Tuesday, April 14, 2015

Money doesn't "flow out"

Money doesn't "flow out." Euros don't flow out. Dollars don't flow out. Maybe euro notes or dollar notes can be physically transported "out" and stuffed in somebody's mattress in some other country, but if you think that's what is behind the euro's decline you really need to rethink your thesis.

All  euros on deposit (which is the vast majority of the trillions of euros that have been created) exist, electronically, on the ECB's computer. They can't exist anywhere else. And that's true if people are selling them to other people and driving the exchange rate down.

They don't flow out. They might change ownership, in which case the ECB or  the Fed (in the case of dollars) just changes the names on the accounts, but they don't flow out.

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