Re: Is Bernanke Behind The Rallies? Query to Barkley

[Warren Mosler <mosler@xxxxxxxxxxxxxx>]

> >
> > 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).

Only half the story.  With a fed funds rate target
above 0, the fed then sells either tsy or its own
notes to keep the rate from falling to 0 and stay at
1%.  So net financial assets remain unchanged (as they
do even in the case of a 0 rate policy).

>
> Japanese trade surplus in dollars also increases
> dollar deposite in
> banks world wide.

??? When Toyota sells cars for $, one $ account is
debited and another credited, that's all.  Unless the
$ are borrowed to buy the car.  Only then does $
'money supply' as defined as bank deposits increase.
Just like any other loan creates deposits.

 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.

right, as above.

>
> 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?

As above, it's the borrowing of $ US that increased
the money supply as defined.  But net $ financial
assets have not increased, as there is always a loan
and a deposit, netting to 0.

Likewise, the yen money supply has not shrunk, unless
yen loans were repaid.  And without govt/boj
intervention net yen financial assets remain
unchanged.

warren

>
> 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
> >>>
> >>>__________________________________
> >>>Do you Yahoo!?
> >>>SBC Yahoo! DSL - Now only $29.95 per month!
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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!
> > http://sbc.yahoo.com
> >
>
>
>


=====
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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