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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 October 12th, 2008

Crude oil demand

Posted by WARREN MOSLER on 12th October 2008


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World demand still projected to increase.

Crude Oil Rises From 13-Month Low on European Bank Rescue Plan

by Gavin Evans

The International Energy Agency, an adviser to 28 nations, on Oct. 10 cut its forecast for global oil demand for 2008 to 0.5 percent, the lowest since 1993. Demand next year will rise by 700,000 barrels a day to 87.2 million, 440,000 barrels fewer than the Paris-based agency projected a month earlier.


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Posted in Articles, Oil | 4 Comments »

European leaders vow Bank guarantees, bid to stop financial rot

Posted by WARREN MOSLER on 12th October 2008


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Hopefully this will buy some time to hope for a general recovery of output and employment that contains the national deficits.

This plan is also coordinated but still relies on the national government’s balance sheets.

European Leaders Vow Bank Guarantees, Bid to Stop Financial Rot

By James G. Neuger

Oct. 12 (Bloomberg) — European leaders agreed to guarantee bank borrowing and use government money to prevent big lenders from going under, trying to stop the financial hemorrhage and stave off a recession.

At a summit chaired by French President Nicolas Sarkozy, leaders of the 15 countries using the euro offered their most detailed battle plan yet for bandaging the crippled credit markets and halting panic among investors.

The key measures announced today are: a pledge to guarantee new bank debt issuance until the end of 2009; permission for governments to shore up banks by buying preferred shares; and a
commitment to recapitalize any “systemically” critical banks in distress.


All good, but depends on national governments for funding.

France, Germany, Italy and other countries will announce national measures tomorrow, Sarkozy said.

A communiqué gave no indication of how much governments are willing to spend or the size of bank assets deemed at risk,

Or how much the national governments are able to spend before markets stop funding them.

leaving unclear the ultimate cost to the taxpayer.

Also, these are not fiscal measures that directly add to demand.

Nor do they address the need to fund in USD which the eurozone nations don’t have.


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Posted in Articles | 6 Comments »

Macro update

Posted by Sada Mosler on 12th October 2008


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Here’s my take on the events of the last year:

Paulson/Bush/Bernanke pressed a ‘weak dollar’ policy to use exports to sustain GDP, rather than a fiscal package to support domestic demand.

This kept the US muddling through but took demand from the rest of world.

The rest of world had become ‘leveraged’ to their exports to the US.

As US imports fell and US exports accelerated, the rest of world economies slowed and support was removed for their credit structures.

No government moved to support domestic demand until the modest US fiscal package of a few months ago. It was too little too late.

None of the credit based economies have the institutional structure to sustain growth and employment with soft asset/collateral prices.

No private sector loans are ‘safe’ when collateral values and income are falling.

The lesson of Japan is that with a general deflation of collateral values it took a federal deficit of at least 8% of GDP just to stay out of recession.

Not sure what it will take here.

The payroll tax holiday would be a good start and probably sufficient to reverse the shortfall of demand.

The US, UK, Japan, etc. will survive a slowdown due to their ‘automatic stabilizers’ that will rapidly increase deficits until they are sufficiently large to turn things around.

The eurozone doesn’t have the institutional structure that will allow this process to work as it does in the other nations with non-convertible currencies.

The eurozone can only hope the rest of world recovers quickly and supports eurozone exports.

Without a US fiscal package US domestic demand will remain weak until the deficit gets large enough via falling tax revenue and rising transfer payments.

Without foreign CB buying of USD, US imports will not increase enough to support rest of world demand.

All this means a decisive US fiscal response, such as the payroll tax holiday, will support:

  • Both US and rest of world aggregate demand.
  • Support the financial sectors from the bottom up.
  • Increase US real terms of trade.

(Not to forget the need for an energy package to keep higher crude prices from hurting our real terms of trade and reducing our standard of living.)


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Posted in Exports, Inflation, Recession, USA | 7 Comments »