tag:blogger.com,1999:blog-2761684730989137546.post5618671849679780258..comments2024-03-29T02:19:19.866-04:00Comments on Mike Norman Economics: Ramanan disputes Warren Mosler on capital flightmike normanhttp://www.blogger.com/profile/03296006882513340747noreply@blogger.comBlogger92125tag:blogger.com,1999:blog-2761684730989137546.post-30313690170196479052012-05-24T15:35:05.302-04:002012-05-24T15:35:05.302-04:00There has to be a balance between accommodation an...There has to be a balance between accommodation and regulation, or easy accommodation will result in moral hazard. Conversely, over-regulation will lead to underperformance.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-44002277195367621072012-05-24T14:56:28.068-04:002012-05-24T14:56:28.068-04:00@ Tom
Thanks for your elucidation. Very clear.
A...@ Tom<br /><br />Thanks for your elucidation. Very clear.<br /><br />And to your last point. I agree, accommodate and regulate are two sides of the same coin. There's a qualitative side to the quantitative argument. The conventional position is that one must regulate by not being to accommodative - which to me is a purely quantitative view of the world and a dangerous one too.Olivernoreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-70047655391371674222012-05-24T13:35:10.392-04:002012-05-24T13:35:10.392-04:00@ paul,
Right, Warren's point is two-fold. Fi...@ paul,<br /><br />Right, Warren's point is two-fold. First, we aren't using the policy space that the existing monetary system affords and secondly, key institutional arrangements are skewed and need to be fixed. The former is usually associated with MMT and the later with institutionalism and Minsky. But as Scott Fullwiler points out, the MMT professional literature shows that Minsky and institutionalism are a key aspect of MMT, too.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-15821066994636918192012-05-24T13:15:27.177-04:002012-05-24T13:15:27.177-04:00@Tom
"Warren's point is that they can be...@Tom<br /><br />"Warren's point is that they can be dealt with intelligently if one understands the system instead of letting them blow things up periodically, which is just stupid."<br /><br />Not a great deal different than the private debt issue, which could also blow things up if we were stupid. Oh, wait…paul melihttps://www.blogger.com/profile/04604543110795683837noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-87919370998569944962012-05-24T12:59:14.815-04:002012-05-24T12:59:14.815-04:00@ Matt
Yes under a convertible system there can b...@ Matt<br /><br />Yes under a convertible system there can be real capital flight as gold and silver shift across borders.<br /><br />Under convertibility, there is no advantage in a trade deficit in real terms, because another real asset is automatically exchanged. They actually moved gold bars around in the vault deep under the FRBNY building prior to Nixon's shutting the gold window.<br /><br />So in that sense there is no (real) capital flight under a floating rate system.<br /><br />But that doesn't mean that fx issues can't arise either. They do. <br /><br />Warren's point is that they can be dealt with intelligently if one understands the system instead of letting them blow things up periodically, which is just stupid. That's not possible under a convertible system. I.e., there's less policy space.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-2312027500634845682012-05-24T12:48:09.281-04:002012-05-24T12:48:09.281-04:00The essence of market capitalism is price wrt valu...The essence of market capitalism is price wrt value. Price is the nominal representation of real value. Actual value is priced through the discovery process that free markets provide. This is the essence of "the invisible hand." <br /><br />New Classical economists presume that price is identical with value, which is a basis of money neutrality. Money is only veil over barter that contributes nothing but convenience in exchange by storing value for subsequent use in exchange. (This is why the fetish over price stability.)<br /><br />Thus, in this view, market price is the best guess at approximating real value across time under conditions of rational agents pursuing max u in an environment of perfect knowledge and perfect competition.<br /><br />Keynesians hold that this view is based on assumptions that are too simplistic to fit reality. Markets are not perfectly competitive, knowledge is not perfect, and agents are often driven by "animal spirits," e.g., fear and greed. <br /><br />Therefore, price and value can become dissociated in the imperfect discovery process of market pricing. Moreover, many markets are heavily influenced by monopoly conditions, as well as cheating.<br /><br />Traders recognize that price fluctuates around a mean, which is indicative of the actual value, and this is only discovered in hindsight. The challenge is making the best guess in approximating not actual value but market movements in which the movement itself influences the market, what Soros calls reflexivity. Traders are largely attempting to anticipate other traders by discovering patterns of behavior. But discovery of these patterns changes the patterns.<br /><br />This is what technical analysis is mostly about, for example. Technical analysis attempts to predict future price action based on past price action in terms of fluctuations around actual value, hourly, daily, short term, intermediate term, and long term. Presently, the best mathematical minds available are employed in this endeavor, which means diverting mathematicians, physicists, and other scientists and engineers from productive enterprise into financial pursuits that are essentially extractive.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-52201329833649421162012-05-24T12:40:51.284-04:002012-05-24T12:40:51.284-04:00Tom,
This is from over at Warren's recently:
...Tom,<br /><br />This is from over at Warren's recently:<br /><br />Mammoth: "Do you have any links to MMT literature on capital flight?"<br /><br />Warren: "there are probably brief discussions somewhere in the mandatory readings and elsewhere on this website.<br /><b>there isn’t much to talk about because there is no such thing with non convertible currency/floating fx.</b><br />and with fixed fx it’s easy- people ‘cash in’ the convertible currency for the gov’s reserves."<br /><br />I think I see what Warren is saying...<br /><br />Let me chew on this a while for both you and Oliver here... I think we are on to something here...<br /><br />Resp,Matt Frankohttps://www.blogger.com/profile/11978352335097260145noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-39099694537203005282012-05-24T12:23:36.160-04:002012-05-24T12:23:36.160-04:00"No dollars were destroyed or created through..."No dollars were destroyed or created through the exchange operation. Everything is the same except the dollars are rendered useless to Americans."<br /><br />The point is that use of $ for investment did not happen but rather use in real or yuan or whatever. Of course, the $ are still in the currency zone, but they may be saved rather than used for investment, which is what is happening in the US at present. E.g., US corps are investing abroad and saving at home.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-58118165725075051212012-05-24T12:13:47.639-04:002012-05-24T12:13:47.639-04:00Matt: "This part of it: "exchanging thei...Matt: "This part of it: "exchanging their $ for Reals" seems impossible to me... this simply cannot be done, it cannot happen."<br /><br />I don't understand. "Foreign exchange" means exchanging one currency for another, which is necessary for all cross border transactions involving different currencies.<br /><br />If I as an American want to buy equities in the EZ or China, I first have to exchange the equivalent amount of USD for euro or yuan at the going rate at the time unless I have a euro or yuan account with sufficient funds.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-41599439339163077792012-05-24T11:35:20.002-04:002012-05-24T11:35:20.002-04:00Oliver,
Discussing these things rather than wavin...Oliver,<br /><br />Discussing these things rather than waving them off is healthy.<br /><br />We all can learn from the exchange.<br /><br />I learn because you ask questions I haven't asked myself and it forces me to think.<br /><br />I don't always force myself to think, being naturally lazy.paul melihttps://www.blogger.com/profile/04604543110795683837noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-56719165184246748312012-05-24T11:25:20.434-04:002012-05-24T11:25:20.434-04:00The classical meaning of "capital" is th...The classical meaning of "capital" is the means of production, i.e., what we now call "capital goods" in the from of real assets on a balance sheet. Real investment is in capital goods, while financial investment in the saving of funds that can be used subsequently for investment in capital goods, or have already been so invested, i.e., equity shares. These are not accounting terms so the colloquial meanings are slippery and imprecise.<br /><br />The major difference between mainstream economists and Keynesians of all strips but New Keynesians is that the Keynesian position is that modern capitalism is financial in nature and failure to take this into account vitiates any economic theory, e.g., those theories that subscribe to money neutrality.<br /><br />Modern capitalism is based on free flow of capital internationally. They results in a number of problems including what is called "capital flight," which generally means that funds flow into an economy, usually a "hot" emerging one, as money managers seek to take advantage of greater return. Sine the trade is one-sided, there is significant exposure to that capital leaving suddenly either when returns seem more promising elsewhere or problems develop in the economy.<br /><br />Matt asks how it is possible. Well if interest rates rise to give risk-weighted advantage, somewhere, then "financial capital" will flow into that country. USD, euro, yen, etc, are converted into, say, Brazilian real or Thai bhat and saved as govt or corp bonds, for instance, which funds are then used domestically for expansion. If the wind shifts, then the funds are converted in the other direction, often suddenly if there are lot of people involved. Moreover, a lot of this involves carry trade, and the conditions can shift from the other side of the trade, too, reducing the profitability and resulting it an exit.<br /><br />These have been regular occurrences over the recent decades, and many countries consider "global hot money" a problem for their stability.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-14534874534792205852012-05-24T11:24:57.178-04:002012-05-24T11:24:57.178-04:00@ Matt
Have I gone down the monetarist rabbit hol...@ Matt<br /><br />Have I gone down the monetarist rabbit hole? I hope not. I'm all for clean cut analysis, but it just seems at some point one needs to REconnect spheres of thought in order to deepen one's analysis. Or where do you see my fundamental error? I'm no physicist or methematician...Olivernoreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-39148016411390602852012-05-24T11:18:45.490-04:002012-05-24T11:18:45.490-04:00And before you label me a montarist, I might add t...And before you label me a montarist, I might add that endogenous money, as embraced by circuit theorists, PKers and MMTers, solves the problem of currency system internal value fluctuations quite elegantly. It doesn't address the external sector, though. Some PKers seem to prefer managing exchange rates, even reintroducing a gold standard, MMTers just say f***k it, let it float and the rest will follow. I personally don't think there's a 'one size fits all' answer, nor is it probably quite that simple a dichotomy. But staying focussed on fundementals instead of engaging in 11-dimensional fx chess certainly seems like a good strategy.Olivernoreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-82028054565274115532012-05-24T11:02:12.939-04:002012-05-24T11:02:12.939-04:00Oliver is having trouble disconnecting NFAs from r...Oliver is having trouble disconnecting NFAs from real assets...<br /><br />This is not a criticism Oliver...<br /><br />Resp,Matt Frankohttps://www.blogger.com/profile/11978352335097260145noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-85613287371106631552012-05-24T10:42:38.719-04:002012-05-24T10:42:38.719-04:00Oliver,
"Yes, it can help, but isn't the...Oliver,<br /><br />"Yes, it can help, but isn't the whole story."<br /><br />No one is claiming otherwise. Ignoring it or misunderstanding it can do a lot of damage. Unforced errors.<br /><br />"By what mechanism does the value of 1 piece of Apple stock fluctuate vis à vis the US$, assuming # of stock and # of $ are constant. The way I interpret your answer, this can't happen and yet it obviously does."<br /><br />There is no direct relationship between the number of dollars in the system and the value of some real asset.<br /><br />As I said value is "squishy" and the transfer function, if there is one, is unknown.<br /><br />Why would the value of an asset not fluctuate, even as the number of nominal NFA's remains fixed?paul melihttps://www.blogger.com/profile/04604543110795683837noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-75421956773158987772012-05-24T10:30:35.218-04:002012-05-24T10:30:35.218-04:00Yes, it can help, but isn't the whole story.Yes, it can help, but isn't the whole story.Olivernoreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-82747441719255611252012-05-24T10:26:02.318-04:002012-05-24T10:26:02.318-04:00Oliver
I'm just making the point that value i...Oliver<br /><br />I'm just making the point that value is based largely on leverage.<br /><br />The "squishy" world is mostly untethered from the nominal one.<br /><br />Individuals can work within this "squishiness" and attempt to extract their share. All they are doing is moving piles of dollars from one place in the economy to another.<br /><br />In the aggregate this can't work.<br /><br />What happens if all the dollars end up in one pile?<br /><br />There is a transfer function between nominal and real of some sort but it is non-linear and at least for now, unknown.<br /><br />Observation of nominal flows and constraints based on simple math will steer us away from policies that can't work by arithmetic.<br /><br />Then we can focus on the ones that can.paul melihttps://www.blogger.com/profile/04604543110795683837noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-26010999908337767682012-05-24T10:08:28.997-04:002012-05-24T10:08:28.997-04:00Value is "squishy".
The world is squis...<i>Value is "squishy".</i><br /><br /><br />The world is squishy. Squishy is where the juice is. And any theory of the world that doesn't do squishy, doesn't describe the world.<br /><br /><i>Dollars aren't "worth" anything. They aren't a store of value.</i><br /><br />Well, in philosophical terms I agree, but we do expect it to act in such a manner and price stability is in most every CB mandate. Even MMT puts it slap bang in the middle - <b>full employment & price stability</b>.Olivernoreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-25468149816555433872012-05-24T09:44:42.312-04:002012-05-24T09:44:42.312-04:00"…My point was, they are now worth less…"..."…My point was, they are now worth less…"<br /><br />Dollars aren't "worth" anything. They aren't a store of value.<br /><br />Dollars are a measure of value, value is relative, and everything needs an anchor for comparison purposes.<br /><br />Lets say the dollars exchange for less.<br /><br />Dollars are worth whatever they will buy at any given moment.<br /><br />If I get lucky and buy a Tiffany lamp at a garage sale for $50.00 that is really worth $10,000, how much is a dollar worth?paul melihttps://www.blogger.com/profile/04604543110795683837noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-91124005506284680482012-05-24T09:39:35.555-04:002012-05-24T09:39:35.555-04:00@Oliver
Value is "squishy".
There is n...@Oliver<br /><br />Value is "squishy".<br /><br />There is no one-to-one relationship between the value of Apple stock and nominal dollars.<br /><br />That's why value and "real" is so misleading in discussion of economies.<br /><br />Value and gains can't be realized unless followed through to some extent by money printing.<br /><br />I say "some extent" because agents don't all "cash out" at the same time.<br /><br />The system is heavily leveraged.paul melihttps://www.blogger.com/profile/04604543110795683837noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-4921523786399763302012-05-24T09:29:21.607-04:002012-05-24T09:29:21.607-04:00By what mechanism does the value of 1 piece of App...By what mechanism does the value of 1 piece of Apple stock fluctuate vis à vis the US$, assuming # of stock and # of $ are constant. The way I interpret your answer, this can't happen and yet it obviously does.<br /><br />But I think I see what you mean. The $ remain in the system. My point was, they are now worth less. A Dollar is a Dollar, but it isn't a Real. Nor is it worth anything without reference to what it can buy, or at least to what you think it can or will at some point buy. Happiness, e.g. :-).Olivernoreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-28624148546365593982012-05-24T09:26:22.682-04:002012-05-24T09:26:22.682-04:00@Matt
"This part of it: "exchanging the...@Matt<br /><br />"This part of it: "exchanging their $ for Reals" seems impossible to me... this simply cannot be done, it cannot happen."<br /><br />In my view all this exchange does is re-distribute dollars in the closed economy to a place where they don't do<br />the domestic economy any good.<br /><br />Kind of like savings. Good for the saver, bad for everyone else.<br /><br />No dollars were destroyed or created through the exchange operation.<br /><br />Everything is the same except the dollars are rendered useless to Americans.<br /><br />They may have well been destroyed from our perspective.paul melihttps://www.blogger.com/profile/04604543110795683837noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-48396153426756291282012-05-24T08:46:24.084-04:002012-05-24T08:46:24.084-04:00Oliver thanks,
"Now, a large number of holde...Oliver thanks,<br /><br />"Now, a large number of holders of government fiat suddenly want to invest in Brazil by exchanging their $ for Reals"<br /><br />This part of it: "exchanging their $ for Reals" seems impossible to me... this simply cannot be done, it cannot happen.<br /><br />This is describing some type of confluence of two completely separate closed systems, which is impossible.<br /><br />I'm not arguing with you Oliver, trying to just reveal how my mind (and the mind of many others imo) works... <br /><br />Resp,Matt Frankohttps://www.blogger.com/profile/11978352335097260145noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-20800592089795223422012-05-24T08:32:07.247-04:002012-05-24T08:32:07.247-04:00@ Matt
But I would think that equipment would be ...@ Matt<br /><br /><i>But I would think that equipment would be on the corps balance sheet as 'Assets' not 'Capital'.</i><br /><br />As far as I know, Marx uses the term 'capital' in the sense of physical assets used as intermediaries in production. I.e. machines, land and the like.<br /><br />I only managed 2 of Harvey's lectures, let alone any of Marx himself - I just haven't got the time - but as I understand it, Marx's main concern, and to me the crux of the matter, lies in the theory of value. He doesn't even touch money which is probably why he can still be considered relevant today. Had he done so, he would have probably relied heavily on his peers - to his own disadvantage in this case.<br /><br />Anyway, forget companies moving equipment abroad for a moment and ask yourself by which mechanism(s) and through how many value translations the domestic factory, its machines and/or its workers translate, first into corporate financial claims and then into claims on government. All value estimates are notional, all three are constantly in flow and subsequently the VALUE of each (conveniently denominated in local fiat terms) will be subject to relative changes. I.e. they float. Already, without even looking abroad, and forgetting the complexities of stocks and flows for a minute, you have 3 separate systems that interact with each other. And it's what happens between them that determines the stability and attractiveness of an economy as a whole. The absolute amount of bank, central bank or government credit is secondary to any such considerations although an elastic supply of the latter 2 may help contain swings in overall domestic, i.e. nominal financial wealth to some degree. I don't think it can somehow preserve the wealth of a nation or currency area though, which must always be seen in comparison to others. Wealth is always relative.<br /><br />Consider the example of a general sell-off of corporate papers. While corporate wealth sinks, other wealth must rise, either with more money or through deflation. So far, so good. Now, a large number of holders of government fiat suddenly want to invest in Brazil by exchanging their $ for Reais and buying Brazilian corporates. This drives down the VALUE of all outstanding $ denominated financial assets relative to assets denominated in Reais, rtiggering further movements in that direction. No equipment needs to leave the country - i.e. the underlying fundamentals need not change for there to be large swings in value. For nations that rely on imports for large parts of their economy, such as developing nations or small, open economies, this represents a problems that may be worth addressing by managing the currency and / or having capital controls.Olivernoreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-36619799488023312082012-05-24T08:12:34.801-04:002012-05-24T08:12:34.801-04:00Matt,
It's the same guy that wrote this the o...Matt,<br /><br />It's the same guy that wrote this the other day:<br /><br />http://mikenormaneconomics.blogspot.com/2012/05/j-d-alt-semantic-problem-with-mmt.htmlpaul melihttps://www.blogger.com/profile/04604543110795683837noreply@blogger.com