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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 28th, 2011

(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 »