1/ THIS IS WRONG BUT IMPT TO DISCUSS WHY: “The fundamental vulnerability of the current financial system remains the absence of a true lender of last resort for non-US banks carrying huge US dollar liabilities.” ft.com/content/5f8237… 
3/ ...(“dollar funding gap”) but truth is no one really knows bc it can’t be accurately measured. Non-US banks created USD liabilities for non-US borrowers to facilitate global trade, but non-US banks don’t take deposits in USD so need to go to capital mkts to fund the USD gap...
4/ ...When Fed tightens monetary policy at home, it has ripple effects of tightening liquidity in offshore USD mkts (so-called Eurodollar—offshore US dollars). Bc of huge volume of eurodollar activity as global trade grew, offshore is now huge relative to onshore. But...
5/ ...Fed policy is focused onshore (as Nixon’s treasury secretary famously told Europe in the early 1970s “the dollar is our currency but your problem”). This is why @JeffSnider_AIP is right when he says the eurodollar, not the US dollar, is really the global reserve currency...
6/ ...So, back to author’s conclusion. He’s right to point out there’s no lender of last resort for eurodollars (actually, the lender of last resort for eurodollars IS the repo mkt/FX swap mkt so when it malfunctions it’s a warning that trouble is coming). But this trouble was...
7/ ..brewing for decades. The fundamental prob w/ the system isn’t lack of a lender of last resort—rather, it’s that such a huge offshore short position in USD was allowed to build in first place. The system itself is fundamentally flawed—bad system design, inherently unstable...
8/ ...The solution isn’t to create a new mechanism that doubles down on an unstable system, imho. The solution is to fix the root problem! It’s my passion—creating a fair & stable financial system. Great article—great oppty to trigger discussion & help more folks learn. 🤠
