The yen isn't Japan's problem, it is everyone's problem. Because this crash isn't the Fed. 

There is ALWAYS a dollar shortage as we are a debt based monetary system so there is ALWAYS More dollars owed back than there is available in existence to be able to pay back. At the loans inception, only the Prinicple is created into existence and not the interest units to be able to pay it back. The Debt based dollar creates it's own demand for more dollars to be able to pay back.

You are confusing what is happening to the Yen and the Yuan. The Yuan falling is inconsequential because it has not happened in a backdrop of declining net exports and trade deficits. The Yen falling on the other hand is something of a sea change for Japan. A falling yuan while net exports are going strong has no effect on the welfare position of the Chinese. It only makes a difference in that; 1) exporters become more profitable since all their revenue is in dollars and only a portion of their costs are in Yuan, 2) importers become less profitable since all their revenue is in Yuan and a portion of their costs are in Dollars. On net the increase in the profits of the exporters will be greater than the decrease in profits of the importers since the country remains a strong net exporter. One can think of it this way the Chinese sell their exports in dollars and buy their imports in dollars. So as a whole it always earns more dollars than it spends. This means it has no funding problems. Furthermore, it has a 3 trillion dollars thick accumulated unspent surpluses to weather fluctuations. The yuan is simply a unit of account for settling internal accounts which can be ignored when looking at external transactions. The dollar rising and falling and doesn't matter to the Chinese but for; 1) the incentive effects driving the country towards more export focus, 2) the relative competitiveness of Chinese goods to other goods not priced in Dollars. The only reasons for the Chinese to intervene are 1) not to have the economy shift too far towards export focus and 2) not to lose too much relative competitiveness to countries who do not price their exports in dollars. Hence for the Chinese it is more likely they choose not to intervene except when the currency gets too overvalued relative to the Euro and Yen from a competitiveness standpoint and when there has been too much export growth for geopolitical considerations. For the Japanese the story is quite different. As the dollar has risen, instead of rising net exports, Japan has experienced falling net exports to the point of going from surplus to deficit. That means Japan is having a funding problem. Infact not just them but just about everyone except the Chinese and Energy exporters are having this problem. At least Japan can patch over this problem with their unspent accumulated surpluses until those run out. It is a problem but so far there is still a mountain of reserves to burn through before people should get really worried.

Thank you Jeff for painting these clear pictures. Every time I watch a new upload I , bit by bit I get to understand the euro dollar system a little better. Great work.👍

Based quite a bit on your work, my theory is that the US is draining the Eurodollar market every time we export oil, food, and natural gas while the US consumer takes a breather from buying imported items. The supply shock is definitely one part of the equation but declining real US consumer demand is another part. The sharp rise in food and energy prices effectively forces US consumers to substitute low elasticity demand items for high elasticity of demand items such as imported goods. This keeps dollars from leaving the US. Domestic inflation tells me that Jay Powell and the US government have created a surplus of dollars at home that are trapped in the US. This has created a paradox where the dollar is both over-supplied (US) and scarce (Eurodollar). From the standpoint of investments, higher US interest rates are more attractive to investors than lower/riskier investments outside the US.

Jeff, please stay the way you are. Never any predictions or chilling of investments, never one-sided or all-in arguments. This is so rare these days.

Thanks again Jeff. awesome analysis. Get your money out of the banks and into hard assets ASAP guys. Don't get BAILED in 🥇🥈🥇🥈🥇🥈👍😎

I have listened to this euro-dollar theory many times now, and I still don't quite understand (not for lack of your explanations). Maybe you can do more whiteboard demos so some of us can visualize the shortages in dollar flows and collateralization more clearly.

Great points Jeff. And, in general a very smart, intriguing view of what is going on in the international (euro-usd) financial system. For Japan, with the very strong decay vs USD, way more pronounced than Euro, Pound, RMB etc … both things may play a role: while your key argument Euro-USD tightness holds water, there is something more happening in Japan, as we are approaching a 45% loss in a short while. And that may affect the conviction of the Japanese people that the Yen is a weaker currency than before. Also here you have a point: central banks can’t control these views, apart of the Eurodollar… - thanks for your great content, always provokes thoughts, and hits the points well.

Guys, I live in Tokyo. We're not seeing any food inflation in supermarkets or restaurants / cafes. We are not seeing any electricity increases. We have seen petrol prices increase by approx. 25%. It's possible the government and businesses are not passing on these costs.

Jeff, you’re the best bro. Love your material. Top job!

This channel is pure gold. Thank you Jeff

Thanks Jeff. Any question I am thinking in my head, you somehow answer.

Love the quotes and sources, amazing

Thank you for explaining this problem in Japan simply!

Would you see inflation and QE flowing into commodity inflation which would require foreign nations to acquire dollars to pay for these commodities? As Japan has been increasing imports since 3/11 and Fukushima meltdown leading to 100% carbon powered economy, all imported, the amount of imports has not necessarily increased but with oil, food, etc increases due to inflation and now global geopolitics (e.g. Russian invasion), the dollar value of the imports is sky rocketing requiring more dollars. If the commodity prices, driven by inflation/QE, settled back down to the 2015 prices, the “excess” demand for $s would settle back and exchange rates would settle back to those 2015 levels.

Thank you Jeff!!!

I’ve been in Japan for 12 years, it’s feels like it’s still the late 90s over here. Food and energy prices are strict for most middle class people. So much low productivity over here. So much potential…hopefully people get some kind of spark back.

Enjoy your content, Jeff. As a newbie to eurodollar macroeconomics, would appreciate further explanation of acronyms.

Thank you Jeff.... learn so much from you.

I live in Japan indeed no boom is happening over here.

Goddamn, that loud-ass Mint Mobile ad right in the middle scared the sh*t outta me!

The best explanation of what's happening in the world today. Not being inflation doesn't mean it's better or easier. Indeed, a supply shock can be worse than inflation and be much prolonged and also have deeper and longer consequences, because they cannot be alleviated but only by governments understanding that they need to invest in digging for more resources, producing more energy, building more transportation, starting from yesterday. This is the hardest part however, in most cases are not possible. So, inflation is actually their wishful thinking. This crisis will not stop until the supply will increase dramatically, and in the previous couple of years governments got used to solving issues from behind the desks and monitors, which now is the opposite. Only the bureaucracy and approvals for starting prospects for resources last a couple of years in most countries these days, for nuclear plants half a decade and another half to build it then few more years for tests before launching it in production, so this crisis can last 20 years, easily. So, yes, this "inflation" is transitory... at historic scale. But why humankind consumes 10 times more than in the 80's although the population increased 15% and the standards of living improved maybe 20% ? This is the real question top economists and politicians should ask, and why not having exponentially increased level of taxation by the less reliable a product is ? This would solve all the issues of the World, of today and tomorrow: global heating, resource crisis, etc, just like the politicians enjoy it: by only signing some papers. There will be just 2 losers which are kind of parasites anyway: the ad-industry and fake-products industry.

Excellent video. Very clear.

Seems like only a week or 10 days ago ... Japan sold a bunch of US Treasuries to protect their Yen at the 145 level. And today? It's a bit over 149. What happened?

What about accord plaza 2.0? The history will repeat in your opinion?

Where do govt FX reserves end up when they are used? How do they flow back through the EuroDollar system? How about a flow chart? Thanks for your brilliant insight.

Good stuff ! Thank you Jeff 😊

Jeff, Why is there a Euro$ shortage?

There is no Eurodollar University without Emil....

It's almost like fiat currencies and irresponsible governments have caused all our problems. Who'd have thought? As far as imports go, the writing is on the wall for Japan. This is actually a genius move. Theyre preparing for the decimation of global trade, by preparing stockpiles of resources. This is also an excellent move in the lead up to a potential war with China. The reason Japan isn't worried about their currency declining, and are focusing on stock, is because they know that there's no coming back from this crash for them. Their economy has been utterly broken for decades now, with a deflationary population with deflationary lifestyles (thus how they have literally QEd since forever). Japan are getting ready to issue a new currency after the largest crash in history, and possibly to help fight China.

Great show!

what I understand.... banks counterparty risks increased....banks insist on best of the best collaterals for repo.....banks finally resort to swap lines from swiss central bank ( to be anonymous) ......some of the dollars obtained used to buy the Long end of the UST curve knowing the US fed is still hucking rates...... hoping the fed will pivot in a few weeks time....... thanks Jeff for all the knowledge

That book on your right looks like Milton Friedman's book, Freedom To Choose (or Monetary History of the US).

If that was true. Japan wouldn't be selling USD for Yen in the FX market. Japan is increasing money supply to pay for imports. Look at commodity price differences between Jan 2020 till today vs other currencies.

13:18 - is the decrease in treasuries on the BOJ’s balance sheet not largely a result of them selling treasures to defend against the strong dollar?

The dollar shortage in the Euro Dollar system doesn’t equate to a domestic dollar shortage nor does it have any correlation. People wouldn’t trade dollars for Yen for obvious reasons. There’s no reason for domestic dollars to head to Japan. So there can be inflation in the US but a dollar shortage globally.

As always an eloquent explanation of a complex topic, but as I have heard of this dollar shortage time and again...What is the answer? Does global trade need a reserve currency ? The US is 25% of global GDP but 80% of all financial transactions are in US$. This disproportionate bias must surely hamper individual nations long term growth prospects.

Hey! Eurodollar U is finally showing up in my feed (vs. Emil). That took about two weeks for the engine to switch over. Fyi

What exactly happens when a repo fails? Is it deferred? Recovered? Doesn't the FED RRP never come off the FED's balance sheet? How can that fail?

Here at Eurodollar!

I suspect Japan is not doing this by choice. Back in the 80's, the Plaza Accords were forced upon Japan. They were forced to adopt an independent central bank. The central bank printed a boat load of money and created the giant Stock market bubble and worlds biggest real estate bubble, that crashed big time. See the carry trade. Borrow Japanese Yen at or near zero interest rates, Convert to dollars, buy U.S. treasuries that pay 4% interest. You'r getting paid to borrow money. The only risk is if the Yen appreciates relative to the dollar. Then you would need more dollars to pay back the loan. Lose money. We all know that is not going to be allowed. See "The Prince of the Yen". I think I got that title right?

A white board diagram would be helpful to clearly visualize capital flows that you are discussing

So complex

I love listening and learning from your show. Please let me know where I can get a definition of THE EURO DOLLAR SYSTEM? Thanks

It's pretty simple. Counter Party risk on record levels of debt is the cause of this Liquidity Issue.

What are you planning to fill up the empty photo frames behind you? Lol just curious 🧐

Great presentation!

Great video with perfect explanations. I'm curious wether gold (as wealrh protection) is a good choise in this type of situtation?

Realignment 👍 you are paying double for oil than you were before. That money has to come from somewhere and is going somewhere. Good for the yen to drop/dollar rise. Then you will cut back on lifeblood sucking imports from foreign countries and increase your own internal capacity and exports.

Maybe, but if so what is causing the ED shortage, is it the problem or just another symptom? Is the ED shortage a result of worsening conditions which are in themselves due to FED rate hikes, QT and energy costs? and therefore, is the ED shortage, just like currency devaluations, ultimately just a different symptom of rate hikes, energy price hikes, and QT?

The scientific understanding of the formation of geological commodities energy, minerals/metals is high due to the high profits of extraction industries. Exploration budgets are much reduced due to near zero returns. Current reserves are in decline with new discoveries a low probability. Energy, metals, minerals and fertilisers will be in declining supply and increasing cost. Economic activity with declining essentials supply can only go one way.

Excellent content as always Jeff - Many thanks

All the best from Zürich, we are still alive :)

Does Japan have a huge EuroYen market that's larger than the domestic currency supply? Why would such a EuroYen market exist if the world trade is conducted in Dollars and the Yen is not a reserve currency? If there is no huge EuroYen market, then Japanese QE should be causing inflation since there is no offshore market to counter-balance the increase in the money supply that the BOJ is causing.

Nice work!

So from what you say, where do you see the DXY going?

Nice, this can be extrapolated to my country Kenya....

Jeff: why wouldn’t Japan be earning more dollars in their exports? That part is missing from your analysis

If this is not inflation, why is US CPI at 8%?

Interesting as always.

Are there ETF's that trade the GBP to USD ratio available on US markets? Looking for a USD/GBP fun (bull on USD relative to the GBP).

The US Dollar shortage is a precursor to a growing imbalance between the supply of food and the demand for it. People can do with less energy, goods and services, but they cannot do without food.

Collateral damage, Wall Street investing investor’s savings in China dollar denominated bonds and tanked tech and crypto assets instead of American or Canadian energy assets due to ESG

Being a straight, white Englishman it's probably my fault somehow.

This is some pretty excellent insight and analysis, man! Great work!

You didn't mention that japan just opened his borders to tourism with didn't seem to help

I smoked my first cigarette at ten. And for girls, I had a bad yen.

😁 Hey Jeff what do you think of munis here? Seems like a guy could buy some yeilding a lot higher than their coupon rate...

What's on the other side of a sovereign debt default! Those with raw materials will be able to trade into what ever new system is agreed on. It may be bi-polar.

so the dollar milkshake theory has started?

Great vid! What is sollution to this? Less risk? How to achive it?

UUP has been a great hedge!!!

okay can i just summarize into 2 words. Dollar Milkshake

Also in 08 the yen got strong. Very different now

Does he (Jeff) ever get around to fully explaining the reason for the euro dollar shortage? - I'm guessing it's due to mistrust in financial markets regarding debt? FFS Jeff, spit it out or am I dense?

4:22 It's just the FOMC, Mr Powell does not have a seat at that committee. Mr Powell is the Fed's spokesperson, nothing more.

Was just introduced to your channel any chance you can add Rumble to your already large channel lineup.

Reset

Friends don't let friends quote Paul Krugman.

My opinion on how this plays out, every country dumps Their currency for US dollars to stay in the fold, but as US dollar dxy rises, US will print more money, then countries will be wiped out from US hyperinflation, then everyone buys gold, silver and bitcoin to not get wiped out but by then the next Great Depression begins, I’m hoarding silver as some sort of protection

"This is not inflation" XD OK Jeff.

Isn't it also to keep their pension funds afloat and printing money at the same time therefore devaluing the JPY?

Is it really a dollar "shortage"? Can the problem be better described as dollar "affordability"?

In the next few years we will probably see a lot of debt forgiveness in the US at the expense of Europe and the rest who are tightly connected to the Eurodollar system.

TLDR; supply shock coming out of COVID, so money is tight

dollar Is crashing.Everything you buy in shop cost more in dollars.the only place it is getting stronger is compared to other states currency.

Or, OR... Everyone is dumping their dollar reserves cuz they don't want to be wiped out by the Feds inflation.

So many dooms day trader types should really hear this

if dollar is failing as gloal currency, then we should be looking for an alternative

Lets go 🎉

Slurping up the dollar milkshake

When this happened to Turkish lira why nobody talked about it? 😡👺😡👺😡

Any suggestions for Japan?

I heard Japan is dumping us bond rapidly because they fear of owning us$. They paid under 80 yen to one dollar for 10 years bond 10 years ago now they are buying back Japanese yen with that us$ but this time they get 149 yen to 1$. I think that is a good investment move even though people have to face high inflation because of this.

And where is Emil??

Hi, jeff.. I am from Brazil..... why our currency is not moving....the REAL (which means Royal not real) is the same price for a while.....not losing value against dollar

Japan should just switch to Rubles. Dollars cannot buy enough energy, any more.

Please bring your sound up ...

DD has always pointed to an entire global crash in order to pay the Apes!

Monetarily sovereign countries can do anything.... so long as they're the USA. Whoever is WRC gets to call the tune and everyone else has to dance to it. That's why Keynes proposed the Bancor at Bretton Woods and its why Harry Dexter White told him to go raffle his tiny doughnut.