The Math Thickens

by Jeffrey P. Snider
Alhambra Partners

It has been my contention for some long while that one of the biggest parts of this “rising dollar”, that is, again, nothing more than a euphemism for the various ways in which there is a “dollar” shortage, is balance sheet math. The problem in as simple terms as perhaps possible is that positions were taken, balance sheets constructed, and “capital” allocated (through RWA budgets) all based on the idea that QE was money printing and that money printing would lead to inflation then recovery.

To find out instead that at the very least it wasn’t so simple threatens not just trading positions but balance sheet capacity itself. The eurodollar being not an actual thing, it is described as close as possible as balance sheet capacity. The world where QE is a failure is much, much different than the one where liquidity is overwhelming and perfectly fluid.

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