5 ms·

This is Called "Capital Flight"

35 points by nabla9 2y ago

neilwilson 2y ago
No it isn't 'capital flight' Noah - that's a fixed exchange rate concept. There are no fewer dollars in the US dollar currency area after the sale than before. Specifically "Normally, when Treasuries get sold off, people park their money in cash, instead of moving it overseas. This time, a bunch of investors actually pulled their money out of America entirely." They didn't, because to get out you require a bunch of other investors putting their money into America, otherwise there would be no exchange in the first place. It's a fallacy of composition. Individual investors can sell their dollars and buy euros, but investors overall cannot. Somebody has to be selling euros and buying dollars, and the question has to be asked "what did they do with those dollars when they got them, and why were they coming in that direction in the first place?". Liquidating static savings and pushing them back into the flow tends to cause more physical transactions to occur. It's taking money out of a drawer and spending it. That's likely stimulative.
- dave4420 2y ago
  There are no fewer dollars in the US dollar currency area after the sale than before… but those dollars are worth less than before. If capital has not left the area, it has been destroyed. That’s not to say that the US economy is inevitably doomed… but you sound very bullish.
  - neilwilson 2y ago
    They are not worth less in dollar terms. The same number of dollars will still settle next months mortgage bill, or tax bill regardless of what it may or may not exchange into Euros. And the exchange rate of barrels to tomatoes hasn’t changed as that is a productivity issue. There is no universal chart against which value is determined. Instead there are ever moving currency zone orbits, possibly shifting financial savings around. What there won’t be is any “shortage of capital”
    - morcus 2y ago
      On the mortgage and tax bill specifically, sure there is no impact. But I (an American) pay for some European services in Euros, meaning those got 10% more expensive. I understand this might be the intended effect, but it's not good for me.
      - neilwilson 2y ago
        But that’s because you decided to take on currency risk without hedging or having a matched foreign income stream. That’s not what anybody with scale will have done. And now you have to reevaluate the cost of that service relative to the alternatives - including letting them know they need to take fewer Euros to retain your custom vs the competitive alternatives. Customers are hard to come by. Are they prepared to let you go?
        morcus 2y ago
        You're just shifting the goalposts here. I will still stick with them because they're better value than the American alternatives, but that's beside the point. You were arguing that the same number of dollars will get me the same number of goods and services, which is not true.
        neilwilson 2y ago
        "You were arguing that the same number of dollars will get me the same number of goods and services, which is not true." In aggregate within a rational competitive framework. It is true for those that are rational and subject to competition. Where else are they going to sell their stuff? Why would you agree to pay more? Your behaviour will change, as will everybody elses - and you're the customer. So you go back to them and say no I won't pay any more. Haggle. Are they going to turn you away? Why is you agreeing to pay more more important than the other person who decides it is too much and cancels the service? Changing the goalposts is assuming you, and everybody else, are always a price taker, passively accepting what you are given. That's describing a monopoly/oligopoly scenario. I'm sure that isn't the case.
- argsnd 2y ago
  "They didn't, because to get out you require a bunch of other investors putting their money into America, otherwise there would be no exchange in the first place." And when those other investors bought those dollars they did so for a lower price in another currency than they previously would have, which results in the overall value of the total dollars to fall. This alone does not signify capital flight, but the combination with rising yields does. There's simply less demand both for US dollars and all dollar-denominated assets.
  - neilwilson 2y ago
    It doesn’t cause the value of dollars to fall in dollar terms. Again you’re implying a fixed exchange and there isn’t one. The exchange rate of barrels to tomatoes hasn’t altered since that is a matter of productivity This is why “devaluations” in the fixed exchange rate period didn’t work
    - JumpCrisscross 2y ago
      > exchange rate of barrels to tomatoes hasn’t altered since that is a matter of productivity Of course it has. We are one of the world’s largest importers of tomatoes [1]. The dollar devaluing makes them more expensive. That, in turn, means the internal price of tomatoes goes up. We’re a net oil exporter, on the other hand. So yeah—the “exchange rate of barrels [of oil] to tomatoes” has been altered. In part because the productive benefits of comparative advantage are being slashed. In part because trade frictions are being introduced that reduce our economy’s productivity. [1] https://www.worldstopexports.com/international-markets-for-imported-tomatoes-by-country/ https://www.worldstopexports.com/international-markets-for-i...
      - neilwilson 2y ago
        How does it make them more expensive. Where else are they going to sell the already produced tomatoes? There is no untapped source of demand at that price is there. We already know from history that devaluations don’t work. What has changed that suggests they have suddenly started working?
- ksec 2y ago
  Was thinking of roughly in the similar line as with your other reply. But you worded it much better than I could. Thank You.
silverpepsi 2y ago
Can someone explain why it isn't disingenuous to look at Euros? Firstly, euros cost now as much as they did three years ago. So that is clearly a price that can be reached with any number of causes. Then, UK pounds cost only what they did last September. And other world currencies? Values vs the dollar are all over the map, up, down, and nearly unchanged. No clear trend at all. I had heard a good way to check the absolute value of dollars is to google USDX. Guess what? It's not particularly low, well within the normal range of ups and downs.
- nabla9 2y ago
  Because Capital flight is the problem, not declining value of USD. The fall of dollar was caused by capital flight. Money is moving mainly into Euro-area. Not UK, not elsewhere. Investors are taking money out from the US. They sell assets, get dollars, then covert them to other currencies and take them out of country.
testing22321 2y ago
> Suddenly, the world is treating the US like a Developing country It’s pretty clear trump himself is doing that, playing pump and dump with the entire economy.
ZeroGravitas 2y ago
This is paywalled but his earlier piece from the 9th has been opened to all: "All the arguments for Trump's tariffs are wrong and bad" https://www.noahpinion.blog/p/all-the-arguments-for-tariffs-are https://www.noahpinion.blog/p/all-the-arguments-for-tariffs-... From it I learned that only 60% of Americans disagree with the statement "Tariffs are Tax Cuts". And also that the chaos in the markets was muted because only 15% of traders even believed the tariffs would be in place for more than 6 months. I'm somewhat saddened that this opportunity to touch the stove has not been fully utilised and so we are doomed to repeat it.
jmcgough 2y ago
Several people within the administration (particularly Stephen Miran) are highly in favor of dropping the value of the USD, as they believe it's about 25% higher than it should be due to being used as the international reserve currency: https://www.hudsonbaycapital.com/documents/FG/hudsonbay/research/638199_A_Users_Guide_to_Restructuring_the_Global_Trading_System.pdf https://www.hudsonbaycapital.com/documents/FG/hudsonbay/rese...

35 points by nabla9 2y ago

No it isn't 'capital flight' Noah - that's a fixed exchange rate concept. There are no fewer dollars in the US dollar currency area after the sale than before. Specifically "Normally, when Treasuries get sold off, people park their money in cash, instead of moving it overseas. This time, a bunch of investors actually pulled their money out of America entirely." They didn't, because to get out you require a bunch of other investors putting their money into America, otherwise there would be no exchange in the first place. It's a fallacy of composition. Individual investors can sell their dollars and buy euros, but investors overall cannot. Somebody has to be selling euros and buying dollars, and the question has to be asked "what did they do with those dollars when they got them, and why were they coming in that direction in the first place?". Liquidating static savings and pushing them back into the flow tends to cause more physical transactions to occur. It's taking money out of a drawer and spending it. That's likely stimulative.

dave4420 2y ago
There are no fewer dollars in the US dollar currency area after the sale than before… but those dollars are worth less than before. If capital has not left the area, it has been destroyed. That’s not to say that the US economy is inevitably doomed… but you sound very bullish.
- neilwilson 2y ago
  They are not worth less in dollar terms. The same number of dollars will still settle next months mortgage bill, or tax bill regardless of what it may or may not exchange into Euros. And the exchange rate of barrels to tomatoes hasn’t changed as that is a productivity issue. There is no universal chart against which value is determined. Instead there are ever moving currency zone orbits, possibly shifting financial savings around. What there won’t be is any “shortage of capital”
  - morcus 2y ago
    On the mortgage and tax bill specifically, sure there is no impact. But I (an American) pay for some European services in Euros, meaning those got 10% more expensive. I understand this might be the intended effect, but it's not good for me.
    - neilwilson 2y ago
      But that’s because you decided to take on currency risk without hedging or having a matched foreign income stream. That’s not what anybody with scale will have done. And now you have to reevaluate the cost of that service relative to the alternatives - including letting them know they need to take fewer Euros to retain your custom vs the competitive alternatives. Customers are hard to come by. Are they prepared to let you go?
      - morcus 2y ago
        You're just shifting the goalposts here. I will still stick with them because they're better value than the American alternatives, but that's beside the point. You were arguing that the same number of dollars will get me the same number of goods and services, which is not true.
        neilwilson 2y ago
        "You were arguing that the same number of dollars will get me the same number of goods and services, which is not true." In aggregate within a rational competitive framework. It is true for those that are rational and subject to competition. Where else are they going to sell their stuff? Why would you agree to pay more? Your behaviour will change, as will everybody elses - and you're the customer. So you go back to them and say no I won't pay any more. Haggle. Are they going to turn you away? Why is you agreeing to pay more more important than the other person who decides it is too much and cancels the service? Changing the goalposts is assuming you, and everybody else, are always a price taker, passively accepting what you are given. That's describing a monopoly/oligopoly scenario. I'm sure that isn't the case.
argsnd 2y ago
"They didn't, because to get out you require a bunch of other investors putting their money into America, otherwise there would be no exchange in the first place." And when those other investors bought those dollars they did so for a lower price in another currency than they previously would have, which results in the overall value of the total dollars to fall. This alone does not signify capital flight, but the combination with rising yields does. There's simply less demand both for US dollars and all dollar-denominated assets.
- neilwilson 2y ago
  It doesn’t cause the value of dollars to fall in dollar terms. Again you’re implying a fixed exchange and there isn’t one. The exchange rate of barrels to tomatoes hasn’t altered since that is a matter of productivity This is why “devaluations” in the fixed exchange rate period didn’t work
  - JumpCrisscross 2y ago
    > exchange rate of barrels to tomatoes hasn’t altered since that is a matter of productivity Of course it has. We are one of the world’s largest importers of tomatoes [1]. The dollar devaluing makes them more expensive. That, in turn, means the internal price of tomatoes goes up. We’re a net oil exporter, on the other hand. So yeah—the “exchange rate of barrels [of oil] to tomatoes” has been altered. In part because the productive benefits of comparative advantage are being slashed. In part because trade frictions are being introduced that reduce our economy’s productivity. [1] https://www.worldstopexports.com/international-markets-for-imported-tomatoes-by-country/ https://www.worldstopexports.com/international-markets-for-i...
    - neilwilson 2y ago
      How does it make them more expensive. Where else are they going to sell the already produced tomatoes? There is no untapped source of demand at that price is there. We already know from history that devaluations don’t work. What has changed that suggests they have suddenly started working?
ksec 2y ago
Was thinking of roughly in the similar line as with your other reply. But you worded it much better than I could. Thank You.

silverpepsi 2y ago

Can someone explain why it isn't disingenuous to look at Euros? Firstly, euros cost now as much as they did three years ago. So that is clearly a price that can be reached with any number of causes. Then, UK pounds cost only what they did last September. And other world currencies? Values vs the dollar are all over the map, up, down, and nearly unchanged. No clear trend at all. I had heard a good way to check the absolute value of dollars is to google USDX. Guess what? It's not particularly low, well within the normal range of ups and downs.

nabla9 2y ago
Because Capital flight is the problem, not declining value of USD. The fall of dollar was caused by capital flight. Money is moving mainly into Euro-area. Not UK, not elsewhere. Investors are taking money out from the US. They sell assets, get dollars, then covert them to other currencies and take them out of country.

testing22321 2y ago

> Suddenly, the world is treating the US like a Developing country It’s pretty clear trump himself is doing that, playing pump and dump with the entire economy.

ZeroGravitas 2y ago

This is paywalled but his earlier piece from the 9th has been opened to all: "All the arguments for Trump's tariffs are wrong and bad" https://www.noahpinion.blog/p/all-the-arguments-for-tariffs-are https://www.noahpinion.blog/p/all-the-arguments-for-tariffs-... From it I learned that only 60% of Americans disagree with the statement "Tariffs are Tax Cuts". And also that the chaos in the markets was muted because only 15% of traders even believed the tariffs would be in place for more than 6 months. I'm somewhat saddened that this opportunity to touch the stove has not been fully utilised and so we are doomed to repeat it.

jmcgough 2y ago

Several people within the administration (particularly Stephen Miran) are highly in favor of dropping the value of the USD, as they believe it's about 25% higher than it should be due to being used as the international reserve currency: https://www.hudsonbaycapital.com/documents/FG/hudsonbay/research/638199_A_Users_Guide_to_Restructuring_the_Global_Trading_System.pdf https://www.hudsonbaycapital.com/documents/FG/hudsonbay/rese...