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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, 2009

Re: Comment on Fed Balance Sheet

Posted by WARREN MOSLER on 19th March 2009


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(email exchange)

>   
>   On Thu, Mar 19, 2009 at 6:15 PM, Mauer wrote:
>   
>   Just to clarify: are there any circumstances in which the Federal Reserve
>   could “create” inflation or hyperinflation a la the Bank of Zimbabwe?
>   

Yes, if they raised rates high enough.

Seriously!

That would mean a large jump in government deficit spending on interest and a hike in the marginal cost of production. This is what happened after Volcker raised rates to over 20%. That inflation broke only because deregulation of natural gas in 1978 brought out enough supply to replace 15 million barrels per day of crude that was being burned for power, which broke the Saudi monopoly.

>   
>   Or does the unique privilege accorded to the central bank having the
>   reserve currency always preclude that?
>   

Just the way any non convertible currency works. Inflation isn’t all that much of a function of interest rates.


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Posted in Email | No Comments »

Research Reports – Fed Balance Sheet Explodes

Posted by WARREN MOSLER on 19th March 2009


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Yes, and when the proactive fiscal package kicks in next month adding to the already reasonably large deficit (from falling tax revenues and rising transfer payments) and starts driving up prices from liquidation levels, monetary policy will get the blame. Just like Greenspan’s getting blamed for the housing bubble that followed the 2003 fiscal adjustment and subsequent GDP growth.

Fed Balance Sheet Explodes

by Brian Wesbury and Robert Stein

Mar 18 (First Trust) — The Federal Reserve today went into overdrive in its attack on the US recession and financial system crisis.

We are definitely fearful of the long-term consequences of massively easy monetary policy, which today’s policy statement clearly signals. The US does not face a deflation problem, as February reports on producer and consumer prices revealed. As a result, easy money will become even more problematic than conventional wisdom believes or understands.


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Posted in Articles | 5 Comments »

2009-03-19 USER

Posted by WARREN MOSLER on 19th March 2009


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Initial Jobless Claims (Mar 14)

Survey 655K
Actual 646K
Prior 654K
Revised 658K

 
Karim writes:

  • Initial claims fall 12k to 646k (prior week revised up 4k)
  • Continuing claims rise another 185k to 5473k, +349k in last 2 weeks and more than double Jan 2008 level
  • Continuing claims correlated to longer duration of unemployment, drawing down of savings (assuming expenses greater than jobless benefit), and less pressure on wages

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Continuing Claims (Mar 7)

Survey 5323K
Actual 5473K
Prior 5317K
Revised 5288K

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Jobless Claims ALLX (Mar 7)

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Leading Indicators (Feb)

Survey -0.6%
Actual -0.4%
Prior 0.4%
Revised 0.1%

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Leading Indicators ALLX (Feb)

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Philadelphia Fed (Mar)

Survey -39.0
Actual -35.0
Prior -41.3
Revised n/a

 
Karim writes:

  • Philly Fed headline (not a wtd avg of components) improves from -41.3 to -35
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    Philadelphia Fed TABLE 1 (Mar)

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    Philadelphia Fed TABLE 2 (Mar)


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    Posted in Daily | No Comments »

    Fed discussing how to ‘inject credit’

    Posted by WARREN MOSLER on 18th March 2009


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    Problem is those things cut rates, they don’t ‘inject credit’ or alter net financial assets held by the non government sectors.

    It’s about price, not quantity.

    Fed Wrestles Over How to Inject Credit Into Economy

    by Steve Matthews

    Mar 18 (Bloomberg) — Fed officials will debate how to provide further stimulus to the economy, from purchasing more mortgage bonds to buying Treasury securities, and will also keep the benchmark interest rate as low as zero percent, according to economist projections. At least three of the 17 top Fed officials want to buy Treasuries or target the supply of money, while Chairman Ben S. Bernanke has favored reviving specific credit markets. Policy makers have disagreed on just how to be more aggressive. They have at least three options: increase the $1 trillion Term Asset-Backed Securities Loan Facility aimed at restoring consumer and business lending; expand purchases of mortgage-backed securities and agency securities; or begin purchasing long-term Treasuries.


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    Posted in Articles, Fed | 11 Comments »

    Congressman Ron Klein Statement on AIG

    Posted by WARREN MOSLER on 18th March 2009


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    Hi Ron,

    Add this?

    But let me add that it’s our fault. We make the laws and the regulations. If anyone violates the laws there are prisons waiting for them.

    If they acted within our laws, however flawed, it’s our responsibility to alter those laws to serve public purpose as we can best determine.

    Therefore, while addressing the current injustices will be pursued with the full force of the law, I will be moving just as forcefully to alter existing law to remove the incentives that encouraged this outrageous behavior, and put in additional safe guards, along with appropriate supervision, to ensure public purpose is served by our corporate structures.

    All the best!

    Warren

    Statement of Congressman Ron Klein, as prepared for delivery

    Hearing of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises

    “American International Group’s Impact on the Global Economy: Before, During, and After Federal Intervention”

    Wednesday, March 18, 2009

    Thank you, Chairman Kanjorski, for holding this important hearing.

    I am disgusted by the deplorable saga of AIG, and I join my constituents in their unfettered outrage about the millions of dollars in bonuses that are being awarded to AIG employees.

    The American people understand that we are going through a difficult time, and are prepared to sacrifice and work together to get our country back on track. But they will not stand for taxpayer dollars being lavished on bonuses for people who bear responsibility for this crisis, and neither will I.

    When I am back in my district in South Florida, I talk to people who have lost their jobs. Who have closed the doors to their small business because they can’t get a loan on reasonable terms. Who have lost their health care, or their home, or their pension and retirement savings.

    Yet here I am sitting across from the AIG Chairman and CEO who is distributing million dollar bonuses to those who drove company in the ground. There is a tremendous disconnect between South Florida and the executive offices of AIG.

    I just want to know one thing. What were you thinking?

    I look forward to the testimony, and a frank discussion today.


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    Posted in Articles, Email | 2 Comments »

    New Yorker supporting a payroll tax holiday

    Posted by WARREN MOSLER on 18th March 2009


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    Yes, thanks, not bad!

    And interesting how they want to substitute taxes that are equally regressive, but that’s another story.

    Not Insane

    by Hendrik Hertzberg

    Mar 18 (The New Yorker) — On Hardball the other night, David Frum was complaining about the Republican Party—a popular activity at MSNBC, a cable news network whose prime-time hosts are non-Republicans, including Hardball’s Chris Matthews. Frum, however, is a non-non-Republican, and an overdetermined one: 1980 Reagan volunteer, Federalist Society activist, Wall Street Journal editorial-page editor, George W. Bush speechwriter (“axis of evil”), National Review contributing editor, American Enterprise Institute resident fellow. What conservatives are saying, he told Matthews, is increasingly not only counterproductive economically but also politically. We look like we don’t care. We look like we’re indifferent. We don’t offer solutions. We’re talking about a spending freeze in the middle of a 1929-30-style meltdown!

    On ABC’s This Week, David Brooks, the Times columnist, was even more aghast. Brooks—whose conservative credentials (William F. Buckley, Jr., protégé, Wall Street Journal op-ed editor, Weekly Standard senior editor) aren’t too shabby, either—said wonderingly, “There are a lot of Republicans up on Capitol Hill right now who are calling for a spending freeze in the middle of a recession slash depression. That is insane.” Quite a lot of Republicans, actually, and they weren’t just talking about it: On March 6th, John Boehner, the House Republican leader, made a motion on the floor for just such a freeze. His charges voted for it, a hundred and fifty-two to nothing.

    The theory that preventing the United States government from spending more money will halt the cascading crisis of demand that threatens the world with recession slash depression is indeed crazy. And many Republicans, even as they rail against “government spending,” at least understand that the government must cause more money to be spent, and that the fiscal deficit must rise in the process. They just want the government to do the job indirectly, by cutting taxes—especially taxes paid by the well-off, such as inheritance taxes, capital-gains taxes, corporate taxes, and high-bracket income taxes—in the hope that the money left untaxed will be spent. It is useless to point out to them that this approach was tried for eight years and found wanting, that in this economy the comfortable are less likely than the strapped to spend any extra cash that comes their way, that government spending often serves socially useful purposes, that “wasteful spending” is not a government monopoly (see corporate jets, golf-course “conferences,” premium vodkas), and that the only way to insure that money is spent is, precisely, to spend it.

    And yet, lurking underneath the anti-spending, pro-tax-cutting cant is one idea that might truly have merit. Frum mentioned it on that Hardball broadcast, touching off this rather cryptic exchange:

    FRUM: I’m for a big payroll-tax holiday that would go into effect immediately.
    MATTHEWS: I know about the payroll, uh—in other words, it gets money back in the hands of people who are working people, right?
    FRUM: Up to a hundred and twenty dollars per week per worker, starting last month.
    MATTHEWS: But it sounds like a liberal argument. The funny thing is, the liberals haven’t pushed it. And I don’t know why, because working people pay a very regressive tax when they go to work, right?

    Right. The payroll tax—a.k.a. the Social Security tax, the Social Security and Medicare tax, or the Federal Insurance Contributions Act (FICA) tax— skims around fifteen per cent from the payroll of every business and the paycheck of every worker, from minimum-wage burger-flippers on up, with no deductions. No exemptions, either—except that everything above a hundred grand or so a year is untouched, which means that as salaries climb into the stratosphere the tax, as a percentage, shrinks to a speck far below. This is one reason that Warren Buffett’s secretary (as her boss has unproudly noted) pays Uncle Sam a higher share of her income than he does. In fact, three-quarters of American households pay more in payroll tax than in income tax.

    Where income taxes are concerned, even Republicans seldom argue that taxing added income over a quarter million dollars at, say, thirty-six per cent rather than thirty-three per cent is wrong because the affluent need more stuff. They argue that making the rich richer enables them to create jobs for the non-rich. More jobs: that’s a big argument for capital-gains and inheritance-tax cuts, too. But the payroll tax is a direct tax on work and workers—on jobs per se. If the power to tax is the power to destroy, then the payroll tax is, well, insane.

    Frum is not the only Republican on the case. “If you want a quick answer to the question what would I do,” Mitch McConnell, the Senate Republican leader, said recently, “I’d have a payroll-tax holiday for a year or two. That would put taxes in the hands of everybody who has a job, whether they pay income taxes or not.” Other Republican politicians and conservative publicists have made similar noises. They haven’t made it a rallying point, though; it would, after all, shape the over-all tax system in a progressive direction. Anyhow, their sincerity may be doubted: when President Obama proposed a much more modest cut along similar lines—a refundable payroll-tax credit of four hundred dollars—they denounced it as a welfare giveaway.

    Liberals have been reticent, too. The payroll tax now provides a third of federal revenues. And, because it nominally funds Social Security and Medicare, some liberals regard its continuance as essential to the survival of those programs. That’s almost certainly wrong. Public pensions and medical care for the aged have become fixed, integral parts of American life. Their political support no longer depends on analogizing them to private insurance. Besides, the aging of the population, the collapse of defined-benefit private pensions, the volatility of 401(k)s, and pricey advances in medical technology mean that, no matter what efficiencies may be achieved, Social Security and Medicare will—and should—grow. Holding them hostage to ever-rising, job-killing payroll taxes is perverse.

    If the economic crisis necessitates a second stimulus—and it probably will—then a payroll-tax holiday deserves a look. But it’s only half a good idea. A whole good idea would be to make a payroll-tax holiday the first step in an orderly transition to scrapping the payroll tax altogether and replacing the lost revenue with a package of levies on things that, unlike jobs, we want less rather than more of—things like pollution, carbon emissions, oil imports, inefficient use of energy and natural resources, and excessive consumption. The net tax burden on the economy would be unchanged, but the shift in relative price signals would nudge investment from resource-intensive enterprises toward labor-intensive ones. This wouldn’t be just a tax adjustment. It would be an environmental program, an anti-global-warming program, a youth-employment (and anti-crime) program, and an energy program.

    Impossible? A politically heterogeneous little group with the unfortunately punctuated name of Get America Working! has been quietly pushing this combination for twenty years. In one form or another, without much fanfare, it has earned the backing of such diverse characters as Al Gore and T. Boone Pickens, the liberal economist James Galbraith and the conservative economist Irwin Stelzer, Republican heavies like C. Boyden Gray and Democratic heavies like Robert Reich. It’s ambitious, it jumbles ideological and partisan preconceptions, and it represents the kind of change that great crises open political space for. Does that sound like anyone you know?


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    Posted in Articles | 3 Comments »

    Paulson & Co Buys Anglo American

    Posted by WARREN MOSLER on 18th March 2009


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    Might be the idea I’ve had for a while- if you own a gold mine, you incur expenses mining and don’t get taxable income until the gold is sold, and often you can sell it far forward at more than the carry and then roll the forwards as well to further defer taxable income?

    Paulson & Co Buys Anglo American AngloGold Stake

    by Jeffrey Sparshott

    Mar 17 (Dow Jones) — Hedge-fund firm Paulson & Co. has paid $1.28 billion to buy Anglo American PLC’s (AAUK) remaining stake in South African miner AngloGold Ashanti Ltd. (AU), as the firm run by John Paulson beefs up its bet on gold.

    Paulson, a merger-focused investor who became a hedge fund legend for making billions of dollars betting against subprime mortgages in 2007, has been piling up his gold holdings recently with stakes in several miners, including more than $450 million worth of stock in Kinross Gold Corp. (KGC), according to securities filings. He even introduced to investors a new share class pegged on the price of gold.

    It’s unclear why Paulson has been upping his bet on gold, but he and several other hedge-fund managers have been getting more into gold recently, including David Einhorn of Greenlight Capital. A bet on gold is typically a flight to safety against an expected drop in the value of currencies.

    Many of the hedge funds that have been buying stakes in mining companies, as well as physical bars of gold, have been doing so in anticipation of nations defaulting on their debt, which could lead to higher gold prices. Inflation and even deflation can also lead to rising gold prices.

    Paulson spokesman Armel Leslie said: “We believe AngloGold Ashanti is one of the best managed and most undervalued of the major global gold mining companies. We look forward to the implementation of their global expansion strategy.”

    Anglo American’s long-standing policy has been to sell down its stake in the South African gold miner. But the disposal of a large block of shares was an “opportunistic” sale made after advisers at Deutsche Bank brought Anglo American in contact with the U.S. hedge fund, people with knowledge of the transaction said.

    As recently as Feb. 19 Anglo American said in a regulatory filing that it “intends to remain a significant shareholder in AngloGold Ashanti in the medium term.”

    Uncertainty about when Anglo American would sell down its stake weighed on AngloGold’s shares.

    “The Anglo American share overhang, with its depressing effect on our share price, has now gone and I’m excited about the opportunities that lie ahead for us,” AngloGold Chief Executive Mark Cutifani said.

    Cutifani welcomed Paulson as one of AngloGold’s biggest shareholders. The fund bought 39.91 million shares from Anglo American, or 11.3% of outstanding shares.

    “We’re extremely pleased that someone with John Paulson’s track record and reputation has chosen AngloGold Ashanti as one of his investments through which to increase his exposure to the gold market,” Cutifani said.

    Anglo American said it would use the funds for general corporate purposes.

    The miner’s net debt – about $11 billion at the end of 2008 – has weighed on its share price.

    Anglo American now holds no shares in the gold miner, the company said.

    Paulson paid $32 per share.

    Anglo American has reduced its stake in AngloGold several times since announcing it would relinquish its majority holding in 2006. Anglo held 42% of AngloGold in April 2006, 17.3% as of Oct. 9, 2007 and 13.3% as of Feb. 5, and 11.88% as of Feb. 18, according to filings with the U.S. Securities and Exchange Commission.


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    Posted in Articles | 16 Comments »

    United Nations experts to recommend move from dollar to a shared currency CCY

    Posted by WARREN MOSLER on 18th March 2009


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    UN Panel says world should ditch dollar

    by Jeremy Gaunt

    Mar 18 (Reuters) — A United Nations panel of experts

    Who don’t understand how monetary systems work….

    will recommend next week that the world move away from using the dollar as a reserve currency and adopt a shared basket of currencies instead, one of its members said on Wednesday.

    Avinash Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.

    “It is a good moment to move to a shared reserve currency,” he told the Reuters Funds Summit in Luxembourg.

    He doesn’t either.

    The United States, he said, was finding it hard to manage policy while remaining the reserve currency and the rest of world was also unhappy with the generally declining dollar.

    Persaud said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.

    More of the blind leading the blind.


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    Posted in Articles, USA | 4 Comments »

    2009-03-18 USER

    Posted by WARREN MOSLER on 18th March 2009


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    MBA Mortgage Applications (Mar 13)

    Survey n/a
    Actual 21.2%
    Prior 11.3%
    Revised n/a

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    MBA Purchasing Applications (Mar 13)

    Survey n/a
    Actual 257.10
    Prior 253.30
    Revised n/a

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    MBA Refinancing Applications (Mar 13)

    Survey n/a
    Actual 4497.60
    Prior 3470.70
    Revised n/a

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    Consumer Price Index MoM (Feb)

    Survey 0.3%
    Actual 0.4%
    Prior 0.3%
    Revised n/a

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    CPI Ex Food and Energy MoM (Feb)

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

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    Consumer Price Index YoY (Feb)

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

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    CPI Ex Food and Energy YoY (Feb)

    Survey 1.7%
    Actual 1.8%
    Prior 1.7%
    Revised n/a

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    CPI Core Index SA (Feb)

    Survey n/a
    Actual 217.670
    Prior 217.265
    Revised n/a

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    Consumer Price Index NSA (Feb)

    Survey 212.020
    Actual 212.193
    Prior 211.143
    Revised n/a

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    Consumer Price Index TABLE 1 (Feb)

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    Consumer Price Index TABLE 2 (Feb)

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    Consumer Price Index TABLE 3 (Feb)

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    Current Account Balance (4Q)

    Survey -$137.1B
    Actual -$132.8B
    Prior -$174.1B
    Revised -$181.3B

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    Current Account Balance TABLE 1 (Feb)

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    Current Account Balance TABLE 2 (4Q)

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    Current Account Balance TABLE 3 (4Q)

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    Current Account Balance TABLE 4 (4Q)


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    Posted in Daily | No Comments »

    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.
    >   

    Excellent!

    >   
    >   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.

    Best!

    Warren

    >   
    >   Warmest regards
    >   
    >   Jim
    >   


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    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.


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    Posted in Articles | 2 Comments »

    Re: Chinese stimulus

    Posted by WARREN MOSLER on 17th March 2009


    [Skip to the end]

    (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?


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    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


    [Skip to the end]

    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


    [Skip to the end]

    (email exchange)

    Thanks!

    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!

    Best!

    Warren

    >   
    >   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


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    Posted in Articles | 5 Comments »

    Goldman Report

    Posted by WARREN MOSLER on 17th March 2009


    [Skip to the end]

    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.
    2.  

    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.
    4.  

    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.
    6.  

    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


    [Skip to the end]


    ICSC UBS Store Sales YoY (Mar 17)

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

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    ICSC UBS Store Sales WoW (Mar 17)

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

    [top][end]

    Redbook Store Sales Weekly YoY (Mar 17)

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

    [top][end]

    Redbook Store Sales MoM (Mar 17)

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

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    ICSC UBS Redbook Comparison TABLE (Mar 17)

    [top][end]

    Producer Price Index MoM (Feb)

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

    [top][end]

    PPI Ex Food and Energy MoM (Feb)

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

    [top][end]

    Producer Price Index YoY (Feb)

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

    [top][end]

    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.

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    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.

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    Building Permits (Feb)

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


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    Posted in Uncategorized | No Comments »

    Bernanke on government spending

    Posted by WARREN MOSLER on 17th March 2009


    [Skip to the end]

    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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    Bernanke March 10 speech

    Posted by WARREN MOSLER on 16th March 2009


    [Skip to the end]

    Financial Reform to Address Systemic Risk

    Bernanke:

    In my view, however, it is impossible to understand this crisis without reference to the global imbalances in trade and capital flows that began in the latter half of the 1990s. In the simplest terms, these imbalances reflected a chronic lack of saving relative to investment in the United States and some other industrial countries, combined with an extraordinary increase in saving relative to investment in many emerging market nations.

    This is not a good start. There were no ‘imbalances’ nor can there be for a nation like the US with floating exchange rates and non convertible currencies.

    The global imbalances were the joint responsibility of the United States and our trading partners, and although the topic was a perennial one at international conferences, we collectively did not do enough to reduce those imbalances.

    He’s saying we should have done more to reduce the trade deficit.

    The macroeconomic fundamental is that exports are real costs and imports real benefits.

    Reducing our trade deficit reduces our standard of living and real terms of trade.

    However, the responsibility to use the resulting capital inflows effectively fell primarily on the receiving countries, particularly the United States.

    Stuck in loanable funds theory.

    He still thinks the US somehow uses ‘imported dollars’ for funding purposes.

    He’s got the causation backwards.

    Causation runs from ‘loans to deposits’ and not vice versa.

    The details of the story are complex, but, broadly speaking, the risk-management systems of the private sector and government oversight of the financial sector in the United States and some other industrial countries failed to ensure that the inrush of capital was prudently invested, a failure that has led to a powerful reversal in investor sentiment and a seizing up of credit markets.

    So in his world view we get dollars from overseas to invest, and the problem is we failed to do it prudently?

    This is not how the monetary system works.

    In certain respects, our experience parallels that of some emerging-market countries in the 1990s, whose financial sectors and regulatory regimes likewise proved inadequate for efficiently investing large inflows of saving from abroad.

    Those flows were in external currencies.

    Again, he’s got it all very much confused.

    When those failures became evident, investors lost confidence and crises ensued. A clear and highly consequential difference, however, is that the crises of the 1990s were regional, whereas the current crisis has become global.

    No, the difference was that of external vs domestic currency.

    And here is the 7th deadly innocent fraud to be added to my draft:

    Until we stabilize the financial system, a sustainable economic recovery will remain out of reach. In particular, the continued viability of systemically important financial institutions is vital to this effort. In that regard, the Federal Reserve, other federal regulators, and the Treasury Department have stated that they will take any necessary and appropriate steps to ensure that our banking institutions have the capital and liquidity necessary to function well in even a severe economic downturn.

    Yes, the payments system is useful, as are banks that service deposits and originate and hold loans for housing and consumer credit.

    Beyond that, however, little or none of the rest of the financial infrastructure is a necessary to support a ‘sustainable economic recovery’. In fact, the reverse is largely true- it’s the real economy that supports the financial infrastructure. Failure to recognize this means a continuation of nominal wealth flowing to the ‘investor class’ as the economy recovers, while high unemployment helps insure those working for a living struggle with downward pressure on real incomes.

    At the same time that we are addressing such immediate challenges, it is not too soon for policymakers to begin thinking about the reforms to the financial architecture, broadly conceived, that could help prevent a similar crisis from developing in the future.

    Yes, like doing away with most of it?

    Developing appropriate resolution procedures for potentially systemic financial firms, including bank holding companies, is a complex and challenging task.

    Only because they have been allowed to engage in activities far beyond any concept of public purpose.

    In light of the importance of money market mutual funds–and, in particular, the crucial role they play in the commercial paper market, a key source of funding for many businesses–policymakers should consider how to increase the resiliency of those funds that are susceptible to runs.

    No, policy makers should consider alternative funding models, such as a return to using banks- the designated agents of the Federal Reserve- to accommodate lending and depository functions deemed to serve public purpose.

    Procyclicality in the Regulatory System

    It seems obvious that regulatory and supervisory policies should not themselves put unjustified pressure on financial institutions or inappropriately inhibit lending during economic downturns.

    Banks are pro cyclical, as is the private sector in general, and forcing them to act otherwise is counterproductive.

    Only the public sector can act counter cyclically, and should stand by to do that to sustain aggregate demand, output, and employment at desired levels.

    Another potential source of procyclicality is the system for funding deposit insurance.

    Why not eliminate it entirely??? What public purpose does it serve???

    The financial crisis per se was the direct result of people not making their payments for a variety of reasons.

    The direct way to address it was to restore aggregate demand from the ‘bottom up’ rather than from the ‘top down’.

    That’s why I was recommending an immediate payroll tax holiday, revenue sharing with the states on a per capita basis with no strings attached, and a federally funded, $8 per hour job that included full health care benefits for anyone willing and able to work.


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    Posted in Articles, Fed | 7 Comments »

    Swiss National Bank

    Posted by WARREN MOSLER on 16th March 2009


    [Skip to the end]

    >   
    >   On Thu, Mar 12, 2009 at 9:10 AM, EDWARD wrote:
    >   
    >   In conjunction with lowering rates to 0.25% (3m libor target- this is important- its NOT
    >   the overnight or refi rate) and maintaining a 0-75bp range they also announced the following:
    >   
    >   *SNB PLANS TO BUY WISS FRANC BONDS
    >   *SNB SAYS TO BUY CURRENCIES TO AVOID FRANC APPRECIATION
    >   

    Beggar thy neighbor export driven policy here too- yet another player trying to drive down their currency!

    Failing to see the advantages of increasing domestic demand, seems most are turning to policies to drive exports.

    Too bad we don’t have the leadership to take advantage of this once in a lifetime opportunity ratchet up our real standard of living.

    >   
    >   *SNB TO BUY SWISS FRANC BONDS BY PRIVATE SECTOR
    >   
    >   With the following statements:
    >   
    >   *SNB SAYS RISING FRANC COMMENTS TIGHTENS MONETARY CONDITIONS
    >   *SNB TO COUNTERACT RISK OF DEFLATION, ECONOMIC WORSENING
    >   *SNB SAYS SWISS FRANC APPRECIATED SUBSTANTIALLY SINCE AUGUST 07
    >   *SNB SEES ANNUAL INFLATION AT CLOSE TO ZERO FOR NEXT TWO YEARS
    >   *SNB EXPECTS INCREASED CONTRACTION IN 1Q
    >   *SNB SAYS SWISS EXPORT SECTOR PARTICULARLY HIT
    >   *SNB SAYS ECON WORSENING HAS CONTINUED IN PAST TWO MONTHS
    >   *SNB: SWISS AVG 2009 INFLATION SEEN -0.5%, 2010 INFLATION 0%
    >   *SNB SAYS MAGNITUDE OF ECONOMIC CONTRACTION IN 4Q UNEXPECTED
    >   
    >   They are deploying all weapons, rightly perceiving the vast threat to their economy
    >   and stepping up to the front lines- unlike the ECB who would still prefer to discuss
    >   targeted limits to easing rates and inflationary threats which do not exist.
    >   


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    Posted in Articles, Email | 1 Comment »

    Energy drilling collapsing

    Posted by WARREN MOSLER on 16th March 2009


    [Skip to the end]

    This is what happens with an inventory liquidation.

    Any pickup in world demand looks likely to drive up energy prices in short order.


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    Posted in Articles | 7 Comments »