What this covers
For access to econ community, consider https://www.patreon.com/moneymacro or consider buying me a 'coffee' at https://ko-fi.com/moneymacro
LIKE CHATTING ECON WITH ME? △ Follow me on Twitter: https://twitter.com/joerischasfoort △ Follow me on LinkedIn: https://www.linkedin.com/in/joeri-schasfoort/ △ I have a private Discord server for Senior and Chief economist Patrons / members. Otherwise I sometimes hang out in two Discord servers: △ Unlearning Economics's server: https://discord.com/invite/jy8CNzDsgf △ Capitalists server: https://discord.gg/8MeNJ7gfSR
Timestamps: 0:00 – Introduction 1:15 – What is Eurodollar 9:32 – Why it Matters 16:12 – Its Purpose 23:02 – Dream Turned Nightmare 28:52 – Crypto 35:02 – Public View is Ancient 38:43 – 2008 Changed Everything 48:58 – Yield Curves 1:07:15 – Quantitative Easing 1:15:50 – Shadow Banking 1:25:30 – Good Sources 1:32:14 – Treasury Drop 1:44:35 – Repo’s Problem 1:48:37 – Doing it Better 1:51:40 – Conclusion
MAIN CHANNEL: www.youtube.com/moneymacro
Guest: Host: Dr. Joeri Schasfoort @Money & Macro
Source description (no synthesized summary yet).
Snider argues that the eurodollar system, not central bank policy, is the primary driver of global monetary conditions, and that misconceptions about quantitative easing and interest rate control obscure the real architecture of modern money creation and credit allocation.
- The eurodollar system operates as a decentralized, bank-centered reserve currency mechanism that exists largely outside central bank visibility and control
- Quantitative easing does not lower interest rates but rather responds to deflationary pressure and collateral shortages already occurring in the eurodollar markets
- Central bankers fundamentally misunderstand their own monetary system and operate from outdated theoretical models that cannot explain observed market behavior like inverted yield curves
This asset isn't compiled yet
You're seeing its claims, ranked. Compile it to build the argument threads, weight them, and check each claim against your library — the full view.
Interest rates act independently rather than depending mechanically on the federal funds rate set by the Fed; Alan Greenspan's 2005 'conundrum' where the 10-year yield fell while the Fed raised the short rate proves the Fed does not control the entire yield curve.
“he raised the short-term rate by about...75 basis points and the 10-year yield was lower it didn't go up at all it actually fell and so he was telling Congress that this was a conundrum because to the central Bankers all these interest rates are dependent on the short-term rate”
Bretton Woods came apart not formally in 1971 but functionally in the 1960s as the eurodollar system took over the functions of the official reserve currency system; by 1961 (London Gold Pool) and certainly by 1971 the eurodollar had already superseded Bretton Woods.
“by the time we got to August of 1971 the euro dollar had already taken over all of the roles from Bretton Woods long before that I mean he had the two-tier Gold Exchange he had the London Gold pulled all the way back in 1961”
The US dollar is used as a vehicle currency in international transactions not because of any special political privilege but because it provides a common medium of exchange that reduces friction when parties from different jurisdictions transact, similar to how international commerce in YouTube sponsorships defaults to dollar denomination regardless of the counterparty's home currency.
“Reserve currency is as I said this uh what was used to be called a vehicle currency as you are a living proof of that vehicle currency because you're transacting you're intermediating through an intermediate currency”
Banks operate the eurodollar system and provide the infrastructure for its elasticity; if banks become risk-averse or refuse to create money and credit, the system becomes inelastic regardless of central bank policy, which is what happened after the 2008 financial crisis.
“we need the banks that operate this currency because it's it's it's hugely intensive there's tons of infrastructure there's tons of logistics that go into it we need the system to operate at really good capacity”
The eurodollar system emerged partly as a practical workaround to solve Triffin's Paradox—the structural tension in Bretton Woods where the US could not simultaneously maintain gold convertibility, provide sufficient international liquidity, and maintain domestic price stability—allowing elastic credit creation beyond what the gold standard permitted.
“where the euro dollar came in in the late in the middle 1950s was sort of a backdoor a way to solve what was called triffin's Paradox because it could respond it could be it could be elastic based on the actual needs of the system as it developed”
The eurodollar system involves banks creating money through lending that funds both short-term commercial needs and longer-term investments; when a European company needs dollars to do business in Malaysia, the bank borrows dollars short-term in wholesale markets and lends them longer-term to the company, creating maturity mismatch.
“there's always a maturity mismatch so...we have a company...that exists in Europe that wants to transact with Malaysia we'll use Malaysia so they need dollars to do that where do they get those dollars from well the company in Europe contacts its local bank the local bank probably doesn't have dollars but it knows a dealer who does so it's it's going to lend this Corporation these dollars that it borrows in short-term markets it's going to lend them at longer longer term”
Securities lending and repo chains are central to eurodollar system function; hedge funds cannot own treasuries directly so they borrow them from insurance companies and pension funds via securities lending, then pledge those borrowed treasuries as collateral in repo to access funding, creating multi-leg transactions where collateral is reused multiple times.
“if you go into a...repo Market...you get a huge haircut you're not going to be able to lever up as much as you would yeah as if you had a U.S treasury...so you go to contact your local large dealer bank and say Do you happen to have a U.S treasury...I know somebody who does all these insurance companies and Pension funds they have tons of treasuries...they'll rent them to you for a fee not sell them rent them so now you have a four-legged repo transaction”
The idea that governments have monopolies on money creation is historically inaccurate; private money has existed throughout history in various forms, and today's eurodollar system is the dominant form of private money creation.
“we're we're taught that governments have a Monopoly on money when that's never really been true in fact there's all sorts of all kinds of forms of private money all throughout the ages”
The eurodollar system has become increasingly complex over decades through technological innovation and regulatory change; it has evolved from simple repo to include basis swaps, currency swaps, and complex derivatives as ways to efficiently use bank balance sheets.
“when I first really started looking at this 25 years ago it has evolved you know how many times over even over the last decade the system has evolved even more toward currency swaps derivatives more efficient tools to use euro dollar resources”
Governments and central banks selling treasuries to obtain dollars during international dollar shortages is a standard practice that indicates reserve currency function; Malaysia and other developing nations hold treasuries because they are the primary liquid reserve asset.
“where do you if you can't borrow them in a short-term wholesale markets then these local banks this European bank will contact the ECB or the national Central Bank and say I can't fund this stuff...the European National Central Bank will say yes I can help you out I'll sell some of my treasuries so that you can close out your position”
The low interest rates observed in the 15 years after 2008 were caused by deflationary pressure and high demand for safe liquid instruments, not by quantitative easing; interest rates fall when market participants flee toward safety, and central banks buy the same safe assets afterward, not before.
“interest rates go low and they stay low because this lack of money lack of credit creation produces a high level of demand for safe liquid instruments...you're not going to be lending to Mom and Pop you're not going to be lending to small and medium-sized businesses”
The eurodollar system is the functional global reserve currency system, not just a market for offshore dollars, and intermediates all necessary requirements of a reserve currency including trade financing and foreign direct investment globally.
“it is the functional means by which all the necessary requirements of a global Reserve currency are done it started out you know mainly focused in Europe but very quickly you know late 1950s into the early 1960s it was everywhere”
The Federal Reserve ignored collateral shortages in 2008; Bill Dudley noted the 4-week treasury bill rate was well below the federal funds target in weeks before Lehman failed (indicating collateral stress) but dismissed it as 'no big deal,' showing the Fed failed to recognize the collateral crisis.
“there's a quote from 2008 Bill Dudley...could see that there was a collateral shortage...weeks before Lehman failed because...the four-week treasury bill rate was well below the Federal fund's target and Bill Dudley said no this this is no big deal everything's fine when everything wasn't fine”
The 14th-15th century Great Bullion Famine in Europe demonstrates that ledger-money systems were invented whenever physical commodity money was scarce; people wrote down credits on paper even before modern banking, showing that the desire for elastic money and substitutes for commodity money is ancient.
“the very first Ledger system in history goes back to the 14th and 15th century when we had something called the Great bullion what we you and Europe had something called the Great bullion famine you know after the black death for various reasons there was a lack of silver coin throughout much of Europe and so in various you know various localities around Europe they started just writing it down on a piece of paper so like so even though money was constrained there was lack of money available for Commerce to take place they invented a way to do money”
Central bankers claimed the US economy was at full potential in 2014-2015 based on low unemployment, but Janet Yellen acknowledged 'hidden macro slack' when wage inflation failed to materialize despite tight labor markets, suggesting labor participation rates understate available labor supply.
“everybody's at full potential look at the unemployment rate in the United States it's as low as it's been in 50 years we're going to get wage inflation...guess what happened never got the wage in place...Janet Yellen said in 2014 maybe there's hidden macro slack here that we're just not accounting for”
Banks changed their risk culture fundamentally after 2008; pre-crisis, banks could propose exotic transactions with minimal management approval if they promised to profit the bank, but post-crisis banks require approval from lawyers, risk committees, and multiple layers of management that did not exist before.
“if you had some crazy idea to service a customer before 2007 you almost didn't need management approval...you go to your...manager and say I'm going to make the bank and the customer money they'd say go ahead and do it nowadays you've got to go through lawyers got to go through risk committees you got to go through layers of management that didn't exist before”
Understanding the eurodollar system and monetary mechanics impacts macroeconomics, social characteristics, and politics; monetary system breakdowns affect all levels of society, not just financial markets.
“understanding that complexity leads you to understand more about what's going on in the world not just money and finance but also uh social characteristic uh politics everything else that happens”
Invoking economists like Zoltan Pozsar who focus on bank reserves without emphasizing collateral systems represents an incomplete analysis that misses the critical dynamics driving eurodollar system stability.
“zoltan's entire focus is on Bank Reserves I mean he just came out with this whole Bretton Woods three thing...he's saying the system is so now in is so happy with the Federal Reserve...everybody's going to ditch their U.S treasuries...he's never said the word collateral in his life so the next time he does will be the first time which you cannot...analyze the monetary system in any realistic way without at least starting with collateral”
Before 2007, subprime mortgages were not the crisis; money creation had become so unconstrained and risk models so sophisticatedly misleading that banks and investors convinced themselves no risks existed, creating feedback loops of escalating risk-taking.
“you had all this massive money creation that we know nobody had any appreciation of what's going on yet everybody was convinced there was no risks to it because number one everything was Quantified by mathematical models which were pretty much new and everybody thought well this sophisticated math we'll be able to figure out you know we'll be able to predict swings”
Labor force participation in the United States has declined since 2008 not because workers lost skills or became lazy, but because lack of money and credit creation has constrained the real economy's ability to employ available workers; this is evidence of deflationary constraints, similar to Japan in the 1990s and the Great Depression.
“lack of money becomes lack of credit becomes lack of use of Labor that's available for you and so you have in the 1930s a huge reservoir of unemployed workers in the 2015 in the 2010s and forward we've hidden that Reservoir workers because we say they're not part of the labor force but either way it works out to the same problem which is that we have an economy that's in trouble because we're not supplying the money and credit for it”
Quantitative easing was never an effective solution; central banks pursued QE in 2008-2009 despite knowing it failed in Japan because they did not know what else to do, and they continue doing more QE despite repeated failure, which is unscientific.
“they never should have done QE in 2008 2009 to begin with because they already knew it didn't work in Japan they knew it didn't work in Japan and they also knew why it didn't work in Japan why did they do QE anyway because they didn't know what else to do”
The Federal Reserve's quantitative easing purchases in March 2020 did not solve the underlying dollar shortage or collateral crisis; what actually stabilized the system was the US Treasury issuing massive amounts of treasury bills (on-the-run collateral) starting in late March after the CARES Act, restoring the collateral base.
“I would argue about the effectiveness of the patching it up too I don't think it was as effective as was claimed...the liquidity problem didn't end until...the U.S treasury issued more treasury bills...the U.S treasury started selling lots of treasury bills into the marketplace which probably had a much more effect on liquidity collateral use and reuses”
Repo is fundamentally a collateralized loan used to access short-term funding; the name 'repurchase agreement' is a historical artifact from Federal Reserve restrictions on discount window lending during World War I, where the Fed pretended to buy then sell back bonds to work around lending restrictions.
“the reason it's called the repurchase and thought of as a repurchase agreement because the Federal Reserve in the 19 teens with World War One the Fed was prevented from uh financing speculation so the FED decided well we're not going to let commercial Banks use the discount window because that would be against the rules so instead we're going to pretend that we're going to buy a bond from the bank and then sell it back to them the next day”
Uncertainty in the eurodollar market kills dollar provision faster than any other factor; high uncertainty generates high expected losses in quantitative models, causing dollar providers to withdraw funding, triggering cascading dollar shortages.
“there's nothing more nothing that kills dollar providing more than uncertainty because you put that into any kind of quantitative Model A high level of uncertainty generates a ton of expected losses so uncertainty kills monetary resources faster than anything”
Academic scholarship on monetary systems largely dried up between the 1980s and 2000s because mainstream economics lost interest in detailed financial system mechanics; the important innovations in eurodollars, derivatives, repo, and securities lending largely went unexplored by academic researchers.
“when you look at the academic scholarship monetary scholarship really dried up in the 1970s and really between the 1980s and to the 1990s and 2000s all the stuff all this important Innovations and inventions went went unexplored”
The Fed and other central banks see the appearance of cryptocurrencies and stablecoins as evidence of central bank policy being too loose, when in fact these emerge because of credit scarcity; this misdiagnosis leads to policy errors that further constrain money supply.
“everybody has largely believed that's the case and really the most of the critics of the FED fall on the other side where they think the FED has done too much they printed way too much money and that's where you know uh the cryptocurrency The Craze the bubbles and cryptocurrencies can't come from when in fact the truth is the exact opposite”
Term premium is an incomplete economic concept used to explain yield curve slope; it assumes long bonds require higher yields simply for holding longer, but this does not explain inverted yield curves or why long-term rates move independently; market participants have heterogeneous expectations about growth and inflation at different curve maturities.
“term premiums are nonsense term premiums at least what I find I know academics don't agree they love term premiums fed talks about them all the time...what we find is that bond yields behave independently”
The term 'eurodollar' predates the European currency by many decades and originated from US dollars circulating in post-war Europe, becoming formalized into a marketplace centered in London and Switzerland around the mid-1950s, with participants transacting in dollar denominations but outside direct US regulatory authority.
“it predates the European common currency by many decades and honestly nobody knows where the euro dollar came from there was obviously US Dollars there were US Dollars running around Europe from the Marshall Plan in the post-war era but at some point in the middle 1950s it's sort of more formalized into a Marketplace centered in London some you know a lot of it in Switzerland”
On-the-run treasury securities (recently issued, actively traded) are liquid and acceptable as collateral in repo markets, while off-the-run treasuries (older issues) become illiquid during stress and are rejected as repo collateral, forcing dealers to sell them at reduced prices when they cannot fund purchases in repo.
“on the Run Treasures are treasuries that have been issued in the past there's not really a liquid Market available to them...The On The Run stuff which matches the closest parameters to the current market conditions that's the stuff that's liquid”
AIG's 2008 collapse involved the insurance company's inability to continue borrowing treasuries from its own regulated subsidiary, breaking a key collateral chain and amplifying the collateral shortage across the financial system.
“one of the primary conduits into that was AIG borrowing treasuries from its own regulated insurance company subsidiary yeah once they couldn't do that anymore safe acid shortage no collateral shortage and then you have not just this one company that doesn't have collateral it's not reused either so you have a multiple of that that breakdown which gets spread everywhere”
Quantitative easing does not lower interest rates; academic studies produced by central bank economists show QE achieves only 15-50 basis points of yield reduction per trillions in purchases, which is statistically insignificant.
“a professor from University of California the widely cited study that showed that 600 billion in U.S treasury purchases in the United States is equivalent to 15 basis points on the 10-year treasury yield that's no effect that's nothing”
The eurodollar is not a currency but a ledger-based system of claims on US dollars, where participants transact in bank liabilities rather than physical currency, removing the need for physical hand-to-hand currency transfer and enabling massive expansion of credit beyond what physical currency constraints would allow.
“what are Euro dollars and what Euro dollars actually are in any technical sense is a paper claim on US dollars...it's easier just to transact in claims on US Dollars that's how we remove the actual physical currency and simply Trade Bank transactions back and forth”
A reverse engineering approach is necessary to understand the eurodollar system because it is unregulated and largely invisible; by observing market signals (treasury bill pricing, swap spreads, collateral availability indicators), one can infer what is happening in the hidden banking system.
“this euro dollar system we can't observe what's going on in the banking system...it's unregulated it's unmonitored and so we have to try to reverse engineer what's going on in the monetary system by how all of these things are affected by it”
Interest rates are more likely to go to zero within 6-12 months than to rise; the eurodollar futures curve is inverted nearly 200 basis points, and this inversion historically precedes near-zero rates.
“I look at the euro dollar Futures curve...that's basically saying the yield curve is looking at probabilities where interest rates we're gonna...it wouldn't be at all surprising if we're at zero percent interest rates and more qes that's what that that your invert that level of inversion...suggests”
Central bankers are not dumb or evil but operate from an outdated worldview that cannot explain observed market behavior; they fundamentally misunderstand the monetary system they are supposed to steward.
“Their problem is they have a very outdated worldview and they can't make sense of the world that we actually live in”
Federal Reserve policy in 2005 under Greenspan changed from lender of last resort to 'market of last resort,' meaning the Fed patches up market problems after they occur rather than preventing them; this is an insufficient approach to central banking.
“the Federal Reserve is not a Central Bank in the old Walter budget model of lender of Last Resort they're now the what they call Market of Last Resort which is entirely different”
The fundamental need in any monetary system is to find a middle ground between constraint and elasticity; history shows we have oscillated between extremes (constrained gold standard and unconstrained fiat) but never achieved a sustainable middle ground that provides elasticity without enabling excessive asset bubbles.
“we've always been taught it's an either or it's either highly constrained or it's unconstrained what we really need to think about is some kind of Middle Ground where it can be some of the principles of a sound money system but not being too constraining like the goldish gold standard or something similar”
Elasticity in a monetary system refers to the system's capacity to meet the monetary and credit needs of a growing globalized economy in a predictable and available way across many places; this elasticity is required to match dynamic supply of money with dynamic demand for it.
“when you say elasticity what do you mean with that exactly because demand for money and supply of money are Dynamic right this is the age-old problem in any monetary system how do you most efficiently match the supply of money with the demand for it”
Economists should follow academics like Marvin King, Daniela Gabor, and Marcus Bruner Meyer who study shadow banking, collateral, and market-based finance; these researchers provide more sophisticated analysis than mainstream consensus.
“some really good academics that work on this and I wonder if you if you don't know about them let me know but like for example some names that come come to mind is for me is Harry Merlin Professor Perry Merlin from Columbia University even has some really good courses on Coursera”
Snider started investigating the eurodollar system in the 1990s after noticing bank balance sheets showed massive liabilities he couldn't explain—repo, eurodollar deposits—that were not taught in college finance or economics and nobody in the profession wanted to discuss because everyone was making money in dot-com stocks.
“I started from the very beginning right out of college in the 1990s the gogo.com era when uh everybody wanted to be a stock analyst a stock picker you wanted to be Gordon Gekko becoming the you know the 1990s version of the get rich in the.com Era so that meant doing a lot of you know breaking down of balance sheets looking at corporate financials and things like that inevitably you start looking at the banking sector looking at balance sheets in the banking sector and you think wait a minute this is not the bank and I'm talking about commercial Banks that's not the kind of banking that you taught in school”