Buy this book!


[Skip to the end]

Full Employment Abandoned

Shifting Sands and Policy Failures


by William Mitchell, Professor of Economics, Centre of Full Employment and Equity, University of Newcastle, Australia and Joan Muysken, Professor of Economics, CofFEE-Europe, University of Maastricht, The Netherlands

My review:

There are only 2 books that I know of that are ‘in paradigm’ and the other is Wray’s ‘Understanding Modern Money’ which I also highly recommend.

This new book by Bill Mitchell is also solidly ‘in paradigm’ and for those of you not all that interested in the details of unemployment per se I suggest beginning with ‘Part III’ which does an outstanding job of outlining the imperatives of non convertible currency which will serve you well in analyzing today’s markets. From monetary operations to fiscal measures, the mainstream economists and media continue to get it wrong. Bill lays down the fundamentals that can help you understand where the mainstream goes astray, and hopefully translate into you getting it right.

Regarding unemployment (aka the ‘output gap’ by today’s central bankers), it is readily acknowledge that inflation isn’t all that sensitive to changes in unemployment. In their words, “The good news is that the Phillips curve is flat. And the bad news is that the Phillips curve is flat.” The essence of what Bill proposes is that an employed labor bufferstock is a far superior price anchor than today’s labor bufferstock of unemployed. And this is one of those things that seems obvious and indeed is absolutely correct, yet entirely overlooked as a policy option.

So click and order a copy or two, jump to Part III, and then start at the beginning to get a leg up on where we are, how we got here, and what policy options are open- particularly a form of full employment that further supports output, growth, and price stability.

Then pass it around your office and send copies to your favorite members of Congress, thanks!

Order now: http://www.e-elgar.co.uk/Bookentry_Main.lasso?id=1188
 
 
Warren Mosler
 
 
 
[top][end]


Publisher’s Spiel:

“This book by William Mitchell and Joan Muysken is both important and timely. It deals with the issue of the abandonment of full employment as an objective of economic policy in the OECD countries. It argues persuasively that macroeconomic policy has been restrictive over the recent, and not so recent past, and has produced substantial open and disguised unemployment. But the authors show how a job guarantee policy can enable workers, who would otherwise be unemployed, to earn a wage and not depend on welfare support. If such a policy is fully supported by appropriate fiscal and monetary programmes, it can create a full employment with price stability, and which the authors label as a
Non-Accelerating-Inflation-Buffer Employment Ratio (NAIBER). This book is essential reading for any one wishing to understand how we can return to full employment as the normal state of affairs.”
-Philip Arestis, University of Cambridge, UK

Contents:

Part I: Full Employment: Changing Views and Policies

  1. The Full Employment Framework and its Demise
  2. Early Views on Unemployment and the Phillips Curve
  3. The Phillips Curve and Shifting Views on Unemployment
  4. The Troublesome NAIRU: The Hoax that Undermined Full Employment

Part II: Full Employment Abandoned: Shifting Sands and Policy Failures

  1. The Shift to Full Employability
  2. Inflation First: The New Mantra of Macroeconomics
  3. The Neglected Role of Aggregate Demand

Part III: The Urgency of Full Employment: Foundations for an Active Policy

  1. A Monetary Framework for Fiscal Policy Activism
  2. Buffer Stocks and Price Stability
  3. Conclusion: The Urgency of Full Employment References Index


[top]

( Commercial Paper + C&I ) * Outstanding


[Skip to the end]

Summation of Commercial Paper Outstanding AND Combined Commercial and Industrial Loans Outstanding

Combined commercial and industrial loans and commercial paper show a leveling off after the initial drop.

Back in mid 2006, I remember commenting that I thought the government deficit was no longer high enough (given everything else that was going on) to support the credit structure.

The last push up was largely a product of fraudulently obtained sub prime and Alt-A loans.


[top]

Reuters: Lehman cuts oil demand forecast


[Skip to the end]

Lehman cuts oil demand forecast

by Richard Valdmanis

(Reuters) Investment bank Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz) said Wednesday it slashed its forecast for 2008 world oil demand growth due to a steeper-than-expected slowdown in energy consumption in the United States and other OECD countries.

Lehman added it believes the oil market is “approaching a tipping point” with prices expected to decline to an average of $90 a barrel in the first quarter of 2009.

“We now forecast annual oil demand for 2008 at 86.3 million barrels per day, a growth of 790,000 bpd from 2007. The growth has been revised down from projections of 1.5 million bpd in December,” Lehman said in a research note titled ‘Demand Demolition’.

If true, and non-Saudi supply remains about flat, Saudi production might fall to about 9 million bpd and the price would still remain wherever the Saudis set it.

There has been some talk that the Saudis may have agreed to lower prices after the last round of meetings with US officials. Could be, but with their output running within a million or two bpd of their total capacity, it seems doubtful they would do anything to increase demand before they have the excess capacity to meet it. But there could be other factors (including the US 7th fleet and concerns about a united Iran/Iraq threatening them) that might be influencing their decision. Only time and prices will tell. Should be more clear in a week or so.


[top]

2008-07-23 US Economic Releases


[Skip to the end]


MBA Mortgage Applications (Jul 18)

Survey n/a
Actual -6.2%
Prior 1.7%
Revised n/a

[top][end]

MBA Purchasing Index (Jul 18)

Survey n/a
Actual 335.6
Prior 359.7
Revised n/a

A zig down and looking soft. Tables below show largest drops are in applications for adjustable rate mortgages, particularly government mortgages.

Also, I recall JPM’s recent earnings report showed a substantial increase in consumer mortgage lending, which could be taking volume from the mortgage bankers surveyed in this report.

Housing may be leveling off and moving up some, but no signs of actual strength yet.

[top][end]

MBA Refinancing Index (Jul 18)

Survey n/a
Actual 1392.7
Prior 1474.9
Revised n/a

[top][end]

MBA TABLE 1 (Jul 18)

[top][end]

MBA TABLE 2 (Jul 18)

[top][end]

MBA TABLE 3 (Jul 18)

[top][end]

MBA TABLE 4 (Jul 18)


[top]

Fed Paper: “The Effect of the Term Auction Facility on the London Inter-Bank Offered Rate”


[Skip to the end]

Hardly need a study to figure that out!

This paper from the NY Fed was just released:

The Effect of the Term Auction Facility on the London Inter-Bank Offered Rate

Summary: This paper examines the effects of the Federal Reserve’s Term Auction

Facility (TAF) on the London Inter-Bank Offered Rate (LIBOR). The particular question investigated is whether the announcements and operations of the TAF are associated with downward shifts of the LIBOR; such an association would provide one indication of the efficacy of the TAF in mitigating liquidity problems in the interbank funding market. The empirical results suggest that the TAF has helped to ease strains in this market.


[top]

2008-07-22 US Economic Releases


[Skip to the end]


ICSC-UBS Store Sales YoY (Jul 15)

Survey n/a
Actual 2.5%
Prior 2.2%
Revised n/a

Still wiggling their way higher as fiscal kicks in.

[top][end]


Redbook Weekly YoY (Jul 15)

Survey n/
Actual 2.6%
Prior 2.7%
Revised n/a

Also working its way higher.

[top][end]


ICSC-UBS and Redbook Comparison TABLE (Jul 15)

[top][end]


Richmond Fed Manufacturing Index (Jul)

Survey -9
Actual -16
Prior -12
Revised n/a

Big dip puts it back on its downtrend.

[top][end]

Richmond Fed Manufacturing Index ALLX (Jul)

Big drop in shipments,
interesting up tic in wages.

[top][end]


OFHEO House Price Index MoM (May)

Survey -0.8%
Actual -0.3%
Prior -0.8%
Revised n/a

Better than expected, still down, but seems to be falling at a slower rate.

[top][end]


OFHEO House Price Index YoY (May)

Survey n/a
Actual -4.8%
Prior -4.6%
Revised n/a

Rate of decline seems to have diminished some. So far, year over year changes for this price range doesn’t seem that severe.

[top][end]


OFHEO House Price Index TABLE (May)

Several regions showing gains.

Unless commodities take a very large dive, the Fed needs an output gap in housing to keep a lid on overall prices.

[top][end]


ABC Consumer Confidence (Jul 20)

Survey -42
Actual -41
Prior -41
Revised n/a

[top][end]


ABC Consumer Confidence TABLE (Jul 20)


[top]

AMEX/CAT


[Skip to the end]

Karim writes:

AMEX notes consumer spending slowed in latter part of quarter, suggesting effect of fiscal impulse waning. CAT driven by emerging market strength, states U.S. and Europe are two weakest regions, and expects rate cuts by Fed and ECB by year-end.

AMEX

  • Consumer spending slowed during the latter part of the quarter and credit indicators deteriorated beyond our expectations,” Mr Chenault said. The economic fallout was evident even among American Express’s prime customers.

CAT

  • CATERPILLAR SEES ECB CUTTING RATES AT LEAST 25BP BEFORE YR END
  • CATERPILLAR SEES NO SIGN OF RECOVERY IN NORTH AMERICAN HOUSING
  • CATERPILLAR ASSUMES AT LEAST ONE MORE RATE CUT LATER THIS YR
  • CATERPILLAR SEES ‘DIFFICULT’ FOR ECONOMY TO AVOID A RECESSION
  • CATERPILLAR SEES OIL PRICE AVG ABOUT 16% HIGHER IN LAST HALF
  • CATERPILLAR SAYS 2Q SALES/REVENUE UP 30% OUTSIDE NORTH AMERICA
  • Caterpillar Net Rises 34% as Asia, Mideast Building Lift Sales
  • Caterpillar Reports All-Time Record Quarter Driven by Strong Growth Outside North America
  • Right, weak domestic demand for sure. But note the last few lines that represent the booming exports even though domestic economies around the world are slowing.

    That’s what happens when they spend their accumulated hoard of USD here and spend less at home as they try to get rid of their USD hoards. This doesn’t stop until their holdings of USD fall to desired levels.

    I still see continued domestic weakness with GDP muddling through due to exports and government spending.

    And ever higher prices pouring in through the import/export channel.


    [top]

FT: Letter to the editor


[Skip to the end]

Published letter to the editor in FT.

Expect public-sector deficits and oil prices to go on rising

by Prof Philip Arestis, Dr John McCombie and Mr Warren Mosler.

Sir, Public-sector deficits and crude oil prices will probably both continue rising. Chris Giles’ reports, “Treasury to reform Brown’s fiscal rules” and “Treasury sees storm clouds gathering” (July 18), recognise the inevitability of growing deficits due to economic weakness while also implying public-sector deficits are per se a “bad thing”.

What the articles fail to appreciate are three dimensions to the argument: the first is that public-sector deficits do not present a solvency issue, only an “inflation” issue. Second, public-sector deficits equal total non-government (domestic and foreign) savings of sterling financial assets and are the only source of non-government accumulation of sterling net financial assets. Third, public-sector deficits provide the net financial equity to the non-government sector that supports the private-sector credit structure.

It is the case that the public-sector deficit will increase in one of two ways. The “nice” way would be pro-actively with sufficient tax cuts or spending increases (depending on one’s politics) that support demand at desired levels. The “ugly” way is from a slowing of demand that reduces tax revenues and increases transfer payments. If, instead, the government tries to suppress the current deficit with any combination of tax increases or spending cuts, the resulting accelerated slowdown of the economy will then increase the deficit the “ugly” way.

In any case, the current “inflation” is the result of Saudi Arabia acting as swing producer as it sets the oil price at ever-higher levels and then supplies all the crude demanded at that price. Our institutional structure then passes these prices through the entire economy over time, and there is nothing interest rates or fiscal policy can do to change these dynamics.

The ability to set crude prices can only be broken by a sufficiently large supply response, such as in the early 1980s when net supplies increased by more than 15m barrels per day, helped considerably by the US deregulating natural gas production, which allowed substitution away from crude oil products.

In sum, the deficit will go up either the nice way or the ugly way, as it always does when markets work to grant the private sector the desired net financial assets, which can come only from government deficit spending. “Inflation” will continue higher as long as the Saudis remain price-setter and continue to post ever-higher prices to their refiners.

Philip Arestis,
University Director of Research,
Cambridge Centre for Economic and Public Policy

John McCombie,
Director,
Cambridge Centre for Economic and Public Policy

Warren Mosler,
Senior Associate Fellow,
Cambridge Centre for Economic and Public Policy,
University of Cambridge, UK


[top]

Bloomberg: Inflation weakening some currencies


[Skip to the end]

Interesting how reports of higher inflation have often meant stronger currencies in the short run due to higher anticipated rates from the CB.

Inflation, however, by definition means the currency buys less of most everything; therefore, inflation and a weakening currency are one and the same.

But it can take a long time for markets to discount this.

Emerging-Market Currency Rally Dies as Inflation Hits

by Lukanyo Mnyanda and Lester Pimentel

(Bloomberg) The five-year rally in emerging- market currencies is coming to an end as central banks from South Korea to Turkey struggle to contain inflation, say DWS Investments and Morgan Stanley.

The 26 developing-country currencies tracked by Bloomberg returned an average 0.86 percent in the past three months, down from 1.63 percent in the first quarter, 8.2 percent for all of 2007, and 30 percent annually since 2003. For the first time in seven years, investors are less bullish on emerging-market stocks than on U.S. equities, a Merrill Lynch & Co. survey showed last week.

Confidence in the Indian rupee is weakening after inflation accelerated at the fastest pace in 13 years, stoked by soaring food and energy prices. South Korea’s won will drop this year by the most since 2000, while Turkey’s lira will reverse its biggest gain since at least 1972, the median estimates of strategists surveyed by Bloomberg show.


[top]