Eurodollars Update From the Dec 2012 BIS Report

This is from the Dec 2012 BIS Report, which includes data up to June 2012.

As you may recall, the Fed's M3 Money Supply figures had included Eurodollars as a component.

The second chart represents the liabilities versus assets of foreign banks in their dollar holdings. I have related this to the eurodollar short squeeze in the past.

Eurodollar Update - Hunting The Black Swan - Gold and the Eurodollar

As you know eurodollars are US dollars held anywhere overseas by banks as a foreign currency liability or asset.

Eurodollars were formerly tracked by the Federal Reserve and were included in their M3 figures. In fact, the reason that the Fed stopped issuing its M3 is because it stopped tracking eurodollars. The other components remain.

But the Bank for International Settlements, or BIS, continues to track the dispersion and concentration of global currencies in their reporting banks in their quarterly reports. And this is the source I have been using to derive estimates in the magnitude and changes in dollars held overseas.

Based on my reading of their documentation these figures do not include 'official dollar reserves' of central banks, but rather the dollar holdings as foreign currency of their reporting private credit institutions.

From what I can tell, there is a definite difference between the Fed's tracking of eurodollars, which was based primarily on the foreign branches of their own member banks, and the BIS, which reports on dollars held by a greater universe of ALL banks around the world.  This seems consistent with the Fed's statement at the time that continuing to continue to track eurodollars reliably would become cost prohibitive.  I am curious as to their seeming lack of ability to exchange and share data with BIS.  I would judge the BIS number to be the superior number.  At the end of the day, dollars are dollars, unless there is a selective default, different currency classes, or some benign accounting notation.  The BIS data have every appearance of legitimate dollar claims.

For more on M3 and eurodollars read here.

Even a casual glance at the data shows that there was a trend change in the growth of eurodollars in the mid 1990's. This trend is something I have identified as one potential source of a US dollar crisis if the currency begins to fall in value or lose its appeal US in an uncontrolled manner.

I have not tracked the actual source of the eurodollar growth although it seems to be tied to the trade deficit and a variety of components in the Balance of Payments.

My current estimate of eurodollars is 2.25 trillion which is not insignificant even in these days of an exploding Fed Balance Sheet.

As an aside, the last time the US repatriated funds held by US companies overseas through a tax reduction program was in the 2005 Homeland Investment Act. That seems to have had no material effect on the level of eurodollars at least judging from the charts, and probably did more to inflate the income of the wealthy and stock prices.

During the financial collapse there was a eurdollar short squeeze, primarily in Europe. This is because the dollar denominated assets which they held against their dollar liabilities because to collapse in value, in large part due to the mispricing of risk and fraud.

The trend to an increase in Eurodollars has resumed after a steep drop after the financial crisis.

In the second chart we can see that the banks overseas have adjusted their shortfall, or 'the squeeze,' in part due to the swap lines that the Fed opened through their central banks to relieve the pressure.

There are correlations between gold, the US dollar, US dollar LIBOR and the related TED spread, and eurodollar demand that I have discussed in the past, particularly here, but also here and here.

Last Official Report on Eurodollars from the Fed was in 2006 when they were just over $400 Billion

Euro Dollars - The Great Dollar Overhang and Missing M3 Component - Gold and Silver

These figures are from the Preliminary BIS Reports of November 2011 which reflect reporting bank positions as of the Jun 2011 quarter. Obviously therefore they do not yet reflect the recent Fed expansion of the swap lines for dollars.  The first chart represents the total dollars held by banks as 'foreign currency.'

As you will recall, a 'euro dollar' is any US dollar being held overseas, in currency or in electronic digits, whether in Europe or Asia.  I should add that a certain amount of physical dollars in private hands overseas are held outside the official banking system, particularly in the illicit substances and materials sector.

The 'Euro Dollar Gap' Chart which is the second chart reflects the difference between the reporting banks Liabilities and Assets in foreign held dollars. This gap can cause a Eurodollar short squeeze such as we had seen in 2008, and to a lesser extent in 2010. We are also in a eurodollar short squeeze now, as exemplified by the recent Central Bank effort to make more dollar swaps available to Europe. The BIS figures have obviously not yet caught up with this yet, but they will in time.

As discussed previously, one of the reasons that European Banks require Dollars is because customers were demanding the return of their dollar deposited financial instruments while the Banks dollar assets had markedly decreased in value because of bad investments in Dollar denominated Collateralized Debt Obligations.

In the third chart I compare the Fed's Eurodollar figures in the series that was discontinued in the beginning of 2006. Although the lines are relatively similar, it should be noted that the magnitudes of the numbers just do not match, with the BIS reporting significantly higher numbers even though the relative changes in the lines are similar. I do not know, for example, if the Fed was including Central Bank Reserves or not.

But I think one takeaway is that the amount of Eurodollars are significantly higher now than they have ever been as a result of the growth of the dollar bubble in US financialization of debt, much of which had been purchased by European banks.

The gap between Dollar Assets and Liabilities creates short term demand spikes, as we have just recently seen in the actions by the Fed and a few other Central Banks to make more US dollars available in swaps.

There is another set of BIS reports I am examining that render higher figures with current Eurodollars in the neighborhood of 3.2 Trillion.  I am trying to figure out what these amounts include that the other measurements do not.   In the interim I am using the lower of the two. 

The bigger picture is that this enormous growth in Eurodollars is a result of the US financialization, more colloquially known as 'The Credit Bubble' and the US ownership of what is still the world's reserve currency.

I have some queries into BIS to understand if these figures include official reserves held by Central Banks. I do not think they do.

However, IF the dollar is supplanted by something else, or some combinations of things, as the world's reserve currency, there are obviously going to be an excess of US dollars looking for some place to go from their current havens overseas. And it is mostly likely that they will come home to roost.

I am sure that the Fed has a plan to sterilize this expansion in dollars available for domestic use. Whether that plan can work is another matter altogether. I do not believe that there is any precedent for it.

But one thing that is clear to me is that since 2002 'we aren't in Kansas anymore, Toto,' at least with respect to the growth of the US dollar overseas. And I think there is a linkage between this and the rather impressive bull market in gold and silver.

Another Eurodollar Squeeze? - Lehman Flashbacks - Crazy Eddie Does the World

"We committed our crimes at Crazy Eddie for fun and profit and simply because we could. We had no empathy whatsoever for our victims...

I eventually pleaded guilty to three felonies: conspiracy to commit securities fraud, conspiracy to commit mail and wire fraud, and obstruction of justice. I was sentenced to only six-months of house arrest, 1,200 hours of community service, and paid approximately $10,000 in fines...In my settlement with the victims of my crimes, I avoided all civil liability...

I did not cooperate with the government and victims because of any sense of morality or remorse for my crimes. I simply cooperated with them to avoid a long prison sentence and reduce potential monetary penalties. If my crimes had remained undetected and the government did not seek to prosecute me, I would probably still be the criminal CFO of Crazy Eddie today."

Sam Antar

This report was at least partly responsible for the plunge in stocks and the rise in gold. It gave the markets a Lehman flashback.

This is the kind of moment where Greenie would announce he was ready to put out any and all fires in the markets with his großen Dollar schlauch.

In Bernanke's defense, when Greenspan was boss the US government was still a going concern, without crazy Uncle GOP trying to crash the car into a ditch to show Babbling Barry who is the boss.

And the politicians are only doing what the Banks have been doing for years.

Say what you will about it, the dollar is still the reserve currency, for now. And the financial system, in addition to the equity market carnival show, is based on nothing more fundamental than greed and fear, and short term positioning. The only capital allocation being done is from the real economy into the pockets of the financiers.

And that is the failure of Monetary Theory, Parts 1 and 2, and the Chicago School of Carny-nomics.

The market action here is a bit cynical, even by current standards, and tailor made for an option expiration this week and next. But the backdrop of danger is real. That makes it a tough play.

Bloomberg reports that 75% of the volume is High Frequency Trading. It adds no real liquidity, it only distorts and extracts. When one needs it, it is either gone or reinforcing the short term trends. That it still exists is a tribute to the dodgy nature of the markets, and the failure of US governance.

I took my profits. When in doubt, stay out.

"We have known for some time that the ECB has been holding both the Euro-based interbank liquidity market and the sovereign bond market together with its balance sheet. But as I reported late last week the international liquidity being provided to banks is drying up and this is an Achilles heel for the European banks. They have been borrowing short in US dollars to fund long term Euro-denominated assets. This means they constantly need a rolling supply of $US in order to meet the repayments on their prior short-term funding obligations as their Euro assets mature more slowly. If the holders of $US no longer think they are a safe bet then they are caught in a good old fashioned banking liquidity trap."

ECB Moves Into FX - Macrobusiness

At least some of the friends of Ben have dollar reserves, but they are hardly enough to hold off a panic, a modern variation of the classic bank run. These Ben Bucks are being used to put a little Spine-a-Cola into their balance sheets. Show-cash. A wad of Tens covered with a C-note.

From Phil's StockWorld's review of Sam Antar.  This is a nice description of what I have called 'the CEO defense.'

The Art of Spinning:

■ Sell people hope. My cousin ‘Crazy Eddie’ Antar taught me that “people live on hope” and their hopes and dreams must be fed through our spin and lies. In any situation, if possible, accentuate the positive.

■ Make excuses as long as you can. Try to have your excuses based on at least one truthful fact even if the fact is unrelated to your actions and argument.

■ When you cannot dispute the underlying facts, accept them as true but rationalize your actions. You are allowed to make mistakes as long as you have no wrongful intent. Being stupid is not a crime.

■ Always say in words you “take responsibility” but try to indirectly shift the blame on other people and factors. You need to portray yourself as a “stand up” guy or gal.

■ When you cannot defend your actions or arguments attack the messenger to detract attention from your questionable actions.

■ Build up your stature, integrity, and credibility by publicizing the good deeds you have done in areas unrelated to the subject of scrutiny.

■ If you can, appear to take the “high road” and have your surrogates do the “dirty work” for you. After all, you cannot control the actions of your zealots.

■ When you can no longer spin, shut up. For example, offer no guidance to investors or resign for “personal reasons.” Your surrogates and so-called friends can still speak on your behalf and defend you.

■ If you are under investigation always say you will “cooperate.” However, use all means necessary legal or otherwise to stifle the investigators. Remember that “people live on hope” and their inclination is to believe you.

■ When called to testify under oath (if you do not exercise your 5th amendment privilege against self-incrimination) have selective memory about your questionable actions. It is harder to be charged with perjury if you cannot remember what you have done rather than testify and lie about it.

■ Try not to have your actions at least appear to rise to the level of criminal conduct or a litigable action. Being stupid or being unethical is not always a crime or tortious action.

Based on my own exposure in the distant past as a consultant to national politicians and news commentators, both Republican and Democrat, Sam Antar is a talented amateur who makes up for a lack of finesse, and a seeming lack of willingness or ability to use blackmail and violence, with chutzpah.

There are many, many good people in government and the financial world who only wish to do the right thing, and serve their country faithfully. I admire them, with gratitude. They stand a lonely watch, unnoticed by the world.

But there are times when the tainted few grab the reins of power for whatever reason, and things get a little crazy, and those are difficult times for the honest individual, to say the least.

Irish Prime Minister to Dissolve Government After a Budget Is Passed

Personally I would hope they do not even allow them to pass anything but a pro forma budget and then show them the door, because everything they do is tainted.

The elections will be a referendum on the financial corruption between the banks and the government elites in Ireland as they were in Iceland.

Why the Irish would yoke themselves and their children for years to save the multinational banks is puzzling. But it will not have been the first time that the Irish people were sold by their leaders to the monied powers in foreign lands, and it likely will not be the last.

Bloomberg
Euro Drops as Irish Government Plans to Dissolve After Budget
By Catarina Saraiva
November 22, 2010, 3:20 PM EST

Nov. 22 (Bloomberg) -- The euro fell for the first time in four days versus the dollar and yen after Ireland’s government started to unravel and Moody’s Investors Service said it may lower the nation’s credit rating by more than one level.

The dollar and yen advanced against most of their major counterparts as a drop in stocks encouraged investors to seek refuge from Europe’s financial crisis. The euro slid from a one- week high against the dollar as Ireland’s Prime Minister Brian Cowen said a day after asking for European aid that the government will resign following passage of the nation’s budget.

“Political uncertainty in Ireland could risk the timely implementation of the new budget and the austerity measures required to bring the deficit down,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “That’s a large negative for the euro.”

Éirinn go brách

Dollar LIBOR Normalizes and US Dollar Index Declines as Eurodollar Short Squeeze Ends

Dollar LIBOR, and the related TED spread, is the 'tell' for these dollar index spikes related to eurodollar short squeezes. As european banks scramble to obtain US dollars to satisfy customer demand, they drive the 'price' of the dollar higher. The cause of the squeeze in this case was the euro uncertainty based on ratings downgrades on Greece and a few other EU member countries, and the hedge funds determined selling of the euro, which created a sell off in euros and a flight to dollar assets. There is also continued deterioration in MBS and other instruments denominated in dollars and held in the euro banks on behalf of customers.



The US dollar index tracks the eurodollar LIBOR to a remarkable degree. When the BIS data comes out for this period in time I am sure we will see a repeat of the squeeze in eurodollar deposits that we had seen in the last two dollar rallies.

Why is this significant? Because it shows that there is no fundamental trend change in the US dollar, which is in a long sideways 'chop' and still likely to head lower.



Although I am sure the Fed swaplines were utilized, the Financial Times reports that some of the european banks have been trading their own customers' gold for BIS dollar reserves.

TED Spread Soars to a New Record - Symptom of the EuroDollar Squeeze?

There is a real possibility that the TED Spread blowout is not an artifact of risk per se, but a symptom of the US dollar squeeze in Europe.

US Dollar Rally and Deflationary Imbalances Overseas

TED is an acronym for Treasury and EuroDollar. A Spread is just the difference or 'distance' between one thing and another.

Eurodollars are bank deposits denominated in U.S. dollars but held at locations outside of the U.S.

Initially, the term only referred to dollar deposits in London but has been expanded to include dollar deposits at any offshore location.

T bills are US Treasury debt of short duration are considered to be risk free.

TED Spread = Yield on Eurodollar deposits - Yield on T Bills

The TED Spread is the difference between U.S. Treasury bill yields and yields for Euro deposit contracts of the same maturity, generally three months.

Demystifying the TED Spread