- When trying to forecast US Dollar movements, market participants tend to narrowly focus on the domestic US Dollar market, as opposed to the global US Dollar market (domestic + Eurodollar market), which also includes all US Dollars in circulation outside of the US.
- The Eurodollar Market is one of the most influential and least understood drivers of financial markets. It is one of the fundamental reasons why monetary policy has historically been ineffective and illustrates the limitations of Central Banks in their ability to quantify US Dollar supply and demand.
- We explore the origins and developments of the Eurodollar market and conclude that without efforts to fully understand it, we’re unlikely to successfully control US Dollar inflation.
As current sentiment becomes increasingly tuned into the narratives of policy-induced inflation/reflation, geopolitical posturing in a post-COVID world, and concerns around the long-term impacts of ZIRP/NIRP, there is one overarching puppet master of the markets that is not only potentially more influential than all the previous concerns (combined) but is one that is far less understood: The Eurodollar Market.
The Eurodollar Market, also called the Offshore Dollar Market, is something of a mystery in modern finance. It’s widely recognized that it exists, but its size, how it came to be, and the influence it has on today’s modern financial system are largely unknown. Even the most sophisticated investors can get tripped up if you ask them about it, and many dismiss it as some great unknown.
The US Dollar is a major driver of asset prices, but when trying to forecast its future performance, most financial market participants narrowly focus on the domestic US Dollar market, as opposed to the global US Dollar market. Analogously, this would be like trying to forecast the price of oil but only by taking into account US WTI production while disregarding worldwide Brent production.
Because of this, we’ve spent the last few months working out the full picture (within what’s possible to know) of the Eurodollar Market (an extension of the global supply/demand of dollars equation) to help us gain a broader understanding of the totality of the US Dollar market.
Let’s be clear, we’re not going to sit here and pretend we have all the answers. But, luckily, we know the guy who does. To that end, we asked Jeff Snider to help us in creating this deep-dive where we’ll explore:
- What exactly is the Eurodollar Market.
- How it came to be.
- How it operates and who or what regulates it.
- How it affects the global monetary system.
If you don’t know who Jeff is, he’s the Head of Global Investment Research at Alhambra Investments and is widely considered a luminary in this space (and broadly speaking, knows more about the global monetary system than most of the people running it).
We’ve done our best to take what’s in Jeff’s head and break it down so that we can glean an understanding of the inner workings of this beast.
So, buckle up and enjoy!
“Most people realize there is a historical as well as functional significance to global reserve currencies. From global trade to gross financial investment across geographic and national boundaries, the modern, integrated economy doesn’t happen without an efficient, well-functioning dynamic global reserve system. Beyond the cursory, there’s very little depth to the public’s knowledge base. Few can describe the current monetary system’s basic factors let alone the finer details of how this reserve regime carries out these critical monetary roles. This is because the de facto global reserve currency isn’t the one you’ve been taught nor has it been for a very, very long time.” – Jeff Snider
In laymen’s terms, we care about the Eurodollar Market because it has a huge impact on the global reserve system (the US Dollar), which is a vital organ to a well-functioning and integrated economy.
What is the Eurodollar Market?
The standard definition of a Eurodollar is any US Dollar that is on deposit in a bank outside of the United States (not just in Europe, that is simply the naming convention). Domestic US dollars in circulation can be measured in several different ways, but the broadest and most widely accepted is M2, which as of January of 2021 is ~$19 trillion. Eurodollars are, therefore, by the standard definition, all other US dollars in circulation not accounted for by M2.
Jeff broadens the definition, however, to include all dollars not under the watch of the domestic US monetary system (M2).
“Essentially, it’s a radical monetary evolution, away from the traditional format that was based on deposits of dollars, toward the more indescribable and ill-defined interbank market of these bookkeeper’s pen ledger balances moving back and forth.”
What Jeff is saying is that Eurodollars are made up of two distinct buckets:
- The first is the Eurodollars found in traditional bank deposits (presented in detail by Milton Friedman)
- The second is the addition of wholesale banking transactions that create an incremental supply of USDs that doesn’t get captured in the official statistics of M2
It’s a difficult thing to believe, but no one really knows for sure where Eurodollars came from, but it’s generally understood that the market began sometime in the 1950s, and by the 1960s there was an unregulated monetary system blinking on the Feds radar. Consider this:
- The Bretton Woods Conference in 1944 made the USD the world’s reserve currency. In essence, it was also an agreement by treaty to settle all international trade in USDs, which set the stage for a large global need for USDs.
- This seemingly simple trade settlement agreement effectively required sovereign nations to hold USDs outside of the US to clear transactions. This ultimately evolved, over the next 50 years, into a system where US Treasuries became the preferred reserve asset of foreign central banks1.
- Post-Bretton Woods, the world was now in much need for USDs, but the means through which countries would get access to USDs was never really thought through; therefore, this process kind of just evolved through the workings of the banking system.
In the Beginning…
The first iteration of the Eurodollar Market materialized in the form of a Bankers Acceptance Note (Note), which was essentially a Certificate of Deposit, denominated in USDs, which allowed two foreign nations to transact with each other, as efficiently as possible.
- Japan wants to buy goods from Sweden, so they take their Yen, buy a USD denominated Note, then trade that Note to Sweden in exchange for goods. Sweden can then exchange the Note for their domestic Krona.
- This is different from where we are today as these USDs did not sit outside of the US. These were simply transactions taking place, converting a foreign currency into USD to facilitate trade.
The mystery, however, is that there is no definitive understanding of the evolution from this exchange system, to where we are today, with dollars on deposit outside of the US.
Remember, Notes are certificates that you effectively “buy” from the US and use as currency or collateral to trade, without having USDs leave the US.
Eurodollars are, instead, USD reserves in foreign countries that effectively remove the need to “buy” certificates from the US as one could simply use the USDs available for exchange of goods.
What this meant was there no longer needed to be exchanges of cash upfront for these things to work (like in our Japan and Sweden example). This was a more elegant and efficient (albeit unintended) solution to a cumbersome problem (foreign countries transacting in non-domestic currencies).
Like the Note, the EDM first and foremost filled the need for common liquidity settlement mechanisms in global trade, but in a more efficient way.
- “It provides the ability to mediate trade needs using what is essentially a global standard. That’s why we call it the global reserve currency because it allows these various systems, these very distinct monetary systems and trade systems, to translate one from another. And that’s what the US Dollars’ role was in terms of the global trade network – to allow these things to happen in a way that was as efficient as possible. Efficient trade means better economic growth.” – Jeff Snider
A pieced together theory of this evolution through a variety of sources is as follows (thank you for doing all the leg work on this Jeff!):
- In the early days after Bretton Woods, Pounds Sterling was the co-reserve currency with the USD.
- With the British Empire still holding dominion over large swaths of global geography and therefore the banking infrastructure, large amounts of global trade were still being conducted in Pounds Sterling.
- However, as the Empire began to crumble in the 1950s, there were multiple Sterling Crisis’ followed by the Suez Crisis, which began making it more difficult to transact in Pounds.
- Because the USD was co-reserve, and because for some unknown reason there were USDs stored in various places (one theory is that the Soviets were placing USDs in Switzerland to avoid political ramifications or confiscation from US authorities), when the Sterling and Suez crisis’ hit, the merchant banks in London only had to switch from Sterling acceptances to Eurodollars.
It’s worth repeating, that there really is no definitive knowledge about where these Eurodollars come from. Interestingly, in the FOMC minutes from the 1960s, the mention of ‘Eurodollars’ evolved slowly, then all at once.
At the time, a high-ranking official of a global bank postulated that the source of Eurodollars was “partly, U.S. balance-of-payments deficits, partly dollar reserves of non-U.S. central banks, partly the proceeds from the sale of Eurodollar bonds”.
Milton Friedman essentially said this explanation was ‘complete nonsense’ and offered the explanation that “their major source is a bookkeeper’s pen.”
Back then, the gold standard was still in effect (not lifted until 1971), and so there was an understanding that under a gold standard, you can’t inflate the value of dollars away by printing because they had to be backed by gold. This held true, but only in domestic terms, which was where the US had control over the USDs.
With the emergence of the EDM, understanding the money supply from a global perspective became impossible as the USD to Gold ratio became completely distorted (as large volumes of USDs were being printed outside of the US without The Fed’s approval). Implied here is that even before the de-pegging from gold and today’s QE-infinity, there were new USDs being created, and destroyed, basically out of thin air, in the offshore market.
Bretton Woods was created with an inherent weakness in it where central banks could circumvent all the protocols that were supposed to keep the USD and Sterling in a specific value range.
- “I would argue that what central banks did was a symptom of the underlying inherent flaw in Bretton Woods. Basically, a fixed or nearly fixed money supply is inadequate (and problematic) for periods of rapid growth. Gold standard economists would say, “yeah, that’s the point; to keep things limited and under control.” In reality, that monetary restriction almost always leads to the creation of non-official currencies to fill the gaps; rapid growth requires money growth to keep up so that economic growth is not overly tethered. Bretton Woods didn’t allow for an increase in USD supply because it wasn’t a situation its designers really anticipated or at least didn’t take seriously. Rather than conceding monetary tightness, central banks began to explore workarounds (the London Gold Pool of ’60 being one). But the global banking system had already started experimenting in its own way through what became the Eurodollar system. Ideally, money supply is able to match money demand, meaning most of that supply needs to be dynamic. That’s what the bank-centric Eurodollar system did best until it got way out of control into the late ‘90s and mid-00s when there was hardly any constraint from or on anything.” – Jeff Snider
The EDM in the 1960s can be characterized by foreign central banks actively using specially swapped transactions to do just that (keep the USD and Sterling in a specific value range).
In other words, they were undermining the Bretton Woods system through the use of Eurodollars as a way to increase or decrease monetary supply beyond the limits of the gold peg because, realistically, these central bankers never wanted to be constrained by gold.
This means that even though there was supposed to be a gold backing of the USD and Sterling, by the middle of 1950, this was increasingly not the case.
The 1960s then saw the rise of Triffin’s Paradox, which explains a conflict of economic interests that arise between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies2. This helped explain this ‘thing’ taking place outside the US monetary system that no one really knew about. There was obviously some level of concern over ‘it’, but The Fed wasn’t even sure if it was a violation of the Bretton Woods agreement or not, because they didn’t even know what ‘it’ was.
Considering all that was going on, Milton Friedman was asked to investigate and come up with a theory for what exactly was happening. He found that what was happening was a money multiplier system in parallel to the domestic system.
A basic example:
- An oil Sheik in 1960 holds $1M in a Certificate of Deposit (CD) in USDs at a New York City bank.
- He decides he can get a better interest rate at a London bank, so he transfers his CD from NYC to London.
- The London bank now has $1M of USDs on their balance sheet to lend out.
- The London bank lends that $1M to a London based company (we’re assuming no reserve requirement for simplicity’s sake) that wants to trade with US-based companies.
- The London company trades the $1M to a US-based firm, so the USDs flow back to the US, and the net domestic effect of money supply in the US is zero.
- However, the global money supply has increased, given that $1M still sits on the London banks’ balance sheet.
This was what Friedman meant, that USD owners transferred money abroad to get better returns on their deposit, thus increasing the amount of USDs in foreign countries.
Building off this example, the system continues to grow. If instead of the London bank lending to a London company to trade with a US company, if that London company trades with a Russian company, and then that Russian company trades with a Chinese company, this process will continue to expand the EDM. The only restraint on its growth are reserve requirements:
- If London has a 10% reserve requirement, they can only lend out $900k.
- Then if Russia has a similar 10% reserve, they can only lend out $810K, and so on until there is no more of that original $1M to lend out.
- But even if every country has a 10% reserve, that $1M of domestic money supply can turn into $9M of global Eurodollars.
- This is the money multiplier effect.
Growth x2 – Foreign Subsidiaries
This example is then taken one step further, driven by interest rate differentials between the US and other countries.
At the time, US banks were regulated as to the amount of interest they could pay out in deposits. Those constraints did not exist in other financial centers around the world, leading investors holding USDs in the US to send their money abroad to get better rates.
To accelerate central banks circumventing the system around that same time, US banks began setting up foreign subsidiaries as they were trying to limit the amount of money that left their balance sheets to go international.
- This allowed them to simply transfer the funds as an interbank loan (as opposed to a deposit).
- This transformation from a depository-based multiplier to an interbank loan system, where dollars can be moved back and forth from offshore to onshore, allowed the US banking system to do things that they couldn’t do under the domestic regulatory constraints.
- The switching from a CD transfer to a separate bank entity or to an international subsidiary to an interbank loan alleviated the reserve requirements of US banks as, back then, a lending transaction or an interbank loan transaction between a subsidiary and the parent office was free from reserve requirements (CD transfers were not).
All of this goes back to Friedman’s quote about where Eurodollars come from, “their major source is a bookkeeper’s pen.”
Growth x3 – Repo
We now need to broaden the definition one step further, because we have yet to discuss how the banking system saw a means to exploit this burgeoning market. I know I know, it seems strange that the banking industry would lever up an opaque, unregulated market to make a few bucks, but we’re telling you the truth!
Simply put, by leveraging their balance sheet, a bank can create additional money that is not captured in traditional statistics (M1, M2, etc.).
The primary methodology is the wholesale Repurchase Agreement Market (The Repo Market).
The repo market is basically an overnight exchange of cash for collateral, conducted between banks and corporations. It’s a market where short-term cash can be lent in exchange for a security (known as repo collateral) that bears interest (the repo rate). Assuming the cash is returned with interest, the collateral security is returned to the cash borrower. If the cash is not returned (highly unlikely), then the cash lender takes custody of the collateral security and is able to sell it in the open market. It’s essentially a short-term collateralized interbank loan, and for both sides is ‘relatively’ low risk.
In the 1970s, as money supply targets and all the money definitions were breaking down, many economists started to notice that something was wrong and began to investigate what was going on in the monetary system.
In a FOMC discussion from 1974, an open market manager brought up the idea that they needed to scrap M1 as a money supply indicator because it was no longer valid. He stated that they should start focusing on M2, but even M2 was going to become obsolete in the future and that they should develop something like M3. The reason for this was the evolution in money where the traditional formats that they used to define before were no longer valid.
A prominent economist, Stephen Goldfeld, wrote a famous paper titled “The Case of the Missing Money”. It emphasized the idea that the monetary system was evolving in ways that economists at the time (even today) didn’t fully grasp or understand.
What he describes in the paper is the idea that money demand forecasts were off, and off by a significant amount. He found that they would forecast money demand for M1 or one of the other aggregates, and they would always come up short in the actual money demand. Something else was satisfying economic demand for money. Even though the economists and policy makers at the time didn’t know what was driving the differential between forecasted and real money demand, it was obvious that something else was.
What was clear, was that there seemed to be a system in place that, without the knowledge and supervision of the monetary authority, was providing USD liquidity to where there was demand for it.
They would continue to investigate, and by the later 1970s they had a couple of different candidates. Chief among them was the Repo market.
This finding was a major revolution in understanding the dynamics of money supply demand, where the entire system was now needing to be defined in ways that were outside of the traditional mechanics of simple CDs, (and everything else that’s in M1).
The Evolution of Repo
At the time (1970s), there was a reluctance to add repos to monetary definitions, because it didn’t seem to fit the idea of money. It’s not that officials didn’t know there was this repo market out there, because in some form repo agreements go back to the earliest days of The Fed. And in foreign capacities even farther than that.
From the outside, even officially, the idea of repo as money might not have seemed like a legitimate explanation for the missing money. But the way the banks were using these agreements, as The Fed found out in the spring of 1979, was that corporations were depositing assets into other accounts where they would use a repo transaction that would be settled the next day. And then they would use those accounts to undertake monetary transactions3.
In other words, they would write checks against the repo account, even though the funds were segregated outside of the traditional definition of a deposit (therefore outside of the M1 definition), and then they would be settled against that account. Here, repo transactions began to create new money (the checks they wrote against those repo accounts).
Even though officially, The Fed works on various ways to incorporate things like repo agreements and money market funds into the official statistics, they often did not have success in doing so. A key reason why is that repo transactions are mostly one-to-one, and therefore they are known only to those participating in them. They aren’t centrally cleared (even today), and even when any transactions are (such as tri-party repo) there’s an impenetrable tangle (especially on the collateral side) which makes any estimates or tracking nearly impossible.
This money supply that doesn’t conform to the traditional definitions was taking place in the shadows, which are essentially the liability side of banks.
Bringing Repo Full Circle
Michael Lewis’s book, Liar’s Poker, chronicles Solomon Brothers (SB) and the takeover/rescue by Warren Buffet. At the time, SB was constantly overbidding, sometimes to the tune of 100%, for US Treasury’s at auctions. The Treasury eventually told them to stop it, that they weren’t meant to take over the entire auction, but SB persisted, to the point where the Treasury created the Mozer Rule (Mozer was the SB trader who was overbidding) where a single bank could no longer bid for more than 35% of the total auction. SB continued to overbid, which eventually caused The Fed to launch an investigation because they couldn’t figure out why SB would consistently be overbidding.
What they found, was that the entire banking system was overbidding for USTs at auctions.
So why was the entire banking system overbidding for paper that seemingly made up a small percentage of their overall profits? Because of the rise of the repo markets.
Essentially, the banks were overbidding for USTs to use as collateral, because the repo market was so lucrative, but they needed collateral to run the operation. USTs are the most pristine collateral (US Gov’t never defaults (yet)), which is why banks were trying to get as much of it as they could, and by the 1990s it had become an enormously important part of the funding dynamic. This was also true in the MBS market, though at the time it was a much smaller component as MBS was still in its infancy.
So how does this work?
- Banks need pristine collateral, of which, USTs are the most pristine
- This collateral can be rehypothecated at the best price
- In other words, if you hold an on-the-run security (any security that is auctioned off like USTs) in your inventory, you can actually lend it out to somebody else at the same time you use it. In fact, you can lend it out not to just one somebody, but often multiple somebody, meaning you can use the same collateral to make multiple loans.
- So, in a repo market, it would not be uncommon for a collateralized security to be used several times to obtain repo funding. There is a multiplier effect where you start to appreciate collateral as itself currency-like.
- In other words, it had a value that was beyond just buying a UST from the auction. It had a role in interbank financing of various balance sheets in different ways. This means that the same underlying asset that is being pledged as collateral, can have multiple claims on it.
Irrational Exuberance (But not how you remember it)
By the early 1990s there was this sense that, outside of the US, there is immense growth in this wholesale format being added to the Eurodollar format which was already very large. Throughout the 1980s it had expanded to such a high degree that people were shocked in the early 1990s by what was actually going on outside the US.
Alan Greenspan’s famous 1996 speech, ‘Irrational Exuberance’, was actually given because of the topic of missing money. What he said was, in effect, the correlations with money demand, correlations even with money supply, had long ago gone way off the rails, and had got to the point where The Fed couldn’t even predict either side of the monetary equation.
He said in his speech that he expected the money would “come home” so to speak, but in later dialog, speeches, and discussions (one such is the June 2000 FOMC) he admitted that it never did.
Therefore, it was a difficult path for a central banker to try to handle monetary policy under conditions where they couldn’t even define money. He wasn’t explicit in stating that it had happened this way, that monetary policy had evolved into a discretionary format because they couldn’t define money, but that is what he said in various hints and reading between the lines of many of his speeches.
More mystery during this era was the shift by The Fed from targeting money supply to today’s emphasis of targeting the fed funds rate. When this actually took place is unknown.
From the abstract of the paper, “When Did the FOMC Begin Targeting the Federal Funds Rate? What the Verbatim Transcripts Tell Us”
- “In October 1982 the FOMC deemphasized M1 and moved to what is commonly referred to as a borrowed reserves operating procedure. Sometime thereafter the FOMC switched to a funds rate targeting procedure but never formally announced the change. Given the close correspondence between a borrowed reserves operating procedure and a funds rate targeting procedure, Thornton (1988) suggested that the FOMC went immediately to a funds rate targeting procedure. Others date the switch to the funds rate procedure later. Meulendyke (1998) suggests the switch came in late 1987, while others suggest the change occurred later.”
The Fed never specifically came out and said, “this is the date we stopped targeting money supply or money demand actually and started targeting the fed funds rate.” But in a regime where you can’t define money, either supply or demand for it, what do you do as a central banker?
What they came up with was based on Milton Friedman’s work and principles, where inflation is certainly a monetary phenomenon. So, what they decided, in the 1990s, was that monetary policy would be effective (they assumed) as long as inflation stayed low or within their target range.
If inflation was well-behaved, they would assume that it was because monetary policy was effective. And the way monetary policy was determined was the discretionary approach to moving the fed funds rate either higher or lower based on, essentially, a seat-of-the-pants type of assessment of the economy and the markets.
- “And this is sound theory, except it is presumed that national currency systems and their economies are, you know, national in nature. What if the monetary arrangement is instead international, or global currency? Then you can’t judge its condition solely by national (US) factors alone. Not to mention the arrogant assumption that it was expectations-based monetary policy which was largely responsible for the Great “Moderation.” The Economists who coined the term, James Stock and Mark Watson, weren’t so sure that’s what it had been. Instead, they wrote in an influential 2002 paper, that where the monetary system had been concerned the Great Moderation was as much “random good luck.” – Jeff Snider
This is a more complete reality of how the 1990s unfolded, with The Fed flying by the seat of their pants, and because things seemed to be good and everything well-behaved (especially inflation), everybody assumed that the correlation was between the economy (especially inflation) and monetary policy. In other words, Greenspan must have been a maestro for doing whatever it is he did.
Only in hindsight do we see that he simply may have been an accidental genius.
To be clear, Greenspan never actually came out and said exactly what they were doing. All he did was raise and lower the fed funds rate, but nobody could really determine, nor did he specify, exactly how they did that.
What caused the Fed to raise the rate 25 basis points one day and then the next meeting maybe lower it?
What we know today is that it was a completely discretionary policy that had absolutely nothing to do with money whatsoever.
“You’re a kite dancing in a hurricane, Mr. Bond” – Mr. White to 007, Spectre
Though Bond is way too cool to be characterized as a Fed Chairman, it’s an apt quote to end this story. What we seem to be led to believe is that the global monetary system is more representative of a Hurricane, formed not by man but by nature, and those tasked with controlling the Hurricane are more like a plastic kite, simply dancing around with little to no say on the course the weather system chooses to follow.
Because after writing this I feel like Dom Cobb, three dreams deep and not sure if the dreidel is going to fall or not, we’re going to take a break from the Eurodollar Market for now, but our future US Dollar views will continually refer to this foundational piece. We’re going to continue working with Jeff and adding Brent Johnson of Santiago Capital to the mix to get their views on how the EDM influences their thinking when it comes to future Dollar movement.
Down the Rabbit Hole :
- Central Banks preferring USTs as reserve asset did not take place immediately after Bretton Woods. This was more a product of the 1990s, primarily following the 1997-1998 Asian Bird Flu Crisis (which really was a regional dollar shortage crisis, thus a preview of the first global dollar shortage crisis in 2007).
- The need to have dollars to conduct trade and finance flows is immediate and unbending and there are times when individual countries or regions have experienced problems securing Eurodollars.
- Therefore, local officials began to hold more dollars as a reserve in case Eurodollar trouble showed up on their own shores.
- Eventually, dollar reserves (deposits) were converted to investments with higher returns (primarily but not limited to USTs).
- The idea was to hold a liquid, USD denominated asset that could be dependably sold at a moment’s notice to fill the local banks’ dollar requirements when the Eurodollar market might not.
Down the Rabbit Hole: Triffin’s Paradox is the conflict of economic interests that arise between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.
- As it applies here, “the Federal Reserve and US monetary authorities had to be responsible so that it would maintain the gold exchange standard. Yet, because the dollar was the global reserve currency, any rise in global trade had to be met by a rise in money supply of dollars in these offshore markets. And so, there was a natural tension between supplying dollars for rising global trade and the ability of the United States to back those dollars by its gold reserves. And so, he called it a paradox because the two were set in opposition to each other. Additionally, supply and demand for offshore dollars was never designed strictly for trade; even in the early days, there were financial or investment flows intermediated by Eurodollars. Over time, primarily in the ‘80s and ‘90s, it came to be more financial than mercantile.” – Jeff Snider
- Banks would offer largely corporate customers the choice to hold idle cash balances in traditional deposit accounts (where rates were capped by Reg. Q) or to move them into “repo” accounts.
- These accounts invested cash on a short-term basis in the repo market, thereby allowing banks to offer their big customers a more competitive interest rate – whatever the prevailing market rate in repo. It also allowed the repo market to access a growing pool of cash-side participants to further expand.
- Eventually, rather than move funds from deposit account to repo and back again so that customers could access and use these funds from time to time, the banking system merely attached deposit account-like features to repo accounts; including the ability to write checks directly against them.
- But, since repo wasn’t including in any of the M’s, that money began to go “missing” from the traditional statistics. And as banks added more account-like features to repo-interested customers, that money began to stay “missing.”
- There are other examples, this just the easiest to conceptualize. Economists would then, throughout the seventies, argue with themselves as to whether repo used in this manner really was a money equivalent – when the point had already been made for them by banks and their customers (Economists seem to believe that monetary definitions are left for Economists to declare, when it doesn’t matter one bit what Economists declare, it only matters what the real economy does).