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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 27th, 2009

Re: Financial services

Posted by WARREN MOSLER on 27th March 2009


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(email exchange)

Yes!

>   
>   Sounds like Krugman has been reading your blog:
>   

The Market Mystique

by Paul Krugman

Mar 26 (NY Times) — But it has become increasingly clear over the past few days that top officials in the Obama administration are still in the grip of the market mystique. They still believe in the magic of the financial marketplace and in the prowess of the wizards who perform that magic.

The market mystique didn’t always rule financial policy. America emerged from the Great Depression with a tightly regulated banking system, which made finance a staid, even boring business. Banks attracted depositors by providing convenient branch locations and maybe a free toaster or two; they used the money thus attracted to make loans, and that was that.

And the financial system wasn’t just boring. It was also, by today’s standards, small. Even during the “go-go years,” the bull market of the 1960s, finance and insurance together accounted for less than 4 percent of G.D.P. The relative unimportance of finance was reflected in the list of stocks making up the Dow Jones Industrial Average, which until 1982 contained not a single financial company.

It all sounds primitive by today’s standards. Yet that boring, primitive financial system serviced an economy that doubled living standards over the course of a generation.


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Financial services

Posted by WARREN MOSLER on 27th March 2009


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>   
>   Sounds like the IMF & misguided bankers everywhere are systematically
>   degrading everyone’s economy.
>   

Yes!

>   
>   Do enough people anywhere understand national currency systems?
>   

No!

>   
>   Are ALL financial service industries more trouble than they’re worth?
>   

Best i can tell. There probably are a few that are OK, just haven’t identified them.

We need our banks only to:

  1. Manage the payments system
  2. Provide a ‘safe’ depository/insured deposits
  3. Make and hold loans deemed to further public purpose that are not subject to liquidity issues of the lender.

In 1972 the US had 2.6 million housing starts with a population of only 200 million people, all financed by a bunch of boring savings and loans staffed by VERY modestly paid loan officers who left at 3:30 every day to play golf. (I was one of them.)


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Student exam at Wartburg College

Posted by WARREN MOSLER on 27th March 2009


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Congrats, Professor Fullwiler- there are at least some students learning how the monetary system actually works!

EC342

Winter 2009

Case Study 5

The following quotes from rather famous figures or institutions are all completely incorrect regarding the nature of government debt and deficits according to the modern money framework described in class. For this case the task is to explain how the following quotes are incorrect.

As with the previous two cases choose 2-3 points in these quotes contradicting modern money, and explain the refutation of the point in the modern money paradigm.

In the interest of political balance, the quotes here are from a Democrat (President Obama), a Republican (Senator Judd Gregg), and the bi-partisan Congressional Budget Office.

Writing grading criteria are in effect.

Quote 1:

President Obama on 60 minutes

Mar 22 (CBS) —

KROFT: Is there some limit to the amount of money we can spend?

OBAMA: Yes.

KROFT: Or print trying to solve this crisis?

OBAMA: There is.

KROFT: And are we getting close to it?

OBAMA: The limit is our ability to finance these expenditures through borrowing. And the United States is fortunate that it has the largest, most stable economic and political system around. And so the dollar is still strong because people are still buying treasury bills. They still think that’s the safest investment out there. If we don’t get a handle on this, and also start looking at our long-term deficit projections, at a certain point, people will stop buying those treasury bills.

Quote 2:

March 22, 2009
Gregg: ‘This country will go bankrupt’
Posted: 03:41 PM ET

From CNN Associate Producer Martina Stewart

GOP Sen. Judd Gregg warned Sunday that the country might be headed for a fiscal crash if spending isn’t controlled.

WASHINGTON (CNN) – Even though he was almost a member of the new Obama administration, New Hampshire Republican Judd Gregg Sunday slammed President Obama’s approach to handling the country’s fiscal outlook.

“The practical implications of this is bankruptcy for the United States,” Gregg said of the Obama’s administration’s recently released budget blueprint. “There’s no other way around it. If we maintain the proposals that are in this budget over the ten-year period that this budget covers, this country will go bankrupt. People will not buy our debt, our dollar will become devalued. It is a very severe situation.”

Gregg, known as one of the keenest fiscal minds on Capitol Hill, also told CNN Chief National Correspondent John King that he thought it was “almost unconscionable” for the White House to continue with its planned course on fiscal matters with unprecedented actual and projected budget deficits in the coming years.

“It is as if you were flying an airplane and the gas light came on and it said ‘you 15 minutes of gas left’ and the pilot said ‘we’re not going to worry about that, we’re going to fly for another two hours.’ Well, the plane crashes and our country will crash and we’ll pass on
to our kids a country that’s not affordable.”

Quote 3:

From page 43 of A Preliminary Analysis of the President’s Budget and an Update of CBO’s Budget and Economic Outlook published March 2009 by the Congressional Budget Office (CBO; http://www.cbo.gov/ftpdocs/100xx/doc10014/03-20-PresidentBudget.pdf)

“The primary difference between the current projections and the ones published in January is the effect of the American Recovery and Reinvestment Act of 2009. Although ARRA will boost output significantly in the next several years, any short run effects of the stimulus legislation on the business cycle will have dissipated by the end of the projection period. In the latter part of the period, the legislation reduces projected output by roughly 0.1 percent, principally through its influence on capital accumulation.”

“Capital accumulation is affected because the increase in government debt is expected to displace, or “crowd out,” a smaller amount of private capital. That result occurs because the reduction in overall national saving dampens spending on business fixed investment and the construction of housing. Although the size of such displacement is very uncertain, CBO assumes that, in the long run, each dollar of additional federal debt crowds out about a third of a dollar’s worth of private domestic capital (with the remainder of the rise in debt offset by increases in private saving and inflows of foreign capital).”


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Fed swap lines a touch lower

Posted by WARREN MOSLER on 27th March 2009


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Central bank liquidity swaps (13) $327,692 – $1,894


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2009-03-27 USER

Posted by WARREN MOSLER on 27th March 2009


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Personal Income MoM (Feb)

Survey -0.1%
Actual -0.2%
Prior 0.4%
Revised 0.2%

 
Karim writes:

  • Personal income down 0.2%, down 4 of last 5mths, and up 1% y/y
  • Wage and salary income down 0.4%, down 4mths in a row, and -0.2% y/y
  • Personal spending up 0.2%, and down 0.2% in real terms
  • Based on Jan-Feb data, real Q1 spending may be flat from -4.3% in Q4
  • But because of weakening trend thru Q1, sets up for another negative in Q2
  • Saw one forecaster change Q1 estimate from -7.2% to -6.5% and leave Q2 estimate unch at -4.8%

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Personal Income YoY (Feb)

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

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Personal Income ALLX (Feb)

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Personal Spending (Feb)

Survey 0.2%
Actual 0.2%
Prior 0.6%
Revised 1.0%

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PCE Deflator YoY (Feb)

Survey 0.8%
Actual 1.0%
Prior 0.7%
Revised 0.8%

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PCE Core MoM (Feb)

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

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PCE Core YoY (Feb)

Survey 1.6%
Actual 1.8%
Prior 1.6%
Revised 1.7%

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U of Michigan Confidence (Mar F)

Survey 56.8
Actual 57.3
Prior 56.6
Revised n/a

 
Karim writes:

  • Final Michigan survey for March showed small upward revision in confidence: 56.6 to 57.3 (Feb was 56.3)
  • 5-10yr inflation expectations revised lower: 2.8 to 2.6 (Feb was 3.1)
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    U of Michigan Confidence TABLE Inflation Expectations (Feb)


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