Framing tricks and controlling the narrative are the base tools of neoliberal economics. One character that pops up regularly is the Fickle, Flighty Foreigner. Worthy of a Shakespearean tragedy, they will brutally condemn any country that deviates from the divine path.

Let’s explain the narrative trick and how to counter it.

The Trick

You’ve heard the story. The Fickle, Flighty Foreigner will ‘dump’ government bonds or ’trash’ the currency. Everything will ‘spiral down’ and become ‘unstoppable’. Note the emotional, fatalistic language and the focus on the nemesis. That’s the framing.

So let’s break the frame.

It doesn’t matter whether the individual selling is foreign or domestic. In both cases, the process and effect are the same. There is no ‘outsider’ impact.

For every seller, there is a buyer. That buyer has the opposite view from the seller. Or they wouldn’t be buying.

Without that person with the opposite view, there is no market. Without liquidity, you cannot sell.

From the point of view of a bond, sitting on the computer of a registrar, buying and selling is nothing more than changing the ownership tag. The bond doesn’t go anywhere, and it doesn’t leave the country.

The same holds for money. It is also a computer record in a bank. Buying and selling is nothing more than changing the ownership tag. Money doesn’t go anywhere either, and it doesn’t leave the country.

The obvious analogy is a house. It doesn’t go anywhere over its lifetime but changes owner many times. Some will be domestic. Some will be foreign.

Once you switch your viewpoint, you can see that capital flight is a complete myth. It doesn’t apply to a sovereign currency operating a floating exchange rate.

Nothing goes anywhere. It stays firmly rooted in the spot. All that happens is the ownership changes.

The Truth

Freed from the trap of neoliberal framing, we can now see what happens in practice.

We’ll use the UK as a concrete example.

When person A sells a gilt, the ownership tag changes to person B. Similarly, the ownership of the Sterling used in payment becomes person A.

When person A sells their Sterling, the ownership tag changes to person C. Similarly, the ownership of the US dollars used in payment becomes person A.

Person C now has Sterling. They can keep that as a bank deposit or use it to bid up the price of Gilts and lower their yield. We’re then back to the two alternatives again.

Have you ever heard about person C’s buying activities in the gilt market from a neoliberal?

Of course, you haven’t. That would be contrary to the narrative.

Next time you come up against one, point it out to them.

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