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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 January, 2011

Inflation Slowing China’s Export Engine

Posted by WARREN MOSLER on 31st January 2011

This is the force that ‘naturally’ brings the currency into line, and then can make it a lot weaker.

And the only way China knows to ‘fight it’ is probably with moves that will will result in a recession.

Inflation Slowing China’s Export Engine
Published: Sunday, 30 Jan 2011 | 10:46 PM ET

Inflation is starting to slow China’s mighty export machine, as buyers from Western multinational companies balk at higher prices and have cut back their planned spring shipments across the Pacific.

Markups of 20 to 50 percent on products like leather shoes and polo shirts have sent Western buyers scrambling for alternate suppliers. But from Vietnam to India, few low-wage developing countries can match China’s manufacturing might — and no country offers refuge from high global commodity prices.

Already, the slowdown in American orders has forced some container shipping lines to cancel up to a quarter of their trips to the United States this spring from Hong Kong and other Chinese ports.

Posted in China | 4 Comments »

Clinton presses OAS solution to Haiti impasse

Posted by WARREN MOSLER on 31st January 2011

So we send our Secretary of State to Haiti at the height of the Egyptian crisis?

Maybe it’s to highlight that we can’t even get it anywhere near right with Haiti, so don’t expect anything out of the US with regard to promoting human rights and representative government in Egypt.

Nor, of course, do we have any idea regarding improving the lives of majority of the citizens of the world, including our own, as we continue to believe the US govt. has run out of money and is dependent on borrowing from the likes of China and leaving the tab to the grandchildren.

Meanwhile, the risk of oil and trade disruption from the Egyptian crisis remains, however markets are today telling us they don’t think it will be much of an economic event, as the world watches to see if it spreads to other ‘non democratic’ regimes in the region.

Clinton presses OAS solution to Haiti impasse
Published: Sunday, 30 Jan 2011 | 9:27 PM ET

PORT-AU-PRINCE – Secretary of State Hillary Clinton urged Haiti’s leaders on Sunday to adopt an internationally backed solution to untangle an election dispute, saying the poor, earthquake-battered country needed a stable government to rebuild.

Clinton held talks in Port-au-Prince with outgoing Haitian President Rene Preval and leading presidential candidates on a visit overshadowed by the unfolding political crisis in Egypt.

She said she delivered the message that Washington wants Haitian authorities to enact recommendations by Organization of American States experts that revise contested preliminary results from chaotic November 28 elections in the Caribbean nation.

Posted in Political | 9 Comments »

Obama himself, talking like a true convert to the Conservative Party

Posted by WARREN MOSLER on 30th January 2011

Looks like the media is getting on to a lot of what I’ve been saying since President Obama was a candidate?

These are not your father’s Democrats.

And they afraid we might be the next Greece, and so are on a path to turn us into the next Japan.

GDP is improving modestly, thanks to the 9% federal deficit. However, given the current credit environment and high productivity growth, it’s not enough to bring down unemployment in any meaningful way.

The near 0% interest rate policy continues to suppress private interest income and, along with it’s positive supply side effects, has helped the inflation indicators to continue to decelerate.

Increased exports evidence the more to reduced real terms of trade, with higher crude prices hurting as well. (we are exporting more and more just to ‘pay for’ the same amount of imported crude)

The last thing our standard of living needs is what the President threatened when he said something like ‘now that the worst of the recession is behind us, we can turn our attention to deficit reduction.’

By Charles Hurt
Publication: The New York Post
Date: Wednesday, January 26 2011

WASHINGTON – Stop spending! Cut taxes! Simplify the tax code! Expand free trade! Slice the deficit! Slaughter the pork!

No, that was not some Tea Partier or the battle cry of Republicans last night in response to President Obama’s State of the Union Address.

It was Obama himself, talking like a true convert to the Conservative Party.

The lefty liberal asked both parties last night to come together to eliminate the endless complexities in the tax code that has created a cottage industry for accountants but has been the bane of businesses and workers alike.

And he urged Congress to cut taxes. But not just any taxes.

The man many believe to be an all-out socialist whose policies have been hostile to businesses actually called on Congress last night to cut the corporate tax rate.

Few Republicans in these tough times have the guts to carry the banner of cutting this country’s corporate tax rates, which are among the highest in the world.

And it is truly astonishing to hear this from the leader of the party that is so completely devoted to trashing companies and corporate successes like Wal-Mart – even as Democrats claim to want to lower unemployment rates and foster a thriving economy.

Obama called for free trade with foreign countries, even as his fellow Democrats continue to insist that all free traders want to do is send jobs overseas.

And he hewed to a conservative line on cutting the deficit – a truly terrifying burden that just months ago Obama dismissed as insignificant as he added trillions of dollars to it.

The moment Obama really threw down the gauntlet came when he locked arms with conservative Republicans to denounce earmarks, those fat chunks of your money that lawmakers grab to pay for pet projects back home and plum favors for political supporters.

Obama explicitly vowed in no uncertain terms that if Congress sends him any piece of legislation with any earmarks in it, he will flat out veto it.

This was met with muted applause and just a small handful of decent politicians in the chamber leaping to their feet to applaud.

The question now is whether the President Obama we heard last night was genuine – or the speech was just another cynical political ploy by a Washington politician looking ahead to his re-election next year.

Will Obama actually follow through and lead his party to join Republicans to lower the corporate tax rate, dramatically cut the deficit and finally put an end to the political pork spending that politician after politician has proved is the “gateway drug” to corruption?

A glance at his record does not leave much room for hope.

Posted in Obama | 22 Comments »

(APW) EU Considers Loans to Greece to Buy Back Bonds

Posted by WARREN MOSLER on 28th January 2011

They EU may as well buy the Greek bonds themselves and save the legal fees.

And probably get a higher rate, and, of course, the option to forgive if it ever suits them.

Amazing anything like this ‘option’ even gets this far as a trial balloon.

But it does.

EU Considers Loans to Greece to Buy Back Bonds
2011-01-28 14:20:53.271 GMT

Brussels (AP) — Lending Greece money to buy back its bonds
on the open market is “one option” under discussion as eurozone
governments overhaul their euro440 billion ($603 billion)
bailout fund, a spokesman for the European Union’s executive
Commission said Friday
Greece’s bonds are currently trading below face value,
meaning the country could buy them back at a discount and cut
its mounting debt pile.
The European Commission raised that idea in an internal
“working document” on improving the response to the debt
crisis, said Amadeu Altafaj-Tardio, spokesman for EU Monetary
Affairs Commissioner Olli Rehn.
However, he emphasized that the document wasn’t a proposal
from the Commission, adding “It will be up to the member states
to see to it that our response (to the crisis) is more
effective in the future.”
Speaking to journalists at the World Economic Forum in
Davos, Greek Finance Minister George Papaconstantinou confirmed
that the idea of bond buybacks was being discussed, but
stressed that Greece wasn’t “engaged in any official way in
those discussions.”
Greece was saved from bankruptcy with a euro110 billion
rescue loan from its partners in the euro and the International
Monetary Fund in May, after investors worried about the
country’s high government debt sent its funding costs soaring.
In the wake of that bailout, the European Commission, eurozone
governments and the IMF set up a euro750 billion fund to help
other governments in financial troubles. That fund in November
extended a euro67.5 billion emergency loan to Ireland.
Eurozone governments are currently discussing new crisis
measures, after the bailout of Ireland failed to stop concerns
over debt levels from spreading to Portugal and much larger
Spain. At the center of these discussions is the eurozone’s
euro440 billion portion of the bailout fund — the European
Financial Stability Facility — and whether it should be
expanded and given more powers.
In a paper published Monday, London-based consultancy
Capital Economics calculated that an EFSF-funded bond buyback
program based on the market price of Greek bonds last week,
could cut Greece’s debt pile from about euro260 billion to
around euro194 billion. That would mean that at the end of this
year, the country’s debt would stand at 126 percent of economic
output as opposed to 154 percent, Capital Economics estimated.
However, even that reduction might not eliminate fears over
Greece’s ability to repay its debts, Ben May, European
economist at Capital Economics, said in an interview.
On top of that, telling investors that there is a buyer for
their bonds would likely push up bond prices and there is no
guarantee that all investors would be willing to sell their
bonds at a discount. “So the savings would be much less than
the current market price would suggest,” May said.
To make the buyback effective, any loans from the EFSF
would have to come at very low interest rates, said May. For
its current bailout, Greece has to pay interest of more than 5
percent. Germany and other key funders of the EFSF have so far
opposed lowering interest rates.

Masha Macpherson in Davos contributed to this report.

Posted in EU | 40 Comments »

Japan Consumption Falls In Dec As Deflation Persists

Posted by WARREN MOSLER on 28th January 2011

And now the Prime Minister has vowed to tighten fiscal policy.

The only open avenue (the way they see the world) is buying fx.

And note that they’ve already started buying some dollars and have been welcomed by the euro zone to buy their national govt debt.

Consumption Falls In Dec As Deflation Persists

TOKYO (Dow Jones)–Japanese consumers remained downbeat in December, as deflation persisted and the employment situation remained mixed, data released by the government Friday showed.

Taken together, the figures are the latest sign that the economy will have to rely largely on exports to fuel growth as conditions remain dreary at home.

All household spending fell 3.3% from a year earlier in December, the Ministry of Internal Affairs and Communications said. The drop was considerably worse than the median forecast for a 0.6% fall tipped by economists surveyed by Dow Jones Newswires and the Nikkei. It was also sharper than a 0.4% fall in November.

In another sign that consumers remained hesitant to spend, retail sales fell 2.0% in December from a year earlier, data from the Ministry of Economy, Trade and Industry showed. The decline was mostly due to a sharp drop in auto sales, which fell by 24.1% in the month following the end of government purchasing incentives. Sales at large-scale retailers fell 1.8% from a year earlier, after adjustment for the change in the number of stores.

Highlighting the continued deflation, Japan’s core consumer price index fell 0.4% from a year earlier in December, Ministry of Internal Affairs and Communications data showed. While the result was slightly better than the 0.5% expected by economists, it marked the 22nd straight monthly decline, underscoring how entrenched the country’s deflation problem remains. Core prices, which exclude volatile prices of items such as fresh food, fell by 0.5% in November.

The slight easing in the price falls, moreover, stems from rising energy prices, which may only hurt individual spending down the line, economists said.

Higher energy and natural resource prices, if they are reflected in the price of consumer goods, “may lead to people cut back on consumption when circumstances surrounding households are already severe,” said Atsushi Matsumoto, an economist at Mizuho Research Institute.

Even with the upward pressure on prices, Matsumoto said it will be difficult for Japan to get out of deflation in the next fiscal year beginning in April, despite Prime Minister Naoto Kan’s government setting that timeframe as a goal.

Meanwhile, despite a fall in Japan’s jobless rate to 4.9% in December from 5.1% in the previous month, the closely watched jobs-to-applicants ratio was unchanged at 0.57. That number, which means there are only 57 jobs for every 100 job applicants, shows that firms have yet to ramp up hiring despite improvement in earnings.

“The jobless rate did show some improvement, but we need to remain very cautious as it’s still close to 5%,” a Ministry of Internal Affairs and Communications official briefing reporters said.

Posted in Japan | 2 Comments »

Japan Vows to Push Fiscal Reform after S&P Downgrade

Posted by WARREN MOSLER on 28th January 2011

The one nation that was at least sort of moving towards at least some proactive fiscal expansion may no longer be doing so.

Following through with this would make the yen fundamentally stronger (harder to get).

I singled out David Beers of S and P for criticism only because he does understand the difference between ability to pay and willingness to pay with regard to currency issuers vs currency users.

And Prime Minister Kan’s remarks couldn’t be more out of paradigm:

Japan Vows to Push Fiscal Reform after S&P Downgrade

Japanese leaders vowed on Friday to push ahead with tax reforms needed to rein in bulging public debt, but doubts persisted over whether the government could succeed in the face of a divided parliament.

Rating agency Standard and Poor’s cut Japan’s long-term debt rating on Thursday for the first time since 2002 while the International Monetary Fund had harsh words for Washington and Tokyo, saying they need to act urgently to cut their deficits.

Prime Minister Naoto Kan has made tax and social security reform, including a future rise in the 5 percent sales tax, a priority given the rising costs of Japan’s fast-aging society and a public debt that is the biggest among advanced nations.

“The important thing is to maintain fiscal discipline and ensure market confidence in Japan’s public finances,” Kan, who took over in June as Japan’s fifth premier since 2006, told parliament’s upper house.

But with Kan’s voter support sagging at around 30 percent, opposition parties which control the upper house have shown little inclination to compromise — something S&P highlighted when explaining its reasons for the downgrade.

Kan’s finance minister echoed his stance, saying the government must show its commitment to fiscal discipline, while Deputy Chief Cabinet Secretary Hirohisa Fujii said the government would take S&P’s criticism to heart.

“The Japanese government must humbly take the rating by a leading world ratings agency and further deepen its awareness of the importance of restoring fiscal health,” Fujii, a former finance minister, told a news conference.

Dropping the Ball?

Analysts had said the S&P downgrade could bolster Kan’s campaign for fiscal reform, but the premier initially did little to sell his case, telling reporters after the downgrade was announced that he was “not very familiar with the matter”.

Posted in Japan | 11 Comments »

Senator Pat Toomey- Pay China First Act

Posted by WARREN MOSLER on 28th January 2011

Gets stupider by the day…

“Sen. Pat Toomey (R-Pa.) introduced what Democrats are calling the “Pay China First Act,” which would require the federal government to pay all its debt obligations first and everything else — vets, schools, you name it — with what’s left.”

Okay, so we tell Ben Bernanke to press the “China debit/credit buttons” on the keyboard first. That should take about 2 seconds, and then we can get back to crediting and debiting everything else as we always do.

This is what supposedly qualifies for serious economic debate in the US these days.

Posted in China, Political | 63 Comments »

Hawkish Comments from LBS

Posted by WARREN MOSLER on 27th January 2011

The problem with the euro zone trying to keep the costs of imports down in this context is that it can only be done via a strong currency, which works against their desire to increase net exports, and even that doesn’t necessarily work if the foreign supplier has sufficient pricing power, as the Saudis do with crude prices.

It’s all about the struggle to optimize real terms of trade, which is difficult enough when the leadership understands the real issue as well as the monetary system.

Unfortunately they don’t seem to understand either one, and their real standard of living pays the price.

Karim wrote:

These are very hawkish comments from one of the more centrist and
pragmatic Governing Council members. ECB starting to realize that the
austerity measures taking place are only in 12% of Euro GDP (the PIGS).
The remaining 88% increasingly going in a different direction in terms
of macro performance.


5:31 ECB Bini Smaghi: “Core” CPI Losing Its Relevance
5:31 ECB Bini Smaghi: Deflation Risks Were Overestimated

Posted in EU | 87 Comments »


Posted by WARREN MOSLER on 27th January 2011

Karim says:


  • Labor Dept cites delayed filings in 4 states (Georgia, Alabama, North and South Carolina) as cause for 51k back-up in claims.
  • Those states probably depressed prior number, so current level likely closer to 420k; consistent with 150-200k gains in payrolls


  • Core capital goods orders rise 1.4% in December after 3.1% gain prior month; running at 9% at a 3mth annualized rate
  • Core shipments up 1.7% after 1.4% gain
  • Core shipments and core orders both revised higher for October and November


  • See notable upside risk to Q4 GDP tomorrow. Consensus 3.5%.
    Focus appears too much on inventory drag (which will be large) and not enough on contribution from net trade and these capex revisions.
  • Could see 5% print tomorrow.

Posted in Karim | No Comments »

S&P Cuts Japan Debt Rating to AA Minus

Posted by WARREN MOSLER on 27th January 2011

David Beers at S and P knows better and should be ashamed of himself and his organization for not making it crystal clear that ‘ability to pay’ is not in question, and that downgrading Japan has to be based solely on their assessment of ‘willingness to pay.’

Also note that even with repeated downgrades the term structure of risk free rates remains a function of market perceptions of where the BOJ will set rates down the road, along with a few ‘technicals’ of supply and demand.

S&P Cuts Japan Debt Rating to AA Minus
Published: Thursday, 27 Jan 2011 | 4:02 AM ET
By: Reuters

Ratings agency Standard & Poor’s cut Japan’s sovereign debt rating to AA minus from AA on Thursday, warning that Japan’s government debt ratio would continue to rise more than it had previously expected.

The agency said it expects Japan’s fiscal deficits to remain high in the next few years, which would further reduce the government’s already weak fiscal flexibility.

The outlook on the long-term rating was stable, it said, reflecting its view that Japan’s strong external balance sheet and monetary flexibility partially offset the pressures stemming from the fiscal side.

Posted in Japan | 14 Comments »

Obama Nation- Throw Social Security, Medicare under the Electric Bus

Posted by WARREN MOSLER on 26th January 2011

“You’re the type that would complain if they hung you with a new rope.”

Hopefully this entire administration and Congress will go down in history as the last out of paradigm regime that nearly succeeded in turning the US into the next Japan, which now includes the drive to become a net exporter, before the lights came on and every lived happily ever after.

Meanwhile, it’s more of the same, with Paul Ryan ratcheting up the fear mongering after taking the hand off from President Obama, specifically stating we were going to be the next Greece if didn’t take immediate proactive measures.

And, of course, absolutely not a peep of criticism from any politician, the media, or headline economist- hawk or dove- on that operational absurdity.

Posted in Government Spending, Obama | 83 Comments »

India hikes interest rates to contain inflation

Posted by WARREN MOSLER on 25th January 2011

The higher rates won’t cure their inflation problem, and instead fuel nominal growth and add to the problem.

What does generally happen, however, is inflation helps the automatic fiscal stabilizers work to bring down the govt deficit, which is hailed as a good thing, as it unknowingly undermines aggregate demand and causes a slowdown.

India hikes interest rates to contain inflation

January 25 (AP) — India’s central bank raised key interest rates Tuesday for the seventh time in little over a year as it attempts to contain inflation. “Inflation is clearly the dominant concern,” the Reserve Bank of India said in its latest review of monetary policy. India’s inflation rate jumped to 8.4 percent in December as prices climbed for fruit, vegetables, manufactured goods and fuel. The Reserve Bank of India hiked the repo rate to 6.50 percent from 6.25 percent. It raised the reverse repo rate to 5.50 percent. It kept the cash reserve ratio at 6 percent. The Indian economy reverted to its pre-crisis trajectory, with growth in the first half of the fiscal year ending March 2011 estimated at 8.9 percent, it said.

Debt as a percentage of GDP ratio:

Posted in Government Spending, Inflation | 1 Comment »

State of the Union

Posted by WARREN MOSLER on 25th January 2011

Some of the risks listed at year end seem to be coming on line, including slower growth out of China, euro austerity keeping a lid on demand in the euro zone, and US fiscal balance too tight for anything more than very modest top line growth, given current credit conditions and the negative income effects of near 0 interest rate policy and QE.

With crude oil continuing to soften, and Brent looking to close the gap with WTI by falling more than WTI, the dollar continues to gain fundamental support as it becomes ‘harder to get’ overseas.

And falling gold and silver prices, along with most other commodities, are showing a world that is sensitive to those indicators that QE2 doesn’t look to have been at all inflationary, leaving many people with positions they otherwise would not have taken (long gold, silver, commodity currencies, and other implied ‘short dollar’ positions).

The risk here is that the dollar gets very strong, and commodities very weak, which can lead to a US equity correction as well as a strong bond rally, all contributing to a deflationary malaise, as the theme remains:

Because we believe we can be the next Greece, we continue to work to turn ourselves into the next Japan

Which includes a misguided national effort to export our way to prosperity, which is likely to be featured by the President tonight.

Posted in Comodities, Obama | 5 Comments »

Obama and GE working together

Posted by WARREN MOSLER on 24th January 2011

“For America to compete around the world, we need to export more goods around the world. That’s where the customers are. It’s that simple,” Obama said.

Yes, and only because he and our Congress are grossly overtaxing us for the size govt we have along with our current credit and trade conditions.

GE is a major exporter, and it should now be obvious that the exporters like GE are in control of policy, promoting their interests at the expense of the macro economy.

By fostering fear of being the next Greece, they continue to shepherd us into becoming the next Japan.

Obama all for creating jobs in India


January 23 — Showcasing a new General Electric(GE) deal with India, U.S. President Barack Obama has called for a new effort to put the economy into job-creation “overdrive” by boosting American exports.

“For America to compete around the world, we need to export more goods around the world. That’s where the customers are. It’s that simple,” Obama said visiting the birthplace of GE founded by inventor Thomas Edison at Schenectady, New York. The Schenectady plant now makes power-generating turbines that the company markets globally, including a recent sale in India.

“We’re going back to Thomas Edison’s principles. We’re going to build stuff and invent stuff,” said Obama as he named General Electric CEO Jeffrey Immelt to head an advisory panel on job creation. The panel will be called the Council on Jobs and Competitiveness, a successor to the Economic Recovery Advisory Board that was chaired by former Federal Reserve Chairman Paul Volcker.

“The economy is in a different place” than two years ago, Obama told workers at Schenectady. But, though the economy is again growing after a deep recession, the President acknowledged that “it’s not growing fast enough yet.”

Obama held up exports as a core goal, arguing that for a decade the U.S. economy has relied too heavily on debt-financed consumption by its own citizens.

“As I was walking through the plant, you guys had put up some handy signs so I knew what I was looking at. And I noticed on all of them they said, this is going to Kuwait; this is going to India; this is going to Saudi Arabia.”

“That’s where the customers are, and we want to sell them products made here in America,” Obama said.

“That’s why I travelled to India a few months ago – and Jeff was there with us – where our businesses were able to reach agreement to export $10 billion in goods and services to India. And that’s going to lead to another 50,000 jobs here in the U.S.

“Part of the reason I wanted to come to this plant is because this plant is what that trip was all about. As part of the deal we struck in India, GE is going sell advanced turbines – the ones you guys make – to generate power at a plant in Samalkot, India.

“Most of you hadn’t heard of Samalkot, but now you need to know about it, because you’re going to be selling to Samalkot, India,” Obama said mentioning the small Andhra Pradesh pilgrim town, 165 km west of Visakhapatnam, at least four times.

“And that new business halfway around the world is going to help support more than 1,200 manufacturing jobs and more than 400 engineering jobs right here in this community-because of that sale,” he said amid repeated applause.

Obama said U.S. firms are “on track” to achieve his goal of doubling exports in a five-year period.

Posted in Emerging Markets, Exports, trade | 15 Comments »

quick fx update

Posted by WARREN MOSLER on 24th January 2011

With crude/wti below 90 and looking soft, for anyone who wants to know my opinion, I’m now inclined to favor the $ over the euro.

Posted in Comodities | 7 Comments »

Presidential approval poll

Posted by WARREN MOSLER on 24th January 2011

The President is on a roll, so he’ll likely keep doing more of what he thinks is working.

Regardless of whether those policies that win him approval are considered ‘progressive’

Posted in Obama | No Comments »

Greenspan on the gold standard

Posted by WARREN MOSLER on 22nd January 2011

Fed Chairman – Alan Greenspan! In an interview with Fox Business: “We have at this particular stage a fiat money which is essentially money printed by a government and it’s usually a central bank which is authorized to do so. Some mechanism has got to be in place that restricts the amount of money which is produced,

Yes, it’s called Congress.

And right now, for the size govt we have, they are grossly over taxing us.

either a gold standard or a currency board, because unless you do that all of history suggest that inflation will take hold with very deleterious effects on economic activity… There are numbers of us, myself included, who strongly believe that we did very well in the 1870 to 1914 period with an international gold standard.” And a further stunner: Greenspan himself wonders if we really need a central bank.

Posted in Uncategorized | 49 Comments »

Angry Irish Voters Ready to Exact Revenge

Posted by WARREN MOSLER on 21st January 2011

Notice that they are angry at the government, not the currency arrangements, as previously discussed.

What’s saving the euro is that it’s not intuitively obvious that the currency arrangements could possibly be part of the problem.

Rates are low, there’s relatively little inflation, and and the foreign exchange value is reasonably strong and stable.

And it makes perfect sense that they are now paying for past govt abuses and policy blunders.

So the widespread dissatisfaction is directed at the national govts in question.

And there is little or no inclination to abandon the euro.

Angry Irish Voters Ready to Exact Revenge

January 21 (Reuters) — Irish Prime Minister Brian Cowen’s government, called “The Muppet Show” by one newspaper on Friday, can’t die soon enough for most voters.

espair has turned to fury among Irish people over an economic meltdown that has forced them to swallow ever deeper cutbacks and tax increases, while ministers emerge from their luxury state cars to speak of the country having turned a corner.

Ireland has witnessed no Greek-style riots but voters are impatient for the March 11 election, called by Cowen on Thursday, to exact revenge on the political class.

“We need to hurt them,” said Bernadette, a mother of four and owner of a wine importing business that has cut its staff to three from 15, “Unless you hurt them they won’t pay any attention to you.”

Voters regard the political class as at best complacent and at worst complicit in the nation’s transformation from economic star to euro zone basket case.

Cowen’s Fianna Fail party is set for a record rout in March, according to opinion polls.

While voters are likely to elect the mainstream opposition, some will opt for independents or the hard-left nationalist Sinn Fein party.

“They should all be gone. There should be an immediate general election. Everyone is sick of it, said postal worker Gerard Williams, 43.

“I’ll be voting for independent candidates. The big parties have lost the run of themselves,” Williams said as he walked through St Stephen’s Green in central Dublin.

Outside Cowen’s home county of Offaly, it is difficult to find anyone with a good word to say about him.

In an editorial The Irish Times newspaper despaired: “God Almighty, no one thought it could have got worse! The Government is staggering like a drunken sailor towards collapse.”

The Irish Independent said previous comparisons between Cowen and the captain of the Titanic had been unfair: “Even the captain of the Titanic was able to rearrange the deck chairs.”

Cosy Culture

A botched attempt at a cabinet reshuffle forced Cowen to call the early election following scandals over his drinking habits and questionable choice of golf buddies.

Polls suggest the two main opposition parties – centre-right Fine Gael and centre-left Labour – will form the next coalition government.

But with Fianna Fail set for a hammering the field is also open for independent candidates and Sinn Fein.

Ireland’s crisis has its roots in reckless lending and lax oversight of bankers and property developers, groups actively courted by politicians for donations during the boom years.

Revelations that Cowen played golf with the former chairman of Anglo Irish Bank months before it was taken into state care cemented for many people their view that business and politics enjoyed a cosy culture.

The spectacle of ministers and parliamentarians resigning before the election with large pensions and reports of developers and bankers living well overseas have infuriated those who didn’t buy into the Prada bag culture during the boom years when Ireland was called the “Celtic Tiger” economy.

“It’s the ordinary man in the street, the middle classes, those in the private sector that are paying,” said Marion, 57, who worked in a multinational firm for 30 years.

“I didn’t benefit from the Celtic Tiger. I lived within my means. Will I even get a pension now?”

The downturn has forced Irish people, particularly young graduates, to seek work abroad, a bitter development for people who thought they had seen the back of mass emigration.

“There are no jobs; all of my son’s friends have left,” said Bernadette. “They are leaving because this is not a country to live in anymore. The government looked after the banks. For them, it’s like we don’t exist.”

Posted in EU | 8 Comments »

Joe Firestone post on sidestepping the debt ceiling issue with Coin Seigniorage

Posted by WARREN MOSLER on 20th January 2011

Joe Firestone has a new post on Coin Seigniorage, where he gives credit to our own Beowolf’s comment on this website.

As far as I’ve been able to determine, it does work operationally. It seems the US Treasury is already legally empowered to simply mint it’s own platinum coin in any denomination it wants and effectively deposit it in its Fed account, rather than sell bonds to the public to fund its Fed account.

This process doesn’t change actual govt spending, so doing it this way doesn’t add to inflation, nor does it change the fact that govt deficit spending adds income and net financial assets to the other, non govt sectors. It’s just that the new financial assets will simply be new reserve balances at the Fed, rather than new Treasury securities (which are also simply accounts at the Fed).

What issuing these coins does do is remove the legal need for the debt ceiling to be raised, and also reduce the amount of outstanding Treasury securities, which is what is called govt debt. So while both reserves and Treasury securities are, functionally, govt liabilities and differ in name (and sometimes duration) only, the headline rhetoric does make that distinction. So technically, this process eliminates the ‘national debt’ and removes any (misguided) notion of solvency risk:

Links to the post on various websites:



Our Future

Daily Kos

The most discussion is at Kos.

The best comments are at Correntewire.

Posted in Fed, TREASURY | 255 Comments »

macro currency update

Posted by WARREN MOSLER on 20th January 2011

So it looks to me like all the major currencies have somewhat strong fundamentals.

That is, policy is working to make them ‘harder to get.’

EU and UK austerity policies are proactively cutting net govt spending from where it was.

And the EU has figured out that the ECB can fund at will entirely without ‘finance’ concerns, gradually removing the perceived chances of catastrophic defaults and the break up of the currency union with each succeeding intervention.

While higher crude prices are making the $US a bit easier to get offshore, interest rate policy, including QE2, is removing dollars from the non govt sectors that would have otherwise been paid out by the US govt, and domestic credit expansion remains anemic, particularly with regards to housing, the traditional source of ‘borrowing to spend.’ And the international stampede out of the dollar due to unwarranted fears of QE2 is still in the process of getting reversed. This flight took a variety of forms, from selling the dollar vs other currencies to buying gold, silver, and other commodities in general.

China is tightening up on state sponsored lending which makes yuan harder to get as they ramp up their politically motivated struggle to fight inflation.

And there are at least some noises that even India and Brazil seem to be at least leaning towards less inflationary policy, though sometimes misguided.

And while Japan has done a bit of fiscal expansion, and a bit of dollar buying, markets are telling us it hasn’t done enough, at least not yet, as the yen remains firm even after more than a decade of a near 0 rate policy.

All the currencies getting strong at the same time with only minor shifts in relative value is also evidenced by a general deflationary bias in the market place.

And, as previously discussed, this is coming after rising commodity prices have had a chance to bring on higher levels of supply.

Low interest rates have also added their positive supply side effects, as inventory is cheap to hold and capacity cheap to bring on line and keep in reserve.

Historically, private sector credit expansion has kicked in as economies recover, replacing the aggregate demand from government deficit spending, as the automatic fiscal stabilizers work to increase tax payments and reduce fiscal transfers for the likes of unemployment compensation.

This time, however, it seems to be different, with govts. taking proactive measures to contain and reduce deficits rather than continuing the govt. deficit spending until the hand off to private sector credit expansion takes over and the automatic fiscal stabilizers kick in.

In other words, for the size govt we have, we remain grossly over taxed as evidenced by the still massive output gap.

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