tag:blogger.com,1999:blog-8764541874043694159.post3801095478812918325..comments2024-03-28T12:23:39.665+00:00Comments on Coppola Comment: Understanding balance of payments crises in a fiat currency systemFrances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger50125tag:blogger.com,1999:blog-8764541874043694159.post-83731834620689225382016-03-27T00:13:11.565+00:002016-03-27T00:13:11.565+00:00Cutting interest rates depresses the exchange rate...Cutting interest rates depresses the exchange rate, and depressing the exchange rate raises inflation ?<br /><br />Have you got a set of graphs that prove this ?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-7926534010558770952016-03-23T08:15:08.578+00:002016-03-23T08:15:08.578+00:00A modern mercantalist country such as Ireland and ...A modern mercantalist country such as Ireland and Spain ( yes Spain is mercantalist given its tourist bias) must waste most of its energy seeking currency from abroad.<br />This is the fundamental driver for basic rationing in these economies. <br />Rationing is always required in war or consumer war economies.<br />Production is not designed to satisfy human needs.<br />Energy is vectored into the never ending war of production ( chiefly of the capital goods required to access the petro standard)<br />Depreciation eats most of their registered Gdp increases.<br />Activity observed ( trade etc) destroys living standards.<br />It's important to realize that these banking standards of whatever form always force trade, they are not free trade systems.<br />The Dork of Corkhttps://www.blogger.com/profile/03352247603806622458noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-38920531483270280472016-03-23T07:55:06.457+00:002016-03-23T07:55:06.457+00:00The modern economy is essentially a petro standard...The modern economy is essentially a petro standard jurisdiction.<br />This explains the lack of activity in a typical western Ireland ( or other euro jurisdiction area outside of financial Capitals)<br />People must travel further and further distances to access purchasing power thus paradoxically destroying purchasing power.<br />Local village exchange is dead.<br /><br />The orbital track absorbs all of the energy.The Dork of Corkhttps://www.blogger.com/profile/03352247603806622458noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-3206948946205314302016-03-19T01:17:42.549+00:002016-03-19T01:17:42.549+00:00This recent article by the BIS is also relevant to...This recent article by the BIS is also relevant to the argument of this post, in my view. <br />http://www.bis.org/publ/work550.pdfPGBhttps://www.blogger.com/profile/00176679709411717528noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-25866230757910884962016-03-18T18:28:41.125+00:002016-03-18T18:28:41.125+00:00The question is not about the nature of money, it ...The question is not about the nature of money, it is about the legal framework of an obligation. Fiat money itself is not an obligation. But a debt is, even a sovereign debt dischargeable in fiat money. The fact that fiat money is not exchangeable does not provide a means for sovereigns to evade their international obligations. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-68853742801423579552016-03-18T17:31:55.228+00:002016-03-18T17:31:55.228+00:00I think you are now being deliberately obtuse abou...I think you are now being deliberately obtuse about both the non convertible nature of fiat, and my analogy about going to the Treasury to try and convert some of it.<br /><br />Oh well.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-87980755312235525352016-03-18T16:59:05.271+00:002016-03-18T16:59:05.271+00:00Oh, and cash in circulation is not an "obliga...Oh, and cash in circulation is not an "obligation". It's a liability, but not a debt. Ownership of cash does not give you a claim on the government. But ownership of bonds does. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-12503833945808081422016-03-18T16:55:39.723+00:002016-03-18T16:55:39.723+00:00You need to distinguish between the obligation its...You need to distinguish between the obligation itself and the means by which the obligation is discharged. If you default on an obligation, whether because you can't pay or you won't pay, your creditor can send in bailiffs to seize your assets. De Gaulle wanted to send in gunboats to seize America's gold in settlement of the obligations on which it had effectively just defaulted. The fact that the obligation was denominated in gold doesn't actually matter. If it had been denominated in USD but the US government had refused to pay, gunboats still could be sent to seize gold "to the value of" the unpaid debt. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-8746393819197893192016-03-18T10:53:29.966+00:002016-03-18T10:53:29.966+00:00"But it is also true of countries that choose..."But it is also true of countries that choose to default.."<br /><br />Why are you trying to move the goalposts? What has the choice of default got to do with anything? Fiat currency means that I cannot convert my money into anything else.<br /><br />If I take my pounds to the UK Treasury and say I want them to settle their debt with me, will they give me some of their assets for my pounds? I bet they've got some nice furniture I could have instead of their 'worthless' tax credits.<br /><br /><br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-9827276261677135222016-03-18T09:55:07.838+00:002016-03-18T09:55:07.838+00:00This comment has been removed by the author.jerred seiysllhttps://www.blogger.com/profile/17375770046164311780noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-35045331723952462112016-03-18T09:13:58.202+00:002016-03-18T09:13:58.202+00:00When a country defaults on fiat money obligations,...When a country defaults on fiat money obligations, the legal recourse is to that country's assets. This is most obvious in countries operating quasi-gold standard systems - Greece, for example - and those dependent on FX reserves because their own currency is not trusted. But it is also true of countries that choose to default on own-currency obligations. In default, fiat currencies are asset-backed. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-63549729486114485882016-03-18T00:48:07.420+00:002016-03-18T00:48:07.420+00:00Understanding that gold standard money *can* leave...Understanding that gold standard money *can* leave a banking system but fiat *cannot* is key to understanding that your comparison between the two systems is *wrong*.<br />The French Navy cannot ship fiat over the Atlantic.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-65203057262775021312016-03-17T14:57:50.628+00:002016-03-17T14:57:50.628+00:00Good post. The balance sheet of the private sector...Good post. The balance sheet of the private sector is equally important as public debt in understanding the dangers of sustained currency depreciation. I'm in favour of ER flexibility, though I don't like the extremes (neither fixed ER nor freely floating). And the issue of the hierarchy of currencies is central. A cursory look at invoicing denomination in trade flows is sufficient to give an idea. PGBhttps://www.blogger.com/profile/00176679709411717528noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-61092847782083653842016-03-17T12:47:55.682+00:002016-03-17T12:47:55.682+00:00The markets are always challenging us, they are ve...The markets are always challenging us, they are very static and we can't do anything but can change our self with the flow, some times I try to over simplify the process too much and forget price discovery happens through the auction.<br />epic researchhttp://www.naukri.com/recruiters/epicresearchnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-75649940648109714832016-03-17T11:37:44.389+00:002016-03-17T11:37:44.389+00:00Neil's argument presupposes a perfect world an...Neil's argument presupposes a perfect world and an efficient and unbiased financial system. Neither exists in reality. By all means continue to promote Utopia, but don't criticise me for pointing out that there is no such thing. <br /><br />The very fact that you object to me writing this post suggests that I was right to write it. It raises issues that you find uncomfortable.<br /><br />There are already plenty of people writing what you think I "should" be writing. I prefer to do something else. If you don't like it, you dont have to read it.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-27382580965205692962016-03-17T10:13:53.278+00:002016-03-17T10:13:53.278+00:00Thanks Frances, great post!Thanks Frances, great post!Jussinoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-61823588874910792482016-03-17T09:21:34.432+00:002016-03-17T09:21:34.432+00:00BTW, as Neil Wilson says "There isn't rea...BTW, as Neil Wilson says "There isn't really such a thing as a balance of payments crisis in a floating rate exchange system. For those excess imports to exist at all, the saving of the local currency must occur at the same time. Otherwise the financing of the deal would have failed and the transaction would never have happened. And there would be no excess imports. The floating rate balances out the successes and failures automatically. That's its job."acornhttps://www.blogger.com/profile/16096980683528426092noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-50688640584717728692016-03-17T09:16:00.293+00:002016-03-17T09:16:00.293+00:00Frances, you would have been better off not writin...Frances, you would have been better off not writing this post. There is much confusing of the readers in your footnotes; your readers can't judge if you are adding any value to the debate.<br /><br />All the things you say you are not going to do, such as, who creates the money (the Treasury does when it spends). Or fiscal or monetary policy (the last eight years have proved that monetary policy can't increase aggregate demand, like fiscal policy can). These are the very things you should be doing. ;-) acornhttps://www.blogger.com/profile/16096980683528426092noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-72537260973942693212016-03-17T09:04:21.043+00:002016-03-17T09:04:21.043+00:00Hi Frances, Emerging market economies prefer the e...Hi Frances, Emerging market economies prefer the export led (investment driven ) growth model to shore up FX reserves as they cannot print an infinite amount of local currency - that will lead to severe inflation (there is no sterilization mechanism). Isnt that also another reason why the focus is on export led growth models?Karthik R.https://www.blogger.com/profile/18005533417235308407noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-61753930851506058412016-03-17T08:43:24.283+00:002016-03-17T08:43:24.283+00:00This comment has been removed by the author.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-1711219500981559002016-03-17T08:43:12.166+00:002016-03-17T08:43:12.166+00:00This comment has been removed by the author.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-63441570993001129852016-03-17T08:43:02.139+00:002016-03-17T08:43:02.139+00:00Heck yes. I'm not saying that trade surpluses ...Heck yes. I'm not saying that trade surpluses are a good thing, just that after the 1997 crisis the reasons why EMs pursue them are entirely understandable.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-56410118036934649472016-03-17T08:40:56.392+00:002016-03-17T08:40:56.392+00:00The Japanese and US banking systems are central to...The Japanese and US banking systems are central to the whole thing.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-47650801983218207022016-03-17T08:14:08.970+00:002016-03-17T08:14:08.970+00:00Insightful post. Emerging countries like mine, Gha...Insightful post. Emerging countries like mine, Ghana, run a trade deficit while having a currency (cedi) not exactly loved outside the country. To prevent ridiculously quick currency depreciation we're forced to rely on FDIs, grants and a large external debt (43% of GDP). This makes us very sensitive to the monetary policy of the Fed and other CBs as well as commodity prices. I often wonder if we're not better off with protectionist policies instead of this "free" trade which leaves us disadvantaged.readjeromehttp://ceditalk.comnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-25596794802267975462016-03-17T04:09:15.019+00:002016-03-17T04:09:15.019+00:00That last paragraph gives me hives. Not your faul...That last paragraph gives me hives. Not your fault, of course, Frances, but maintaining an export surplus does not remove risk. It merely shifts risks around, and when gov't do that for the wrong reasons, it comes back to bite that gov't. If there's one consistent issue, it's that export surplus policies always take a life of its own, way past the sell-by date. Primarily when too many countries are trying to run the same strategy ie, when the partner countries starts being more interested in boosting export growth themselves. <br /><br />And let's not underestimate what reduced living standards means--Korea's government goes to great lengths to prevent Korean from taking advantage of better overseas pricing for important consumer goods. Places like Colombia, India, or Indonesia simply disregards the needs of vast swaths of their countries in favor of their isles of California. Mexico's effort in the last three decades to cultivate manufacturing exports has led to very little growth in gdp. Places like Singapore, Hong Kong, and Chile have, or had, programs where part of their worker's wages are automatically garnished in placed into investment pools that underperforms what current buying power can give or more astute investments in businesses, stocks, or bonds would give. And as with Japan and it's perpetual construction corruption (beyond the 70's), so much of what is retained is wasted. Or in the case of Finland, the savings never amounted to much in the face of a real (and by real, I mean adequately funded) investment and trade policy.<br /><br />And I can rant on and on and on...shah8https://www.blogger.com/profile/04537529816304128000noreply@blogger.com