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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Archive for August 26th, 2010

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 »