Dirua: transakzio bertikalak eta horizontalak (eta 4)

1 Ikus “A General Framework for the Analysis of Currencies and Commodities.” in P. Davidson and J. Kregel (eds.) Full Employment and Price Stability in a Global Economy. Cheltenham: Edward Elgar. http://www.mosler.org/docs/docs/general2.htm eta A General Analytical Framework for the Analysis of Currencies and Other Commodities.

2 Ingelesez: “From inception, the State must spend or otherwise provide that which is necessary to pay taxes. And, for all practical purposes, the private sector will be willing to obtain more currency units from the State in exchange for real goods and services than the minimum required for its current tax liability. The extra currency units accumulated are called net private sector savings of financial assets denominated in the unit of account. I have elsewhere used the term H(nfa) (Mosler, 1997-98). This is analogous to the private sector buying more corn from the farmer than just the exact amount of current consumption.”

3 Ingelesez: “If the State (or Farmer) does not offer to provide the amount desired by the tax payer (or consumer), there is, by definition, a shortage. Horizontal activity cannot provide for any net accumulation. A collective desire in the private sector can only be resolved in the vertical component. As Moore (1988) argues, only the central bank can resolve a reserve imbalance. In a similar vein, Keynes demonstrated that, except in the unlikely case of an “accident,” actual and desired net savings will only be equal at full employment “by design,” i.e., the State running a budget deficit (Keynes, 1936, p. 28).”

4 Ingelesez: “This is not to say that horizontal activity cannot effect a change in the desire to net save. For example, a rise in the price of corn on the futures exchange due to a shortage could certainly reduce the desire to net save corn. The corn market may stabilize at a higher price. Such stability occurs when the actual net savings of corn equals the desired net savings of corn. Likewise, a reduction in State deficit spending could result in a deflation that stabilized when prices fell enough for private sector agents to lower their collective desire to net save, and make purchases either through spending net savings or incurring new debt.”

5 Ingelesez: “The horizontal component is a leveraging of a vertical component. This implies price sensitivity to supply and demand changes that may originate in the vertical component. Changes in fiscal balance are analogous to changes in the expected harvest or mine output. Changes in taxation are analogous to changes in consumption demand. Fiscal balance occurs only when the State runs a fiscal policy that allows actual H(nfa) to equal desired H(nfa) (Mosler, 1997-98). With most other commodities, the market is allowed to maintain this balance. Price changes are continuous as inventories rise and fall for the various commodities.”

6 Ingelesez: “The State currency, however, is a case of a single supplier. (…).”

7 Ingelesez: “In the case of the State as single supplier of its currency of issue, the State is in the position of price setter of its currency. It can unilaterally set the terms of exchange that it will offer to those seeking its currency. Ironically, no State currently seems to recognize this. To the contrary, states act as if they were in competition with other buyers when conducting purchases with their own currency. They believe and act as if they must raise revenue through taxing or borrowing to fund spending. They have chosen the option of setting the quantity of their currency they wish to spend via a budgeting process, and then exchanging that currency at market prices for desired goods and services. Like the water monopolist, spending too much will drive up prices (reduce the value of the currency) and spending too little triggers a deflation (increase the value of the currency). In addition, there is no long term “right amount” as the (world wide) desire to net save that currency may be constantly changing. Hence a fluctuating NAIRU, removing most practical value from the concept.”

8 Ingelesez: “The other practical option for the State, as single supplier of its currency, if it wishes to maintain a market economy, is to administer a buffer stock. Gold has traditionally served this role. The State would set the price at which it would buy or sell gold, and then conduct monetary and fiscal policy such that the buffer stock remained credible. Graham (1937) long ago proposed that commodities other than gold might serve a similar function. In “Full Employment and Price Stability” the option to use labor as the State’s buffer stock was presented (Mosler, 1997-98). Clearly, when administering a buffer stock, purchases made at the designated price are not inflationary. They do prevent deflation below that level. Nor are sales from the buffer stock deflationary. Rather, they serve to inhibit inflation.”

9 Ingelesez: “It has been continuously argued and widely accepted that State deficit spending represents future taxation. Our model, however, clearly demonstrates that this is not the case. For example, if farmers sell more corn than the population will consume that period, they can be said to be deficit spending corn which will sit in the warehouse. Does that imply either that consumption must go up some day, or that future production will be curtailed? Not necessarily. It may be argued that the future value of corn will fall some day, but that would depend on the desired inventory in the future. In fact, corn traders carefully watch the inventories. They have some conception of the “right” size, consistent with stable prices. That “right” amount will naturally fluctuate with population size, availability of substitutes, etc. In the case of the single supplier, like the water monopolist who sets price and lets the market buy all it wants, sales in excess of current consumption again do not necessarily either mean future increases in consumption or lower future output. Nor do they necessarily mean a fall in future water prices.

The same is true for the State as issuer of its currency. The State does not force anyone to exchange goods and services for its currency. The exchange is with willing sellers who desire the currency. Deficit spending occurs only if the private sector is desirous of accumulating units of the currency in order to net save. Hyperinflation is the condition in which the private sector no longer desires the currency unit (as reflected in the price level).”

10 Ingelesez: ““The Asian crisis of 1997 can be analyzed in the general commodity framework presented here. What happened can be described as a dollar squeeze. In the face of declining $US federal budget deficits, horizontal expansion in Asia continued through the first half of 1997. Agents borrowed $US and either spent them directly on projects or used their $US to purchase local currency to run their businesses. That meant they were short the $US and long their local currency, which was generally invested in local enterprise. Often it was the local central bank that encouraged this type of risk taking by setting the domestic interest rate higher than the $US rate and simultaneously maintaining a pegged exchange rate. While the local businessmen were borrowing $US and exchanging them for local currency, the central bank was more than willing to accommodate them, and accumulate $US reserves. However, when the private sector turned to being net sellers of the local currency to pay their $US obligations the central banks were reluctant to lose their $US reserves to support the local currency and instead let it float downward. At the lower foreign exchange rates the local businesses were unable to meet their $US obligations and a liquidity crisis, which is still not resolved, followed.

Continuing with our commodity framework, it was similar to being short corn while the warehouse stocks were declining. Now, with depressed local currencies, many of these countries are running sizeable $US trade surpluses. That means someone else is running $US deficits, as the horizontal component between nations always nets to 0. As long as US fiscal balance remains as it is, there is little that can be done to alleviate the world wide $US squeeze, except a decrease in the net desire to save $US denominated assets. Falling prices may decrease the net desire to save, inducing the additional spending, but it is not common for this to happen. In fact, it is hard to  find a sector of the US economy that can continue to increase its indebtedness sufficiently to extend US GDP growth. The two large growth areas were the expansion of sub prime and Asian credit, both of which are slowing dramatically. Furthermore, it seems all nations are pushing (fiscal) deficit reduction at the same time, taking away the possibility of export led expansions.

I have yet to read any mention of US fiscal policy as a cause for concern and a contributing culprit in the Asian crisis. No one seems to recognize the importance of deficits in the same way they recognize the importance of the size of the stocks of other commodities. That may be why markets don’t react in anticipation of the inevitable short squeeze, as none of the market participants are aware of the connection. Therefore, only after the shortage is acute does the market finally react, as shorts have no choice but to cover their positions by selling other assets to obtain needed $US. So it hits hard and fast. Note that the Japanese economy expanded rapidly enough in the late 1980s to drive the budget into surplus. Soon after, the stock market and real estate market crashed as agents were forced to sell these assets to obtain needed yen. Eight years later the stock market is still more than 60% off its highs and real estate continues to drop at double digit rates annually, in spite of years of near 0% interest rates. A yen short squeeze can only be resolved in the vertical component. And long term budget targets conflict with that necessity.”

11 Ingelesez: “This paper outlines an alternative way of viewing the monetary circuit that takes into consideration the central role of the State from the beginning of the analysis. Vertical and horizontal components of the monetary circuit were introduced and their relation analyzed. It was shown that this framework is applicable not only to currency, but to any commodity. This is because, while currency does not obtain its value by virtue of its status as a commodity, once endowed with value a tax driven currency can be analyzed like any other commodity. In addition to debunking the myth that deficits imply future taxation, it was also shown that such a framework is highly applicable to the current Asian financial crisis.”