Lots More with Lev Menand on the Eurodollar Market Now

Tracy Alloway (0:00)

Hey there, Odd Lots listeners. We have a very special announcement. Joe and I are hosting our annual FrotLots Pub Quiz on Thursday, February 13th in New York City, and it's gonna feature some very special guests and prizes. So come test your wits in finance, markets and economics for a chance to win the ultimate Odd Lots glory and hang out with your fellow listeners. Tickets are on sale now at events.bloomberglive.com/oddlotspubtrivia. You can also find links on our Twitter feeds or in the newsletter. And you can find the link also on our show notes. We hope to see you there.

Joe Weisenthal (0:42)

Bloomberg Audio Studios.

Lev Menand (0:44)

Podcasts, radio, news.

Tracy Alloway (0:48)

Joe, three hours of Eurodollar market history and we can't get enough. We gotta do more.

Joe Weisenthal (0:53)

I love that. I couldn't even believe that was real. Just sitting, I'm being totally sincere, sitting there in the studio, listening to Lev and Josh talk about the history of Eurodollar's career highlight unironically.

Tracy Alloway (1:04)

Definitely a treat. I do feel like there's one thing missing, which is like we kind of have to put everything in modern context.

Joe Weisenthal (1:11)

Yes.

Tracy Alloway (1:12)

Right? We didn't really bring it that up to date. We talked a little bit about the Eurodollar's role in like the 2008 crisis. There was a mention of it. But like, let's talk about the current Eurodollar market.

Joe Weisenthal (1:24)

Well, can I say something?

Tracy Alloway (1:25)

Yeah.

Joe Weisenthal (1:25)

Lev, don't listen to this. Whenever we talk financial market plumbing or things of that nature, we're like, this is really fascinating. This is really interesting topic. Then I was like, how does this matter to anything at all? I would like to actually talk a little bit more for real about how does it actually matter because I find it very interesting, but I sometimes forget like when and why.

Tracy Alloway (1:51)

Why did we talk about this for three hours? Yeah, for real.

Joe Weisenthal (1:57)

I did a deadlift.

Tracy Alloway (1:57)

I'm both the most popular trader and most successful trader at Citadel.

Joe Weisenthal (2:02)

Fed is going viral.

Tracy Alloway (2:04)

Barges.

Joe Weisenthal (2:04)

This is an after school special, except.

Tracy Alloway (2:06)

I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the US.

Joe Weisenthal (2:12)

Black gold.

Tracy Alloway (2:13)

These are the important questions. Is it robots taking over the world?

Joe Weisenthal (2:16)

No, I think that in a couple of years, the AI will do a really good job of making the Odd Lots podcast. One day, that person will have the mandate of heaven.

Tracy Alloway (2:26)

How do I get more popular and successful?

Joe Weisenthal (2:28)

We do have the perfect guest. Welcome to Lots More, where we catch up with friends about what's going on right now.

Tracy Alloway (2:36)

Because even when Odd Lots is over, there's always lots more.

Joe Weisenthal (2:40)

We really do have the perfect guest.

Tracy Alloway (2:45)

Well, Lev Menand is here with us, and he's going to provide an update on the market. He is, of course, an associate professor of law at Columbia School. So, Lev, thank you for coming on and talking to us even more about Eurodollars.

Lev Menand (3:00)

I also think this is a topic that we could just keep doing episodes.

Joe Weisenthal (3:04)

No, for sure.

Tracy Alloway (3:05)

Do an Odd Lots spin-off on Eurodollars.

Joe Weisenthal (3:07)

All the good topics are fractal, in that you could just go die. This is a core thing I've realized, is that actually the good topics, the only limitation on how many episodes you could do is creativity and depth. But actually, we could just do keep going, right?

Lev Menand (3:21)

Yeah. If anything, it matters more today than it did in 1964 and 1954, which was the periods we were covering.

Joe Weisenthal (3:27)

Why does it matter more today?

Lev Menand (3:29)

Size and centrality in the US dollar monetary system and in the global financial system. The Eurodollar system right now is probably $13 trillion in size, which makes it more than twice as big as the uninsured deposits in the domestic system, and almost as big as the overall deposits in the domestic system.

It's the leading edge of monetary expansion in the US dollar system takes place offshore, not onshore, and when we were talking about the development of this in the 50s, the 60s and 70s, the onshore domestically regulated dollar deposit system was a much bigger percentage of the overall whole, and now we're in a world that looks quite a bit different in terms of the relative importance, and we've been in that world for about 25 or 30 years now, and the 2008 crisis was a crisis of that world, and 2020 was in part a crisis of that world, and so we're now in a financial system where instability in the euro dollar market, that's the main, with the addition of the repo market, that's the main area of instability and concern for our whole system. You know, in the 20th century, we still had a sort of like, you know, your grandparents' banking system, and now it's not.