Re: Is Bernanke Behind The Rallies? Query to Barkley

[Warren Mosler <mosler@xxxxxxxxxxxxxx>]

>
> Yes, when the FFR approaches zero, a chemical change
> occurs to interst
> rate policy and its effects, making it inoperative
> and producing
> unintended consequencies, such as delfation.
> Imminent death alters both
> perception and rationality.


I wouldn't go that far.  I would say that the fed
controls the interest rate, hoping those changes will
have the desired effects on the economy.  Once they
get to 0 they can't, for all practical purposes, get
any lower, so that's all that can be done with
interest rate policy.  I don't think anything
paritcular changes as rates fall to 0, just an
operational limit is reached.
>
>
> >
> >>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.
>
> Very few cars are sold as cash transactions. All
> exports are financed
> with loans and install payments, securitized.
>
Fine!  But note the 'cause' of 'money supply' as
defined increasing is the increasing $ debt, not the
thing being purchases.  Separately, you seem to be
requiring that all imported car sales are incremental,
since purchase of US domestic cars would result in the
same borrowing and deposit creation.

> >
> >  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.
>
> What happens when the loan is in yen and the deposit
> is in dollars.
> This is a daily occurance for Toyota.

Yes, exporting initially results in Toyota having yen
expenses and dollar income.  That, per se does not
alter dollar or yen 'money supply.'  It is only new
loans in either currency that increases deposits of
that currency.


>
> >
> > Likewise, the yen money supply has not shrunk,
> unless
> > yen loans were repaid.  And without govt/boj
> > intervention net yen financial assets remain
> > unchanged.
>
> The yen loans used to be not fullly repaid, just
> rolled-overed backed by
> dollar deposits.

yen loans 'create' yen deposits.


  But central banking and NPLs
> resolution are forcing
> the yen loans to be repaid or written off.

paying off loans reduces deposits in that currency.

best,

warren

  That
> shrinks the yen money
> supply.
>
> Thank you for agreeing.
>
> 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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