House of Paine

exchanges with brad S

over evil marty feldsmurtz and the home bias issue


and then over chinas  gubmint dollar stash 



==============================


for what little its worth 
 
i found feldstein sly  
but lispy  
 
case in point  
 
the analysis that induces brad to go 
"hmmmn " 
over marty's cunning perhaps ....

the world as it iz
means uncle's effective demand management  
be 
feckless using monetary claws  
bbbb but

mighty robust 
by sliding up and down 
             the  fiscal  gap 


hence economy drooops

up the gap..... 
 
sounds Bushy to me ...... 
 
as usual 
MARTY plays 
dry tout 
for what us stalinoids used to kall: 
" ultra suave  
reactionary elements" 
 
one point that needs clarification  
in his paper as science minus  
not poetry plus 
he evidently feels  
to make the distinction between speculators and investors on the one hand and 
cbs on the other 
clearer then the truth  
might spill too many beans 
 
my take 
 
all along 
 
"private flows " 
once the security flights are factored in 
might have no home bias 
 
butin the grand aggregate 
CB actions might so fuddle  
the final patterns as to make a home bias paradox "appear" 
 
only if are seperated out  
and  
the two unlike operations  
criss crossing over each other  
dis aggregated  
ie unpatriotic  
capitalistic prof max-ers  
 
from what ? 
nationalisatic CB  
mon policy doodles  
can we see clearly whats up  
 
but first some one has to figure out what in hell 
is a proxy for cb behaviour 
in the words of the late lammentable 
lion of robins  
"no actor without  
an optimization" 

Written by Gcs on 2005-12-27 15:40:03

--------------------------------
brad writes: 
 
" US residents still seem to have a bit of home bias - the inflows coming into the US from Asian central banks are not immediately shipped off to Europe to look for higher returns" 
 
could you elaborate on this some  
i never belived in tinker belle  
esp 
or  
home bias  
 
but where your thumb points 
sounds interesting  
like you see discrtete flows  
where wall eyed  
outside clodhoppers like moi  
see only merged murk  
ie 
an aggregation fuddle  
 
btw 
marty seemed a bit too happy  
the"availible " data is so cloaked in smoke and stagger guestimating  
 
as a reformed "market" brute myself 
i loathe needless spec breeding 
opacity  
 
furtile ground for inside opportunity  
 
here  
where simple data could be gathered at relatively  
small cost to the globe  
 
why the darkness ???? 

Written by Gcs on 2005-12-27 15:55:03

---------------------------
GCS -- i suspect that there is a bit more home bias in private investment decisions than you would expect; many American defined contribution (401k style) pension plans offer a choice among US bond funds, US equity funds and may be a US real estate fund. Even the "world equities" fund is often not "non-US equities" but rather a market basket of US and global equities -- so it is basically 50/50 US/ non-US equities. If you put 10% of your retirement portfolio in the world equities fund (risky, according to many), you have may be 5% global exposure, and 95% US exposure. I suspect that is rather common. 

Written by bsetser on 2005-12-27 23:03:39

-----------------------------------------

Why the darkness? Let's see ... 
 
a) One easy source of data is "Creditor side" data, i.e. data from the world's central banks. Alas, many central banks don't report the currency composition of their reserves -- see the imf's data. the IMF lacks data on the PBoC. that cuts into the utility of the creditor data. If memory serves, adjusting for valuation, reporting central banks have bought about as many euros ($70b) as dollars (also $70b or so) in the first three quarters. The problem? China alone added well over $150 b to its reserves, and it didn't report. Unknown on a flow basis is the biggest category. 
b) The eurozone doesn't do a disaggregated TIC style breakdown of the composition (official/ private and by region) of long-term capital flows in and out of the euro region. at least I haven't found it. i haven't looked, but my sense is that the british data is thin too. 
c) We have good import/ export data because imports traditionally have been taxed (and it ain't hard to track flows through ports). We have decent data on cross border bank claims because banks are regulated and because the world made a point to collect "consolidated" data after the 80s debacle. By contrast, a few countries have done quite well by helping bond holders avoid tax (talk to a british banker about withholding taxes ... ) -- the tax/ regulary infrastructure isn't there in the same way. that makes data collection a lot harder, and it hasn't been a priority. 
 
one last plea. the brits are big on transparency, in most contexts. given the size of the financial flows through the uk, a bit more transparency about the composition of the flows into the UK would be a bit help.(assuming the UK data doesn't exist rather than i have not yet found it, if someone can point me to the british version of the tic data, i would a) be grateful and b) rescind my criticism)). the UK clearly is helping to intermediate a lot of oil related flows. 

Written by bsetser on 2005-12-27 23:13:25

------------------------------------------

brad  
 
u are very right 
average joe investor funds  
have a natural education barrier  
as well as a risk calc  
over time foreign portfolio weights  
have and still will rise more 
of course 
 
to be candid  
my real beef with home bias  
is pure class politics  
 
after a low quality  
home save home investment correlation  
 
the usual marty F line : 
 
" see  
tax home capital and its income 
and you reduce home located 
productive investment  
and of course  
that slows productivity growth  
and 
that reduces real wage growth and ...blah blah blah..." 
 
upshot 
 
" we must shift tax burden to wages  
if we want to increase wages... 
in the long run " 
 
to me this is klass warfare by dirty trick science  
but thats just me 

Written by Gcs on 2005-12-28 17:37:16


-----------------------------------

Gcs -- somehow, the tax labor not capital part of Feldstein's argument did not jump out at me. Probably because I expected it from Marty (he is a conservative republican), and what jumped out at me was his deviation from Alan Greenspan's financial globalization has changed the world orthodoxy. He seems less inclined to see current US financial conditions as the product of market driven globalization, and more the product of gov. policy. 

Written by bsetser on 2005-12-28 21:04:59

---------------------------------------------
brad sez: 
 
" He seems less inclined to see current US financial conditions as the product of market driven globalization, and more the product of gov. policy."  
 
and he is right this is both true and noteworthy 
 
even if marty has a too long 
history 
of rude empiricks 
that always partitioned world capital into national segments 
here he points to a real enduring cause  
not a mysterious non rational bias 
 
CB policy  
 
always there and alwaysready 
to counter 
spontaneous north cap  
pure prof max guided  
trans national 
channels and rates of flow  
 
------------------ 
 
home bias like money wage illusion  
was a mocking name  
for  
an important 
but unexplained reality  
 
---------------------- 
 
one point i never see clearly enough made  
by one worlder progs 
 
only trans nat trade credit 
and FDI  
make the world better and smaller  
 
PORTFOLIO FREE ROCK AND ROLL  
is not  
 
I'D LIKE ALL STUDY FOCUSED  
ON REAL FLOWS ACROSS BORDERS 
PRODUCTIVE INVESTMENT  
R&D TRANFER  
 
AND 
UNSKILLED AND SKILLED PEOPLE MOVEMENT  
 
NOT HOUSE LOTS 
CURRENCY HEDGES  
ARBITRAGE SPECS 
AND OTHER HOT SHOT 
HORSE FEATHERS  


Written by Gcs on 2005-12-29 20:46:13

-------------------------------------------------------
PRC dollar stash.....
---------------------------------------------------

BRAD WRITES: 
 
"Of course, China should really care about the RMB value of its reserves, not the dollar value of its reserves" 
 
WHY NOT THEN ?? 
 
A )FOLLY?? 
 
B)SPECIAL SIMPLE SMALL GROUP MOTIVES ??? 
OR  
C)COMPLEX BIG GROUP MOTIVES ??? 
---------------------------- 
 
" And if the RMB rises against the dollar (and the euro), 
the RMB value of China's external assets will fall 
while the value of its domestic liabilities  
(a mix of currency in circulation, 
bank deposits in the central bank  
and sterilization bills) will stay the same"  
 
"That is what Yu Yongding and others in the People's Bank of China worry about ... " 
DON'T GET THIS 
LIKE THE FED WITH DOLLAR DEBTS 
THE PRC CB CAN MAKE ITS OWN FRESH RMB 
 
COMMODITY /WAGE INFLATION ??? 
 
NO NOT IF THE HIGH POW MONEY 
FLOWS IN ASSET CIRCLES AS YOUR ANF MISTER YU'S 
ABSTARCT SCENARIO HARDLY PRECLUDES  
 
CALL IT 
LERNER FLATION ASSET ROTATION AT HIGH SPEED  
BUBBLES WITH OUT REAL TROUBLES  
 
------- 
SERIOUSLY  
 
BRAD I DON'T THINK THE PRC CARES 
ABOUT THE LONG RUN  
RMB PURCHASING POWER 
OF ITS RESERVE DOLLARS  
 
THIS IS A NON STEADY STATE GAMBIT 
 
MY GUESS WHEN YOU MATCH UP THE ZERO MARGINAL PRODUCT OF ABOUT 250 MILLION PESANTS RAISED BY TRADE TO SOMETHING WELL ABOVE ZERO... 
 
BIG QUESTION: 
 
WHAT DOES THE RESIDUAL RMB VALUE OF THE DOLLARS RESERVE HAVE TO BE 
TO MAKE THE DEAL A WINNER OVER ALL FOR THE PRC ???? 
 
WHERE A HIGHER THEN OTHERWISE DOLLAR 
MEANS EASE OF PRC PRODUCTS 
PENETRATING WORLD MARKETS  
(AT LEAST  
TO THE EXSTENT THOSE MARKETS REMAIN OPEN  
TO LOWEST PRICE TRADERS ) 
AND OF COURSE 
THE COMPLEMENTARY JOYS OF HEAVIER 
THEN OTHERWISE 
INWARD FDI FLOWS  
 
NOTE HOT MONEY IN FLOWS ARE A SUP WITH THE WHITE DEVIL 
 
BUT HEY 
ALL CURRENTS NO MATTER HOW DIRECTIONAL  
PRODUCE EDDIES  
AT LEAST  
IN A SYSTEM THAT FLOWS THRU COMPLEX STRUCTURES 

Written by Gcs on 2005-12-29 21:10:43


-------------------------------------------------

GCS. The PBoC has to care (somewhat) about the RMB value of its reserves (its assets) because it has issued RMB liabilities against those assets. If the RMB appreciates, the central bank will take large capital losses -- Yu said as much. Not everyone believes that capital losses in the central bank matter, but I suspect if they are big enough, they do. They are not the end of the world tho -- China's commercial banks have operated without capital (given their losses) for some time, and so could the PBoC. But at some point, I suspect it will need to be recapitalized, with a gov of china RMB bond issued to fill the hole between its RMB liabilities and its $ and euro assets. just my view tho. 
 
We certainly don't know if the PRC cares about the health of the PBoC's balance sheet; i'll grant you that. I suspect that they are only now waking up to the issue. But given Yu's position on the PBoC's monetary policy committee, i think it is safe to say the the PBoC cares. The question is what impact the PBoC will have over policy. 
 

-------------------------------------

note:

  brad has a way of plowing a straight row 
right thruanything

thats one of the reasons 
he's my favorite
 of the "mainstream"  eco bloggers