2min chapter

Money & Macro Talks cover image

The Offshore Global Dollar System | ft. Jeff Snider

Money & Macro Talks

CHAPTER

The Sound Money Advocates Are Already Throbbing Their Hair Out

The Eurodollar system was not constrained by governments, but there were some constraints. By and large, if a bank could dream up a different way of transacting with another bank, think about things like currency swaps,. A currency swap functions every bit like cash and money being transferred. So if banks are essentially, a bank-centered monetary system that is somewhat unconstrained in the ability to create money, all the sound money advocates out there tearing their hair out because they know where this goes.

00:00
Speaker 2
So Jeff, that sounds amazing, right? This all sounds like a fairytale. We have this need for money internationally. The private sector steps in, creates that money. And now we have the wonderful Eurodollar
Speaker 1
market. So there's nothing to worry about. Yeah, that's where the fairytale usually turns into a nightmare, right? That's the, you know, the hard money sound money advocates are already screaming, they're already tearing their hair out because what they've historically speaking, if you have unconstrained monetary creation, the ability to create money at will, and it's not, you know, it's not necessarily the case. The Eurodollar system was not constrained by governments. It was not constrained by the amount of physical currency in the vaults, but there were some constraints. They're usually individual bank constraints. By and large, if a bank could dream up a different way of transacting with another bank, think about things like currency swaps, for example. A currency swap functions every bit like cash and money being transferred, even though it's a derivative of a derivative of a derivative. So if banks are essentially, a bank-centered monetary system that is somewhat unconstrained in the ability to create money, all the sound money advocates out there tearing their hair out because they know where this goes. Because once you allow, you get confirmation bias, you got recency bias to creep in, the bank system, okay, we'll create a little bit more money and then we'll recreate a little bit more money. Nothing you bet has happened, so we'll recreate a little bit more money and then a little bit more money. And before you know it, the entire focus of the system goes off of intermediating global financial needs into just let's create money to create money. Let's create money so that we can create our own customers. And that's how you end up with things like subprime mortgages, as well as all sorts of ridiculous lending programs all over, not just in the US, not just in the housing bubble, but really through the middle 1990s, as I was starting my career, looking at all this stuff, or anywhere the hell of this stuff was coming from, from that point forward, because the money creation function was Eurodollar system itself, it eventually went too far. And when it goes too far, it's the same thing that we see every time we go through these boom boss cycles, these bubble cycles, it goes through a nasty period where things are never the same again.

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