by Tyler Cowen
on September 3, 2011 at 3:36 pm
1. Mermaid markets in everything (video).
2. Jacob T. Levy lecture on Hayek as a historian of liberal thought.
3. Roundabout production: giant sushi.
4. The continuing flow of money into U.S. banks and out of Europe.
5. Interview with Banerjee, about India.
I’m listening to the Levy talk. Thanks for the link. Don
I also enjoyed it, and sent it to a few people that tend to lean to the progressive left… not sure why, as I’m sure they’ll just swat it off as ‘tea party craziness’.
I’m wondering about the trillion dollars that have flowed out of EU banks and into US banks.
Do commenters with more expertise than me find this hypothesis persuasive? Why could the increase in US deposits not simply be QE2? After all, it’s been happening over 1.5 years.
In case anyone’s still reading this thread, the flows may actually be going in the other direction – from US to Europe.
“spanning the last six months MFI deposits with other MFIs (in Europe) has INCREASED by € 26.3 billion…
Therefore, the 6-month increase in deposits and cash assets in foreign-related U.S. bank branches cannot be related to outflows in inter-MFI deposits in Europe. Yes “something else is going on”.
It’s the Fed’s quantitative easing program, of which the second round started November 2010.”
2. Excellent talk about the tension between spontaneous order and constitutionalism.
The capital inflow from Europe might fuel another bubble. Good opportunity for profits if you can find the bubble, ride it up, and get out in time.
I see two- maybe gold and other precious metals, and definitely T-bills and bonds, now. Getting out in time is the problem, though.
I’ve been in treasurys and munis all year. Timing is everything – when interest rates rise, these are doomed. Gold too.
They’re not doomed, their holders are.
how do international capital flows actually occur?
if cash flows into the US from Europe does this mean US banks hold Euros on behalf of the customers. Can they count this in their assets and issue more loans in US dollars?
If they are US treasuries its just a transfer of ownership.
Whats the actual mechanism and accounting of this?
I was wondering the same thing. I believe these are dollar deposits in European banks which are moving to the USA; no currency exchange is happening.
If Europeans are exchanging € for $, then a counterparty is selling dollars. Those dollars must have previously been held in a bank account – thus the net effect on bank reserves would be zero. The only way the above article can be true is if either European banks hold large dollar deposits (they do), or if US banks accept euro deposits (I don’t know).
For decades now, there has been a “Eurodollar” market – i.e. banks outside the USA hold significant quantities of dollars. This is a natural result of the trade deficit – goods flow out, dollars flow in. The wikipedia article on Eurodollar explains its history well. One interesting point is that dollars held outside the USA were free of reserve requirements and deposit insurance assessments.
If there is a net change of dollar deposits over time, there has to be an increase in dollar purchases.
This is not a steady state, but a change.
1. The video is little bizarre, but I do think it is useful to ask yourself “what do you want to be when you grow up” on a regular basis. The answer changes. My mom has a hilarious project from my preschool in which I said I wanted to be “a disco dancer and donkey rider”…chalk that answer up to late seventies culture and my fascination with alliteration even at age four. I asked myself the question again recently and the answer was “run a major household survey.” I figured out this week that my current job was actually not the best one anymore to help me work toward that goal, so I will be switching soon. Not as cool as wanting to be a mermaid (or as odd as my age-four answer), but thankfully we all have different dreams and they are allowed to change as we change.
I’ve always wondered what the male counterpart of wishing to be a mermaid was.
A Navy Seal?
Regulation makes money for US banks.
That should be the headline for the article about how Eurpean banks are sending their deposits to US banking institutions.
Very few times do those who oppose regulation discuss how regulation can create value, or create a new product. This also explains why US banks are beginning to charge for parking money in their institutions.
Regulatory arbitrage, in a good sense. Maybe the EU can begin causing their banks to recapitalize, rather than hoping they will, or foisting their bank risks on their public treasuries.
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