Are you really advocating that the US taxpayer should bail out foreign depositors in FOREIGN branches of US banks where every depositor knew THERE IS NO FDIC INSURANCE…..PERIOD???? (It was bad enough bailing out depositors in US branches with deposits over the FDIC limits!!!) I agree that the US is completely eroding foreign trust in US dollar reserves……but not because we didn’t bail out foreign deposits in FOREIGN branches with no deposit insurance. I am appalled at that implication!!!
Nickelodeon
1 year ago
Huh, I thought the message was “the US taxpayer and fiat regime isn’t gonna bail you out this time”. Go figure.
Oh well, we all know the FDIC shouldn’t exist anyway.
Rbm
1 year ago
Cayman islands is not part of the us. Seems like hiding money off shore would have some risk.
Bombinization, gunization, canonization (already exists), tankinzation, aircraftcarrierization, hangrenadization and garrotizination are all variants that can be used if you want to be more specific.
Call_Me
1 year ago
“As a side note, Trump and Biden are amazingly close on sanction policy,
tariff policy, trade wars, China foreign policy, and willingness to
weaponize the dollar.”
W’s military/foreign affairs policies were amazingly close to Obama’s — there is a lot of continuity between adjacent administrations.
Steering the ship of state may be done by a ‘commander’ who can use extreme positions, but the ship itself is very large and does not change course quickly.
Goes back to those railroad tramps and the tall, thin gawky guy with one hand in pocket leaning against the wall the afternoon of Friday November 22, 1963.
While Truman proudly paid for his own postage stamps for personal letters and Ike was looking like everybody’s grandfather on the golf course, the Dulles bros took over the country ever since.
Interestingly, the bureaucrats that remain in power in all administrations keep things running pretty much the same.
It’s the fourth branch of US government they never taught us about – the bureaucratic.
Salmo Trutta
1 year ago
Bretton Woods and Growth of Eurodollar Market | St. Louis Fed (stlouisfed.org)
Wikipedia: ‘Several factors led eurodollars to overtake certificates of deposit (CDs) issued by U.S. banks as the primary private short-term money market instruments by the 1980s, including:
The successive balance of payments deficits of the United States, causing a net outflow of dollars;
Regulation Q, the U.S. Federal Reserve’s ceiling on interest payable on domestic deposits during the high inflation of the 1970s
Eurodollar deposits were a cheaper source of funds because they were free of reserve requirements and deposit insurance assessments.
Now these factors have largely been reversed (except for our trade deficits).
Salmo Trutta
1 year ago
“if one understands the structure of the Eurodollar system one can see that it faces the Triffin Paradox. This was an argument first made by Robert Triffin in 1959 when he correctly predicted that any country forced to adopt the role of global reserve currency would also be forced to run ever-larger currency outflows to fuel foreign appetite – eventually leading to the breakdown of the system as the cost became too much to bear.”
The Eurodollar Market Is The Matrix Behind It All – Daniel’s blog (wordpress.com)
Day of the Triffin. “The dollar is our currency, but your problem.” Was our empire forced to adopt the role of global reserve currency, or did it jump at the chance?
By the way Russia’s Dollar and Euro reserves in US and European banks are frozen and not confiscated. Russia still owns the money. They just can’t get to it. Since Ukraine will certainly sue Russia for damages due to Russia invading them, from a legal point of view you would say that these funds will probably be moved into escrow awaiting the results of the Ukrainian suit.
Look up the meaning of escrow. Also look up the freezing of assets. Iran had a chunk of money frozen for 25 years and got it back when it became unfrozen. Honestly you should already know this stuff.
Salmo Trutta
1 year ago
The July 2011 demarcation
in E-$ liabilities was principally due to: (1) “the FDIC formally modified the
assessment base in 2011 to include all bank liabilities”, which made foreign
deposits, e.g., E-$ borrowings, more expensive (never before applied assessment
fees), and Basel’s additive Liquidity Coverage Ratio (LCR).
Izabella Kaminska: Thus the BIS is right about Yankee Bonds. See: March 6, 2017
Where are the world’s dollar deposits coming from? | Financial Times (ft.com)
Non-US banks’ global dollar funding grows despite US money market reform (bis.org)
A paradigm shift in markets? (bis.org)
guest user
1 year ago
From how I read the article, FDIC will not cover foreign branches of US banks. They will still cover foreign depositors with money held at the US branches of US banks. That’s a big difference that is not supportive of your claims of further weaponization.
If this is the case then makes sense. Foreign branches of banks are usually governed by local laws where they operate.
If a foreign branch goes bankrupt then the local FDIC-equivalent should cover the depositors.
I am not familiar with Cayman Island banking laws, but all foreign banks that operate in the Channel Islands are guaranteed with local Jersey or Guernsey depositor insurance.
Captain Ahab
1 year ago
Does it get any funnier? Why would foreign depositors/investors buy US bonds?
As do anyone else who needs to buy oil. Hence those guys will want payment in dollars too, so they can buy oil. Resulting in everyone needing a stash of dollars to buy stuff. And US bonds are the most convenient combination of liquidity and security available in which to park that stash.
Only fly in the ointment is: All useful things which anyone needs, other than oil, are now made in China. Hence ultimately priced in Yuan. This even includes all useful things, other than oil, which oil producers need. In a world with zero coordination nor social concerns, everyone would need a stash of dollars for oil, and a stash of yuan for everything else. But: Since China has decided to let the Yuan very closely track the dollar, and China has the economic and financial muscle to maintain any peg to anything for pretty much ever no matter what: Third parties trust that this soft peg will largely be maintained. Which allows said third parties the convenience of keeping only a dollar stash. After all, since there is no meaningful currency moves between Dollars and Yuans, they can get whatever yuan they need on short notice.
Of course everyone sentient, even communists, recognise US money printers are abusing the heck out of this peg. Effectively printing unlimited dollars into existence without building anything useful at all. Dollars which they can then turn around and command millions of Chinese to work their butts off, in order to obtain….
The hack seems to work for now. Commies aren’t known for being the quickest on the economic uptake…..(after all, even basic economic literacy precludes belief in something as silly as communism..) But one day, even the Chinese will figure out that they are being scammed. And let the dollar drop. When, NOT if, that happens; dayummm!! There’s an awful lot of dollars out there, and America has hardly been able to competitively produce anything since before Vietnam. So pray tell what all those dollars will end up getting you; once the Chinese stops caring enough to effectively backstop them with Chinese made hard goods and services…..
The Americans produce some of the most competitive weapons in the world’
After the Israelis.
Directed Energy
1 year ago
LQQK, clearly it’s time to stop monkeying around and cue up the WW1 and WW2 three-peat
Knock the world down, remain the undisputed champion, reap the rewards.
There never was another way and there never will be. Man up.
Zardoz
1 year ago
Just a little taste of debt default…
Naphtali
1 year ago
You are spot on Mish. This is an absolute disaster.
Doug78
1 year ago
Funny thing is that if The EU wants to get rid of SWIFT they would be getting rid of a system they started in 1973 to handle Eurodollars and is headquartered in Brussels.
Doug78
1 year ago
The Cayman Island branch of SVB is not federally insured, is not in the US and is not regulated by the Fed nor the SEC so there is no reason why those deposits should be covered. If you put your money there and lose it then too bad for you. Stupidity has a cost.
Here’s the curious part though. No one actually deposits physical cash (minus businesses at the end of the day type thing), so the money is not really in the Cayman bank branch, it’s just digital numbers in a computer located in the US. Technically it’s not ‘lost’ at all (ie it’s not physical dollars that could be stolen or burned up in a fire etc).
What it’s really saying is that US banks doing business abroad can’t be trusted. Assuming there are no legal challenges coming, I wonder if this sets legal precedents for other businesses besides banks. Say some other international US business goes under, would they then treat the US part different than the foreign part when divvying up assets for creditors.
It’s just 1 and 0s in a computer somewhere but when I lose money in a stock trade I feel the loss as much as if I lost a bag of gold coins on the way back from the bank.
As for trusting US banks in foreign countries that would depend on the bank and the country in which it has its branch. If the branch is in a country that has credible bank supervision like UK, Europe, Japan and so forth and since the branch is regulated by the host country there should be no problem. If the bank branch is in a tax haven with little or no regulation then that is an entirely different matter. In that case your only protection is the solvability of the main bank and in the case of SVB you are out of luck. Many of the “banks” in these tax havens are just PO boxes with no staff. Another thing is that if your bank goes under and needs a white knight, having a large presence in a dodgy tax haven would be a big handicap because the potential buyer would not have an idea what was in that branch and who that branch was dealing with.
Remember, SVB assets were NOT zero though so what the FDIC did was steal foreign depositors money to make US depositors whole.
As an example, lets say all SVB depositors had 500 billion and foreign deposits were 50 billion of that. But the value of SVB assets were only 400 billion. So the bank is insolvent and technically everyone should be getting a 20% haircut (400/500). What the FDIC did was guarantee US depositors so they took ALL 400 billion that remained and then distributed that to US depositors and then added 50 more (US depositors had 450 of 500 billion in my example) to make US depositors whole. This leaves nothing for the foreign depositors. In other words they stole the foreign depositors money to pay the US depositors so that the FDIC wouldn’t have to pay out as much money.
The Cayman island branch is under FDIC receivership so until that process is over and publicly reported we don’t know how much money is there or not there. That branch was not included in the deal so it has its own bankruptcy. To say that that money was stolen to make the US part whole is not based on what we know for now. No bank wanted the Cayman branch because perhaps what was in it. No buying that branch does not equate to theft. You also assume that the branch has net assets but it is quite likely that it was net debt. We just don’t know yet.
Lets see how it all shakes out then in a few months time. My guess is the FDIC stole foreign money at the behest of the US government.
I highly doubt the Cayman island branches were a net debt given it was all foreign money in there to avoid US banking rules. You open offshore accounts to deposit money, not to take on debt.
worleyeoe
1 year ago
“The demise of the current US-dollar financial system with SWIFT at the heart of it is underway. I just cannot tell you when the system crumbles, nor can anyone else.”
IMHO, BRICS + Saudi Arabia & 10-15 more countries are going to do their absolute best to bring about the collapse of the dollar’s hegemony much sooner than all the currency gurus think is possible.
They will absolute take advantage of our soaring debt load & complete lack of unity as a country and political system.
When the US dollar was backed by gold, did you ‘have possession of the physical?’
What is needed is a secure physical storage. Eg. A collection of banks prepared to buy and redeem physical gold units for digital gold units using the currency of the countries they operate in. Arbitrage does the adjustment.
I doubt the US govt has the kind of clout to stop international banks from redeeming gold at the current exchange rate less a small transaction fee. Every ‘month’ or other period of time, each bank would transfer physical gold to balance the accounts.
Ultimately, the only viable “currency” for the next 3-5 decades, will be the one the Chinese workforce is being paid in. Those are the guys doing all the value adding work. Increasingly, even all the work of getting oil out of Middle Eastern ground and to end consumers.
Other than the Yuan, or a closely tied currency, any other alternative will require the Chinese to continue allowing someone else unlimited access to print unbacked claims on their own labor force.
Oil is certainly the one big commodity everyone needs above all else. But it’s easy for producers to accomodate large swings in price, even realtime. Not so much the price of labor across a billion+ people economy where half the world’s industry resides.
Maximus_Minimus
1 year ago
The bigger impact is the implicit guarantee of all deposits. Once you start, you cannot go back on it.
2009, implicit guarantee of housing.
2023, implicit guarantee of bank all deposits.
Profits are privatized, the loses (through failure or bubbles) are socialized.
2024 implicit guarantee of poverty for the lower half.
HippyDippy
1 year ago
Don’t worry! If we just listen to Brussels, we’ll have a global digital currency along with its social credit features. That’ll make sure that sanctions work against both individuals and countries! All it takes is a depression that’s about a tenth as severe as the great depression for all the consumer zombies to get onboard with it. Personally, as an anarchist, I don’t think there should be a state to screw up the currency. But, the slaves all demand a master, for they love their misery so.
How long before the FDIC coverage is changed from:
“The FDIC protects the money depositors place in insured banks in the
unlikely event of an insured-bank failure. Each depositor is insured to
at least $250,000 per insured bank.” (source: link to fdic.gov)
to:
The FDIC protects the money depositors place in insured banks in the
unlikely event of an insured-bank failure. Each depositor is insured with no maximum, provided depositor has, at minimum, $250,000 on deposit at the affected insured-bank.
And make sure that Feinstein and Fetterman are present to use their considerable intellectual powers of discourse to convince the other senators as to the merit of the bill.
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tariff policy, trade wars, China foreign policy, and willingness to
weaponize the dollar.”
Wikipedia: ‘Several factors led eurodollars to overtake certificates of deposit (CDs) issued by U.S. banks as the primary private short-term money market instruments by the 1980s, including:
in E-$ liabilities was principally due to: (1) “the FDIC formally modified the
assessment base in 2011 to include all bank liabilities”, which made foreign
deposits, e.g., E-$ borrowings, more expensive (never before applied assessment
fees), and Basel’s additive Liquidity Coverage Ratio (LCR).
unlikely event of an insured-bank failure. Each depositor is insured to
at least $250,000 per insured bank.” (source: link to fdic.gov)
unlikely event of an insured-bank failure. Each depositor is insured with no maximum, provided depositor has, at minimum, $250,000 on deposit at the affected insured-bank.