Re: Is Bernanke Behind The Rallies? Query to Barkley

[Warren Mosler <mosler@xxxxxxxxxxxxxx>]

--- "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx> wrote:
>
>
> Warren Mosler wrote:
> > The trade
> >>surplus turns yen input
> >>into dollar output thus shrinking the yen money
> >>supply and contracting
> >>the yen economy.


In the context of a net trade surplus:

A.)  Honda sells cars to the US for $US.  Honda may
either:
1.  'save' $US (financial assets) or
2.  sell them for yen on the open market.  This causes
another entity to have fewer yen and more $.

* 'money supply' is unchanaged at this point in both
currencies.

*  Japan (the 'yen economy') has produced the Honda's
exported, thereby reporting higher gdp.

B.)  The BOJ reacts to a strong yen caused by '2.'
above by buying $US in the open market.

1.  This process adds net yen balances (reserves) to
BOJ member bank accounts, thereby increasing yen
'money supply' as generally defined.

2.  The govt. may or may not offer securities to
offset these operating factors, depending on its
target for excess reserves, but this decision is of no
real consequence of substance for the real economy in
Japan.

*  The buying of $US by the BOJ is of economic
consequence, as it adds net yen financial assets to
the non- J govt sector.  This is an 'inflationary
bias' for the yen.

*  The buying of $US also removes $US financial assets
from the non US govt sector.  This is a 'deflationary
bias' for the $US.

Keeping the yen relatively weak keeps real wages in
Japan relatively low, thereby promoting net exports
from Japan.  This is an inflationary bias in Japan as
it commits real resources to output that gets
exported, resulting in higher prices domestically than
otherwise (domestic demand in Japan would be weak in
anycase due to current govt. policy, etc.) and
provides income to domestic workers and shareholders
that keeps domestic demand higher than otherwise.

Best,

Warren

 The Japanese trade surplus in
> >>dollars,together with
> >>the US capital account surplus in dollars, cause
> >>deflation in Japan
> >>which in turn supports the Japanese trade surplus,
> >>which in turn
> >>supports the US capital account surplus, thus
> >>causing spiralling
> >>Japanese domestic deflation.
> >
> >
> > I respectively disagree.
> >
>
> Warren,
>
> Which part do your disagree with?  Or do you have a
> different view of
> Japanese deflation?
>
> Henry
>
>


=====
Warren Mosler, www.mosler.org
c/o James River Capital Corp
5007 Chandler's Wharf, Suite 201/202
Christiansted, USVI  00820
340-719-8813 office phone
340-719-8804 Fax
Primary email contact:  mosler@xxxxxxxxxxxxxx

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