Monthly Archives: September 2010

ECB Steps Up Its Bond Buys Amid Worries

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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.

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MMT Contest – Update

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CONTEST ENDS OCTOBER 31st AT MIDNIGHT!

For those who do not remember or are new, please click the link below for all the details
https://moslereconomics.com/action/

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
        www.moslereconomics.com
        Counter Insurgency, Deficit Terrorist Unit

 

PRIZES

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

 

CURRENT TOP SCORES

Jim Baird
26
Art Patten
26
Stormy
12
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12
Tschäff
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TLGunman / Gunman
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Everyone is doing very well!

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

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President Obama missing the point

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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.’

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Gold Buying

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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!

Cheers,

Peter.

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Japan intervention comments

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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%

table

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Warren Mosler To Participate In 3 Senatorial Debates

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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 www.moslerforsenate.com

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

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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.”

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Bank capital is about price, not quantity

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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.”

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

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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.

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7 more weeks until Nov 2

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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.

Best!
Warren

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