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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 November, 2008

Tresury credit default swaps soar

Posted by WARREN MOSLER on 28th November 2008


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>   
>   On Wed, Nov 26, 2008 at 11:31 PM, Scott wrote:
>   
>   FYI. More insanity. Love it when the guy asks where the money comes
>   from. What are your thoughts on selling CDS on Tsy’s?
>   

I’d sell it!

I also suggested the Fed sell it.

They seemed to like the idea, but no action so far.

Treasury Credit Swaps Soar to Record on New $800 Billion Pledge

By Michael Shanahan and Abigail Moses

Nov. 26 (Bloomberg) — The cost of hedging against losses on U.S. Treasuries surged to an all-time high after the Federal Reserve’s new $800 billion effort to combat the financial crisis raised concern about how the ballooning debt will be funded.

Benchmark 10-year credit-default swaps on U.S. government bonds jumped six basis points to 56, according to CMA Datavision prices at 12:20 p.m. in London. The contracts have risen from below two basis points at the start of the credit crisis in July 2007.

“There is a lot more money to be spent and it is not clear how it is going to be financed,” said Tim Brunne, a Munich-based credit strategist at UniCredit SpA. “Credit spreads don’t reflect expectation of default, just the uncertainty over the enormous cost to the government.”

The Fed’s new plan to kick-start markets for loans to students, car buyers, credit-card borrowers and small businesses means it will be taking on credit risk by buying debt. The central bank pledged to purchase as much as $500 billion in mortgage-backed securities as well as up to $100 billion in direct debt of Fannie Mae and Freddie Mac, the world’s two largest mortgage buyers, and Federal Home Loan Banks.

“They are loading their balance sheet with credit risk,” Brunne said in a phone interview. “Where does all the money come from?”

Five-Year Contracts

The cost of five-year contracts on Treasuries rose 3 basis points to 50.5, after earlier trading as high as 52, CMA prices show. That’s higher than the debt of Finland, Germany and Norway, according to data compiled by Bloomberg.


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Posted in Articles, TREASURY | 9 Comments »

The Great Roubini

Posted by WARREN MOSLER on 28th November 2008


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Yes, he’s been calling for an economic collapse, that began in July. But looks like yet another case of ‘better lucky than good’ as he here demonstrates a lack of understanding of monetary and fiscal policy.

Roubini: Policies will lead to “much higher real interest rates on public debt”

From Dr. Roubini: Desperate Measures by Desperate Policy Makers in Desperate Times: the Fed Moves to Radically Unorthodox Policies as Economy Is in Free Fall and Stag-Deflation Deepens

Stag-deflation? Whatever.

Another batch of worse than awful news greeted today Americans getting ready for the Thanksgiving holiday: free falling consumption spending, collapsing new homes sales,

They’ve been very low but relatively flat for a while, as actual inventories of new homes for sale fell to multiyear lows.

falling consumer confidence, very high initial claims for unemployment benefits,

Initial claims actually fell a bit, as did continuing claims. And personal income is still growing though at a modest 0.3%. For some reason he has turned to sensationalism. Must be the overdose of TV cameras.

collapsing orders for durable goods. It is hard to get any worse than this but the next few months will serve even worse macro news. At this rate of contraction as revealed by the latest data it would not be surprising if fourth quarter GDP were to fall at an annualized rate of 5-6%.

And Roubini concludes:

[T]he Fed, together with the Treasury, started to implement some of the “crazier” policy actions that we discussed last week: a) outright purchases of agency debt and MBS to the tune of a whopping $600 billion;

This is far from crazy. The treasury should have been funding the agencies from inception. The fact that the government is finally coming around to this after more than 30 years is a move towards sanity.

b) another $200 billion of loans to backstop the consumer and small business credit markets (credit cards, auto loans, student loans, small business loans);

OK, but he doesn’t point out that the securities must be rated AAA and appropriate ‘margining’ will be applied. That is very conservative banking by any measure. Not to mention the $20 billion first loss piece the treasury is putting up from its TARP funds. If any agent is ‘crazy’ in this case it’s the treasury, not the Fed.

c) an effective policy of aggressive quantitative easing as the balance sheet of the Fed – already grown from $800 billion to over $2 trillion – will be expanded further as most of the new bailout actions and new programs will be financed via injections of liquidity

When the Fed buys securities it credits member bank reserve accounts, which now pay interest. (Is that what he means by ‘financed via injections of liquidity?’ What’s the problem here?)

rather than issuance of public debt.

Interest bearing reserve accounts are functionally identical to one day treasury securities.

The Fed is buying financial assets and the sellers in exchange have interest bearing deposits.

What’s the problem?

This is all nothing more than convoluted rhetoric that has not been thought through.

Effectively the Fed Funds rate has been abandoned as a tool of monetary policy …

That makes no sense. The FOMC continues to set a target for the Fed funds rate which the NY Fed continues to be responsible for hitting. That’s Geitner’s main job- to keep the Fed funds rate at the FOMC’s target. The Fed funds rate obviously remains a tool of monetary policy.

the Fed is now relying on massive quantitative easing and direct purchases of private sector short term and long term debts to try to aggressively push down short term and long term market rates.

Yes, in addition to its Fed funds target, the Fed is also targeting longer term rates. In fact, the Fed has always had the option of targeting the entire term structure of rates.

But that is not how quantitative easing has been defined. It was defined in the context of Japan, where the BOJ bought JGP’s to sustain excess reserves in the banking system under the mistaken notion that increasing the quantity of reserves would somehow alter the real economy. It was about quantity, not price. And it did not work as they expected.

Desperate times and desperate economic news require desperate policy actions

Clever.

The Treasury will be issuing in the next two years about $2 trillion of additional debt

It may net spend that much, and issue that much debt along with that net spending.

These policies – however partially necessary – will eventually lead to much higher real interest rates on the public debt

Maybe, but interest rates go up because the Fed raises them or because the markets anticipate the Fed will raise them. It is mainly about anticipating the Fed, rather than funding pressures, particularly for short term securities.

and weaken the US dollar

Yes, deficit spending that does not have positive supply side effects does have a weakening effect on the dollar, but it may simply stop it from getting as strong as it may have, rather than actually push it down vs other currencies.

once this tsunami of implicit and explicit public liabilities and monetary debt

What is ‘monetary debt’ as distinguished from ‘public liabilities?

driven by rising twin fiscal and current account deficits will hit a world where the global supply of savings is shrinking – as most countries moves to fiscal deficits thus reducing global savings

Government deficits in their local currency increase the savings of the non government sectors by the same amount.

Government deficit = private sector savings (net financial assets) as per national income accounting.

– and foreign investors start to ponder the long term sustainability of the US domestic and external liabilities.

Start to ponder???

To continue to attract massive inflows of capital, the U.S. might have to start paying higher interest rates on the public debt.

Totally inapplicable with a non convertible currency and a floating exchange rate. The causation is domestic credit expansion funds foreign savings, not vice versa. Loans create deposits. He’s probably got that backwards as well.

This is one of the concerns that Volcker (previous post) expressed in early 2005.

Yes.


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Posted in Articles, Fed | 6 Comments »

2008-11-28 USER

Posted by WARREN MOSLER on 28th November 2008


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NAPM Milwaukee (Nov)

Survey n/a
Actual 35.0
Prior 42.0
Revised n/a


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Posted in Daily | No Comments »

Response to former EuroCom staffer

Posted by WARREN MOSLER on 26th November 2008


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Dear all-

As one of the European Commission staff members responsible for macroeconomic analysis in the late 1970s and the 1980s, I am among the “depositaires de la mémoire collective”. So it may not surprising that the emerging pressure for a huge fiscal stimulus on top of the already comprehensive bail-outs of banks and now automobile producers reminds me of the call for “concerted action” in the 1970s and which lead to one of biggest fiscal boosts in post-war economic history, although unequally implemented by the various OECD countries. As some of you will remember the “concerted action” was followed by the second oil shock leading to a large deterioration of the EU’s current external account.

Yes, there is a similar risk today if there is a return to even moderate levels of growth and employment, if there isn’t a policy that also results in a substantial reduction of crude oil consumption.

And, unfortunately, since the effects on domestic demand of a fiscal stimulus normally take at least a year to come through the concerted action impacted on the economy at the wrong time and can now also be classified as the major economic policy failure of the post-war period.

With respect to the present situation I have three concerns or questions:

What will be the delays with which the huge stimulus package(s) will have effect on the real economy?

I have proposed a ‘payroll tax holiday’ for the US, where the treasury makes all FICA payments for employees and employers for an indefinite period of time.

This will have an immediate, positive effect on aggregate demand and will also move to quickly repair most credit quality from the ‘bottom up.’

What the banks and autos, for example, need most are consumers who can afford their mortgage payments and afford to purchase cars. The current ‘top down’ approaches, while perhaps ‘necessary’ don’t address this issue.

The credit losses of today in many cases were not there a year ago, and are in no trivial way a responsibility of government that did not make sufficient fiscal adjustments to sustain aggregate demand. This has yet to be understood, and so instead the victims are often being blamed and punished, and conditions continue to deteriorate.

Is it now appropriate to neglect the huge body of economic analysis underpinning the findings and arguments of Lucas (and Ricardo)? In particular, since the current problem is in large part a lack of cash is there not now a major risk that the fiscal stimulus will go directly into an increase in household and enterprise saving without any effects on demand?

If that is the case, it means a larger fiscal adjustment is in order.

Tax liabilities reduce aggregate demand, government spending adds to it. The higher the savings desires, the lower the tax liabilities need to be to ‘support’ a given level of government spending.

Spending by central governments (not the national governments in the eurozone, which is a serious, separate matter) with non convertible currencies and floating exchange rate policies is not constrained by revenues. Operationally, said spending is a simple matter of making an entry in the governments own spread sheet.

Yes, ‘over spending’ does carry the (non trivial) risk of ‘inflation,’ but not the risk of solvency or operational sustainability.

Would anybody actually be able to identify and examine the alternatives for public policy in the present situation, as between say:

Further public acquisition of more or less toxic assets, including even acquisition (wholly or in part) of the mortgaged houses and properties in several of the major economies.

A US payroll tax holiday would immediately begin to reduce loan delinquencies which are the root of the credit issue. banking is necessarily pro cyclical and attempting to change that is a counterproductive exercise.

The place for counter cyclical policy is fiscal policy, as the government is the only entity without a solvency issue (again, national governments in the eurozone do have solvency issues due to current eurozone institutional arrangements.)

It is also clear to me that altering interest rates is at best a very weak force for sustaining aggregate demand with growing evidence that lower rates reduce demand through the personal income channel. With governments net payers of interest, the non government sector is a net saver, and cuts in rates necessarily lower interest income of the non govt sector. At the same time, in a downturn credit worthiness of borrowers deteriorates, and the interest rates borrowers pay does not fall as quickly as rates for savers fall. instead, margins for lenders increase to reflect the increased risk.

Also, all the CB studies i have seen show output and inflation responses to interest rate changes are at best relatively small and seem to have maybe a two year lag, which generally takes them across the next fiscal cycle.

Further nationalization of the failed banks and other corporations, with, of course, the options of re-privatizing them once the markets have stabilized.

My first banking job was in the early 70′s, when US housing starts peaked at over 2.5 million per year, with a population of only 215 million people, and all facilitated by sleepy savings banks run by very modestly paid bankers who did nothing more than gather deposits by giving away small kitchen appliances and make mortgage loans with up to 75% loan to value ratios.

In the latest cycle, US housing peaked at 2.1 million annual units, with a population of over 300 million people, and it was termed ‘gang busters’ and an unsustainable bubble.

Banks are agents of government that exist for public purpose. Let me suggest both theory and experience shows that complex finance preys on the real sector, rather than enhances it.

That said, we do have to play the cards we are dealt, so let me continue by saying the eternal lesson of banking is that the liability side is not the place for market discipline. Instead, market discipline is best applied on the asset side, with (strict) regulation and supervision of capital ratios and asset quality. We have again learned that the ugly way, as we watched interbank conditions deteriorate as the fed agonizingly slowly worked towards making sure its member banks have secure sources of funding at the fed’s target rates. And they still aren’t there yet. It yet to be fully recognized that the Fed demanding collateral when it lends to member banks is redundant- the FDIC and OCC already regulate bank capital and asset quality, and the FDIC already allows the banks to fund all their assets with FDIC (govt) insured deposits.

What is also missed by the media, most mainstream economists, and even senior fed officials, is that monetary policy is about price, and not quantity. fed actions do not alter net financial assets of the non govt sector, as a simple matter of accounting. Fed actions do alter various monetary aggregates, but in general this alteration per se has no further economic ramifications. i recall that after the ’500 billion euro day’ there was a futile search of the ECB’s numbers published the following week to see ‘where the money went’ and no one could find it.
And the us stock market was moving wildly up or down when the size of a Fed repo operation was announced.

Even today the news continues about the fed ‘throwing trillions of liquidity at the markets’ ‘blowing up it’s balance sheet’ as if that mattered beyond the setting of interest rates.

The same media, economists, and officials also miss the fact that with non convertible currency and floating FX causation runs from loans to deposits. Bank lending is (in general) not constrained by ‘available funds’ as it would be with a fixed exchange rate policy. ‘Giving’ banks ‘money’ (reserve balances) to get them to lend is conceptually absurd, for example, as is criticizing banks for ‘hoarding money.’

These are all throw backs to the era of the gold standard, where there were actual supply side constraints on the convertible currency needed for reserves where depositors demanded that convertible currency for withdrawals. And even the treasury had to compete for convertible currency via interest rates when it borrowed to spend. This is still the case today with the odd fixed exchange rate policies that currently are in force.

The problem with the fiscal stimulus is, I think, that it will take time to get adopted and impact on the economy and that, consequently, it is unlikely to prevent a further deterioration of the overall economic prospects during the next twelve months, a period which may be critical for the overall financial and economic stabilization.

A payroll tax holiday would have immediate, substantial results, as they currently remove about $1 trillion annually from us workers and businesses, and are highly regressive.

Additionally, $100 billion of federal revenue sharing for states to use for their operating budgets would immediately reverse the troubling trend towards the reduction of essential public services due to state revenue shortfalls.

When there is undesired excess capacity, as is the case today, government has the option of directing it towards either public or private goods, services, and investment. The payroll tax holiday directs that output towards restoring private sector goods and services, while state revenue sharing results in increased public goods and services.

The choice is purely political. My proposals are based on what I think are politically desired at this time.

Maybe, and as some observers have already suggested, the Swedish experience could provide some lessons for understanding the issues at present.

I would sincerely welcome a debate on these issues.

For the eurozone, under current arrangements the only entity without a solvency issue is the ECB. What is needed is some channel for the ECB to conduct the type of counter cyclical fiscal policy needed to restore eurozone output and employment. Otherwise, the eurozone will continue to perform well below its potential.

Let me last say that the Fed’s swap lines to many of the world’s CB’s are qualitatively very different from its domestic monetary operations. The funds advanced are functionally no different from purchasing ‘$ bonds’ from the various CB’s around the globe, yet have remained far below all radar screens, including Congress’s. Do you think the US congress would approve a $30 billion loan to Mexico? A $350 billion loan to the ECB? Maybe, but I suspect there would be, at a minimum, much debate. Yet the fed has been allowed to do this, and in ‘unlimited quantities’ for the BOJ, BOE, SNB, and ECB’ without any oversight.

Tax liabilities reduce aggregate demand, government spending adds to it. The higher the savings desires, the lower the tax liabilities need to be to ‘support’ that spending.

Sincerely,
Warren Mosler


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Posted in Proposal | 3 Comments »

Review of today’s government actions

Posted by WARREN MOSLER on 26th November 2008


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Two ‘bailouts’ today, the Fed asset purchase program and Citibank:

Comments on the asset purchase program:
Major theme- the answer to the housing and automobile issue is consumers with enough income to be able to afford their mortgage payments and car payments along with expanding employment prospects to ensure the ability to repay in full over time.

The Fed’s function is to set the interest rate. This is all in the realm of monetary policy. Income adjustment at the macro level is a function of fiscal policy.

Specifically on the securities purchase announcement:
They finally got it right – the Fed purchases the financial assets, not the treasury. The TARP should have been a Fed operation.

What the fed does is set interest rates. It’s about the price of money, not quantity of money.

Buying agency collateral will lower the interest rates on agency mortgages. It does not ‘pump in money’ or anything like that.

Buying other collateral will lower interest rates for those types of lending.

This is what ‘monetary policy’ is all about – setting interest rates in the economy, and not quantity adjustments.

This does not directly add to the demand for mortgages or the demand for other loans.

It does lower interest rates for those loans with the hope that the lower interest rates increase borrowing to spend on houses, cars, and other purchases.

They could have done this a year ago before it became a crisis with no ill effects if there was no crisis.

Letting the crisis happen first did not serve public purpose.

This foot dragging due primarily to not fully understanding the fundamentals of monetary operations has contributed to the crisis.

While this ‘top down’ approach does improve the operations of the financial sector, it does not give them what they fundamentally need, which is borrowers with sufficient incomes to make their payments, aka declining delinquency rates.

This is directly achievable by the likes of a payroll tax holiday where the treasury makes all FICA contributions, or direct spending via revenue sharing to the states for their operating budgets and infrastructure projects.

Comments on the Citibank bailout:
What they did right is break the pattern of taking 79.9% of any remaining shareholder equity, which has meant the government has been the hand of death for shareholders. There is enough risk priced into stocks with that questionable addition.

What they did wrong is complicate matters by doing more than buying a sufficiently large preferred equity position to accomplish exactly what the rest of the relatively complex package accomplished.

This was probably done to minimize usage of funds allocated under the TARP.

They are also perhaps starting to acknowledge that a substantial part of Citibank’s difficulties are due to the failure of government to sustain reasonable levels of output and employment.

Assets that were not problems a year ago have become problems today as the economy has deteriorated due to a lack of aggregate demand.

This might be a good first step towards government fessing up and taking responsibility for the collateral damage of its own fiscal and monetary policies, and stop blaming the victims by putting them to death when they require assistance. In fact, if I were Obama I would take this approach.

The government already gets 30% of all earnings through the corporate income tax. If they want more, they can raise that tax rather than demand a percentage of the outstanding shares.


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Posted in Daily, Government Spending | 12 Comments »

Orszag again

Posted by WARREN MOSLER on 26th November 2008


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Obama picks Orszag to run budget office

By Jeanne Sahadi

President-elect Barack Obama on Tuesday nominated Peter Orszag to head the White House’s Office of Management and Budget (OMB), which is the president’s chief number-crunching department.

As OMB director, Orszag, 40, would prepare the president’s federal budget proposals for Congress and analyze the effectiveness of government programs and policies, as well as have a big role in determining funding priorities for federal dollars.
Orszag has also been a frank voice on the growth in the country’s deficit and the shortfalls in the Social Security and Medicare programs.

“The nation is on an unsustainable fiscal course,” Orszag said in September, before the Treasury and Federal Reserve committed over a trillion dollars to stem the credit crisis, at least some of which the government is expected to make back over time.


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Posted in Articles, Obama | 7 Comments »

New Fed securities purchases

Posted by WARREN MOSLER on 26th November 2008


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I like this part, after all the criticism of lenders who relied on credit agency ratings:

“Each month, the Fed will auction off a fixed amount of one-year loans based on competitive bids to borrowers who will use the loans to purchase newly- or recently-issued AAA-rated consumer and small business ABS.”


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Posted in Fed | No Comments »

2008-11-26 USER

Posted by WARREN MOSLER on 26th November 2008


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Karim writes:

Lots of numbers today- none of them real good.

MBA Mortgage Applications (Nov 21)

Survey n/a
Actual 1.5%
Prior -6.2%
Revised -6.2%

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MBA Purchasing Applications (Nov 21)

Survey n/a
Actual 261.60
Prior 248.50
Revised n/a

 
Up a bit from very low levels.

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MBA Refinancing Applications (Nov 21)

Survey n/a
Actual 1254.00
Prior 1281.20
Revised n/a

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Durable Goods Orders (Oct)

Survey -3.0%
Actual -6.2%
Prior 0.8%
Revised -0.2%

 
Big fall.

Karim writes:

  • -6.2% m/m
  • -4% m/m ex-aircraft and defense (after -3.2% and -2.3% prior two months)

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Durable Goods Orders YoY (Oct)

Survey n/a
Actual -11.7%
Prior -2.5%
Revised n/a

 
Big fall in a longer term down trend.

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Durables Ex Transportation MoM (Oct)

Survey -1.6%
Actual -4.4%
Prior -1.1%
Revised -2.3%

 
Not good either.

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Durables Ex Defense MoM (Oct)

Survey n/a
Actual -4.6%
Prior -1.8%
Revised n/a

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Durable Goods ALLX (Oct)

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Personal Income MoM (Oct)

Survey 0.1%
Actual 0.3%
Prior 0.2%
Revised 0.1%

 
Income has held up better than expected.

And the consumer has deleveraged substantially.

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Personal Income YoY (Oct)

Survey n/a
Actual 3.3%
Prior 3.2%
Revised n/a

 
Looking lower.

Will get a nice kick up with the coming fiscal adjustment.

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Personal Income ALLX (Oct)

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Personal Consumption MoM (Oct)

Survey -1.0%
Actual -1.0%
Prior -0.3%
Revised n/a

 
Consumption falling even as income continues to increase.

The consumer is recharging his batteries.

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Personal Consumption YoY (Oct)

Survey n/a
Actual 2.3%
Prior 3.5%
Revised n/a

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PCE Deflator YoY (Oct)

Survey 3.3%
Actual 3.2%
Prior 4.2%
Revised 4.1%

 
Down some and more weak numbers to come, but the longer term trend still looks up.

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PCE Core MoM (Oct)

Survey 0.0%
Actual 0.0%
Prior 0.2%
Revised n/a

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PCE Core YoY (Oct)

Survey 2.2%
Actual 2.1%
Prior 2.4%
Revised 2.3%

 
Higher than expected but down some, and more weak numbers on the way, but still at the high end of the Fed’s comfort zone.

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Initial Jobless Claims (Nov 22)

Survey 535K
Actual 529K
Prior 542K
Revised 543K

 
Remains very high.

Karim writes:

  • Initial claims only decline 14k to 529k after 80k rise in prior 4 weeks
  • Similar bounce with continuing, drop of 54k to 3962k (had risen 295k in prior 3 weeks)

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Continuing Claims (Nov 15)

Survey 4080K
Actual 3962K
Prior 4012K
Revised 4016K

 
Off the highs but remain very high.

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Jobless Claims ALLX (Nov 22)

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Univ. of Michigan Confidence (Nov F)

Survey 57.5
Actual 55.3
Prior 57.9
Revised n/a

 
Back through the lows.

Karim writes:

  • New low for headline confidence, from 57.9 to 55.3
  • 5yr fwd inflation expectations unchanged at 2.9

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New Home Sales (Oct)

Survey 441K
Actual 433K
Prior 464K
Revised 457K

 
Still sliding.

Karim writes:

  • -5% m/m
  • Mths supply rise from 10.9 to 11.1

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New Home Sales Total for Sale (Oct)

Survey n/a
Actual 381.00
Prior 414.00
Revised n/a

 
Maybe this is why sales are falling- no new homes left for sale!

Falling sharply.

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New Home Sales MoM (Oct)

Survey -5.0%
Actual -5.3%
Prior 2.7%
Revised 0.7%

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New Home Sales YoY (Oct)

Survey n/a
Actual -40.1%
Prior -34.1%
Revised n/a

 
Might be leveling off at very low levels.

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New Home Sales Median Price (Oct)

Survey n/a
Actual 218.00
Prior 221.70
Revised n/a

 
Prices falling but not collapsing.

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New Home Sales TABLE 1 (Oct)

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New Home Sales TABLE 2 (Oct)


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Posted in Daily | No Comments »

Re: Government support for GSE assets and debt

Posted by WARREN MOSLER on 25th November 2008


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Yes, the Fed is the agency that’s set up to buy financial assets, not the treasury as per the TARP.

They got that one wrong, this one right, in that respect.

Of course, no excuse not doing this a year ago- more evidence of a failure to grasp basic monetary operations.

>   
>   Just hitting the tapes!
>   *FED TO LEND UP TO $200 BLN TO INVESTORS IN ABS :FNM US, FRE US
>   *FED SETS UP TERM ASSET BACKED SECURITIES LOAN FACILITY :FNM US
>   *FED TO BUY MBS THROUGH ASSET MANAGERS, STARTING BY YEAR-END
>   *FED TO START BUYING GSE OBLIGATIONS NEXT WEEK :FNM US, FRE US
>   *FED TO BUY DIRECT GSE OBLIGATIONS THROUGH PRIMARY DEALERS
>   *FED PURCHASES OF GSE SECURITIES TO BE OVER `SEVERAL QUARTERS’
>   *FED SAYS SPREADS ON GSE DEBT HAVE `WIDENED APPRECIABLY’
>   *FED ACTION AIMED AT REDUCING COST OF CREDIT FOR BUYING HOMES
>   *FED TO BUY UP TO $500 BLN OF FANNIE, FREDDIE, GINNIE MAE MBS
>   *FED TO BUY UP TO $100 BLN OF `DIRECT OBLIGATIONS’ FROM GSES
>   *FED TO BUY UP TO $600 BLN OF GSE DEBT, MORTGAGE SECURITIES
>   


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Posted in Email | 5 Comments »

Re: Orszag to head OMB

Posted by WARREN MOSLER on 25th November 2008


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(email exhange)

Hopefully it’s something like 3 steps forward and only 1 or 2 steps back…

>   
>   On Tue, Nov 25, 2008 at 1:29 AM, Scott wrote:
>   
>   Looks like Orszag’s the man to get the long run budget “under control”
>   and this is why Obama waited till Tuesday to talk about it in detail. Bad
>   news–the fiscal gap and generational accounting come to the White
>   House (Orszag already incorporated them into CBO reports). As I said
>   before, they may never get to the “long run” with this approach.
>   

Orszag expected to join Obama team Tuesday

Two sources close to the transition tell CNN that on Tuesday, President-elect Barack Obama will officially unveil Peter Orszag as his nominee for director of the Office of Management and Budget at a press conference in Chicago.

Obama hinted at this at an event Monday, when he suggested his Tuesday event would focus on finding cuts in the federal budget to help dig the nation out of the fiscal crisis.

“Full recovery will not happen immediately,” Obama told reporters. “And to make the investments we need, we’ll have to scour our federal budget, line by line, and make meaningful cuts and sacrifices as well, something I will be discussing further tomorrow.”


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Posted in Articles, Obama | 10 Comments »

Re: Heritage Foundation proposal critique

Posted by WARREN MOSLER on 25th November 2008


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(email exchange)

>   
>   On Tue, Nov 25, 2008 at 2:22 AM, Michael wrote:
>   
>   Warren: If you get a moment, I was wondering what your reaction is to
>   this latest Heritage Foundation analysis below. This is certainly an ideal
>   time for our message–new administration, public looking for new
>   answers, skepticism about the downside of deficits, and hugely
>   challenging economic stagnation that almost certainly requires new
>   thinking. –Michael.
>   

You got it!

See below:

How to Successfully Stimulate the Economy

When the economy is struggling, Congress has a tendency to invoke the same tried and failed policies of the past. Typically, these policies promise hundreds of billions of dollars in government spending while doing little to actually revitalize economic activity. The first round of stimulus checks, like those rebates issued in the 1970s and 2001, were a bust, with only a small portion (perhaps less than 30 cents on every rebate dollar) used for consumption. Furthermore, prior government spending on infrastructure such as highways merely transferred–rather than created–wealth.

The 2001 fiscal adjustment was too small to reverse the negative effect of the surplus years that caused the collapse. The 2003 adjustment was much larger and had a larger effect and did result in reasonable growth, but that growth was allowed to bring the deficit down to where it was too small to continue to support growth and employment.

The sub prime fraud driven credit expansion did help prolong the post 2003 upswing, but that boost ended when the fraud was discovered and demand from housing slowed.

During the current period of slow economic growth, Congress should do what it does best: set broad economic policy. Specifically, Congress should concentrate on signaling to investors and workers alike that its principal focus will be on improving pro-growth economic policy, mainly in the areas of tax, energy, and spending policies. The test for distinguishing good stimulus ideas from bad ones should be this: Is the proposal likely to raise the economy to a sustained, higher level of growth?

The broad choice is whether to foster an increase in the consumption of private or public goods.

Tax cuts, for example promote private consumption, where infrastructure spending, for example, is public consumption.

Public consumption can be for short term private consumption (law enforcement, public ceremonies, etc) or for investment in public goods for long term private consumption (building roads for economic investment, monuments for well being investment, etc)

In any case, a growing economy in general requires spending exceed tax liabilities on a continuous basis.

Tax Policy
What can increase risk for investors and businesses? Many factors, of course, but public policy commonly looms largest. For example, tax increases, especially on capital, increase the cost of capital and lower investment returns. When investors are uncertain about whether taxes will increase or stay the same, they can still act as though taxes have risen if they judge the risk of an increase to be nearly equal to an actual increase. And rising uncertainty can have the effect of driving down investments in riskier undertakings. Congress can take the following actions on tax policy:

  • Make the Tax Reductions of 2001 and 2003 Permanent.
    Among the first actions Congress can take to address the current economic slowdown is to make a definitive statement regarding the tax increases scheduled for 2009 and 2011. There are projects, new businesses, and expansions of existing businesses that would be undertaken today if Congress signaled that taxes would be lower in three years.

Maybe some, but the problem now is lack of sales. Taxes that are only on profits aren’t all that influential when profits and sales are expected to decline. While after tax income is always welcome, I’m sure most businesses would vote for an increase in sales as more beneficial than a decrease in tax rates? For example, the autos have operating losses, so tax rates would not alter investment decisions?

  • Since nearly all major capital undertakings last beyond this three-year period, it is likely that making all or most of the Bush tax reductions permanent would stimulate economic activity today as well as in 2011. If Congress increases taxes, then investors will find more favorable economies to support and business owners will, as much as they can, locate their expanded activities in other countries with more favorable tax regimes.

The lower taxes are needed to increase current output and employment via increasing sales. Countries that have high rates of employment in an environment where business can profit attract investment, as in the US in the late 90′s.

  • Accelerate Tax Depreciation

Past economic slumps have proven that accelerating the tax depreciation of capital equipment and buildings or the one-year expensing of business purchases that would otherwise be depreciated over a longer period of time for tax purposes can help during periods of slow growth.

I would suggest that depreciation attempt to follow the actual useful life of assets to not distort investment decisions.

  • Lower the Corporate Profits Tax.

In one area of tax policy, there is now nearly universal agreement: Our federal business taxes are far too high. The U.S. tax rate on corporate profits is the second highest in the world. Why is it not the firm policy of this country’s government to ensure that the corporate profits tax is always below the average corporate income tax of other industrialized countries? Such a policy would enhance our competitive standing worldwide and significantly reduce the incentive for U.S. firms to relocate to lower tax countries.

There is a valid argument that corporate profits not be taxed at all, as the profits are passed through to investors, who should show the income on their annual earnings, as with sub S- corps and LLC’s.

The current 30% corp tax rate and 15% dividend tax get pretty close to this but are still higher than the highest personal income tax rate.

By making the 2001 and 2003 tax reductions permanent and reducing the corporate profits tax by 1,000 basis points, an annual average of 2.1 million more jobs would be created. Indeed, 3.4 million jobs above a current law baseline would be created in 2018 by newly energetic businesses.

Only if there is an increase in sales (retail and wholesale).

I don’t think that proposed adjustment reduces taxes enough relative to government spending to return us to levels of output coincident with, say, 4% unemployment.

These tax changes dramatically increase the level of national output, and household income rises as the result of a healthier economy and lower taxes. In fact, the average household would have $5,138 more to spend or save after paying their taxes, and by 2018 this amount would jump to $9,750.

The initial adjustment isn’t that high and investment made without a population that has sufficient income to buy the new output will not result in a healthy economy, but instead more of what we have now.

Energy Policy
Rapidly increasing prices for gasoline and petroleum-based energy slowed the economy and helped bring about our current recession. Additionally, the effects of such increased energy prices continue to impede job and income growth. If Congress acts to expand energy supplies, forward-looking prices will fall and economic activity will shed off the drag stemming from this sector.

Without cutting gasoline consumption first, any expansion will help the Saudis (currently the only crude exporter with excess capacity) should they decide to again hike crude prices.

The Heritage Foundation’s Center for Data Analysis analyzed the economic effects if domestically sourced petroleum increased by 2 million barrels per day, and it found that such an increase would expand the nation’s output–as measured by the Gross Domestic Product–by $164 billion and increase employment by 270,000 jobs annually.

Yes, it may eventually (10 years down the road) expand output by that much, but during the next few years the increased employment and income you predict would increase gasoline consumption and support higher prices that would reduce our real terms of trade and siphon off our real wealth via the export channel, thereby reducing our real standard of living.

If Congress were to announce greater access to proven reserves, mining activity would immediately begin, capital and talent would leave other parts of the world and travel to the U.S., forward-pricing markets would feel the downward pressure on prices as the result of impending supply increases, and ordinary Americans’ concerns over their economic future would lessen.

I’d guess supply increases in petroleum of only 2 million barrels a day pending for 10 years in the future will not offset the immediate consumption increase.

The other, more fundamental issue is whether we want economic growth that increases energy consumption via burning things.

(Though with all the geopolitical problems associated fossil fuels I’ve often thought it would be nice to use them all up as quickly as possible and get it over with, behind us, and move on…)

Spending Policy
While the attention of most policymakers will be on immediate responses to the current slowdown, the seeming unwillingness of Congress to seriously address the enormous financial challenges from entitlement spending should not go unnoticed.

Many investors and organizations that play key roles in the future of the U.S. economy are worried about long-term growth given the fiscal challenges posed by Social Security’s and Medicare’s unfunded liabilities.

The challenge is only that of any future inflation that spending might induce. Clearly, however, that is not a concern as no one has ever published an inflation warning from those programs. And no one has expressed concern that the elderly are consuming too many real resources, or that as a nation we should reduce health care services.

At a time when the economy is slowing and the voice of Congress, as well as its actions, can affect economic activity, policymakers should take concrete steps that will announce their intention to address unfunded liabilities in these important programs. While reforms in these programs may be beyond what this Congress can accomplish, it is possible to signal change by reforming the budget rules.

As above, until there is a case to make that those expenditures will cause politically undesired levels of inflation there is no evidence of a ‘problem’.

Additionally, even if it were deemed future inflation was an issue, taking actions that would reduce aggregate demand today and thereby decrease current output and employment is necessarily counter productive.

Currently, the federal budget functions on a pay-as-you-go system, with a very limited forecast of obligations and supporting revenues. It is impossible for the official budget to predict what may happen over the next 30 years; the five- and 10-year budget windows do not permit Members of Congress or the general public to sense the obligations that are coming beyond that 10-year horizon. However, Congress can take two important steps in addressing the long-term entitlement obligations of the U.S.:

  • Show These Obligations in the Annual Budget.
    This could be done by amending the budget process rules to include a present-value measure of long-term entitlements. Such a measure would express in the annual budget the current dollar amount needed today to fund future obligations. Such a measure has been endorsed by a number of accounting professionals, as well as the Federal Accounting Standards Advisory Board.

This would be an interesting exercise that can also include the estimated ‘demand leakages’ that reduce aggregate demand, such as pension fund contribution, insurance reserves, IRA contributions, etc. and add to the need for spending to exceed taxes to sustain output and employment.

I would expect this calculation to show that future government deficits continue to fall short of the projected demand leakages, as has been the case in generally since 1945.

  • Convert Retirement Entitlements into 30-year Budgeted Discretionary Programs.
    Such a move recognizes that mandatory retirement funding programs for millionaires that crowd out discretionary spending programs for homeless war veterans.

Government spending can only be ‘crowded out’ by inflation fears due to lack of real output capacity. With today’s excess capacity, and projections of future excess capacity, we can readily afford any additional desired government spending for homeless war veterans.

  • do not make any sense at all. If we are to contain entitlement spending and reform the programs driving those outlays, then a paradigm shift will likely be required. Recognizing Social Security and Medicare as discretionary programs helps to force attention on changes that will assure their survival well into the 21st century.

We can readily afford any additional spending as long as there is excess real capacity.

Greater Predictability, Greater Productivity
Serious work by the Congress on tax, energy, and spending policy will create greater predictability for investors and business owners and assure workers that they will have a better chance of improving their wages through increased productivity.

Right, and a long term plan by Congress for its expenditures will be the backbone driver of that growth.

Efforts to enhance this nation’s long-term economic health may very well have immediate, short-run benefits as economic decision makers reduce the risk premium they place on starting new businesses or expanding existing enterprises.

Business has a long history of tagging along on the lead taken by Congress from its direct spending and incentives it puts in place.


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Posted in Articles, Proposal | 3 Comments »

Re: Obama on fiscal policy

Posted by WARREN MOSLER on 25th November 2008


[Skip to the end]

(email exchange)

And how about this:

Obama: costly stimulus needed to jolt U.S. economy

By Jeff Mason and Ross Colvin

Obama said the country would see a substantial budget deficit next year, which he described as “bigger than we’ve seen in a very long time.”

“American taxpayers are understandably concerned, if we already have a big deficit, and now we’re added an additional stimulus, how are we going to pay for all that?” he said.

“The right answer is that we have to first focus on getting the economy back on track.”

Obama said he would discuss steps toward a “sustainable and responsible budget scenario” at a news conference on Tuesday at which he is expected to announce further members of his economic team.

“We’ll have to scour our federal budget, line by line, and make meaningful cuts and sacrifices, as well, something I’ll be discussing further tomorrow,” he said.

>   
>   On Mon, Nov 24, 2008 at 5:41 PM, Scott wrote:
>   
>   Looks like Obama wanted her precisely because of her work on the
>   history of the depression and WWII era, and her work at NBER
>   analyzing business cycles. So far, everyone on the team (except I
>   don’t know Geithner’s views on this, but assume he’s pretty
>   mainstream) views long run deficits as bad for interest rates, capital,
>   and growth. Not good, but they may never get the chance to worry
>   about the long run in that case!
>   


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2008-11-25 USER

Posted by WARREN MOSLER on 25th November 2008


[Skip to the end]


 
Karim writes:

  • Overlooked with the Fed headlines, but likely to lead to further downward revisions to Q4/Q1 growth outlook.

ICSC UBS Store Sales YoY (Nov 25)

Survey n/a
Actual -0.80%
Prior -0.10%
Revised n/a

 
Looking very soft, even with low gasoline prices.

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ICSC UBS Store Sales WoW (Nov 25)

Survey n/a
Actual -0.90%
Prior 0.30%
Revised n/a

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Redbook Store Sales Weekly YoY (Nov 25)

Survey n/a
Actual -1.40%
Prior -0.90%
Revised n/a

 
Same.

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Redbook Store Sales MoM (Nov 25)

Survey n/a
Actual -1.30%
Prior -1.10%
Revised n/a

 

Karim writes:

  • Johnson Redbook sales down 1.3% m/m thru 3rd week of November.
  • Another negative retail sales month sets up Q4 real GDP for at least -4%

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ICSC UBS Redbook Comparison TABLE (Nov 25)

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GDP QoQ Annualized (3Q P)

Survey -0.5%
Actual -0.5%
Prior -0.3%
Revised n/a

 
As expected and in line with the longer term down trend in real gdp growth

Good evidence of a continuing and increasing lack of aggregate demand.

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GDP YoY Annualized Real (3Q P)

Survey n/a
Actual 0.7%
Prior 2.1%
Revised n/a

 
Mildly positive but the trend is still looking down.

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GDP YoY Annualized Nominal (3Q P)

Survey n/a
Actual 3.4%
Prior 4.1%
Revised n/a

 
Barely positive.

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GDP Price Index (3Q P)

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

 
High but expected to fall with falling commodity prices.

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Core PCE QoQ (3Q P)

Survey 2.9%
Actual 2.6%
Prior 2.9%
Revised n/a

 
Looks to be in a long term uptrend, though also expected to fall with commodity prices.

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GDP ALLX 1 (3Q P)

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GDP ALLX 2 (3Q P)

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S&P Case Shiller Home Price Index (Sep)

Survey 163.00
Actual 161.56
Prior 164.57
Revised 164.40

 
Took a turn for the worse.

Karim writes:

  • Case Shiller down 1.85% q/q and -17.4% y/y

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S&P CS Composite 20 YoY (Sep)

Survey -16.90%
Actual -17.40%
Prior -16.62%
Revised -16.60%

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S&P Case Shiller US Home Price Index (3Q)

Survey n/a
Actual 150.04
Prior 155.32
Revised 155.45

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S&P Case Shiller US Home Price Index YoY (3Q)

Survey -17.05%
Actual -16.55%
Prior -15.40%
Revised -15.07%

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Consumer Confidence (Nov)

Survey 38.0
Actual 44.9
Prior 38.0
Revised 38.8

 
Tiny blip up- well above expectations.

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Consumer Confidence ALLX 1 (Nov)

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Consumer Confidence ALLX 2 (Nov)

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Richmond Fed Manufacturing Index (Nov)

Survey -27
Actual -38
Prior -26
Revised n/a

 
Far worse than expected, more in line with Q4 GDP forecasts of -4%.

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Richmond Fed Manufacturing Index ALLX (Nov)

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House Price Index MoM (Sep)

Survey -0.7%
Actual -1.3%
Prior -0.6%
Revised -0.8%

 
Also falling like a rock.

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House Price Index YoY (Sep)

Survey n/a
Actual -7.0%
Prior -6.1%
Revised n/a

 
No sign of turning around yet.

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House Price Index ALLX (Sep)

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House Price Purchase Index QoQ (3Q)

Survey n/a
Actual -1.8%
Prior -1.4%
Revised n/a

 
The decline has resumed.


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Fed swap lines

Posted by WARREN MOSLER on 24th November 2008


[Skip to the end]

Recession’s Grip Forces U.S. to Flood World With More Dollars

By Rich Miller

Nov. 24 (Bloomberg) — The world needs more dollars. The United States is preparing to provide them.

In an all-out assault on capitalism’s worst crisis since the Great Depression, the U.S. is taking on the role of both lender and borrower of last resort for the global economy.

To help fight the worldwide dollar squeeze, the Fed has set up currency swap lines with more than a dozen other central banks. Some arrangements, including those with Europe, Britain and Japan, are open-ended, allowing the Fed’s counterparts to draw as many dollars as they need. The U.S. has also established individual $30 billion swap lines with Brazil, Mexico, South Korea and Singapore.

In a speech to a banking conference on Nov. 14, Bernanke characterized these efforts as an “internationally coordinated approach” among central banks to fulfill their function as lenders of last resort.

I’d characterize it as a pure Fed ‘give away’ program.


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Posted in Articles, Fed | 5 Comments »

From the same ratings agency looking to downgrade the US

Posted by WARREN MOSLER on 24th November 2008


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Germany Retains `Stable’ Rating Outlook at Moody’s Amid Crisis

By Rainer Buergin

Nov. 24 (Bloomberg) — Germany retained a “stable” outlook at Moody’s Investors Service on its Aaa government bond ratings even as the financial crisis puts strains on public coffers, the rating company said today in an e-mailed report.

Moody’s, in a regular credit analysis, kept the “Aaa – stable” rating for Germany’s government bonds, the country ceiling and the bank deposit ceiling, both in foreign and local currency.

“Germany’s public debt payment capacity is strong and Moody’s anticipates no problems with regard to affordability or adverse debt dynamics, even with the impact of the economic slowdown likely to be felt on both sides of the government balance sheet,” said Moody’s analyst Alexander Kockerbeck.

Chancellor Angela Merkel’s government faces revenue shortfalls this year and will have to expand net borrowing in 2009 as the worst economic recession in at least 12 years takes its toll on the budget. Lawmakers last week authorized higher net federal borrowing in 2009 compared with 2008, the first increase since Merkel came to office three years ago.


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Posted in Articles, USA | 6 Comments »

Mastercard shows sales down, but some improvement

Posted by WARREN MOSLER on 24th November 2008


[Skip to the end]

Note the good news is quietly put in at the end as an afterthought:

U.S. retail sales struggle in early November: MasterCard

NEW YORK (Reuters) – U.S. sales of apparel, shoes and appliances fell dramatically in the first two weeks of November, as consumers worried about a recession and job losses further cut spending, MasterCard Advisors said in a report.

The results from SpendingPulse provide an early look into the strength of the crucial U.S. holiday sales season, which traditionally begins on the day after Thanksgiving. This year, the major holiday sales period begins on Friday, November 28.

Analysts are predicting the worst holiday sales season in nearly two decades.

Overall apparel sales are down 19 percent from the same period a year ago, according to a report by SpendingPulse, the retail data service of MasterCard Advisors, an arm of MasterCard Worldwide. Apparel sales fell 5.5 percent in September and 12.2 percent in October.

Women’s apparel fell 19.7 percent in the first half of November compared with last year, with men’s apparel down 20.5 percent.

Footwear sales fell 11 percent, and electronics and appliance sales dropped a steep 22.1 percent, according to the report. Total luxury sales, which includes jewelry and high-end luxury stores, fell 21.1 percent.

Internet sales showed the most modest decline of the period, at 7.5 percent.

SpendingPulse’s report includes sales from November 1 to November 15 and comes on the heels of dismal October sales, as consumers focused on essential purchases as the global financial crisis deepened.

“It’s still very, very challenging. We’ve been seeing a deteriorating retail environment for some time, but in the last 10 days of October things started to deteriorate rapidly. That’s continuing in November,” said Michael McNamara, vice president of SpendingPulse.

Sales were better in the second week of November than the first, as consumers previously distracted by the U.S. election returned to the stores and gasoline prices eased.

“Sales are getting better in relative terms compared to where they had been in October and the first week in November in several categories” such as apparel, McNamara said.


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Posted in Uncategorized | No Comments »

Re: Galbraith on the payroll tax holiday

Posted by WARREN MOSLER on 24th November 2008


[Skip to the end]

(email exchange)

Thanks!

>   
>   On Sun, Nov 23, 2008 at 11:03 PM, Russell wrote:
>   
>   http://www.cnbc.com/id/15840232?video=935514980&play=1
>   


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Posted in Email | 15 Comments »

Congress to send Obama stimulus bill first day

Posted by WARREN MOSLER on 24th November 2008


[Skip to the end]

Whether or not you like the details, $700 billion of actual, front loaded spending will quickly turn things around.

Equities could easily double from current levels over the next year.

The credit machine will turn back on with a vengeance.

And without an energy policy that immediately cuts gasoline consumption, CPI could quickly be back over 5%.

Obama Will Get Stimulus Bill First Day, Democrats Say (Update1)

By Daniel Whitten

Nov. 23 (Bloomberg) — Congress will send President-elect Barack Obama an economic stimulus package the day he takes office Jan. 20, two Democratic lawmakers said today.

Senator Charles Schumer of New York told ABC “This Week” today the package will be between $500 billion and $700 billion. House Majority Leader Steny Hoyer, of Maryland, said on “Fox News Sunday” that he believed the Inauguration Day goal would be met, but he declined to put a price tag on it.

“I think Congress will work with the president elect starting now and will have a major stimulus package on his desk by Inauguration day,” Schumer said. “I think it has to be deep. My view it has to be between 5 and $700 billion.”


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Posted in Articles, Obama | 5 Comments »

Obamaboom fiscal fitness update

Posted by WARREN MOSLER on 24th November 2008


[Skip to the end]

Leaning in the right direction to restore demand.

A decisive move from the new Obama team is very possible given the latest rhetoric.

FACTBOX-Fiscal stimulus plans to tackle the crisis

Nov 23 (Reuters) – Countries around the world are setting out fiscal stimulus packages to help their economies withstand the impact of the global financial crisis.

Below are some details:

* AUSTRALIA:

– The government has announced a A$10.4 billion ($6.8 billion) package of cash handouts and family benefits and has pledged more if it is needed.

– It is providing A$1.5 billion to boost the housing and home building markets and doubling the grant for first-time home buyers. They will now get A$14,000 from an original A$7,000.

* CHINA:

– Provincial government plans will add an additional 10 trillion yuan ($1.464 trillion) to a 4 trillion yuan stimulus package announced by the central government earlier this month, state television said. The central scheme included rail and infrastructure schemes as well as extra social spending to offset the sharp drop in demand for the exports which fuel China’s economy.

– China is also changing value added tax (VAT) to allow companies to deduct the cost of capital equipment, saving them about 120 billion yuan a year.

* EUROPEAN UNION

- An economic stimulus plan to be presented on Nov. 26 will include a significant budgetary expansion, the head of the EU executive said on Friday, as it signalled longer deadlines for countries to slash budget gaps.

– German Economy Minister Michael Glos has said the plan envisaged, among other things, a 1 percentage point cut in value-added tax across the EU and that the total value of the stimulus was 130 billion euros ($163 billion).

* GERMANY:

– The government has announced a package which will generate about 50 billion euros ($64.22 billion) in investment and contracts.

- A new lending programme of up to 15 billion euros will be introduced for German state-owned development bank Kreditanstalt fuer Wiederaufbau (KfW) to strengthen its lending activities. KfW’s infrastructure programme for structurally weak local authorities will be raised by 3 billion euros.

– Urgent investment in transport will be accelerated via a new programme totalling 1 billion euros in both 2009 and 2010.

– Parliament has approved a rise in government net new borrowing in 2009 to 18.5 billion euros from 10.5 billion.

* NETHERLANDS

– The government has announced a “liquidity impulse” of about 6 billion euros ($7.5 billion), including allowing companies to write down investments earlier than usual.

– Companies will also receive temporary financial support from an unemployment fund to pay employees who will cut down on their working hours.

*RUSSIA

– Prime Minister Vladimir Putin on Nov. 20 unveiled a $20 billion economic stimulus package and help for people hurt in the economic slowdown. He offered assurances there would be no repeat of the economic turmoil when the Soviet Union collapsed in 1991 and, 10 years ago, when the state defaulted on its debt.

– The package will include a cut in profit tax, which accounts for 8.5 percent of budget revenues, to 20 percent from 24 now, and a new depreciation mechanism that will allow firms to reduce the profit tax further.

– The government has already sanctioned state-run banks to support industry with billions of dollars of soft funding.

* SOUTH KOREA:

– The government has unveiled a package worth at least 14 trillion won ($9.37 billion), including tax cuts

– Measures also include an extension of 1.3 trillion won to state-owned banks to help SMEs. The government is to expand credit guarantees to SMEs by 6 trillion won.

* SPAIN:

– In the last six months, Spain announced various measures to cushion the impact of the economic slowdown and soaring unemployment including a 38 billion euro ($49.28 billion) fiscal stimulus package.

– The package includes 6 billion euros in tax cuts and 4 billion euros of liquidity to credit strapped companies and households.

– It also includes a 400-euro income tax rebate for employees, pensioners and the self-employed.

* SWITZERLAND:

– The government announced an economic stimulus package worth 890 million Swiss francs ($753 million). It includes government spending of 340 million francs on flood defence, natural disasters and energy efficiency projects.

– Spending plans also include up to 1 billion francs on roads and railways and 550 million francs as tax breaks to 650 firms for job creation programmes.

* TAIWAN:

– Taiwan has announced T$122.6 billion worth of subsidies and tax cuts and T$58.3 billion of infrastructure spending. The steps unveiled are expected to generate T$1 trillion ($31.2 billion) in investment and consumption.

* UNITED KINGDOM:

– The government is expected to announce on Monday a package of tax cuts and extra public spending of upto 20 billion pounds ($29.70 billion), with the centrepiece a temporary cut in sales tax.

– The packagesis also expected to feature tax relief for small firms, efficiency savings and help for mortgage payers.

– British Prime Minister Gordon Brown said on Nov. 11 he was ready to borrow to provide the British economy a fiscal boost and he urged other countries to do the same.

* UNITED STATES:

– President-elect Barack Obama said he is crafting a two-year plan to revive the economy and save or create 2.5 million jobs. He called in October for a $175 billion stimulus measure but appears ready to for a much larger package. — Congressional Democrats have promised to make a broad economic stimulus a priority when they reconvene in January. The package is expected to include middle-class tax cuts and billions of dollars for public works projects, such as the construction of roads, bridges and mass transit. OTE]))

– President George W. Bush signed a $168 billion, two-year economic stimulus package into law in early 2008. Of that total, $152 billion was earmarked for 2008.

– The package includes tax rebates of up to $600 per individual earning $75,000 in adjusted gross income or less and $1,200 per couple plus $300 per child. Businesses would be able to deduct half the costs of purchases of new equipment. (Editing by David Cowell; +44 207 542 6486)


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Pac Rim vows ‘Extraordinary’ steps

Posted by WARREN MOSLER on 24th November 2008


[Skip to the end]

How about:

‘Conduct ongoing fiscal adjustments to support domestic demand at full employment levels?’

Not quite, but moving in that direction.

They would all rather export than sell their output internally.

Pacific Rim Leaders Vow Further ‘Extraordinary’ Steps on Crisis

By Shamim Adam and Bill Faries

Nov. 23- Leaders of Pacific Rim nations promised to work together on further “extraordinary” steps to combat the global economic crisis and pledged to refrain from erecting new barriers to trade and investment.

Leaders of the 21-nation Asia-Pacific Economic Cooperation group, which includes the U.S., China and Japan and accounts for half of world output, also called for improved corporate governance and backed efforts to thaw frozen credit markets.

“We have already taken urgent and extraordinary steps to stabilize our financial sectors and strengthen economic growth and promote investment and consumption,” the group said in a statement during its meeting in Lima, Peru. “We will continue to take such steps, and work closely, in a coordinated and comprehensive manner, to implement future actions.”


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