Bill Mitchell — Prime Minister Corbyn should have no fears from global capital markets

Bill addresses many issues in this post that MMT economists don't ordinarily focus on like capital markets, capital flows, capital flight, capital controls, and exchange rate depreciation. Since most progressives don't understand the background and dynamics they generally get sucked into commonly deployed neoliberal traps. Bill shows how they don't need to.

Bill Mitchell – billy blog
Prime Minister Corbyn should have no fears from global capital markets
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Yilmaz Akyüz — The Asian financial crisis: lessons learned and unlearned

Asian economies are commended for improving their external balances and building self-insurance by accumulating large amounts of reserves. However, whether these would be sufficient to provide adequate protection against a reversal of capital flows is contentious. After the Asian crisis external vulnerability came to be assessed in terms of adequacy of reserves to meet short-term external dollar debt. However, short-term debt is not always the most important source of drain on reserves. Currencies can come under stress if there is a significant foreign presence in domestic markets and the capital account is open for residents. A rapid exit could create significant turbulence even though losses from declines in assets and currencies fall on foreign investors and mitigate the drain of reserves.

In all four Asian countries directly hit by the 1997 crisis, international reserves now meet short-term external dollar debt. But they do not always leave much room to accommodate a sizeable and sustained exit of foreigners from domestic markets and capital flight* by residents.

* "Capital flight" in an environment of free capital flow means selling the domestic currency in the foreign exchange market for a foreign currency and depositing this in foreign financial institutions. This depresses the exchange value of the domestic currency and lowers the price of the domestic assets being sold. In volume ("rushing for the door"), this puts pressure on domestic economies owing to existing commitments. It does not mean taking the domestic currency out of the country.

Oupblog
The Asian financial crisis: lessons learned and unlearned

Yilmaz Akyüz | former Director of Division on Globalization and Development Strategies at UNCTAD, principal author and head of the team preparing the Trade and Development Report, and coordinator of research support to the Group-of-24 in the IMF on International Monetary and Financial Issues

Reuters — As yuan weakens, Chinese rush to open foreign currency accounts

Zhang Yuting lives and works in Shanghai, has only visited the United States once, and rarely needs to use foreign currency. But that hasn’t stopped the 29-year-old accountant from putting a slice of her bank savings into the greenback.

She is not alone. In the first 11 months of 2016, official figures show that foreign currency bank deposits owned by Chinese households rose by almost 32 percent, propelled by the yuan's recent fall to eight-year lows against the dollar.

The rapid rise - almost four times the growth rate for total deposits in the yuan and other currencies as recorded in central bank data – comes at a time when the yuan is under intense pressure from capital outflows. The outflows are partially a result of concerns that the yuan is going to weaken further as U.S. interest rates rise, and because of lingering concerns about the health of the Chinese economy.

Reuters
As yuan weakens, Chinese rush to open foreign currency accounts 

Winni Zhou and John Ruwitch | SHANGHAI

C.P. Chandrasekhar and Jayati Ghosh — Capital Bleeds from Emerging Asia

Everyone knows that 2015 was a terrible year for emerging markets – but exactly how bad it was has become clear only recently. Not only was it an annus horribilis in terms of net exports of goods and services, which declined sharply and even turned negative for some previously buoyant exporters, but it was also a time when capital flows reversed course. The downturns in both indicators have been much more widespread and substantial than they were initially expected to be, and even greater than mid-year assessments suggested.…

Naked Capitalism
Capital Bleeds from Emerging Asia
C.P. Chandrasekhar, Professor of Economics, Jawaharlal Nehru University, New Delhi; and Jayati Ghosh, Professor of Economics and Chairperson at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi

Ambrose Evans-Pritchard — Time running out for China on capital flight, warns bank chief

Chinese officials insist solemnly that the new basket rate is the “decided policy of China” and will be upheld come what may, but concerns are mounting that they may be overwhelmed by market forces.

The crucial question is whether the exodus of money is chiefly a one-off move by Chinese companies and investors to pay off dollar debt - and to unwind "carry trade" positions in dollars – as the US Federal Reserve raises interest rates and drains liquidity. If so, the outflows are largely benign and should make the world’s financial system safer.

Mark Tinker, head of equities for AXA Framlington in Asia, said the bulk of the outflows are to pay off liabilities. “Chinese corporates are issuing corporate bonds in record quantities and using the capital to restructure their balance sheets, both onshore and offshore. This is not capital flight, it is asset liability matching, both duration and currency. It is a good thing being presented as a bad thing,” he said.…

The Telegraph
Time running out for China on capital flight, warns bank chief
Ambrose Evans-Pritchard

Constantin Gurdgiev — Russian Capital Outflows 2015: Abating, but Still High

Still reduced appetite to save in rubles now that the exchange rate is floating, but appetite is increasing.

Actually, it's mostly balance of payments involving prior foreign debt and corporate deleveraging.

True Economics
Russian Capital Outflows 2015: Abating, but Still High

Constantin Gurdgiev

Peter Coy — China’s Capital Flight

"Capital flight" means the bleeding foreign reserves.

What Xi is running up against is what international economists call the trilemma, or the impossible trinity. It says that a country can’t have all three of the following things at once: a flexible monetary policy, free flows of capital, and a fixed exchange rate. They fight one another. As soon as China started allowing free (or at least freer) flows of capital, it was inevitable that it would have to give up on one of the other two objectives. If it wanted to keep the yuan from falling, it would have to raise interest rates higher than is good for the domestic economy, essentially giving up on setting an appropriate monetary policy. Or, if it wanted to set interest rates as it pleased, it would have to allow the yuan to sink.

Drop the dollar peg and let the yuan float, like Russia did.

Bloomberg View
China’s Capital Flight
Peter Coy

See also

Bloomberg Business
China Wants a Reserve Currency and Control, But Can't Have Both

Kenneth Rogoff — The Art of Capital Flight

China has capital controls to prevent free flow of capital to prevent selling Chinese assets and buying foreign assets. Capital controls are difficult to enforce.

Project Syndicate
The Art of Capital Flight
Kenneth Rogoff | Professor of Economics and Public Policy at Harvard University, recipient of the 2011 Deutsche Bank Prize in Financial Economics, and formerly the chief economist of the International Monetary Fund (2001 to 2003)

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)

Affordable Care Act, a Profit Center, Public Private Partnership, or another Financial Scheme??

Do we need more Financial Schemes in this Country?  Isn't it a national security risk, if only Wall Street Insiders know who the sucker is in American Deal Making??


I'm just an Everyday Guy that has lost some money and watched more disposable income disappear in the modern American Age... The Financial Battleground.  A war for your wages, your income, your savings, and your retirement.


In the US Military we have Single Point of Contact who is responsible for particular expertise, operations, and coordination.  In the army I think that is called the SPO.  The SPO is responsible he gets both blame and accolades as he guides commanders and units through transitions.   

Do you think the USA has a SPO for Insurance, Financial Instruments, & Public Private partnerships??  I don't think you will get a returned phone call from the Federal Reserve, the US Treasury, the OCC, FSOC, the Executive Office, your congressman, FINRA, SEC, FTC, the US Media, the American Bar Association, ETC.   The CFPB is supposed to be the latest in a long line of agencies to protect us.  The list of federal agencies that protect us sort of looks like the 16 powerful big budget US Intelligence Agencies, ... except in the case of protecting individuals from commerce  they seem to lose most of their power when a new agency is added.  

https://en.wikipedia.org/wiki/Consumer_Financial_Protection_Bureau  

Dobb-Frank has provided us with yet another federal agency to follow behind the FTC and all the other agencies in protecting citizens from organized corruption and fraud.  But has that agency been given the Power, Authority, Budget, Resources, and Staffing to take a look at the Affordable Care Act (AKA Obama Care)??  

Today it has become even more clear all the risks American face in what is clearly another US Financial Scheme called the Affordable Care Act. 

1) Mandatory Program with Fees or Taxes in which personal data is surrendered and shared among various unknown agencies... enforced by the IRS.  
2) Appears there is no cost controls, policies are termed Insurance, policies exclude many features that would actually be needed for personal health, there is much lawyer language involved in the contract policies for which you will not be covered.  
3) We hear that all policies are doubling in costs, figure that co-pays and fees will also increase in some cases.  
4) All Insurance is a Financial Scheme. 
5) US Health Care is one of the most expensive in the world, no one ever talks about the costs, the executive compensations, the dividends or profits shared with investors, no one is addressing the inflation and overall yearly increases in costs.  It is sort of a spin zone. Or it is a "No Mans Land".  No one seems to be bringing the yearly cost growth to a National Discussion Level.  Capitalism Rules in the land of Insurance & Finance.   
6) The Affordable Care Act seems to be another mechanism for transferring Middle Class Wealth or Savings to Investors or Financial Managers.  The money is going to come from working Americans, I'm just not sure who the money is going to go to.  The health system will expand with more health facilities I'm sure.  But as a Public Private Partnership the wealth will be a transfer from the Federal Government to Investors and executives.
7) Bubbles, Financial Bubbles... Middle Class Savings Gone, Retiree Savings Gone, Home Equity Gone, Education Debt in process, Hurricane Damage losses to the US Wealth, US Wages Down, US GINI Coefficient Wage Gap increasing, Decapitalization of US Manufacturing, Offshore Incorporation, lower investment in US R & D, lower investment in US Job Training, No Real Leadership in Investing in the USA, ETC.   
8) I predict the Affordable Care act will create another Bubble, and transfer more wealth out of the poor and middle class.   
9) We have entered "A New Era of Financial Battles & Financial Profit taking characterized by the Rentier Class".  Executive Bonuses & Salary Increases are enough to keep the game going.  There are always ways to cut costs, cut wages, go off shore, to find new resources, and to invent new materials.  This is a kind of Social Darwinism in which corporations are sovereign, but don't really have to maintain or steward the US Economy or the US Consumer.  In the Affordable Care Act the taxpayer becomes more of a cog or "Profit Center" owned by the vast corporate system to be a monopolistic kind of bubble.

After all who can understand public private partnerships??  We have no National Security in the many areas of Economic, Financial, and Social Risk.  There is no Responsibility in Washington DC OR New York on Wall Street in this Era of Financial War... If there was then we would have a SPO and we would have National Discussions in the Mainstream Media about Financial, Economic, & Banking Literacy.    And as you have notice in federal budget discussion... the real budget data never sees the light of day.  In national budget discussions only the pieces of the budget which are getting cuts and increases are touched on at all.  Most Americans have never even seen the US Federal Budget Lines, the Trust Funds, the Revenue Streams, or the Budget Outlays.    

It is a Financial Battleground with National Security importance.  There is decapitalization in the US Economy, Capital Flight, Loss of Wealth, Loss of Average Wage Rate, Loss of Social Cohesion, and Institutional & Systemic Control Fraud.  None of this can be refuted.  No sane American would want to hide National Security Issues from the Voting Public or from Public Discourse.   

The point is the Affordable Care Act makes the federal budget & citizenry more risky as it was not designed to be simple or to address all the problems.  It is some kind of monster which might help 1% of the population while putting profits in the hands of an other 1%. Emergency rooms are still going to be filled with the uninsured who freely walk across the border and are not covered and seems doubtful they will pay into the program. Drugs are not covered. Inflation is not covered. Industry waste is not addressed. The spectrum of costs, wastes, fraud, and risk are ignored... and control has been ceded to Industry Executives.

I hate to even mention the possibility of more power going to technocrats in our government.  But we should start to broadcast and listen to the personalities that run our other agencies like the FTC, Department of Labor, SEC, FDIC, and FSOC.  Maybe if our agency heads felt more like they were on the National Stage and had more of a feeling of responsibility to the citizenry ... they would take a personal stand & develop their own personal networks to oppose the stupid political clucking out of congress.  The reason I fear technocrats is because of my perception of the EU and the Austerity imposed across Europe which is grinding all middle class people down to poverty.  

Conclusion:

But in the USA we have a chance if we recognize the changes to the global economy, transnational corporations, and the financial battle against taxpayers.  We just might be able to re-institutionalize the fight against fraud, control fraud, propaganda, the dumbing down of citizens & investors, and the loss of American Liberty, the American Dream, and American Privacy.  Maybe we should have US Celebrities that Fight Fraud, that work in our Federal Government, that expose complicated financial schemes which drain the Vitality of America!

Matthew Higgins and Thomas Klitgaard — Capital Flight inside the Euro Area: Cooling Off a Fire Sale

Countries in the euro area periphery such as Greece, Italy, Portugal, and Spain saw large-scale capital flight in 2011 and the first half of 2012. While events unfolded much like a balance of payments crisis, the contraction in domestic credit was less severe than would ordinarily be caused by capital flight of this scale. Why was that? An important reason is that much of the capital flight was financed by credits to deficit countries’ central banks, with those credits extended collectively by other central banks in the euro area. This balance of payments financing was paired with policies to supply liquidity to periphery commercial banks. Absent these twin lifelines, periphery countries would have had to endure even steeper recessions from the sudden withdrawal of foreign capital.

Federal Reserve Bank of New York — Liberty Street Economics
Capital Flight inside the Euro Area: Cooling Off a Fire Sale
Matthew Higgins, vice president in the Federal Reserve Bank of New York’s Emerging Markets and International Affairs Group, and Thomas Klitgaard, vice president in the Research and Statistics Group

Michael Pettis — How do we measure debt?

In the last issue of my newsletter much of the first half was dedicated to a discussion of recent events in Spain and Italy and why they reinforce the argument that several countries will be forced to leave the euro and restructure their debt. The most worrying, but expected, fact was the amount of capital fleeing the afflicted countries. I cited an article in Spiegel that claims that in the past year an amount equal to nearly 30% of Spain’s GDP had left the country. Flight capital is both a major result of declining credibility and a major cause of further declining credibility, and because it is so intensively reinforcing it is a major warning signal.

This matters for China for at least two reasons.　 First, a worsening Europe will make it harder than ever for China to rebalance growth away from investment, and second, China itself is experiencing capital flight.

China Financial Markets
How do we measure debt?
Michael Pettis

Ramanan disputes Warren Mosler on capital flight

Ramanan presents a short argument, if you are interested in this.

Read it at The Case of Concerted Action
Mosler And His Moslerisms
by Ramanan

Mish — Capital Flight From Greece Accelerates, €5bn in May, Exodus Even Hits Time Deposits

Capital flight from Greece continues, €5bn in May, not counting orders to buy foreign bonds. The exodus now includes cashing out time deposits as reported by the Financial Times in Greek banks see steady deposits outflow.

Read it at Mish's Global Economic Trends Analysis
Capital Flight From Greece Accelerates, €5bn in May, Exodus Even Hits Time Deposits; Fed, ECB, BOE, BOJ Balance Sheet Comparison

by Michael "Mish" Shedlock

Dirk Ehnts — Corralito espanyol?

The discussion of a corralito in Spain has reached the newspapers. EL PAIS has published an article about the government renouncing the idea today. A corralito limits the amount of cash that you can withdraw from bank accounts. (Later, the corralón translated your dollar-backed pesos into free-floating peso denominated government bonds.) The discussion is part of the problems that would come with a break-up of the euro. In theory, a break-up would see national currencies reinserted. The easiest way to do this is by converting bank accounts back to, say, the nueva peseta. The nueva peseta would be worth less than the equivalent amount of euros since this is the whole point of the exercise. The currency must depreciate in order to regain competitiveness.

Therefore, if people would move their euros abroad in expectation of a corralito – which was introduced shortly before Argentina lifted the dollar peg – these euros would keep their value. Once people realize this, a bank run is what is next.

Read the rest at econoblog101
Corralito espanyol?

by Dirk Ehnts | research assistant at the chair for international economic relations at University of Oldenburg, Germany

Ramanan comments on operation reality in fx

One will always find government debt in foreign currency for a nation having external issues. After the Bretton Wood system broke down and nations freely floating their currencies, they realized it is actually difficult to just float and let the fx markets find the clearing price. Hence there is official intervention in the currency markets, issuance of debt in foreign currency, holding of foreign reserves etc. Most people look at official intervention as the central bank preventing the price from falling too much but it’s more than that. It clears markets and prevents a prophecy to build up. For example if the currency falls, it may lead to expectations building leading to further outflows. So I saw STF in the mikenormaneconomics thread saying that the government didn’t behave in an MMT prescribed way and such – but it is impossible for the Treasury of most nations to behave that way. It’s “operational reality”.

Ramanan in a comment at Modern Monetary Realism

According to MMT, there are two constraints on a currency sovereign, inflation rate and fx rate. There continues to be disagreement over the conception of the fx rate, in that the MMT position is generally understood to be that in a non-convertible flexible rate monetary system, floating rates are self-correcting so that markets will always clear for a currency the issuer of which does not take on foreign debt or fix its fx rate. While some qualifications are added, opponents do not believe they are sufficient and a more detailed analysis is necessary.

Ramanan and others dispute the MMT stance, holding that it needs to be carefully qualified with respect to the general case and specific instances, with the US being a special case that cannot be extended to many other countries, and that even the US cannot presume to enjoy its "special privilege" forever without capital flight and therefore exogenous pressure to raise interest rates to attract capital and curtail demand in order to decrease imports.

I hope I summarized both positions correctly. Please correct me if I did not.

Mike Whitney — "The nightmare scenario is beginning to unfold"

“We are caught, it seems, in one of those self-reinforcing loops that almost always presage a collapse.”– Michael Pettis, China Financial Markets

Germany’s “failed” bund auction on Wednesday was a real gamechanger. It means that Europe’s biggest and most powerful economy will not escape the contagion that’s swept across the south. Germany’s borrowing costs will rise and it’s finances will be put under a microscope. But that’s just the half of it. What’s roiling the markets is that investors are now pricing in the probability of a eurozone breakup. That’s what all the commotion is about; the nightmare scenario is beginning to unfold....

Read the rest at CounterPunch

Germany’s “Failed” Bond Auction

by Mike Whitney

Note: Whitney. who is usually in paradigm with MMT, cites James K Galbraith