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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 August 26th, 2009

lodging

Posted by WARREN MOSLER on 26th August 2009


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This doesn’t look good:


This does not look good

  • US RevPAR declined 16.7% last week versus a year ago, the largest decline since early July
  • Occupancy fell 7.2% to 60.4% and average room rates fell 10.2% to $95.70
  • Higher quality and urban segments continue to lead the decline


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Posted in Housing | 3 Comments »

FDIC Sets Standards for Private-Equity Firms to Buy Shut Banks

Posted by WARREN MOSLER on 26th August 2009


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So why should capital ratios be a fuction of who the shareholders are?

FDIC Sets Standards for Private-Equity Firms to Buy Shut Banks

By Alison Vekshin

August 26 (Bloomberg) — The Federal Deposit Insurance Corp. approved guidelines for private-equity firms to buy failed banks, opening a growing pool of failing lenders to new buyers and limiting costs to the agency and the industry.

The FDIC board approved the rules today at a meeting in Washington, agreeing to lower to 10 percent from the proposed 15 percent the Tier 1 capital ratio private-equity investors must maintain after buying a bank.


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Posted in Banking | 4 Comments »

Money as a Public Monopoly

Posted by WARREN MOSLER on 26th August 2009


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Money as a Public Monopoly by L. Randall Wray


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Posted in Banking, Currencies, Deficit, Government Spending | No Comments »

Levy Policy Brief

Posted by WARREN MOSLER on 26th August 2009

The Levy Economics Institute of Bard College
Public Policy Brief
No. 103, 2009

FINANCIAL AND MONETARY ISSUES
AS THE CRISIS UNFOLDS
James K. Galbraith

Beginning page 9:

Warren Mosler picked up on the theme of human resource
utilization and full employment in a particularly useful way.
Mosler suggested that stabilization of employment and prices is
akin to a buffer stock—something to which surpluses can be
added when demand is low, and drawn down when it is high.
Normally, a buffer stock works on a price signal: the authorities
agree to buy when market prices are below the buffer and to sell
when they are above. In this way, prices stabilize at the buffer
price. The Strategic Petroleum Reserve is potentially a good
example, though political decisions have prevented it from being
used as it should be.

The problem with most commodity buffers is elasticity of
supply: create a buffer stock in wool, and suddenly it pays to raise
sheep. But this problem is cured if the buffer stock is human
labor, which cannot be reproduced quickly. A program that provides
a public job at a fixed wage for all takers functions exactly
like a buffer stock, stabilizing both total employment and the
bottom tier of the wage structure. People can move in and out of
the buffer as private demand for their services varies. Meanwhile,
the work done in the buffer—the fact that people are working
rather than receiving unemployment insurance—helps keep the
buffer “fresh.” Private employers like hiring those who already
work, and will prefer hiring from the federal jobs program rather
than from among those who remain unemployed.

The point is: the problem of unemployment is easily cured,
without threat of inflation. It is merely sufficient to provide jobs,
at a fixed wage, to whoever wants them, and to organize work
that needs to be done. Such work should be socially useful and
environmentally low impact: from child care to teaching and
research, to elder care to conservation to arts and culture. Where
possible, it should contribute to global public and knowledge
goods. It should compete as little as possible with work normally
done in the private sector; for instance, by serving those who
cannot afford private sector provision of teaching and care. The
point is not to socialize the economy but to expand the range of
useful activity, so that what needs doing in society actually gets
done. The barrier to all this is simply a matter of politics and
organization, not of money.

The effect, nevertheless, would be to raise all private sector
wages to the buffer-stock minimum (say, $8/hour in the United
States), while eliminating the reserve of unemployed used to
depress wages in low-skilled private sector industries. There will
be no pressure to raise wages above the buffer threshold, since private
employers providing higher wages can draw on an indefinitely
large workforce willing, for the most part, to move from the
buffer to the private sector in return for those wages. Hence, the
program is not inflationary. There is therefore no excuse for waiting
a year or two years on the assumption that unemployment
will cure itself, and every reason to believe that at the end of such
a policy of “hopeful waiting,” the discovery will be made that the
problem has not been cured.

Posted in Comodities, Employment, Oil | 4 Comments »

US Debt Clock

Posted by WARREN MOSLER on 26th August 2009


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The name needs to be changed to the ‘non govt savings clock’ asap!

http://www.usdebtclock.org/


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Posted in Deficit, Government Spending | No Comments »

Number of new homes in inventory

Posted by WARREN MOSLER on 26th August 2009


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(Sent ahead of the 10am number)

The actual homes in inventory, as per the attached graph, is exceptionally low, particularly on any kind of population adjusted number.

And with actual inventories this low, much of what’s left may be undesirable for any number of reasons.

While orders for new homes can pick up, it’s unlikely sales out of inventory can show
substantial gains as there doesn’t seem to be much inventory to buy.

But even a modest increase in sales is likely to drop the ‘number of months’ inventory data.


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Posted in Housing | 3 Comments »

Bean Says Impact of BOE Bond Purchases ‘Moderately Encouraging’

Posted by WARREN MOSLER on 26th August 2009


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Bean does see the interest rate channel but misses the savings/income channel, and has it all wrong regarding the fact that causation runs from loans to deposits and reserves, not from reserves to loans. And he’s reading what happened in Japan incorrectly as well.

Also, the second article misses the point as well. The rising domestic savings/debt pay downs is being ‘funded’ by govt. deficit spending. The deficit spending, if sufficient, allows the consumer to both increase savings and spending. So the fact that savings went up says nothing about what consumption might have done.

Bean Says Impact of BOE Bond Purchases ‘Moderately Encouraging’

August 25 (Bloomberg) — “The initial responses in the United Kingdom to these measures (purchases of government and corporate debt) have been moderately encouraging,” BOE Deputy Governor Charles Bean said in a speech. Gilt yields “appear to be some 50 to 75 basis points lower than they would otherwise be. And there are also signs of beneficial effects on conditions in the relevant corporate credit markets.” “It is very early to draw conclusions on the efficacy of these measures, as the transmission lags through to nominal spending are likely to be quite long,” Bean said. “When banks are trying to de-leverage, ,such additional reserves are more likely to be hoarded” Bean said. “That appears to be what happened during the Japanese experiment with quantitative easing in the early part of this decade and a similar response is to be expected from banks at the current juncture.”

U.K. Home Lending Drops as Consumers Cut

August 25 (Bloomberg) — U.K. net mortgage lending slumped to the lowest in almost nine years as consumers used gains from lower interest rates to pay down debt rather than boost spending.

“It could be that people on low interest rates are keeping their mortgage payments the same to reduce their borrowing,”

Vicky Redwood, an economist at Capital Economics Ltd. said.

“It’s good news if you think consumers have taken on too much debt, but it’s bad news for the economy in the short term, as it means that money is not feeding back into the economy in increased spending.”

Net mortgage lending at the end of July declined 74 % to 1.64 billion pounds ($2.69 billion) from 6.23 billion pounds in August 2007, the peak of Britain’s decade-long real estate boom, the British Bankers’ Association said yesterday. Mortgage approvals in July rose to the highest since February 2008. The data show new home lending is being outweighed by repayments, according to the BBA.

U.K. consumers’ debt reached a record 1.5 trillion pounds in January, according to the Bank of England. Consumer spending accounts for about 65 % of gross domestic product, while about 20 % of incomes are spent on mortgages, according to Simon Willis, an analyst at NCB Stockbrokers Ltd. in London.

“The household sector is far too highly leveraged,” said Ross Walker, economist at Royal Bank of Scotland Group Plc.

“There’s been a concerted effort to pay back credit cards and mortgages.”

U.K. Rate of Workless Households Increases to Highest in Decade

August 26 (Bloomberg) — The proportion of workless households rose to the highest in a decade in the second quarter as Britain experienced its worst recession in a generation.

The rate increased 1.1 %age points from a year earlier to 16.9 %, the most since 1999 and the biggest increase since records began in 1997, the Office for National Statistics said today. The number of people living in households where no adults work rose by 500,000 to 4.8 million.

Mounting job cuts threaten to hinder Prime Minister Gordon Brown’s prospects less than a year before he has to hold the next general election. Unemployment rose to the highest level in 14 years in the quarter through June, and joblessness is forecast to increase further as the economic slump forces companies to fire workers.

“We expect to see unemployment continuing to rise into the middle of next year and the number of jobless households with it,” said David Page, an economist at Investec Securities in London. “We’re going to have to get used to high levels of unemployment for quite a long time. It’s unlikely the labor market will provide Brown with anything to electioneer on.”

The workless household rate was highest in the northeast of England, at 23 %, with the lowest rate in the east of England at 12.2 %, today’s figures showed.


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Posted in CBs, Government Spending, Housing, UK | No Comments »