Comments on: Counterparties http://blogs.reuters.com/felix-salmon/2011/10/28/counterparties-454/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: JW_Mason http://blogs.reuters.com/felix-salmon/2011/10/28/counterparties-454/comment-page-1/#comment-32570 Tue, 01 Nov 2011 00:39:48 +0000 http://blogs.reuters.com/felix-salmon/?p=10796#comment-32570 Just so.

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By: TFF http://blogs.reuters.com/felix-salmon/2011/10/28/counterparties-454/comment-page-1/#comment-32537 Mon, 31 Oct 2011 02:49:40 +0000 http://blogs.reuters.com/felix-salmon/?p=10796#comment-32537 Trying to wrap my head around that one, JW_Mason…

N = nominal exchange rate, as stated in the forex market

P = the price of a basket of goods in local currency

R = real exchange rate, or the ratio between P and what it would cost you to change currencies and buy that basket somewhere else.

If R is greater than 1, then you can buy more on a European shopping spree than if you buy at home. If R is less than 1, the situation is reversed.

So if I understand you properly, you are saying that when prices P go up, either the nominal exchange rate drops or your dollar will buy more overseas than it does at home?

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By: JW_Mason http://blogs.reuters.com/felix-salmon/2011/10/28/counterparties-454/comment-page-1/#comment-32528 Sat, 29 Oct 2011 20:44:51 +0000 http://blogs.reuters.com/felix-salmon/?p=10796#comment-32528 Syderico, TFF:

It works like this. Write dR for the change in the real exchange rate, dN for the change in the nominal exchange rate, and dP for the change in the domestic price level. (We’ll assume foreign prices are constant.) Then

dR = (1+dN)(1+dP); for small changes, this is approximately

dR = dN + dP

So in one extreme case, the nominal exchange rate is fixed, meaning that inflation passes through one for one into real appreciation. In the opposite case, we can imagine a perfectly efficient foreign-exchange market that keeps the real exchange rate fixed at some fundamental value; in that case inflation is offset one for one by nominal depreciation. In the real world, of course, markets are far from perfect, so what we typically see with floating currencies is inflation producing some mix of real appreciation and nominal depreciation.

(And of course there’s a third logical possibility, where the nominal exchange rate is fixed by the government and the real exchange rate is fixed by fundamentals, so it’s the price level that adjusts. This is the idea behind the use of a currency peg as an anti-inflation “nominal anchor”, as you sometimes see in Latin America.)

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By: TFF http://blogs.reuters.com/felix-salmon/2011/10/28/counterparties-454/comment-page-1/#comment-32526 Sat, 29 Oct 2011 15:00:22 +0000 http://blogs.reuters.com/felix-salmon/?p=10796#comment-32526 The Norway example should be instructive for the finances of Alaska, if they were to secede from the rest of the US. The combination of vast mineral resources and limited population offers a very different dynamic from that of an industrialized nation.

Singapore has largely tracked the US in both GDP and income inequality. Still, I would hesitate to draw strong conclusions from that limited example. The two are hardly parallel!

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By: Christofurio http://blogs.reuters.com/felix-salmon/2011/10/28/counterparties-454/comment-page-1/#comment-32525 Sat, 29 Oct 2011 14:43:47 +0000 http://blogs.reuters.com/felix-salmon/?p=10796#comment-32525 I’m no Randian, but the idea that her ghost might have something to learn from Singapore is absurd. The chart shows NO DATA at all from Singapore during the crucial years for the alleged lesson!

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By: skyman123 http://blogs.reuters.com/felix-salmon/2011/10/28/counterparties-454/comment-page-1/#comment-32523 Sat, 29 Oct 2011 14:31:06 +0000 http://blogs.reuters.com/felix-salmon/?p=10796#comment-32523 Honestly, I have no idea what’s happening at NPR but I do have an idea about my donations. I stopped giving to PBS after similar actions back under Bush with erratic and petty decisions on programming, and now I’ll stop giving to NPR as they can’t seem to draw a distinction between someone’s reportage and their private life…which, last I checked, everyone’s entitled to have.

We’re all a part of the news, we all have private views. As long as the two are not confused, and here is the kicker, *on purpose with the intent to deceive* then I don’t see the problem. Fox News is an example of “news” actually being opinion spun under the deception *fair and balanced*. That is wrong. It is also wrong to fire people based on what they do in their private time. As least as far as this donor is concerned, and for NPR, that’s all that really should matter.

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By: skyman123 http://blogs.reuters.com/felix-salmon/2011/10/28/counterparties-454/comment-page-1/#comment-32522 Sat, 29 Oct 2011 14:31:01 +0000 http://blogs.reuters.com/felix-salmon/?p=10796#comment-32522 Honestly, I have no idea what’s happening at NPR but I do have an idea about my donations. I stopped giving to PBS after similar actions back under Bush with erratic and petty decisions on programming, and now I’ll stop giving to NPR as they can’t seem to draw a distinction between someone’s reportage and their private life…which, last I checked, everyone’s entitled to have.

We’re all a part of the news, we all have private views. As long as the two are not confused, and here is the kicker, *on purpose with the intent to deceive* then I don’t see the problem. Fox News is an example of “news” actually being opinion spun under the deception *fair and balanced*. That is wrong. It is also wrong to fire people based on what they do in their private time. As least as far as this donor is concerned, and for NPR, that’s all that really should matter.

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By: TFF http://blogs.reuters.com/felix-salmon/2011/10/28/counterparties-454/comment-page-1/#comment-32518 Sat, 29 Oct 2011 12:29:47 +0000 http://blogs.reuters.com/felix-salmon/?p=10796#comment-32518 Snyderico, good catch!

Not positive of the answer (only got a B+ in macroeconomics due to confusion over this kind of stuff), but selling \$3.2 trillion in foreign assets and using that to buy renminbi would cause the dollar and euro to trade lower with the renminbi trading higher.

That would likely:
* Touch off inflation in the US. (Right now the inflation is essentially being exported to China.)
* Make Chinese goods more expensive (or less inexpensive) relative to US goods.
* Reduce the present imbalance of trade.

Whether or not it causes inflation to rise in China would seem to depend on how the money is used there. If it is used to purchase existing Chinese assets, then it would drive up the price of those assets, which presumably would lead to additional spending and investment. Certainly sounds inflationary to me…

Yet the shift in the exchange rates would make imports less expensive, and would damage export industries. Those elements would be deflationary. Is it possible that such a move would set off a deflationary recession in China to counter the inflationary pressure of the asset transfer?

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By: Snyderico http://blogs.reuters.com/felix-salmon/2011/10/28/counterparties-454/comment-page-1/#comment-32516 Sat, 29 Oct 2011 07:48:22 +0000 http://blogs.reuters.com/felix-salmon/?p=10796#comment-32516 From today’s NYT: “China has a \$3.2 trillion nest egg in foreign reserves, by far the largest hoard of foreign currency in the world, and it needs to find places to park those reserves rather than convert them all to Chinese renminbi, a step that could set off domestic inflation and lead to sharp appreciation in the currency’s value.”

Doesn’t domestic inflation lead to currency depreciation, not appreciation? Am I missing something?

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By: dWj http://blogs.reuters.com/felix-salmon/2011/10/28/counterparties-454/comment-page-1/#comment-32512 Fri, 28 Oct 2011 23:18:00 +0000 http://blogs.reuters.com/felix-salmon/?p=10796#comment-32512 I wonder to what extent NPR is afraid of looking biased after the Juan Williams incident. That seems enough to explain the Simeone firing; this one seems so much more minor than that that it still seems a bit excessive.

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