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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.

Mosler Plan, short version

Posted by WARREN MOSLER on September 30th, 2008


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Short version updated for current events.

If you agree, please distribute, including your Congressman, Fed officials, FDIC contacts, etc.

  1. Have the FDIC remove the $100,000 cap on deposits and extend insurance coverage to include Fed deposits at member banks.
  1. Have the Fed set 1 month, 2 month, and 3 month lending rates for member banks in addition to the fed funds rate, which, with the above, it can now lend to unsecured in unlimited quantities on demand.
  2. This:

    • Instantly normalizes bank liquidity, returning it to where it was designed to be all along.
    • Largely eliminates the need for banks to use the interbank market.
      functionally replaces the TAF and the Treasury lending facility without their shortcomings.
  1. Declare a payroll tax holiday and have Congress put the full faith and credit of the US behind all social security and medicare to eliminate the function of the trust fund regarding solvency.
  2. This supports demand. The taxes can be restored as needed should the economy be deemed ‘too hot’.

  • Crisis ends within hours.
  • Markets recover instantly.
  • Economy recovers instantly.
  • Financial sector muddles through as restored incomes and growth allow the institutions to grow out of their issues.

This can be looked as a plan that ‘gives the tax payers their money back’ vs the reverse from the current TARP that has no direct effect on anything in any case.


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14 Responses to “Mosler Plan, short version”

  1. Snoop-Diggity-DANG-Dawg Says:

    Crisis ends within hours.
    Markets recover instantly.
    Economy recovers instantly.

    Ha! Ha! Ha! Ha! Ha! Ha! Ha! Ha!

    Seriously, dude. Time to put down the pipe…

    Reply

    Matt Franko Reply:

    Points:
    1. FDIC Only went to $250k

    2. Fed STILL only setting overnight rate directly.

    3. Virtually no tax cuts, AT ALL, in fact looks like Treasury ran a SURPLUS in June.

    So why is this a laughing matter? Dude.

    Reply

  2. Aggregate Demand Management Says:

    Matt, some are suggesting the moral hazard risk should make us take away all FDIC insurance. Investors would then be required to do more due diligance at that point and quit trusting bair and other FDIC cronies who cannot handle all the responsibility they are expeted to. She constatnly complains she doesn’t have enough staff.

    As for tax cuts, I am certain having a strong central federal government makes it easier for china to corrupt and control all our citizens through their leverage over the US government. However if there were 50 independent nations (the states), it would be harder for one central body, internal or external, to control and manipulate all 300 million americans. Let Freedom Ring!

    Somewhat off topic – I watched the biography channel last night and they had an actress, jenny mccarthy on, her child was born with autism. She thought it was related to the child eating too much meat and milk. However scientific evidence shows that many mothers who wait til later in life to have babies past thier late teens, early 20′s, have more genetic damage and we have an epidemic of children being born with ADD, autism, etc etc.

    I think of Jared Diamond and his guns, germs, and steel book talking about how socializations and cultural programming can actually doom a civilization. Whitney houston sang the children are our future, but if all the mothers and fathers are waiting until they are passed college and in a good career before having a baby, it seems we are dooming many of our kids to live with diseases they would not have to live with if we encouraged younger childbirth.

    Since there are many big thinkers here looking at the long term survival and growth of the USA, can anyone tell me why we encourage more and more people to wait til they are older and older to have babies when the medical science shows this is a very bad trend to establish? Think of the children, they wouldn’t have the autism and ADD problems if we adjusted what was acceptable concerning childbirth ages.

    Reply

    Warren Mosler Reply:

    the liability side of banking is not the place for market discipline as described in more detail elsewhere on this site. get over it!

    china has no leverage over our govt. we just think they do and they play us for fools.

    Reply

    Aggregate Demand Management Reply:

    I refuse to believe all the chinese contributions to american political campaigns from the clintons on down does not “influence” government officials. However I am always open to be corrected.

    I can see hillary clinton and Jintao out on the golf course, and Jintao telling her he wants lots of his people to drive lots of cars all over china. She says no problemo Hu, we will cap and trade the USA people, and raise thier gas taxes, and then all the USA people will bicycle to work and lose thier big butts while all your chinese princesses can now drive around in their new hummbers PUHLEEZE!

    Reply

    Matt Franko Reply:

    ADM, FDIC: “quit trusting bair and other FDIC cronies who cannot handle all the responsibility”:

    It shouldnt/doesnt have to come down to trusting Bair. Think of it this way; its not as if Sir Isaac Newton missed a physical law that dictates that when a banks numerical ratios between assets and liabilities exceed a certain absolute value, the bank building spontaneously collapses into the earth and everyones deposits are swallowed up with it and gone forever. Bank operations/regulations are a man-made legal construct. All Bair is trying to do is to identify banks that are currently afoul of the current regulatory ratios and then either close them down and move (As Warren says what SHOULD be unlimited) deposits over to a bank that is still in compliance or allow the bank to continue under receivership for a while if that is deemed better public policy. Think of it this way: Bair is not a construction inpector trying to prevent a real collapse. There are no physical absolutes here. Our deposits in checking/savings accounts (just numbers on computers) are allowed to be used by the banks who hold them for us in computing/reporting their regulatory ratios, if the bank goes out of compliance there is no good reason I can think of why our TOTAL deposits cant be transferred into another better run bank to use.

    Hope this helps shed some light and eliminate some distrust I detect in your writing.

    Resp,

    Reply

    Dissenting Comments Encouraged Reply:

    “its not as if Sir Isaac Newton missed a physical law that dictates that when a banks numerical ratios between assets and liabilities exceed a certain absolute value, the bank building spontaneously collapses into the earth and everyones deposits are swallowed up with it and gone forever. ”

    It is funny you say that, I remember a couple of regulators being very wary when goldman sachs and others got leverage ratios adjusted from 12 to 1 to 40 to 1 and predicting bad things were to come. Now why would they think that given what you said above? Personally I like 500 to 1 leverage ratios, I don’t think 40 to 1 let us grow enough – what do you think?

    ” All Bair is trying to do”

    Mish says bair and the entire FDIC should be disbanded, there should be no FDIC insurance. If investors want safety, they shouldn’t give deposits to banks who give money willy nilly out to drug lords who are illegal aliens like I saw in Miami – you do not agree? You think we should give deposits to banks that did this stuff? Why?

    “is to identify banks that are currently afoul of the current regulatory ratios”

    I think with 500 to 1 ratios, goldman sachs could have done so much more than the 40 to 1 ratios they were limited too recently, and the 12 to 1 ratios they were limited to for several decades before that. Following your meme, did isaac newton say 12 to 1 leverage ratios are a physical law? Who said that? Why not 500 or even 5000 to 1 ratios? I changed my mind just now, I like 5000 to 1 ratios, even more growth and investment, why limit it to 12 to 1?

    “if that is deemed better public policy.”

    Who DEEMS this better public policy, I have a small bank, maybe they shut me down and give my assets to Warren and his bank, maybe they shut Warren down and his palm beach bank and give his assets to me and my bank, who is the Wizard of Oz that makes this decision? Does he have a bazooka and can threaten me if I don’t like what he says?

    “Think of it this way: Bair is not a construction inpector trying to prevent a real collapse. ”

    He who controls the debt, controls the community. Before bair’s meddling Warren controlled his local community, but then she shuts him down and gives me his assets and debt slaves, I live in north carolina, why does it make sense to give me warrens stuff in west palm beach and I am in north carolina? I don’t get it. Large mismanagement from mt. olympus 5 million miles away will never be as good as more local management will it?

    “if the bank goes out of compliance there is no good reason I can think of why our TOTAL deposits cant be transferred into another better run bank to use.”

    LOL! Goldman sachs and others went out of compliance, they should have been shut down and given to warren and his bank, but that is not how it happened did it?

    Evil bankers and greedy power mongers love naive people like you. William black probably doesn’t think much of your skeptical skills right now.

    “Hope this helps shed some light and eliminate some distrust I detect in your writing.”

    I am amazed by the people who when presented with facts that someone has wronged them, continue to disbelieve how they got suckered. Let me make a suggestion for you, there is a show on CNBC called AMERICAN GREED, it comes on most nights, they have many stories how people trust and get suckered all over the USA day after day – you should watch it. Stacey Keach of Mike Hammer fame narrates.

    Reply

    Matt Franko Reply:

    Dissent
    You miss my point entirely. The point was why not unlimited FDIC insurance that Warren advocates for, then you go off on these tangents.
    GS: Building at 85 Broad St., NY, NY is still standing last I checked. GS was not a bank they were a Broker-Dealer (big difference), ironically, they and others transformed INTO a bank now to help them get out of their mess thru FDIC backed bond issuance. Prior to last fall, I dont think there were any strict regulatory ratios for Broker-Dealers like there were for commercial banks so they probably COULD have gone to 500:1 as you say, just would have been hard even for GS to find enough suckers to fund them to those levels! Im not sure it is accurate that, as you say, GS “went out of compliance”, after this mess we will probably get more definitive financial regs. on Broker-Dealers for sure, albeit after the carnage.

    Tell Mish (btw who the h is “Mish” you act as though we are on a first name basis with all these psychos you read) that “depositors” are NOT “investors”, again BIG difference. We depositors just need a place to park our working cash and process checks and deposits and so forth, should not have to due diligence for just those services, and it shouldnt matter how large our accounts are for FDIC as the banks dont actually use our deposits for lending.

    When they close banks they look for compatible geographic footprint or just keep the existing branches open with new signage.

    Resp,

    Mike S Reply:

    I agree – the cost of the due diligence is higher than the benefit provided for a place to park cash. The deposits should be insured 100% and slightly stricter regulation on banks investment portfolios.

    Aggregate Demand Management Reply:

    Matt I appreciate your comments, but there were many points I made and you seemed to only address one of them, here is the one I would like more attention on:

    ” no FDIC insurance. If depositors want safety, they shouldn’t give deposits to banks who give money willy nilly out to drug lords who are illegal aliens like I saw in Miami – you do not agree?”

    Mike S. in Miami I saw loan officers who were cousins of drug dealers give them money for houses and trucks and boats, knowing it would never be repaid when the loan was made – they didn’t care – all they wanted was their bonus – whoever got stuck with that crappy loan was not their problem – multiply this by banks all over the country and well – you see the problem – as William Black said – the best way to rob the bank is to own it. This affects me and you because they are putting out dollars that compete for resources that we all consume to people who have no respect for those dollars or work ethic. Now benjamin franklin said the price of freedom is eternal vigilance, but you are admitting you don’t want to be vigilant, you want someone else to do that work. The problem with turning over the power of loans to a crooked loan officer is that he probably doesn’t give one flip about you or your kids in the grand picture and could care less wether you fall off the face of the planet tomorrow or not. So lets say you lived in Miami, and you found out this crappy bank whose loan officers was giving out bad loans to drug dealers, and without FDIC insurance, the system is self regulating, the people closest to the bank and within the local area with the best local info can reward or punish the bank. But your way requires some god regulator up on mt. olympus 5000 miles away who may not know that the local loan officer is making crappy loans to his drug dealing illegal alien cousin, so the decision making is less efficient. This is the moral hazard that FDIC insurance provides from what I see. I was a IT engineer in a former life. Spreading out management and control to more local and dispersed routers makes the internet work, if it was 1 billion terminals to 1 central server, it would all blow up, kinda like the curent FDIC/banking system. It is a BAD design.

    Aggregate Demand Management Reply:

    I want to follow up while it is on my mind, Warren admitted once there was an old woman that wanted a loan for a lawn mower, he did not think it was going to be a good performing loan, but his boss told him to make the loan anyways. See the problems already from just Warren’s personal example?

    Who could warren complain to that this was a bad loan and make someone challenge his boss’s judgement? Maybe the old woman was a friend of warren’s boss from many years back, where are the checks and balances? Maybe the woman’s doctor knew she was about to die from Cancer, how could Warren know this? Maybe warren and this woman’s grandkids had a family fued – who knows?

    I can come up with millions of scenarios why warren or warren’s boss being the sole people to make this loan has too many checks and balances problems. I made a lot of loans in my youth as well, so I am very familiar with what it takes to make good or bad loans in a local community.

    In miami, thousands of illegal aliens could come in and get loans. I understand we don’t want to be like Japan and have the demographic problems they have because they are so strict on immigrants coming into their nation. Still loan rules and standards were completely thrown out the window the past few years and it is a total disgrace.

    I knew about the loan problems in Miami, the condos that were being overbuilt. With no FDIC, I would pull my deposits from this bank because I knew their future, better than any regulator millions of miles away in washington. The crime got so bad because they gave so much easy money to new immigrants, I had to leave Miami, this is no way to grow a nation or bring immigrants into our little slice of heaven – pathetic.

  3. GeorgeR Says:

    Hi ADM…while I’m not an expert in autism [not sure anyone is] nor did I see biography channel program to which you referred, I have another perspective or two for you.

    First, cancer [after accidents] is the leading killer of children. My own sense of this is that future parents should detoxify before they conceive, detoxification before conception.I personally have a massive amount of lead in me and in doing my own research I made the discovery re children. Autism to me is just another condition caused by the toxic world in which we live. I put up a web site several years ago, still functioning but with little new research, as babieswithouttoxins.org.

    Second, Roger Williams in 1957 wrote the classic Biochemical Individually in which he stated that DNA is a demand for nutrition and that even though genetic expression of the DNA is faulty, given the proper nutrition the cell [and the person] will be fine.

    So for health we’re interested in what nutrients our DNA demands, then its exercise and then diet with focus on alkalinity. There is now a way to identify what nutrients your DNA demands….see
    dnaasnutrition.com.

    Hope this helps.

    Reply

    Aggregate Demand Management Reply:

    “First, cancer [after accidents] is the leading killer of children. My own sense of this is that future parents should detoxify before they conceive, detoxification before conception.”

    I agree, I have read many research reports that the humans today have MANY chemicals affecting our endocrine systems that were not around last century. Puplava had a guest on a week or 2 ago talking about our water supplies in various cities and countries and how there is no filtering of these endocrine altering agents that is killing all of us. http://www.netcastdaily.com/broadcast/fsn2009-0704-2.mp3 Here is the link, listen and let me know what you think.

    This is a travesty, with all our technology and science, we knowingly allow our citizens to consume water that is killing all of us because no one has the initiative to filter this stuff out, even though the technology is available.

    “Autism to me is just another condition caused by the toxic world in which we live. I put up a web site several years ago, still functioning but with little new research, as babieswithouttoxins.org.”

    Younger birthing mothers would have less of these chemicals as they wouldn’t have been exposed as long, and better filtration of these chemicals would help too. I do not foresee a future where we remove the products that all these chemicals are a byproduct of, however that is no excuse that we don’t do a better job filtering.

    “So for health we’re interested in what nutrients our DNA demands, then its exercise and then diet with focus on alkalinity. There is now a way to identify what nutrients your DNA demands….see
    dnaasnutrition.com.”

    I will check out the links, but for years I have seen several doctors overdose on vitamin C (2 or 3 times or more the RDA of C), and now I read new research that too much vitaman C or E can actually slow down your metabolic rate and make you overweight and diabetic. I have also read a lot of research about calorie restricted diets being the best way to extend your lifespan, 1000 calories a day. I bicycle several hours a day, I swim usually an 30 min to an hour a day, I have amazing muscle mass, but I have not been able to cut my calories to 1000 a day, I get far too hungry. There is a protein – myostatin – that some are genetically predispositioned too, they build extreme athletic bodies with very dense muscle mass and no fat.

    Reply

  4. Dissenting Comments Encouraged Says:

    GeorgeR, http://science.slashdot.org/story/09/06/16/2156200/Renowned-Geneticist-Analyzes-Consumer-DNA-Tests

    I agree with genetic testing, but be wary of what is available to the retail consumer right now, there is a lot of unknowns and you need to keep a skeptical eye open. The above geneticist gives you more info on some of these tests.

    “…[Francis] Collins, who played a central role in the Human Genome Project and is rumored to be the next head of the National Institutes of Health, announced at the Consumer Genetics Conference in Boston last week that he had had his genome analyzed [using a made-up name] by the big three of direct-to-consumer genetic testing: 23andMe, Navigenics, and DecodeMe. Collins said that sequence-wise, the tests ‘appear to be highly accurate’: there were almost no differences in the genotype information generated in the three different analyses. But there were significant differences in the numbers of genetic variations used to calculate disease risk, as well as the final risk score. … For example, one company used 5 single nucleotide polymorphisms, or SNPs, to calculate risk for a particular disease, pronouncing Collins at low risk. Another used 10 SNPs, placing him at high risk, and the third used 15, concluding that he is at average risk.”

    Also another interesting study below, all my celebate church going friends who chose to abstain from sex until marriage (usually in their late 20′s) probably won’t like this research.

    http://science.slashdot.org/story/09/07/01/2249208/Daily-Sex-Helps-Improve-Fertility

    “While fertility studies lately seem to have been exclusively focused on in vitro fertilization [IVF], new data coming out of Australia may help with unaided successful conceptions. The study has found that men who have ejaculate daily produce sperm with less damaged DNA. While such actions decrease sperm concentration, it does increase motility, meaning healthier sperm have a better chance of making it all the way to the egg. Good news, as another report has found severe chromosome abnormalities in over 90% of IVF eggs, meaning artificial insemination is just now discovering a whole new field of problems

    Reply

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