Re: Is Bernanke Behind The Rallies? Query to Barkley

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Warren Mosler wrote:
> --- "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx> wrote:
>
> > How does euro-dollars come into you picture?
> > Euro-Dollars are claims for U.S. dollars held
> > against banking
> > institutions outside the United States. The claims
> > arise when, through
> > the purchase of bills of exchange or similar
> > transactions, a foreign
> > bank credits a dollar deposit account.
>
>
> Right.  In general, 'loans create deposits.'  The
> deposits thus created are liabilities of the
> institution involved.  This can happen anywhere in the
> world, as you indicate.


When the Fed increases the dollar money supply by buying up treasuries
through its open market operation, it deposits the dollars proceeds
(high power money) in its banking system increasing the excess reserve
based on which banks can make more loans.  The initial high power money
is a credit deposite in the banks, derived from proceeds from buying
state debt (government debt).

Japanese trade surplus in dollars also increases dollar deposite in
banks world wide. when the banks are within the US, the deposits are in
dollars and when the banks are outside of the US, the deposits are in
euro-dollars.  Both types of deposits increased the dollar moeny supply.

The question is: do you have a problem with the observation that
Japanese trade surplus in dollars increased the dollar money supply and
shrinks the yen money supply, other things being constant?

Henry


>  Such deposit
>
> > accounts
> > (Euro-dollars) are extensively used outside the
> > United States for
> > financial transactions such as short-term loans or
> > the purchase of
> > dollar bonds called Euro-Bonds that are sometimes
> > issued by U.S.
> > companies to finance their operations, especially
> > those outside the
> > United States.
>
>
> Fine!  Don't understand the question???
>
> Best!
> Warren
>
>
> > Henry
> >
> > Warren Mosler wrote:
> >
> > > --- "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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>
>
> =====
> 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
>
> __________________________________
> Do you Yahoo!?
> SBC Yahoo! DSL - Now only $29.95 per month!
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