Henry:
In terms of Monetary Survey entries - the bread-and-butter stuff of IMF
staff analysis of monetary developments - the proposition that:
When the BoJ buys dollars, it keeps the yen exchange rate low and
increases the Jpanese trade surplus (in dollars), draining the yen
money supply at a faster rate that BoJ injection, because the dollars
earned from trade is not fully reconverted back into yens,
means - and can only mean - one thing.
Namely, that "the Japanese trade surplus" - more Dollars being exchanged
for Yens - does NOT show up as one-to-one INCREASE in the Monetary Survey's
YEN component.
Gunnar
----- Original Message -----
From: "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>
To: <gang8@xxxxxxxxxxxxxxx>
Cc: <bjm@xxxxxxxxx>; <pkt@xxxxxxxxxxxxxxxx>
Sent: Tuesday, June 24, 2003 8:58 PM
Subject: Re: [gang8] Re: Is Bernanke Behind The Rallies? Query to Barkley
Foreign asset held by Japan (dollars) rose by Y29.22 trilllion and
domestic credit 0.29.
Why does that not support what I wrote?
Henry
Gunnar Tomasson wrote:
Henry:
I just checked out Japan's Monetary Survey in the June 2003 issue of the
IMF's International Financial Statistics.
Between Year-end 1999 and 2002,
(a) Foreign Assets (Net) rose (in trillion yen) from 44.77 to 73.99; an
increase of 29.22, while
(b) Domestic Credit rose from 712.82 to 713.78; an increase of 0.96,
with
Claims on Central Government (net) and Private Sector rising by 57.06
and
falling by 60.47, respectively.
The increase in Foreign Assets (Net) does not square with the following:
When the BoJ buys dollars, it keeps the yen exchange rate low and
increases the Jpanese trade surplus (in dollars), drainging the yen
money supply at a faster rate that BoJ injection, because the dollars
earned from trade is not fully reconverted back into yens.
Gunnar
----- Original Message -----
From: "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>
To: <gang8@xxxxxxxxxxxxxxx>
Cc: <bjm@xxxxxxxxx>; <pkt@xxxxxxxxxxxxxxxx>
Sent: Tuesday, June 24, 2003 1:35 PM
Subject: Re: [gang8] Re: Is Bernanke Behind The Rallies? Query to
Barkley
My analysis has been checked out at a high level in the BoJ with whcih I
have private contact.
In more than two years since the zero interest policy announcement, the
BoJ has significantly expanded money as measured by the monetary base,
which is bank reserves plus currency in circulation. The monetary base
is up 34 percent since the Bank of Japan began its new policy. However,
broader measures of liquidity that are more closely associated with
general price increases have not grown nearly as rapidly for reasons
stated above. The growth rate of broad money, which includes individual
and business deposits at banks, has hardly increased at all. Moreover,
bank lending has not increased due to a liquidity trap. As the Japanese
trade surplus adds to Japan’s dollar reserves, yen deposits and loans
remain stagnant. Even after adjusting for loan write-offs, bank lending
was down 2.6 percent in 2002 and consumer prices continue to fall.
The reason the increase in the growth rate of the monetary base has not
resulted in higher growth of loans and deposits at banks, or a rise in
prices, is not, as some economists suggest, that the increase in the
monetary base has not been sustained for long enough. Nor are more
increases needed in reserve balances banks hold at the BoJ, a key
component of the monetary base. The traditional anti-inflation bias of
the central banking regime has deprived policymakers of any historical
guide in overcoming persistent deflation.
The current round of global deflation is caused by weak demand resulting
from the effects of dollar hegemony as sustained by a global central
banking regime regulated by the Bank of International Settlement (BIS).
The neo-liberal globalization of trade and finance prevents all
non-dollar economies from effectively increasing their local currency
money supply for domestic development. To avoid speculative attacks on
their currencies, all increases in local currency money supply must be
channeled to fuel export for trade surplus in dollars. This shrinks the
exporting economies’ own money supply while adding to the dollar money
supply to fuel the dollar economy at the expense of non-dollar
economies. Consumers in non-dollar economies are robbed of purchasing
power because low wages are necessary to compete in the global export
market to accumulate trade surpluses in foreign currencies, mostly
dollars. At the same time state credit cannot be used to finance
domestic development to raise income for fear of inducing speculative
attacks on the local currencies.
Neo-liberal economists argue that the main reason why the increase in
the monetary base has not yet worked in Japan is due to non-performing
loans (NPL) in the banking sector. They point out that funds loaned by
commercial banks and spent by borrowers create deposits at other banks
that can then be lent out to other borrowers. According to
neo-classical monetary economics, this is the way an increase in the
monetary base (high power money) leads to an increase in the amount of
broad money and higher prices, through the money creation power of
banks. But banks that are burdened by NPLs do not seek out new,
profitable loan opportunities, even when they have excess reserves.
Neo-liberal economists argue that a change in banking policy that
effectively deals with the NPL problem will lead to more banks and more
businesses seeking out new opportunities and creating new loans. They
make this argument all over Asia, in fact, all over the world.
For Japan, they argue that solving the NPL problem would significantly
increase the ability of the BoJ to increase broad money, increase bank
lending, and raise the price level. This is like arguing that after you
leave the gas running in the kitchen stove without first lighting it, an
explosion would result when you finally light it. Therefore you must now
turn off the gas and open all the windows and there is no alternative to
suffering uncooked food for a while until the air is clear. But
neo-liberals are careful to not tell you that it was they who first
suggested that you blow out the pilot light of national banking. If the
pilot light of national banking had remained lit, the economic kitchen
of Japan would still be producing delicious hot food. Turning the gas
on without a lit pilot light will cause an explosion again, no matter
how many times you open the window to clear the air temporarily.
A recent BoJ report highlights the nature of the NPL problem,
effectively arguing that NPLs are not simply the legacy of the old
bubble days, but reflect continuing problems in the banking sector.
There is truth to that observation, but the BoJ report fails to note
that the NPL problem is a bastard child of central banking. The BoJ
argues that the NPL problem must be addressed quickly. And there is
also truth to that view. Problem loans do exert a heavy toll on banks.
Heavily burdened banks lose the ability to focus on new lending to new
business opportunities. A banking system that is weighed down by bad
loans cannot fulfill its role of gauging risk and return and channeling
savings to the most profitable investments. Banking problems also exert
a heavy toll on the economy. Borrowers who are not servicing NPLs are
frequently owners of assets -- property, buildings, capital equipment --
that are not being used productively or profitably in a free market.
All this is valid, but only in a central banking regime. Under a
national banking regime, these problems remain, but they take on a very
different character. Under national banking, rather than private bank
profits deciding what should be financed, the national purpose decides
what is financially profitable. Furthermore, the claim that cleaning
out NPLs in the Japanese banking system under a central banking regime
will revive the Japanese economy has not been empirically verified. It
is only part of the snake oil cure promoted by the Washington Consensus
to perpetuate dollar hegemony.
Gunnar Tomasson wrote:
Henry:
Re. the following:
When the BoJ buys dollars, it keeps the yen exchange rate low and
increases the Jpanese trade surplus (in dollars), drainging the yen
money supply at a faster rate that BoJ injection, because the dollars
earned from trade is not fully reconverted back into yens. The
drainage
from yen into dollars is consitently at a ratio of over 10 to 1, with
the trade surplus running at $20 billion a month and the Boj buying $2
billion at peak intervention.
Comment:
I just spent 30 minutes going through Bank of Japan monetary
statistics.
Here is a summary of what they show:
1. Japan's Monetary Base (in 100 mn. yen) increased by 454,986 between
end-1996 and end-May 2003.
2. Japan's holdings of Gold and Foreign Exchange increased by ($mn.)
323,731 during the same period.
3. Converted at end-period $/Yen exchange rates, this is equivalent
(in
100 mn. yen) to 389,855 - or 85.7% of the Monetary Base increase.
These statistics do not seem to support your analysis.
Gunnar
----- Original Message -----
From: Henry C.K. Liu <mailto:hliu@xxxxxxxxxxxxxx>
To: bjm@xxxxxxxxx <mailto:bjm@xxxxxxxxx> ; pkt@xxxxxxxxxxxxxxxx
<mailto:pkt@xxxxxxxxxxxxxxxx> ; gang8@xxxxxxxxxxxxxxx
<mailto:gang8@xxxxxxxxxxxxxxx>
Sent: Tuesday, June 24, 2003 11:20 AM
Subject: [gang8] Re: Is Bernanke Behind The Rallies? Query to
Barkley
Basil:
The reason is the Japanese trade surplus denominated in dollars.
With
the BoJ increasing the yen money supply, the new yen cannot find
its
way
into the yen economy because of a liquidity trap caused by zero
interest
rate. With the BoJ pushing on a credit string, yen assets remain
relatively constant despite of excess yen in the banking system.
The
trade surplus in dollars makes the Japanese trade sector a
mechanism
for
turning yen input into dollar output, shrinking the yen economy
while
expanding the dollar economy through a yen capital deficit into a
dollar
capital surplus.
When the BoJ buys dollars, it keeps the yen exchange rate low and
increases the Jpanese trade surplus (in dollars), drainging the yen
money supply at a faster rate that BoJ injection, because the
dollars
earned from trade is not fully reconverted back into yens. The
drainage
from yen into dollars is consitently at a ratio of over 10 to 1,
with
the trade surplus running at $20 billion a month and the Boj buying
$2
billion at peak intervention.
The fundamental flaw with the Japanese economy is not monetary or
fiscal
policy errors but its basic structure of relying on export for
growth in
the context of dollar hegemony.
Henry
bjm@xxxxxxxxx wrote:
> Henry
> I am having trouble with this?
>
> How can BoJ buying dollars increase the yen MS but not yen
assets?
>
> And how can a Japanese trade surplus shrink the yen MS? The
trade
surplus
> must surely increase the yen MS as the BoJ buys dollars?
>
> Basil
>
> -----Original Message-----
> From: Henry C.K. Liu [mailto :hliu@xxxxxxxxxxxxxx]
> Sent: 20 June 2003 21:08
> To: pkt@xxxxxxxxxxxxxxxx
> Subject: Re: Is Bernanke Behind The Rallies? Query to Barkley
>
>
> Not guite, Warren. When the BoJ buys dollars, and it has been
doing so
> rather massively in the name of smoothing the rise of the yen in
recent
> months, it increases the yen money supply, but not the amount of
yen
> assets. This normally will "import" inflation to Japan from the
US if
> not for the Japanese trade surplus in dollars. Japanese trade
surplus
> runs about $20 billion a month now and BoJ spends about $2 to 4
billion
> a month to shore up the dollar (no one knows exactly how much,
but
> surely less than $20 billion a month). The trade surplus turns
yen input
> into dollar output thus shrinking the yen money supply and
contracting
> the yen economy. 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.
>
> Henry
>
> Warren Mosler wrote:
>
>>--- "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx> wrote:
>>
>>
>>>My point is that lowering the exchange rate of the
>>>yen will only
>>>contribute to deflation because it increases the
>>>dollar denominated
>>>trade surplus which Japan must reinvest in dollar
>>>assets, thus shrinking
>>>the yen economy.
>>
>>
>>The way I see it, when the boj buys $US, for example,
>>it increases net yen denomimated financial assets of
>>the non govt sector, just like any other form of net
>>govt. spending. It also increases its net savings of
>>$US, so the process
>>in fact could be said to be importing US 'inflation'
>>or exporting Japan's 'deflation?'
>>
>>warren
>>
>>
>>=====
>>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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>>
>
>
>
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