Thursday, February 16, 2017

How long can an underwater job force hold its breath ..if not long enough...

This narrative lacks a sense of the crucial time scale
human life lines

"for a country to gain a competitive advantage by lowering its exchange rate, it has to prevent the automatic tendency of international price arbitrage and corresponding flows of money to eliminate competitive advantages arising from movements in exchange rates. If a depreciated exchange rate gives rise to an export surplus, a corresponding inflow of foreign funds to finance the export surplus will eventually either drive the exchange rate back toward its old level, thereby reducing or eliminating the initial depreciation, or, if the lower rate is maintained, the cash inflow will accumulate in reserve holdings of the central bank. "

Think of china 2000 to 2009 

" Unless the central bank is willing to accept a continuing accumulation of foreign-exchange reserves,"

The BoC did just that 

 " the increased domestic demand and monetary expansion associated with the export surplus will lead to a corresponding rise in domestic prices, wages and incomes, thereby reducing or eliminating the competitive advantage created by the depressed exchange rate. "

No time soon my friend !

"Thus, unless the central bank is willing to accumulate foreign-exchange reserves without limit, or can create an increased demand by private banks and the public to hold additional cash, thereby creating a chronic excess demand for money that can be satisfied only by a continuing export surplus,"

That is not a rare  " unless "


" a permanently reduced foreign-exchange rate creates only a transitory competitive advantage."

Transitory by what
Geological time scales ?