Courtesy of Mish.
This post is a followup on the alleged US dollar shortage thesis as well as further discussion of the Yuan, and the Yen.
Let’s start with a recap of the US dollar debate, after which I will tie up some loose ends.
US Dollar Margin Call Shortage Thesis
On March 8, ZeroHedge commented The Global Dollar Funding Shortage Is Back With A Vengeance And “This Time It’s Different”.
ZeroHedge wrote “The last time the world was sliding into a US dollar shortage as rapidly as it is right now, was following the collapse of Lehman Brothers in 2008. As we discussed back then, this systemic dollar shortage was primarily the result of imbalanced FX funding at the global commercial banks, arising from first Japanese, and then European banks’ abuse of a USD-denominated asset-liability mismatch, in which the dollar being the funding currency of choice, resulted in a massive matched synthetic ‘Dollar short’ on the books of commercial bank desks around the globe: a shortage which in the aftermath of the Lehman failure manifested itself in what was the largest global USD margin call in history.“
No Shortage Thesis
On March 11, I replied to the above idea with Is There a US$ Shortage? Will it Sink the Global Economy? Again?
“I do not believe there is a dollar shortage or even a synthetic dollar shortage. More importantly, a dollar shortage certainly did not cause the crash in 2008. Excess debt and speculation caused the crisis in 2008. Any alleged or apparent dollar shortage was a result, not a cause of the crash.”
Demand for Dollars
It’s amusing to discuss currency shortages given all the central banks are or have been flooding the markets with currency in an inane attempt to cure a debt problem by forcing more debt into the system.
I discussed this on Monday in Draghi’s Goal: Higher inflation and Negative Yields; ECB’s Asset Purchases to Outstrip Supply 3-1; Is There a Catch?
That interest rates are negative in Germany for every duration from one month through six years (only two basis points from seven) speaks for itself. There is no demand for loans relative to supply of euros from the ECB….
