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

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

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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