market nature's groovey water flowing uphill self defiances
file this under half baked is maybe worse then raw
http://krugman.blogs.nytimes.com/2009/12/28/renminbi-rx/
this is a blog post by nobel pocket giant paul krugmantel (who seems to have become my de facto practice serve and volley back board these days )
this time he's throwing light and logic on the us vs china exchange rate fuddlement .
“Consider the real exchange rate “
RX = E(P*/P)
where RX is say the dollars real rate of exchange against chinese products
E is the currency exchange rate ( here dollars over yuan d/y )
P is china's price level and P * the US price level.
play around with this and you quickly discover what changes in any one or combo of these three variables
do to the real “dollar” exchange rate RX
here's krugs crucial example:
” appreciation of the yuan is a fall in E ”
( yuan up against d means d/y falls => a lower value for E(P*/P ) ie in RX
result a dollar buys less chinese goods eh ? just the thing to close a trade gap …maybe )
pushing along .. paul next introduces some quaint vintage (18th century) dynamics AKA market naturalism :
“Basic international macro says that there is a “natural” level of the real exchange rate”
” determined by trade competitiveness and international capital flows.”
much magic in that ole pair of hats mates
” And the economy “wants” to get to that real exchange rate.”
are you shivering with mirth yet ??
“natural ” ?? “wants” ?? how arch of doctor paul it's as if he had satire in mind but hey he don't gang
he just speeds on completing his reification with this clincher :
“If you have a floating exchange rate you get there via a rise or fall in E …But if you have a pegged rate, there’s pressure on prices instead.”
get there where's there paul ? balanced trade balanced payments or some higher optimal meta-balanced balance ??
okay let him have his pretend time and yup if the formula defines the edges of this universe u can't get around it …either e changes or the ratio of p*/p changes .. and if you gotta change the p*/p ratio in a fashion to reduce chinese imports
and save our poor nell of a manufacturing sector china's p has to rise faster or fall slower then our p* no ??
(okay okay SMBIVAers paul just threw baby 666 out with the ” adjustment noise ” but it's the holidays so let's continue
along in good cheer)
now that the basics are clear paul briars up the story some :
china is “deliberately keeping E higher than it would be under floating” heavens yes china IS foul pegging and foul pegging
so low so very un-naturally low shouldn't oughta naturally the great and powerful market forces impelling ” the formula “
lead ineluctably to higher prices in china eh ??
cause well by the formula by freezing the E ”.. China is creating pressures for P to rise” or i hasten to note P* to fall
to bolster his parable paul notices two other instances of bad pegs leading to price level pressure
one up : germany in 72 (then a forex fiddle dollar pegger albeit a relenting one unlike china today )
and one down : poor spain right now trapped inside the hideous euro vice and facing deadly deflationary pressures
that done paul pulls the good feeling cake out of the oven with this “So China ..(by maintaining it's low peg ) ..is basically trying to keep water from flowing downhill. ” ya …so …well ummm paul err then we got a no sweat here right ?? China can't do that obviously i mean make water go up hill that's super natural err ahh but she's succeeding at this no ??? and has been succeeeding at this for a decade or more …
conclusion: something un natural has been hatched here a ways back and maybe not for the first time …so paul maybe
instead of silly just so cherry picking and formula facilizing u oughta let errr this un natural baby this 666 of a baby back into the bath tub and let it splash and glower at us like the fucking demon it is
so who's baby 666 ?? why He's ”the trans nat limited liability hi fi system “
that by a concatenation of sluices pumps cisterns and leveees
can make water flow up hill (specifically from north to south ) and keep it flowing up hill till…well till the moment comes when “letting spontaneous international market forces ” run their “natural” gap closing course is the better ” collegial “
trans nat run or pass option
headline:
there is no law of gravity for relative price levels
no law at least ”trans nat man “ in his diabolic ingenuity can't over come
moral of tale:
spontaneous market forces are not about to rescue our utterly shit kicked industrial sector
so i suggest paul put this RX= EP*/P fucker of a half baked cake back in the oven
it ain't ready to eat till the fat trading profit demon now riding it
get's caramelizes away into brown drippings
then again no oven gets hot enough to do that does it ??
——————————————————————————————-
rx=e(p*/p)
this equation is harmless enough
as mere definition
the problem comes when it's functionalized
ie tied to trade say
as in exports and imports are a function of Exchange rate
with some specifications of real trade balance movements tied simply to exchange rate
this rx=e(p*/p)
is just the translator of price levels really
it holds by definition
which is not to say any specific functionality is implied
in other words the system can be stablized
in quite un natural gravity defying conditions
with a yawning gap in trade
” that closeth not ” in under a full generation
which god love it is reality and
clearly punks
krug with his wants and natures
paul
baldly throwing out this dynamic underbelly
with its natural rebalancing tendency
that operates like gravity
albeit whether “rapid enough” and unstop-able he leaves to a mind's own wants i guess
“Basic international macro says that there is a “natural” level of the real exchange rate… And the economy “wants” to get to that real exchange rate.”
hmmmm
such lovely level playing field restoring spontaneous re balancing tendencies of international markets ….do not exist in reality
and i suspect he knows that
since his nobel earning paper models such a system of internationally located “firms”
and how they are defying competitive self perfecting
even without using borders to “protect”
their price discriminating maximizes
the key is to focus on the motivations behind the counter measures that turn “market wants ” on their head
profits are purely dynamic ie transitional self liquidating incentives in a golden age market paradigm
yes profits are like the lone ranger
the righter of wrongs that rides off as soon as justice is restored or progress completed
profits the keenest of all necessary evils
the demon incentive that liquidates itself in the briefest possible time precisely because it can't styop itself till its devours itself
what could be more delightful
in iron age markets like we really got howeve
the profits are converted into quasi rents and by this institutionalization
given “extended life”
the best way to view the trans nats ??
they exist in the interstices
like invisible customs agents
they set up where markets meet each other
they use barriers and doors to their liking
and as a well schooled ring
of oligopoly players
they use technical and market “access”
price discrimination protectionism and its opposite free rape zoning
as best they can
every trick in the book and its opposite
of course there are rival moments and unclear ” state sponsorships “
can lead to “frictions”
it is a pandemonium after all
however its really the attempt by rogue nation states and liberation forces
to thwart the trans nats rocky reign
that pulls the privateers together
honor among thieves
of course a strategic competitor state
rising up like the very devil himself ….agin uncle's global pax …
i think of china building that harbor city in baluchistan
under paki auspices
as a strategic node linking a future pipe line from china
thru paki ville to the very door step of the oil region
naughty naughty
perhaps the han fiends great game counter move
most NOT to uncle's liking
Posted by pinky at 07:38 PM
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