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Archive for February, 2010

Connecticut senate race

Posted by WARREN MOSLER on 26th February 2010

Another hat in the ring? Financial analyst Warren Mosler considers U.S. Senate run

By Daniela Altimari

Feb. 26 — Mosler, a Manchester native who holds an economics degree from UConn, is currently living in the U.S. Virgin Islands. But he intends to return to Connecticut tomorrow, to start a “listening tour” as he weighs a run for the seat currently held by Chris Dodd, who is retiring.

Mosler says he was planning to run for president in 2012 but has been prodded by people in Connecticut to enter the senate race. If he runs, he’ll do it as a Democrat — joining a field that already includes Attorney General Richard Blumenthal and Mystic businessman Merrick Alpert.

“It looks more than intriguing,” Mosler said. “If it makes sense, I’ll announce…I have a specific agenda for economic development I’m pushing.”

He says he’s motivated by his conscience, adding “I know I can turn the U.S. economy around in 90 days.”

Mosler’s agenda includes three main proposals: a full payroll tax holiday, a $500 per-capita distribution from the federal government to each state and a federal jobs program that would provide an $8-an-hour position to any unemployed person willing to work. (That’s the thumbnail version of his platform. More details can be found on his website.)

Mosler, 60, grew up in Manchester in the 1950s and ’60s and worked in Hartford before leaving for a job on Wall Street. He started his own hedge fund in 1982 and turned most of it over to partners in the late 1990s. He is currently on a government-sponsored project to promote economic development in the U.S. Virgin Islands.

According to his website, Mosler recently spoke to tea party activists in Dallas. That’s not normally a place you’d expect to find a Democratic office-seeker, but he says many of his views are in line with tea party values.

“I look at the tea party and I see a lot of concerned citizens who are unhappy, who believe the government has supported the elites,” he said. “They see their tax money going to AIG and the banks while they’re getting squeezed.”

If he runs, Mosler will pour some of his own money into his campaign but he won’t exclusively self-fund. He said he views campaign contributions as a measure of support. “Broad-based support is important,” he said. “I’m not talking to hear myself talk.”

Posted in Political | 11 Comments »

david walker okays deficits???!!!

Posted by WARREN MOSLER on 25th February 2010

>   (email exchange)
>   On Thu, Feb 25, 2010 at 12:54 PM, Roger wrote:
>   am I reading this right?
>   he seems to be admitting the difference between “structural” and nominal deficits, but
>   is still fixated on debt/GDP ratios, not to mention national “revenue”
>   nevertheless, some progress is better than none, and ANY sign of movement is a
>   step in the right direction


Looks like a serious chink in the armor of what used to be deficit terrorist #1???!!!

Address jobs now and deficits later


Feb. 24 (Politico) — President Barack Obama is in a difficult position when it comes to deficits. Today’s high deficits will have to go even higher to help address unemployment. At the same time, many Americans are increasingly concerned about escalating deficits and debt. What’s a president to do?

The answer, from a policy perspective, is not that hard: A focus on jobs now is consistent with addressing our deficit problems ahead.

The difficulty is that many politicians and news organizations often cast deficit debates as a dichotomy: You either care about them or you don’t.

But this is rarely accurate. The fact that the two of us, who have philosophical differences on the proper role of government, find much to agree on about deficits is a testament to the importance of dropping this useless dichotomy and finally talking about deficits in a reasonable way.

As in every economic downturn, federal revenues have fallen steeply because individuals and corporations earn less in a recession. High unemployment also results in higher expenditures for safety net programs, like Medicaid, unemployment benefits and food stamps.

Not surprisingly then, a huge recession can yield a huge deficit. Efforts to put people back to work and help restore the economy, like the recovery package passed last February, can also increase short-term deficits.

Though a concern, most of the recent short-term rise in the deficit is understandable. Furthermore, public spending can help compensate for the fall in private spending, and help stem the pain of substantial job losses.

With more than a fifth of the work force expected to be unemployed or underemployed in 2010, there is an economic and a moral imperative to take action. Persistently high unemployment drives poverty up, makes it harder for families to find decent housing, increases family stress and, ultimately, harms children’s educational achievement. For young workers entering the workforce, the current jobs crisis reduces the amount they will earn over their lifetime.

In deep recessions, businesses tend to make fewer critical investments in research and development that can improve our economy’s productive capacity over the long term. Entrepreneurs usually find credit hard to obtain if they want to start a new business. These factors hurt U.S. global competitiveness and growth potential.

That’s why we agree that job creation must be a short-term priority. Job creation plans must be targeted so we can get the greatest return on investment. They must be timely, creating jobs this year and next. And they must be big enough to substantially fill the enormous jobs hole we’re in. They must also be temporary — affecting the deficit only in the next couple of years, without exacerbating our large and growing structural deficits in later years.

Funding key investment and infrastructure projects to promote economic growth and offering a job creation tax credit are among the policy ideas that meet all these standards. In addition, temporarily renewing extended unemployment benefits can lead to more jobs throughout the economy.
But these problems, and the resulting short-term deficits they cause, should not be confused with the primary deficit challenge facing our nation: structural deficits. These deficits are projected to exist in coming years — even when the country is at peace, even when the economy is growing, even when unemployment falls.

Specifically, the deficit could approach an already unsustainable 6 percent of gross domestic product 10 years from now, and will continue to rise thereafter.

While we address our short-term unemployment challenges, we must also immediately establish a path to address our large, and growing, structural deficits.

The Congressional Budget Office projects that after the economy has returned to full employment, spending will still substantially outstrip revenues. Over time, Medicare and Medicaid will be the key drivers of these structural deficits. This is primarily because these programs’ costs tend to mirror overall cost increases for health care, which have risen much faster than overall economic growth for decades, but also because of demographic changes.

Our nation’s fiscal picture will darken further with the passage of time, especially if interest rates increase.

These structural deficits are too substantial to close the gap without addressing both sides of the ledger: spending and revenues.

In doing so, it is important to distinguish critical and effective programs and tax policies from outdated and ineffective ones.

We must be careful to maintain the type of public investments that can help fuel broad-based economic growth while strengthening the safety net for our most vulnerable populations. And we should take into account growing retirement insecurity as employer pension systems erode and personal savings falter.

People should be able to count on government benefits they are promised. It is, therefore, critical that federal benefit and funding levels be reconciled.

None of this will be easy — not the policy or the politics. It will require hard choices, and an extraordinary process to engage the American people and to make recommendations to the Congress on budget controls, spending cuts and revenue increases.

Getting the deficit under control cannot be accomplished by simply ending “waste, fraud and abuse,” stopping all foreign aid or exiting Iraq and Afghanistan. Substantial progress could be made though by ending the tax cuts of 2001 and 2003, or paying for their extension through spending reductions. In the end, Congress must step up to the plate, not just with hearings, but with votes.

For all the disagreement in Washington, we both know that, like us, there are many who see the critical importance of addressing these challenges. We must accept higher deficits in the short-term in order to put people back to work.

At the same time, we must take immediate steps to agree on a path and a process for reducing the structural deficits that lie ahead.

In a town of division, this is one area where we need a real consensus now.

Posted in Employment, Government Spending, Inflation, Interest Rates | 69 Comments »


Posted by WARREN MOSLER on 25th February 2010

Markets are getting closer to the idea that:

Interest rates don’t/won’t help
QE doesn’t/won’t help

With the larger point being coming to terms with the possibility the Fed can’t inflate, or do much of anything that actually matters for the real economy, except maybe fund zombie entities to keep them from failing.

So bonds are throwing in the inflation towel and yields are coming down.
The dollar is going up with miles to go before ppp is reached.
Gold is well off the highs and being held up probably by europeans running from the euro to dollars and a bit of gold.

(***Bernanke just again testified that a contango in futures prices is a reasonable forecast of higher prices down the road. So much for the credibility of their inflation forecast)

Meanwhile the eurozone is continuing it’s methodical implosion with no credible response in sight.
And the realization that all eurozone bank deposits are only insured by the national govts has yet to hit the headlines.

The Obama administration believes the US Treasury is ‘out of money’ and we have to borrow from China to spend and leave that for our children to pay back.
So any kind of meaningful US fiscal response seems off the table.

The American economy works best when people working for a living make enough to be able to one way or another buy their own output, and business competes for their dollars. It’s not happening.

We are grossly overtaxed for current circumstances with no meaningful relief in sight.

Lots of reasons to stay on the sidelines.

Posted in China, EU, Government Spending, Interest Rates, Obama, Political, Trading | 5 Comments »

Warren presenting May 5 in Manila

Posted by WARREN MOSLER on 25th February 2010

Forum on “A Fresh Perspective on Critical Development Issues”

Posted in Emerging Markets, Government Spending, Inflation, Political | No Comments »

China Commerce Ministry comments

Posted by WARREN MOSLER on 25th February 2010

Looking ugly.

And a trade deficit and FDI not profitable due to higher costs can weaken the currency as well.





Posted in China | No Comments »

Japan at Tipping Point as Debt Approaches Assets

Posted by WARREN MOSLER on 25th February 2010

The tipping point is the point where the deficit spending finally is sufficient to create enough aggregate demand to restore output and employment.

Probably not quite there yet. And moves towards ‘fiscal responsibility’ further delay the restoration of output and employment.

And note that even the bearish rate forecast, below, is hardly the stuff of a liquidity crisis, nor will it ever be under current institutional arrangements, which are very different from Greece, also mentioned below.

Japan at Tipping Point as Debt Approaches Assets: Chart of Day

By Minh Bui and Aki Ito

Feb. 25 (Bloomberg) — Japan’s total public debt is nearing the value of household wealth, a sign the government bond market is approaching a “tipping point,” according to Mizuho Securities Co.

The CHART OF THE DAY shows net assets of Japanese households and total government debt. Net assets dropped to 1,065 trillion yen ($11.8 trillion) as of September and the Finance Ministry projects public borrowings will reach a record 973.2 trillion yen by March 2011. Japan’s population, which is shrinking, is also tracked.

“There’s a lot of nervousness in the markets that these two numbers are converging,” said Hajime Takata, Tokyo-based chief strategist at Mizuho. “Looking at the deficit, household assets and limited room the government has for issuing new debt, people think we’re getting closer to a tipping point.”

The yield on 10-year bonds could rise to as high as 1.6 percent this year as investors demand higher premiums for the country’s debt, he said. Benchmark bond yields were at 1.32 percent yesterday in Tokyo.

The narrowing gap is especially alarming for Japan, where more than 90 percent of public debt is held by domestic investors. Bank of Japan Governor Masaaki Shirakawa urged the government to shore up finances, particularly as investors scrutinize sovereign accounts more closely because of Greece’s financial woes. Mizuho’s Takata says he doesn’t expect public liabilities to exceed household wealth for at least two years.

Prime Minister Yukio Hatoyama said he will unveil in June a plan to contain debt after Standard and Poor’s lowered the outlook on Japan’s AA sovereign rating last month. Kaoru Yosano, a former finance minister, warned on Jan. 22 the country could face an “uncontrollable rise” in bond yields if debt exceeds household wealth.

Posted in Currencies, Government Spending, Japan | No Comments »

More Bernanke testimony

Posted by WARREN MOSLER on 24th February 2010

>   (email exchange)
>   On Wed, Feb 24, 2010 at 10:37 AM, wrote:
>   It’s not worthy of any comment, other than to show that even the Fed doesn’t
>   understand its own operations:

“These constraints will discourage institutions from lending their reserve balances as they continue to work to stabilize their operations.”

>   Banks don’t lend from their reserve balances. That’s a fact. How can you take someone
>   seriously when they get an elementary fact like that wrong? Banks DO NOT use reserve
>   balances to create loans. They create loans and deposits simultaneously out of thin
>   air. They use reserve balances to settle payments or meet reserve requirements ONLY.
>   If a bank is short reserve balances for either of these purposes, the Fed provides an
>   overdraft AUTOMATICALLY at a stated penalty rate, which the bank then clears via the
>   money markets or the cheapest alternative. Whether banks in the aggregate hold $1 or
>   $1 trillion in reserve balances, there operational ability to create loans is the
>   same . . . infinite! (Though the creation of even 1 loan requires a willing,
>   credit-worthy borrow in the first place, of course.)

Posted in Banking | 22 Comments »

Bernanke testimony

Posted by WARREN MOSLER on 24th February 2010

Karim writes:

Generally more upbeat on economic conditions….the ‘2 Es’ remain, but adds high-profile qualifier ‘ALTHOUGH’…watching Q&A

Final Demand
Private final demand does seem to be growing at a moderate pace, buoyed in part by a general improvement in financial conditions. In particular, consumer spending has recently picked up, reflecting gains in real disposable income and household wealth and tentative signs of stabilization in the labor market. Business investment in equipment and software has risen significantly. And international trade–supported by a recovery in the economies of many of our trading partners–is rebounding from its deep contraction of a year ago. However, starts of single-family homes, which rose noticeably this past spring, have recently been roughly flat, and commercial construction is declining sharply, reflecting poor fundamentals and continued difficulty in obtaining financing.

The improvement in financial markets that began last spring continues. Conditions in short-term funding markets have returned to near pre-crisis levels. Many (mostly larger) firms have been able to issue corporate bonds or new equity and do not seem to be hampered by a lack of credit. In contrast, bank lending continues to contract, reflecting both tightened lending standards and weak demand for credit amid uncertain economic prospects.

Some recent indicators suggest the deterioration in the labor market is abating: Job losses have slowed considerably, and the number of full-time jobs in manufacturing rose modestly in January. Initial claims for unemployment insurance have continued to trend lower, and the temporary services industry, often considered a bellwether for the employment outlook, has been expanding steadily since October. Notwithstanding these positive signs, the job market remains quite weak, with the unemployment rate near 10 percent and job openings scarce.

FF Rate
Although the federal funds rate is likely to remain exceptionally low for an extended period, as the expansion matures, the Federal Reserve will at some point need to begin to tighten monetary conditions to prevent the development of inflationary pressures.

Of course, the sequencing of steps and the combination of tools that the Federal Reserve uses as it exits from its currently very accommodative policy stance will depend on economic and financial developments.

Posted in Credit, Employment, Interest Rates | No Comments »

Bernanke re default

Posted by WARREN MOSLER on 24th February 2010

This from Q&A following Bernanke testimony:

Barney Frank: Do you think there is any realistic prospect of America’s defaulting on its debt in the near future?

Bernanke: Not unless Congress decides not to pay….

Posted in Fed, Government Spending | 4 Comments »

ECB likely to extend lending unlimited funds at fixed

Posted by WARREN MOSLER on 24th February 2010

At least part of the ECB has repeatedly shown they do understand monetary operations and that it’s about price and not quantity.



on the back of above headlines
-curve steepening back, 2bps move
-front end bid
-pers better bid (Greece 5bps move)

Posted in ECB | 4 Comments »

Private vs Govt Sources of Personal Income

Posted by WARREN MOSLER on 23rd February 2010

Good chart.

Note how the deficit as a % of GDP began trailing off midway through 06 and brought income from private sources (which for the most part are driven by private sector debt increases) down with it. And how the latest increase in deficit spending has begun to restore it.

As always, taxes function to regulate agg demand and, in fact, don’t actually raise revenue for the federal govt that never has nor doesn’t have any dollars.

It taxes by changing numbers down in our accounts and doesn’t actually get anything, and spends by changing numbers up in our accounts and doesn’t use up anything.

On Tue, Feb 23, 2010 at 9:59 AM, wrote:

Interesting chart from Citi Econ. 6mth rate of change in Income via Govt Support (essentially unemployment benefits, social security, medicare, etc) and Income from Private Sources (mostly wage and salary income, but also corp pension contributions, rental income, interest income, etc).

Posted in Deficit, GDP, Government Spending | 4 Comments »

EU Says There Is No Plan to Bail Out Greece

Posted by WARREN MOSLER on 23rd February 2010

The markets are likely to force some entity to write a check:

EU Headlines:

EU Says There Is No Plan to Bail Out Greece

Provopoulos Confident Greece Will Meet ‘Very Ambitious’ Goals

Euro Worst to Come as Greece Hammerlocks ECB on Rates

German Recovery ‘Prone to Setbacks,’ Finance Ministry Says

French Lawmaker Warns Sarkozy Against Hasty Support for Greece

Five Percent of German Taxpayers Generate 42% of Income Tax

Debt Deals Haunt Europe

Greece Said to Have Arranged Swaps With 15 Banks

Greece looks at tougher budget cuts

Greek PM rules out bailout but urges EU solidarity

EU Says There Is No Plan to Bail Out Greece

Feb. 22 (Bloomberg) — The European Union said there is no plan to bail out Greece.

“There is no such a plan,” EU spokesman Amadeu Altafaj told reporters in Brussels today. “This is a speculative scenario at this point in time.”

“I was reading the papers when I also realized that in fact that there is no such a plan,” Altafaj said. “I think that the extraordinary summit and the Ecofin said all that had to be said on this and there has never been such a request from the Greek authorities and that remains the case.”

Posted in ECB | 1 Comment »

to say Rogoff is weak on monetary operations is a gross understatement

Posted by WARREN MOSLER on 23rd February 2010

He clearly doesn’t distinguish the difference between Germany and the US with regards to interest rate determination and solvency risk:

Harvard’s Rogoff Sees ‘Bunch’ of Sovereign Defaults

“It’s very, very hard to call the timing, but it will happen,” Rogoff, co-author of a history on financial calamities, said in the speech. “In rich countries — Germany, the United States and maybe Japan — we are going to see slow growth. They will tighten their belts when the problem hits with interest rates. They will deal with it.”

Posted in Germany, Government Spending | Comments Off

FDIC – Lets save

Posted by WARREN MOSLER on 23rd February 2010

In case you thought Shiela Bair understands banking and the monetary system.

All this can do is further reduce aggregate demand.

The entire administration including the Fed and Tsy seems hopelessly mired in gold standard economics.

February 22, 2010 Media Contact:
Greg Hernandez (202) 898-6984
Cell: (202) 340-4922

The Federal Deposit Insurance Corporation (FDIC) is calling upon consumers across the nation during America Saves Week to consider establishing a basic savings account or boosting existing savings. FDIC Chairman Sheila Bair said, “One fundamental lesson of the financial crisis is that savings can help families withstand sudden changes in their economic well being. Establishing a savings account in a federally insured institution is a great first step to build wealth and begin a savings habit that will last a lifetime.”

The personal savings rate rose to 4.6 percent in 2009 from 2.7 percent in 2008, according to the U.S. Department of Commerce. “I am pleased to see that people are saving more of their hard-earned money and building wealth. Having personal savings for an emergency fund or saving for a future expenditure, such as a college education, can make a big difference in avoiding other costly alternatives. I’ve always been a big advocate of a back-to-basics approach to financial services; it’s my hope that Americans’ increase in savings is the beginning of a long-term trend,” Bair said.

“Money saved by consumers also provides a stable source of funding for investments in the economy that benefit all Americans,” said Bair. “In fact, a country with robust savings generally has more capital to fund investments and support economic growth over the long-term. As demonstrated recently, it is harmful to an economy when consumers spend beyond their means, financed by debt that they cannot afford to repay.”

To learn more about America Saves Week and about savings-related resources from the FDIC, please visit

Posted in Banking, Government Spending | 7 Comments »

Fed’s Lockhard on Reuters

Posted by WARREN MOSLER on 22nd February 2010

Latest tsy tips results indicate ‘contained inflation expectations’ as well.

I still have that nagging feeling that the 0 rate policy is highly deflationary and without some supply shock, like a spike in crude prices, prices in general will remain weak.

The weak core CPI and high unemployment rate continues to keep a lot of daylight between current conditions and the Fed’s dual mandate.

And the discount rate hike shows an ongoing lack of understanding of their own monetary arrangements.

Up until a few years ago the discount rate was kept a bit below the fed funds rate, which facilitated easier control of the fed funds rate.

This policy changed in a misguided effort to make the discount rate a ‘penalty’ rate which is a throwback to a fixed fx/gold standard paradigm and is entirely inapplicable with our current non convertible currency and floating fx.

All they’ve done by raising the discount rate is make it a bit more problematic to control the fed funds rate should technicals cause a system wide reserve deficiency.

Putting a penalty rate in for solvent banks (the FDIC is charged with removing insolvent banks) having funding difficulties is a throwback to the long discredited and illogical notion of using the liability side of banking for market discipline.

for more detail click here

Subject: Fed’s Lockhard on Reuters

Front end USTs getting very well bid on the back of these comments…

10:11 19Feb10 RTRS-FED’S LOCKHART -


10:13 19Feb10 RTRS-


10:14 19Feb10 RTRS-


Posted in Employment, Fed, Inflation | 11 Comments »

medicare tax hike

Posted by WARREN MOSLER on 19th February 2010

Same macro result as a tax hike.

Premiums Jump 14% on Medicare Private Plans

By Ricardo Alonso-Zaldivar

Feb. 19 (AP) —Millions of seniors who signed up for popular private health plans through Medicare are facing sharp premium increases this year — another sign that spiraling costs are a problem even for those with solid insurance.

A study to be released Friday by a major consulting firm found that premiums for Medicare Advantage plans offering medical and prescription drug coverage jumped 14.2 percent on average in 2010, after an increase of only 5.2 percent the previous year. Some 8.5 million elderly and disabled Americans are in the plans, which provide more comprehensive coverage than traditional Medicare.

Posted in Government Spending | 4 Comments »

quick thought on the euro

Posted by WARREN MOSLER on 18th February 2010

The 100 day moving average of the dollar index has started moving up, and the 200 day isn’t far behind.

This means futures based and other trend followers will start piling in, depending on their
system parameters. With the dollar index 57.6% euro this will but serious downward pressure on the euro for purely technical reasons.


Where do euribor swaps get priced if euribor settings cease?
Are there default provisions to deal with this possibility?

Posted in Currencies, ECB | 3 Comments »


Posted by WARREN MOSLER on 18th February 2010

Professor Bill Mitchell’s blog is about as good as it gets if you have 20 minutes for a comprehensive, scholarly review of how it all works:

billy blog

Posted in Uncategorized | 5 Comments »

Eurozone downward spiral continues

Posted by WARREN MOSLER on 18th February 2010

Looks to me to be getting more desperate with increasing rhetorical nonsense.

Higher deficits due to falling revenues and rising transfer payments simultaneously weaken both the euro and national govt credit worthiness in a race against time.

And any budget cuts will only further cut aggregate demand and output, cut already falling tax revenues,
and increase unemployment and transfer payments, adding to deficits and further eroding creditworthiness.

The only hope is for a quick enough recovery that brings down deficits through exports, or, evern more unlikely, through domestic credit expansion, before the rapidly deteriorating national govt credit worthiness results in systemic failure of the payments system.

The ramifications of a banking sytem where deposits are guaranteed only by the national govts as yet
to make front page discussion, but nonetheless this structural flaw remains an ongoing source of system
risk capable of shutting down the entire euro payments system.

My proposal for an immediate and annual distribution of 1 trillion euro from the ECB to the national govts on a per capita basis will end the crisis and provide the framework for the national govt credit worthiness needed to reverse current downward spiral.

And not only does it not introduce moral hazard risk, it does the reverse by allowing
for withholding of future payments for non compliance of EU mandates.

Germany’s IG Metall, Employers Agree on Pay, Job Security

German States’ Budget Deficit Increases, Handelsblatt Reports

France’s Lagarde Sees ‘Fragile, Painstaking’ Economic Recovery

Isae Raises Italy’s 2010 Growth Forecast to 1% on Exports

Premier Insists Spain’s Economic Recovery Is Near but Offers Few Details

Posted in ECB, Government Spending | 3 Comments »

Minneapolis Fed President Kocherlakota Warns Massive Debt Load Can Only Be Paid By Tax Collections Or Debt Monetization

Posted by WARREN MOSLER on 17th February 2010

Maybe someday we will get an FOMC that actually understands reserve accounting and monetary operations, and maybe even recognizes the currency for the simple public monopoly that it is and moves away from ‘expectations theory’ as the reason for ‘inflation.’

But for now that seems to be only a very remote possibility.

“Why might households expect an increase in inflation? The amount of federal government debt held by the private sector has gone up by over 30 percent since the beginning of 2008. This debt can only be paid by tax collections or by the Federal Reserve’s debt monetization (that is, by printing dollars to pay off the obligations incurred by Congress). If households begin to expect that the latter will be true—even if it is not—their inflationary expectations will rise as well.”

Posted in Fed, Inflation | 13 Comments »