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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 December, 2008

2008-12-31 USER

Posted by WARREN MOSLER on 31st December 2008


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Karim writes:

  • The conference board survey of labor conditions (jobs plentiful less jobs hard to get) has been a good leading indicator of payrolls and worsened in December from -28.4 to -35.8.
  • The ABC survey also worsened last week despite the further decline in gas prices, suggesting the labor market continues to deteriorate.

MBA Mortgage Applications (Dec 26)

Survey n/a
Actual 0.0%
Prior 48.0%
Revised n/a

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MBA Purchasing Applications (Dec 26)

Survey n/a
Actual 320.90
Prior 316.50
Revised n/a

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MBA Refinancing Applications (Dec 26)

Survey n/a
Actual 6733.80
Prior 6758.60
Revised n/a

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Initial Jobless Claims (Dec 27)

Survey 575K
Actual 492K
Prior 586K
Revised n/a

 
Karim writes:

  • Initial claims fall 94k to 492k but Labor Dept states data probably skewed by holidays and auto shutdowns

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Continuing Claims (Dec 20)

Survey 4400K
Actual 4506K
Prior 4370K
Revised 4366K

 
Karim writes:

  • Continuing claims, reported with a 1 week lag to initial claims, rose 140k to a new cycle high of 4506k.

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Jobless Claims ALLX (Dec 27)

 
Karim writes:

  • Would expect payroll decline for December to be larger than last month’s 533k drop (market expects slight improvement to -475k).

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NAPM Milwaukee (Dec)

Survey n/a
Actual 30
Prior 35
Revised n/a


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Posted in Daily | No Comments »

Senate Minority Leader McConnell to obstruct fiscal adjustment?

Posted by WARREN MOSLER on 31st December 2008


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McConnell Urges Caution in Debate on Economic Stimulus Measure

Dec. 29 (Bloomberg) — Senate Minority Leader Mitch McConnell said he wants to slow consideration of the economic stimulus package Democrats are drafting, warning that the measure sought by President-elect Barack Obama invites wasteful spending.

“A trillion-dollar spending bill would be the largest spending bill in the history of our country at a time when our national debt is already the largest in history,” McConnell, a Kentucky Republican, said in a statement. “As a result, it will require tough scrutiny and oversight. Taxpayers, already stretched to the limit, deserve nothing less.”

McConnell called for giving lawmakers and the public at least one week to review the legislation once it has been written. He also said he wanted Senate committee hearings on the measure, rather than immediate floor consideration.

His demand, in a Senate where minority Republicans will still have the power to block legislation, could stall a drive by Democrats to approve legislation soon after Obama’s Jan. 20 inauguration.


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Posted in Articles | 4 Comments »

Re: Fed investment managers

Posted by WARREN MOSLER on 31st December 2008


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(email exchange)

>   
>   On Tue, Dec 30, 2008 at 5:53 PM, Andrew wrote:
>   
>   The Fed chose as investment managers; Blackrock, GSAM
>   (Goldman Sachs Asset Management), PIMCO and Wellington
>   Management.
>   

More foxes in the hen house?


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Posted in Email, Fed | 1 Comment »

Re: Sector financial balances and fiscal stimulus

Posted by WARREN MOSLER on 31st December 2008


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(email exchange)

Good stuff, thanks!

(Of course, I prefer to say ‘removal of fiscal drag’ rather than ‘fiscal stimulus!’ )

>   
>   On Tue, Dec 30, 2008 at 3:17 PM, Scott wrote:
>   
>   FYI . . . looking at the data on the sector financial balances for
>   Q1, Q2, and Q3 of 2008. All data are in $billions and are in
>   annualized nominal terms:
>   
>   
>    Sector: Q1 Q2 Q3
>    Household -195 110 24
>    Total Prvt -135 176 106
>    Fed Govt -346 -666 -544
>    Total Public -558 -899 -815
>   
>   Note that in Q2, the -300 change in the fed govt balance is
>   almost exactly equal to the +300 change in HH sector
>   balance. Biz sector in Q2 actually reduced net saving a bit,
>   which is what it normally does when sales/profits improve
>   (expand capacity, etc.). Note also that Q2 was when real
>   GDP was over 2%, up from 0% previously. So . . . clearly the
>   stimulus “worked” in that it improved HH balance sheets
>   while raising real GDP growth. Only problem was that the
>   stimulus wasn’t large enough and didn’t last long enough,
>   Note that smaller Fed govt deficit in Q3 corresponds to
>   smaller HH balance and slower real GDP growth in that
>   quarter.
>   
>   HH sector had been retrenching since 2006:3, when balance
>   peaked at -478B. Fed govt high was -176B in 2006:4, and
>   had been going into further deficit thereafter, so this is “the
>   hard way” you talk about in which automatic stabilizers offset
>   the slowdown, albeit not nearly enough as real GDP growth
>   deteriorated. The Q2 stimulus package was a clear “jolt” that
>   corresponds to “the easy way” of stabilization via direct fiscal
>   intervention and greater real GDP growth than otherwise,
>   albeit not nearly enough, again.
>   
>   Anyone thinking that fiscal policy doesn’t “work” needs to
>   explain this data combined with quarterly real GDP growth.
>   
>   Scott
>   


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Posted in Email | 7 Comments »

Yield Curve

Posted by WARREN MOSLER on 30th December 2008


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>   
>   from: Warren Mosler
>   to: CNBC
>   
>   The long end is higher than ‘equilibrium’ due to the Treasury
>   issuing longer term paper.
>   
>   This adversely alters investment and price signals.
>   
>   When the Fed buys it the curve returns to where it would
>   have been if the government had stayed out of it in the first
>   place.
>   
>   


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Posted in Fed | 8 Comments »

2008-12-30 USER

Posted by WARREN MOSLER on 30th December 2008


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ICSC UBS Store Sales YoY (-)

Survey -
Actual -
Prior -
Revised -

 
Sinking.

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ICSC UBS Store Sales WoW (-)

Survey -
Actual -
Prior -
Revised -

 
Falling back, even with low fuel prices.

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Redbook Store Sales Weekly YoY (-)

Survey -
Actual -
Prior -
Revised -

 
Still way down.

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Redbook Store Sales MoM (-)

Survey -
Actual -
Prior -
Revised -

 
Still negative.

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ICSC UBS Redbook Comparison TABLE (-)

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S&P CS Composite 20 YoY (-)

Survey -
Actual -
Prior -
Revised -

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S&P Case Shiller Home Price Index (-)

Survey -
Actual -
Prior -
Revised -

 
Still heading south as foreclosures continue to take their toll.

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S&P Case Shiller US Home Price Index (-)

Survey -
Actual -
Prior -
Revised -

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

Survey -
Actual -
Prior -
Revised -

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Chicago Purchasing Manager (-)

Survey -
Actual -
Prior -
Revised -

 
Remains very low.

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Consumer Confidence (-)

Survey -
Actual -
Prior -
Revised -

 
Not much to be confident about.

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Consumer Confidence ALLX 1 (-)

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Consumer Confidence ALLX 2 (-)


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Posted in Daily | No Comments »

Re: Fifty Herbert Hoovers

Posted by WARREN MOSLER on 29th December 2008


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(email exchange)

>   
>   On Mon, Dec 29, 2008 at 11:47 AM, Russell wrote:
>   

Fifty Herbert Hoovers

By Paul Krugman

No modern American president would repeat the fiscal mistake of 1932, in which the federal government tried to balance its budget in the face of a severe recession. The Obama administration will put deficit concerns on hold while it fights the economic crisis.

Good to hear that!

But even as Washington tries to rescue the economy, the nation will be reeling from the actions of 50 Herbert Hoovers — state governors who are slashing spending in a time of recession, often at the expense both of their most vulnerable constituents and of the nation’s economic future.

State and local governments cut back every down turn, exacerbating the recession.

Means Obama gets to do that much more- that’s a good thing!


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Posted in Articles, Email | 7 Comments »

Sector Analyis Update

Posted by WARREN MOSLER on 29th December 2008


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Euro Area Sector Analysis (Dec 17)

 
Karim writes:
Euro-middle of historical range. But with government deficits nearing Maastricht limits (though those limits will be bent, it will be grudging), not much chance for large enough fiscal stimulus to make a difference to private demand.

Yes, deficits seem too small to support higher levels of output and employment.

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US Sector Analysis (Dec 17)

 
Karim writes:
U.S.-still far below peak of early 90s. Nearing levels of earlier this decade, but much private demand growth in recent years fueled by credit (unlikely to be repeated, certainly not to same extent).

Yes, we are still paying the price for allowing the budget to go into surplus. The deficit needs to be substantially higher to restore output and employment, to ‘make up’ for the surplus years that drained the financial equity needed to support the credit structure.

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Japan Fiscal Balance as % of GDP (Dec 17)

 
Karim writes:
Japan-well off recent peaks, in some part due to some fiscal tightening in recent years. Fiscal policy starting to be loosened, but private savings still have ways to go to get back to levels that were associated with the moderate period of domestic demand growth from 2003-2006.

Yes, and with their higher propensity to not spend income they require a higher deficit to sustain output and employment.


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Posted in Articles, ECB, EU, Japan, USA | No Comments »

China back pushing its exports and ignoring Paulson

Posted by WARREN MOSLER on 29th December 2008


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Recession Opens U.S.-China Rift Paulson Talks Bridged

By Kevin Hamlin and Mark Drajem

Dec. 29 (Bloomberg) — The global recession is re-exposing fissures in U.S.-China relations that Treasury Secretary Henry Paulson spent more than two years smoothing over.

Hoping Obama lets the world export their brains out to us and sustain domestic demand with fiscal policy.

Heightened tensions between China and the U.S. may worsen a contraction in world trade that already threatens to deepen and prolong the economic downturn. The friction comes as President- elect Barack Obama readies a two-year stimulus package worth as much as $850 billion

Hopefully more than that.

that will require the U.S. to borrow more than ever from China, the largest buyer of Treasury securities.

No sign of this ridiculous rhetoric changing yet.


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Posted in Articles, China, Fed | No Comments »

Stiglitz article

Posted by WARREN MOSLER on 29th December 2008


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The Seven Deadly Deficits

By Joseph E. Stiglitz

When President George W. Bush assumed office, most of those disgruntled about the stolen election contented themselves with this thought: Given our system of checks and balances, given the gridlock in Washington, how much damage could be done? Now we know: far more than the worst pessimists could have imagined. From the war in Iraq to the collapse of the credit markets, the financial losses are difficult to fathom. And behind those losses lie even greater missed opportunities.

Good start! Maybe going to get to the real costs and losses?

Put it all together—the money squandered on the war,

Money squandered? That’s just spread sheet entries. The real cost was human endeavor squandered, real resources squandered, and, most important, lives cut short.

the money wasted on a housing pyramid scheme that impoverished the nation and enriched a few,

Again, money wasted. How about houses built? The real effect of that scheme was $1 million new houses built that may not have been built. That didn’t impoverish the nation. The impoverishment came when the government failed to sustain aggregate demand when the housing spending subsided and commodity boom was interrupted by a massive inventory liquidation.

and the money lost because of the recession—and the gap between what we could have produced and what we did produce will easily exceed $1.5 trillion.

Yes, but it’s not the lost money. It’s the lost output and real personal losses due to unemployment.

Think what that kind of money could have done to provide health care for the uninsured, to improve our education system, to build green technology…The list is endless.

That could have been done and still could be done. It’s not like there is some finite pool of money that got used up. When there’s excess capacity, which there has been all along, it’s there to be used by a simple fiscal adjustment.

And the true cost of our missed opportunities is likely even greater. Consider the war: First there are the funds directly allocated to it by the government (an estimated $12 billion a month even according to the misleading accounting of the Bush administration). Much larger, as the Kennedy School’s Linda Bilmes and I documented in The Three Trillion Dollar War, are the indirect costs: the salaries not earned by those wounded or killed, the economic activity displaced (from, say, spending on American hospitals to spending on Nepalese security contractors). Such social and macroeconomic factors may account for more than $2 trillion of the war’s overall cost.

Again with the money as the ‘cost’ of the war. That’s just a matter of spread sheet entries. Those are nominal issues, not real issues as I listed above.

There is a silver lining in these clouds. If we can pull ourselves out of the malaise, if we can think more carefully and less ideologically about how to make our economy stronger and our society better, perhaps we can make progress in addressing some of our long-festering problems. As a road map for where to begin, consider the seven major shortfalls the Bush administration leaves behind.

THE VALUES DEFICIT: One of the strengths of America is its diversity, and there has always been a diversity of views even on our fundamental principles—innocent until proven guilty, the writ of habeas corpus, the rule of law. But (so we thought) those who disagreed with these principles were a fringe, easily ignored. We have now learned that the fringe is not so small and includes among its numbers the president and leaders of his party. And this division of values could not have come at a worse time. The realization that we may have less in common than we thought may make it difficult to solve the problems we must address together.

Good point.

THE CLIMATE DEFICIT: With the help of corporate accomplices such as ExxonMobil, Bush tried to persuade Americans that global warming was fiction. It is not, and even the administration has finally admitted as much. But for eight years we did nothing, and America pollutes more than ever—a delay that will cost us dearly.

Ok, let’s see how this ties in with the rest of this piece.

THE EQUALITY DEFICIT: In the past, even if those at the bottom saw little or any of the gains from economic expansion, life was viewed as a fair lottery. Up-by-your-bootstraps stories are part of America’s sense of identity. But today, the promise of the Horatio Alger legend rings false. Upward mobility is becoming increasingly difficult. Growing divisions in income and wealth are reinforced by a tax code that rewards those who have lucked out in the globalization sweepstakes. As that realization sinks in, it will be even harder to find common cause.

The real problem is the failure to recognize that the labor markets are not a fair game. People need to work to eat, but business only hires if it sees a targeted return on equity. So the expected outcome is stagnation of real wages without some kind of support for workers.

THE ACCOUNTABILITY DEFICIT: The moguls of American finance justified their astronomical compensation by their ingenuity and the great benefits it supposedly bestowed upon the country.

The shareholders gave it to them, as a result of the institutional structure of corporate law.

Now the emperors have been shown to have no clothes. They did not know how to manage risk; rather, their actions exacerbated risk. Capital was not well allocated; hundreds of billions were misspent, a level of inefficiency much greater than what people typically attribute to government. Yet the moguls walked away with hundreds of millions of dollars while taxpayers, workers, and the economy as a whole were stuck with the tab.

And CEOs still earn just as much. The problem is the institutional structure/corporate law which hasn’t changed.

THE TRADE DEFICIT: Over the past decade, the nation has been borrowing massively abroad—some $739 billion in 2007 alone.

No, this is backwards. The causation is that domestic credit funds foreign savings.

And it is easy to see why: With the government running up huge debts, and with Americans’ household savings close to zero, there was nowhere else to turn. America has been living on borrowed money and borrowed time, and the day of reckoning had to come. We used to lecture others about what good economic policy meant.

Yes, to our great advantage, as they believed that nonsense about exports being good and imports a bad, and they supported our real standard of living/real terms of trade by some $739 billion in 2007 alone.

Now they are laughing behind our backs, and even occasionally lecturing us. We’ve had to go begging to the sovereign wealth funds—

We didn’t have to do that- we don’t need their money. Yet even this author thinks we did.

the excess wealth that other governments have accumulated and can invest outside their borders. We recoil at the idea of our government running a bank. But we seem to accept the notion of foreign governments owning a major share in some of our iconic American banks, institutions that are critical to our economy. (So critical, in fact, we have given the Treasury a blank check to bail them out.)

Why do we care who the bank shareholders are? Is there some national security issue here? Of course not.

THE BUDGET DEFICIT: Thanks in part to runaway military spending, in just eight short years our national debt has increased by two-thirds, from $5.7 trillion to more than $9.5 trillion.

Obviously not nearly enough, as per the current severe shortage of aggregate demand.

But as dramatic as they are, these numbers vastly understate the problem. Many of the Iraq War bills, including the cost of benefits for injured veterans, have not yet come due, and they could amount to more than $600 billion. The federal deficit this year is likely to add up to another half-trillion to the nation’s debt. And all this is before the Social Security and Medicare bills for the baby boomers.

Hopefully that will be sufficient to sustain demand at full employment levels. But probably not. The demand leakages are very large and require near equal deficits to offset to sustain output and employment.

THE INVESTMENT DEFICIT: Government accounting is different from that in the private sector. A firm that borrows to make a good investment will see its balance sheet improved, and its leaders will be applauded. But in the public sector there is no balance sheet, and as a result, too many of us focus too narrowly on the deficit.

Agreed!!!

In reality, wise government investments yield returns far higher than the interest rate the government pays on its debt;

Ok, but not that it matters.

in the long run, investments help reduce deficits.

Huh? What is that a good thing? It’s what they do for output and employment that matters.

To cut them is penny-wise but pound-foolish, as New Orleans’ levees and Minneapolis’ bridge attest.

Agreed!!!!

THERE ARE TWO hypotheses (besides simple incompetence) about why Republicans paid so little attention to the growing budget shortfall. The first is that they simply trusted in supply-side economics—believing that, somehow, the economy would grow so much better with lower taxes that deficits would be ephemeral. That notion has been shown for the fantasy that it is.

Kind of what happened- the growing economy shrunk the deficit until it got too small to support the credit structure.

The second theory is that by letting the budget deficit balloon, Bush and his allies hoped to force a reduction in the size of government. Indeed, the fiscal situation has grown so scary

Scary? Meaning scary large? Even by mainstream standards, it’s only maybe 4% of GDP annually and maybe 45% of GDP in total. Far less than most of the other G7 nations of the world.

The problem is it’s scary small, as evidenced by the falling output and employment.

that many responsible Democrats are now playing into the hands of these “starve the beast” Republicans and calling for drastic cuts in expenditures. But with Democrats worrying about appearing soft on security—and therefore treating the military budget as sacrosanct—it is hard to cut spending without slashing the investments most important to solving the crisis.

The most urgent task for the new president will be to restore the economy’s strength. Given our national debt, it is especially important to do that in ways that maximize the bang for our buck

Not relevant. The idea is to restore output and employment. Doesn’t matter what number gets entered into the spread sheet.

and help address at least one of the major deficits.

Wrong- we will instead benefit if they get larger.

Tax cuts work—if they work—by increasing consumption, but America’s problem is that we have been on a consumption binge; prolonging that binge just postpones dealing with the deeper problems.

Huh? The entire point of the economy is real consumption.

States and localities are about to face real budget constraints as tax revenues plummet, and unless something is done, they will be forced to cut spending, deepening the downturn.

Yes, I’ve called for immediate federal revenue sharing for the states of $300 billion on a per capita basis with no strings attached.

At the federal level, we need to spend more, not less. The economy must be reconfigured to reflect new realities—including global warming. We will need fast trains and more efficient power plants. Such expenditures stimulate the economy while providing the foundation for long-term sustainable growth.

Agreed spending in those areas is politically desirable. This can be done with incentives and revenue sharing.

There are only two ways to pay for these investments: raise taxes or cut other expenditures.

They are all paid for only one way- writing a check. Taxes are to regulate demand for given levels of spending, not raise revenues per se. And cutting other expenditures cuts demand, so if any expenditures are cut, the demand needs to be immediately replaced to avoid a further slowdown.

Upper-income Americans can well afford to pay higher taxes,

It’s not about ‘afford’ but rather what effect the tax structure has on aggregate demand and incentives.

and many countries in Europe have succeeded because of, not despite, high tax rates—

Succeeded by the author’s standards? Their budget deficits are far higher than ours!

rates that have enabled them to invest and compete in a globalized world.

If anything, he should credit their high budget deficits for funding these investments he’s pointing to

But needless to say, there will be resistance to tax increases, and so the focus will shift to cuts. But our social expenditures are already so bare-bones that there is little to spare. Indeed, we stand out among the advanced industrial countries in the inadequacy of social protection.

And our lower deficits.

The problems with America’s health care system, for example, are well recognized; fixing them means not only greater social justice, but greater economic efficiency. (Healthier workers are more productive workers.)

Wonder what his take on the health care problems are, after reading his takes on the other problems, above.

That leaves but one major area in which to cut—defense. We account for half of all the world’s military expenditures, with 42 percent of tax dollars

Wrong way to look at it and deliberately a misleading use of statistics. He did this because it’s actually been falling as a % of GDP. Probably only maybe 5% of GDP.

spent directly or indirectly on defense. Even nonwar military expenditures have soared. With so much money spent on weapons that don’t work against enemies that don’t exist, there is ample room to increase security at the same time that we cut defense expenditures.

Unfortunately this kind of rhetoric and cheap shots is not constructive.

The role of the military could greatly benefit by a continuous rethink, but the real problems are not the dollars per se.

Even with the military spending there is still a lot of excess capacity in the US economy.

The good news about today’s bad economic news is that we’re being forced to curb our material consumption. If we do it in the right way, it will help limit global warming and may even force the realization that a truly high standard of living might entail more leisure, not just more material goods.

That is happening. And replacing it with non material, service related consumption that is less energy intensive makes sense in any case.

The laws of nature and the laws of economics are unforgiving. We can abuse our environment, but only for a while.

True, though ‘a while’ can be a very long time.

We can spend beyond our means, but only for a while.

Not applicable with a non convertible currency and floating FX policy.

We can free ride on the investments made in the past, but only for a while. Even the richest country in the world ignores the laws of nature and the laws of economics at its peril.

Yes, as above.


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Posted in Articles | 2 Comments »

2008-12-29 CREDIT

Posted by WARREN MOSLER on 29th December 2008


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This continues to offer support for the world’s stock markets.


IG On-the-run Spreads (Dec 29)

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IG6 Spreads (Dec 29)

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IG7 Spreads (Dec 29)

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IG8 Spreads (Dec 29)

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IG9 Spreads (Dec 29)


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Posted in Credit | No Comments »

Re: What about the Depression?

Posted by WARREN MOSLER on 26th December 2008


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Yes, and gasoline consumption went up a bit as well. Down only 4% year over year.

The deficit is also ‘automatically’ getting larger as well.

We could stop declining as fast and just go into ‘muddle through’ mode at higher levels of unemployment.

And this could encourage the mainstream to do what it can to minimize any fiscal response as the await ‘market forces and monetary policy kicking in.’

Obama recently stated we needed a fiscal stimulus to get things going, but then focus on ‘fiscal responsibility’ when the economy is growing again.

And they all say one of the major problems of the US government is the high level of debt.

Obama is also backwards on trade, as he talks about protecting US workers and opening new markets for US exporters.

Still hoping for the best!

Merry Christmas!

>   
>   On Thu, Dec 25, 2008 at 1:37 PM, mauer195 wrote:
>   
>   Everybody keeps focusing on the disastrous season that
>   retailers are supposed to be having, but then there’s this
>   news:
>   

Consumers Spend More As Gasoline Prices Fall

By Annys Shin

Consumers increased their spending last month for the first time since spring, as falling gas prices helped boost their purchasing power, new data showed yesterday.

On an inflation-adjusted basis, consumers spent 0.6 percent more in November than they did the month before, the Commerce Department reported, the first increase since May. Disposable income also rose on an inflation-adjusted basis, by 1 percent, compared with an increase of 0.7 percent in October.

But even as consumers returned to stores and shopping malls, analysts cautioned that the data did not signal the start of a turnaround for the economy. Because energy prices are unlikely to sink at the same clip they have over the past few months, Americans won’t be able to pocket much more savings at the pump.


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Posted in Articles, Government Spending | 63 Comments »

China News

Posted by WARREN MOSLER on 24th December 2008


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Highlights

China eases rules on forex advances

Domestics somehow caught short USD like the rest of the world?

More measures to spur consumption and foreign trade(Xinhua)

Help for both domestic consumption but exports as well- still pushing exports.

China to Raise Export Rebates, Use Yuan to Settle Some Trade

Pushing exports.

China Must Prevent Drastic Decline in Property Prices

China eases rules on forex advances

Exporters will be able to increase their advances on foreign-currency payments to 25 percent from the current 10 percent, the China Securities Journal reported on Wednesday.

The decision came in a circular issued by the State Administration of Foreign Exchange (SAFE) on Tuesday night.

Importers’ quota for deferred foreign-currency payments also rose to 25 percent from 10 percent.

Analysts said the move would help small and medium-sized enterprises raise funds and improve their cash flow.

A banker who asked to remain unidentified told Xinhua the financial crisis has caused difficulties for many enterprises and this move would give them more operating capital.

The State Council, or China’s cabinet, urged a higher quota of foreign exchange advances to support trade during a standing committee conference on Dec 3.

SAFE official Cai Qiusheng was quoted by Tuesday’s Shanghai Securities News as saying that foreign exchange reserves were below their peak at $1.9 trillion as of the end of September.

According to the paper, enterprises that have good credit and haven’t violated any foreign-exchange regulations can qualify for the new limits.

To prevent “hot money” inflows through trade, SAFE, the Ministry of Commerce and the General Administration of Customs issued a joint circular on July 14 to step up supervision of cross-border capital flows.

The foreign exchange agency told administrative departments at all levels to step up inspection to prevent large-scale cash outflows.

More measures to spur consumption and foreign trade(Xinhua)

Updated: 2008-12-24 20:02BEIJING — More measures will be taken to stimulate consumption and support foreign trade, according to Wednesday’s executive meeting of China’s State Council, or the cabinet.

A document released after the meeting, chaired by Premier Wen Jiabao, said to stimulate domestic consumption, efforts should be made to improve the rural circulation network, increase varieties of commodities available in rural markets, improve urban community service-facilities, promote upgrade of durable goods, support development of circulation companies, stimulate consumption in holidays and through exhibitions, and step up supervision over product quality and safety.

In the fiscal year of 2009, the central government would increase its financial support for development of the rural circulation network and the service industry.

To sustain a stable growth in the country’s foreign trade, the central government would raise export tax rebates of high-tech and high-value-added products, adjust the forbidden and limited commodity catalogue of processing trade, encourage a transfer of processing trade from the eastern to the central and western region.

The government would also urge banks to improve services for foreign traders, increase imports of products needed, direct foreign funds to high-tech, energy-saving and modern service industries, simplify customs procedures and keep a close eye on the quality and safety of both imported and exported products.

China to Raise Export Rebates, Use Yuan to Settle Some Trade

Dec. 24 (Bloomberg) –China will raise export rebates on some machinery and electronics and let some trade with Hong Kong, Macau and Southeast Asia be settled in yuan to help boost faltering overseas sales, the Cabinet said.

China will also expand the use of government money to develop foreign trade, the State Council announced today.

The pilot program for settling trade in yuan will take place in Guangdong province, eastern China’s Yangtze River Delta region, and Guangxi and Yunnan provinces, the statement said.

China Must Prevent Drastic Decline in Property Prices

Dec. 24 (Bloomberg) — China must prevent a drastic decline in property prices, the State Council said in a report to the nation’s parliament today, state-run China National Radio said on its Web site.

The government will increase construction of housing for low-income families and control excessive gains in land prices, the report said.


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Posted in Articles, China, News Highlights | 2 Comments »

Today’s Data

Posted by WARREN MOSLER on 24th December 2008


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Karim writes:

Last data before 12/30

  • Mtge apps up 48% last week (MBA reports record 83% of households looking to refi). Refi apps up 48.4% on the week, purchases 10.6%.

Lower interest rates now starting to help this sector, but at the expense of interest income for others. Much of this is offset by government, however, as the deficit continues to rise counter cyclically (the ugly way- lower revenues and higher transfer payments).

  • Initial claims rise 30k to new cycle high (and highest since 1982) of 586k; continuing claims drop 17k to 4370k

This may get a lot worse after the holidays.

  • Core PCE unch m/m and up 1.9% y/y (core inflation down 0.5% in 3mths; so much for the flat Philips curve).

Yes, but not all that big a move for a negative 7% quarter and a 70% drop in crude oil and large declines in other commodities.

  • Personal income down 0.2%, with wage and salary income down 0.1%.

Lower interest income biting.

  • Savings rate up to 2.8% from 0.8% 3mths ago

It’s not so much that people are saving as it is they are not borrowing, as total mortgage and other credit measures decline.

  • Personal spending down 0.6% m/m

Less than expected as lower fuel prices seem to be helping some.

  • Durable goods orders -1% (prior month revised from -6.2% to -8.4%) and up 4.7% ex-aircraft and defense (this measure was down 12.3% in prior 3mths so correction was expected).
  • Shipments (key for current qtr growth) down 2.6%

Falling fuel prices and automatic stabilizers increasing the federal deficit are beginning to have an effect, but this is a long, drawn out process that in the past has taken years to restore output and employment.

A full payroll tax holiday and maybe $300 billion in Federal revenue sharing with the states can cut that time frame down to months rather than years.

And, of course, without a plan to cut crude oil product consumption fuel prices can likewise quickly elevate.

The Fed is still obstructing bank functioning by demanding collateral from member banks when it lends. This is redundant and should be addressed at once.

Also, the Fed swap lines to foreign CB’s are again rising and approaching $700 billion. Not sure how this ends. Lines are scheduled to end in April, but hard to see this happening. It could turn out to be the largest international fiscal transfer of all time.


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Posted in Daily, Karim, Valance | No Comments »

ECB’s Hurley Says Euro Economy to Contract Next Year

Posted by WARREN MOSLER on 24th December 2008


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Several months back, the eurozone national governments fell into ‘Ponzi’ as growth prospects went negative.

They now seem to be in that downward spiral of falling revenues, rising transfer payments, and rising credit default premiums.

Without a fiscal response to restore growth this will only get worse, and the National governements are, by treaty and by market dependence, in no position to enact a meaningful fiscal expansion.

Highlights

Trichet Says Decline in Oil Prices Is Helping Global Economy
ECB’s Trichet Says ‘Fragility’ of Financial System Is Challenge
Nowotny Says ECB Is Keeping Some ‘Fire Power’ on Interest Rates
ECB’s Hurley Says Euro Economy to Contract Next Year
Bini Says ECB’s Rate Decision Data Driven, Ansa Says
Italy’s EU20 Billion Bank Plan Wins Approval From EU
Germany Scales Down Second Stimulus Package, Sueddeutsche Says
Sarkozy Will Announce Measures to Help Auto Industry by Jan. 31
European Bonds Open Little Changed; Two-Year Yield 1.75 Percent


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Posted in Articles, ECB, EU, News Highlights | 2 Comments »

IMF warns of ‘disturbing’ UK debt

Posted by WARREN MOSLER on 24th December 2008


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IMF warns of ‘disturbing’ UK debt

The level of debt in the UK is “disturbing,” the head of the International Monetary Fund has said.

But Dominique Strauss-Kahn told the BBC that given the severity of the economic downturn, more government borrowing was the lesser of two evils.

No, he’s the greater evil. Another deficit terrorist.


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2008-12-24 USER

Posted by WARREN MOSLER on 24th December 2008


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MBA Mortgage Applications (Dec 20)

Survey n/a
Actual 48.0%
Prior 2.9%
Revised n/a

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MBA Purchasing Applications (Dec 20)

Survey n/a
Actual 316.50
Prior 286.10
Revised n/a

 
Picking up with lower rates.

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MBA Refinancing Applications (Dec 20)

Survey n/a
Actual 6758.60
Prior 4156.00
Revised n/a

 
Spiking with lower rates.

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Personal Income MoM (Nov)

Survey 0.0%
Actual -0.2%
Prior 0.3%
Revised 0.1%

 
Lower than expected. Lower interest income continues to bite.

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Personal Income YoY (Nov)

Survey n/a
Actual 2.5%
Prior 3.1%
Revised n/a

 
Still up but lower interest income biting.

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Personal Income ALLX (Nov)

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Personal Spending (Nov)

Survey -0.7%
Actual -0.6%
Prior -1.0%
Revised n/a

 
Not good, but lower fuel prices helping other sales.

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PCE Deflator YoY (Nov)

Survey 1.5%
Actual 1.4%
Prior 3.2%
Revised n/a

 
Way down with the big drop in fuel costs.

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PCE Core MoM (Nov)

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

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PCE Core YoY (Nov)

Survey 2.0%
Actual 1.9%
Prior 2.1%
Revised 2.0%

 
Back in the Fed’s comfort zone.

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Durable Goods Orders (Nov)

Survey -3.0%
Actual -1.0%
Prior -6.2%
Revised -8.4%

 
A little better than expected but still in decline.

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Durable Goods Orders YoY (Nov)

Survey n/a
Actual -17.6%
Prior -12.9%
Revised n/a

 
Big drop.

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Durables Ex Defense MoM (Nov)

Survey n/a
Actual -0.9%
Prior -6.7%
Revised n/a

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Durables Ex Transportation MoM (Nov)

Survey -3.0%
Actual 1.2%
Prior -4.4%
Revised -6.8%

 
Bit of a blip up but nothing serious as prior revised lower.

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Durable Goods ALLX (Nov)

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Initial Jobless Claims (Dec 20)

Survey 558K
Actual 586K
Prior 554K
Revised 556K

 
May get a lot worse after the holidays.

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Continuing Claims (Dec 13)

Survey 4410K
Actual 4370K
Prior 4384K
Revised 4387K

 
Likely to move up after the holidays.

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Jobless Claims ALLX (Dec 20)


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Posted in Daily | No Comments »

Re: View from Europe (cont.)

Posted by WARREN MOSLER on 23rd December 2008


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(email exchange)

>   
>   On Tue, Dec 23, 2008 at 2:43 PM, Russell
>   wrote:
>   
>   Warren:
>   
>   You have known I have been negative on this
>   market collapse for a long time.
>   

Yes!

I was more hopeful for the right political response after it went bad in July. :(

>   
>   And what happens on a day to day basis only
>   stirs the pot. The reason for trucks not being
>   able to lift anything at the ports is that trade
>   finance has disappeared and the reason why
>   the Baltic Dry Index declined 98% in 90 days.
>   The banks are technically bankrupt. I said that
>   about Citi way back when.
>   

Yes, they weren’t bankrupt back then, and they were open for business. Now that the government has let it go bad after an OK Q2, previously sort of OK/money good assets have further deteriorated and are no longer money good if this is left to its own ways.

A $1 Trillion of the right fiscal response turns it all around.

Idle Cranes From Long Beach To Singapore

Idle shipping cranes at Frozen Ports From Long Beach to Singapore portend a bleak 2009-2010.

Chris Lytle, chief operating officer of the port of Long Beach, California, took in a panorama of the slumping world economy from his rooftop observation deck one day this month. Shipping cranes stood still, truck traffic trickled and a cargo vessel sat idle, moored to a pier.

“You never see that,” Lytle said. “It’s quiet. Too quiet.”

Port traffic has slowed from North America to Europe and Asia as a recession erodes consumer demand and the credit crisis chokes off loans to export-dependent companies. International trade is set to fall by more than 2 percent next year, the most since the World Bank began measuring it in 1971. Idle ports around the globe are showing how quickly a collapse in trade can spread, undermining growth in each country it reaches.

“Everybody expects 2009 to be a bleak year,” said Jim McKenna, chief executive officer of the Pacific Maritime Association, a San Francisco-based group representing dock employers at U.S. West Coast ports. “Now, it looks like 2010 is going to be just as bleak.”

Coal is piling up at the Mozambique port of Maputo. Brazil’s exports of cars, household appliances, machinery and furniture fell in November from a year earlier. The port in Singapore, the world’s busiest for containers, posted its first month-over-month decline in seven years in November, at 1.5 percent.

“You take it for granted until it blows up,” said Bernard Hoekman, trade economist at the World Bank, in an interview. “Now it’s blowing up.”


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Posted in Articles, ECB, EU, UK | No Comments »

Re: Update- ECB not to terminate key Fed swap line provisions

Posted by WARREN MOSLER on 23rd December 2008


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(email exchange)

Thanks- good heads up by Matt Franko!

With this clarification the ECB seems to recognize the systemic support these swap lines provide, and will have to find other means of keeping a lid on the euro if that’s what they want to do.

>   
>   On Tue, Dec 23, 2008 at 9:21 AM, Cesar wrote:
>   
>   I agree with Franko comments.
>   
>   See press release from Dec 19th below.
>   
>   The Governing Council of the ECB has decided, in agreement
>   with other central banks including the Federal Reserve, to
>   continue conducting US dollar liquidity-providing operations at
>   terms of 7, 28 and 84 days. These operations will continue to
>   take the form of repurchase operations against ECB-eligible
>   collateral and to be carried out as fixed rate tenders with full
>   allotment. Given the limited demand, the operations in the
>   form of EUR/USD foreign exchange swaps will be discontinued
>   at the end of January but could be started again in the
>   future, if needed in view of prevailing market circumstances.
>   

>   
>   n Mon, Dec 22, 2008 at 8:05 PM, Warren wrote:
>   
>   Cesar, please check this out, thanks!
>   
>   W
>   

Matt says:

Mr Mosler,

I think the swap lines between the ECB and the US Fed may not be the same swap operations that last week the ECB talked about terminating at the end of Jan 09.

The ECB currently offers term US$ liquidity (US$ that has been provided from the Fed via a previous swap between central banks) 2 ways. 1 way is via a collateralized operation, and 2 is a swap of euros for dollars.

On 15 October the ECB announced the swap facility:

“Provision of US dollar liquidity through foreign exchange swaps: As from 21 October 2008, and at least until the end of January 2009, in parallel with the existing tenders in which the Eurosystem offers US dollar liquidity against ECB-eligible collateral, the Eurosystem will also offer US dollar liquidity through EUR/USD foreign exchange swaps. The EUR/USD foreign exchange swap tenders will be carried out at a fixed price (i.e. swap point) with full allotment. Further details on the tender procedures for EUR/USD foreign exchange swaps will be released shortly.”

These “swap” type of transactions look like they never caught on (real Euros would have to be provided after all!), as most of the USD provided by the ECB ($100s of billions) have gone the “collateralized” auction route. For instance last week they did a 28-day where the collateralized operation had 47 bidders for $47.5 billion and the swap had one bidder for $70 million. So I think the ECB is just eliminating this liquidity swap vehicle because of “lack of interest”, but plans on providing US$ liquidity via collateralized auctions until at least the April 30 current expiration of the overall ECB to US Fed swap lines.

I could be mis-reading this but I offer my observations.


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Posted in Articles, Email, Fed | 4 Comments »

Budget surpluses and depressions

Posted by WARREN MOSLER on 23rd December 2008


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After the last budget surplus ended in 2001, Bloomberg stated it was the longest period of surplus since 1927 -1930.

Prof. Fred Thayer wrote this before the surpluses of the late 90′s:

http://www.epicoalition.org/docs/thayer.htm

Here’s part of the intro:

From the origins to World War II

In its first 150 years, the government periodically undertook systematic multi-year reductions in the national debt by taking in more revenues than it spent.

Each of six such sustained periods led to one of the six major depressions in our history. The last three of these crashes were the truly significant depressions of the industrial era.

This is the record:

1. 1817-21: In five years, the national debt was reduced by 29 percent, to $90 million. A depression began in 1819.

2. 1823-36: In 14 years, the debt was reduced by 99.7 percent, to $38,000. A depression began in 1837.

3. 1852-57: In six years, the debt was reduced by 59 percent, to $28.7 million. A depression began in 1857..

4. 1867-73: In seven years, the debt was reduced by 27 percent, to $2.2 billion. A depression began in 1873.

5. 1880-93: In 14 years, the debt was reduced by 57 percent, to $1 billion. A depression began in 1893.

6. 1920-30: In 11 years, the debt was reduced by 36 percent, to $16.2 billion. A depression began in 1929.

There have been no such multi-year budget surpluses and debt reductions since World War II and, significantly, no major new depression. The record suggests that reducing the debt never sustained prosperity, even when the debt was virtually wiped out by 1836. The highest deficits were those of World War II, ranging from 20 to 31 percent of Gross National Product. For a few years following the war, the debt was greater than GNP, the only such case in history. The wartime borrowing and spending actually ended the Great Depression.


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Posted in Articles, Recession | 7 Comments »