It’s Not About Inflation, Stupid | QPOL Issue #1
How the Fed Destroyed the Offshore Dollar Markets in 3 Simple Steps
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On Wednesday July 27, the Federal Reserve raised the Fed Funds Rate by 75 basis points. This comes as no surprise since the latest inflation print for June 2022 came out at 9.1%, (above expectations), the market had priced this rate hike in well before the FOMC’s announcement.
Given all this, it’s reasonable to think market participants may assume Fed Chair Jerome Powell is having to work overtime to fulfill the Fed’s mandate of stable prices and high employment. In doing so, Powell is given no other option but to fight back against the pressures of inflation by pulling a Paul Volcker 2.0 by raising interest rates to preserve the Fed’s credibility as the steward of the world’s monetary policy.
After last week’s Jackson Hole speech, Powell has firmly asserted that the Federal Reserve will continue to raise rates despite some short-term economic pain until inflation has reached 2%.
However, it goes way beyond inflation. The Fed is off the reservation as being the lender of only resort by collapsing the offshore dollar markets to regain control of US monetary policy and make it more domestically focused. Simply put, The Fed is fighting to preserve its monetary independence.
The Fed is fighting a war against Central banks, primarily the European Central Bank (ECB). More importantly though, it’s fighting back against Davos and their Great Reset. By Davos, I’m referring to old-money, European oligarch globalists: think WEF, Rothschilds, CFR, and similar ilk which share similar globalist/communist agendas. The offshore dollar market (Eurodollar), is the source of Davos’s power. Therefore, the Fed is using its monetary tools to fight back against the offshore dollar markets. For brevity, let’s refer to the offshore dollar market as ODM. To understand the Fed’s enemy and why it’s doing what it’s doing, let’s have a crash course on the ODM.
The offshore dollar markets are called the Eurodollar markets simply because they began in Europe (Euro dollars have nothing to do with the Euro. It is a complete misnomer). 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. This notion of offshore/Eurodollar banking is colloquially known as the shadow banking system. For more details on the ODM/Eurodollar system, I’d highly recommend the work of Jeff Snider.
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 disrupt both capital markets and pricing signals through those markets. If the end goal for Davos is to have a central bank run system where the Fed issues a CBDC from the dictates of the IMF, who does that NOT benefit? The commercial banks (AKA: the shareholders of the Fed).
The way to destroy the offshore dollar market can be broken up into 3 steps.
Step 1
The first strategy the Fed implemented was that American banks stopped accepting Eurodebt as collateral in January 2019. This decision caused the repo spasm that Fall. No collateral meant Davos can’t get dollar reserves in exchange to lever up and fractional reserve-print more money than the Fed itself as the ODM is outside the Fed’s jurisdiction. No reserves meant no more printing of Eurodollars (AKA: the beginnings of the death of the ODM).
Step 2
The second step was to suck up all dollar liquidity out of the world by incentivizing the holders of those dollars to park them at a reverse repo facility (both foreign and domestic) to gain more yield than anywhere else in the market. This is exactly what Powell did last year at the FOMC meeting on June 16th 2021. On December 20, 2021, approximately $1.7 trillion flowed into the Fed's repo facility, making it the highest one-day cash injection to date. When your government’s debt is offering you negative yields on excess euros, a positive yield of 0.05% in the world’s reserve currency is mighty attractive. With this move, whatever excess dollars were being held oversees, holders would be incentivized to remove them from the market and gain interest, further strengthening the dollar and its demand and removing them from the economy. This strategy starved the ODM.
Step 3
Lastly and most recently, in January 2022, all newly issued US domestic debt is re-indexed from LIBOR (London Interbank Overnight Rate) to SOFR (Secure Overnight Funding Rate). Previously, all US debt was indexed to LIBOR, a rate that is established by 18 panel banks at the City of London (only 1 of which represented the interests of America, the J.P. Morgan office in London). SOFR in contrast, is indexed to actual/real market activity between financial institutions in the US. It’s based on something real as opposed to an arbitrary number dictated by the European banks. This reindexing to SOFR removed US exposure to Eurobank balance sheets because as LIBOR rates blow out, the US is not affected. Americans would no longer see the hurt via increased rates on their credit cards, mortgages, etc. Under SOFR, US rates no longer have to increase for Americans in order to socialize the losses in Europe.
All 3 steps are positioned to enable the destruction of the ODM, cause Capital flight to flow into the US, and also give America the ability to raise rates by no longer having the exposure to toxic and hindering European debt liabilities. Thus once fully implemented, the Fed will have officially gained back its monetary independence. These actions demonstrate how the Federal Reserve is officially off the reservation. A “normalcy” in inflation, employment, and price stability will be a mere byproduct of the intended goal.
Whether or not destroying the ODM is the Fed’s intended goal is a fair question. However, Powell and current/former Fed officials dare not say, or else they suffer a severe political loss. They are trying to preserve credibility in not only themselves, but the Fed itself. Ergo, they must tread lightly. Despite their rhetoric, what’s more important is to watch what they do, not what they say. Therefore, based on the above, I think it’s fair to say they’re fighting for survival by destroying the offshore dollar market. One thing for sure though is that the Fed’s boogie man is definitely not inflation…
For a brief on this topic, check out my twitter thread below.
What a Twist 🌀😵💫