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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 January 21st, 2010

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Posted by WARREN MOSLER on 21st January 2010


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Tom Hickey Says:
January 21st, 2010 at 2:29 pm

Same thing happened to me, although I was a progressive (radical, actually) and knew that something was wrong with neoliberalism from Chomsky’s Politics and Neoliberalism andHegemony and Survival. But I hadn’t seen through the veil and was still under the spell of the Wizard and the gold brick road. (Did you know that The Wizard of Oz was an allegory against the gold standard?)

I happened to read a comment by Ramanan on a blog, although I no longer remember which one. It sounded a bit far-fetched but he provided references and I checked them out. This led to my reading Randy Wray’s Understand Modern Money, and the scales fell from my eyes. I realized that I had just discovered the holy grail of economics! Then everything began to fall into place. Reading the blogs of Warren, Bill Mitchell, Randy, Scott Fulwiler, Winterspeak, Marhall, etc., and going through the comments carefully, especially those of JKH, I began to get how everything fits together with MMT as the foundation. Eureka. Thank you all.

America, wake up before it is too late.

Jason Says:
January 21st, 2010 at 4:42 pm

It’s true that’s it’s a paradigm shift that changes everything, because there is so much of what we hear from political parties (including up here in Canada) and on the media that is just whacky once these pieces start to fall together. I’m like Tom above, very progressive and i’m the guy that before would have said tax business and that cutting the GST (again in Canada) is stupid because it will be harder to get to a surplus situation…etc etc..and one year later I have had to abandon so many ideas I believed. But it’s very liberating. I make many more comments now in online print media and have many more discussions about economics and try to point people to this site. I think there are many phases of outreach about this that need to occur to the general public, but certainly one that comes to mind is economic textbooks need to be challenged. I happen to have my old 1993 intro economics textbook open. Central banks borrow for deficits. Central banks control inflation by changing the money supply. Velocity of circulation theory. Tax as a source of revenue for federal govt. it’s all here and now all seemingly wrong.


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Posted in Government Spending, Mosler 2012 | 3 Comments »

A comment on Auerback’s recent post

Posted by WARREN MOSLER on 21st January 2010


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I am undeniably disappointed in Obama, though I recognize that he has had some very difficult stuff to deal with.

At the time I voted for him, I was a deficit hawk and pretty neo-liberal in outlook. Initially I was even highly skeptical of the stimulus! After Obama was elected, I realized that as an ordinary citizen, I did not understand economics at all. So I have been trying to actually learn about it, and read Keynes, Friedman (for balance, I guess), and Minsky, along with every economics blog I could find (left, right, and center). The result (so far) is that I end up going through an “everything you know is wrong” revelation with MMT. The tipping point for me was Warren Mosler asking where the points come from on a scoreboard and saying that when you pay taxes, the government destroys your money, because it does not need it to spend, via your “Should America Kowtow to China?” post. Then it just hit me like a ton of bricks – everything you know about macroeconomics is wrong. It’s hard to sufficiently emphasize how hard I was suddenly hit by it. So at least from my perspective, much of the disappointment arises from me actually changing my opinions, less from disappointment in him.

Another, larger, better targeted fiscal stimulus is needed. But with his current economic advisers, not to mention the political mood, there is no way that will actually happen. People don’t understand why it is needed because people do not understand the macro-economy. People are scared by the banal gold-standard conventional wisdom that “our children will have to re-pay the national debt,” and that “the government is going to go bankrupt.” As long as (normal but reasonably educated) people think that way, it would be suicide for any politician to actually do what is needed to fix the economy, even if that politician actually understood why it was necessary, which of course none of them do.

Well, at least Obama’s better than McCain. We would probably have lunacy like a spending freeze with him in charge.


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Posted in China, Government Spending, McCain, Obama | 9 Comments »

U.K. Debt Ratio

Posted by WARREN MOSLER on 21st January 2010


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And a lot of the deficit spending was proactive, in addition to the automatic stabilizers.

They should continue to do relatively well, unless they take meaningful deficit reduction measures.

And as issuer of their own currency with no liquidity risk, it makes no sense, of course, that their CDS should be substantially higher than Germany or France, who are users of the euro, and subject to liquidity risks.


U.K. Has Worst Debt Ratio Damage of G-7: Chart of Day

U.K. Posts Largest December Budget Deficit on Record

U.K. Mortgage Approvals Stay Close to One-Year High

U.K. CBI January Factory Order Index Rises to Highest Since 2008

London Office Rents May Have Bottomed Out, RICS Survey Shows

Former U.K. Minister Hewitt Joins Barclays as Adviser


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Posted in Government Spending, UK | No Comments »

Obama to Propose New Limits on Banks

Posted by WARREN MOSLER on 21st January 2010


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Out of the frying pan and into the fire…

Proposal Set to Curb Bank Giants

By Damian Paletta and Jonathan Weisman

Jan. 21 (WSJ) — President Barack Obama on Thursday is expected to propose new limits on the size and risk taken by the country’s biggest banks, marking the administration’s latest assault on Wall Street in what could mark a return, at least in spirit, to some of the curbs on finance put in place during the Great Depression, according to congressional sources and administration officials.

The past decade saw widespread consolidation among large financial institutions to create huge banking titans. If Congress approves the proposal, the White House plan could permanently impose government constraints on the size and nature of banking.

Mr. Obama’s proposal is expected to include new scale restrictions on the size of the country’s largest financial institutions. The goal would be to deter banks from becoming so large they put the broader economy at risk and to also prevent banks from becoming so large they distort normal competitive forces. It couldn’t be learned what precise limits the White House will endorse, or whether Mr. Obama will spell out the exact limits on Thursday.

Mr. Obama is also expected to endorse, for the first time publicly, measures pushed by former Federal Reserve Chairman Paul Volcker, which would place restrictions on the proprietary trading done by commercial banks, essentially limiting the way banks bet with their own capital. Administration officials say they want to place “firewalls” between different divisions of financial companies to ensure banks don’t indirectly subsidize “speculative” trading through other subsidiaries that hold federally insured deposits.

The proposal could have the biggest effect on Bank of America Corp., Wells Fargo & Co., and J.P. Morgan Chase & Co., which control a large amount of U.S. deposits, as well as Goldman Sachs, Morgan Stanley and Citigroup Inc., which have a large presence on Wall Street.

If the proposal took effect, big banks could be forced to wall off certain activities in their investing banking units—which trade and underwrite securities and make their own bets on markets—from their traditional businesses, which make loans and take deposits.

The investing banking units have grown dramatically in recent years, were far more profitable than the banking operations and were at the heart of the financial crisis.

The industry has undergone a major consolidation during the financial crisis, leaving the top four banks with an unprecedented market share in businesses such as deposit taking, credit cards and mortgages.

The rules could also keep banks out of the business of running hedge funds, investing in real estate or private equity, all businesses that have become important, profitable parts of these banks. The collapse of two highly leveraged hedge funds began the process that led to the collapse of Bear Stearns.

If investors believe the new rules could take effect, they could sell off the shares of most of the big financial stocks in the belief these companies would be facing years of turmoil and potentially lower profits.

Messrs. Obama and Volcker are scheduled to meet tomorrow in advance of the White House announcement.

The White House’s proposal, one aide said, wouldn’t resurrect the exact limits put in place by the Depression-era Glass Steagall Act, which essentially walled off commercial banks from investment banks and was repealed in 1999. Instead, the White House proposal would seek to return the “spirit of Glass Steagall,” meant to limit large banks from becoming too big and complex that create enormous risk.


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Posted in Banking, Political | 3 Comments »