Comments on: The money is flowing out even faster than it flowed in … http://blogs.cfr.org/setser/2008/10/31/the-money-is-flowing-out-even-faster-than-it-flowed-in/ Sat, 21 Nov 2009 16:40:10 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: satish http://blogs.cfr.org/setser/2008/10/31/the-money-is-flowing-out-even-faster-than-it-flowed-in/#comment-116968 satish Sun, 02 Nov 2008 12:04:15 +0000 http://blogs.cfr.org/setser/?p=3964#comment-116968 2fish- who is going to pay for the irrational exuberance. Payback time is when people think they are doomed. 2fish- who is going to pay for the irrational exuberance.
Payback time is when people think they are doomed.

]]> By: Judy Yeo http://blogs.cfr.org/setser/2008/10/31/the-money-is-flowing-out-even-faster-than-it-flowed-in/#comment-116966 Judy Yeo Sun, 02 Nov 2008 11:06:16 +0000 http://blogs.cfr.org/setser/?p=3964#comment-116966 hmm, didn't a bloomberg (or was it the telegraph?) journalist point to Putin taking opportunity of the crisis to regain control over the russian oligarchs? again, a tough year for democracy? hmm, didn’t a bloomberg (or was it the telegraph?) journalist point to Putin taking opportunity of the crisis to regain control over the russian oligarchs?

again, a tough year for democracy?

]]> By: bmh http://blogs.cfr.org/setser/2008/10/31/the-money-is-flowing-out-even-faster-than-it-flowed-in/#comment-116930 bmh Sat, 01 Nov 2008 19:56:59 +0000 http://blogs.cfr.org/setser/?p=3964#comment-116930 Re Bancruptcy is not the end of the world from wiki In the Torah, Moses' Laws prescribed that one "Holy Year" or "Jubilee Year" should take place every 50 years, when all debts are eliminated among Jews and all debt-slaves are freed, due to the heavenly command.[1] Moreover, the Hebrew (or Jewish) law of debt forgiveness can be found in the Christian Old Testament at Deuteronomy 15:1–2, which instructs a release of debt every seven years. In ancient Greece, bankruptcy did not exist. If a father owed (since only locally born adult males could be citizens, it was fathers who were legal owners of property) and he could not pay, his entire family of wife, children and servants were forced into "debt slavery", until the creditor recouped losses via their physical labour. Many city-states in ancient Greece limited debt slavery to a period of five years and debt slaves had protection of life and limb, which regular slaves did not enjoy. However, servants of the debtor could be retained beyond that deadline by the creditor and were often forced to serve their new lord for a lifetime, usually under significantly harsher conditions. Best BMH Re Bancruptcy is not the end of the world from wiki
In the Torah, Moses’ Laws prescribed that one “Holy Year” or “Jubilee Year” should take place every 50 years, when all debts are eliminated among Jews and all debt-slaves are freed, due to the heavenly command.[1] Moreover, the Hebrew (or Jewish) law of debt forgiveness can be found in the Christian Old Testament at Deuteronomy 15:1–2, which instructs a release of debt every seven years.

In ancient Greece, bankruptcy did not exist. If a father owed (since only locally born adult males could be citizens, it was fathers who were legal owners of property) and he could not pay, his entire family of wife, children and servants were forced into “debt slavery”, until the creditor recouped losses via their physical labour. Many city-states in ancient Greece limited debt slavery to a period of five years and debt slaves had protection of life and limb, which regular slaves did not enjoy. However, servants of the debtor could be retained beyond that deadline by the creditor and were often forced to serve their new lord for a lifetime, usually under significantly harsher conditions.

Best BMH

]]> By: Cuidado con Hungr http://blogs.cfr.org/setser/2008/10/31/the-money-is-flowing-out-even-faster-than-it-flowed-in/#comment-116929 Cuidado con Hungr Sat, 01 Nov 2008 19:16:39 +0000 http://blogs.cfr.org/setser/?p=3964#comment-116929 [...] The money is flowing out even faster than it flowed in … At least for Russia. And probably for a host of emerging economies. Russia’s reserves fell by over $30 billion during the third week of October — tumbling from $515.7b on October 17 to $484.7b on October 24. Roughly $15 billion of the fall reflects the fall in the dollar value of Russia’s euros and pounds. But about $15 billion reflects Russian intervention in the currency market, as well as the drain on Russia’s reserves associated with the loans Russia’s government is making to Russian banks and firms seeking foreign exchange to repay their foreign currency debts. A $15 billion weekly outflow is rather large. $15 billion is as much as the IMF committed to lend Russia back in 1998. And the IMF actually only disbursed a third of that total. The most the IMF ever actually lent out to a single country in the past was roughly $30 billion (to Brazil, in 2002-03). At the current rate, Russia will run through that much in two weeks. The pace of decline in Russia’s reserves is partially a ******** of the fact that Russia had so many reserves back in July. Countries with less money in the bank tend to husband their scarce resources rather than spend them liberally. A lot Russia’s reserve buildup reflected private inflows rather than the oil surplus, so in some sense Russia’s government is just facilitating the reversal of those flows. In the process, of course, the Russian state is helping out some of Russia’s biggest businessmen. Russia’s state will likely end up controlling a broader swath of Russia’s economy at the end of the “deleveraging” process. But the pace of decline in Russia’s reserves is also evidence of the scale of the reversal in capital flows to emerging economies — and the pace of the current outflow. More money is probably leaving Russia than is leaving other countries, as Russia has some uniquely Russian vulnerabilities that other emerging economies lack. But even if Russia is at one end of the distribution, it certainly isn’t atypical … But [...] [...] The money is flowing out even faster than it flowed in … At least for Russia. And probably for a host of emerging economies. Russia’s reserves fell by over $30 billion during the third week of October — tumbling from $515.7b on October 17 to $484.7b on October 24. Roughly $15 billion of the fall reflects the fall in the dollar value of Russia’s euros and pounds. But about $15 billion reflects Russian intervention in the currency market, as well as the drain on Russia’s reserves associated with the loans Russia’s government is making to Russian banks and firms seeking foreign exchange to repay their foreign currency debts. A $15 billion weekly outflow is rather large. $15 billion is as much as the IMF committed to lend Russia back in 1998. And the IMF actually only disbursed a third of that total. The most the IMF ever actually lent out to a single country in the past was roughly $30 billion (to Brazil, in 2002-03). At the current rate, Russia will run through that much in two weeks. The pace of decline in Russia’s reserves is partially a ******** of the fact that Russia had so many reserves back in July. Countries with less money in the bank tend to husband their scarce resources rather than spend them liberally. A lot Russia’s reserve buildup reflected private inflows rather than the oil surplus, so in some sense Russia’s government is just facilitating the reversal of those flows. In the process, of course, the Russian state is helping out some of Russia’s biggest businessmen. Russia’s state will likely end up controlling a broader swath of Russia’s economy at the end of the “deleveraging” process. But the pace of decline in Russia’s reserves is also evidence of the scale of the reversal in capital flows to emerging economies — and the pace of the current outflow. More money is probably leaving Russia than is leaving other countries, as Russia has some uniquely Russian vulnerabilities that other emerging economies lack. But even if Russia is at one end of the distribution, it certainly isn’t atypical … But [...]

]]> By: Cuidado con Hungr http://blogs.cfr.org/setser/2008/10/31/the-money-is-flowing-out-even-faster-than-it-flowed-in/#comment-116927 Cuidado con Hungr Sat, 01 Nov 2008 16:17:32 +0000 http://blogs.cfr.org/setser/?p=3964#comment-116927 [...] The money is flowing out even faster than it flowed in … At least for Russia. And probably for a host of emerging economies. Russia’s reserves fell by over $30 billion during the third week of October — tumbling from $515.7b on October 17 to $484.7b on October 24. Roughly $15 billion of the fall reflects the fall in the dollar value of Russia’s euros and pounds. But about $15 billion reflects Russian intervention in the currency market, as well as the drain on Russia’s reserves associated with the loans Russia’s government is making to Russian banks and firms seeking foreign exchange to repay their foreign currency debts. A $15 billion weekly outflow is rather large. $15 billion is as much as the IMF committed to lend Russia back in 1998. And the IMF actually only disbursed a third of that total. The most the IMF ever actually lent out to a single country in the past was roughly $30 billion (to Brazil, in 2002-03). At the current rate, Russia will run through that much in two weeks. The pace of decline in Russia’s reserves is partially a ******** of the fact that Russia had so many reserves back in July. Countries with less money in the bank tend to husband their scarce resources rather than spend them liberally. A lot Russia’s reserve buildup reflected private inflows rather than the oil surplus, so in some sense Russia’s government is just facilitating the reversal of those flows. In the process, of course, the Russian state is helping out some of Russia’s biggest businessmen. Russia’s state will likely end up controlling a broader swath of Russia’s economy at the end of the “deleveraging” process. But the pace of decline in Russia’s reserves is also evidence of the scale of the reversal in capital flows to emerging economies — and the pace of the current outflow. More money is probably leaving Russia than is leaving other countries, as Russia has some uniquely Russian vulnerabilities that other emerging economies lack. But even if Russia is at one end of the distribution, it certainly isn’t atypical … But [...] [...] The money is flowing out even faster than it flowed in … At least for Russia. And probably for a host of emerging economies. Russia’s reserves fell by over $30 billion during the third week of October — tumbling from $515.7b on October 17 to $484.7b on October 24. Roughly $15 billion of the fall reflects the fall in the dollar value of Russia’s euros and pounds. But about $15 billion reflects Russian intervention in the currency market, as well as the drain on Russia’s reserves associated with the loans Russia’s government is making to Russian banks and firms seeking foreign exchange to repay their foreign currency debts. A $15 billion weekly outflow is rather large. $15 billion is as much as the IMF committed to lend Russia back in 1998. And the IMF actually only disbursed a third of that total. The most the IMF ever actually lent out to a single country in the past was roughly $30 billion (to Brazil, in 2002-03). At the current rate, Russia will run through that much in two weeks. The pace of decline in Russia’s reserves is partially a ******** of the fact that Russia had so many reserves back in July. Countries with less money in the bank tend to husband their scarce resources rather than spend them liberally. A lot Russia’s reserve buildup reflected private inflows rather than the oil surplus, so in some sense Russia’s government is just facilitating the reversal of those flows. In the process, of course, the Russian state is helping out some of Russia’s biggest businessmen. Russia’s state will likely end up controlling a broader swath of Russia’s economy at the end of the “deleveraging” process. But the pace of decline in Russia’s reserves is also evidence of the scale of the reversal in capital flows to emerging economies — and the pace of the current outflow. More money is probably leaving Russia than is leaving other countries, as Russia has some uniquely Russian vulnerabilities that other emerging economies lack. But even if Russia is at one end of the distribution, it certainly isn’t atypical … But [...]

]]> By: bsetser http://blogs.cfr.org/setser/2008/10/31/the-money-is-flowing-out-even-faster-than-it-flowed-in/#comment-116924 bsetser Sat, 01 Nov 2008 14:55:49 +0000 http://blogs.cfr.org/setser/?p=3964#comment-116924 please do not paste entire articles into the comments section. thanks please do not paste entire articles into the comments section. thanks

]]> By: baychev http://blogs.cfr.org/setser/2008/10/31/the-money-is-flowing-out-even-faster-than-it-flowed-in/#comment-116917 baychev Sat, 01 Nov 2008 10:16:37 +0000 http://blogs.cfr.org/setser/?p=3964#comment-116917 DJC, you are quite of a dreamer. the bulk of this $4.7tn cross border lending is between affiliates of the same company, or said in other words, not real debt. if VW builds a few plants in china/india that shows as cross border lending, but in fact the parent company is lending to its wholly (or joint) owned subsidiary. this is not a loan that has to be repaid or that would put risk on the parent company or the bank that has provided the credit. DJC,
you are quite of a dreamer. the bulk of this $4.7tn cross border lending is between affiliates of the same company, or said in other words, not real debt. if VW builds a few plants in china/india that shows as cross border lending, but in fact the parent company is lending to its wholly (or joint) owned subsidiary. this is not a loan that has to be repaid or that would put risk on the parent company or the bank that has provided the credit.

]]> By: Chris http://blogs.cfr.org/setser/2008/10/31/the-money-is-flowing-out-even-faster-than-it-flowed-in/#comment-116916 Chris Sat, 01 Nov 2008 08:38:31 +0000 http://blogs.cfr.org/setser/?p=3964#comment-116916 <i>All of this requires very active government intervention. If the government takes a hands-off policy then you have a repeat of the Great Depression.</i> Actually the New Deal extended and deepened the Great Depression. Things got progressively worse through the decade. All of this requires very active government intervention. If the government takes a hands-off policy then you have a repeat of the Great Depression.

Actually the New Deal extended and deepened the Great Depression. Things got progressively worse through the decade.

]]> By: FG http://blogs.cfr.org/setser/2008/10/31/the-money-is-flowing-out-even-faster-than-it-flowed-in/#comment-116906 FG Sat, 01 Nov 2008 05:37:35 +0000 http://blogs.cfr.org/setser/?p=3964#comment-116906 Twofish: no one looks after the house [...]then this actually does destroy real wealth. But that wealth was really destroyed when someone built a house no one needs. Not when the government failed to punish savers enough to force them to buy an overpriced house. Twofish: The bankruptcy process is there to insure that as much value as possible gets preserved. If the goal is to limit the damage and save some of the trees, I'm ok with that. If the goal is to suppress any fire for fear the whole forest would explode, then this is not only impossible, it is just wrong. Twofish: no one looks after the house [...]then this actually does destroy real wealth.

But that wealth was really destroyed when someone built a house no one needs. Not when the government failed to punish savers enough to force them to buy an overpriced house.

Twofish: The bankruptcy process is there to insure that as much value as possible gets preserved.

If the goal is to limit the damage and save some of the trees, I’m ok with that.
If the goal is to suppress any fire for fear the whole forest would explode, then this is not only impossible, it is just wrong.

]]> By: Twofish http://blogs.cfr.org/setser/2008/10/31/the-money-is-flowing-out-even-faster-than-it-flowed-in/#comment-116905 Twofish Sat, 01 Nov 2008 05:16:47 +0000 http://blogs.cfr.org/setser/?p=3964#comment-116905 FG: Normally forest fires happen on a regular basis but they are small and many trees survive them. If you try to suppress fires altogether however, combustible material accumulates, and when inevitably a fire happens, it is far more intense and the forest is destroyed. But forests do regrow. Sure but the last time we had a "let it burn" philosophy, it took 15 years. And after the forest regrows you end up with exactly the same problem. The business cycle exists because of human greed, fear, and arrogance, and I don't think it will be possible in the next thousand years to eliminate human greed, fear, and arrogance, you just have to manage it. One needs to point out that when you have a financial crisis, wealth doesn't get destroyed. If someone defaults on a home mortgage or the stated value of the house goes from $500,000 to $250,000, the house does not burn down. The real danger is that if as a result of the financial crisis, no one looks after the house (i.e. windows get broken, copper plumbing gets stolen, etc. etc.) then this actually does destroy real wealth. FG: I’m ok with bankruptcy… if we let it happen. It's happening right now. Most people really have never seen a bankruptcy up close and really don't know what a bankruptcy looks like. The first thing that happens in a bankruptcy is that the you have a judge issue "first day orders" in which you figure out what you need to do to keep the company operating. The second thing that happens is that you get "debtor in possession" financing in which banks put in emergency money to make sure that critical vendors and employees get paid. Then you go over all of the debts and then write them down, and you go through a process in which things get restructured. So Lehman goes bankrupt, does that mean that we burn down the Lehman office in Time Square and then destroy the millions of dollars in perfectly good computers in them? Of course not. The bankruptcy process is there to insure that as much value as possible gets preserved. FG: Normally forest fires happen on a regular basis but they are small and many trees survive them. If you try to suppress fires altogether however, combustible material accumulates, and when inevitably a fire happens, it is far more intense and the forest is destroyed. But forests do regrow.

Sure but the last time we had a “let it burn” philosophy, it took 15 years. And after the forest regrows you end up with exactly the same problem. The business cycle exists because of human greed, fear, and arrogance, and I don’t think it will be possible in the next thousand years to eliminate human greed, fear, and arrogance, you just have to manage it.

One needs to point out that when you have a financial crisis, wealth doesn’t get destroyed. If someone defaults on a home mortgage or the stated value of the house goes from $500,000 to $250,000, the house does not burn down. The real danger is that if as a result of the financial crisis, no one looks after the house (i.e. windows get broken, copper plumbing gets stolen, etc. etc.) then this actually does destroy real wealth.

FG: I’m ok with bankruptcy… if we let it happen.

It’s happening right now. Most people really have never seen a bankruptcy up close and really don’t know what a bankruptcy looks like. The first thing that happens in a bankruptcy is that the you have a judge issue “first day orders” in which you figure out what you need to do to keep the company operating. The second thing that happens is that you get “debtor in possession” financing in which banks put in emergency money to make sure that critical vendors and employees get paid. Then you go over all of the debts and then write them down, and you go through a process in which things get restructured.

So Lehman goes bankrupt, does that mean that we burn down the Lehman office in Time Square and then destroy the millions of dollars in perfectly good computers in them? Of course not. The bankruptcy process is there to insure that as much value as possible gets preserved.

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