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.
Pages
▼
Pages
▼
Tuesday, April 24, 2018
Pam and Russ Martens — Why Isn’t the Justice Department Bringing Treasury-Rigging Charges Against Wall Street?
The Special Advisor to the Japanese Cabinet, Prof. emeritus Koichi Hamada of Yale University, two days ago gave an interview in the Nikkei Daily Newspaper, the largest business daily in the world, forecasting that the BoJ will soon look into the possibility of buying foreign bonds to boost QE. This possibility has been alluded to several times in the recent past in the same (in Japan most influential) newspaper suggesting that the BoJ may actually take that step fairly soon.
Neil says
You have to buy foreign currency first since the bonds are not denominated in Yen. So if you are issuing currency to buy foreign currency you are operating a mercantile export process designed to weaken your currency against your counterparts.
Which is what all net exporters do eventually if they want to continue net exporting. Which means you don’t need to pay interest on bonds – particularly to foreign investors.
So have a 2 questions
1) What are the negatives here for Japan?
Is it less money gets moved back home? Because if they don't increase their exports to get the currency they need they still need to buy the imports they need ( unless import substitution) which means less money will get moved back to Japan.
2) What effect would this have on USD/JPY when the FED is increasing interest rates?
Is it really going to stop the YEN from getting stronger by much ?
1. Net exports placed as foreign currency reserves by the cb 2. Borrowing foreign currency by the treasury, cb or the private sector. 3. Buying foreign currency against its domestic currency(if there is demand).
1-2 creates domestic currency if exchange is taking place(1. exchange for what´s already exported) 3. Using cash at hand or what is created out of thin air but also to some extent by market operations(i.e forwarding or other derivative-contracts). 4. How do currency swaps work
Regarding the article above, I did not know about this. Many thanks for posting it.
The “national debt” is not determined by deficit spending, but by the US Treasury market, which decides how many dollars that investors will deposit in Fed savings accounts.
Therefore if big banks are rigging the in US Treasury securities market, then the banks are rigging the “national debt.”
Therefore when anyone lies about the “national debt crisis,” we can respond with, “The big banks caused the crisis.”
Of course, there is no “national debt crisis,” but we can throw the lies back at the liars. When a politician falsely claims that “entitlement spending” has created a “national debt crisis,” we can say no, the big banks did it. Let’s break up the big banks.
Moreover, if there are now only 23 “primary dealers” that can bid at U.S. Treasury auctions, then it is these 23 banks that are driving up the “national debt” (i.e. that are depositing money in Fed savings accounts).
Again, the culprit is not “entitlement spending,” which has nothing to do with the “national debt” in the first place.
++++++++++++++++++++++++++
I object to something in the article…
“As the amount of new Treasury debt issuance has grown as a result of spiraling deficits, the number of big Primary Dealers has shrunk.”
This statement makes it seem that the U.S. government must borrow every dollar that it deficit-spends. Not true. The U.S. government does not borrow one penny of its spending money from anyone. The U.S. government creates its spending money out of thin air.
Because of obscure federal laws, the U.S. Treasury is required to issue securities whose dollar value equals the federal deficit for a given fiscal year. If no one buys the securities, the Fed itself “buys” them. Indeed half of the “national debt” consists of money the Fed owes itself.
“I took five dollars out of my left pocket and lent it to my right! How will I ever pay it back? It’s a CRISIS!”
Anyway this is a very important article, and I shall dig into this topic.
3. currency swaps so they need to find a large amount of people who want to exchange $'s for Yen.
This has to be a crazy idea there are far more easier ways to weaken the YEN. Instead of trying to increase exports at the current prices and increase currency swaps they could just cut the prices of major exports. Or go on a big government spending spree like they normally do.
A central bank buying foreign currency creates more of the currency, potentially lowering the exchange rate and lifting the inflation rate.
A problem with this is that it is regarded as currency manipulation.
The BoJ could also do some currency swaps with other central banks that have a negative balance of payments with Japan and need yen reserves. Japan is a net exporter and runs a current account surplus. That means other countries need yen reserves to settle.
Maybe Abe is going to tell the BOJ to start buying some sort of US infrastructure bonds that Trump is going to start issuing for US infrastructure build out They could use US dollar balances from there over 1 trillion US treasury holdings
TOM HICKEY WRITES: “A central bank buying foreign currency creates more of the currency, potentially lowering the exchange rate and lifting the inflation rate.”
I’m confused. If I give you one dollar in exchange for five euros, how have I created more euros?
TOM HICKEY WRITES: “Japan is a net exporter and runs a current account surplus. That means other countries need yen reserves to settle.”
Let’s think about this. A Japanese factory sells a car to an American buyer. Since the average American does not have Japanese yen, the Japanese factory will take payment in US dollars. Then if the Japanese seller wishes, he may exchange those dollars for yen at a Japanese bank. Therefore nobody needs Japanese yen to “settle.”
When a foreigner buys a Japanese import, the foreigner can pay for the import in his own nation’s currency (if the Japanese seller agrees) or else the foreigner can trade his own nation’s currency for a third currency (most commonly U.S. dollars), and pay for the import in the third currency (if the Japanese seller agrees). Again, Japanese yen are not needed to “settle.”
MATT FRANKO WRITES: “Maybe Abe is going to tell the BOJ to start buying some sort of US infrastructure bonds that Trump is going to start issuing for US infrastructure build out. They could use US dollar balances from there over 1 trillion US treasury holdings.”
I have not heard anything about federal “infrastructure bonds.” I don’t know why the U.S. government would need to issue bonds in order to get U.S. dollars that the U.S. government creates out of thin air.
U.S. federal securities are denominated in dollars (e.g. bonds, Treasury bills, Treasury notes, Treasury Inflation Protected Securities, etc.). Suppose Trump issued “infrastructure bonds” in order to drain foreigners of their U.S. dollar reserves. In that case the foreigners’ dollars would sit untouched in Fed savings accounts until the bonds matured, at which point the U.S. would have to give back those dollars to the foreign owners, plus interest.
If Trump was serious about US infrastructure improvement, he would lean on Congress to create money for it out of thin air. No bonds would be needed. However, Trump wants to create a “public private enterprise,” which is always a scam (no exceptions).
For example, Trump authorizes $500 million to be created out of thin air to build a highway. Some asshole investor (a Trump crony) contributes a mere $1,000 to the project. This is the “public-private” part. When the highway is done, the investor takes ownership, and he installs toll booths every few miles on his shiny new highway. Through creative accounting, the project is made to seem like the investor paid for it all, when in fact he contributed only $1,000. That's how these scams are done. Even if this scam becomes exposed, it will not be reversed. The highway will not revert to federal ownership.
Trump’s idea of a nationwide infrastructure program is a gigantic giveaway to his personal cronies. This is Trump’s dream, since he is desperate to be liked by the “right people” (i.e. by the rich and powerful). That’s why he continually throws more and more money at the Pentagon and the weapons makers. Trump is desperate to be liked by them.
Not really. You are going on intuition rather than tracing flows on balance sheets.
You need to get up to speed on balance of payments and international settlements through commercial banks and central banks.
A currency never leaves the currency zone. It always appears on accounts in that unit of account.
For the exporter to get paid in the exporter's county's unit of account, there must be a transaction mediated through the bank of the importer in one unit of account and the account of the exporter in the other unit of account.
An exporter doesn't need to immediately repatriate funds but can hold funds abroad denominated in a different unit of account than the exporting country. But if the funds are not saved, spent or invested in the importer's unit of account, they will eventually be repatriated through entries on commercial banks books that also involve the respective central banks as the currencies issuers.
Maybe Abe is going to tell the BOJ to start buying some sort of US infrastructure bonds that Trump is going to start issuing for US infrastructure build out They could use US dollar balances from there over 1 trillion US treasury holdings
USD/JPY ⬆ Then ?
Even though the FED is increasing interest rates or just ⬇ more slowly ?
TOM HICKEY WRITES: “You are going on intuition rather than tracing flows on balance sheets.”
Actually I was going by facts and logic. I have lived in many different countries, and learned much about currency issues.
TOM HICKEY WRITES: A currency never leaves the currency zone. It always appears on accounts in that unit of account.
Strange. I was in Nicaragua last month, and I saw many U.S. dollars there. In Tijuana Mexico, half the stores and restaurants accept only U.S. dollars, not Mexican pesos. But perhaps I misunderstand your point because I am not “up to speed.”
TOM HICKEY WRITES: “For the exporter to get paid in the exporter's county's unit of account, there must be a transaction mediated through the bank of the importer in one unit of account and the account of the exporter in the other unit of account.”
Yes. What is that unit of account? Most commonly it is the U.S. dollar, as I previously wrote above.
TOM HICKEY WRITES: An exporter doesn't need to immediately repatriate funds but can hold funds abroad denominated in a different unit of account than the exporting country. But if the funds are not saved, spent or invested in the importer's unit of account, they will eventually be repatriated through entries on commercial banks books that also involve the respective central banks as the currencies issuers.
Yes. How does this nullify what I said above?
Many thanks for reading my comments and responding to them. We’re all here to learn.
Foot I’ve stated my position/theory on forex here before... I think it adjusts to reflect the terms of trade that are established first by the producers... ie asset values of products are established in the importing nations currency by the producers and THEN the banks financing those products adjust reserve assets against effectively FIXED regulatory capital...
So if the Japan autos being financed in USA achieve higher prices in USDs then the USD bank financing them can shed usd reserve assets in order to maintain the target constant Leverage Ratio...
I don’t look at it as “supply and demand!” of currencies that’s Monetarist thinking... iow “it’s about price not quantity...”
Brent crude being imported into the US collapsed in USD terms in 2014 and THEN the GBP and EUR went down to reflect the increased terms of trade the us achieved....
USD/JPY will move in the direction of the USD and JPY weighted trade terms between US and Japan imo...
There are US dollar bills in circulation around the world. Firms don't conduct business in them unless they want to shield the record.
There used chiefly in spot transactions at a small level and for illegal activities.
Large firms that are legit conduct business through commercial banks.
Commercial banks have accounts denominated in foreign currencies.
This results in balance of payments issues.
Commercial banks have to obtain foreign currency from the issuer. They do not have accounts with the foreign central bank, so foreign funds needed for final settlement are provided by the domestic central bank.
The domestic central banks needs to obtain those funds from the foreign central bank, at which it has an account.
A normal procedure for this is currency swaps.
Since the majority of international settlements are in USD, the Fed provides swaps to facilitate this.
There are other currencies that are used similarly to the way the USD is but not on the same scale. These are the currencies in which saving is required as safe and desirable.
These currencies include chiefly the euro, the pound sterling, and the yen. China aims at adding the RMB to this list.
But as most export to growth countries stockpile savings in other countries to try and keep their own currencies down a well known strategy. |$ zombies you call them.
If as you say they then start using that stockpile to buy infrastructure bonds and that stockpile goes down I'm trying to work out how that would play out.
Which when thinking about it would mean it would not help these export to growth countries at all especially Japan because the Yen would strengthen.
Unless of course it is just an asset swap which means those savings just get another name attached to them.
Which reinforces Bills post about Japan still thinking that QE is inflationary. Hence why they want to Boost it.
Right both Trump and Abe have their own idea about munnie that is not ours... those 2 are cooking up something....
Abe could direct the BOJ to use JPY to buy USTs from current non Japan govt sector owners of the USTs at an exchange rate that Trump doesn’t have a problem with... Japan current holders of the UST assets would receive JPY reserves in exchange thus creating more JPY reserves which they (monetarists) think is “inflationary!” (even though Yellen just said no one really knows what “inflation!” is) and then BOJ could use those newly acquired USDs to buy any us govt securities which might be Trumps US infrastructure bonds...
Trump gets Abe to finance US infrastructure with Japan’s $1T+ USD hoard as US congress won’t ... Trump gets infrastructure and Abe gets more JPY QE....
From Bill's blog today...
ReplyDeleteThe Special Advisor to the Japanese Cabinet, Prof. emeritus Koichi Hamada of Yale University, two days ago gave an interview in the Nikkei Daily Newspaper, the largest business daily in the world, forecasting that the BoJ will soon look into the possibility of buying foreign bonds to boost QE. This possibility has been alluded to several times in the recent past in the same (in Japan most influential) newspaper suggesting that the BoJ may actually take that step fairly soon.
Neil says
You have to buy foreign currency first since the bonds are not denominated in Yen. So if you are issuing currency to buy foreign currency you are operating a mercantile export process designed to weaken your currency against your counterparts.
Which is what all net exporters do eventually if they want to continue net exporting. Which means you don’t need to pay interest on bonds – particularly to foreign investors.
So have a 2 questions
1) What are the negatives here for Japan?
Is it less money gets moved back home? Because if they don't increase their exports to get the currency they need they still need to buy the imports they need ( unless import substitution) which means less money will get moved back to Japan.
2) What effect would this have on USD/JPY when the FED is increasing interest rates?
Is it really going to stop the YEN from getting stronger by much ?
Is exports the only way to get it ?
ReplyDeleteAs another poster asked
How can a sovereign nation get foreign currency?
1. Net exports placed as foreign currency reserves by the cb
2. Borrowing foreign currency by the treasury, cb or the private sector.
3. Buying foreign currency against its domestic currency(if there is demand).
1-2 creates domestic currency if exchange is taking place(1. exchange for what´s already exported)
3. Using cash at hand or what is created out of thin air but also to some extent by market operations(i.e forwarding or other derivative-contracts).
4. How do currency swaps work
Q. How can a sovereign nation get foreign currency?
ReplyDeleteMY ANSWER...
There are three ways…
1. Sell exports in exchange for foreign currency
2. Borrow money in foreign currency (in which case you will have to later pay it back in foreign currency, with interest)
3. Buy foreign currency (assuming you can find a seller who will accept your own currency in exchange for foreign currency).
Regarding the article above, I did not know about this. Many thanks for posting it.
ReplyDeleteThe “national debt” is not determined by deficit spending, but by the US Treasury market, which decides how many dollars that investors will deposit in Fed savings accounts.
Therefore if big banks are rigging the in US Treasury securities market, then the banks are rigging the “national debt.”
Therefore when anyone lies about the “national debt crisis,” we can respond with, “The big banks caused the crisis.”
Of course, there is no “national debt crisis,” but we can throw the lies back at the liars. When a politician falsely claims that “entitlement spending” has created a “national debt crisis,” we can say no, the big banks did it. Let’s break up the big banks.
Moreover, if there are now only 23 “primary dealers” that can bid at U.S. Treasury auctions, then it is these 23 banks that are driving up the “national debt” (i.e. that are depositing money in Fed savings accounts).
Again, the culprit is not “entitlement spending,” which has nothing to do with the “national debt” in the first place.
++++++++++++++++++++++++++
I object to something in the article…
“As the amount of new Treasury debt issuance has grown as a result of spiraling deficits, the number of big Primary Dealers has shrunk.”
This statement makes it seem that the U.S. government must borrow every dollar that it deficit-spends. Not true. The U.S. government does not borrow one penny of its spending money from anyone. The U.S. government creates its spending money out of thin air.
Because of obscure federal laws, the U.S. Treasury is required to issue securities whose dollar value equals the federal deficit for a given fiscal year. If no one buys the securities, the Fed itself “buys” them. Indeed half of the “national debt” consists of money the Fed owes itself.
“I took five dollars out of my left pocket and lent it to my right! How will I ever pay it back? It’s a CRISIS!”
Anyway this is a very important article, and I shall dig into this topic.
Konrad
ReplyDeleteThey won't be doing number 2 surely.
3. currency swaps so they need to find a large amount of people who want to exchange $'s for Yen.
This has to be a crazy idea there are far more easier ways to weaken the YEN. Instead of trying to increase exports at the current prices and increase currency swaps they could just cut the prices of major exports. Or go on a big government spending spree like they normally do.
A central bank buying foreign currency creates more of the currency, potentially lowering the exchange rate and lifting the inflation rate.
ReplyDeleteA problem with this is that it is regarded as currency manipulation.
The BoJ could also do some currency swaps with other central banks that have a negative balance of payments with Japan and need yen reserves. Japan is a net exporter and runs a current account surplus. That means other countries need yen reserves to settle.
Maybe Abe is going to tell the BOJ to start buying some sort of US infrastructure bonds that Trump is going to start issuing for US infrastructure build out They could use US dollar balances from there over 1 trillion US treasury holdings
ReplyDeleteTOM HICKEY WRITES: “A central bank buying foreign currency creates more of the currency, potentially lowering the exchange rate and lifting the inflation rate.”
ReplyDeleteI’m confused. If I give you one dollar in exchange for five euros, how have I created more euros?
TOM HICKEY WRITES: “Japan is a net exporter and runs a current account surplus. That means other countries need yen reserves to settle.”
Let’s think about this. A Japanese factory sells a car to an American buyer. Since the average American does not have Japanese yen, the Japanese factory will take payment in US dollars. Then if the Japanese seller wishes, he may exchange those dollars for yen at a Japanese bank. Therefore nobody needs Japanese yen to “settle.”
When a foreigner buys a Japanese import, the foreigner can pay for the import in his own nation’s currency (if the Japanese seller agrees) or else the foreigner can trade his own nation’s currency for a third currency (most commonly U.S. dollars), and pay for the import in the third currency (if the Japanese seller agrees). Again, Japanese yen are not needed to “settle.”
Am I making sense?
MATT FRANKO WRITES: “Maybe Abe is going to tell the BOJ to start buying some sort of US infrastructure bonds that Trump is going to start issuing for US infrastructure build out. They could use US dollar balances from there over 1 trillion US treasury holdings.”
ReplyDeleteI have not heard anything about federal “infrastructure bonds.” I don’t know why the U.S. government would need to issue bonds in order to get U.S. dollars that the U.S. government creates out of thin air.
U.S. federal securities are denominated in dollars (e.g. bonds, Treasury bills, Treasury notes, Treasury Inflation Protected Securities, etc.). Suppose Trump issued “infrastructure bonds” in order to drain foreigners of their U.S. dollar reserves. In that case the foreigners’ dollars would sit untouched in Fed savings accounts until the bonds matured, at which point the U.S. would have to give back those dollars to the foreign owners, plus interest.
If Trump was serious about US infrastructure improvement, he would lean on Congress to create money for it out of thin air. No bonds would be needed. However, Trump wants to create a “public private enterprise,” which is always a scam (no exceptions).
For example, Trump authorizes $500 million to be created out of thin air to build a highway. Some asshole investor (a Trump crony) contributes a mere $1,000 to the project. This is the “public-private” part. When the highway is done, the investor takes ownership, and he installs toll booths every few miles on his shiny new highway. Through creative accounting, the project is made to seem like the investor paid for it all, when in fact he contributed only $1,000. That's how these scams are done. Even if this scam becomes exposed, it will not be reversed. The highway will not revert to federal ownership.
Trump’s idea of a nationwide infrastructure program is a gigantic giveaway to his personal cronies. This is Trump’s dream, since he is desperate to be liked by the “right people” (i.e. by the rich and powerful). That’s why he continually throws more and more money at the Pentagon and the weapons makers. Trump is desperate to be liked by them.
Am I making sense?
ReplyDeleteNot really. You are going on intuition rather than tracing flows on balance sheets.
You need to get up to speed on balance of payments and international settlements through commercial banks and central banks.
A currency never leaves the currency zone. It always appears on accounts in that unit of account.
For the exporter to get paid in the exporter's county's unit of account, there must be a transaction mediated through the bank of the importer in one unit of account and the account of the exporter in the other unit of account.
An exporter doesn't need to immediately repatriate funds but can hold funds abroad denominated in a different unit of account than the exporting country. But if the funds are not saved, spent or invested in the importer's unit of account, they will eventually be repatriated through entries on commercial banks books that also involve the respective central banks as the currencies issuers.
Maybe Abe is going to tell the BOJ to start buying some sort of US infrastructure bonds that Trump is going to start issuing for US infrastructure build out They could use US dollar balances from there over 1 trillion US treasury holdings
ReplyDeleteUSD/JPY ⬆ Then ?
Even though the FED is increasing interest rates or just ⬇ more slowly ?
TOM HICKEY WRITES: “You are going on intuition rather than tracing flows on balance sheets.”
ReplyDeleteActually I was going by facts and logic. I have lived in many different countries, and learned much about currency issues.
TOM HICKEY WRITES: A currency never leaves the currency zone. It always appears on accounts in that unit of account.
Strange. I was in Nicaragua last month, and I saw many U.S. dollars there. In Tijuana Mexico, half the stores and restaurants accept only U.S. dollars, not Mexican pesos. But perhaps I misunderstand your point because I am not “up to speed.”
TOM HICKEY WRITES: “For the exporter to get paid in the exporter's county's unit of account, there must be a transaction mediated through the bank of the importer in one unit of account and the account of the exporter in the other unit of account.”
Yes. What is that unit of account? Most commonly it is the U.S. dollar, as I previously wrote above.
TOM HICKEY WRITES: An exporter doesn't need to immediately repatriate funds but can hold funds abroad denominated in a different unit of account than the exporting country. But if the funds are not saved, spent or invested in the importer's unit of account, they will eventually be repatriated through entries on commercial banks books that also involve the respective central banks as the currencies issuers.
Yes. How does this nullify what I said above?
Many thanks for reading my comments and responding to them. We’re all here to learn.
If all the countries that have $'s
ReplyDeletehttp://ticdata.treasury.gov/Publish/mfh.txt
Use these infrastructure bonds. Could this then put a lot of upward pressure on the $?
“” I don’t know why the U.S. government would need to issue bonds in order to get U.S. dollars that the U.S. government creates out of thin air. “
ReplyDeleteWell you should open your eyes and ears then because all of these morons think they’re out of munnie... or else you’ve been living on Mars...
Foot I’ve stated my position/theory on forex here before... I think it adjusts to reflect the terms of trade that are established first by the producers... ie asset values of products are established in the importing nations currency by the producers and THEN the banks financing those products adjust reserve assets against effectively FIXED regulatory capital...
ReplyDeleteSo if the Japan autos being financed in USA achieve higher prices in USDs then the USD bank financing them can shed usd reserve assets in order to maintain the target constant Leverage Ratio...
I don’t look at it as “supply and demand!” of currencies that’s Monetarist thinking... iow “it’s about price not quantity...”
Brent crude being imported into the US collapsed in USD terms in 2014 and THEN the GBP and EUR went down to reflect the increased terms of trade the us achieved....
ReplyDeleteUSD/JPY will move in the direction of the USD and JPY weighted trade terms between US and Japan imo...
@ Konrad
ReplyDeleteThere are US dollar bills in circulation around the world. Firms don't conduct business in them unless they want to shield the record.
There used chiefly in spot transactions at a small level and for illegal activities.
Large firms that are legit conduct business through commercial banks.
Commercial banks have accounts denominated in foreign currencies.
This results in balance of payments issues.
Commercial banks have to obtain foreign currency from the issuer. They do not have accounts with the foreign central bank, so foreign funds needed for final settlement are provided by the domestic central bank.
The domestic central banks needs to obtain those funds from the foreign central bank, at which it has an account.
A normal procedure for this is currency swaps.
Since the majority of international settlements are in USD, the Fed provides swaps to facilitate this.
There are other currencies that are used similarly to the way the USD is but not on the same scale. These are the currencies in which saving is required as safe and desirable.
These currencies include chiefly the euro, the pound sterling, and the yen. China aims at adding the RMB to this list.
I know that Matt.
ReplyDeleteBut as most export to growth countries stockpile savings in other countries to try and keep their own currencies down a well known strategy. |$ zombies you call them.
If as you say they then start using that stockpile to buy infrastructure bonds and that stockpile goes down I'm trying to work out how that would play out.
Which when thinking about it would mean it would not help these export to growth countries at all especially Japan because the Yen would strengthen.
Unless of course it is just an asset swap which means those savings just get another name attached to them.
Which reinforces Bills post about Japan still thinking that QE is inflationary. Hence why they want to Boost it.
Right both Trump and Abe have their own idea about munnie that is not ours... those 2 are cooking up something....
ReplyDeleteAbe could direct the BOJ to use JPY to buy USTs from current non Japan govt sector owners of the USTs at an exchange rate that Trump doesn’t have a problem with... Japan current holders of the UST assets would receive JPY reserves in exchange thus creating more JPY reserves which they (monetarists) think is “inflationary!” (even though Yellen just said no one really knows what “inflation!” is) and then BOJ could use those newly acquired USDs to buy any us govt securities which might be Trumps US infrastructure bonds...
Trump gets Abe to finance US infrastructure with Japan’s $1T+ USD hoard as US congress won’t ... Trump gets infrastructure and Abe gets more JPY QE....