A Snider In The Grass | QPOL Issue #9
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Eurodollar System Proponent Jeff Snider has recently gone on a rampage criticizing SOFR as a “poison.”
I discussed this topic on a recent twitter space with Green Candle Investment you can listen to here.
What’s beginning to happen is that the liquidity in LIBOR is decreasing and is in close parity with SOFR. To review, LIBOR is an unsecured debt that loans are indexed to. SOFR is secured debt. I’d argue there’s even amounts of liquidity between SOFR and LIBOR is because LIBOR is quickly losing its liquidity because market participants are looking to something that’s “real” during these times of economic uncertainty.
Snider’s basic argument is that the Eurodollar System (or as I like to call it: Offshore Dollar Market [ODM]), was a free market alternative to the Federal Reserve. This could not be more incorrect.
The offshore dollar market is not a “free-market” reaction to the Fed. It’s used by globalists to undermine the Fed and print more money than the Fed outside of its jurisdiction.
For a quick primer on the ODM, I explained in Issue 2 of my Substack “It’s Not About Inflation, Stupid”:
After Europe was flat-lined from the turmoil of WWII, they accepted dollar loans from America to rebuild. Simply put, dollars that sit in foreign banks are levered up to create fractional reserve loans outside the Federal Reserve’s jurisdiction. This enables non-American banks to create more credit dollars (print more money) than the Federal Reserve itself.
The source of the Eurodollar power comes from European, Asian, and other non-American banks. The offshore dollar market enables them to create dollars in order to exert its influence by buying governments, militaries, politicians, and disrupting both capital markets and pricing signals through those markets.
As Zoltan Pozsar enlightened us during the Great Financial Crisis of 2008, the ODM is what transmitted the contagion that caused the crisis. This shadow banking system enabled non-banks to leverage unorthodox, creative forms of collateral denominated in dollar loans. This shadow bank money (offshore dollars) was created out of virtually nothing outside of the Fed’s control and leaked into the uncharted territory of multiple new derivatives products which ultimately led to the financial crisis in the first place. LIBOR is the interest rate these dollars are indexed to.
The only reason Jeff originally dismissed SOFR was because it undermined his theory. Offshore dollars are indexed to LIBOR. Without a manipulated metric that gives you low rates, no more funny money for you.
When SOFR falls and LIBOR spread rises, that means the LIBOR interest rate is signaling that using LIBOR is riskier than SOFR because SOFR is collateral/based on something real.
In other words, high interest rates in general signal risk. Lower SOFR rates means it’s working while LIBOR is risky because it’s an arbitrary and manipulated unsecured rate.
As SOFR lowers, then the increase in the Fed Funds Rate signals stress as people move into a collateralized position (SOFR). If SOFR rises too far above the FFR then that signals a sharp shortage and severe demand of dollar reserves. These dollar reserves are what the Eurodollar system depends on to leverage up and “print” more dollars. Ergo, the Fed’s objective of replacing LIBOR with SOFR and destroying the Eurodollar system is working.
SOFR is only “dangerous” to people who relied on cheap Eurodollars that were printed to LIBOR. So which is it, Jeff? Is SOFR significant or not? Just imagine: these guys in US tax havens in the fintwit space (I won’t name names) they’re debt is tied to LIBOR. Furthermore, if you have a mortgage in the Caymans, what’s that indexed to? (Assuming they didn’t pay in cash of course).
This logical analysis further validates my point why this matter isn’t talked about openly in the public square (until now I must admit, although a bit dishonestly). It’s not in one’s incentive to reveal the truth when the truth compromises your finances and reputation. Therefore, you’re forced to be disingenuous.
As the Fed continues to raise rates, those with debt tied to LIBOR will get liquidated. Remember, the Eurodollar system undermines the monetary power and sovereignty of the Fed and United States by enabling offshore accounts to print more money than the Fed. Until the offshore dollar market and LIBOR are irrelevant and all debt is reindexed to SOFR or some other form of secured rate, proponents of the Eurodollar System are financially incentivized and forced to be treasonous to America.