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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Archive for August, 2008

TRUE STORY!

Posted by Sada Mosler on 30th August 2008


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HR 124

At about 11am today when the doctors removed the heart wires, the heart immediately went into something called atrial fibulation, which is an elevated heart rate and irregular heart beat – different chambers of the heart not firing in the right order. This happens to approximately 40% of all heart surgery patients when they remove the wires.

The doctors promptly started going through a series of standard procedures to bring the hear rate down and normalize the wave patterns.

The series (in sequential order) included:

  • a magnesium IV
  • a beta blocker
  • an amiodarone

The heart rate did come down a bit, but was still elevated at 4:50 PM.

Warren B drinks smoothie

Surprisingly :), my dad had some of his own ideas to try out, and he sent me out to Starbucks to get a mango-banana, sugar-free, low-fat, protein-enriched Vivanno, which he began drinking at 4:56 PM.

By 5:00 PM (four minutes after he started drinking the smoothie), the heart rate and rhythm normalized, and he may be going home tomorrow.

HR 58

The medical staff has dismissed the notion that putting something cold near the heart will slow and calm it down. Instead, they attribute the drugs to the sudden transformation. They also think the government should balance the budget. :)

We’re all looking forward to a non-eventful night and a quick trip home Sunday.


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Posted in Uncategorized | 7 Comments »

2008-08-29 US Economic Releases

Posted by Sada Mosler on 30th August 2008


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Personal Income MoM (Jul)

Survey -0.2%
Actual -0.7%
Prior 0.1%
Revised n/a

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Personal Income YoY (Jul)

Survey n/a
Actual 4.2%
Prior 5.5%
Revised n/a

Still at higher levels than before the rebates and far from a consumer collapse.

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Personal Income TABLE 1 (Jul)

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Personal Income TABLE 2 (Jul)

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Personal Spending MoM (Jul)

Survey 0.2%
Actual 0.2%
Prior 0.6%
Revised n/a

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Personal Spending YoY (Jul)

Survey 0.2%
Actual 0.2%
Prior 0.6%
Revised n/a

Doesn’t look all that bad to me.

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PCE Deflator YOY (Jul)

Survey 4.5%
Actual 4.5%
Prior 4.1%
Revised 4.0%

This is not the kind of chart the Fed wants to see.

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PCE Core MoM (Jul)

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

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PCE Core YoY (Jul)

Survey 2.4%
Actual 2.4%
Prior 2.3%
Revised n/a

Neither is this.

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PCE ALLX 1 (Jul)

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PCE ALLX 2 (Jul)

Karim writes:

  • Not much to alter Fed’s view or likely course with this data
  • Real PCE down -0.3% m/m for July, in line with expectations. Nominal PCE up 0.2%.
  • Personal income down 0.7%, again as expected, and due to drop in government transfers (fiscal package ended)
  • Core PCE deflator up 0.3% m/m and 2.4% y/y. At Jackson Hole, Bernanke stated he expected inflation to ‘moderate later this year and next’, meaning he still sees a few more months of possible upward pressure.

Yes, and he has been saying he expects headline inflation to moderate at every speaking event for the last few years.

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RPX Composite 28dy Index (Jun)

Survey n/a
Actual 230.00
Prior 233.37
Revised n/a

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RPX Composite 28dy YoY (Jun)

Survey n/a
Actual -17.15%
Prior -15.60%
Revised n/a

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Chicago Purchasing Manager (Aug)

Survey 50.0
Actual 57.9
Prior 50.8
Revised n/a

Upside surprise here.

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Chicago Purchasing Manager TABLE 1 (Aug)

Prices paid still way high; big dip in employment.

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Chicago Purchasing Manager TABLE 2 (Aug)

Karim writes:

  • Chicago PMI rises from 50.8 to 57.9; but orders and production components (each up sharply) at odds with employment component (down sharply), so report to be taken with a grain of salt.

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U of Michigan Confidence (Aug F)

Survey 62.0
Actual 63.0
Prior 61.7
Revised n/a

Karim writes:

  • Final UMICH survey for August shows minor improvement in confidence (61.7 to 63.0) and no change in inflation expectations components.
  • ISM and payrolls next week to weigh more heavily

Confidence turning up with the rebates.

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U of Michigan Consumer Attitudes TABLE (Aug F)

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Inflation Expectations 1yr Fwd (Aug F)

Survey n/a
Actual 4.8%
Prior 5.1%
Revised n/a

The Fed worries these will get embedded.

Personally, I don’t see inflation as a function of expectations but they do.

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Inflation Expectations 5yr Fwd (Aug 5)

Survey n/a
Actual 3.2%
Prior 3.2%
Revised n/a

Too high still.

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NAPM-Milwaukee (Aug)

Survey 44.0
Actual 43.0
Prior 44.0
Revised n/a

A bit worse than expected but still off the bottom.

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NAPM-Milwaukee ALLX (Aug)


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2008-08-28 US Economic Releases

Posted by Sada Mosler on 28th August 2008


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GDP QoQ Annualized (2Q P)

Survey 2.7%
Actual 3.3%
Prior 1.9% (2Q P); 0.9% (Q1)
Revised n/a

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GDP YoY Annualized (2Q P)

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

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GDP Price Index (2Q P)

Survey 1.1%
Actual 1.2%
Prior 1.1%
Revised n/a

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GDP ALLX (2Q P)

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Personal Consumption (2Q P)

Survey 1.6%
Actual 1.7%
Prior 1.5% (2QP); 0.9% (Q1)
Revised n/a

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Core PCE QoQ (2Q P)

Survey 2.1%
Actual 2.1%
Prior 2.1% (2Q P); 2.3% (Q1)
Revised n/a

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Personal Consumption ALLX 1 (2Q P)

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Personal Consumption ALLX 2 (2Q P)

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Initial Jobless Claims (Aug 23)

Survey 425K
Actual 425K
Prior 432K
Revised 435K

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Continuing Jobless Claims (Aug 16)

Survey 3390K
Actual 3423K
Prior 3362K
Revised 3359K

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Jobless Claims ALLX (Aug 22)


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Posted in Daily | 2 Comments »

Cliff’s Speech

Posted by Sada Mosler on 27th August 2008


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(the blockquotes represent powerpoint slides)

September 10th, 2007:
Speech given at the Foundations and Endowments Investment Summit

pdf version


How Modern Money Operates and the Consequent Investment Implications

by Cliff Viner, III Associates

I’m taking a great risk here today. I’m taking a great risk in presenting statements that may be exactly contrary to what you’ve been led to believe by the media, well known economists, and even by former Fed Governors and chairmen. I know this is a risk because my partner Warren Mosler, as well as myself and our firm, have been actively advancing these ideas for the past 15 years. We have been widely disregarded, with the exception of Cambridge in the UK, and the University of Missouri at Kansas City, being amongst the few notable successes where 40 PhD’s are now training in our program. I personally have been rebuffed at the University of Pennsylvania and the Wharton School, where I graduated undergrad in 1970 and the graduate division in 1972.

But I’m going to take this risk because it’s important to our economic futures, to recognize how things actually work, and because it has policy and investment implications for all of our business decisions. I’m taking the risk because I do not want all of you, who have taken your valuable time out to hear this talk, to have the experience of spending all this time, and not learn anything new of value.

Let’s start with some incredibly simple, but incredibly powerful concepts. All the major currencies in the world are no longer backed by anything. They are not commodity-based or commodity-backed currencies anymore. The only thing the Fed will give you for a 10 dollar bill is two fives. This is called fiat money and this is what we have.

So why do today’s currencies have any value? Simple question. We’re all veteran money managers and we should have the answer. You’ve probably heard answers like it’s the medium of exchange, or a storehouse of value, or the most widely given answer, faith in the currency, which was the only answer given to me when I asked the entire Economics faculty at a major University. So do you believe that the entire multi-trillion dollar world dollar economy is built on faith, as well as the yen and Turkish lire denominated economies?

The answer to why this fiat currency has value is actually on the money. It says “This note is legal tender for all debts, public and private”. The key word is public. The dollar is the only medium for extinguishing tax liabilities to the sovereign government. Money is tax driven, and that’s why it’s valuable.


“Fiat Money derives its value solely from its ability to extinguish tax obligations.”

That’s why we care about dollars, the Japanese care about yen, and why the Turks care about Turkish lire. When the Mexican peso blew up and all faith was gone, why did it only go from 3:1 (dollar) to about 10:1, instead of 100:1 or a million:1, or just vanish completely? When the ruble lost all faith, it only went from 6:1 to about 28:1, it didn’t go worthless or vanish. As long as there are enforceable taxes due, payable in a particular currency, it will have value.

This concept was perfectly understood centuries ago, but forgotten during the commodity money phase. The great Commonwealth of Virginia, established four centuries ago, knew this. They wanted to establish a currency to facilitate commerce. The government could issue currency, or spend in a new currency, but people would laugh and think why should I accept this piece of paper? The first thing Virginia did was establish a tax, let’s just say a 100 card tax per person per year. Now people would ask what they had to do to earn the currency, to be able to pay the tax, and not go to prison. The need for the cards makes the people willing sellers of goods, services, and their labor to get the cards, and avoid penalty for non payment. In this manner, the state can use its otherwise worthless paper to provision itself. The government established the amount of value of the currency, by what it demanded in exchange for these cards. The government is the monopoly issuer. Fiat currencies are tax driven.

Now that we’ve established our state, our tax, and our fiat currency made of these pieces of paper to pay taxes, let’s go further. Let’s say we’re going to be fiscally responsible in our new sovereign state. We’re going to run a budget surplus. We’re going to tax 100 cards, and we’re only going to spend 90.

What is going to happen? There are not enough cards to pay the tax. People will be offering their possessions and their labor for sale to try and get the cards to pay the tax, but sufficient cards are not in circulation to meet their needs. The result is called deflation; people scramble to sell anything to get cards that in the aggregate do not exist.

Okay, so you as Governor of Virginia notice this crisis going on, and you realize your mistake and say, I’ll tax 100 cards and I’ll spend 100 cards. I’ll run a balanced budget. Great. But let’s say I wanted to put one card in my savings account, or keep one around for spending money. I can’t. There are no cards left. The government has spent 100 cards and taxed 100 cards. There is nothing left for what I very carefully call net financial savings.

So let’s talk about savings, or maybe put another way, making money. How can we save money? We see the problem in old Virginia, no cards to save, but it’s the same exact notion for the U.S. dollar savings today. Let’s say that I represent all domestic dollar holders (individuals, pensions, ins cos, banks) and I have a total of one net dollar, meaning net of borrowing. Let’s say you represent all foreign net dollar holders (Toyota, central banks, any foreigners who have net dollars), and you have a total of one net dollar. So there is a total of two net dollars in the world. How are we as a group, going to save money? I guarantee you, that no matter what we do, at the end of the year we’ll all have two net dollars total. You may have $1.50, while I have $0.50, but we’re stuck, the total is two dollars. It’s the same problem as in old Virginia. So, how do we get net financial savings? The answer is, the only way to add to dollar net financial savings, is for the sovereign government to spend money, and not ask for it back in taxes. In other words, deficit spend.


“Budget Deficits are the only source of adding to private sector net financial assets.

Surpluses reduce net financial assets.”

Deficit spending is the source of worldwide net new U.S. dollar financial savings. The national income accounting identity is: the Government deficit EQUALS the non government accumulation of net financial assets.


Budget Deficit = Domestic and Foreign Accumulation of U.S. $ Net Financial Assets”

Notice the word equals. Not approximately, but equals. So when you hear that the deficit is draining our savings, or they show you the National Debt Clock, it’s really the World Dollar Savings Clock. We’ll do more on deficits in a little bit.

Let’s get back to our new sovereign state. We notice that people want to save some cards each year. So as the wise Governor, we decide to tax 100 cards each year, but we will now spend 105 cards. Let’s say that people seem to want to save about 5 cards per year. So here is what’s interesting. We will be deficit spending 5 cards per year, but people want to save these cards, not spend them. Therefore, there is some noninflationary level of the deficit related to the desire to accumulate net financial assets. You can run a deficit without causing inflation if it matches savings desires.

Let’s talk about those 5 cards. At the end of every day, someone is going to have those cards. I could have lent them to you, and you could lend them to a corporation, or even to a bank. But at the end of the day, someone has the cards. How are they going to earn interest overnight? They can’t, not unless the sovereign says, if you give me those 5 cards, I’ll give you a different card, a promise card to pay back those 5 cards with interest. Looks like a Treasury bill to me.

But let’s think about it. Did the sovereign borrow the money to spend? Did the sovereign go begging to the markets for money to be able to spend? No, it’s actually the other way around. The sovereign spends first, and the market begs the sovereign for a security so it can earn interest.


“Sovereign Governments with Fiat Currencies Do Not Borrow in Order to Spend.”

In Fed speak, securities are offered to drain excess reserves, which are called offsetting operating factors. Sound familiar? This is the way all these fiat currency systems operate. The U.S. government does issue securities, but only to support an interest rate, not to borrow and spend. That’s why the “credit” is good. If that’s too much to believe, think of Turkey. Turkey’s annual lire deficit had been running over a quadrillion lire, inflation was 100% per year, triple digit interest rates, and there was huge currency depreciation. Not much faith there. How come they never defaulted? Either they are the greatest borrowers ever known to man, or it’s simply a reserve drain of extra cards.

Let’s continue with old Virginia and the cards. We just saw how the government can create Treasury bills, which are very much like money, and are really just time deposits at the Fed. So we have Treasury bills. But where do bank deposits come from? Again, the answer is from the very first week of any Money and Banking course, and yet very few people recognize the answer. The answer is that all deposits come from loans as a matter of system accounting. Loans create deposits. Most people believe you need funds, deposits, or savings to lend. Absolutely not true. The loan immediately creates its own deposit. That’s how the accounting of the banking system works. You start a bank with $10 in capital and are allowed to leverage to make about $150 of loans. The bank balance sheet includes $150 of loan assets and $150 of deposit liabilities. Loans create all bank deposits.

So now let’s bring in the Federal Reserve. I have very limited time here, so I’m just going to say that we hear about the Fed injecting reserves, pumping in money, printing money, pumping in liquidity to the banking system, and funds not getting distributed to the right people. This is utter misrepresentation and has no application to the non government sector. The Fed’s only tool is a price tool, the fed funds rate. It has no quantity tools.


“The Fed Can Control Only Interest Rates, Not the Quantity of Money”

The Fed has no direct control, over the quantity of bank deposits being created, or the quantity of any other form of credit. All this reserve management from the Fed, adding or subtracting reserves, is just the management of clearing checks at the bank’s segregated Fed accounts. The Fed acts when system or Treasury operating factors may make some of the pluses and not offset the minuses, or the unusual situation like recently, when banks might be afraid to trade their reserves with another bank in the fed funds market.

The Fed does not supply money the banks use for lending, does not directly affect the quantity of bank lending or what is casually known as money supply, and can’t reflate and pump money to banks or anyone else.

Note that when Barclay’s borrowed from the Bank of England 10 days ago, it was because of a clearing house settlement problem at the Central bank.

Please see me later so I can explain what the Fed did on 8/17. They lowered the discount rate only to control the funds rate better and to raise the funds rate from low levels where it was trading. I’ll show you the 8/16 email which shows exactly this recommendation which we communicated to the Fed.

When Japan pumped 30 trillion of excess reserves into the system, this did absolutely nothing, except insure that the overnight funds rate stayed at zero. All the BOJ did, was not offer any JGBs for sale or normal repo operations. People wanted JGBs. The MOF bill auctions were hundreds of times oversubscribed at a yield of 1bp! Go check it out. People wanted to earn something rather than nothing. People wanted their reserves drained. When the reserves were drained and quantitative easing ended, all the BOJ did was offer JGBs to the banks. The economists talked about how the transmission mechanism of this excess liquidity was not making it a real economy. It can’t. Bank lending to the private sector is never reserve constrained. Bank reserves are inside money at accounts at the Fed, and have nothing to do with lending to the non government sector. Remember, lending creates its own deposits. You don’t need reserves or funds.

Let’s talk about money a little more. Everyone talks about money, money supply, and M1, M2, M3. What are these measures? They are basically deposits in the banking system. So we watch the aggregates grow, creating more money. But is it the stuff of the quantity theory of money? If money is doubled, prices are doubled. Remember, all deposits come from loans. All the money supply is not net money, or the net financial assets I talked about at the beginning, its gross money. You get borrowed money in your account, no net money. People are long or short.

So where else do we see this exact relation of longs and shorts? All this gross money is really like the open interest on the Merc. There’s a long (the guy with the money) and a short (the guy who borrowed the money and spent it). When we analyze wheat prices, yes, we do look at open interest. But we look much more closely at current net stocks of wheat, and whether there will be a good new crop. So let’s think about that. We’d like to know about the current stock of net money. But, we said earlier this stock of net money comes from past deficit spending and becomes Treasury securities, and we’d like to know about the new crop. The new crop of net money comes from new deficits. A budget surplus is not only no new crops at all; it’s burning up some of the stocks in the silos. Take a look at the past dollar fx squeezes during budget surpluses.

If you have huge open interest, or huge open interest growth, in this case, huge growth of bank deposits, that circumstance is probably much more sustainable when the net money is growing to support it. The private sector may be able to sustain large borrowing and spending for extended periods. Without the net money growing beneath it, by definition the system leverage gets higher and the potential debt service burdens get progressively more difficult. This has profound implications for how to look at money, credit expansion, and business cycle phases, overextension and contraction.

So now let’s look at this notion of net money and business activity. The entire World Net Dollar Balance is just the opposite of the U.S. Government Dollar Balance. That’s what we just said about deficits providing net dollar savings. This is accounting, not theory. This is not in dispute.

But, if we’re just talking about the U.S. Domestic sector’s net dollar balance, that equals the opposite of the U.S. Government balance plus or minus the foreign account balance.


Domestic Net $ Balance = U.S. Budget Balance and Foreign Net $ Balance”

So a U.S. Government deficit and a U.S. trade surplus would both add to U.S. Domestic savings. Again, this is not in dispute. It’s an accounting identity, not theory. But so many major economists forget about this basic equation and what it means. What does it mean?

Let’s look at the chart. The first conclusion is to notice that if the U.S. foreign account balance is a bigger negative than the savings we get from U.S. government deficit spending, then the U.S. must reduce its net financials assets (generally borrowing) to finance our current consumption. This again, is an accounting identity.

This next chart shows the course of what’s happened. Look at the recent increases in the financial obligations burden to keep our consumption and aggregate demand growing. The U.S. budget deficit is too small to provide enough net financial savings to U.S. domestics to offset our foreign trade balance. This can persist for awhile, but it is ultimately not a sustainable process.

Let’s talk more about savings. The generally accepted notion is that we have to boost savings to be able to boost investment. Good for the economy. Let’s create more savings plans. Remember, saving is not spending your income. If my wife, inexplicably, decides not to spend our income, and not to buy any more cars, is GM or is Toyota going to invest in a new plant? No way. The paradox of savings has been known for centuries, but forgotten. As a matter of fact, the act of saving will reduce effective demand, not stimulate investment, leave inventory unsold (you produced but didn’t buy all the output) and will most likely reduce employment and income.

So what does happen? Savings does equal investment, but it doesn’t happen that you need savings to make the investment.


“Savings Cannot be Altered to Alter Investment.

You Can Encourage Investment
-Which Will Alter Savings-
but Not The Other Way Round.”

It is the act of investment that creates both real and financial savings. Savings are the accounting record of an investment having been made. By definition, investment is spending money to produce a capital good that is not able to be currently bought or consumed. There is nothing to buy, so you must save. The workers have the money they were paid, and their only choice is to save and invest, directly or indirectly, in the capital good. You can individually try to save, but as a whole we can not determine to save. The level of investments will determine the level of saving.

Let’s talk about U.S. saving. You at this conference are the driving force in the powerful structure of incentives to save in the U.S. A large portion of personal income is encouraged to go, and does go, to IRAs, Keoghs, life insurance reserves, pension fund income, endowment income, and other money that compounds continuously and is not spent. Even much of what foreigners get, such as foreign Central Bank dollar accumulation is not spent. We call all this savings demand leakage. This U.S. structure of tax advantaged savings has probably caused the U.S. private sector to desire to be a net saver.

There are two important things about this situation. We do not need these savings for investment. So there’s no need to promote all these plans and incentives. Sorry guys. As we previously pointed out, this desire to not spend will reduce aggregate demand and result in unsold output, causing declining economic activity and declining prices. So what has happened? All these savings plans have allowed the government to deficit spend, to offset all this structurally reduced aggregate demand, without causing inflation. Once we recognize that savings does not cause investment, it follows that the solution to unemployment or low capacity utilization, is not to encourage more savings.

Let’s continue to talk about foreign balance. If we’re running a trade deficit, foreigners are sending us goods and we are sending them dollars. We’re buying their stuff instead of domestic stuff. For that amount of demand, our employment and output is being reduced. So we get underemployment in the U.S. unless we manage to keep domestic demand sufficiently high as we have been doing. When we do that, the notion of comparative advantage is at work and we have a net gain. We’ve been benefiting from this process and should not be fighting imports.

Now remember our identity of the domestic balance is the government plus foreign balances. If we have a 5% foreign trade deficit, but the government is giving us savings with a 5% budget deficit, we’re still only at zero net financial savings. The implication is that now the government can spend a 5% deficit to fully employ our resources without inflation. The government could deficit spend even more to satisfy the desire for positive net financial savings.

Let’s explore this trade deficit for a little bit. There’ so much talk of how vulnerable we are because foreigners won’t keep financing our foreign trade deficit. There is no such thing as foreigners financing the trade deficit.


“The U.S. is NOT Dependent on Foreign Finance For Our Trade Deficit”

I go to Citibank and I borrow money. My account is credited with 50K in deposits and Citi has an asset of 50K in loans. I take my deposit, buy a car. The foreign seller of the car has the money, first as a deposit at a U.S. bank. Everyone is happy, no imbalances and there is no borrowing of foreign capital. Citibank financed the borrowing for my purchase. The foreigner has dollar savings. Domestic credit creation funds this entire foreign savings, all $700 billion. There is no imported capital to fund the trade gap.

Let’s examine this trade deficit further. The U.S. government is begging China to revalue their currency upwards. Are we nuts? Why do we want to pay more for Chinese goods? Why do we want to give the Chinese a pay raise? We don’t allow our own workers minimum wage raises, and yet we want to give those raises to the Chinese.

They’re selling their goods below fair value which is dumping, and what we know to be an unfair trade. Let’s examine that. Dumping is a political problem, not an economic problem. Let’s put aside the issues of whether they’re incurring pollution costs or other social costs, counterfeiting, patent infringement and the like. Let’s say the Chinese are dumping, selling us goods at 35% of fair value. Here in the U.S. we complain. But what is selling us goods at 35% of fair value? It’s selling us 35 goods at fair value and 65 goods for nothing. There is no way, in the aggregate, that we can be worse off when they take their resources, capital, labor, technology and education and sell us goods for nothing. We are better off. The problem, as I said, is a political problem. Because they sell us goods for nothing, there are workers in the U.S. without incomes. But as we showed before, the U.S. government can now deficit spend so we can get the Chinese goods for nothing, and employ or reemploy these workers in the same, or different areas of the economy, to reestablish employment and aggregate demand without causing inflation.

Just two more comments on the foreign trade balance. We are so worried. We’re worried that they own all these paper assets and might sell them. But let’s think of who is at risk. We have the goods and they have these pieces of paper. They have no idea what those pieces of paper are going to be worth in the future. If they dump dollar assets, the value of their remaining holdings is going to fall dramatically. Who’s at risk? We have the cars, clothes and golf clubs. They have the indeterminate value of the paper.

The conventional wisdom is we want the Chinese and the Japanese to start spending on consumer goods, solve the unsustainable world trade imbalances. I don’t. Who wants to be competing for goods with 1.4 billion Chinese? What will happen to the price of all the items we’re consuming once there is competition for those goods? Nope, I want them to work 16 hours a day, sell us everything we need for nothing, have them never buy anything from anyone, and we play golf all day. The conceptual summation of all this is that exports are a cost and imports a benefit. Think about it.

So let’s conclude with some thoughts about the U.S. economic outlook. My partner Warren Mosler, who focuses on economic analysis and has an exceptional command of these dynamics, has helped offer some of these thoughts about the situation.

The U.S. budget deficit continues to contract. As our little identity equation showed before, the result is that net financial assets are not being added fast enough to support the gross dollars and credit structure, to help both support aggregate demand, and to satisfy the desire for savings engendered by all the incentive savings plans represented by this audience. It calls for budget balancing only making all of this worse.

As such, the financial obligations ratio rises to where the U.S. consumer can no longer continue borrowing at previous growth rates. Allocations to passive commodities by pension and endowment institutions actually exacerbated aggregate demand in the past two years. You are all supposed to buy stocks or bonds, but wound up buying all sorts of commodities. Now this phenomenon is cresting, and should also slow aggregate demand. Exports should be a help as they are picking up, but will probably not accelerate sufficiently to maintain fast GDP growth.

On the inflation front, we still see inflation as a problem despite U.S. economic weakness. It is our view that the Saudis basically set the price of oil and let quantity vary. They are the swing producer. They are comfortable with oil in this price range, so we do not expect price declines. Cost push of these prices is still occurring throughout the U.S. and world economy. Agricultural commodities are now linked to energy sector prices through the biofuels industry and are causing a second wave of food inflation. The Fed is very concerned about inflation, and that’s overall inflation, not just core inflation. If we have 0.2 month to month CPI increases for the balance of the year, YOY headline inflation will be well above 4%. The Fed is adamant about the importance of expectations, and those types of CPI numbers will worry the Fed about losing the 25 years of inflation progress they’ve made. With the labor market still tight, low levels of unemployment and high levels of capacity and resource utilization, the Fed is actually hoping for growth to slow substantially to contain this inflation. It may take much more slowing than that or a significant fall in energy and gasoline prices, for the Fed to ease.

With regard to the all important credit structure, I believe there is a very significant shift underway. In the recent past, lending (gross money) has been made easily available for all sorts of lending, business plans, assets and other leveraged ventures. These gross dollars have fueled both current cyclical economic activity and the rise in dollar asset prices around the world. I believe this is changing through both a repricing of the cost of assuming lending risk, and in a change of the simple willingness to lend or the availability of credit. Remember, loans create all deposits. No loans, no deposit growth. The Fed may be willing to oversee this significant contraction. Why? All of us, and the Fed, watched all these non-regulated lending or investment entities with much higher risk parameters go out and snub their noses at regulated entities and seemingly pass them by in good times. The Fed is not likely to want to provide a safety net and reward them for this type of frowned upon behavior. The Fed will probably be happy to see assets come back to the banking system, under their rules, regulations, and purview. In addition, the Fed will be happy for the greater stability it will bring to the capital structure of the markets and economy because the funding on bank’s balance sheets is anchored by FDIC insured deposits that don’t flee. The U.S. learned this lesson in 1934 with the establishment of deposit insurance to prevent runs on bank funding. The current voluntary termination of lending agreements (loans roll off), or withdrawal of CP deposits, and even withdrawals from hedge funds, highlight the system fragility of highly leveraged enterprises that are subject to liquidity redemptions. The sectors of the market and economy that relied upon these lending and securitization structures for funding will likely suffer, and the lending or credit participants in these sectors will likely be replaced by banks and GSEs.

Fiat currency sovereign issuers are not at risk. However, corporations, municipalities, leveraged loan and investment structures (LBO, private equity), and foreign countries issuing in denominations other than their fiat currency are at risk.

I’ll even present the notion that European government debt is at risk because a strict reading of Maastricht has created municipalities, not sovereigns, without the ECB to provide support. Did you notice that Saachsen Bank had to be bailed out by the German Savings Bank Society?

However, I have one note of caution or caveat to this notion of contraction and rationality. The financial engineering genie is out of the bottle. Financial engineering really began to accelerate when I entered the bond side of the business in the late 1970s with the advent of GNMA futures, Treasury bond and bill futures, currency and stock futures, and then the monumental creation of the interest rate swap, that became the foundation for modern derivatives such as caps, floors, swaptions, total return swaps, all variety of structured notes and even the recent explosion of credit derivatives. These instruments provide the ability to create huge notional exposures, with notional exposures in this credit arena that are hundreds of times the risk in the real economy. IBM used to have 1BB of bonds outstanding. That was the credit risk. Now the credit risk exposure taken by participants can be hundreds or thousands of times the size of the bond issue itself. While the risk may be more diversified or less concentrated, the huge notional size causes great market dislocations. But what I’m saying, is that in cycle after cycle, because it’s so difficult to make real spreads make real returns or real alpha, investors will again seek out the new product, the new leverage, the new derivative (like CDOs, CLOs, CDS) that allow the investor to greatly leverage to seemingly earn superior returns, only to see the eventual risks come to roost and the underlying risks exposed. It will happen again, the form will be different, but it will happen again.

I want to thank everyone for their great courtesy in attending today, and I hope this time together has accomplished something towards my goal, that you won’t be looking at the world economic scene in quite the same way again, and that maybe with a new understanding you’ll be an instrument for positive change in how we should conduct our economic lives.

Thank you very much.


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Posted in Currencies, ECB, Inflation, Interest Rates | 6 Comments »

Seeking Alpha: Looming Financial Catastrophe: A Real Inconvenient Truth

Posted by Sada Mosler on 27th August 2008


[Skip to the end]

view article

jlbIII commented:

I know I, for one, hate having to continually get int that time machine to ship all those cars and computers back to 1945 in order to support my reckless grandparents who wracked up such huge debts to pay for WWII. It’s only somewhat helped my the regular arrival of my grandchildren with the aircars and Mr. Fusions… Oh, wait – that DOESN’T HAPPEN!

Current production supports current consumption. Notional financial values of debt are utterly irrelevant. You people, while well-meaning, are utterly clueless. It is the equivilant of worrying about a bowling alley running out of points to award.

http://www.moslereconomics.com/mandatory-readings/soft-currency-economics/


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Posted in Articles | 3 Comments »

2008-08-27 US Economic Releases

Posted by Sada Mosler on 27th August 2008


[Skip to the end]

Economy strong enough to use up excess Saudi oil capacity.


MBA Mortgage Applications (Aug 22)

Survey n/a
Actual 0.5%
Prior -1.5%
Revised n/a

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MBA Purchasing Applications (Aug 22)

Survey n/a
Actual 315.9
Prior 314.0
Revised n/a

[top][end]

MBA Refinancing Applications (Aug 22)

Survey n/a
Actual 1038.0
Prior 1034.5
Revised n/a

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MBA TABLE 1 (Aug 22)

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MBA TABLE 2 (Aug 22)

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MBA TABLE 3 (Aug 22)

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MBA TABLE 4 (Aug 22)

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Durable Goods Orders MoM (Jul)

Survey 0.0%
Actual 1.3%
Prior 0.8%
Revised 1.3%

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Durable Goods Orders YoY (Jul)

Survey n/a
Actual -2.4%
Prior -1.3%
Revised n/a

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Durables Ex Transportation MoM (Jul)

Survey -0.7%
Actual 0.7%
Prior 2.0%
Revised 2.4%

[top][end]

Durables ex Defense MoM (Jul)

Survey n/a
Actual 2.8%
Prior 0.6%
Revised n/a

[top][end]

Durable Goods ALLX (Jul)


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Posted in Daily | No Comments »

2008-08-26 US Economic Releases

Posted by Sada Mosler on 26th August 2008


[Skip to the end]


ICSC-UBS Store Sales WoW (Aug 26)

Survey n/a
Actual 0.2%
Prior 0.1%
Revised n/a

[top][end]

ICSC-UBS Store Sales YoY (Aug 26)

Survey n/a
Actual 2.3%
Prior 2.4%
Revised n/a

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Redbook Store Sales Weekly YoY (Aug 26)

Survey n/a
Actual 1.9%
Prior 1.3%
Revised n/a

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ICSC-UBS Redbook Comparison TABLE (Aug 26)

[top][end]


Consumer Confidence (Aug)

Survey 53.0
Actual 56.9
Prior 51.9
Revised n/a

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Consumer Confidence ALLX 1 (Aug)

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Consumer Confidence ALLX 2 (Aug)

[top][end]


S&P-CaseShiller Home Price Index (Jun)

Survey 167.20
Actual 167.69
Prior 168.54
Revised n/a

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S&P-CS Composite-20 YoY (Jun)

Survey -16.20%
Actual -15.92%
Prior -15.78%
Revised -15.78%

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S&P-CaseShiller US HPI (2Q)

Survey n/a
Actual 155.32
Prior 159.20
Revised 159.03

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S&P-CaseShiller US HPI YoY (2Q)

Survey -16.2%
Actual -15.4%
Prior -14.1%
Revised -14.2%

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S&P-CaseShiller US HPI QoQ (2Q)

Survey n/a
Actual -2.33%
Prior -6.75%
Revised n/a

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House Price Index MoM (Jun)

Survey -0.4%
Actual 0.0%
Prior -0.3%
Revised -0.4%

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House Price Index YoY (Jun)

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

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House Price Purchase Index QoQ (2Q)

Survey -1.5%
Actual -1.4%
Prior -1.7%
Revised -1.7%

[top][end]

House Price Purchase Index YoY (Jun)

Survey n/a
Actual -1.71%
Prior -0.06%
Revised n/a

[top][end]

House Price Purchase Index Loans by Type TABLE (2Q)

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House Price Purchase Index ALLX (2Q)

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House Price Index TABLE (Jun)

[top][end]

HPI ALLX 1 (Jun)

[top][end]

HPI ALLX 2 (Jun)

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New Home Sales (Jul)

Survey 525K
Actual 515K
Prior 530K
Revised 503K

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New Home Sales MoM (Jul)

Survey -0.9%
Actual 2.4%
Prior -0.6%
Revised -2.1%

[top][end]

New Home Sales Total YoY (Jul)

Survey n/a
Actual -35.3%
Prior -36.6%
Revised n/a

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New Home Sales ALLX (Jul)

[top][end]


Richmond Fed Manufacturing Index (Aug)

Survey -10
Actual -16
Prior -16
Revised n/a

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Richmond Fed Manufacturing Index ALLX (Aug)

[top][end]


ABC Consumer Confidence (Aug 24)

Survey -
Actual -
Prior -49
Revised -

[top][end]

ABC Consumer Confidence ALLX (Aug 24)


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Posted in Daily | No Comments »

2008-08-25 Weekly Credit Graph Packet

Posted by Sada Mosler on 26th August 2008


[Skip to the end]


IG On-the-run Spreads (Aug 25)

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IG6 Spreads (Aug 25)

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IG7 Spreads (Aug)

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IG8 Spreads (Aug 25)

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IG9 Spreads (Aug 25)


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Posted in Credit | No Comments »

Heart surgery update

Posted by SADA MOSLER on 25th August 2008


[Skip to the end]

Hi Everyone!,

This is Warren B’s daughter, the one in charge of the website. I want to let everyone know what’s going on, and why everything seems so delayed.

As you may have read in the ‘Quick update‘ post, Mr Mosler had his heart cut out (a piece of the mitral valve) this morning. He is under the care of the best surgeons and nurses in the best cardiovascular hospital around (the Cleveland Clinic).

I saw him this afternoon. His surgery went very well. He was sharp, making jokes, and wanting to hear about all the macro news he had missed. He always seems to think about economics, boats, or cars; so, hearing him ask about current events was very relieving.

Tomorrow, he will leave ICU and go to ‘step-down’ for a few days. As requested, I will be there with my Bloomberg-equipped laptop. New posts and USER comments may follow.

He plans to be back to the Center of the Universe on Sunday.

I apologize for the delays. Been though a lot. I traveled far to be here to support my family.

Thank you for the flowers, cards, fruit baskets, balloons, bears, phone calls, text messages, emails, and kind words!
 
 
-sada
 
 
 
ps: I could tell a few of his jokes, specifically ones about non-Euclidean geometry and going on a saline trip, but I think you’d have to know him to fully appreciate.


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Posted in Uncategorized | 3 Comments »

2008-08-25 US Economic Releases

Posted by Sada Mosler on 25th August 2008


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Existing Home Sales (Jul)

Survey 4.91M
Actual 5.00M
Prior 4.86M
Revised 4.85M

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Existing Home Sales MoM (Jul)

Survey 1.0%
Actual 3.1%
Prior -2.6%
Revised -2.8%

[top][end]

Existing Home Sales YoY (Jul)

Survey n/a
Actual -13.2%
Prior -15.7%
Revised n/a

[top][end]

Existing Home Sales Inventory (Jul)

Survey n/a
Actual 4.669M
Prior 4.495M
Revised n/a

[top][end]

Existing Home Sales ALLX 1 (Jul)

[top][end]

Existing Home Sales ALLX 2 (Jul)


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Posted in Daily | No Comments »

Re: Roach motel

Posted by Sada Mosler on 25th August 2008


[Skip to the end]

(a casual email exchange)

>   
>   On 8/24/08, Russell wrote:
>   
>   I found this an interesting read. Roach argues that economies and the US
>   economy has generally been built on a consumption binge.
>   

Right, consumption is the whole point of working.

Some of the output is consumed, some ‘invested’ for future consumption to be greater than otherwise, but it’s all consumption based. There’s no other point.

>   
>   And the reason why it happened was that the consumption was not based on
>   income, but instead since 1999 is has been based on appreciating asset values
>   and easy access to credit.
>   

The budget surpluses of the late 1990s removed that much income and financial equity (net financial assets) from the non govt sectors.

The only way the economy could continue was accelerating non govt debt. Private sector domestic credit expansion was around 7% of gdp by 2000 before it collapsed due to lack of income and financial equity to support that kind of credit structure.

1% interest rates didn’t turn it around. It was the tax cuts/spending increases/larger govt. deficit that turned it in 03. And as that tail wind was allowed to blow out it all slowed down right up to today. There was a small burst due to the private sector deficit spending due to the sub prime fraud, where lender’s equity fraudulently got spent on houses.

And, again, it was the fiscal package that supported gdp in q2 and q3, along with exports, which resulted from foreign cb’s cutting their accumulation of $US financial assets.

>   
>   Sees a slower global commodity market in the next couple of years as ASIA GDP
>   slows as a result of a slowdown in US consumption.
>   

Consumption will slowdown if agg demand isn’t supported by govts as they all implement demand draining tax advantaged savings incentives (pension funds, ira’s, ins reserves, etc.) that require deficit spending for some other entities sustain demand.

And govt deficits are the only ones that are independently sustainable. Non govt entities have limits they hit periodically.

>   
>   
>   
>    The key question going forward is whether an adaptive and
>   
>    increasingly interrelated global system learns the tough lessons
>   
>    of this macro upheaval. At the heart of this self-appraisal must
>   
>    be a greater awareness of the consequences of striving for
>   
>    open-ended economic growth. The US couldn’t hit its growth
>   
>    target the old fashioned way by relying on internal income
>   
>    generation, so it turned to a new asset- and debt-dependent
>   
>    growth model. Export dependent Developing Asia took its
>   
>    saving-led growth model to excess: Unwilling or unable to
>   
>    stimulate internal private consumption, surplus capital was
>   
>    recycled into infrastructure and dollar-based assets – in effect,
>   
>    forcing super-competitive currencies and exports to become
>   
>    the sustenance of a new development recipe.
>   
>   


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Posted in CBs, Email | 1 Comment »

Reuters: German surplus

Posted by Sada Mosler on 25th August 2008


[Skip to the end]

Wrong time for tight fiscal from a macro perspective, and contributed to the subsequent slowdown, but as a credit sensitive entity they are compelled to go in that direction.

It’s one of those darned if you do and darned if you don’t.

German budget surplus seen at 7 bln eur in H1-report

by Dave Graham

(Reuters) Germany likely posted a budget surplus of some 7.3 billion euros ($10.85 billion) in the first half of 2008 according to the Kiel-based IfW economic research institute, business daily Handelsblatt reported on Sunday.

The IfW thinktank had calculated the combined surplus of federal, state and local governments in the first half equated to 0.6 percent of German gross domestic product, the paper said.

Germany’s Federal Statistics Office is due to publish a budget balance estimate for the January-to-June period on Tuesday. ($1=.6727 Euro)


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Posted in Articles, Germany | No Comments »

The Daily Telegraph: Bank borrowing from ECB

Posted by Sada Mosler on 25th August 2008


[Skip to the end]

[written on Sunday]

While not a problem in the US for the Fed to do this and more (in fact it should be standard operating procedure), the eurozone has self imposed treaty issues that make it very problematic.

If there are defaults its the national governments that will probably be called on to repay the ECB for any losses, but given the national governments didn’t approve the transactions the result will be chaotic at best.

Without bank defaults it will probably all muddle through indefinitely.

As before, the systemic risk is in the eurozone.

Valve repair tomorrow, going to try to smuggle in a knife under my gown to even the odds…

Bank borrowing from ECB is out of control

by Ambrose Evans-Pritchard

The European Central Bank has issued the clearest warning to date that it cannot serve as a perpetual crutch for lenders caught off-guard by the severity of the credit crunch.

Not Wellink, the Dutch central bank chief and a major figure on the ECB council, said that banks were becoming addicted to the liquidity window in Frankfurt and were putting the authorities in an invidious position.

“There is a limit how long you can do this. There is a point where you take over the market,” he told Het Finacieele Dagblad, the Dutch financial daily.

“If we see banks becoming very dependent on central banks, then we must push them to tap other sources of funding,” he said.

While he did not name the chief culprits, there are growing concerns about the scale of ECB borrowing by small Spanish lenders and ‘cajas’ with heavy exposed to the country’s property crash. Dutch banks have also been hungry clients at the ECB window.

One ECB source told The Daily Telegraph that over-reliance on the ECB funds has become an increasingly bitter issue at the bank because the policy amounts to a covert bail-out of lenders in southern Europe.

“Nobody dares pinpoint the country involved because as soon as we do it will cause a market reaction and lead to a meltdown for the banks,” said the source.

This “soft bail-out” is largely underwritten by German and North European taxpayers, though it is occurring in a surreptitious way. It has become a neuralgic issue for the increasingly tense politics of EMU.

The latest data from the Bank of Spain shows that the country’s banks have increased their ECB borrowing to a record €49.6bn (£39bn). A number have been issuing mortgage securities for the sole purpose of drawing funds from Frankfurt.

These banks are heavily reliant on short-term and medium funding from the capital markets. This spigot of credit is now almost entirely closed, making it very hard to roll over loans as they expire.

The ECB has accepted a very wide range of mortgage collateral from the start of the credit crunch. This is a key reason why the eurozone has so far avoided a major crisis along the lines of Bear Stearns or Northern Rock.

While this policy buys time, it leaves the ECB holding large amounts of questionable debt and may be storing up problems for later.

The practice is also skirts legality and risks setting off a political storm. The Maastricht treaty prohibits long-term taxpayer support of this kind for the EMU banking system.

Few officials thought this problem would arise. It was widely presumed that the capital markets would recover quickly, allowing distressed lenders to return to normal sources of funding. Instead, the credit crunch has worsened in Europe.

Not to miss out, Nationwide recently announced that it was setting up operations in Ireland, partly in order to be able to take advantage of ECB liquidity if necessary. Any bank can tap ECB funds if they have a registered branch in the eurozone, although collateral must be denominated in euros.

Jean-Pierre Roth, head of the Swiss National Bank, complained this week that lenders were getting into the habit of shopping for funds from those authorities that offer the best terms. The practice is playing havoc monetary policy.

“What we should avoid is some kind of arbitrage by banks, which say they are going to go to central bank X, instead of central bank Y, because conditions are more attractive,” he said.


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Posted in Articles, CBs, ECB, Fed | No Comments »

Housing inventory

Posted by Sada Mosler on 23rd August 2008


[Skip to the end]

Yes, inventory of existing homes looks high, but as suspected the desirable inventory is probably very thing.

Housing starts have been too low for too long for there not to be a shortage looming.


These homes for sale suck

Never before have there been so many squalid, dilapidated homes on the market – and they’re helping to exaggerate already-plummeting home prices.


by Les Christie

(CNNMoney.com) Mold, maggots and piles of festering trash – no wonder home prices are in freefall.

It’s not just the subprime mortgage crisis that’s to blame for plummeting home prices. A flood of squalid properties on the market is helping to exaggerate the post-bubble price declines.

“Part of the reason home prices are declining is a fundamental deterioration in the housing stock,” said Glenn Kelman, CEO of the online, discount broker Redfin. “During the boom, nine out of 10 houses for sale in many markets were in prime condition. Now, for every 10 houses, at least three are dogs.”

Most of these mutts are foreclosed properties that have been permitted to fall into disrepair by lenders overwhelmed with thousands of vacant homes. If these houses sell at all, they’re going for bargain basement prices that are hurting home values throughout the neighborhood.


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Posted in Articles, Housing | No Comments »

Re: Russian invasion

Posted by Sada Mosler on 22nd August 2008


[Skip to the end]

(an email from my brother)

>   
>   Hi
>   Hope things are going well
>   

yes, thanks!

>   
>   Laugh:
>   I asked Rachel what percentage of her friends thought Russia invaded USA
>   state of Georgia. She said when she heard it the first time she thought he
>   US was invaded. Even now she says over half still think the US was
>   invaded-the other half don’t pay attention!!
>   
>   


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Posted in Email, Russia | No Comments »

Bernanke

Posted by Sada Mosler on 22nd August 2008


[Skip to the end]

Karim writes:

Overall tone->On hold->Economy to stay weak->Recognizes rates are low amid inflation risk->But no mention of acting in a timely manner->Credit strains remain high->Commodities and USD offering respite on inflation outlook. Bulk of speech dedicated to financial infrastructure and supervision.

Click to read Bernanke’s Speech

  • Although we have seen improved functioning in some markets, the financial storm that reached gale force some weeks before our last meeting here in Jackson Hole has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment. Add to this mix a jump in inflation, in part the product of a global commodity boom, and the result has been one of the most challenging economic and policy environments in memory.
  • We have recently extended our special programs for primary dealers beyond the end of the year, based on our assessment that financial conditions remain unusual and exigent. We will continue to review all of our liquidity facilities to determine if they are having their intended effects or require modification.


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Posted in Fed | No Comments »

Nikkei News: China exporting inflation to Japan

Posted by Sada Mosler on 21st August 2008


[Skip to the end]

Cliff Viner writes:

This is important. We’ve mentioned it before. And although the article is about Japan, it applies to many of China’s other export markets.

Yes, the whole global backdrop shifted from a deflationary to an inflationary bias over the last couple of years.

Also, with all of our outsourcing, these imports costs or some extent replace what was unit labor costs in previous cycle.

So in that sense, labor costs are rising faster than our domestic labor numbers indicate.

China Switches From Deflation Exporter To Inflation Exporter

(Nikkei) The prices of Chinese goods are rising in Japan, with sharp increases hitting anything from clothing to audio equipment. If the rise persists, China, which has long underpinned Japan’s steady price structure with its inexpensive products, could become a factor in lifting Japan’s overall price level.

According to a Bank of Japan check on the July prices of imported products, of which more than 50% are supplied by China, polo shirts and gloves cost some 9% more than in July last year. Pajamas and sweat suits also were up 4%. As made-in-China items make up 80% of Japan’s total clothing imports, higher costs can translate into higher price tags at retailers down the road.

The price rise is not limited to clothing. Imports of toys, of which 90% come from China, shot up 10% in July on the year. The price tags on bags, 50% of which originate in China, also climbed 9%. Of audio and video equipment, with the Chinese import ratio of more than 50%, audio devices increased 3-4%. Among other items, China-made cotton cloth, used mainly for bedding and dress shirts, rose to nine-year highs indicating that rising prices of Chinese imports now run the gamut.

Running to a value of 15 trillion yen in fiscal 2007, Chinese products now account for some 20% of Japan’s total import bills. According to trade statistics compiled by the Ministry of Finance, the price index of Chinese imports, which had been falling, rebounded to positive territory in fiscal 2004 and climbed 7.7% on the year in fiscal 2007 with the uptick still continuing.

Increasing prices of Chinese imports are caused in large part by rising wages in that country. Average wages of China’s urban workers rose 18.7% during 2007 over the previous year. Moreover, labor costs in China are destined to rise further with the passage of the labor contract law in January this year which encourages employers to give employees longer contracts.

The substantial appreciation of the yuan is also to blame for increasing the costs of Chinese imports. The yuan’s value rose 20% against the dollar over the three years since Beijing revalued the currency’s exchange rate in July 2005.

So the Chinese factor is casting increasingly dark shadows over Japan’s price picture. “Attention tends to focus on soaring crude oil prices as the main culprit for the recent bout of inflationary pressure, but nearly 10% of the overall increase in imported products is attributable to the Chinese factor,” said Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute. This is perhaps why many Bank of Japan economists see China as switching, as far as Japan is concerned, from a deflation exporter to an inflation exporter.


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Posted in Articles, China, Exports, Inflation | No Comments »

2008-08-21 US Economic Releases

Posted by Sada Mosler on 21st August 2008


[Skip to the end]


Initial Jobless Claims (Aug 16)

Survey 440K
Actual 432K
Prior 450K
Revised 445K

Still high, even though lower than expected and last week revised down some. It will take a while before the effect of the new extended benefit program is altering the numbers.

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Continuing Jobless Claims (Aug 9)

Survey 3405K
Actual 3362K
Prior 3417K
Revised 3379K

Also lower than expected and last week revised down, But still high and not showing any meaningful signs of a top.

[top][end]

Jobless Claims TABLE 1 (Aug 16)

[top][end]

Jobless Claims TABLE 2 (Aug 16)

[top][end]


Philadelphia Fed (Aug)

Survey -12.6
Actual -12.7
Prior -16.3
Revised n/a

Still negative, but the rate of contraction seems to be declining.

[top][end]

Philadelphia Fed TABLE 1 (Aug)

Prices paid down some, but still way high.

Employment improved to near flat.

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Philadelphia Fed TABLE 2 (Aug)

Workweek creeping up some.

[top][end]


Leading Indicators (Jul)

Survey -0.2%
Actual -0.7%
Prior -0.1%
Revised 0.0%

Worse than expected. This is a domestic demand indicator that has been trending down for quite a while.

[top][end]

Leading Indicators ALLX (Jul)

A lot of the specifics seem questionable regarding relevance.


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Posted in Daily | No Comments »

The 8000lb bear in the room

Posted by Sada Mosler on 20th August 2008


[Skip to the end]

There’s nothing credit issues can do to GDP that fiscal policy can’t handle.

Congress has seemingly figured that out and probably the rest of the world as well as evidenced by the new proposed fiscal packages popping up around the world.

Yes, we can lose a bank or two, and lending standards tighten further, but GDP will continue to muddle through even if that means a series of fiscal measures.

And Congress was born to spend; so, they are all over this one.

The only thing that might slow them down is inflation, and so far they’ve seemed to support the Fed trying to step hard on the inflation pedal, rather than ‘tighten’ which presumably helps inflation.

And no one seems to notice the 8000lb bear in the room.

Our response to Russia reminds me of Monty Python’s coconut clapping Arthur trying to intimidate the French defenders of the fort with his credentials.

We threaten them with diplomatic isolation, trade sanctions, etc. as if they care.

They don’t care.

They do care about the new missiles going into Poland.

And we are committed to considering an attack on Poland or any other NATO member as an attack on US soil, as Rice reminded them and even maybe dared them to try something.

We can’t defend anyone against against Russia with our own troops without risking nuclear war.

And Russia will be a lot quicker to that trigger than we will.

And they still have maybe thousands of nuclear warheads aimed our way.

Their next step for Russia is probably to make an offer to the rest of the ex-Soviet Union members they can’t refuse.

Russia sells the Eurozone something like 30% of their oil and gas and can do it at any price they want, and demand any real terms of trade they want.

The risk is we try to draw a line in the sand in some nowhere place over there, and it escalates to where we back down or get involved in lobbing nukes.

I suppose it’s just another case of this administration not seeing the forest for the trees.

We’ve let Russia be reorganized by the ex-KGB leadership that’s a lot smarter than ours, and now we’re paying the price.

Both the inflation and cold war of the 1970s is back, except this time our opposition is far stronger.

There is no even semi-quick supply response to dislodge the Saudis and/or Russians from setting any terms of trade they want.

The Russian consolidation is on the way up supported by a bath of capitalist type riches rather than crumbling under its own weight of a failed socialist economy.

Apart from that, I’m optimistic.


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Posted in Fed, Inflation, Russia | 8 Comments »

Quick update

Posted by Sada Mosler on 20th August 2008


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(an email sent late this afternoon)

Hi all!

Sorry for this impersonal mass email- would have liked to do each individually.

I’m in Cleveland now, scheduled to get my mitral valve repaired Monday (aka heart surgery).

If so, should be back in this hotel room by Thursday, and home over the weekend. I’ve always had a mitral valve prolapse and at my physical last year testing showed that sometime in the last several years it has deteriorated some and should be repaired before it got worse.

Unfortunately the doctor at the Cleveland Clinic in Miami last year never mentioned this was happening, and if I hadn’t insisted on them forwarding my records for my personal physician Steve Martyak to check out (which took over 6 months) I still wouldn’t know what was going on.

The doc assigned to me here is more than concerned over what happened and is doing what he can to make sure it doesn’t happen again.

I have another test tomorrow, then a consultation Friday with a Dr. Sapik who is scheduled to do the actual surgery.

Will keep you all posted as to any progress/changes.

thanks in advance, no need to respond!

warren


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Posted in Email | 5 Comments »