Where is all the missing money?
2023-09-25 16:57:00 +0700 by Mark Smith
Peter MacCormack asked on a recent podcast, and unfortunately I can't find exactly where as I write this, he asked where is all the money that regular people have lost on the stock markets in recent years? Good question. Today's Eurodollar University episode, perhaps not uncoincidentally covers FX, Jeff Snider highlights what this shadowy part of the money system does. It's a vital part of the system, even if it is very opaque. McCormack did an interview with Nik Bhatia covering FX just this week.
Up to 4 trillion dollars traded per day. Around 80-100 trillion dollars in contracts outstanding. That's a lot! For perspective total physical cash worldwide is 9 trillion dollars. Total debt in the entire world is somewhere in the region of 30-40 trillion dollars last I heard, though a quick search puts this number into question. This trade happens between money market dealers. Essentially it’s currency swaps but can be better thought of as collateralised loans. They function as a way to match people that need dollars with those that have dollars. They are redistributing currency and money and resources throughout the world system.
They keep everything functional, making sure there is the minimum money circulation necessary for the system to function. But because they are highly constrained, they do this off balance sheet, because they don’t have the capacity. The fact that it is off balance sheet means that it is very difficult to see what is actually going on. Interesting stuff.
Jeff points out that FX tells us something about the system from the perspective of the system, in a way that can't really be faked. In a normal world I'd be nodding my head, but in the current world I find myself in, that's the sort of statement that either is hidding fakery or will lead to fakery. It's almost a challenge. Anyway just wanted to note that.
I find it kind of mindboggling that the system is so inneficient that it basically relies on these dealers just to ensure a basic flow througout the system. Isn't it a little like saying the global food system relies on drug dealers to ensure people get fed regularly? I'm still trying to wrap my head around the whole concept. I also get the sense that this might not be the most unbelievable thing about all this.