Re: [gang8] Re: Is Bernanke Behind The Rallies? Query to Barkley

["Gunnar Tomasson" <gunnar.tomasson@xxxxxxxxxxx>]

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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