Eurodollar Quotes

As I saw it, there was a 75 percent chance the Fed’s efforts would fall short and the economy would move into failure; a 20 percent chance it would initially succeed at stimulating the economy but still ultimately fail; and a 5 percent chance it would provide enough stimulus to save the economy but trigger hyperinflation. To hedge against the worst possibilities, I bought gold and T-bill futures as a spread against eurodollars, which was a limited-risk way of betting on credit problems increasing. I was dead wrong. After a delay, the economy responded to the Fed’s efforts, rebounding in a noninflationary way. In other words, inflation fell while growth accelerated. The stock market began a big bull run, and over the next eighteen years the U.S. economy enjoyed the greatest noninflationary growth period in its history. How was that possible? Eventually, I figured it out. As money poured out of these borrower countries and into the U.S., it changed everything. It drove the dollar up, which produced deflationary pressures in the U.S., which allowed the Fed to ease interest rates without raising inflation. This fueled a boom. The banks were protected both because the Federal Reserve loaned them cash and the creditors’ committees and international financial restructuring organizations such as the International Monetary Fund (IMF) and the Bank for International Settlements arranged things so that the debtor nations could pay their debt service from new loans. That way everyone could pretend everything was fine and write down those loans over many years. My experience over this period was like a series of blows to the head with a baseball bat. Being so wrong—and especially so publicly wrong—was incredibly humbling and cost me just about everything I had built at Bridgewater. I saw that I had been an arrogant jerk who was totally confident in a totally incorrect view. So there I was after eight years in business, with nothing to show for it. Though I’d been right much more than I’d been wrong, I was all the way back to square one.

In many ways, the Bretton Woods monetary system and subsequently the Eurodollar/Petrodollar monetary system represent forms of monetary neocolonialism, with the United States in charge.

When fear drives the market you don’t want to be contrarian. When everyone says euro-dollar is going up, you buy it. When they say it’s going down, you sell,” he says. “You don’t want to stick out against the market.

So Eurodollars were in one sense dollars like any other, but in another sense they were different because they had escaped into a market outside government control, where they could behave freely. It’s a bit like taking someone from their family home in the suburbs to a wild part of town and offering them whisky and cocaine. They are the same person but also different – more fun but also more irresponsible.

Because the dollar was the currency of world trade and, under the Bretton Woods Agreement, was convertible into gold at a fixed price of $35 to the ounce, dollars accumulated in foreign central banks and financial institutions. They often circulated abroad without ever returning to the United States. As American inflation increased, these “eurodollar” holdings began to seem precarious, and gold began to flow abroad in quantity for the first time since the early 1930s. The international currency market, a growing force in the international economy, began betting against the dollar. On August 15, 1971, President Nixon acted decisively, if not necessarily wisely, to solve the increasing economic problems that confronted the country. First, he renounced the Bretton Woods Agreement and severed the link between the dollar and gold. The dollar would now float in value, and the gold standard, after 150 years, was dead. Second, he froze all wages, rents, and prices for a period of ninety days, to be followed by strict wage and price controls.