Translating What Is Central

In a credit-based monetary system, take the term literally. Central banks don’t matter, the global banks that make, distribute, and redistribute credit do. And if banks aren’t as willing to make it, there is no amount of QE byproducts (bank reserves) that can save it.

The entire issue is risk/return. Some will blame regulations, but as I’ve often written there is no regulation a big bank won’t try to overcome if the reward is perceived to be fat enough. The class of workers that arguably benefited the most from the housing bubble (meaning eurodollar) era were all those lawyers and lobbyists working for Lombard Street firms (Wall Street banks, in the popular imagination).

Every time we go through one of these eurodollar squeezes, the more banks are reduced for them. It proves to the remaining holdouts, there is no upside only downside. You can believe a Janet Yellen or now Jay Powell when they declare recovery, but that will only lead you into the red.

Banks shrink and then shrink some more. They cut back in the one area that is crucial to money dealing, the capacities in a credit-based monetary regime that manufacture and redistribute the end products (what looks like currency and money). FICC.

I wrote during the last one, Euro$ #3, why it was only going to continue:

As this point is pressed home over and over, as each bank cuts back and restructures against FICC, the “dollar” only cuts deeper and deeper into the financialized global economy and makes it only less opportune for what balance sheet resources remain; and round and round we go. The media cannot grasp as to why swap spreads would not only be negative, but quite negative and quite widespread and persistent, yet here it is staring them right in the face. A negative swap spread holds no meaning except to say that there is great imbalance in balance sheet factors on offer to carry out the financial factors necessary for the wholesale system to remain at least steady. You don’t have to know anything about interest rate swaps or dealer activities to see that plainly from what these banks report on their (off) balance sheets and in their own words.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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