Re: Why would deficit cause depreciation - 未名空间MITBBS历史存档

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Re: Why would deficit cause depreciation

Re: Why would deficit cause depreciation# Economics - 经济

t*e2004-11-22 08:11

1 楼

Think the US government as a bank in old times. Notes from a reputable bank
can be used as gold. When it is heard that the bank accumulated a huge amount
of debt and it may eventually resort to default or printing notes, what will
happen? The notes will not be as valuable as before, hence a depreciation.

l*a2004-11-22 08:11

2 楼

U.S. has also huge trade deficit, by depreciation, the deficit is reduced in
real terms.

【在 t*****e 的大作中提到】

: Think the US government as a bank in old times. Notes from a reputable bank
: can be used as gold. When it is heard that the bank accumulated a huge amount
: of debt and it may eventually resort to default or printing notes, what will
: happen? The notes will not be as valuable as before, hence a depreciation.

ft2004-11-22 08:11

3 楼

I think the key is the amount of notes and the value they represent.
A huge deficit means there are not enough capital in the enonomy system, but
does not necessarily mean the depreciation of dollars, unless, the US
government is printing more money than it should.
So if this is true, that means the depreciation was caused by the US
government monetory policy. If the US government wants to keep the dollar
strong, all
it needs to do is to stop printing money. This will lead to higher interest
r

【在 t*****e 的大作中提到】

ft2004-11-22 08:11

4 楼

This could be one reason why the US wants to see the dollar depreciate, but it
is not the reason that cause the dollar to depreciate.

bank
amount
will

【在 l**a 的大作中提到】

: U.S. has also huge trade deficit, by depreciation, the deficit is reduced in
: real terms.

t*e2004-11-22 08:11

5 楼

hehe, FYI, instead of loosening monetary policy, US is tightening (and is
expected to tighten further) it by raising interest rates.
Greenspan said on last friday, "demand for US assets could decline at some
point given the size of the US current account defecit." That is all there to
say about depreciation, no irresponsible monetary policy, no conspiracy
against foreign dollar assets.
Why is demand for US assets declining? I answer by asking, who is willing to
lend money to someone who is crazi

【在 ft 的大作中提到】

: I think the key is the amount of notes and the value they represent.
: A huge deficit means there are not enough capital in the enonomy system, but
: does not necessarily mean the depreciation of dollars, unless, the US
: government is printing more money than it should.
: So if this is true, that means the depreciation was caused by the US
: government monetory policy. If the US government wants to keep the dollar
: strong, all
: it needs to do is to stop printing money. This will lead to higher interest
: r

ft2004-11-22 08:11

6 楼

Yes, I am aware of the raise of the interest rates. Actually more than a year
ago, I was sure the Fed Reserve would not be able to hold the interest rate at
that low level indefinitely. When there is huge deficit, whoever has the
capital to invest would demand a higher return, therefore the interest rate
will rise. That's easy to understand.
What you suggest is that the main reason of the depreciation of dollar is
because of lack of confidence. You are right that when lacking confidence on
s

【在 t*****e 的大作中提到】

: hehe, FYI, instead of loosening monetary policy, US is tightening (and is
: expected to tighten further) it by raising interest rates.
: Greenspan said on last friday, "demand for US assets could decline at some
: point given the size of the US current account defecit." That is all there to
: say about depreciation, no irresponsible monetary policy, no conspiracy
: against foreign dollar assets.
: Why is demand for US assets declining? I answer by asking, who is willing to
: lend money to someone who is crazi

t*e2004-11-22 08:11

7 楼

You should think of money not only a vehicle for exchange, but also a
contingent claim on the goods that country produces. This contingent claim can
be considered as equity/stock of the government. (The more you issue this
claim, the less valuable it becomes. Government deficit can be considered as
debt/bond of the government. And monetary policy does nothing but adjust the
debt/equity ratio. In ideal settings, this ratio does not affect consumer
behavior. This is called Recardian equivalence, a

【在 ft 的大作中提到】

: Yes, I am aware of the raise of the interest rates. Actually more than a year
: ago, I was sure the Fed Reserve would not be able to hold the interest rate at
: that low level indefinitely. When there is huge deficit, whoever has the
: capital to invest would demand a higher return, therefore the interest rate
: will rise. That's easy to understand.
: What you suggest is that the main reason of the depreciation of dollar is
: because of lack of confidence. You are right that when lacking confidence on
: s

ft2004-11-22 08:11

8 楼

This explanation makes sense. Thx.

can
Modigliani-Miller
here.
rate
rate
it
rate,
of
that

【在 t*****e 的大作中提到】

: You should think of money not only a vehicle for exchange, but also a
: contingent claim on the goods that country produces. This contingent claim can
: be considered as equity/stock of the government. (The more you issue this
: claim, the less valuable it becomes. Government deficit can be considered as
: debt/bond of the government. And monetary policy does nothing but adjust the
: debt/equity ratio. In ideal settings, this ratio does not affect consumer
: behavior. This is called Recardian equivalence, a