The subject of the dollar's strength and its ability to remain the world's reserve currency has been a subject of much debate. When thinking about the dollar it is important to note two things, first, it is often described as the cleanest dirty shirt in the closet. This simply means all other fiat currencies are worse or have more problems. Second is that there are more dollars outside the US than inside it, these are referred to as eurodollars.
The term "eurodollar" refers to unsecured U.S. dollar-denominated deposits at foreign banks or overseas branches of American banks. These dollars that are held outside the United States, are not subject to regulation by the Federal Reserve Board or regulations relating to reserve requirements.
In short, despite the name, eurodollars have nothing to do with the European Union or the euro currency. The name, a post-World War II moniker simply refers to the massive use of dollars in the global financial system outside of the United States. This means much of the debt in the world is based and must be repaid in dollars. The eurodollar plays strongly into what is happening across the world.
This is why global strategist Michael Every of Rabobank takes the stand the dollar is going "nowhere" or to clarify, it is solidly entrenched for now. He claims there may be ten times more dollars floating around outside of America than inside and much of the global offshore debt is owed in dollars.
The kicker here is that a trade war and tariffs have the potential to result in fewer exports to America. This translates into less dollars for those in other countries to pay back this debt. Logically this means a stronger dollar outside of America as creditors are forced to pay more for dollars needed to pay back existing obligations. It also sets up a potential liquidity squeeze for those finding themselves owing dollar-denominated loans. The eurodollar market is key to Brent Johnson's Milkshake Theory of a stronger dollar in the future.
Four and a half minutes into the Every video linked above he makes a strong case that the current forces flowing around us are a game changer. He also addresses the future of the bond market and U.S. dollar dominance. This has major implications for investors navigating the macrogeopolitical and economic news coming out every day.
As a Global Strategist, Every puts forth an expansive and thought-provoking conversation on the tectonic shifts shaping our world. This includes the collapse of the architecture based on a US-protected world. He makes it clear that the post-WWII order is changing, due to what he calls the rise of economic statecraft.
This is all happening at a time when we are witnessing the emergence of a multi-polar world and Europe is turning toward a Kenseane expansion of economic growth based on building a strong military complex. This is rooted in the questionable notion that Russia is about to attack and Europe must defend itself. Whether such a static can halt the decline of the Eurozone is questionable.
This approach by warmongers is also not conducive or reassuring to those wishing to achieve peace in Ukraine. The recent decline in the dollar may be overdone and the result of a combination of factors. Consider the possibility that the dollar's recent fall is the result of a blatant anti-Trump attack by the Eurozone and UK to destroy America's dominant global position in an effort to reestablish them as world powers. This includes dumping US Treasurys and pulling money back across the pond.
Uncertainty has been the word of the month, clearly, there is good reason to be cautious and move forward with a "buyer beware" attitude before listening or taking to heart any of the opinions being floated about by all the experts. In all honesty, there is little consensus on anything. A big part of Every's reasoning is based on the idea reality is rapidly changing and not everyone has updated their stand.
Footnote; For the latest on the Milkshake Theory see the following link. In the video, Johnson points out there is also something he calls the "dollar carry trade." https://www.youtube.com/watch?v=lbIQ-CFnSgo
(Republishing this article is permitted with reference to Bruce Wilds/AdvancingTime Blog)
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