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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 March 17th, 2009

Re: Graduate student support

Posted by WARREN MOSLER on 17th March 2009

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>   On Tue, Mar 17, 2009 at 11:19 AM, James wrote:
>   Warren
>   It has been a while since we’ve spoken; I hope you are doing well.
>   As you can imagine we have had a busy and interesting year. The
>   University, like many others, is dealing with budget issues. It looks
>   like we will not get hit too hard this year.

Well done!

>   We finally have a chancellor and provost who work with us much more
>   cooperatively. The governor has pledged no cuts to the university in
>   exchange for no tuition increases and we hope the legislature agrees.
>   Our program is prospering. A New York Times articles ranked us as
>   one of the top three heterodox programs in the US. We now have 48
>   Ph.D. students, the largest program in the region, and have received
>   several applications for next year.


>   Several students are writing dissertations and will graduate
>   in the next year.

Are they ready for my pop quiz??? :)

>   I might add that this year we have reached another goal for the
>   program. When we started we knew we would have to go slowly
>   and hoped we could attract good students. We wanted to attract
>   international students, but we also wanted to build the program
>   around students from the US. This year our applications are
>   more than half from American students and of very high quality.

Good to hear it!

>   We will soon be renewing assistantships for those now being
>   supported and making offers to new students. We have
>   selected four for new offers and there are seven more to
>   whom we would make offers, but presently lack the funding.
>   I have been seeking additional funding from the university
>   and there are hopeful prospects in that quarter we should
>   know in the next few days. We have also received funds
>   from grants and contracts that should support two or three more.

Very good!

>   In light of the more uncertain budget for the upcoming year
>   we have been asked to secure funding before we make offers.
>   We seek your continued support, at last year’s level of $116,000,
>   in order to move on these offers. If you would be willing to raise
>   your support to fund two additional students it would be most
>   helpful both to those students and in our effort to garner more
>   support from the university-they like matches. Funding two
>   more would require an additional $33,000 for stipends and
>   waivers; a total of $149,000.

CC’d to AVM to if they want to help again and the rest of my list, and posted on my blog.

>   Another issue we face is that our stipend level has not changed
>   in over ten years and is now below that of almost all Ph.D. programs.
>   For example, Middle Tennessee State, a program not known as an
>   intellectual powerhouse, offers stipends the economics Ph.D. students
>   of $14,000, ours are $10,000. Further, international students must
>   have a minimum level of financial support before they qualify for a
>   student visa. Our total support to them, including stipend and all
>   tuition waivers, is about $2,800 below the threshold for a visa.
>   We can raise the stipend for international students to overcome
>   this, but the consequence is that make fewer offers and would
>   discriminate unfairly against American students. The university
>   is aware of the problem, but budget restraints stand in the way
>   of a solution in the near term. The official position of the
>   administration at this point is that we should offer support
>   to fewer students in order to raise the stipend for others.
>   We have resisted this as harmful to the long term interests
>   of the program, but some change will be needed before much
>   longer. I would like to discuss this with you sometime soon
>   to get your ideas.

Ok, no immediate ideas but will think about it.

>   As I’m sure you know the people in our department have invested
>   a great deal of sweat equity over the years to build what we consider
>   a highly successful program. UMKC was recognized this year as one
>   of the top six universities in the US engaged in community and urban
>   affairs progress. With your support, intellectual commitment, and
>   good spirit our department occupies an important spot in this activity.
>   For this I am deeply grateful and hope you feel our efforts have
>   warranted your support.

Glad to have been able to help!

>   To summarize our request we ask for $116,000 for continuing
>   support and if you agree $33,000 to support two additional
>   students; a total of $149,000 for nine students.

I’m good with the $116,000.

Sending this to my list to see if it fits anyone else to support the world’s only ‘in paradigm’ grad program.

I know a lot of them are supporting schools that teach it backwards so maybe they would feel good directing some of that this way.



>   Warmest regards
>   Jim


Posted in Articles, Email | 8 Comments »

Mosler TALF Alternative

Posted by WARREN MOSLER on 17th March 2009

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Compare the TALF concept with my proposal:

The Fed can instead offer its member banks credit default insurance to support the Fed’s desire to support the lending it’s trying to support with the TALF.

For example:

The Fed can offer member banks default insurance on any AAA rated securities of newly originated auto loans, for a fee of, for example, 1% of outstanding balances.

Insuring against loss eliminates leverage limits on these securities for the banks.

This can be applied as desired to other financial assets the Fed is attempting to support with the TALF.

The advantages of this over the TALF are hopefully more than obvious.

(Yes, this is similar to what I proposed way back during the mortgage insurer crisis.)

Fed’s TALF Program Meets Resistance Over Foreign Worker Rules

by Scott Lanman and Robert Schmidt

Mar 17 (Bloomberg) — The Federal Reserve’s $1 trillion program to jump-start consumer and business lending is encountering resistance from investment firms over a new law that would make it harder to bring in employees from overseas.

Lawmakers inserted rules into last month’s stimulus legislation that prevent firms from replacing fired U.S. workers with foreign employees if they get funds under rescue programs.

Hedge funds, insurers and companies considering joining the plan may balk at hurdles involved in bringing in foreign talent.

The central bank has already delayed introduction of the Term Asset-Backed Securities Loan Facility, or TALF, which was first announced in November and originally scheduled to start last month. A further postponement or a limit to the number of investors participating would hamper the goal of thawing the market for securities backed by consumer and business loans.

“We need to be a little careful about how much we micromanage these financial institutions,” said Clay Lowery, a former assistant Treasury secretary, who is now a managing director of the Glover Park Group in Washington.

The securities industry’s main trade group alerted members to the issue on March 13, six days before the rescheduled start of the TALF.

Companies that apply for a visa on behalf of a foreign worker can’t dismiss employees in similar positions 90 days before and 90 days after requesting the visa, and have to prove they attempted to recruit a U.S. worker first.

Visa Burden

The Fed is working with the Homeland Security Department’s U.S. Citizenship and Immigration Services to provide guidance on the issue.

The law applies the restrictions to any recipient of funds under section 13 of the Federal Reserve Act. The TALF and most other Fed lending programs were authorized under that section.

The visa provision adds a burden to what participants already expected to be a slow start to the TALF, which is aimed at reviving the market for securities backed by auto, education, credit-card and small-business loans.

Fed Chairman Ben S. Bernanke and Treasury Secretary Timothy Geithner are counting on investors such as hedge funds to use cheap Fed loans to buy the securities, helping lenders lower rates and loosen other terms on new loans to consumers and businesses. The Treasury is funding 10 percent of the TALF loans from the $700 billion financial-rescue fund.

The New York Fed, which is administering the TALF, starts accepting applications for loans through the program today at 10 a.m. Originally the Fed planned a two-hour window for applications, then announced March 13 that the period would be extended until 5 p.m. on March 19, saying participants requested more time to complete documentation.


Posted in Articles | 2 Comments »

Re: Chinese stimulus

Posted by WARREN MOSLER on 17th March 2009

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(email exchange)

Yes, thanks, as expected!

>   On Tue, Mar 17, 2009, at 8:47, wrote:
>   Looks like China is interested in prosperity as well, just leaving the Europeans behind!

Last November China announced a CNY4trn stimulus package. The first part of the money started to be spent at the end of February on a high speed rail network forming a triangle between Shanghai, Hangzhou and Nanjing, cutting travel times between the cities of up to 8 hours down to just 1 hour. Trains will run at upto 350km an hour – (do you realise the fastest train in the States is between New York and Boston, that for a 5 minute period only gets up to 80mph).

Overall the country will invest CNY600bn in railways this year, and a minimum of CNY600bn a year until 2012.

When you look at infrastructure projects on the ground like this, and combine it with the development in the local bond market (both local authority and corporate bonds), and the major international development with ASEAN +3 (free trade area next year plus the trial renminbi bloc), the economic and financial development with most of the former USSR in terms of the Shanghai Cooperation Organisation, and the push towards a free trade agreement with the Gulf Cooperation Council, is it really that difficult to see China achieving the 8% GDP growth target that it is aiming for?


Posted in Articles, China, Email | 1 Comment »

SNB Not Pursuing ‘Beggar-Thy-Neighbor’ Policy, Roth Tells FT

Posted by WARREN MOSLER on 17th March 2009

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Looks like he’s been reading my blog.

It is a beggar thy neighbor policy, by definition.

SNB Not Pursuing ‘Beggar-Thy-Neighbor’ Policy, Roth Tells FT

by Simone Meier

Mar 17 (Bloomberg) — Swiss central bank President Jean- Pierre Roth said the bank is ready to stem further gains in the Swiss currency if needed, the Financial Times reported.

“We have clearly shown what our commitment is and the market has reacted accordingly,” Roth said, according to the FT. “We have a clear strategy.”

Roth said Switzerland “would be foolish, as a small and open economy, to try to gain competitiveness through the currency.” He said that it’s “not a beggar-thy-neighbor policy. It’s just to protect the Swiss economy from deflation.”


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Re: Bernanke on 60 Minutes

Posted by WARREN MOSLER on 17th March 2009

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(email exchange)


Got it on my blog yesterday and added it to the attached draft in progress as well.

I cut his response a bit short to save the point that he missed the point ‘fundamentally’ even though he got this operational point right.

While in the operational sense ‘taxpayer money’ is never spent per se, in the macro sense tax liabilities function to reduce demand which is the real tax, and allows
government to buy the unsold output and move those goods and services to the public domain.

So in that sense, any government spending that buys goods and services is ‘spending taxpayer money’.

So the ‘right’ answer is that when the Fed buys financial assets, and not goods and services, it is not ‘spending tax payer money’ but merely exchanging one financial asset- balances in a fed bank account- for another- the financial asset it purchases. And the further economic effect of purchasing financial assets is that of lower interest rates than otherwise.

It’s about price, not quantity!



>   On Tue, Mar 17, 2009 at 2:50 AM, Felipe wrote:
>   Hi Warren,
>   I am sending the link of the “60 Minutes” interview of Bernanke
>   by journalist Scott Pelley. In particular, pay attention to his interview
>   Part I around 8:00 min. Bernanke explains how the Fed buys assets.
>   He admits that it is not taxpayer’s money; but it is just numbers on
>   Fed’s balance sheet.
>   Best,
>   Felipe Rezende

Part I

Part II


Posted in Articles | 5 Comments »

Goldman Report

Posted by WARREN MOSLER on 17th March 2009

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Thanks, and agreed with the general forecast.

That ‘money started to come into the markets’ feeling is from the deficit spending moving up through 5% of GDP as the automatic stabilizers do their work.

The proactive fiscal adjustments beginning in April, however modest, will add to the inflow.

Markets that have been pricing a 100% chance of oblivion are shifting to pricing in maybe a 50% chance of oblivion which means substantial asset price adjustments are underway.

US Views: On Track for Stabilization?

  1. Although we still think real GDP will fall by about 7% annualized in Q1 and the labor market numbers remain awful, the good news is that the weakness is shifting from more leading to more lagging sectors. On average, consumer spending leads inventories by 1 quarter and capex by 2 quarters. So it’s noteworthy that consumer spending looks to be slightly positive in Q1, while capex could fall 30%+ and inventory investment is likely to subtract about 2 percentage points from GDP growth. That’s a big shift from 2008H2, when consumer spending was down 4% and inventories actually contributed positively to growth.

  3. If a) the consumer spending path remains slightly positive as the fiscal stimulus kicks in and b) the pace of inventory liquidation peaks in Q2 — both reasonable assumptions in my view — then it becomes possible to see how real GDP stops falling in H2, as we have been assuming in our forecast. Yes, capex (incl. nonresidential construction) will probably still be falling steeply, but this should be roughly offset by a big pickup in government spending as the spending provisions of the stimulus package ramp up. So while it is still way too early to call the bottom of the recession and the risks in the near term are still tilted to the downside, overall I think the idea of slightly positive GDP numbers in H2 is a reasonable one.

  5. What do we need to see in the data over the next 3-6 months to remain comfortable with that forecast? Ed McKelvey discussed this issue in a daily comment earlier in the week and concluded that the most important markers are a) continued stabilization in retail sales and an end to the downtrend in auto sales, b) a drop in the initial claims numbers from the mid-600k range to 500k or less, and c) a pickup in the ISMs to the mid-40s.

  7. A GDP stabilization would undoubtedly be a big deal from a market perspective, but it would not be sufficient to end the deterioration in the labor market. We estimate that real GDP needs to grow by close to 3% in order to stabilize the unemployment rate, and that still seems a long way off. This is why we remain very concerned about a descent into deflation late next year, as I noted in Friday’s US Economics Analyst.


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2009-03-17 USER

Posted by WARREN MOSLER on 17th March 2009

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ICSC UBS Store Sales YoY (Mar 17)

Survey n/a
Actual -1.4%
Prior -0.9%
Revised n/a


ICSC UBS Store Sales WoW (Mar 17)

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


Redbook Store Sales Weekly YoY (Mar 17)

Survey n/a
Actual -1.1%
Prior -1.4%
Revised n/a


Redbook Store Sales MoM (Mar 17)

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


ICSC UBS Redbook Comparison TABLE (Mar 17)


Producer Price Index MoM (Feb)

Survey 0.4%
Actual 0.1%
Prior 0.8%
Revised n/a


PPI Ex Food and Energy MoM (Feb)

Survey 0.1%
Actual 0.2%
Prior 0.4%
Revised n/a


Producer Price Index YoY (Feb)

Survey -1.4%
Actual -1.3%
Prior -1.0%
Revised n/a


PPI Ex Food and Energy YoY (Feb)

Survey 3.8%
Actual 4.0%
Prior 4.2%
Revised n/a

Core coming down very slowly, given the extent of the drop in headline CPI.


Housing Starts (Feb)

Survey 450K
Actual 583K
Prior 466K
Revised 477K

Probably the end of the housing bust.

New Homes Inventory (Feb)

New home inventories are exceptionally low, especially population adjusted.

This was a very severe inventory liquidation.


Building Permits (Feb)

Survey 500K
Actual 547K
Prior 521K
Revised 531K


Posted in Uncategorized | No Comments »

Bernanke on government spending

Posted by WARREN MOSLER on 17th March 2009

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Just added this to my 7 Deadly Innocent Frauds draft where I had described the process of government spending in a similar manner:

(PELLEY) Is that tax money that the Fed is spending?

(BERNANKE) It’s not tax money. the banks have– accounts with the Fed,
much the same way that you have an account in a commercial bank. So,
to lend to a bank, we simply use the computer to mark up the size of
the account that they have with the Fed.


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