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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 March 4th, 2011


Posted by WARREN MOSLER on 4th March 2011

From Goldman: The household survey, however, was stronger than expected. In particular, the unemployment rate dropped another tenth (to 8.922%) due to a firm gain in employment (+250,000) and unchanged labor force participation (at 64.2%). The employment gain was also strong on a “payroll-adjusted” basis, up 342,000 on the month. The employment/population ratio remained unchanged at 58.4%. The decline in unemployment was broad based across different measures of unemployment; for example, the U6 unemployment rate, which counts marginally attached workers and those working part-time for economic reasons, declined by two tenths to 15.9%

With only 58.4% of the population employed it’s a stretch for the Fed or anyone else to declare victory.

Yes, there are some long term demographic changes.
Women entering the workforce probably drove this ratio higher,
and an aging population is probably going to drive it lower.
But we’re back to levels from before women entered the workforce.

Best I can tell, yes, there are signs of improvement, but overall it remains an economic disaster.

Karim writes:

  • Data still weather impacted as 82k workers more than avg couldn’t work due to weather
  • Unemployment rate falls to 8.92% from 9.05% as household survey employment rises 250k and labor force rises 60k
  • Payrolls up 192k, with net revisions of +58k and private sector job gains of 222k (68k last month)
  • Avg hourly earnings unch after 0.4% last month (and likely hard to read due to impact on hours worked from the weather)
  • Index of aggregate hours up 0.2%
  • Median duration of unemployment down from 21.8 to 21.2 weeks
  • U6 measure down from 16.1% to 15.9%
  • And the strongest indicator in this report was the Diffusion Index reaching its highest level since 1988, rising from 60.1 to 68.2 (this is like the ISM, measuring the breadth of industries adding jobs)

Posted in Employment, Fed | 2 Comments »

EU Daily | Europe’s Bank Signals It May Raise Interest Rates to Tamp Down Inflation

Posted by WARREN MOSLER on 4th March 2011

So the ECB,
which is funding the entire euro zone banking system,
and for all practical purposes backstopping the funding of the national govts as well
to keep their funding costs manageable as they struggle with the terms and conditions of the austerity mandates,

That same ECB is now looking to raise rates, a proposal which is already working to increase the funding costs of those national govts.

They must think hiking rates is the tool to use to control the ‘inflation’ they are concerned about?

‘Inflation’ that’s come from tax hikes and relative value shifts in food and energy, as a foreign monopolist hikes crude prices and the burning up of our food supply for fuel hikes food prices?

Rate hikes that shift funds from borrowers, like the national govts they are supporting, to rentiers who will be getting the pay increase from higher rates?

And rising interest rates will require more austerity measures to offset the increased interest expense?

Yes, they also believe ‘inflation’ comes from elevated ‘inflation expectations’ but even that channel of causation, as far fetched as it is, has to be confused by the large output gap and general weakness of aggregate demand? Higher interest rates will somehow cause trade unions to soften demand for pay increases so their members can afford to eat?

Seems it goes back to the old Bundesbank dynamic, where the CB would threaten politically distasteful rate hikes if the govt didn’t tighten fiscal?

Well, today the ECB is already controlling fiscal, so it’s all moot.

But the old reflexes are still there.

Somewhat the like the old reflex with regard to export driven growth, but without the ideological option of buying dollars previously discussed.

So putting it all together, they have the export driven policy reflex without the dollar buying that’s undermining itself by driving the euro higher, working to limit demand from exports,
as the ECB both funds the financial structure and imposes austerity which is working against domestic demand.

And the rate hike reflex which won’t alter the price pressures from food, energy, and taxes.

And no telling what they may do next.
With their levels of unemployment, food price increases, and a general feeling that there are no ideas from on high to get them out of this mess, and large pools of newly arrived immigrants getting hurt them most, civil unrest is not impossible?

Maybe recognize that Europe is nothing more than a poorly managed theme park, and get a Disney exec to run it?

German Two-Year Yields Climb to Two-Year High on ECB Rate Bets

By Emma Charlton and Keith Jenkins

March 4 (Bloomberg) — German two-year government notes rose while their Greek equivalents fell, on concern higher borrowing costs may hamper the region’s most indebted countries, spurring demand for the euro zone’s safer assets.

Greece’s two-year yields reached the highest since May 10, the first trading day after the European Union and the international Monetary Fund announced the creation of a bailout fund to backstop the euro. European Central Bank President Jean- Claude Trichet said yesterday it’s “possible” that rates will rise at the central bank’s April meeting. His comments drove the German two-year yield up 23 basis points yesterday, the biggest increase since January 2009.

“There are some questions being asked about what tighter policy does for wider Europe, so that’s helping the bid toward core product,” said Eric Wand, a rates strategist at Lloyds Bank Corporate Markets in London. “Trichet was pretty clear that there would be a hike come April, so that’s going to underpin the German front-end going forward.”

The two-year note yield was two basis points lower at 1.76 percent as of 10:56 a.m. in London after reaching 1.84 percent, the highest since December 2008, according to data compiled by Bloomberg. The 1.5 percent security due March 2013 rose 0.035, or 35 euro cents per 1,000-euro ($1,387) face amount, to 99.49. The yield on German 10-year bunds, Europe’s benchmark government debt securities, was one basis point lower at 3.32 percent.

March 25 Deadline

Trichet will speak alongside governing council members including Mario Draghi and Christian Noyer at a Banque de France conference in Paris today. The ECB’s anti-inflation stance comes as European Union leaders approach a March 25 deadline for a reinforced plan to aid debt-strapped countries.

Greece’s two-year yields surged 24 basis points to 15.16 percent. The yield difference between German 2-year notes and Greek securities of a similar maturity was 13.41 percentage points, the widest since May 7, according to data compiled by Bloomberg.

Ten-year bunds were higher before a U.S. labor market report that is forecast to show employers added 196,000 workers last month, after a 36,000 gain in January, according to the median forecast of 84 economists surveyed by Bloomberg News. The report may also show the jobless rate increased to 9.1 percent from 9 percent.

“Right in front of payrolls data, people aren’t going to want to set too much risk on their books,” Wand said.

German-U.S. Spread

The yield difference, or spread, between German two-year notes and U.S. securities of the same maturity, narrowed four basis points to 98 basis points. It reached 103 basis points yesterday, the highest since Dec. 30, 2008, as traders added to bets that the European Central Bank will raise borrowing costs before the Federal Reserve.

The Frankfurt-based central bank, which left its key rate at a record low of 1 percent yesterday, is concerned about so- called second-round inflation effects, when companies raise prices and workers demand more pay to compensate for soaring energy and food costs, Trichet said. Euro-area inflation accelerated to 2.4 percent last month.

Euribor futures fell, pushing the implied yield on the contract expiring in December 2011 up two basis points to 2.18 percent. Earlier it rose to 2.215 percent, matching the highest since Feb. 22, 2010, as investors added to bets that the ECB will increase borrowing costs.

Forward contracts on the euro overnight index average, or Eonia, signal investors think the ECB will increase the key rate 25 basis points by its July meeting, Deutsche Bank AG data shows.

Posted in CBs, ECB, Government Spending | 13 Comments »