Overseas Investment And Firm Exports

A firm can serve abroad customers by exporting or by producing in the foreign market. Thus, ceteris paribus, one might expect raises in abroad investment to displace exports. However, most empirical work has found an optimistic relation between the two variables. The authors use a -panel dataset made up of 25 years of data on 932 Japanese manufacturing firms to investigate the effect of direct investment abroad has on exports. For the full sample of firms, complementarity is found.

Moreover, the complete point of the narrow bank or investment company is that large businesses don’t hold fragile run-prone short-term assets to begin with. By repaying interest on reserves, and allowing more and more people to take pleasure from run-proof federal government money, there is certainly less fuel in the economic climate to begin with.

If the Fed is concerned about financial crises, it ought to encourage narrow banks and give others a gold star for using them rather than shadier short-term property in the first place. The emptiness of both arguments is simple to see from this: Chase and Citi are slim banks — wedded to investment banks.

Both take debris and make investments them as interest paying reserves at the Fed. There are more reserves than looking at accounts in the banking system as a whole. If there have been some danger to monetary policy or financial stability from banks being able to take debris and funnel them directly into reserves, we’d be there now.

The only difference is that if Chase and City lose cash on their risky investments, they drag down depositors and the government bails out the depositors too. The narrow banks aren’t separated from the investment banks in bankruptcy. A true narrow bank or investment company just separate these functions. Shadier speculations are natural as well. Banks are making a tidy revenue on their current activities. JP Morgan Chase pays me 1 basis point on my debris, as it forever has and now earns 1.95% on excess reserves.

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The “pass through” from interest earned to interest paid to depositors is very slow. This is an obvious sign of insufficient competition in the bank operating system. The Fed’s reverse RP program was set up, in part, to pressure banks to competitively act a bit more, by allowing an almost-narrow bank or investment company to take investor money and put it in reserves.

The Fed is currently scaling that program back. That the Fed, which is a banker’s bank, defends the gains of the big banking institutions system against competition, would be the natural public-choice speculation. Perhaps also my vision of a run-proof essentially unregulated bank operating system isn’t as attractive to the Fed as it should be. To be clear, I’ve no proof for either motivation.

But the reality fit, and large establishments aren’t self-aware of their motivations always. Well, almost. For the Fed to fail, there would need to be a large-scale US default on treasury debts. So Even, Congress could exempt the Fed by recapitalizing it, making good its deficits. So Congress would have to decide that it won’t even recapitalize the Fed, so that reserves default also.