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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 September, 2010

Financial Obligation Ratios

Posted by WARREN MOSLER on 30th September 2010

The charts are Fed numbers that show how high debt is compared to incomes. What it shows is that as the govt. deficits increased they added income and savings to the economy which resulted in higher incomes and lower total private debt. In the past the next credit expansion began after the financial obligations ratios came down in this manner.

These are June numbers, and federal deficit spending is what brings them down, so they should be that much lower today.

So while it’s impossible to say exactly how far the ratio of debt to income needs to fall before the next credit expansion will begin, I expect modest growth to continue as it has with very modest job growth and unemployment remaining too high until consumer credit expansion does begin to kick in, which could be anytime now, that the debt ratios are no longer an obstacle.

The right move in August 2008 was a full payroll tax (FICA) holiday which would have sustained demand and prevented the recession and kept unemployment at desired levels.
It was nothing more than policy response that allowed a financial crisis to spill over to the real economy.

The interest rate cuts unfortunately (but predictably) served mainly to reduce spendable interest income as income was transfered from savers to bank net interest margins, and as govt. interest payments to the economy were reduced by the lower rates.

Lowering rates was not ‘wrong,’ as there are positive supply side and distributional effects from lower rates, but what was missed was that lower rates needed to be accompanied by even lower taxes to offset the induced drag of the lower rates.

To date we remain grossly over taxed for the size govt we have and for the current credit conditions, as evidenced by the too large output gap and far too high unemployment rate.

So with China not collapsing as many feared, and the euro zone muddling through with ECB support, my outlook remains positive for the US economy, though from unfortunately high levels of unemployment and true misery due solely to policy blunders.

The Republicans got us into this and the Democrats failed to get us out, and all for the same reason- non of them understand how their own monetary system works.

So thanks in advance for kindly directing everyone you know ‘The 7 Deadly Innocent Frauds of Economic Policy’ here.

Homeowners Financial Obligation Ratio

Financial Obligation Ratio with Rental Payments

Financial Obligation Ratio for Renters

Posted in Deficit, Employment, Interest Rates | 16 Comments »

Saudi crude production

Posted by WARREN MOSLER on 30th September 2010

Down a bit for the month, certainly no pressure on supply, but still trending modestly upward.

This is a reasonable indicator of net world demand, as the Saudis continue as swing producer setting price and letting quantity adjust.

Posted in Comodities, Oil | 1 Comment »

Seth Carpenter paper

Posted by WARREN MOSLER on 28th September 2010

On Tue, Sep 28, 2010 at 12:36 PM, Eileen wrote:

Did Hell freeze over and I missed it??

Seth B. Carpenter and Selva Demiralp, recently posted a discussion paper on the Federal Reserve Board’s website, titled Money, Reserves, and the Transmission of Monetary Policy: Does the Money Multiplier Exist?

The authors note that bank reserves increased dramatically since the start of the financial crisis. Reserves are up a staggering 2,173% from $47.3bn on September 10, 2008, just before the financial crisis began, to $1.1tn now. Yet M2 is up only 11.4% since September 10, 2008, and bank loans are down $140.2bn. The textbook money multiplier model predicts that money growth and bank lending should have soared along with reserves, stimulating economic activity and boosting inflation. The Fed study concluded that “if the level of reserves is expected to have an impact on the economy, it seems unlikely that a standard multiplier story will explain the effect.”

That not only repudiates the textbook money multiplier model but also raises lots of questions about the goal of the Fed’s quantitative easing policies.

The Carpenter/Demiralp study quotes former Fed Vice Chairman Donald Kohn saying the following about the money multiplier in a March 24, 2010 speech:

“The huge quantity of bank reserves that were created has been seen largely as a byproduct of the purchases that would be unlikely to have a significant independent effect on financial markets and the economy. This view is not consistent with the simple models in many textbooks or the monetarist tradition in monetary policy, which emphasizes a line of causation from reserves to the money supply to economic activity and inflation. . . . We will need to watch and study this channel carefully.”

Here are more shocking revelations from the study under review: “In the absence of a multiplier, open market operations, which simply change reserve balances, do not directly affect lending behavior at the aggregate level. Put differently, if the quantity of reserves is relevant for the transmission of monetary policy, a different mechanism must be found.

Posted in Banking, CBs | 38 Comments »

Warren Mosler: Obama’s China Policy Will Destroy U.S. Jobs and Create Inflation

Posted by WARREN MOSLER on 28th September 2010

Warren Mosler: Obama’s China Policy Will Destroy
U.S. Jobs and Create Inflation

Noted Economist and Senate Candidate: Forcing The Yuan Up and The Dollar Down Is The Worst Possible Option For Creating U.S. Jobs

Middletown, CT. – September 28, 2010 – Warren Mosler, internationally renowned financial and job creation expert and Connecticut’s Independent Party Candidate for the US Senate lashed out today at the Obama administration’s weak dollar policy in relation to China. “The first thing forcing China to revalue its currency will do is destroy US jobs, not create them,” said Mosler. “When China causes its currency to appreciate against the dollar, thus driving the value of the dollar down, it gives Chinese workers what amounts to a pay raise which will be passed along to U.S. consumers in the form of higher prices – in other words, inflation. These higher prices mean U.S. consumers can buy less, which results in fewer American jobs.”

According to available data, the U.S. lost approximately 8 million jobs two years ago because sales fell. When sales are restored, jobs will be restored. “A restaurant, department store, or any other business doesn’t lay off staff when they are filled with customers. So, giving Chinese workers a pay raise that will kill U.S. sales, cause inflation, and cut Americans’ spending power is not the way to bring this economy back from the brink or create the American jobs we desperately need!” asserted Mosler. In contrast, Mosler’s plan to create good-paying private sector jobs features a full payroll tax (FICA) holiday. That will make sure our consumers have enough spending power to be able to buy both whatever we can produce here at home with full employment, plus whatever the rest of the world wants to sell us, just like a decade ago when unemployment was under 4%, growth was strong, inflation low, and net imports were at record levels. Additionally, Mosler is concerned that Obama’s current inflationary policy can rapidly escalate into a debilitating trade war with China. In fact, in what amounts to a dangerous, high stakes international game of chicken, China has already announced it was placing a tariff on US poultry exports in retaliation for U.S. demands for currency revaluation.

Richard Blumenthal’s lock-step position with the Obama White House on China and Linda McMahon’s conspicuous silence on this critical issue vividly show that they are simply not qualified to create the 20 million new jobs we desperately need. “If you needed heart surgery, you wouldn’t let just anyone do it. In this time of economic emergency, I am the candidate that has the necessary knowledge, experience and in-depth understanding of our economy on a nuts and bolts level to make effective policy,” said Mosler. Quite simply, now is the time to take decisive action and Warren Mosler is the only candidate in this race who is qualified for the job.

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.

Posted in China, Currencies, Employment, Political | 9 Comments »


Posted by WARREN MOSLER on 25th September 2010

Karim writes:

  • Strong underlying data, though series very volatile
  • Orders ex-aircraft and defense up 4.1%
  • Here is what the last 6mths look like: +4.1%; -5.3%; +3.6%; +4.7%; -2.8%; +6.7%
  • Y/Y gwth is 22.2%
  • Trends look like reversal of prior month: auto sector weaker, computers and machinery stronger
  • Posted in USA | 8 Comments »

    Dems hand advantage back to Reps by delaying tax cut action

    Posted by WARREN MOSLER on 23rd September 2010

    Blatantly delaying action on something that can help the economy for presumed political gain is a blunder equal to the Republicans saying they would oppose the proposed Obama tax cuts.

    It doesn’t get more insulting to the voters than this.

    Vote on Bush Tax Cuts Is Now Unlikely Before Nov. Elections

    Congress will not vote on extending Bush-era tax cuts before the November elections, a U.S. Senate leader said Thursday, reflecting fear among some Democrats that it could hurt their chances at the polls.

    “The reality is, we are not going to pass what needs to be passed to change this, either in the Senate or in the House, before the election,” said the Senate’s assistant majority leader, Dick Durbin.

    Durbin told reporters he saw no hope for a quick decision on the controversial tax cut question in the current tense political atmosphere.

    He said the final decision on the timing of a vote in the Senate would be made by Senate Majority Leader Harry Reid.

    Durbin said the likelihood of having an early vote was “very, very slim.”

    Posted in Articles, Political | 13 Comments »

    What Policies for Global Prosperity?

    Posted by WARREN MOSLER on 23rd September 2010

    Antonio Foglia and Andrea Terzi interview Warren Mosler, Distinguished Research Associate of the Center for Full Employment and Price Stability, University of Missouri, Kansas City (participating via videoconferencing)

    April 20, 2010

    *Antonio Foglia* (AF): I have known Warren from his previous life as an investor, where he definitely proved his skills. Now, he is an economist and, as all economists, he thinks he has a recipe to fix the world. He is also becoming a politician, so he now has another reason for having a recipe to fix the world, and we are definitely most interested in learning what his recipes are today, at a very special conjuncture in the world.

    Warren, thanks for being connected with us this evening. I know you are in Connecticut now. We are in Switzerland, so I think a more general point of view of the world is probably more of interest to all of us although I understand that you might be more current on how to fix the U.S., as that is where you hope to have an impact soon.

    *Andrea Terzi* (AT): Hello from the Franklin Auditorium, Warren. The floor is yours.

    *Warren Mosler* (WM): Thank you. Well, the most obvious observation is that unemployment is evidence of a lack of aggregate demand, so what the world is lacking is sufficient aggregate demand.

    In the United States, my prescription includes 1) what we call a payroll tax holiday, i.e., a tax reduction, 2) a revenue distribution to the states by the federal government and 3) a federally funded $8.00-per-hour job for anyone willing and able to work. *

    For the euro zone, I propose a distribution from the European Central Bank to the national governments of perhaps as much as 20 percent of GDP to be done on a per capita basis so it will be fair to all the member nations*. The interesting thing is that it would not increase spending, or demand, or inflation, because spending is already constrained by the Stability and Growth Pact (SGP), and so nations would still be required to keep spending down to whatever the EU requires, but what it does do is to eliminate the debt and financing issues, and it takes away the credit risk from the euro zone. The other thing it does is it gives the EU a far more powerful tool for enforcing its requirements. What happens is that anyone who does not comply with the EU’s requirements would risk losing this annual payment. Right now, anyone who does not comply gets fined, but, as we know, fines are not easy to enforce.

    *AF*: I think that after three hours of Keynesian presentations today I didn’t expect anything else than an extra vote for more aggregate demand stimulation, on one side, and the irrelevance of printing more money, on the other side. Somehow, though, I do personally remain concerned, and don’t fully understand how, in the long run, this will not have side effects as people begin to actually expect the fact that more money is going to be printed, more demand is going to be stimulated in less and less productive ways (because it is basically government spending rather than private spending). If I look at history there is little evidence of how you get out from the sort of Keynesian policy that you are proposing, that is certainly very effective in stopping a depression from developing (and we are grateful that policy makers did that), but I don’t understand how you then stop those policies, and how the exit from those policies can happen in the medium and long term.

    *WM*: Okay, so you put up a lot of things there. So I’ll start from the beginning. First of all, for the U.S., I’m talking about restoring income for people working for a living which will raise the sales in the private sector right now, so it’s not a question of government. You talk about stimulus, but I’m not talking about adding stimulus. I’m talking about removing drag. You can’t get something for nothing. If you have somebody running and a plastic bag falls over his head that slows him down you can remove that plastic bag. We are still limited by our productive potential, and what we have now are restrictive policies that are keeping us from achieving it. Restrictive policies are demand leakages. In the U.S., there is a powerful incentive not to spend your income as this goes into a pension fund, and in Europe you have the same types of things that reduce aggregate demand. The only way any sector can successfully “net save” is if another sector goes into deficit, so what the government is doing when it lowers taxes or increases spending, depending on what the case may be, is filling the hole in demand created by the demand leakages.

    My proposal for the EU doesn’t increase anyone’s spending. All it does is this: As long as countries are in compliance with spending limits set by the EU, they receive the allocation. As soon as they are not in compliance, they risk losing this payment, in which case the market will severely punish them and cut them off. So, to address your questions, I am not advocating any excess spending stimulus beyond just making up for the drags created by what I call “saving desires” and “demand leakages” which are largely a function of the institutional structure.

    Let me just say it in one more way. A government like the U.S. has to determine what the right size of government is. For example: what is the right size for the legal system? You don’t want to have to wait two years to get a court date, but you don’t want to have people calling you up asking you come to court because there are a lot of vacancies, so maybe the right waiting period is, say, 60 days. So you then size your legal system and your legal employees for that kind of public service.

    Equally, you have to size the military for what the mission is. You have to size the whole government. *Once you’ve sized your government properly, you then have to determine the correct level of taxes that is needed to sustain the level of private-sector activity that you want, and invariably those taxes are going to be less than the size of the government.* So, even if you want a smaller government, which is fine, you then have to have taxes that are even lower. Why? Because that’s the only way you are going to accommodate your private sector on its savings desires.

    *AT*: I know where you are coming from, Warren, and I’m sure you realize that your proposal that the ECB distribute money to European governments makes many people here in Europe jump on their seats for two reasons. One: the ECB is prevented by statute from financing national governments; and two: people fear that this is further additional printing money, creating inflation. Would you mind going back to your proposal and explaining to me and the audience, step by step, what this distribution really means, where this money comes from, and where it is going, in this score-keeping exercise that is the true character of a monetary economy?

    *WM*: Right, exactly. So, yes, it would require unanimous approval of EU governments. What I’m saying is that European governments have accounts at the ECB. Under my proposal, the ECB would put a credit balance into government accounts. So what will happen is that the balance in their accounts will go up. *Just because a balance on a national bank account goes up, it does not mean there is any additional spending. It is spending that causes inflation, not just the existence of a credit balance on a central bank computer.* But what would then happen is that in the normal course of spending, borrowing and debt management, this balance would be worked down. Not by an increased volume of spending and not by a change in anything else, but it would just be worked down because, for example, when the Greek bonds would mature, the government would be able to continue its normal spending (this would be limited by compliance with the SGP and other international agencies) without having to refinance its bonds. But once the credit balance is used up, then Greece would continue its normal refinancing, but with a level of debt reduced by about 20 percent GDP the first year.

    So again this has no effect on the real economy, no effect on real spending. The only effect is that there would be fewer Greek securities outstanding, and that Greek debt levels would be lower and coming down, which would facilitate their continued funding once the credit balance is used up. So it’s purely, as you stated, an operational consideration and not a real economic consideration, and yes, *people would be afraid of things that they don’t understand*. But anyone who understood central banking from the inside at the operational level would realize that this would have absolutely no effect on inflation, employment, and income in a real economy, other than to facilitate the normal funding of national governments.

    *AT*: Are you saying that the effect of such annual distribution would be like the effect of the discovery of a new gold mine every year in a country under the gold standard?

    *WM*: Well, no, it’s different, because on a gold standard what we call the money supply is constrained in any case, whereas when you get to a currency it’s the opposite: the currency itself is never constrained. So you have a whole different dynamic.

    Let me just expose my point from a slightly different point of view. The reason the EU can’t simply guarantee all the nations, and the ECB can’t simply guarantee all the national governments is because if they did, whoever “deficit spends” the most, wins. You would get a race to the bottom of extreme moral hazard that quickly winds up in impossible inflation. So there has to be some kind of mechanism to control government deficit spending for the member nations*. They did it through the SGP, that sets the 3 percent limit, and there’s no way around that dilemma. It can’t be done through market forces. It has to be done through the SGP. What they did is to leave the national government on a stand-alone basis, so there would be market discipline, but we’ve seen that that does not work either. They’ve got to get back to a situation where they are not subject to the mercy of market forces but at the same time they don’t want the moral hazard of some unlimited fiscal expansion where anybody can run a 5, 10, 20 percent deficit with inflationary effects.

    My proposal eliminates the credit risk at the national government level, so they are no longer restrained by the markets in their ability to borrow, but it makes them dependent on annual distributions from the ECB in order to maintain this freedom to fund themselves*.

    And because they are dependent on the ECB’s annual check, the ECB has a policy to then be able to remove that check to impose discipline on these countries. *By having this policy tool to withhold payments, rather than implement fines, the EU would be in a much stronger position to enforce the deficit limits they need to prevent the race to the bottom of nations*.

    *AT*: Your proposed ECB distribution would have the immediate effect of reducing the interest rate spread between German and Greek bonds. However, if the 3-percent deficit constraint remains in place, there is not much hope of prosperity in Europe. Do you agree?

    *WM*: Right. The demand management would be based on the SGP: if they decide a 3-percent deficit is not adequate for the level of aggregate demand they may go up to 4, 5, or 6 percent or whatever level they choose. It’s always a political decision for them, and it’s always going to be a political decision. If they choose something too low, then they’re going to have higher unemployment. If they choose something too high, they’re going to have inflation.

    And so it’s going to be a political choice, no matter how you look at. But the thing is, how do you enforce the political choice? Right now they can’t enforce it. Right now, they’ve been enforcing it through the fining of member nations. But it doesn’t work. So they’ve lost their enforcement tool.

    The other problem they have is this: because of the credit sensitivity of the national governments, when countercyclical deficits go up like now, which are needed to restore aggregate demand, output and employment, what happens is that the deficits challenge the creditworthiness of the national governments. *This is an impossible situation with national governments risking default because of the insolvency risk. They are in a completely impossible position to accomplish any of their goals. *

    Whereas, reversing the situation, i.e., going from “fines as discipline” to “withholding payments as discipline” puts them in a position that is manageable. It still then requires wise management for the correct level of deficits, for the correct level of aggregate demand, but at least it’s possible. Right now, it’s unstable equilibrium, and what I am proposing switches it to a stable equilibrium, as they used to say in engineering class.

    *AF*: If I understand correctly, the essence of the policies that you are suggesting, both in the U.S. and in Europe, involve a certain level of deficit spending and debt accumulation. Then one could expect the dollar/euro exchange rate not to move much because people would probably tend to dislike both currencies the same way. How would you see the interaction of these two areas with emerging markets that are in a totally different economic environment and cycle, and whose currencies are actually currently on the rise?

    *WM*: Right, if you look at nations like India and even Brazil, they all have high interest rates and high deficits that help them get through. China, as well, maintains an extremely high deficit offsetting its internal savings desires. China may have overdone it, and it has to face an inflation problem, but this is a different story. *I think that the U.S. is in a far better situation than the euro zone right now, because our budget deficits do not represent the sustainability issues or credit issues*.

    The EU has put its member nations in the same position as the U.S. states, as if Germany, or Greece, were like Connecticut, or California. They put all their member nations in the same position as state governments but without the federal government spending that the U.S. uses to help them out. This puts the whole burden of sustaining aggregate demand on European member nations. To get an analogy in the U.S., *if the U.S. had to run a trillion and a half million dollar deficit last year at the federal level, and if the only way that could have happened was at the state level, the U.S. would have been in much the same position as the EU, with all our states right on the edge of default.* So because we have our deficit at the federal level, instead of state level, we are in a much stronger position than the EU right now.

    You may have already reviewed the mechanics of how nations like the U.S. or the U.K. do their public spending in the conference, but let me do it very quickly. When the United States spends money that it doesn’t tax, it credits the reserve account of whoever gets that money. Now, a reserve account at the central bank is nothing more than a checking account.

    Let me now use the example of China so I can combine the problem of external debt with deficit spending at the same time. China gets its dollars by selling goods and services in the United States. When China gets paid, the dollars go into its checking account at the Federal Reserve Bank, and when China buys Treasury securities, all that happens is that the Federal Reserve transfers the funds from their checking account at the Federal Reserve to their securities accounts at the Federal Reserve. U.S. Treasury securities are accounted much like savings accounts at a normal commercial bank. When they do that, it’s called “increasing the national debt”, although when it’s in their checking account it doesn’t count as national debt. The whole point is that the spending of dollars by the federal government is nothing more than the Federal Reserve Bank changing numbers off in someone’s reserve account. The person doing this at the Treasury doesn’t care if funds are in the reserve account at the central bank; it makes no difference at all, operationally. *There is no operational connection between spending, taxing, and debt management.* Operationally, they are completely distinct. And the way any government like the United States or the U.K. or Japan pays off its debt is the same: just transfer funds from someone’s security accounts back to the reserve accounts at your own central bank, that’s it. And this happens every week with hundreds of billions of dollars. None of this acts as an operational constraint on government spending. There is no solvency issue. There is no default condition in the central banks’ computer.

    Now, when you get to the EU, it all changes because all this has been moved down to the national government level, and it’s not at some kind of federal level the way it is in the United States. There is no default risk for the U.S., for the U.K., or for Japan where the debt is triple that of the U.S. and double that of Greece. It is all just a matter of transferring funds from one account to another in your own central bank.

    *AT*: I’m glad you touched upon the question of China accumulating credits with the U.S., because this is poorly understood. Money that Chinese earn by sending merchandise to the United States are credits in the U.S., and these credit units are nonredeemable, so Chinese owners can do nothing with these things unless they use them to buy American products, and if they do, those units become profits for American firms. But there is also another possibility, which sometimes raises concerns in the larger public, and this is what happens if China should choose to get rid of these dollars by selling the U.S. securities they own. While the amount of dollars owned by foreigners doesn’t change, the price of the dollar would in fact decline. If China sells off American debt, dollar depreciation may be substantial.

    *WM*: Operationally, it’s not a problem because if they bought euros from the Deutsche Bank, we would move their dollars from their account at the Fed to the Deutsche Bank account at the Fed. The problem might be that the value of the dollar would go down. Well, one thing you’ve got to take note of is that the U.S. administration is trying to get China to revaluate currency upward, and this is no different from selling off dollars, right? So, what you are talking about (selling off dollars) is something the U.S. is trying to force to happen, would you agree with that?

    *AT*: Yes!

    *WM*: Okay, so we’re saying that we’re trying to force this disastrous scenario—that we must avoid at all costs—to happen. This is a very confused policy. *What would actually happen if China were to sell off dollars? Well, first of all, the real wealth of the U.S. would not change: the real wealth of any country is everything you can produce domestically at full employment plus whatever the rest of the world sends you minus what you have to send them, which we call real terms of trade.* This is something that used to be important in economics and has really gone by the wayside. And the other thing is what happens to distribution. While it doesn’t directly impact the wealth of the U.S., *the falling dollar affects distribution within U.S., distribution between those who profits from exports and those who benefit from imports.* And that can only be adjusted with domestic policy. So, number one, we are trying to make this thing happen that we are afraid of, and number two, if it does happen, it is a demand-distribution problem, and there are domestic policies to just make sure this happens the way we want it to be.

    *AT*: Would you like to elaborate on another theme of today’s symposium? How do you see the income distribution effects of the U.S. fiscal package? Is it going in the right direction in your opinion?

    *WM*: Well, we had 5 percent growth on the average maybe for the last 2 quarters while unemployment has continued to go up. If GDP is rising and people in the world are getting hurt, and real wages are continuing to fall, then who is getting the real growth? Well, everybody else. And so what we’ve seen from a Democratic administration is perhaps the largest transfer of real wealth from low income to high income groups in the history of the world. Now, I don’t think that was the intention of their policies but it has certainly been a result, and it comes from a government that does not understand monetary operations and a monetary system and how it works.

    *AT*: Warren, what would be your first priority, the one action that you would enforce immediately to improve the current situation?

    *WM*: The United States has a punishing regressive tax which we call payroll taxes. These take out a fixed percent of our income, 15 percent (7.5 percent paid by employees and 7.5 percent by employers), so it starts from the very first dollar you earn, and the cap is $108,000 a year. *I would immediately declare a payroll tax holiday, suspend the collection of these taxes. This would fix the economy immediately from the bottom up. A person making $50,000 a year would see an extra $325 a month in his pay check, simply by having the government stop subtracting these funds from his or her pay.

    Our economy has always worked best if people working for a living have enough take-home pay to be able to buy the goods and services that they produce. Right now, in the United States, people working for a living are so squeezed they can pay for gasoline and for food and that’s about it, maybe a little bit of their insurance payments, and so we’ve had an economic and social disaster. *The cause of the financial crisis has been people unable to make their payments.* The only difference between a Triple-A loan and “toxic assets” is whether people are making their payments or not. And you can fund the banks and restore their capital and do everything else, but it doesn’t help anyone making their payments. We’re two years into this and we’re still seeing delinquencies moving up, although they levelled off a little bit, at unthinkably high levels. Hundreds of thousands of people getting thrown out of their homes—that’s the wrong way for a Democratic administration to address a financial crisis.

    To fund a bank, simply stop taking the money away from people working for a living so they can make their payments and fix the financial crisis from the bottom up. *All that businesses and banks need and want at the end of the day is a market for their products; they want people who can afford to make their payments and buy their products.* So my first policy would deliver exactly that, which is what I think we need to take the first big step to reverse what’s going on.

    *AT*: The action you proposed, the payroll tax holiday, entails some form of discretionary fiscal policy and this raises two questions. First, discretionary fiscal policy has been discredited. Economists like to model politicians’ behavior in a way that we cannot trust their decisions as they just aim at winning the next elections. So how do we make sure that discretionary fiscal policy would be used correctly to achieve full employment and avoid inflation?

    *WM*: My proposal is not talking about discretionary spending. It’s about cutting taxes and restoring incomes for people who are actually working for a living, who are the people that at the end of the day we all depend on for our lifestyle, so it is not an increase in government spending, it is a tax cut on people working for a living. The only reason this hasn’t happened is because of what I call “the innocent fraud” (from my book, *The seven deadly innocent frauds*, available on my website), that the government has run out of money, the government is broke, the federal government has to get funding, has to get revenues from those who pay tax, or it has to borrow from China and leave it to our children to pay back. This is complete myth, and it is the only barrier between us and prosperity. Now, in terms of using excess capacity and create inflation, the theory says yes, it can happen, though I’ve never seen it in my forty years in the financial markets.

    As they say, in order to get out of a hole, first you have to stop digging, right? Right now, we’ve got an enormous amount of excess capacity in the United States. Unemployment is at 10% only because they changed the way they define it. Using the old method, we have up to 22% unemployment.

    The payroll tax holiday will both increase spending power and lower costs, so we get a little bit of deflationary effect as spending starts. Should there be a time when we see demand starts threatening the price level, then it can come a point where it makes sense to raise taxes, but not to pay for China, not to pay for social security, not to pay for Afghanistan (we just need to change the numbers up in bank accounts) but to cool down demand. We have to understand that taxes function to regulate aggregate demand and not to fund expenditures.

    *AT*: Discretionary fiscal policy also includes discretionary changes in taxes, not only discretionary changes in spending, so how do we make sure that the political ruling class will raise taxes when needed?

    *WM*: Well, right now they’re raising taxes, so they don’t seem to have much of a reluctance to do that, and they also understand that voters have an intense dislike for inflation. It’s not justified by the economic analysis, it’s just an emotional dislike for inflation. They believe it’s the government robbing people of their savings and they believe it’s morally wrong. And so they are always under intense pressure to make sure that inflation does not get out of control or they are going to lose their jobs. But that’s the checks and balances in a democracy. It’s what the population votes for. And the American population has shown itself to vote against inflation time and time again. The population decides they want more or less inflation, it boils down to whether you believe in democracy or you don’t. And I’m on the side to believe in democracy.

    *AT*: In terms of democracy, this choice is not available to Europeans right now. The ECB has been given an institutional mandate of price stability, and the decision of what’s more evil, inflation or unemployment, has been removed from voters’ preferences on the ground that price stability is the premise to growth and full employment!

    But I’m afraid our time is over. Warren, thank you very much. Although the volcano in Iceland prevented you from attending today, at least we had this opportunity to discuss via teleconference.

    *WM*: Was the volcano a result of the financial crisis over there?

    *AF*: It was a way for Iceland to take revenge on the Brits!

    Warren, we thank you very much for making this conference possible and thank you for your time. I encourage anybody who is interested to go to your website to get a view of your most recent ideas, and all the best from this side of the Atlantic on your campaign.

    *WM*: Thank you. If anyone has more questions just write to my email address and I’ll be happy to correspond with anyone looking for more information.

    *AT*: Thank you Warren.

    *WM*: Okay, thank you all!

    Posted in Q&A | 28 Comments »

    Not all the candidates for Senate will be debating

    Posted by WARREN MOSLER on 22nd September 2010

    Reads like McMahon and Blumenthal won’t attend if I’m included:

    Not all the candidates for Senate will be debating

    By David Collins
    Publication: The Day

    Now that a final schedule of televised debates for Connecticut’s Senate race seems to be coalescing, it is becoming clear to the two independent candidates on the ballot that they are not going to be included.

    Warren Mosler, the exotic car manufacturer who petitioned his way onto the ballot as the candidate for the The Independent Party, sent out a cheery press release last week saying he had been accepted by the vetting committee of the League of Women Voters to be included in their Senate debates.

    Alas, a spokesman for the group explained to me this week that it is having a hard time getting commitments from other candidates and a broadcast television partner.

    So far, there are officially no televised League of Women Voters Senate debates for Mosler to be included in.

    I suspect, from what I heard from the league, that the major party candidates, Democrat Richard Blumenthal and Republican Linda McMahon, would not want to participate in a debate in which they would share the stage with the two minority party candidates who are also on the ballot.

    Posted in Articles | 19 Comments »

    McMahon and Blumenthal’s Proposals on Bush Tax Cuts Would Destroy Jobs, Says Ind. U.S. Senate Candidate Warren Mosler

    Posted by WARREN MOSLER on 21st September 2010

    ‘Paying for’ the Extension of the Bush Tax Cuts Negates the Benefits of Extending Them

    Middletown, CT. – September 21, 2010 – Warren Mosler, Connecticut’s Independent Party Candidate for US Senate, says that his opponents, Democrat Richard Blumenthal and Republican Linda McMahon, have shown that, in this time of economic emergency, they are unqualified for the job of U.S. Senator by agreeing with each other that tax cuts in one place need to be ‘paid for’ by raising taxes in another.

    “We are in a financial emergency. This is not the time for amateur hour. Richard Blumenthal and Linda McMahon’s belief in need to ‘pay for’ any tax cuts is backwards. It works to destroy jobs, not create them. ‘Paying for’ extending the expiring Bush tax cuts would prevent the creation of millions of badly needed jobs,” says Mosler, an internationally renowned financial and job creation expert. “If you need heart surgery, don’t let any of us do it. But if you want 20 million new, good paying private sector jobs, I’m the professional with the experience and knowledge to get it done.”

    Virtually every serious economist, from Arthur Laffer on the right to Paul Krugman on the left, understands that, in today’s fiat currency system, the practical purpose of Federal taxes is to regulate the economy like a thermostat, not to raise dollars to fund programs like it was back during the days of the gold standard. “We need 20 million new jobs yesterday! This is not the time for the Federal Government to be taking extra money out of this economy by raising taxes of any kind,” Mosler emphasized.

    Mosler has also been proposing a full payroll tax (FICA) holiday for employees and employers since August 2008 when the economy first started to go into recession. After two years of economic decline, leading economists are finally beginning to recommend it, and President Obama today indicated he would also be open to that suggestion. Mosler believes that Washington needs to stop pursuing the failed top down approach of funding the banks and insurance companies with trillions of dollars, and instead, create jobs with his bottom up approach of a full payroll tax holiday.

    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.

    Posted in Articles | 1 Comment »

    Fed Mulls Trillion-Dollar Policy Question

    Posted by WARREN MOSLER on 21st September 2010

    Fed Mulls Trillion-Dollar Policy Question

    How much of a boost to the U.S. recovery could another trillion dollars or two buy?

    None, never has, never will. get over it!!! It’s about price (interest rates), not quantity. and lower interest rates won’t do much, if anything, for aggregate demand, output, and employment.

    That’s a tricky question for the Federal Reserve when it meets Tuesday to debate what would warrant pumping more money into the financial system.

    QE shifts balances from securities accounts to reserve accounts. Net financial assets remain unchanged.

    To battle the financial crisis, the Fed bought $1.7 trillion of longer-term Treasury and mortgage-related bonds, supplementing its pledge to keep interest rates near zero for a long time.

    That lowered long term rates in general a tad or so, maybe. What brought long rates down was the notion that the Fed would be low for long due to the weak econ forecasts.

    All told, it helped stabilize a collapsing financial system and to avert what could have been a second Great Depression.

    Yes, buying the likes of GE commercial paper may have kept GE alive. That’s a case of taking credit risk and ‘investing’ in a company when the private sector would not, rather than using the receivership process, as happened with AIG and Lehman, though with differing degrees of govt. support.

    Now, faced with a 9.6 percent jobless rate and below-target inflation, Fed policymakers are trying to gauge how much they could achieve if they resume massive quantitative easing.

    Their research staff will probably tell them it’s all psychological

    Few analysts expect the Fed to launch a new round of bond buying this week, and uncertainty over the impact of fresh moves may be a factor keeping the central bank on the sidelines. 

    “I think part of the hesitancy of the committee to use quantitative easing a second time around relates to views of its effectiveness,” said Vince Reinhart, a former Fed staffer.

    Exactly. The astute ones know there is no effect of consequence

    At the Fed’s August meeting it decided to reinvest maturing mortgage-debt in Treasuries to keep its balance sheet steady, a move many analysts saw as a precursor to more easing.
    Proponents of a relaunch of large-scale bond-buying say it will help prevent inflation expectations from falling and spur growth by further reducing borrowing costs for consumers and businesses.

    Still mired in mythical inflations expectations theory

    Skeptics say the economic recovery has just hit a weak patch. They argue that more easing could be ineffective in helping the economy, potentially damaging Fed credibility. 

    An incremental drop in long-term yields may not be enough to force banks to stop hoarding safe-haven Treasuries and make loans to businesses instead, some analysts warn.

    As if banks are turning down good loans at 5% to buy TSY secs at 1%

    Some policymakers worry that more easing could fuel market imbalances or sow the seeds of sky-high inflation ahead.

    There is also the risk that the Fed spooks investors.

    All sounds very scientific to me…

    “My own view is that any radical balance sheet program would be seen by many as an act of desperation which would dampen business sentiment and depress non-financial borrowing even more,” said Wrightson ICAP Chief Economist Lou Crandall.

    Hard to Measure Success

    Fed bond purchases can have two effects. They can increase liquidity in strained markets

    As if marginal changes in liquidity alter the real economy

    and, by lowering yields, force investors to look for returns in riskier asset classes, helping to boost the supply of credit in the economy.

    That would lower the price of credit some from where it is, not increase the supply

    In addition, some officials believe bond buying helps solidify trust among investors that the Fed will keep policy easy for longer, further helping to lower borrowing costs.

    Investors know the Fed’s reaction function is based on inflation and employment, which they believe are largely functions of economic conditions.

    The New York Federal Reserve Bank estimates that the $1.7 trillion of purchases lowered the yield on the 10-year Treasury note by between 30 and 100 basis points.

    The estimate is based in part on the sharp drop in yields that occurred when the Fed first announced its large-scale bond-buying program.

    But this “announcement effect” approach does not show how yields acted over the course of the program and may not appropriately capture the impact, analysts say.

    It is tough to gauge how much of a move in yields can be tied to the Fed’s actions after the fact, and it is also extremely difficult to predict the impact of another move.

    When it comes to the benchmark overnight federal funds rate, “you can come up with rough orders of magnitude of the impact, but with quantitative easing there is so much uncertainty, you can’t calculate it with any type of precision,” said Dino Kos, former head of the New York Fed’s markets group and a managing director at Portales Partners LLC.

    The success of the first round of purchases may have been amplified by the stressed nature of markets at the time, as well as the fact that the purchases were focused on the smaller, less-liquid agency mortgage-backed securities market.

    “If you show up and purchase assets when markets are stressed, you are not pushing back against much conviction so you can move prices more easily,” said Reinhart, the former Fed staffer.

    To get a significant effect in the Treasury market—where any new round of purchases would likely be centered—could be harder, says Mark Gertler, a professor at New York University.

    “Evidence suggests it would take a huge purchase of long-term government bonds, maybe the whole market, to really have any effect, and the effect would be quite uncertain.”

    Rather than announcing such an eye-popping amount upfront, the Fed could decide to buy Treasuries in smaller steps, calibrated to the economic outlook at each meeting.

    Forecasting firm Macroeconomic Advisors estimates each $100 billion in asset buys could lower the yield on the 10-year Treasury note by 0.03 percentage point.

    That is a marginal move that could go unnoticed, though if Fed buying helped nudge up the inflation rate it could get a bit more of a bang for its buck on real rates.

    Even a small amount of easing is not to be sneezed at, says Michael Feroli, chief U.S. economist at JPMorgan Chase.

    “If you have a headache and only one aspirin left, do you decide not to take it because you wish you had two aspirins?”

    “Mosler says that since the Fed buying secs is functionally the same as the Tsy not issuing them in the first place, why not just have the Tsy stop issuing long term securities if the goal is to lower long term rates? And the benefit of lower rates is that with today’s institutional structure they probably reduce aggregate demand and thereby allow for lower taxes for a given size govt. But when the govt doesn’t understand this and keeps taxes too high we all pay the price with higher unemployment and a wider output gap.”

    Posted in Fed | 52 Comments »

    ECB Steps Up Its Bond Buys Amid Worries

    Posted by WARREN MOSLER on 21st September 2010

    Bottom line- The ECB continues to ‘do what it takes.’ They are in no case ‘resource constrained.’ It’s entirely a political decision. And with the troubled nations complying with the terms and conditions dictated by the ECB I see no reason they won’t continue.

    ECB Steps Up Its Bond Buys Amid Worries

    (WSJ) The ECB has spent more than €61 billion ($79.58 billion) since May on government bonds. The ECB said it spent €323 million on government bonds last week, up from €237 million the previous week and its highest level since mid-August. On Monday, yields spreads between Irish and German 10-year bonds exceeded four percentage points, a record, and more than double the spread that existed on May 10 when the ECB started buying government debt. Portuguese yield spreads also hit a record Monday, at more than four percentage points above safer German equivalents. That spread was just 1.89 percentage points on May 10. Greek spreads are near highs at more than nine percentage points above German government bonds. Ireland plans to auction €1 billion to €1.5 billion in bonds Tuesday. Portugal is due to tap the debt markets Wednesday with a €750 million to €1 billion offering.

    Posted in ECB | 1 Comment »

    MMT Contest – Update

    Posted by Sada Mosler on 19th September 2010


    For those who do not remember or are new, please click the link below for all the details

    NEW RULE: More than 2 posts on the same article will not count as MMT hearts.

    Every comment must have the appropriate signature to count!

            Your Name or Alias
            Counter Insurgency, Deficit Terrorist Unit



    1st Place

    All inclusive trip to The Center of the Universe (St. Croix, US Virign Islands) with Warren Mosler

    2nd Place

    All inclusive trip to The Center of the Universe (St. Croix, US Virign Islands) with Warren Mosler

    less airfare



    Jim Baird
    Art Patten
    Charles Yaker
    TLGunman / Gunman
    Ralph Musgrave


    Everyone is doing very well!

    Thank you for participating in the competition!!!!!!

    Posted in Contest | 4 Comments »

    President Obama missing the point

    Posted by WARREN MOSLER on 17th September 2010

    Obama reiterated the talking points he has been pushing for the last two weeks. Borrowing $700 billion to pay for a tax cut for “millionaires and billionaires” doesn’t make any sense, especially when one considers the evidence that the wealthy are far more likely to save than spend their tax cuts, thus providing very little stimulus to the economy. The cost-benefit analysis just doesn’t work.

    Since he doesn’t understand monetary operations he doesn’t realize that if the money isn’t going to be spent there is no point in taxing it with regards to aggregate demand.

    He’s giving the wrong reason for ‘taxing the rich.’

    Posted in Obama | 141 Comments »

    Gold Buying

    Posted by WARREN MOSLER on 16th September 2010

    Looks like govts. are increasingly moving into gold.

    Govts. can support prices for at least as long as they increase purchases geometrically, which, operationally they can do without limit. It’s a political decision.

    To get all the gold they want, govts. have to out bid the private sector, and then maybe each other as well.

    That means when govt buying slows down, if it ever does, prices then fall to the private sector’s bid.

    With precious few non hoarding uses for gold it’s all waste of human endeavor and a waste of all the other real resources that go into gold mining and refining, etc. But it’s all a very small % of world expenditure of real resources.

    Bottom line, it’s another example of govt. ‘interference’ creating a distortion, but in this case the real resources expended- land, labor, capital, energy- are relatively small as a % of total resource consumption, and since gold can’t be eaten and isn’t used for shelter and clothing (ok, some ornamentation) the high price probably alters too few lives for the worse for a political backlash.

    However, central bankers stuck in mythical inflations expectations theory with regards to the cause of inflation could react and cause problems that wouldn’t otherwise be there. I doubt the Fed falls into that category, but it’s not impossible.

    Russia Buys 16 percent Of Global Gold Production

    According to the Russian Central Bank, Russian gold reserves just hiked 1.1 million ounces in May. Given global mining production is just 6.8 million ounces a month, this represents 16.1% of monthly global mining production.

    This is the largest one month purchase of gold by the Russian Central Bank, which has been buying gold at a rate of 250,000 ounces a month for the past three years, and comes just as Putin is pushing for a single world currency and last week revealed the currency’s first proof coin.

    At the same time as Russia is quadrupling its gold purchases, Saudi Arabia just announced that it has more than doubled its gold holdings from 143 tonnes in the first quarter of 2008 to 322.9 tonnes. That’s 241,000 ounces a month — eerily similar to Russia’s purchases.

    And nobody quite knows what China is doing right now, but they ain’t sellers. Between 2003 and 2009, China’s central bank bought an average of 76 tons of gold a year (185,000 ounces a month). The likelihood of China slowing its purchases is close to nil. and the likelihood of China letting Russia and Saudi Arabia get the better of it is negligible at best. Even if China is purchasing just 250,000 ounces a month, that would mean just thee central banks are sucking up 24% of global gold mine production. In all likelihood, it’s much higher.

    If this trend continues, it’s going to have other central banks jumping on the bandwagon to buy gold — just as they jumped on the bandwagon to sell it in the 1990s — and will have a similar impact on the price. But in the opposite direction!



    Posted in Comodities | 13 Comments »

    Japan intervention comments

    Posted by WARREN MOSLER on 16th September 2010

    Market Color

    Short~medium term JGB rallied due to additional monetary ease expectation related to unsterilized FX intervention money.

    First, intervention in this direction- buying dollars- does ‘work’ and is infinitely sustainable.
    It’s a political decision, much like the ECB buying national govt. debt. There is no nominal limit.

    Second, the only reason they stopped was political pressure from the US, with the then Treasury secretary resorting to name calling like ‘currency manipulator’ and ‘outlaw.’ Otherwise the yen probably would not have been allowed to go under 100.

    Third, their institutional structure functions to support the classic export led growth model- suppress domestic demand with consumption type taxes, relatively tight fiscal given institutionally driven savings desires, etc.

    Fourth, this strategy causes the currency to strengthen and requires the govt. buy dollars to sustain desired levels of exports and employment.

    Net exports necessarily equal net domestic holdings of foreign currency. Think of it this way. If Japan sells something to the US, and we pay for it in dollars, they have two choices. Either hold the dollars, in which case nothing more happens in the real economies and Japan has net exported and the US net imported. Or buy something in the US or any other nation with the dollars and import it to Japan in which case there are no net exports.

    Japanese government started FX intervention last night with JY100bn in Tokyo and continued their effort in overseas and ended up with selling JY2trn in total. Many market participants are now saying that it will lead to monetary ease since BOJ will not absorb this JY2trn from the market and this is one of the main reasons for JGB rally today. However, I don’t think it will cause any such impact since government issues T-Bill for that amount (JY2trn) anyway.

    When the BOJ buys dollars for the MOF, and pays for them with yen, that adds yen deposits to the domestic economy, thereby increasing the yen net financial assets held domestically. That’s an inflationary bias which is what they are trying to do.

    In the first instance those newly added yen sit as yen balances in member accounts at the BOJ. And since they earn no interest the marginal cost of funds is 0, which happens to be where the BOJ wants it anyway.

    ‘Sterilizing’ is simply offering alternative interest bearing accounts such as JGB’s to the holders of the clearing balances. This would need to be done if the BOJ wanted higher rates. Or, the BOJ could simply pay interest on clearing balances if it wanted higher rates.

    But the quantity of balances per se is of no ‘monetary’ consequence. As I like to say, for central banking it’s necessarily about price (interest rates) and not quantities.

    So with rates already at 0, there is no more ‘monetary easing’ possible. The only ‘monetary easing’ the BOJ can do at this point is bring longer rates down some, but there isn’t much scope for that either. And they probably know by now lowering long term rates does nothing of major consequence for the real economy.

    The question now is how far they will go. They’d probably like the yen back to north of 100 vs the dollar, and will move slowly to see how much political pressure they get from the US as they move in that direction. In fact, they may already be getting political pressure. I don’t know either way.

    With political pressure building for China to adjust their currency upward as the US elections approach, this move by Japan might attract more attention than otherwise.

    The irony/tragedy for the US is, of course, we should welcome all such moves, open ourselves for virtually unlimited imports from anywhere in the world (with sufficient quality control restrictions- no poison dog food, contaminated wall board, etc.), and enjoy the tax cut that comes along with it so we have sufficient purchasing power to be able to buy all of our own domestic output at full employment plus whatever the rest of the world wants to net export to us.

    And apparently that’s a LOT right now. So with current policy of grossly overtaxing us for the size govt. we currently have, the losses of grossly over taxing ourselves may be north of 30% of US gdp, which is a staggering loss for us, and gone forever.

    The only thing between what we have now and unimaginable prosperity remains the space between the ears of our policy makers, etc.

    Please feel free to distribute, plagiarize, post anywhere, whatever!

    *Rinban Result*

    *upto 1yr to maturity (310bn)

    Highest: +0.1bp
    Average: +0.3bp
    Allocation: 27.7%

    * 1yr~10yr to maturity (250bn)

    Highest: +1.5bp
    Average: +2.1bp
    Allocation: 19.0%


    Posted in Asia, Currencies, Japan, JN, USA | 20 Comments »

    Warren Mosler To Participate In 3 Senatorial Debates

    Posted by WARREN MOSLER on 13th September 2010

    Warren Mosler To Participate In 3 Senatorial Debates To Be Hosted By League of Women Voters of Connecticut

    September 13, 2010 08:03 AM Eastern Daylight Time

    WATERBURY, Conn.–(EON: Enhanced Online News)–Warren Mosler, Independent candidate for US Senate from Connecticut today announced that he had been invited by the vetting committee of the League of Women Voters of Connecticut Education Fund to participate in a series of 3, 60-minute Senatorial debates to be held in October.

    “I am deeply honored by my inclusion in these debates as the candidate of the Independent Party of Connecticut,” stated Mosler. “The League carefully examined my qualifications, my academic and professional endorsements, my career history, and my proposals to fix our economy, before deciding that I could make a positive contribution to the discussions.” Mosler has also requested his inclusion in a debate scheduled for October 4, sponsored by the Hartford Courant and Fox News, however, the lineup has yet to be finalized.

    Each of the The League of Women Voters of Connecticut Education Fund and the Hearst Connecticut Media Group Senatorial debates will be paired with a 60-minute Gubernatorial debate. These debates will be held at various locations throughout Connecticut with the order of the debates being determined by coin toss. The first one-hour debate will begin at 7:00 p.m. and conclude promptly at 8 p.m. to be followed by the second debate, from 8:30 p.m. to 9:30 p.m. All media outlets will be invited to cover the event. An experienced representative from the League of Women Voters of Connecticut Education Fund will moderate.

    Debate Locations:
    October 7, 2010 The Portuguese Cultural Center, Danbury
    October 21, 2010 The Ferguson Library, Main Branch, Stamford
    October 28, 2010 The Klein Theater, Bridgeport

    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

    Posted in 7DIF, Political | 38 Comments »

    Basel Accord, like Dodd and Frank, doesn’t know beans about banking

    Posted by WARREN MOSLER on 13th September 2010

    Bank capital rules are irrelevant for world growth.

    Bank capital arises endogenously from the economy to meet regulatory needs.

    Banks price loans to realize risk adjusted rates of return needed to raise any needed capital.

    Banks lending suffers only if non bank sources offer loans at better terms.

    Therefore all this banking news is mainly relevant to underwriters of new capital who will profit enormously.

    And we all know who those infinitely clever ones are as they again fool enough of the people enough of the time to stay highly profitable.

    And everyone seems to have missed the fact that each nation is best served by making its own capital rules.

    When it comes to bank capital rules, nothing is gained by international cooperation (apart from generating international underwriting fees for the world’s underwriters).

    Ironically, this lone area of actual, effective international cooperation is also the one area where all are best served by going it alone (apart from generating international underwriting fees for the world’s underwriters).

    Who would have thought…

    ECB’s Ordonez Says Transition Period for Basel Rules Sufficient

    Sept. 13 (Bloomberg) — European Central Bank Governing Council member Miguel Angel Fernandez Ordonez said banks will have a sufficient period of time to comply with the new Basel rules on banking regulation.

    “We have a transition period that’s enough for everybody,” Ordonez told reporters in Basel, Switzerland, today. “I’m very, very happy with the result.”

    The new accord “finishes uncertainty” because banks are now aware of capital requirements, buffers and the timeframe to phase-in the new rules, he said. The decision on the new regulation was taken unanimously, he added.

    Zapatero Says Decision on New Basel Rules Is ‘Good’ Move

    Sept. 13 (Bloomberg) — Prime Minister Jose Luis Rodriguez Zapatero said the decision on new banking rules is a “good” move. He spoke at a news conference in Oslo today.

    Lagarde Calls Basel Accord’s 7% Capital Rule an ‘Achievement’

    Sept. 13 (Bloomberg) — French Finance Minister Christine Lagarde comments on yesterday’s international agreement to raise capital requirements on banks. She spoke to reporters today in Oslo.

    The Basel Committee on Banking Supervision will require lenders to have common equity equal to at least 7 percent of assets, weighted according to their risk, including a 2.5 percent buffer to withstand future stress.

    “It’s a significant progress.
    “Our purpose was to improve the quality and the quantity of capital held by banks in order to avoid the recurrence of risk.
    “Moving to 7 percent is clearly an achievement.”

    Posted in Banking | 11 Comments »

    Bank capital is about price, not quantity

    Posted by WARREN MOSLER on 13th September 2010

    As previously discussed, there is no numerical limit to the amount of available bank capital.

    It’s about price, not quantity.

    Borrowing by Europe’s banks soars

    September 12 (FT) — European banks are borrowing at their fastest rate in almost six months and are set to continue exploiting a positive market mood in spite of longer-term funding concerns and worries about the economic health of weaker eurozone governments.

    Financial institutions in the region last week raised $20.5bn, their busiest week since March, according to Dealogic. Bankers expect similar data this week.
    Institutions tapping the market included Santander unit Abbey National, BNP Paribas, UniCredit, Banesto, Banco Popolare and Lloyds Banking Group.

    The renewed investor appetite will come as a relief to many banks. The bank debt markets virtually froze in May and June as the eurozone sovereign debt crisis erupted, putting some banks behind with their funding plans. September is typically a busy month as investors and bankers return from summer breaks with only three full months left before activity subsides again in December.

    The borrowing comes as the Basel Committee on Banking Supervision met at the weekend to hammer out final capital rules that will force banks to raise their capital cushions further in the coming years.

    Last week was also notable because it included a handful of deals from second-tier banks in weaker eurozone countries.

    “Now it’s not just the national champions,” said Vinod Vasan, European head of financial institutions for debt capital markets at Deutsche Bank, who noted that some smaller Spanish banks had issued covered bonds, a form of ultra-safe securitisation that gives investors recourse to the bank if the underlying assets decline.

    Bankers had feared that this month’s bond market would be disrupted by concerns about banks’ ability to refinance debt.

    Ireland’s banks have been hit by these worries because they are due to repay about €25bn of debt this month as a 2008 government guarantee wears off. A new guarantee was put in place last week and analysts expect Bank of Ireland to test market interest in the next few weeks.

    But some bankers caution against believing that the bond markets are fully open for all financial institutions. “National cham pions still have funding needs,” said Chris Tuffey, co-head of Credit Suisse’s European credit capital markets group. “So if there is investor appetite, they’ll be the ones to nail it.”

    Posted in Banking, ECB | 2 Comments »

    Boehner says he’d support a middle-class tax cut

    Posted by WARREN MOSLER on 12th September 2010

    As previously suggested, Boehner reverses course and does what should have been his obvious choice.

    This gives everyone in Congress a pre election window to try to tax cut their way to victory before the election.

    With the current level of deficit spending already supportive of modest GDP growth, and these latest developments taking away the risk of fiscal tightening through tax hikes, look for prospects for a double dip to be all but forgotten, and equities to firm accordingly.

    In sum, federal deficits are supporting enough income/savings/agg demand for modest gdp growth even with a relatively weak consumer and no credit expansion,
    corps have already demonstrated the ability to generate reasonably good cost cutting/profits with very modest gdp growth,
    high unemployment keeps unit labor costs under control, and relatively low term interest rates continue to support valuations,
    housing can’t go any lower and even if starts doubled they would still be relatively modest,
    and same goes for cars and lots of other areas of deferred consumption and deferred investment.

    Boehner says he’d support a middle-class tax cut

    September 12 (AP) — House Minority Leader John Boehner says he would vote for President Obama’s plan to extend tax cuts only for middle-class earners, not the wealthy, if that were the only option available to House Republicans.

    Boehner, R-Ohio, said it is “bad policy” to exclude the highest-earning Americans from tax relief during the recession. But he said he wouldn’t block the breaks for middle-income individuals and families if Democrats won’t support the full package.

    Income tax cuts passed under President George W. Bush will expire at the end of this year unless Congress acts and Obama signs the bill. Obama said he would support continuing the lower tax rates for couples earning up to $250,000 or single taxpayers making up to $200,000. But he and the Democratic leadership in Congress refused to back continued lower rates for the fewer than 3 percent of Americans who make more than that.

    The cost of extending the tax cuts for everyone for the next 10 years would approach $4 trillion, according to congressional estimates. Eliminating the breaks for the top earners would reduce that bill by about $700 billion.

    Boehner’s comments signaled a possible break in the logjam that has prevented passage of a tax bill, although Republicans would still force Democrats to vote on their bigger tax-cut package in the final weeks before the November congressional elections.

    “I want to do something for all Americans who pay taxes,” Boehner said in an interview taped Saturday for “Face the Nation” on CBS. “If the only option I have is to vote for some of those tax reductions, I’ll vote for it. … If that’s what we can get done, but I think that’s bad policy. I don’t think that’s going to help our economy.”

    Austan Goolsbee, new chairman of the White House Council of Economic Advisers, said on ABC’s “This Week” that he hopes that Democratic lawmakers who also want an across-the-board extension will join Obama and others in the party in supporting legislation aimed at the middle class before the November elections.

    In response to Boehner’s comments, Goolsbee said, “If he’s for that, I would be happy.”

    With congressional elections less than two months away, both parties have been working to score points with voters generally unhappy with Congress. Democrats are bearing the brunt of voter anger over a stubborn recession, a weak job market and a high-spending government, giving the GOP an opening for taking back control of the House and possibly the Senate.

    Democratic leaders would relish putting up a bill that extends only the middle-class tax cuts and then daring Republicans to oppose it. In response, GOP lawmakers probably would try to force votes on amendments to extend all the tax cuts, arguing that it would be a boost to the economy, and then point to those who rejected them.

    A compromise over the tax-cut extensions had been suggested by some senior Democrats. In a speech last week in Cleveland, Obama rejected the idea of temporarily extending all the tax cuts for one to two years.

    The tax-cut argument between Obama and Republican lawmakers focuses on whether the debt-ridden country can afford to continue Bush’s tax breaks, which were designed to expire next year. Republicans contend that cutting back on government spending ought to be the focus of efforts aimed at beginning to balance the federal budget.

    Posted in Employment, Equities, Government Spending, Political | 13 Comments »

    7 more weeks until Nov 2

    Posted by WARREN MOSLER on 10th September 2010

    The election is November 2.

    All contributions I receive are used to promote my message above and beyond what I was going to spend anyway.

    And, in a recent development, the actual number of people donating is suddenly a criteria to get into the televised debates.

    For that purpose a $25 donation counts the same as a $2,400 donation which is the max allowed.

    So if you’re interested in making a contribution please do so by clicking here

    (If you have a problem with the link let me know asap!)

    Thanks again to all of you who have already done so- you have been heard!
    MMT is all over the internet, and quickly being recognized in academic and financial circles

    Most of the talk of a payroll tax holiday can be traced directly to our efforts,

    And the ideas that:

    Federal taxes function to regulate demand, and not to fund expenditures,

    The US, UK, Japan, etc. are not the next Greece

    Social security isn’t broken

    The only thing we owe China is a bank statement

    Federal borrowing is nothing more than shifting dollars from reserve accounts to securities accounts

    etc. etc.

    are gaining substantial traction,
    though clearly are not yet in the mainstream media the way the payroll tax holiday is.

    Anyway, I’m standing by to act as your agent.

    The maximum contribution to Mosler for Senate is $2,400 per person,
    but additional donations up to a max of $5,000 per person are allowed to the Indendent Party of Connecticut,
    where all donations will go to support the same message, as all of our candidates have read ‘The 7 Deadly Innocent Frauds’
    and are ‘onboard’ with using any donations to support that message.

    And no worries to those who don’t contribute for any reason- completely understood!!!
    If you do something, it’s for yourself, your family, the world, etc, but not for me!
    (I take what the market gives me. If I don’t get into the debates I get to do something more fun those nights.
    If I do get in, it’s your fault…)

    This email is for information purposes only, not active solicitation!

    And again, thanks very much to all who’ve contributed in any amount,
    and especially those that have done their part to spread the word.


    Posted in 7DIF, Political | 6 Comments »