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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, 2010

Mosler proposal for the housing agencies

Posted by WARREN MOSLER on 31st August 2010

Have the Fed Financing Bank fund the agencies with fixed rate amortizing term funding.

Have the FFB eat the convexity and allow prepayments of advances at par as mtgs pay down.

Have Congress set the FFB’s advance rate for the mtgs for public purpose.

Have fed member banks originate agency mtgs on
Congressionally dictated terms as agents for the agencies on a fee basis.

Have the agencies hold all these newly issues loans in portfolio.

Have the banks do the servicing for a fee.

This would lower mtg rates maybe 1%.

Have the agencies offer refi’s for existing agency loans at current rates without new appraisals or income statements.

Am i missing anything?

Feel free to distribute!

Posted in Banking, Fed, Interest Rates | 12 Comments »

Press Release

Posted by WARREN MOSLER on 31st August 2010


Tea Party’s Economic Agenda Would Cause Next Great Depression
Says Former Tea Party Democrat

Waterbury, CT – August 30, 2010, Warren Mosler, Independent candidate for US Senate, former Tea Party Democrat, and frequent speaker at Tea Party rallies, lashed out today at the political movement for its ill-thought demands to balance the budget which he contends is based on abject ignorance and counter to true Tea Party values. “The Tea Party’s demands to balance the budget and reduce the Federal deficit aren’t merely misguided, but dangerous, and would cause the worst depression in history,” stated Mosler, a financial expert with 37 years of experience in monetary operations. “I have been, and continue to be, a strong supporter of the core Tea Party values of lower taxes, limited government, competitive market solutions, and a return to personal responsibility. However, their proposals to balance the budget are the same suicidal policies that caused the 6 horrible depressions in the U.S. over the past 200 years. At the worst possible time to take money out of the economy, the Tea Party’s proposals would remove an estimated $1 trillion and cause the worst depression in world history, destroying tens of millions of jobs and ruining our children’s future.”

Explanation of the Modern Monetary System
Modern money, after the demise of the gold standard, is akin to a spreadsheet that simply works by computer. As Fed Chairman Bernanke explained on national television on 60 minutes, when the government spends or lends, it does so by adding numbers to private bank accounts. When it taxes, it marks those same accounts down. When it borrows, it simply shifts funds from a demand deposit (called a reserve account) at the Fed to a savings account (called a securities account) at the Fed. The money government spends doesn’t come from anywhere, and it doesn’t cost anything to produce. The government therefore cannot run out of money, nor does it need to borrow from the likes of China to finance anything. To better understand this, think about when a football team kicks a field goal; the number on the scoreboard goes from 0 to 3. Does anyone wonder where the stadium got those 3 points, or demand that the stadium keep a reserve of points in a “lock box”?

Moreover, government deficits ADD to our savings – to the penny – as a fact of accounting, not theory or philosophy. This means the Mosler payroll tax (FICA) holiday will directly increase incomes and savings, thus fixing the economy from the bottom up. For example, if the Mosler tax cut amounts to $20 billion per week, that will be the exact increase in income and savings for the rest of us as anyone in the Congressional Budget Office will confirm. For the Federal government, taxes don’t serve to collect revenue but are more like a thermostat that controls the temperature of the economy. When it is too hot, raising taxes will cool it down. And in this ice-cold economy, a very large tax cut is needed to warm the economy back up to operating temperature.

While Mosler fully supports the Tea Party desire to cut taxes, and recognizes the need to cut wasteful and unnecessary spending – in fact, his economic proposals will save the government hundreds of billions of dollars of unnecessary interest expense – he also recognizes that tax cuts have to be much larger than spending cuts in order to ensure that less money is taken out of the economy, and not more as the Tea Party is currently demanding.

About Warren Mosler
Warren Mosler is running as an Independent. His populist economic message features: 1) a full payroll tax (FICA) holiday so that people working for a living can afford to buy the goods and services they produce. 2) $500 per capita Federal revenue distribution for the states 3) An $8/hr federally funded job to anyone willing and able to work to facilitate the transition from unemployment to private sector employment. He has also pledged never to vote for cuts in Social Security payments or benefits. Warren is a native of Manchester, Conn., where his father worked in a small insurance office and his mother was a night-shift nurse. After graduating from the University of Connecticut (BA Economics, 1971), and working on financial trading desks in NYC and Chicago, Warren started his current investment firm in 1982. For the last twenty years, Warren has also been involved in the academic community, publishing numerous journal articles, and giving conference presentations around the globe. Mosler’s new book “The 7 Deadly Innocent Frauds of Economic Policy” is a non technical guide to the actual workings of the monetary system and exposes the most commonly held misconceptions. He also founded Mosler Automotive, which builds the Mosler MT900, the world’s top performance car that also gets 30 mpg at 55 mph.
Learn more at

Media Contact:
Will Thompson
(267) 221-6056

Posted in Deficit, Fed, Government Spending, Political | 52 Comments »

MMT and Fed/Treasury operations

Posted by WARREN MOSLER on 30th August 2010

Excellent- an instant classic!

Modern Monetary Theory—A Primer on the Operational Realities of the Monetary System

By Scott Fulwiller

Posted in Banking, CBs, ECB | 27 Comments »

Bernanke speech

Posted by WARREN MOSLER on 29th August 2010

Karim writes:

  • Very substantive speech from Bernanke
  • Message is basically, ‘growth has slowed more than we expected’ BUT ‘conditions are ALREADY in place for a pick-up’ and if we are wrong, we are ready to take action, which contrary to some perceptions, will be effective

Yes, contrary to my opinion. This about managing expectations. With falling inflation and unemployment this high it makes no sense that they would be holding back something that could make a material difference.

  • To me, they lay out very credible factors for a pick-up in growth.


  • The risk of either an undesirable rise in inflation or of significant further disinflation seems low-THIS LINE ARGUES AGAINST ANY NEAR-TERM ACTION

Again, if they did have anything that would substantially increase agg demand they’d have done it.

  • When listing available options for further action if needed, he clearly favors further ‘credit easing’ relative to the other choices. He states why they reinvested in USTs vs MBS.

Yes, and, again, it’s doubtful lower credit spreads will do much for the macro economy but would shift a lot of credit risks to the Fed for very little gain.

  • Selected excerpts in italics, with key comments in bold.

FRB: Bernanke, The Economic Outlook and Monetary Policy

At best, though, fiscal impetus and the inventory cycle can drive recovery only temporarily.

That is not correct. Fiscal adjustment can sustain demand at any politically desired level.

For a sustained expansion to take hold, growth in private final demand–notably, consumer spending and business fixed investment–must ultimately take the lead. On the whole, in the United States, that critical handoff appears to be under way.

Agreed that hand off is slowly materializing and private sector debt expansion will then drive additional growth. But sustained expansion could come immediately from a fiscal adjustment as well.

However,although private final demand, output, and employment have indeed been growing for more than a year, the pace of that growth recently appears somewhat less vigorous than we expected.


Among the most notable results to emerge from the recent revision of the U.S. national income data is that, in recent quarters, household saving has been higher than we thought–averaging near 6 percent of disposable income rather than 4 percent, as the earlier data showed.

Non govt net savings of financial assets = govt deficit spending by identity, and with foreign sector savings relatively constant, the majority of the increase is in the domestic economy, either businesses or households.

That means in general household savings goes up with the deficit regardless of the level of consumer spending.

However, when household savings does start to fall, it’s due to household credit expansion, at which time, if the deficit is unchanged, the savings of financial assets is shifted to either the business or the foreign sector.

And, as growth accelerates, the automatic fiscal stabilizers- increased federal revenues and falling transfer payments- reduce the deficit and therefore reduce the growth in the total net savings of the other sectors.

So the hand off process is usually characterized by the federal deficit falling as private sector debt expands to ‘replace it.’

This continues until the private sector again necessarily gets over leveraged, ending the expansion.

3 On the one hand, this finding suggests that households, collectively, are even more cautious about the economic outlook and their own prospects than we previously believed.

At best his means that he thinks with this much savings households would start leveraging more.

But on the other hand, the upward revision to the saving rate also implies greater progress in the repair of household balance sheets. Stronger balance sheets should in turn allow households to increase their spending more rapidly as credit conditions ease and the overall economy improves.

Yes, as I explained. He seems to understand the sequence of the data but doesn’t seem to be quite there on the causation.

Going forward, improved affordability–the result of lower house prices and record-low mortgage rates–should boost the demand for housing. However, the overhang of foreclosed-upon and vacant housing and the difficulties of many households in obtaining mortgage financing are likely to continue to weigh on the pace of residential investment for some time yet

Yes, which is a traditional source of private sector credit expansion, along with cars, that drives the process.

Generally speaking, large firms in good financial condition can obtain credit easily and on favorable terms; moreover, many large firms are holding exceptionally large amounts of cash on their balance sheets. For these firms, willingness to expand–and, in particular, to add permanent employees–depends primarily on expected increases in demand for their products, not on financing costs.

I couldn’t agree more!
Employment is primarily a function of sales as discussed in prior posts.

Bank-dependent smaller firms, by contrast, have faced significantly greater problems obtaining credit, according to surveys and anecdotes. The Federal Reserve, together with other regulators, has been engaged in significant efforts to improve the credit environment for small businesses. For example, through the provision of specific guidance and extensive examiner training, we are working to help banks strike a good balance between appropriate prudence and reasonable willingness to make loans to creditworthy borrowers. We have also engaged in extensive outreach efforts to banks and small businesses. There is some hopeful news on this front: For the most part, bank lending terms and conditions appear to be stabilizing and are even beginning to ease in some cases, and banks reportedly have become more proactive in seeking out creditworthy borrowers.

Another problem is that the regulators are forcing small banks to reduce what’s called ‘non core funding’ in a confused strategy to enhance small bank ‘deposit stability.’ Unfortunately, at the local level the regulators have interpreted the rules to mean, for example, it’s better for a small bank’s financial stability to fund, for example, a 3 year business loan with 1 year local deposits, vs funding it with a 5 year advance from the Federal Home loan bank. It’s also a fallacy of composition, as at the macro level there aren’t enough core deposits to fund local small businesses, as many larger corporations and individuals use money center banks and leave their deposits with them. The regulatory insistence on small banks using ‘core deposits’ rather than ‘wholesale funding’ recycled from the larger banks causes a shortage of local deposits and forces the small banks to pay substantially higher rates as they compete with each other for funding artificially limited by regulation.

In lieu of adding permanent workers, some firms have increased labor input by increasing workweeks, offering full-time work to part-time workers, and making extensive use of temporary workers.

Yes, and when you include this growth in employment the economy is doing better than most analysts seem to think.

Like others, we were surprised by the sharp deterioration in the U.S. trade balance in the second quarter. However, that deterioration seems to have reflected a number of temporary and special factors. Generally, the arithmetic contribution of net exports to growth in the gross domestic product tends to be much closer to zero, and that is likely to be the case in coming quarters.

Also, part of the hand off will be US consumers going into debt (reducing savings) to buy foreign goods and services, which increases foreign sector savings of financial assets.

Overall, the incoming data suggest that the recovery of output and employment in the United States has slowed in recent months, to a pace somewhat weaker than most FOMC participants projected earlier this year. Much of the unexpected slowing is attributable to the household sector, where consumer spending and the demand for housing have both grown less quickly than was anticipated. Consumer spending may continue to grow relatively slowly in the near term as households focus on repairing their balance sheets. I expect the economy to continue to expand in the second half of this year, albeit at a relatively modest pace.


Despite the weaker data seen recently, the preconditions for a pickup in growth in 2011 appear to remain in place.


Monetary policy remains very accommodative,

Yes, for many borrowers, but the lower rates have also net reduced incomes. QE alone resulted in some $50 billion of ‘profits’ transfered to the Treasury from the Fed that would have been private sector income, for example.

and financial conditions have become more supportive of growth, in part because a concerted effort by policymakers in Europe has reduced fears related to sovereign debts and the banking system there.


Banks are improving their balance sheets and appear more willing to lend.

Agreed, though via a reduction in interest earned by savers that’s gone to increased net interest margins for banks.

Consumers are reducing their debt and building savings, returning household wealth-to-income ratios near to longer-term historical norms.

Yes, ‘funded’ by the federal deficit spending.

Stronger household finances, rising incomes, and some easing of credit conditions will provide the basis for more-rapid growth in household spending next year.

Yes, and that basis is credit expansion.

On the fiscal front, state and local governments continue to be under pressure; but with tax receipts showing signs of recovery, their spending should decline less rapidly than it has in the past few years. Federal fiscal stimulus seems set to continue to fade but likely not so quickly as to derail growth in coming quarters.

Yes, and traditionally matched or exceeded by private sector credit expansion as above.

Recently, inflation has declined to a level that is slightly below that which FOMC participants view as most conducive to a healthy economy in the long run. With inflation expectations reasonably stable and the economy growing, inflation should remain near current readings for some time before rising slowly toward levels more consistent with the Committee’s objectives. At this juncture, the risk of either an undesirable rise in inflation or of significant further disinflation seems low. Of course, the Federal Reserve will monitor price developments closely.

The channels through which the Fed’s purchases affect longer-term interest rates and financial conditions more generally have been subject to debate.

With the debate subsiding as more FOMC participants, but far from all of them, seem to be coming to understand the quantity of the reserves per se has no consequences.

I see the evidence as most favorable to the view that such purchases work primarily through the so-called portfolio balance channel, which holds that once short-term interest rates have reached zero, the Federal Reserve’s purchases of longer-term securities affect financial conditions by changing the quantity and mix of financial assets held by the public. Specifically, the Fed’s strategy relies on the presumption that different financial assets are not perfect substitutes in investors’ portfolios, so that changes in the net supply of an asset available to investors affect its yield and those of broadly similar assets. Thus, our purchases of Treasury, agency debt, and agency MBS likely both reduced the yields on those securities and also pushed investors into holding other assets with similar characteristics, such as credit risk and duration. For example, some investors who sold MBS to the Fed may have replaced them in their portfolios with longer-term, high-quality corporate bonds, depressing the yields on those assets as well.

This is evidence Bernanke himself has come around to the understanding that the quantity of reserves at the Fed per se is of no further economic consequence.

We decided to reinvest in Treasury securities rather than agency securities because the Federal Reserve already owns a very large share of available agency securities, suggesting that reinvestment in Treasury securities might be more effective in reducing longer-term interest rates and improving financial conditions with less chance of adverse effects on market functioning.

Again, it shows the understanding that QE channel is price (interest rates) and not quantities.
This is a very constructive move from understanding indicated in prior statements.

Also, as I already noted, reinvestment in Treasury securities is more consistent with the Committee’s longer-term objective of a portfolio made up principally of Treasury securities. We do not rule out changing the reinvestment strategy if circumstances warrant, however.

In particular, the Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly. The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do. As I will discuss next, the issue is instead whether, at any given juncture, the benefits of each tool, in terms of additional stimulus, outweigh the associated costs or risks of using the tool.

Notwithstanding the fact that the policy rate is near its zero lower bound, the Federal Reserve retains a number of tools and strategies for providing additional stimulus. I will focus here on three that have been part of recent staff analyses and discussion at FOMC meetings: (1) conducting additional purchases of longer-term securities, (2) modifying the Committee’s communication, and (3) reducing the interest paid on excess reserves. I will also comment on a fourth strategy, proposed by several economists–namely, that the FOMC increase its inflation goals.

In my humble opinion those tools carry no risk and provide no reward to the macro economy.

Posted in Banking, CBs, Deficit, Employment, Fed, Government Spending, Housing, Inflation, Karim | 16 Comments »

NPR explains where govt spending comes from

Posted by WARREN MOSLER on 27th August 2010

How To Spend $1.25 Trillion

By David Kestenbaum and Chana Joffe-Walt

Aug 26 (NPR) — In the face of the financial crisis, the Federal Reserve decided to buy $1.25 trillion of mortgage-backed bonds as part of its effort to prop up the economy.

It was a huge departure from ordinary policy — such an extraordinary departure, in fact, that it was easy to forget that somebody had to actually go out and buy all those mortgages.

This week, we visited the New York Fed to learn the story of how the central bank spent so much money, so fast.

In late 2008, Julie Remache got a call from her former employer, the New York Fed. She was working in the private sector, and the call came while she was at the office. She recognized the extension, and knew someone from the Fed was calling her. So she took the call in a conference room.

The guy on the other end of the phone was Richard Dzina, a senior VP at the New York Fed. His offer: Your job, should you choose to accept it, is to spend hundreds of billions of dollars and try to save the economy

“How could I say no?” Remache says.

The New York Fed is a big, fancy place — lots of marble, a vault full of gold in the basement. But Remache and her team worked in a plain room with four small cubicles. There were no marble floors or oak tables. Just a Nerf football net, a table-tennis trophy, and two yoga balls.

The team spent six weeks coming up with a plan of attack, and 15 months actually buying mortgage-backed bonds, all of which came with a government guarantee that they’d be paid back even if the borrowers defaulted.

The program’s intent was to keep interest rates low, and slow the decline in housing prices. The team ended up buying more than a fifth of all of the government-backed bonds on the market.

“It’s possible I was buying the mortgage on my own house,” says Nathaniel Wuerffel. “Very possible.”

In the end, they came very, very close to their target: They told us they were just 61 cents short. (In other words, they bought $1,249,999,999,999.39 worth of mortgage-backed bonds.)

The Fed was able to spend so much money so quickly because it has a unique power: It can create money out of thin air, whenever it decides to do so. So, Dzina explains, the mortgage team would decide to buy a bond, they’d push a button on the computer — “and voila, money is created.”

The thing about bonds, of course, is that people pay them back. So that $1.25 trillion in mortgage bonds will shrink over time, as they get repaid. Earlier this month, the Fed announced that it will use the proceeds from the mortgage bonds to buy Treasury bonds — essentially keeping all that newly created money in circulation.

The decision was a sign that the Fed thinks the economy still needs to be propped up with extraordinary measures. More clues about what the Fed may do next could come Friday, when Ben Bernanke is scheduled to address a big annual meeting of central bankers in Jackson Hole.

Posted in Deficit, Government Spending | 97 Comments »

U.K. Economy Grows Most Since 2001 on Construction

Posted by WARREN MOSLER on 27th August 2010

Right, how can it not with a 12% type deficit?

U.K. Economy Grows Most Since 2001 on Construction

By Scott Hamilton

Aug. 27 (Bloomberg) — The U.K. economy expanded faster
than previously estimated in the second quarter in the biggest
growth spurt since 2001 as companies rebuilt stocks and
construction work surged.
Gross domestic product rose 1.2 percent from the previous
three months, the Office for National Statistics said today in
London. That was higher than the 1.1 percent initial estimate,
which was the median forecast of 25 economists in a Bloomberg
News survey. On the year, the economy expanded 1.7 percent.
Britain’s growth pickup may deepen the divide among policy
makers as the Bank of England considers whether the economy
faces a greater threat from inflation or needs more stimulus to
avert a further recession. The pound declined after the report,
which showed slower services growth than previously estimated
and a drop in fixed investment.
“The third quarter looks like it’s started pretty well,”
James Knightley, an economist at ING Financial Markets, said in
a telephone interview. “Momentum can be continued into the next
few months,” though “we should be looking at growth being
subdued over the coming years and that could raise the prospect
of further stimulus rather than a withdrawal.”
The pound fell more than 0.2 percent against the dollar
after the data were published. The currency traded at $1.5504 as
of 9:47 a.m. in London. The yield on the benchmark two-year
government bond was down 2 basis points today at 0.618 percent.

Budget Squeeze

The U.K. faces the biggest budget squeeze since World War
II, which has undermined consumer confidence. Ed Balls, a
candidate for the leadership of the U.K.’s opposition Labour
Party, said today that the government’s plans to cut the budget
deficit immediately risk pushing Britain back into recession.
At the same time, a debt crisis threatens the recovery in
the euro region, the U.K.’s largest trading partner, and there
are signs the global recovery is cooling.
The U.S. economy probably grew at a 1.4 percent annualized
pace in the second quarter, slower than the 2.4 percent rate
projected last month, according to the median forecast of 81
economists surveyed by Bloomberg. That would be the slowest
growth since the second quarter of 2009 when the economy was
still contracting. That data will be released later today.

Construction Surge

The U.K. GDP figure was revised up after construction
expanded faster than previously estimated, rising 8.5 percent on
the quarter, the most since 1982. Inventories rose by 983
million pounds ($1.5 billion) in the first evidence of stock-
building by companies for seven quarters, the statistics
office’s report showed.
Consumer spending rose 0.7 percent and government
expenditure increased by 0.3 percent, the statistics office
said. That offset a 2.4 percent drop in fixed investment.
Growth in services, which account for about three quarters
of the economy, was revised down to 0.7 percent from 0.9
percent, the statistics office said. Faster expansion in
business services was outweighed by a drop in air transport
during a quarter when European airspace was disrupted by an ash
cloud caused by volcanic activity in Iceland.
The “breakdown of GDP shows that the recovery is built on
very fragile foundations,” said Samuel Tombs, an economist at
Capital Economics Ltd. in London. “Household and government
spending did both post solid rises, but both sectors are very
unlikely to maintain such growth rates as the fiscal squeeze
kicks in over the coming quarters.”
In a separate report, the statistics office said that
business investment fell by 1.6 percent from the previous
quarter. On the year, it increased by 1.9 percent.

Posted in Deficit, Government Spending, UK | 1 Comment »

S&P Says US Should Act to Protect AAA-Rating: Report

Posted by WARREN MOSLER on 27th August 2010


Please do the world a favor and spill the beans.

Please make it clear to the news media ability to pay is not in question, no matter how large the numbers may get.

The US, as issuer of its currency, is not the next Greece, Ireland, or California.

Please tell them ‘funding the debt’ consists of nothing more than debiting a Fed reserve account and crediting a Fed securities account.
And paying down debt, as happens with every maturity, is nothing more than debiting a Fed securities account and crediting a Fed reserve account.

Willingness to pay is an entirely different issue.
Congress can default by not extending the debt ceiling, for example. But that’s an entirely different matter.

Krugman finally came around a few weeks ago conceding ability to pay was not the question.

So now that a Nobel Prize winner is saying it, it’s safe for you all to go public with it?

Let the President know the US has not run out of money, and that there is no such thing.

We have enough real problems in the world without adding this nonsense.


S&P Says US Should Act to Protect AAA-Rating: Report

Aug 26 (Reuters) — The United States government needs to take steps to preserve its top AAA-rating, a Standard & Poor’s Ratings (S&P) official told Dow Jones newswire in an interview published on Thursday.

The measures taken in response to recommendations President Barack Obama’s commission on fiscal responsibility would be crucial in the view S&P takes on the U.S. credit rating, he said.

“It is very important for the credit standing of the United States that the Congress considers very carefully what the fiscal commission proposes,” John Chambers, chairman of S&P’s sovereign rating committee, was quoted as saying.

“It is very important for Congress to take the required steps.”

S&P maintains the United States’ top AAA rating with a stable outlook, meaning there is not a significant chance of a change in the near future.

However, it has repeatedly warned about the gigantic deficit and the debt burden in the world’s biggest economy, calling it a challenge for the government.

David Beers, S&P’s global head of sovereign ratings said in a July report the U.S. does not have unlimited fiscal flexibility and the best-case scenario for the U.S. would be for its debt-GDP ratio to peak at around 80 percent, although there was a chance it could exceed 100 percent.

“So we don’t think these political decisions on tackling the public finances can be put off forever,” Beers said in the report.

Chambers also disagreed with Ireland’s criticism of its downgrade in the Dow Jones interview.

Chambers said S&P does not consider the bad loans the government’s asset management agency is buying from banks as liquid assets in the near term, but added further rating action was unlikely in the near term.

On Tuesday, S&P cut Ireland’s long-term rating by one notch to ‘AA-’, the fourth highest investment grade, and assigned the country a negative outlook saying the cost to the government of supporting the financial sector had increased significantly.

That drew criticism from the National Treasury Management Agency which said it disagreed with S&P’s view that Ireland faced substantially higher costs to bail out its ailing banking sector.

“In terms of the specific analysis by S&P, this is largely predicated upon an extreme estimate of bank recapitalization costs of up to 50 billion euros,” the NTMA said. “We believe this approach is flawed.”

Posted in Bonds, USA | 12 Comments »

Audit the Fed!!!

Posted by WARREN MOSLER on 26th August 2010

The Fed should offer full transparency. These are the reasons the Fed gives for secrecy:

“The Fed argued that allowing disclosure could stigmatize banks, causing a loss of confidence that could lead to deposit runs, bank failures and damage to the economy.”

The fact that the Fed fears a liquidity crisis is evidence that it doesn’t understand banking.
With the FDIC offering deposit insurance for up to 100% of any bank’s liabilities, it should be clear to the Fed the liability side of banking is not the place for market discipline. Liquidity should not be an issue and it should be provided in unlimited quantities at all times, much like most of the rest of the world’s central banks have been doing for a long time.

All the Fed has to do is simply trade in the fed funds market and offer any bank unlimited funding at the Fed’s target interest rate, and turn all of their focus on regulating the asset side of banking where it belongs.

The Fed should be audited NOW, and get this issue behind them as soon as possible.

See this and the rest of my proposals, thanks.

Fed in emergency bid to put bailout ruling on hold

Aug 25 (Reuters) — The Federal Reserve asked a U.S. appeals court to delay implementing a ruling that would force the central bank to disclose details of its emergency lending programs to banks during the financial crisis.

Wednesday’s emergency request for a 90-day delay came after the U.S. Second Circuit Court of Appeals on August 20 denied a motion by the Fed to rehear the case, which had been brought by Bloomberg LP, the parent of Bloomberg News, and News Corp’s Fox News Network.

A stay would give the Fed and the Clearing House Association, a group of major U.S. and European banks, until November 18 to appeal the ruling to the U.S. Supreme Court.

The Fed programs were designed to shore up the financial markets, and more than doubled the central bank’s balance sheet to well over $2 trillion, especially after the September 2008 collapse of Lehman Brothers Holdings Inc.

In March, the Second Circuit ordered the Fed to disclose information, including the names of bailout recipients and amounts received, that the news media had requested under the federal Freedom of Information Act.

The Fed argued that allowing disclosure could stigmatize banks, causing a loss of confidence that could lead to deposit runs, bank failures and damage to the economy.

In its Wednesday filing, the Fed said denial of a stay would “force the government to let the cat out of the bag, without any effective way of recapturing it” if the Second Circuit ruling were later reversed.

“The public policy interest identified by the government will be irreversibly lost,” it added.

Fed spokesman David Skidmore said “the stay is necessary to permit the board to consult with the Department of Justice regarding an appeal to the Supreme Court.”

Posted in Banking, Fed | 15 Comments »

Europe Loan Growth Accelerates as Economy Recovers

Posted by WARREN MOSLER on 26th August 2010

Europe Loan Growth Accelerates as Economy Recovers

By Christian Vits

Aug. 26 (Bloomberg) — Loans to households and companies in Europe grew at the fastest pace in 13 months in July after the economic recovery gathered steam.

Loans to the private sector rose 0.9 percent from a year earlier after growing an annual 0.5 percent in June, the European Central Bank in Frankfurt said today. That’s the strongest increase since June 2009. M3 money supply, which the ECB uses as a gauge of future inflation, increased an annual 0.2 percent in July, the same rate recorded in the previous month.

Strengthening global demand helped Europe’s economy expand 1 percent in the second quarter, the fastest pace in four years.

Economic growth may slow as governments reduce spending to tackle bloated budget deficits and the global recovery shows signs of losing momentum. Orders for durable goods in the U.S.

increased less than forecast in July, a sign one of the few remaining bright spots in the economy is cooling, while China’s industrial output rose the least in 11 months.

This is what the Fed calls the ‘hand off’ with private sector demand increasing via credit expansion as growth causes public sector deficits to fall.

Growth can go on for many years until the public sector deficits get too small to provide the income and financial equity needed to support the increasing private sector debt needed to sustain GDP growth.

Much of Europe got to higher levels of govt deficit spending than the US, before market forces triggered the funding crisis. The ECB has now stepped in to facilitate funding and at the same time implement the widely advertised austerity measures.

With modest growth deficits will start trending down on their own, as revenues increase and transfer payments (including interest payments) moderate, as private sector credit expansion replaces public sector debt as described above.

Posted in ECB, Fed | 3 Comments »

New Home Sales…

Posted by WARREN MOSLER on 26th August 2010

Looks to me like maybe the payback has run its course.
I’d look for a rebound through the orange line I drew.

The only problem is there aren’t a lot of actual houses for sale.
So a pick up in housing starts can’t be far off either as they are very low given 1-3% GDP growth supported mainly by income helped by the govt deficit spending, lower home prices, and reasonable mortgage rates?

And yes, the surviving companies are those that have figured out how to make money in this environment, and most have massive operating leverage should GDP pick up to more normal recovery levels.

Still looks to me like over the next few years the big money will be lost by being out of stocks given where it seems we are in this cycle.

Unless Congress gets serious about near term deficit reduction. So far it’s pretty much all talk, but who knows!

On Wed, Aug 25, 2010 at 10:48 AM, wrote:

The payback from the expiry of the government’s tax program has been horrific. As can be seen from the chart, new home sales are at multi-decade lows. Existing sales yesterday were alarmingly poor. Despite this news, homebuilders are doing better, no doubt helped by Toll Brothers’ earnings today which were significantly better than expected.

Posted in Equities, GDP, Housing | 18 Comments »


Posted by WARREN MOSLER on 25th August 2010

Karim writes:

  • Weak number but has to be put into context of prior strength and m/m volatility
  • Orders less aircraft and defense (proxy for future private sector capex) down 8%; prior 2mths were up 3.6% and 4.7%
  • Weakness led by machinery orders; down 15% after up 15.4% prior 2mths
  • Shipments ex-aircraft and defense (proxy for current qtr capex) down 1.5% after 5 straight gains

Yes and upward revision for prior month as well

Posted in Uncategorized | 7 Comments »

defining the modern monetary theory

Posted by WARREN MOSLER on 25th August 2010

MMT interview:

Defining the Modern Monetary Theory

Posted in Employment, Government Spending, Inflation | 4 Comments »

markets looking grim

Posted by WARREN MOSLER on 24th August 2010

>   (email exchange)
>   On Tue, Aug 24, 2010 at 8:32 AM, Seth wrote:
>   stocks look bad
>   looks like another panic

It doesn’t look good technically.

Must be coming out of europe with gold up/euro down dynamic, etc.

Insiders there must be bailing.

Maybe they know something we don’t, or maybe they are wrong.

History is no help as in the past it’s been both.

Austerity is trimming growth there a bit around the edges, but deficits remain reasonably high, so GDP’s are probably at least muddling through, with overall growth probably positive.

The ECB keeps the short term funding channels open for the member nations, but that may not be fully appreciated yet.

On a mark to market basis bank capital is probably below requirements, and they may not realize that doesn’t have to matter to the real economy for as long as the ECB continues to fund them.

Lower crude oil prices support consumption of other things. With US crude oil product consumption up and Saudi output rising, demand must be ok. Maybe Saudis are worried and want lower prices to help world growth as well. Hard to ever say what they are actually up to. They may see the Iraqi production coming on stream and are trying to engineer an increase in demand. Again, no way to tell what they are up to.

The lower 10 year rates reflects expectations of ‘low for longer’ from the Fed due to high unemployment and falling rates of inflation as measured by the Fed. And the possibility of more QE that could flatten the curve further.

There is also the notion that there’s nothing left that the Fed can do of any consequence regarding aggregate demand, and Congress thinks it’s run out of money, which means flying without a net. That increases the weight of the downside in the balance of risks.

If markets and Congress knew that fiscal policy had no nominal limit and deficit spending was not dependent on being able to borrow from the likes of China to be paid by our grandchildren, the balance of risks would be viewed very differently. But they don’t know that.

With the elections coming and California reverting to vouchers again, the time is right for my per capita revenue sharing. But it’s not even a consideration.

Q3 and Q4 GDP estimates are looking more like 1.5%, and Q2 looks to be revised down toward 1% Friday. Not a double dip but no drop in unemployment either as productivity might be at least that high. That’s worse politically than it is for equities, and adds support for a ‘second stimulus’ type of reaction. But that’s way down the road. More likely it causes most of the expiring tax cuts to be extended.

Thursday’s claims can make a big difference as well. The jump to 500,000 last week added an element of fear internationally.

Also, in thin summer markets technicals often cause exaggerated moves. Volume is very low, and a given size buying or selling causes larger moves to find someone willing to take the other side, and momentum type traders can easily overwhelm investors.

Posted in Bonds, CBs, China, Credit, ECB, Employment, Equities, GDP, Political | 13 Comments »

Bernanke Must Raise Benchmark Rate 2 Points, Rajan Says – Bloomberg

Posted by WARREN MOSLER on 23rd August 2010

If they actually understood how it all works they’d be calling for tax cuts rather than interest rate increases.

>   (email exchange)
>   On Mon, Aug 23, 2010 at 12:18 PM, wrote:
>   Yes, Krugman criticised this today and I put in a kind word
>   for Mr Rajan in the comments section.

I suspect Rajan is looking in part at the deflationary impact of the “fiscal channel” via the current 0% interest rate. Your NY Times colleague, Gretchen Morgenson, had a very good piece on this in the Sunday NY Times. Of course, the impact of this policy would, as you suggest, be ruinous for borrowers and highlights the comparatively diffuse impact of monetary policy, vs fiscal policy in terms of solving the problem of aggregate demand. Overall, this uncertainty points to the problems involved in using monetary policy to stimulate (or contract) the economy. It is a blunt policy instrument with ambiguous impacts.

The major problem facing the economy at present is that there is not a willingness to spend by the private sector and the resulting spending gap, has to, initially, be filled by the government using its fiscal policy capacity. I prefer direct public sector job creation to be the principle fiscal vehicle. But fiscal policy it has to be. Then when the negative sentiment is turned around, private borrowing will recommence and investment spending will grow again. Then the economy moves forward some more and the budget deficit falls.

Bernanke Must Raise Benchmark Rate 2 Points, Rajan Says

By Scott Lanman and Simon Kennedy

Aug. 22 (Bloomberg) — Raghuram Rajan accurately warned central bankers in 2005 of a potential financial crisis if banks lost confidence in each other. Now the International Monetary Fund’s former chief economist says the Federal Reserve should consider raising rates, even as almost 10 percent of the U.S. workforce remains unemployed.

Interest rates near zero risk fanning asset bubbles or propping up inefficient companies, say Rajan and William White, former head of the Bank for International Settlements’ monetary and economic department. After Europe’s debt crisis recedes, Fed Chairman Ben S. Bernanke should start increasing his benchmark rate by as much as 2 percentage points so it’s no longer negative in real terms, Rajan says.

“Low rates are not a free lunch, but people are acting as though they are,” said White, 67, who retired in 2008 from the Basel, Switzerland-based BIS and now chairs the Economic Development and Review Committee at the Paris-based Organization for Economic Cooperation and Development. “There will be pressure on central banks to follow an expansionary monetary policy, and I worry that one can see the benefits, but what people inadequately appreciate are the downsides.”

He and Rajan will have the chance to make their case at the Fed’s annual symposium in Jackson Hole, Wyoming, this week. In 2003, White told attendees central banks might need to raise rates to combat asset-price bubbles. In 2005, Rajan, 47, said risks in the banking system had increased. They were met with skepticism from then-Fed Chairman Alan Greenspan, 84, and Governor Donald Kohn, 67.

Losing Confidence

While the Fed did boost its target rate for overnight loans among banks in quarter-point steps to 5.25 percent by 2006 from 1 percent in 2004, that didn’t prevent a housing bubble, which began to pop in 2006. Banks began losing confidence in August of the same year and started charging other financial institutions higher interest on loans.

A minority of policy makers are increasingly echoing Rajan and White’s current worries, including Kansas City Fed President Thomas Hoenig, who is hosting the Aug. 26-28 symposium, and Andrew Sentance, one of nine members on the Bank of England’s monetary-policy committee.

Hoenig has dissented from all five Fed policy decisions this year, preferring to jettison a pledge to keep rates low for an “extended period.” Sentance was defeated for a third month in August in his bid to withdraw emergency stimulus by increasing the benchmark interest rate.

Few Converts

The naysayers may fail to win many converts any time soon as the recovery slows and U.S. unemployment, at 9.5 percent in July, remains near a 26-year high. The resulting extension of low rates may increase volatility of government bonds, especially in response to any stronger-than-anticipated economic data, said Marc Fovinci, head of fixed income at Ferguson Wellman Capital Management Inc.

Indications that growth will be at least 3 percent “in the coming months” would cause yields on 10-year Treasuries, which were 2.61 percent on Aug. 20, to rise to 3 percent within about a week, said Fovinci, who is based in Portland, Oregon, and helps invest $2.5 billion.

JPMorgan Chase & Co. reduced its forecast last week for growth in this quarter to an annual rate of 1.5 percent from 2.5 percent and in the last three months of 2010 to 2 percent from 3 percent.

“I’m not worried about inflation, because the economy appears to be weak,” Fovinci said. At the same time, the bond market seems to be “tightly coiled up like a spring.”

Rising Yields

Between June 3 and June 8, 2009, yields on 10-year Treasuries rose to 3.88 percent from 3.54 percent after the smallest drop in U.S. payrolls in eight months and European Central Bank President Jean-Claude Trichet’s forecast for economic growth in 2010. Two-year Treasury yields rose to 1.4 percent from 0.91 percent in the same period.

The margin for error is “incredibly thin,” said Derrick Wulf, a portfolio manager at Dwight Asset Management Co. in Burlington, Vermont, which oversees $64.3 billion. “A lot of investors have become complacent about being long” in Treasuries.

Rajan, now a professor at the University of Chicago’s Booth School of Business, says near-zero interest rates are a crisis tool and economists don’t know if the benefits from using them for longer periods outweigh the costs. While inflation isn’t the main threat now, “you can’t be totally comfortable,” he said in an Aug. 18 interview. People think “there is significant unused capacity in the economy” and that assumption may be mistaken.

‘Bad Incentives’

Near-zero rates create “bad incentives” for financial firms, he added.

“Blow the system up, we’ll come back and reward you with very low interest rates that allow you to build up capital, and then you could try it again next time around,” Rajan said.

The Fed also may be “prolonging pain” by propping up the housing market and keeping home prices from falling, he said.

Companies are sending mixed signals.

“Demand is very low across the country” for houses, Richard Dugas, chief executive officer of Bloomfield Hills, Michigan-based Pulte Group Inc., said Aug. 20 on Bloomberg Television’s “In the Loop with Betty Liu.” Meanwhile, Caterpillar Inc., the world’s largest maker of construction equipment, may add as many as 9,000 workers worldwide this year, Doug Oberhelman, chief executive officer of the Peoria, Illinois-based company, said Aug. 19.

Another Bubble

White, a Bank of Canada deputy governor from 1988 to 1994, says the benefits of low rates may already be waning “in a world with so much debt, especially household debt,” which in the U.S. totaled a near-record $11.7 trillion at the end of June. There’s also a danger they might create another bubble, he said.

Another risk is that near-zero rates allow companies to roll over nonviable loans, a practice known as “evergreening” that can create so-called zombie businesses, which happened in Japan, he added.

Rajan and White’s arguments aren’t winning over Keith Hembre, chief economist at U.S. Bancorp’s FAF Advisors Inc. in Minneapolis, where he helps oversee $86 billion.

“There’s little evidence that the very low rates today are inflicting any harm,” said Hembre, a former Fed researcher. While he has “some longer-term sympathy with the argument,” it’s “just off-base today, given the evidence available from both real-time and market indicators.”

Bernanke, 56, and the majority of Fed officials show little inclination to change course. The Fed lowered its benchmark rate to a range of zero to 0.25 percent in December 2008 and said after each policy meeting since March 2009 it will likely stay very low for an “extended period.”

Emergency Measures

The ECB has kept its main refinancing rate at 1 percent since May 2009, and the Bank of England’s key rate has been 0.5 percent since March 2009. Axel Weber, an ECB council member, said in an Aug. 19 Bloomberg Television interview that policy makers should keep emergency liquidity measures in place at least through the end of the year, beyond Trichet’s October guarantee. Bernanke and Trichet will speak at the Fed symposium Aug. 27.

White and Rajan have ruffled central-bank feathers before at Jackson Hole, where policy makers, academics, analysts and money managers from dozens of countries mix hiking and rafting in Grand Teton National Park with debate over monetary policy and bank regulation.

In 2003, White and then-colleague Claudio Borio, who was head of BIS research and policy analysis, told central bankers they might need to raise interest rates to “lean against” asset-price bubbles.

‘Cannot Work’

“The one thing I am sure about is that a mild calibration of monetary policy to address asset-price bubbles does not and cannot work,” Greenspan, who retired in 2006, responded at the conference.

Bernanke, then a Fed governor, told attendees that Japan raised rates in 1989 to prick a bubble, and as a result, “asset prices collapsed and they had a 14-year depression.”

In 2005, Rajan warned that if banks lost confidence in each other, “the interbank market could freeze up, and one could well have a full-blown financial crisis.”

Kohn disagreed in a speech after Rajan’s presentation.

“As a consequence of greater diversification of risks and of sources of funds, problems in the financial sector are less likely to intensify shocks hitting the economy and financial market,” he said.

More Open

Bernanke has since become more open to White’s view. While low interest rates didn’t cause the U.S. housing bubble, he said in a January speech, if the next wave of regulation proves “insufficient to prevent dangerous buildups of financial risks, we must remain open to using monetary policy as a supplementary tool for addressing those risks.”

Kohn, the Fed’s vice chairman from 2006 through June, said in a March speech that “serious deficiencies” with securitization of loans “exposed the banking system to risks that neither participants in financial markets nor regulators fully appreciated.”

Spyros Andreopoulos, a London-based global economist at Morgan Stanley, says he worries about the inflationary implications of extreme monetary accommodation beyond the next two to three years, with policy makers likely to lean toward low rates because of the fear of deflation.

“Imagine a car that’s stuck in the mud,” he said. “When you press on the gas, the car doesn’t emerge smoothly; it jumps up. My fear is when economies pick up after the stimulus, you’ll see inflation faster than was expected.”

Posted in Fed, Interest Rates | 57 Comments »

UK News

Posted by WARREN MOSLER on 23rd August 2010

As in the US, with a large federal budget deficit consumers can spend out of income rather than debt and the economy do reasonably well.

And should they start spending out of both income and debt it gets that much better.

Bank of England Interest Rates to Reach 8% by 2012, Lilico Says

By Scott Hamilton

Aug. 23 (Bloomberg) — Bank of England policy makers will
raise the benchmark interest rate to about 8 percent in 2012 to
combat surging inflation sparked by “explosive” economic
growth, Policy Exchange Chief Economist Andrew Lilico said.

Annual consumer-price gains may accelerate to more than 6
percent in two years as officials expand bond purchases and keep
the interest rate at a record low of 0.5 percent to fight the
threat of a renewed recession, Lilico said in a telephone
interview from the London-based research group today.

While “a dip down in the economy” will slow interest-rate
increases, that will leave the Bank of England “behind the
curve” when it needs to tackle inflation, Lilico said.

The U.K. economy grew 1.1 percent in the second quarter in
the fastest expansion for four years. Bank of England Governor
Mervyn King said this month that inflation, at 3.1 percent in
July, has been faster than officials forecast and may keep
exceeding the government’s upper 3 percent limit into next year.

“The scope for a very strong recovery is definitely
there,” Lilico said. “Once it’s going they’ll find it very
hard to control because the growth will explosive. They’ll get a
big boom and then they’ll have to tighten hard. Our ideas of
what a normal interest rate is to deal with a boom need to be a
bit more realistic than they are now.”

Bank of England officials this month maintained emergency
stimulus to aid the economy during the biggest budget squeeze
since World War II.

Policy makers “need to do enough in terms of keeping
interest rates low and probably doing additional quantitative
easing to avoid that double dip turning into a double slump,”
Lilico said. “It’s not that policy makers are getting it wrong
– they’re getting it right — I just think the consequences of
them getting it right will in the end be inflation.”

U.K. Consumer Finance, Business Confidence Show Weakness

By Craig Stirling

Aug. 23 (Bloomberg) — A U.K. index of consumer finances
stayed close to the lowest level in almost a year in August and
a quarterly gauge of business confidence weakened, evidence
Britain’s economic recovery may be waning.

The measure of finances, based on a survey of 2,000
households, was at 37.9, little changed from July’s reading of
37.2, Markit Economics Ltd. and YouGov Plc said in an e-mailed
statement today. Readings below 50 indicate deterioration. The
index of business confidence fell 4 points in the third quarter
to 21.5, Grant Thornton and the Institute of Chartered
Accountancy in England and Wales said, citing a survey of 1,000

“A downbeat mood spans the household income spectrum, but
remains most acute amongst the lowest earners,” Tim Moore, an
economist at Markit, said in the statement. “Household finances
continue to suffer from a backdrop of squeezed disposable
income, stubbornly high inflation and ongoing public sector
spending cuts.”

While economists predict gross domestic product data this
week will confirm Britain had its best growth since 2006 in the
second quarter, surveys have signaled the pace of expansion may
have weakened since then. Bank of England policy makers kept
open the option of adding emergency stimulus this month to aid
the economy as public-spending cuts loom.

Grant Thornton and the ICAEW conducted their quarterly
survey by telephone from April 29 to July 22. YouGov collected
responses online for the monthly Markit household survey.

Posted in Government Spending, UK | No Comments »

A few quick Valance charts

Posted by WARREN MOSLER on 23rd August 2010

A few quick charts:

No sign of a pause here

Year over year sales holding up at about a 3% clip

No sign of a reduction in world net demand here.

Posted in Comodities | No Comments »

Impact of Dodd-Frank

Posted by WARREN MOSLER on 23rd August 2010

On Thu, Aug 19, 2010 at 11:40 AM, wrote:

Mr. Mosler,

I am an analyst in the Employment Projections Program at the Bureau of Labor Statistics and am currently working on a report on the future of the financial industry. My main focus is the impact of the Dodd-Frank regulatory bill, and I would like to know your assessment of it:

1) Proprietary trading by depository institutions is limited to 3% of a depository firm’s Tier 1 capital. Could you give me a sense of how significant this is? How much are firms like Citibank and JP Morgan putting into proprietary trading now and how much will it have to decrease?

Banks are public private partnerships, part of the public infrastructure, established to promote public purpose.

I’m not sure I see any public purpose in prop trading, which means there shouldn’t be any.

But to your question, I’d guess it won’t but a material limitation.

2) The overall sense on the derivatives exchange is that the effect will be largely distributional. Information on prevailing prices used to favor major firms like Goldman Sachs, and this exchange will take that away, but it will probably allow for a greater volume of derivatives trading. Do you agree with this take?

Yes, to some degree.

I developed a futures contract for libor swaps many years ago that was quashed by the dealers when the LIFE tried to get it approved.

Also, if the Treasury or Fed had an unlimited securities lending program for all tsy secs the tsy market would replace much of the swap market as we know it, eliminate netting issues, and provide total transparency.

3) Capital requirements and leverage caps are left to the discretion of regulators and will likely follow the standards set by an international agreement. Do you have a sense of that these figures will wind up being?

No, but they miss the purpose of capital requirements, which is all about the pricing of risk when making loans, and nothing about ‘protecting taxpayers money’ which is what they all think it’s about.

So when it’s all being conceptualized incorrectly the odds of getting it right dwindle.

4) What will be the most important effects of the Consumer Financial Protection Agency? How significant is the decision whether or not to appoint Elizabeth Warren as its chief?

Not a bad idea if it’s done right, but, again, there seems to be no understanding of what banking actually is, which reduces the odds of getting it right.

5) The financial industry has seen rapid growth relative to the rest of the economy since the 1990s. Do you see anything in this bill that will slow down that trend?

The strength of the financial sector is a function of the strength of the real economy, and not the other way around.

I see nothing that will change that, so I expect the financial sector to grow as its ‘food supply’- the real sectors- recover.

Any insights would be greatly appreciated.

See my proposals here.

Posted in Banking, Fed | No Comments »

market update

Posted by WARREN MOSLER on 20th August 2010

Still feels like the weakness is coming out of events in the euro zone,
as evidenced by the euro going down as gold goes up phenomena re emerging

It’s all being held together by the ECB buying national govt debt in the secondary market.

The question I’ve seen, is how long can the ECB keep doing this/what are the limits?

The short answer is there are no nominal limits, just political limits.

And the political limit is tolerance of inflation, and inflation control is their single mandate.

They don’t want deflation or inflation.

They are buying national govt debt to prevent a euro zone wide deflationary collapse.

So how much can they buy before it’s all inflationary?

Inflation comes from spending.

Traditionally, knowing the ECB is buying your debt and that you can’t default opened the door to moral hazard issues

A nation being supported would expand spending as much as possible.

But the ECB is first imposing ‘terms and conditions’ to prevent that before buying the national govt bonds.

So not only is (deficit) spending not being expanded, it is being cut back.

And, in any case, the euro zone national govts are complying with ECB demands, directly or indirectly.

So if it doesn’t work, it’s up to the ECB to implement alternative strategies.

It would make no sense for the ECB to cut off funding because an ECB directed policy fails.

With the ECB directly or indirectly in control of member nation fiscal policy,

And with no one increasing their spending in any material way,

I don’t see a demand pull inflation possible as a function of ECB securities buying, no matter how large.

And with deficits over there already high enough for at least modest growth, which seems to be materializing,
it will be a while before fiscal gets too tight for modestly positive growth.

Posted in ECB, GDP, Government Spending, Inflation | 8 Comments »


Posted by WARREN MOSLER on 20th August 2010

SMR pushing the erroneous measurement of claims story; attached is a chart showing gap between challenger layoffs and initial claims at a 12yr wide.

The claims data does look peculiar.

Karim and I agree that even if claims level off in the 475-500,000 range it’s probably not a double dip scenario.

Posted in Employment | 1 Comment »

Caterpillar CEO says no double-dip recession

Posted by WARREN MOSLER on 20th August 2010

Caterpillar CEO says no double-dip recession

August 19 (AP) — Global equipment sales increased 32 percent. And engine and turbine sales were up 5 percent overall. “There seems to be a doom and gloom out there in the punditry,”CEO Doug Oberhelman said. “We’re not seeing that.” Caterpillar said equipment sales in the Asia Pacific region surged 41 percent in July, and North American sales improved 38 percent over last year. The smallest increase came in Europe, Africa and the Middle East where sales still increased 19 percent. CFO Ed Rapp says 2010 has been a year of recovery since the economy bottomed out in August or September, with the developing world leading the way in growth. Rapp said that in past double-dip recessions, the first recession is usually a weak one and the central banks usually typically act prematurely to raise interest rates and scale back stimulus efforts. He said neither one of those applies to the current recession.

Posted in Equities, GDP | 22 Comments »