"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister

"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."

- Daenerys Targaryen


"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"

- Tyrion Lannister


"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."

- Jorah Mormont


"These bad people are what I'm good at. Out talking them. Out thinking them."

- Tyrion Lannister


"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."

- Michael Barone

"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker

Monday, November 04, 2013

sterilization

Mark A. Sadowski comments:
"The U.S. could weaken the currency and help exports however. That's what Japan is doing as Krugman has said."

It's important to distinguish between currency manipulation and expansionary monetary policy.

China engaged in currency manipulation and I suppose an argument could be made that the German/eurozone situation is effectively currency manipulation in Germany's favor. But Japan has simply conducted expansionary monetary policy.

You can see this in terms of the differing impacts on their respective trade balances.

Both China and Germany have had large trade surpluses. But Japan has a trade deficit, and since the latest QE was initiated, both imports and exports have grown quickly with imports growing even faster than exports.

So Japan's trade balance has actually grown worse. The benefit of expansionary monetary policy comes from increased aggregate demand, not from higher net exports. China (and perhaps Germany) has held the value of its currency low while sterilizing the effect of this policy on domestic demand.

Both policies result in lower exchange rates, but one allows domestic to demand to rise and one does not. That's why currency manipulation is "beggaring thy neighbor", and expansionary monetary policy is not.
Japan allowed inflation to rise, while China and Germany did not.

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