Tuesday, January 20, 2015

Constantin Gurdgiev — Russia 'Capital Outflow' Is Actually Companies Reducing Debt

Due to sanctions instead of rolling over their debt like everyone else does Russian companies are forced to repay it. Also means that unlike everyone else they're going to have very little debt.
Getting foreign denominated debt off Russian balance sheets.

Russia Insider
Russia 'Capital Outflow' Is Actually Companies Reducing Debt
Constantin Gurdgiev (True Economics)


NeilW said...

That's because there is no such thing as 'capital flows' in a sovereign currency area - in the sense of draining anything.

Again it's the 'finite amount of stuff' myth applied to finance.

Capital comprises real things you can use to do something, to which you add liquidity (working capital) so you don't run out of cash.

The Real Things are generally local to the business, and the salesmen selling anything else are generally desperate to make a sale - up to sorting out the financing if you push them.

Liquidity is what the local banks provide out of thin air.

Matt Franko said...

right Neil this "capital outflow" is a moron metaphor relied on by people too stupid to figure out the xaction details...


Dan Lynch said...
This comment has been removed by the author.
Dan Lynch said...

@Tom Hickey, the latest Greg Palast blog may be of interest to MNE:

The euro is simply the deutschmark with little stars on it.

Ryan Harris said...

Once people understand how basic credit expansion and contraction in the economy creates and destroys money and money-like financial assets, the next piece of the puzzle is how multiple economies and banking systems fit together. Then they get closer to understanding forex. When we study a very simple credit market like treasuries, we realize quickly that many multiples of the entire stocks are issued and repaid each year, I don't understand why people get flummoxed by the amount of volume that flows through credit markets or forex markets. Instead of having something intelligent to add or thoughtful about why the markets are large, they just go hide in their ideology and say things about evil banks and speculation.

I find it frustrating that all the people that claim to understand MMT, are ready to puff out their chest and do a little dance to show how outraged they are rather than explain what is happening and why. That these "flows" clear through forex markets as funding currencies change, trade happens, and what not. The comments a couple days ago in the swiss currency fiasco by some of the frequent commenters were frankly embarrassing in their ignorance or is it arrogance?

I understand some of the progressive and conservative trolls that have adopted MMT, see MMT as a tool to their ends, and haven't really an interest in understanding the details. And for them we have to ignore the comments to maintain decorum and publicity. But many of the comments about evil banks and speculators were from people that should know better. Not that there isn't speculation but it is a fraction of what rolls around daily... but there is no sense arguing with people that want to be indignant and are looking for a dead horse, I guess.

Tom Hickey said...

There are two aspects of exchange. The first is the transactional aspect captured by accounting. Then there is the background, which is less clear. Economics attempt to explain it based on, e.g., rational choice, but there's more going on in many if not most cases owing the context and psychological complexity of interests.

Determining the whole picture in any case is almost impossible, since players seldom declare their agenda and motives.

Economic interests often intersect with political interests, for instance, which brings in power. Ignoring that or pretending it doesn't exist is unrealistic.

Sanctions imposed on Russia are a good example of this, since they were designed not only punish Russia for perceived bad behavior but also as a weapon in economic warfare.

There's also little doubt that the transition to the euro was not exclusively an economic decision but as much a political one as economic, if not more so.

Matt Franko said...

Ryan if you want a good laugh read Minsky some time....