An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
Ramanan can be so wrong! And Krugman can be so right!
The complete quote from Comrade Paul:
"International competition is a mostly bogus notion; class warfare is very, very real."
Both clauses should be tattooed on everybody's body & reread for years, until understood. I don't have the context for the Godley quote - but - even Homer nods. If he really meant that, best to forget he said it.
Krugman & the rest of the sane people aren't saying that "international competitiveness" is meaningless or doesn't matter. They are accurately saying that its importance is universally, grossly exaggerated. A very common "basic economic error". The world where people inaccurately belittle competitiveness & suffer a little from this peccadillo is not ours. Have two nations, "A" that strives to treat itself remotely decently, looks after its own (people's) welfare, creates a sound domestic system. Follows Krugman or MMT or FF or Keynes or FDR. And have another "B" - that by listening to Ramanan, the mainstream (or Godley?) puts "international competitiveness" above domestic welfare = domestic expansion. A will both live better & be more "internationally competitive" than miserable, declining "B".
A real world example: Germany is "A". Greece, alas, under poor befuddled Tsipras is "B". There are many, many others.
IIRC, Warren wrote in a comment on his blog some time ago that he can Wynne Godley disagreed over the supposed balance of payments constraint wrt to running full employment with whatever deficit is needed as long as needed. Godley apparently didn't think that this was sustainable over time.
Yes, as Wray says at the end of his "Godley Got It Right" paper at Levy, that was "the only substantial difference" between Godley & the MMT / FF view.
Ramanan is of course full of It. I would like to see the argument presented a little better than Ramanan does. He just says you need to finance your CAD and that is why you have BoP constraint. I have to admit I never understood this point but I am willing to read if someone can direct me on a good paper about this.
Ramanan once wrote in the comments section of this blog a reply to my comment that most countries don't have any takers for their currency to import, so no bids on forex market? That is a complete bs.
Ramanan keeps dancing on It and uses meaningless arguments usually.
1.So the argument boils down to the currency being too volatile?
2.Or regardless of the exchange rate going down the country will not start exporting and just keeps importing and ends up in hyperinflation?
If number 2 then can someone point to a country where this happened? I hope Zimbabwe will not count, Zimbabwe would have had problems in regardless of the exchange rate regime. The fact that hyperinflations happened in such circumstances as Zimbabwe and Weimar proves Ramanan wrong on his point that most countries can't import because there are no takers of the bids for their corrency. How could the governments of those countries have bought foreign currencies if that was true?
K, they simply "buy" (exchange ) the foreign currency from their exporters .... this sets the "exchange rate"... this is what the Swiss CB was doing... now the SNB has delegated to the members and the members dont want to exchange at the 1.2 rate that the SNB did they only will pay around 1.0.. to "get a good deal" for themselves....
Calg it would be the opposite ... 'A' would not be competitive (on price) price is the determinate of competition...
. the result would be that 'A"s currency would appreciate greatly as A's multinational firms would have substantial domestic demand for their products and they would have to less go abroad and lower their prices in the foreign currency terms thus letting the financiers of the trade increase the exchange rate as prices for the product would be firm to increasing..
"I greatly overestimated the effectiveness of the price mechanism in changing the relationship of exports to imports at any given level of income. The doctrine that exports and imports are kept in balance through induced changes in their relative prices is as old and deeply ingrained as almost any proposition in economics."
So Kaldor is saying the price mechanism is not as effective as the MMT-ers think. Currency goes down a lot because exports don't increase relative to imports as much as the MMT-ers think, and this kind of volatility is unacceptable by stable economic policy? Interesting.
This is of course different from saying you need to finance your CAD, this is what Ramanan has been saying. CAD occurs when foreign sector wants to hold financial assets denominated in your domestic currency, you don't need to "finance" that and you don't need to sustain that either.
If I went to live in North Pole with my friends and we had nothing to export then our life there would be unsustainable, It doesn't help us to issue our own currency. The constraints are real. Ramanan seems to be saying that the constraints are financial.
I think that what he is thinking of it that even if a country floats is currency, a trade deficit results borrowing in a foreign currency owing to domestic private debt. That is firms borrow in foreign currency to import, which may show up as obligations of banks owing to the need to exchange the domestic currency foreign reserves.
For example, even though Russia was running a surplus and floated its currency when hit with the crisis resulting from sanctions and falling oil price, it had a significant balance of payment issue with domestic private (firm) debts denominated in USD. However, the Central Bank of Russia was holding enough dollars in reserve that it wasn't a problem at the time, although it could become one in the long run if not well-managed. Russia got that from prior experience.
The Central Bank of Russia can always exchange rubles for USD but that decreases demand for the ruble and the issue was a collapsing currency that is still not entirely out of the woods depending on a variety of factors beyond Russia's control. The cb could also have sold gold for USD without affecting the ruble, but gold reserves do affect the value of currency in that they are reserves that can be exchanged for foreign currencies very readily in the market.
Russia is a large country with experience in financial issues and it was prepared. Had it not been, the US plan may have worked to drive Russia to the wall and force change, even regime change. This is economic warfare, which is a subset of hybrid warfare. And the US still hasn't given up on that plan. Uncle Sam just thinks it will takes longer now and if ratcheting up the pressure.
Smaller and weaker countries could quickly find themselves in a bind owing to balance of payments issues owing to private debt denominated in foreign currencies, even though they float their currencies. But intervening could destabilize the economy, e..g. owing to inflation or currency collapse, This is where the IMF steps in and cracks its neoliberal whip.
At least I think this is more or less where R is coming from on BoP. I believe he has said that taking the US or other strong countries as representative is an error. These are special cases, and even they can get into difficulties as the experience of the UK shows. Even the US ran into a BoP issue in the early Seventies, resulting in Nixon closing the gold window unilaterally, which was only possible then owing to the relative power of the US to act unilaterally in breaking an international agreement on which the global monetary system was based.
"So the Neochartalist story that somehow the government shouldn’t borrow in foreign currencies is vacuous. Only a few nations have the ability to attract investors to purchase their debt in domestic currency and typically these nations are successful in international trade."
Every MMT-er knows that what he just said is a complete horse shit. In a floating forex regime government issues risk free domestic currency assets and there is always demand for them. He almost sounds like Bill Gross here: who will want them (treasuries) now
The most common approaches to exchange rate determination have assumed a strong relationship between currency prices and trade flows. In them, the latter are seen as the most important determinant of the former, and the former are thought to have the most important affect on the latter. Based on these assumptions, these models argue that the currencies of trade deficit countries tend to depreciate and those of trade surplus countries tend to appreciate. They thereby come to the conclusion that exchange rates are automatically drawn to the level that yields a balanced current account. And, yet, real-world trade relations are marked by large, long-lasting trade imbalances that appear to be terribly resistant to exchange rate movements, but very sensitive to national business cycles. The Post Keynesian approach yields predictions consistent with these observations.
"these models argue that the currencies of trade deficit countries tend to depreciate and those of trade surplus countries tend to appreciate."
This is manifestly false. over the last year The US trade deficit has been increasing while the USD has been rallying. ... Chinese steel firms have cut prices 27%.... oil is down 50%... ins USD terms and this is BEFORE anything happens to the exchange rates.
Matt, there are several effects going on. But the main thing is to let fx fx itself. The classical trade effect would tend to depreciate the currency, because economic expansion would increase consumption and imports. This is a worst case analysis, it's always better to have a strong currency. As you & Kristjan note, Harvey attempts a more realistic analysis. But he respects the bounds explored by Lerner, MMT etc. Wray says Harvey's analyses are one of the 4 or so things worth reading on exchange rate determination. That countries don't trade, firms do is a bit like saying people don't kill people, guns do, because the common errors come from not understanding the country-level analysis (Lerner), not a finer one (Harvey) which is based on and incorporates the coarser analysis, which is not wrong, nor oversimplified. I agree that currency appreciation because of the increasing attractiveness of domestic investment in a thriving country can diminish (the mostly bogus notion of) competitiveness, but nothing succeeds like success. Germany is still in many areas the low cost, low price producer, similar to the US having high wages but still an export titan in the middle of the last century. Type A countries become very "competitive" in producing (internationally) desirable currency, and in becoming competitive in any non-bogus sense of "competitive". The main thing is sufficient spending to stop preventing people from working, through some form of functional finance/Keynesianism, to be type A. You can do it through ordoliberal, beggar-thy-neighbor, hostile gift, monetary mercantilism, currency undervaluation/manipulation. Or you can do it through (hydraulic) Keynesianism or MMT/JG.
Greece & Germany show the problem with Godley's bare quote (Without context I am not sure of his meaning): In The 10% of GDP Greek *surplus* on its services trade balance Merijn Knibbe notes how competitive Greece's trade in services sector, tourism & shipping is - and uses the same word "bogus" on competitiveness. (Oil refining is doing ok too). But though this would mean a lot in an independent Greece outside the EZ, it doesn't mean all that much now. Running Greece Inc according to what Germany Inc & France Inc say, rather than what they do is governing the fall of Greece, no matter how much its divisions/corporations succeed.
Kristjan: So Kaldor is saying the price mechanism is not as effective as the MMT-ers think. Currency goes down a lot because exports don't increase relative to imports as much as the MMT-ers think
MMTers DON'T say that the price mechanism must be effective that way, in balancing, in increasing exports & do analyze the cases where they don't. They agree with Kaldor here. If the state doesn't borrow in foreign currency or acquire the debts of banksters/financiers/firms that did, then its debts are finite, determinate credits towards the taxes it imposes. Usual "cures", especially going to the IMF, for a depreciating currency are far, far worse than the "disease", the original "bind". No matter what, the currency of a living nation is worth something. This means that it has some fx value, some positive lower bound. What MMTers say, following Lerner, who never made Kaldor's mistake, who criticized it long before Kaldor, is "who cares whether trade or current accounts or whatever "balance"?". As Wray says - "Imbalance? What imbalance?"
To elaborate on what Tom said, Ramanan is saying that the state MUSTsupport/acquire these (gambling) debts, and that there MUST be such fx debts from trade finance. And says that the MMT/FF world describes an alternate universe. He is wrong on all points. The full faith & credit of Fredonia is a different thing from that of Firefly Finance Corp. A very good way for people and nations to get rich is to not pay debts that they don't owe. Private non-state entities can pay a bit for foreign currency hedging if they have a currency risk exposure. Their tough luck and their creditors' if they don't. Such debts, such financing is not absolutely necessary - about 20% of world trade right now is on a cash basis. And it isn't an alternate universe, but describes simply the way things have been done most places for most of human history.
Scott Fullwiler once said here that Ramanan agreed 95% with MMT. I would say even more, because I think these are the only points of disagreement. (He even contradicts his usual line & says the MMT thing in his last post when he says Japan would be incorrect to tighten in the scenario he poses.) The argument is like one person saying we live on a Flat Earth, another on a Sphere. Both agree the other is speaking consistently, both planar & spherical geometries are conceivable. The disagreement is just empirical, and each say the other is very clearly wrong. But these errors make big differences eventually - thinking that the UK (or even the USA!) faced a financial constraint, rather than the UK just living in the past, blighting its economy and society by not letting its currency float & depreciate. Where was George Soros when he was needed? And for smaller, weaker, poorer countries the errors deliver a completely wrongheaded counsel of fear, despair and powerlessness.
Ok.... we just watched the EUR fall from 1.40 to 1.05...
This is a HUGE move....
Why did this happen?
Should be easy to explain if we know what is going on.
All we have heard from the MMT camp is that 'austerity is making EUR harder to get!' (btw manifestly QTM!) Ie bullish EUR ... yet the EUR falls by 25%...
If we are competent we should be able to explain this.. . Go ahead...
If the competition is to see which nations deliver most socio-economic justice yes then nation A wins that competition. .. but typically the competition is which nation is the residence of a firm that presents the lowest prices for product in the currency of interest. .. so A would lose that competition. ..
Why would the euro be harder to get when the EBC has been conducting QE and also buying US Treasuries. Looks like they have been loosening except wrt to Greece for political reasons.
"saying that while trade flows certainly have some impact on currency prices, it is very minor. In fact, the strongest link between trade flows and exchange rates tends to be via the capital market, when international investors take the periodic announcements of trade balances as a sign of future asset deprecation or appreciation. Yet even this is sporadic, as the market may completely ignore trade flows for long periods of time."
John has been overtaken by the metaphor "flow", he thinks something is "flowing"... Nothing is flowing....
If we take a delta between two accounting balances from time t1 to t2 and divide by delta T then we can get some sort of rate of change of the accounting metric and perhaps term it via the metaphor "flow" but nothing is flowing...
First line should rather better be: "trade prices certainly have some effect on currency flows..."
What bank regulatory metric is measured as a sum from t1 to t2 delta t. .?
Iow there is no regulatory metric where the regulator says to the bank: "hey! You can only make $100m of loans this quarter!"
The regulatory metrics are based on accounting ratios taken at a point IN time, based on PRICE, not as a sum of anything over a period delta T... So WHY are we examining ANY sort of summation quantity here? It's not relevant.
He says: "the market may ignore trade floes for a long period of time" again he is taken in by the metaphor... The market is not an entity that can ignore... He is personifying a market...
Should be: total trade can increase even at fixed PRICES for a long period of time...
There is more there but hope you get the gist of it.... Rsp
22 comments:
Ramanan can be so wrong! And Krugman can be so right!
The complete quote from Comrade Paul:
"International competition is a mostly bogus notion; class warfare is very, very real."
Both clauses should be tattooed on everybody's body & reread for years, until understood. I don't have the context for the Godley quote - but - even Homer nods. If he really meant that, best to forget he said it.
Krugman & the rest of the sane people aren't saying that "international competitiveness" is meaningless or doesn't matter. They are accurately saying that its importance is universally, grossly exaggerated. A very common "basic economic error". The world where people inaccurately belittle competitiveness & suffer a little from this peccadillo is not ours.
Have two nations, "A" that strives to treat itself remotely decently, looks after its own (people's) welfare, creates a sound domestic system. Follows Krugman or MMT or FF or Keynes or FDR. And have another "B" - that by listening to Ramanan, the mainstream (or Godley?) puts "international competitiveness" above domestic welfare = domestic expansion. A will both live better & be more "internationally competitive" than miserable, declining "B".
A real world example: Germany is "A". Greece, alas, under poor befuddled Tsipras is "B". There are many, many others.
IIRC, Warren wrote in a comment on his blog some time ago that he can Wynne Godley disagreed over the supposed balance of payments constraint wrt to running full employment with whatever deficit is needed as long as needed. Godley apparently didn't think that this was sustainable over time.
Should be "he and Wynne"
Yes, as Wray says at the end of his "Godley Got It Right" paper at Levy, that was "the only substantial difference" between Godley & the MMT / FF view.
Ramanan is of course full of It. I would like to see the argument presented a little better than Ramanan does. He just says you need to finance your CAD and that is why you have BoP constraint. I have to admit I never understood this point but I am willing to read if someone can direct me on a good paper about this.
Ramanan once wrote in the comments section of this blog a reply to my comment that most countries don't have any takers for their currency to import, so no bids on forex market? That is a complete bs.
Ramanan keeps dancing on It and uses meaningless arguments usually.
1.So the argument boils down to the currency being too volatile?
2.Or regardless of the exchange rate going down the country will not start exporting and just keeps importing and ends up in hyperinflation?
If number 2 then can someone point to a country where this happened?
I hope Zimbabwe will not count, Zimbabwe would have had problems in regardless of the exchange rate regime. The fact that hyperinflations happened in such circumstances as Zimbabwe and Weimar proves Ramanan wrong on his point that most countries can't import because there are no takers of the bids for their corrency. How could the governments of those countries have bought foreign currencies if that was true?
K, they simply "buy" (exchange ) the foreign currency from their exporters .... this sets the "exchange rate"... this is what the Swiss CB was doing... now the SNB has delegated to the members and the members dont want to exchange at the 1.2 rate that the SNB did they only will pay around 1.0.. to "get a good deal" for themselves....
Rsp
Calg it would be the opposite ... 'A' would not be competitive (on price) price is the determinate of competition...
. the result would be that 'A"s currency would appreciate greatly as A's multinational firms would have substantial domestic demand for their products and they would have to less go abroad and lower their prices in the foreign currency terms thus letting the financiers of the trade increase the exchange rate as prices for the product would be firm to increasing..
Rsp
Godley: "in the long period it will be the success or failure of corporations,"
At least Godley took into account the role of the firms in all of this... then you have to look at the role of the member banks and the CBs too...
You guys are pretending these disparate entities dont exist and are over simplifying...
You guys are saying "nation A exports!"...
Nations dont export, firms registered within a nation export... and the goods are financed by member banks..
You are over simplifying. ...
Ramanan, Nicholas Kaldor On Floating Exchange Rates
ok, thanks Tom.
According to Kaldor:
"I greatly overestimated the effectiveness of the price mechanism in changing the relationship of exports to imports at any given level of income. The doctrine that exports and imports are kept in balance through induced changes in their relative prices is as old and deeply ingrained as almost any proposition in economics."
So Kaldor is saying the price mechanism is not as effective as the MMT-ers think. Currency goes down a lot because exports don't increase relative to imports as much as the MMT-ers think, and this kind of volatility is unacceptable by stable economic policy? Interesting.
This is of course different from saying you need to finance your CAD, this is what Ramanan has been saying. CAD occurs when foreign sector wants to hold financial assets denominated in your domestic currency, you don't need to "finance" that and you don't need to sustain that either.
If I went to live in North Pole with my friends and we had nothing to export then our life there would be unsustainable, It doesn't help us to issue our own currency. The constraints are real. Ramanan seems to be saying that the constraints are financial.
I think that what he is thinking of it that even if a country floats is currency, a trade deficit results borrowing in a foreign currency owing to domestic private debt. That is firms borrow in foreign currency to import, which may show up as obligations of banks owing to the need to exchange the domestic currency foreign reserves.
For example, even though Russia was running a surplus and floated its currency when hit with the crisis resulting from sanctions and falling oil price, it had a significant balance of payment issue with domestic private (firm) debts denominated in USD. However, the Central Bank of Russia was holding enough dollars in reserve that it wasn't a problem at the time, although it could become one in the long run if not well-managed. Russia got that from prior experience.
The Central Bank of Russia can always exchange rubles for USD but that decreases demand for the ruble and the issue was a collapsing currency that is still not entirely out of the woods depending on a variety of factors beyond Russia's control. The cb could also have sold gold for USD without affecting the ruble, but gold reserves do affect the value of currency in that they are reserves that can be exchanged for foreign currencies very readily in the market.
Russia is a large country with experience in financial issues and it was prepared. Had it not been, the US plan may have worked to drive Russia to the wall and force change, even regime change. This is economic warfare, which is a subset of hybrid warfare. And the US still hasn't given up on that plan. Uncle Sam just thinks it will takes longer now and if ratcheting up the pressure.
Smaller and weaker countries could quickly find themselves in a bind owing to balance of payments issues owing to private debt denominated in foreign currencies, even though they float their currencies. But intervening could destabilize the economy, e..g. owing to inflation or currency collapse, This is where the IMF steps in and cracks its neoliberal whip.
At least I think this is more or less where R is coming from on BoP. I believe he has said that taking the US or other strong countries as representative is an error. These are special cases, and even they can get into difficulties as the experience of the UK shows. Even the US ran into a BoP issue in the early Seventies, resulting in Nixon closing the gold window unilaterally, which was only possible then owing to the relative power of the US to act unilaterally in breaking an international agreement on which the global monetary system was based.
I don't know where ramanan is coming from but at times he sounds totally wrong, for example here:
http://www.concertedaction.com/2014/02/24/neochartalism-original-sin-and-the-backfire-effect/
"So the Neochartalist story that somehow the government shouldn’t borrow in foreign currencies is vacuous. Only a few nations have the ability to attract investors to purchase their debt in domestic currency and typically these nations are successful in international trade."
Every MMT-er knows that what he just said is a complete horse shit. In a floating forex regime government issues risk free domestic currency assets and there is always demand for them. He almost sounds like Bill Gross here: who will want them (treasuries) now
Exchange Rates and Trade Flows:
A Post Keynesian Analysis
John T. Harvey, Professor of Economics
The most common approaches to exchange rate determination have assumed a strong
relationship between currency prices and trade flows. In them, the latter are seen as the most important determinant of the former, and the former are thought to have the most important affect on the latter. Based on these assumptions, these models argue that the currencies of trade deficit countries tend to depreciate and those of trade surplus
countries tend to appreciate. They thereby come to the conclusion that exchange rates are automatically drawn to the level that yields a balanced current account.
And, yet, real-world trade relations are marked by large, long-lasting trade imbalances that appear to be terribly resistant to exchange rate movements, but very sensitive to national business cycles. The Post Keynesian approach yields predictions consistent with these observations.
"these models argue that the currencies of trade deficit countries tend to depreciate and those of trade surplus countries tend to appreciate."
This is manifestly false. over the last year The US trade deficit has been increasing while the USD has been rallying. ... Chinese steel firms have cut prices 27%.... oil is down 50%... ins USD terms and this is BEFORE anything happens to the exchange rates.
Matt, there are several effects going on. But the main thing is to let fx fx itself. The classical trade effect would tend to depreciate the currency, because economic expansion would increase consumption and imports. This is a worst case analysis, it's always better to have a strong currency. As you & Kristjan note, Harvey attempts a more realistic analysis. But he respects the bounds explored by Lerner, MMT etc. Wray says Harvey's analyses are one of the 4 or so things worth reading on exchange rate determination. That countries don't trade, firms do is a bit like saying people don't kill people, guns do, because the common errors come from not understanding the country-level analysis (Lerner), not a finer one (Harvey) which is based on and incorporates the coarser analysis, which is not wrong, nor oversimplified. I agree that currency appreciation because of the increasing attractiveness of domestic investment in a thriving country can diminish (the mostly bogus notion of) competitiveness, but nothing succeeds like success. Germany is still in many areas the low cost, low price producer, similar to the US having high wages but still an export titan in the middle of the last century. Type A countries become very "competitive" in producing (internationally) desirable currency, and in becoming competitive in any non-bogus sense of "competitive". The main thing is sufficient spending to stop preventing people from working, through some form of functional finance/Keynesianism, to be type A. You can do it through ordoliberal, beggar-thy-neighbor, hostile gift, monetary mercantilism, currency undervaluation/manipulation. Or you can do it through (hydraulic) Keynesianism or MMT/JG.
Greece & Germany show the problem with Godley's bare quote (Without context I am not sure of his meaning): In The 10% of GDP Greek *surplus* on its services trade balance Merijn Knibbe notes how competitive Greece's trade in services sector, tourism & shipping is - and uses the same word "bogus" on competitiveness. (Oil refining is doing ok too). But though this would mean a lot in an independent Greece outside the EZ, it doesn't mean all that much now. Running Greece Inc according to what Germany Inc & France Inc say, rather than what they do is governing the fall of Greece, no matter how much its divisions/corporations succeed.
Kristjan: So Kaldor is saying the price mechanism is not as effective as the MMT-ers think. Currency goes down a lot because exports don't increase relative to imports as much as the MMT-ers think
MMTers DON'T say that the price mechanism must be effective that way, in balancing, in increasing exports & do analyze the cases where they don't. They agree with Kaldor here. If the state doesn't borrow in foreign currency or acquire the debts of banksters/financiers/firms that did, then its debts are finite, determinate credits towards the taxes it imposes. Usual "cures", especially going to the IMF, for a depreciating currency are far, far worse than the "disease", the original "bind". No matter what, the currency of a living nation is worth something. This means that it has some fx value, some positive lower bound. What MMTers say, following Lerner, who never made Kaldor's mistake, who criticized it long before Kaldor, is "who cares whether trade or current accounts or whatever "balance"?". As Wray says - "Imbalance? What imbalance?"
To elaborate on what Tom said, Ramanan is saying that the state MUSTsupport/acquire these (gambling) debts, and that there MUST be such fx debts from trade finance. And says that the MMT/FF world describes an alternate universe. He is wrong on all points. The full faith & credit of Fredonia is a different thing from that of Firefly Finance Corp. A very good way for people and nations to get rich is to not pay debts that they don't owe. Private non-state entities can pay a bit for foreign currency hedging if they have a currency risk exposure. Their tough luck and their creditors' if they don't. Such debts, such financing is not absolutely necessary - about 20% of world trade right now is on a cash basis. And it isn't an alternate universe, but describes simply the way things have been done most places for most of human history.
Scott Fullwiler once said here that Ramanan agreed 95% with MMT. I would say even more, because I think these are the only points of disagreement. (He even contradicts his usual line & says the MMT thing in his last post when he says Japan would be incorrect to tighten in the scenario he poses.) The argument is like one person saying we live on a Flat Earth, another on a Sphere. Both agree the other is speaking consistently, both planar & spherical geometries are conceivable. The disagreement is just empirical, and each say the other is very clearly wrong. But these errors make big differences eventually - thinking that the UK (or even the USA!) faced a financial constraint, rather than the UK just living in the past, blighting its economy and society by not letting its currency float & depreciate. Where was George Soros when he was needed? And for smaller, weaker, poorer countries the errors deliver a completely wrongheaded counsel of fear, despair and powerlessness.
Thanks for taking the time to clear that all up, Calgacus.
Its hardly cleared up Tom...
Calg,
Ok.... we just watched the EUR fall from 1.40 to 1.05...
This is a HUGE move....
Why did this happen?
Should be easy to explain if we know what is going on.
All we have heard from the MMT camp is that 'austerity is making EUR harder to get!' (btw manifestly QTM!) Ie bullish EUR ... yet the EUR falls by 25%...
If we are competent we should be able to explain this.. . Go ahead...
Rsp
Calg,
If the competition is to see which nations deliver most socio-economic justice yes then nation A wins that competition. .. but typically the competition is which nation is the residence of a firm that presents the lowest prices for product in the currency of interest. .. so A would lose that competition. ..
Rsp
Why would the euro be harder to get when the EBC has been conducting QE and also buying US Treasuries. Looks like they have been loosening except wrt to Greece for political reasons.
I don't know about the ECB buying treasuries, where is that information from?
ECB conducting QE? That and negative interest rates don't make the euro easier to get.
From John's paper:
"saying that while trade flows certainly have some impact on currency prices, it is very minor. In fact, the strongest link between trade flows and exchange rates tends to be via the capital market, when international investors take the periodic announcements of trade balances as a sign of future asset deprecation or appreciation. Yet even this is sporadic, as the market may completely ignore trade flows for long periods of time."
John has been overtaken by the metaphor "flow", he thinks something is "flowing"... Nothing is flowing....
If we take a delta between two accounting balances from time t1 to t2 and divide by delta T then we can get some sort of rate of change of the accounting metric and perhaps term it via the metaphor "flow" but nothing is flowing...
First line should rather better be: "trade prices certainly have some effect on currency flows..."
What bank regulatory metric is measured as a sum from t1 to t2 delta t. .?
Iow there is no regulatory metric where the regulator says to the bank: "hey! You can only make $100m of loans this quarter!"
The regulatory metrics are based on accounting ratios taken at a point IN time, based on PRICE, not as a sum of anything over a period delta T... So WHY are we examining ANY sort of summation quantity here? It's not relevant.
He says: "the market may ignore trade floes for a long period of time" again he is taken in by the metaphor... The market is not an entity that can ignore... He is personifying a market...
Should be: total trade can increase even at fixed PRICES for a long period of time...
There is more there but hope you get the gist of it.... Rsp
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