yen intervention?

Seems this is what these charts would look like if Japan was selling yen to buy dollars and euro to support their exporters?

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34 Responses to yen intervention?

  1. jerry says:

    Warren et al.,

    Have you all looked much at the shadow banking system? Have been reading a few articles from over at zerohedge, and they seem to generally predict apocalypse as the US shadow banking system continues to delever (from a peak of ~20 trillion in ’08). They seem to be saying that the Fed will have to continue with QEnfinity just to keep up with all the credit maturing out of the shadow banking sector – or else we’d get deflation? They seem to then posit that all these trillions of QE will result in runaway asset price inflation from all the buying of treasuries, MBS, etc.

    Any thoughts?

    http://www.zerohedge.com/news/2012-09-23/fed-has-another-39-trillion-qe-go-least

    Reply

    WARREN MOSLER Reply:

    like GE credit? not too worried about them. they sell commercial paper, notes, bonds, etc. to fund their loans.
    same with the rest. what exactly is the presumed problem. how does qe matter to them?

    Reply

    jerry Reply:

    @WARREN MOSLER, I’m still scratching my head over it a bit – the article is written in a fairly technical manner. I guess they are saying that the Fed will have to continue on with QE (3.9 trillion is the number they are giving most recently)to avoid deflation from all the shadow banking credit delevering. Also, the more the Fed purchases, the more the shadow banking sector seems to delever. This would in the end result in reinflated asset prices back to bubble levels – triggering a double dip? I’ve never been very clear about how exactly QE has an effect on equity prices though.

    Reply

    WARREN MOSLER Reply:

    none of it makes any sense to me either

    NG Reply:

    @jerry,

    zerohedge = clueless.

    A bunch of Austrian “economists” (I use that term loosely) that lap up whatever snake oil Peter Schiff is peddling.

    Reply

  2. Monica Smith says:

    In that second graph, wouldn’t it be better to identify the vertical as Japanese credit rather than “public debt”? We the people don’t actually have to give Japan anything of value for those dollars, do we? It’s not like they can come and take possession of the Grand Canyon or New York Habor.
    Is it not a good thing for foreign nations to use our currency?

    Reply

  3. Anders says:

    Warren – what are your thoughts on the Argentina ruling?

    Reply

    WARREN MOSLER Reply:

    Haven’t been following it.
    some detail here: http://www.reuters.com/article/2012/11/22/emerging-markets-restructuring-idUSL5E8MMDOT20121122

    If they are holding foreign assets that can be attached they may not have much choice but to pay, but in any case
    it can drag on for a long time

    Reply

    ESM Reply:

    @WARREN MOSLER,

    This has nothing to do with attaching and seizing assets owned by Argentina. That fight has been going on for 10 years, and I was actually a part of it for many years.

    This has to do with holding owners of the performing restructured bonds (including the GDP warrants) hostage to force Argentina to pay the holdouts. Although I am generally sympathetic to the holdouts, I think the recent decisions by Judge Griesa are insane and completely inconsistent with the prior 10 years of rulings he has made in this case.

    Griesa thwarted legitimate efforts by holdouts to seize Argentine assets or obstruct prior restructurings so that Argentina could restructure its defaulted debt and clean up 93% of it. And now, 7 years later, he is going to force Argentina to default on that same debt that he helped Argentina to restructure by turning his own legal logic on its head.

    There are a lot of bad judges in the US, but Griesa is by far the worst I’ve ever encountered. He combines extreme laziness, poor temperament, and unjustified arrogance into a volatile mix that results in basically a random number generator of judicial decision-making. He is absolutely contemptible, but then again, so is the Argentine government.

    My prediction is that this ruling will be stayed by the appeals court so that Argentina can at least make the Dec 15 and Dec 31 payments and avoid technical default until the end of March. Eventually, though, I think Argentina will choose to default on its dollar-denominated debt again and restructure it into something settled in Europe (or possibly Buenos Aires if European courts defer to NY, which I don’t think they will). It is all about saving face at this point, and Argentina would rather spend $2B to avoid paying holdouts $1B.

    Reply

    Anders Reply:

    @WARREN MOSLER,

    Given that Argentina runs a fairly balanced current account, should it matter if it decides on another major default?

    Reply

    ESM Reply:

    @Anders,

    Wouldn’t matter even if Argentina had an unbalanced current account (either way). Argentina can pretty much default with impunity. It is bound only by self-imposed ethical principles, which, although somewhat confused and arbitrary at times, do seem to exist.

    Anders Reply:

    @ESM,

    But doesn’t the ruling mean that there might be creditors grabbing Argentina’s assets around the world?

    Or does Argentina just sell all its goods exports “FOB origin”, meaning that it doesn’t have assets abroad for creditors to appropriate?

    To the extent Argentina does run a trade deficit, do you see recent events as jeopardising its ability to get foreigners to accept claims in the form of peso bonds (not necessarily inflation-linked, either)?

    ESM Reply:

    @Anders,

    The restructured bonds have collective action clauses, which means that individual bondholders have virtually no legal rights. Only the trustee has power to sue for breach of contract, let alone freeze and seize assets to satisfy a judgment.

    The old defaulted bonds (which were issued prior to Dec 2001) grant very strong legal rights to individual bondholders, but it is still very difficult to seize Argentine government assets. Basically, a country’s government is protected by sovereign immunity which is written into pretty much every nation’s laws. In the US, the law is called the Foreign Sovereign Immunities Act of 1976. Almost all countries have something very similar. Typically, only government assets which are being used for a commercial purpose are eligible to be seized by creditors. So, for example, you cannot seize a car or a plane which is being used by Argentina’s diplomats.

    In practice, Argentina has been very careful about removing any assets used for a commercial purpose out of the reach of creditors. Argentina is very savvy, or at least their lawyers in the US are, so, to date, creditors have had very little success. Argentina also has the advantage of being able to lie in court with impunity, which makes things quite difficult for creditors since the burden of proof is on them to show not only that the Argentine government owns the asset in question, but that the asset is also being used for a commercial purpose.

    The bottom line is that Argentina has nothing to fear from defaulting on the restructured bonds. And it has already been successfully playing keep-away with creditors on the old defaulted bonds for over 10 years.

  4. Fin says:

    When Japan buys US dollars where else would they be held other than at the fed?

    Reply

    WARREN MOSLER Reply:

    All the deficit spending is held at the Fed as reserves, tsy secs, or cash in circulation.

    So Japan could hold corporate bonds, for example, which aren’t held at the fed, and someone else would hold the ‘dollar deficit spending.’

    Reply

    Fin Reply:

    @WARREN MOSLER,

    So they would sell yen for dollars and turn around and use those dollars to buy corpoarate bonds (for example) that could be held outside of the banking system, a broker for example. But when they sell the bonds it results in US dollars back in there account at the fed.

    Reply

  5. Hoffa says:

    Warren,

    In Norway the government has targetet a deficit of 4% of GDP, which is financed by selling foreign exchange. The reason they cap the deficit at 4% is to avoid the norwegian krone to appreciate to fast, catching dutch disease.

    From a MMT perspective, would it be wrong to “finance” some of the deficit spending in norwegian kroner when the norwegian krone is very strong, as currently, in an attempt to slow further appreciation. At least in the short term.

    Reply

    WARREN MOSLER Reply:

    you mean borrow in kroner instead of paying with local currency?

    Reply

    Hoffa Reply:

    @WARREN MOSLER,

    The norwegian government has surpluses of over 10 percent of GSP because of taxes from its petroleum sector, which of course is in foreign exchange. The government target a deficit of 4 percent of the value of its sovereign wealth fund, which is over 100 percent of GDP. That is, deficit spending in norwegian kroner, which they obtain by buying kroner from the banking sector. They must of course first lend the kroner to the banking sector, so they can buy the foreign exchange.

    I would guess this is equal to the government deifcit spend in norwegian kroner, then buying the kroner back with foreign excange. Causing an appreiciation of the norwegian kroner. However, if the krone is very strong, as currently, could it not be better to partly “finance” the deficit by borrowing kroner to slow the appreciation of the kroner.

    For example, if it is one thing I have learned from MMT is that deficits are non-discretionary. Imagine Norway entering a recesseion, increasing the private sector net desire to save to say 10 percent to support GDP. Assume that the government accomodate the private sector net desire to save by discarding their deficit target. Then the government, under current arrangment would buy foreign exchange like crazy, possible causing the krone to appresiate strongly during a recession.

    In such a scenario, would it not be better to partly “finance” the deficit by borrowing kroner? My point is that in Norway, unlike Japan, it is the public sector that earns foreign exchange. The government then got to “intervene” in some way to transfer foreign exchange to the private sector. In my opinion it is not important to intervene if the krone is so strong that the exporting sector, except petroleum, is on the verge of collapse.

    Reply

    WARREN MOSLER Reply:

    It’s about doing what it takes to sustain full employment/optimal standard of living with the lowest possible taxes for a given size govt.

    Oil sales are an export, with a real (though relatively small) marginal cost to Norway.
    So think of the state’s oil revenues as a ‘painless’ tax that substitutes for ‘painful’ taxes.

    A higher level of the currency is a ‘good thing’ in the context of full employment as it represents better real terms of trade in general.

  6. Jason says:

    I’m confused. It appears over the past five year they’ve been selling dollars. Do you mean just the last 16 months where there has been a decline in sales or a slight uptick in buying?

    Reply

    WARREN MOSLER Reply:

    hard to say. the chart shows the accumulation of dollar balances at the fed only. they can be accumulating other investments or they could be borrowing dollars elsewhere, which would mean the opposite. the markets are telling me they may be selling yen and buying dollars, euro, etc. to support net exports which have been declining.

    Reply

  7. Cesar says:

    What’s your take Warren? You think they can keep it up and keep weakening the Yen?

    Reply

    roger erickson Reply:

    @Cesar,

    Meanwhile, some tough choices if they want to protect their exports to China. And profits from in-country mfg.

    Reply

    WARREN MOSLER Reply:

    If its actual policy the answer is yes, operationally it’s a simple matter to weaken ones currency.

    Reply

    Fin Reply:

    @WARREN MOSLER,

    How do you think about central bank buying or selling of currency in order to strengthen or weaken their own currency in the context of soft currency economics…for example China buying dollars would add to their us$ currency reserves which normally would grow through selling goods and services to the US.

    Reply

    WARREN MOSLER Reply:

    with imports real benefits and exports real costs, it’s a negative for real terms of trade to support exports by buying fx.
    better to make a fiscal adjustment to support domestic demand

    Neil Wilson Reply:

    And yet all the ‘export led’ economies do that – support their exporters with ‘liquidity arrangements’.

    What do they think is actually happening when the ship sails with a load of stuff they’ve made on it?

    WARREN MOSLER Reply:

    robbery!
    ;)

    Ed Reply:

    @Fin, that was funny!

    Piero from Italy Reply:

    @WARREN MOSLER,

    @ Mosler

    Pushing Internal Demand with Fiscal Relax better the Devaluate Jpy ? I’am not sure: domestic population in Jpy is oversatured of all kind of goods.. infact 200% Debt it’s not sufficient to exit from long term stagnation.. it’s necessary export… in China may be..

    Boj can easely sell Jpy like SBN can easely sell Chf.. on the long term the assets of BoJ/SBN in Foreign Currency will be great and greater.. there is a tecnical or macroeconimic limit ?

    Reply

    WARREN MOSLER Reply:

    yes, Japan needs either a tax cut for more private sector employment and output, or more public spending for more public sector goods and services, etc. yes, their output gap is screaming the deficit is too low, whatever number is published…

    and yes, they can buy all the fx they want- the limit is political only

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