DSGE
VIP Member
- Dec 24, 2011
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US exports are marketed in foreign "free-trade zones"; foreign FTZs are "economic extensions" of domestic markets ? et vice versa ?
what about buying Chinese DVDs on Ebay ? US consumers pay via PayPal; Chinese sellers collect in Yuan (after PayPal exchanges Dollars for Yuan [and "skims fees"]) ? i.e. "PayPal handles the ForEx for Ebay'ers (behind the scenes)" ?
Doesn't really matter where the currency exchange is done, the point is that the purchase of final export goods has to be done with US dollars.
meanwhile, the demand-for-US-Dollars, on the 4XM, implies demand-for-US-Exports; nominal US "trade deficits" account only Consumer (C) & Capital (K) goods & services. Ergo, "un-recognized" demand-for-US-Exports must embody foreign purchases of "other things" un-accounted as "foreign trade":
US exports isn't the only reason foreigners would want to buy US dollars. They may want to buy US dollar denominated assets (stocks, bonds, etc). This is how trade deficits happen. When we buy imports (I'm actually Australian, but assume for argument's sake that "we" means "the US") we send ownership of US dollars overseas. They could use those to buy US exports (which would mean balanced trade) or they could loan them to the US by purchasing financial assets. If you ignore the money, this is just plain old credit. They send us goods now, sometime in the future we return to them the value of those goods plus interest.
if Chinese loan USD back into the US; loans = credit; credits ---> Money supply (funding purchases of C/K/G)...
Errr, yes and no. If it's done electronically, the money never really leaves the US banking system. No net reserves change during the transaction. So the money supply doesn't change (I'm using base money). However if they decide they want to hold physical currency, say in their bank vaults or at their central bank or whatever, then yes sending that currency contracts the money supply. And if they take that currency and deposit it in a US bank that increases the money supply. Not that it really matter because the Fed will offset that.
if i understand, economically, domestic purchases (C/K/G), made with foreign-loaned USD, are de facto "Exports", i.e. "if you bought the widget, with China's USD; then you bought the widget, for China; China bought the widget; the widget is a de facto Export (which the Chinese have yet to retrieve)". or, if the US Government borrows USD from China, to pay for Social Programs in the US; then the recipients of those Entitlements re-spend the borrowed-back USD; then whatever "widgets" they buy, are de facto Exports ?
I don't follow you here.
variations in V suggest un-accounted Black-Market spending ?
Or just the number of transactions people engage in changes or people decide they want to hold on to more liquid money because of uncertainty/confidence.
what if China opted to hold USD, i.e. "China begins accepting USD for its products" ? if i understand, if all USD are returned to US markets, then:
MV = PQ = GDP = C+K+G + (X-I)but if some USD are not returned to US markets, then:
(X-I) = 0
"nominal (X-I)" + "un-recognized X" = 0
"some C+K+G" = "un-recognized X" ("everything bought on borrowed-back USD [considerable as collateral]")
MV = PQ = GDP = C+K+G + (X-I)i.e. if China opted to "bury dollars"; then flow of USD, to China, for their products, would "drain down" the US Money supply, "drawing down" US GDP ?
(X-I) < 0
"un-recognized X" = 0
"some C+K+G" = "un-recognized X" = 0 ("credit dries up, purchases plummet")
C+K+G ---> c+k+g
PQ ---> pq
MV ---> mv
I don't quite understand your notation (I don't know what going from capital to lower case means?) but I think I see what you're getting at.
If the money supply is fixed, then yes. Remember back under the gold standard the money supply was constrained by the quantity of gold the central bank held. If we bought an import, physical gold would be shipped from the US to, say, France. So the quantity of money in the US would fall and the quantity of money in France would increase. The relative price of US goods would fall and the relative price of French goods would rise meaning those in the US would switch from import goods to domestic goods and those in France would substitute to US goods. The movements in gold basically meant that the balance of trade was self correcting. If you ran a trade deficit, you're exports would quickly become competitive and the deficit would shrink automatically (and vice versa).
So if the money supply were fixed, yes. That's not the case now though. If money moves from the US to France contracting the money supply, the Fed will just offset this by expanding the money supply (since they can print money as they please). This lets countries run persistent trade deficits/surpluses.