America's easy money has also spilled beyond its borders in a second way. When central banks buy American Treasury bonds, adding to their foreign-exchange reserves, to try to hold down their currencies against the dollar, they print local money. This amplifies the Fed's lax stance. Last year, the global supply of dollars (the sum of America's monetary base plus global foreign-exchange reserves) rose by a whopping 25%. After adjusting for inflation, this is close to the fastest pace in the past three decades.
Worse still, the effects of greater global liquidity then flow back into America's economy. By buying huge amounts of American securities to prevent their currencies rising, Asian central banks depress American bond yields, lowering borrowing costs for home buyers and companies. By some estimates, Asian purchases of American bonds have reduced yields by between half and one percentage-point."
Are foreign central banks essentially printing money to buy Treasuries? (That would indeed be inflationary.) Or, are they issuing local-currency denominated bonds to raise money with which they buy US bonds ("sterilizing")? In the latter case there is no inflationary effect but there is an FX mismatch between assets and liabilities of the central bank that will hurt them if the dollar falls in value.
9 comments:
Now, what is it I am supposed to be frightened by or complain about :) ? The Federal Reserve began to lower rates in January 2001 in response to a slowing in the American and world economy and a break in the stock market. Long term interests rate had already been falling for 6 months. Fear of a slowing similar to that in Japan led the Fed to lower rates repeatedly. The result was a short shallow recession, and no deflation, and a rise in the prices of real assets. Now the Fed has reversed policy.
There are all sorts of harsh remarks that should be made about Alan Greenspan's support of awful fiscal policy. The Fed may even have tightened too much in 2000. But, monetary policy was the spur here and abroad that it should be.
More monetary stimulus in Europe and Japan has surely been called for these last 10 years. What then is the problem?
Anne
The problem with monetary policy is that interest rates are not adjusted so that mortgage rates stay high enough to moderate real estate price increases while a decline in long term rates stimulates other economic activity :) There really may be a housing bubble, but I do not fault monetary policy.
Anne
http://www.nytimes.com/2005/02/12/business/12oil.html?oref=login&pagewanted=all&position=
February 12, 2005
Big Oil's Burden of Too Much Cash
By JAD MOUAWAD
Born from the megamergers of the 1990's, the world's giant oil companies have delivered on their promise. They have cut costs, increased returns and raised profits to records. Now, flush with cash, they find themselves in a paradoxical position - they are making more money than they can comfortably spend.
Thanks to crude prices that averaged $41 a barrel in New York last year, the world's 10 biggest oil companies earned more than $100 billion in 2004, a windfall greater than the economic output of Malaysia. Together, their sales are expected to exceed $1 trillion for 2004, which is more than Canada's gross domestic product.
But even as fears of shortages grow throughout the world and prices remain high, the cash-rich oil companies are not pouring a large portion of their money into their basic business: drilling for oil. Indeed, oil executives, in their second straight year of rising profits, are finding that too much money is chasing too few oil fields. Instead, they are giving much of their cash back to shareholders....
Anne
http://www.nytimes.com/books/00/11/12/specials/miller-attention.html
Attention Must Be Paid, Again
By BEN BRANTLEY
His right hand, so sturdy and thick-fingered, keeps flying pitifully to his forehead, to what he assumes is the source of all that pain. He presses at his temples, he pulls at his cheek, so hard that you're surprised that his face remains intact. You get the sense that Willy Loman would crush his own skull to destroy the images inside. The most frightening thing of all is that you understand exactly what he's feeling.
In the harrowing revival of Arthur Miller's ''Death of a Salesman'' that opened last night at the Eugene O'Neill Theater, 50 years to the day after it made its epochal Broadway debut, you walk right into the mind of its decimated hero, played with majestic, unnerving transparency by Brian Dennehy.
Robert Falls's powerhouse staging, first seen at the Goodman Theater in Chicago last fall, never looks down on Mr. Miller's deluded Brooklyn dreamer or looks ennoblingly up to him as a martyr to a success-driven country. Instead, it demands that you experience Willy's suffering without sociological distance, that you surrender to the sense of one man's pain and of the the toll it takes on everyone around him.
Mr. Miller, who had originally titled the play ''The Inside of His Head,'' has said he thought of having it occur in a set that would indeed be in the shape of a man's head. Although Mr. Falls and his expert production team are mercifully less literal, that is effectively the landscape they create here....
Anne
http://partners.nytimes.com/books/00/11/12/specials/miller-tiananmen.html
September 10, 1989
Death in Tiananmen
By ARTHUR MILLER
FOXBURY, Conn. -- That month in Beijing six years ago was exhausting but exhilarating, too. As the first foreign theatrical director in the People's Republic of China, I was directing ''Death of a Salesman'' with Chinese actors in Beijing's People's Art Theater, the equivalent of the Moscow Art Theater. There was a lot of skepticism surrounding the project, with many Chinese and foreigners doubting that the Chinese audience would understand the very American play.
As it turned out, we needn't have worried. ''Salesman'' is about a family and business, and the Chinese practically invented both, and their reaction was little different than audience reaction had been in New York City and in theaters in any other Western city.
The man who made it all possible was Ying Ruocheng, actor, director (he played the leading role of the prison warden in the movie ''The Last Emperor''). He is also a scholar and linguist and did the incredible ''Salesman'' translation. It was so close to the English that I found myself able to stop actors on specific lines in order to change their interpretations.
Mr. Ying played Willy Loman brilliantly, acted as my translator to the actors, and, of course, also cast the play. The production has become a staple in the repertoire and has played all over China, and I have been told that it has been a strong influence on the new generation of China's playwrights.
I am putting this down for a reason.
Anne
http://www.nytimes.com/2005/02/13/business/yourmoney/13advi.html
The Chinese Way to Brand Identity
By WILLIAM J. HOLSTEIN
A CHINESE company's plan to acquire I.B.M.'s personal computer division is just one example of current Chinese efforts to buy or build recognizable brand names in the United States, says Oded Shenkar, professor of international business at the Fisher College of Business of Ohio State University and the author of 'The Chinese Century.' Here are excerpts from a conversation with him.
Q. Will Chinese companies be as successful in establishing brand names in this market as those in Japan and South Korea?
A. Absolutely. They're going to take a different path, but I definitely believe they are going to get to the place where the Japanese and Koreans are now....
Anne
The Federal Reserve governors stopped using moeny supply as a guide in policy making in 1989-1990. The relation between money supply and interest rate movements appeared to no longer be telling.
Anne
The point to these economic matters is sharpened increasingly as households are forced to invest rather than being able to rely on defined benefit pensions. Risk is being settled increasingly on workers.
http://www.nytimes.com/2005/02/14/arts/14conn.html?pagewanted=all&position=
Truth, Incompleteness and the Gödelian Way
By EDWARD ROTHSTEIN
Relativity. Incompleteness. Uncertainty.
Is there a more powerful modern Trinity? These reigning deities proclaim humanity's inability to thoroughly explain the world. They have been the touchstones of modernity, their presence an unwelcome burden at first, and later, in the name of postmodernism, welcome company.
Their rule has also been affirmed by their once-sworn enemy: science. Three major discoveries in the 20th century even took on their names. Albert Einstein's famous Theory (Relativity), Kurt Gödel's famous Theorem (Incompleteness) and Werner Heisenberg's famous Principle (Uncertainty) declared that, henceforth, even science would be postmodern.
Or so it has seemed. But as Rebecca Goldstein points out in her elegant new book, "Incompleteness: The Proof and Paradox of Kurt Gödel" (Atlas Books; Norton), of these three figures, only Heisenberg might have agreed with this characterization.
His uncertainty principle specified the inability to be too exact about small particles. "The idea of an objective real world whose smallest parts exist objectively," he wrote, "is impossible." Oddly, his allegiance to an absolute state, Nazi Germany, remained unquestioned even as his belief in absolute knowledge was quashed.
Einstein and Gödel had precisely the opposite perspective. Both fled the Nazis, both ended up in Princeton, N.J., at the Institute for Advanced Study, and both objected to notions of relativism and incompleteness outside their work. They fled the politically absolute, but believed in its scientific possibility....
Anne
Post a Comment