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I think I get the basic point. I just don't get how the labels on the graph match what was described in the text (and I didn't bother spending much effort on figuring it out).
oh... that there's a lot of USD-denominated debt on non-US bank balance sheets? (and then some off-balance sheet on top). It's just a graph showing how much there is/estimates... not sure what the confusing is?
The labels indicate that the red bit on top is the on-balance sheet debt
I think what is confusing to me is the commentary of BPI's tweet:
They say the US backstops $12 - 15 trillion in off-book debt, but the chart shows on-balance sheet debt being ~$50 trillion while off balance sheet debt is $36 trillion.
According the chart, wouldn't it make sense to say the US backstops $36 trillion of off-book debt?
I think the tweet contents is just wrong, the chart is fine.
I agree that the tweet getting it mixed up is most likely
oh, I get it. yes, a little confusing
OK, I'll try to rescue it. It's poorly phrased, and the word "deficit" makes people instantly think of government deficits -- which is completely different.
Like @Scoresby says, there would be an equivalent (or, probably, largely) amount of assets on the balance sheets of the euro banks issuing dollars (think everything from hedgies to Deutsche to my Revolut bank account dollar balance) -- and what Bhatia would say, if I were to steelman him, is that these dollars coming back to the U.S. would be "redeemed" in some real way:
But in contrast to M2 or domestic banks, which the Fed oversees and can control and supervise (and bail out, need be), the dollar creation abroad it has NO IDEA about... (though, bank supervisors in e.g., Lithuania or France do!)... so can't forecast or know. That's a hidden risk.
= with stablecoins, that reserve risk would sit on 1-for-1 foreigners, or at home at domestic banks.