Recommended Posts

On 3/10/2021 at 6:17 PM, 0R0 said:

As usual, internal US monetary policy had nothing to do with the inflation nor the credit boom of the 2000s, the inflation pre 2008 GFC came from the Eurodollar side as international credit expansion  was the cause and it was centered on the China bubble. Just as Italy Japan Korea etc in the 1960s and 1970s inflated the Eurodollar system as an aftereffect of their externalization of their inflationary monetary policy, The central banks are irrelevant here, it is only their role as backing up their jurisdiction's international banks' dollar books. 

The Fed's book is far smaller than it should have been. BIS data  shows that in 2019 the total share of American holders in dollar bank liabilities and cash was 30%. That is an absurdity due to half a century of tight money policy on the Fed's side as at first Europe, than Asia and then China had received the benefit of dollar credit expansion and caused it. US rates were held artificially high in order to prevent it from recovering industrial capital as its markets were shut off from it.  However, the recycling of capital into the US since Volcker and cresting in 2007   at an inflow rate of 17% of US GDP- far dwarfing US bank's contribution of 3% of GDP in new credit, had countered much of this deliberately destructive Fed policy.

The ZIRP followed the GFC, not preceded it. Oil prices never made it back to their peak bubble period of 2007 near $150/bbl after the GFC. The GFC was a consequence of the China bubble and its collapse. All the finger pointing in Asia against the US and its supposedly profligate ways is the precise opposite of reality. The US banking sector was, and even now remains, a minor contributor to US credit inflation. The eurodollar system through which these same Asian complainers shove the monetary consequences of their irresponsible malinvestment in useless industrial capital, China at the head of the parade, CAUSE the exact circumstance they blame the US for. The US trade deficit is a consequence of their policy FORCED capital outflows in both financial flows and subsidized exports that amount to capital export into the US as well. The conceit of China and its Asian neighbors that their policy driven and debt financed investment into market flooding production capacity being "smart" rather than the idiotic "great leap forward" kind of strategic "thinking" does not deserve serious consideration as anything other than a massive delusion. 

In reality, it is not the Fed or Treasury that has a dollar policy and little share in dictating monetary affairs. It is the reality of international governments pushing their own policies into the Eurodollar system where 70-80% of dollar expansion had occurred since 1971 and which is now deflating, causing an enormous vacuum suction on the US domestic financial system for both fully reserved dollar cash accounts and treasuries to back Eurodollar liabilities. They US monetary policy needs to be orders of magnitude looser than the rest of the world for the next 2 decades to balance it out and maintain a viable system - and similarly for any system that may follow. US banks did not spend the last 20 years ruining their reputations and thus market shares with pervasive fraud because it was so lucrative, but because it was the only thing that they were able to do that  foreign capital inflows satisfied with low returns, didn't wash away, Their domestic control of their policing allowed them to do $100 Trillion of naked short selling - which is utter fraud and caused the market float to drop by 40% of companies, and a dearth of early stage companies coming to market where they could be attacked by banks producing counterfeit shares for their big hedgie clients to short. 

The continuous repetition of DeGaul's exorbitant privilege speech by every leader critical of the US dollar reserve system is the clear indication that they don't understand how it works and how little the US has to do with driving it one way or the other. It is a truly external currency system for the US and the world and has been so since 1933. It is a banker's banking system that has nothing to do with US policy and the bulk of the banks involved are not US banks but European banks, with the operations centered in London. The "successful" economies of big exporters that drover their people into industrial urban areas where they couldn't afford children and thus reverted to massive excess saving instead - a result of deliberate policy - complain about the system they themselves forced unto their people and the obvious consequences in finance of forcing the excess savings into massive capital malinvestment domestically and internationally. There were just recently $20 Trillion of negative yielding sovereign bonds. It is because malinvestment of these high saving high export economies has created a world with no persistent positive margins for the average business. 

There is no need to shift to renewables. LNG as shipping fuel displacing bunker diesels will reduce demand for the less plentiful oil. Renewables, where they make sense economically, will do their bit. But there is no need for policy to drive the panic into producing profits for Chinese rare earths monopolists. Policy should avoid EVs and favor H2 engines and infrastructure. It is an order of magnitude better system in reliability and distribution and storage capacity. The solar and wind projects only make sense as producers of H2 or electrogas (methane). Otherwise, the capacity needed to make for reliable electricity is 5X what you need with an all fossil fuel system, and costs 20 X as much capital (spit in the air figures of course). The H2 economy for general energy can justify the excess capital investment in producing something that can be used later at a reasonable cost with all that excess renewable electricity divorced from consumption periods.  The only reality of EVs and renewables are political ones and they have been pushed for parochial needs of desperate financiers lacking for large scale investments in real economic capital. It is a simple scheme of creating artificial deficits and supply constraints. It is Genocide for profit. And you get to moralize and pose in virtue signaling selfies. 

re: the eurodollar:




The eurodollar market has played different roles over the last 38 years. Originally, although US residents held net dollar claims on the rest of the world through it and round-tripped dollar funds through it, it mostly intermediated between non-US residents. The eurodollar market reached its maximum size relative to domestic US intermediation before the recent global financial crisis on the strength of round-tripping, as European banks sold US investors low-risk placements and bought risky US debts. As European banks deleverage, this round-tripping is shrinking as a share of eurodollar banking, restoring intermediation between non-US residents as the increasingly characteristic eurodollar banking transaction.


Seems right in hindsight. China also burned through a ton of reserves protecting the Renminbi circa 2014. 

I think over a long period of time, hydrogen will be more viable, but it may take decades to overcome some of the hard materials science challenges (in practice, hydrogen embrittlement, I'm sure it'll be piloted more on the small scale, but there has to be rigorous monitoring of pipeline conditions even relative to NG). Most of other other renewables seem much closer, and especially have the benefit of learning curves of what failed "last time" around (which was in practice, like 10 years ago), especially in solar. Solyndra and a bunch of failed solar companies? Well, they all published books on what worked and what didn't. They are highly insightful. 

As with any technology, prediction of the 'S curve' (the logistic function, aka the technology adoption curve) depends on the assumptions you make and the 'data' you look at. For example, if you examine every single car manufacturer's externally reported "numbers" in say, 2025 or 2030 and work backwards, almost all of them except for Toyota are planning en masse electrification because the R&D spend has already been done. For the short term, I'd personally bet on en masse growth in various types of lithium batteries. 

If Covid-19 has taught anybody anything, humanity can solve any resource allocation problems in record time (for example diversifying "rare" earths) by improving traditional (very inefficient) information flow problems with better [ultra capital efficient digital interfaces]. For example, most countries publish all sorts of data into the public domain, including very expensive USGS LIDAR surveys: 

It may take more non-traditional capital to flow into industries like mining to give the world more options outside of China. I think it will, it may just not take 10 years to ramp up stuff anymore. 


Share this post

Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

You are posting as a guest. If you have an account, please sign in.
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.