@SeanMurray2040 look up Eurodollar University, with Jeff Snider, and follow his twitter page
the eurodollar isn't hard to grasp, it's just impossible to understand ;)
SeanMurray2040
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@SilverSerfer22, thanks I found the macrovoices podcast and I've been meaning to give them a listen so I'll start there. Thanks again
UnknownUnicorn4195243
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@SeanMurray2040, Make sure to start with the 5 part series with only Jeff Snider, will truly give you an advantage over others in terms of understanding