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Chairman of the Joint Chiefs Adm. Mike Mullen: national debt the greatest national security threat

Posted by WARREN MOSLER on March 30th, 2011

“Chairman of the Joint Chiefs Adm. Mike Mullen has described our national debt as the greatest national security threat facing our nation, and it’s easy to see why: The world’s biggest debtor nation cannot remain the world’s sole superpower indefinitely.”

The larger threat to our national security and well being in general comes from the likes of Mullen actually believing that nonsense.

55 Responses to “Chairman of the Joint Chiefs Adm. Mike Mullen: national debt the greatest national security threat”

  1. Kristjan Says:

    I have met a lot of people who once they understand the concepts of monetary sovereignity and demand-pull/cost push inflation start telling me that this must be conspiracy of the bankers because the financial elite must understand this. Is Mike Mullen conspiring against America?

    Reply

    Neil Wilson Reply:

    Never ascribe to conspiracy what can be adequately explained by stupidity.

    Reply

    Craig Reply:

    stupidity or ignorance. when people know better they usually do better. MMT is a copernicus revolution in economic thinking. old ideas don’t die but rather take time to fade away. the earth is not flat, the sun doesn’t revolve around the earth, and forces at a macro level are not the same as on the nuclear level.

    MMT will go down in history books as a major shift in economic thinking. the fun part is that we get to watch the meme spread first hand once it reaches critical mass.

    Reply

  2. Dan F Says:

    BTW Pavlina Tcherneva wrote a wonderful letter to Krugman.

    Modern Monetary Theory and Mr. Paul Krugman: a way forward

    http://neweconomicperspectives.blogspot.com/

    Reply

  3. Dan F Says:

    I’m sorry I had to post this…

    Pawlenty: US headed for double-dip
    By Jordan Fabian – 03/30/11 06:35 AM ET

    “The former Minnesota governor said the administration has devalued the dollar by injecting “fiat money” into the economy.”

    http://thehill.com/blogs/blog-briefing-room/news/152645-pawlenty-us-headed-for-double-dip-recession

    Reply

    roger erickson Reply:

    yeah, Pawlenty says he “made a mistake”

    his bigger mistake was not listening to the right people, and compounding that by actually listening to the wrong people;
    takes effort to be that selective

    voters made a mistake in devising their method for even electing him!

    Reply

  4. beowulf Says:

    Why, you may take the most gallant sailor, the most intrepid airman or the most audacious soldier, put them at a table together- what do you get? The sum of all fears. Winston Churchill

    We apparently have out of paradigm economists sitting at the table too.
    The fact is China can do all sorts of damage to us without it having any impact back home. This was proven during an economic war games exercise the Pentagon held in March 2009. The U.S. repeatedly lost the games to China for a number of reasons, but chief among them was that China could get the U.S. to what it wanted just by tightening the financial screws a bit. If China shifted the maturities of some of its Treasury holdings to more short-term debt it would set off chaos in our stock markets. If China sold a small portion of its U.S. holdings and signaled to the markets that it questioned America’s stability all hell would break loose…
    [in response to skeptical reader] My informatio­n about the Pentagon’s economic war games came from my own research for my book The Shadow Market. Check out Ch.1 if you’re curious. I talked to countless players who were involved, on and off the record. You’re right that there is no report from DOD on it because they didn’t produce one. Nor did the lab at Johns Hopkins that hosted the event or NSA or CIA, both of which were heavily involved in setting it up..

    http://www.huffingtonpost.com/eric-j-weiner/the-most-dangerous-myths_b_751604.html

    Warren, Tsy and Fed almost certainly had to be involved, seeing as they should have contingency plans to deal with this situation. Next time you’re up in DC melting their brains, you should ask them about this.

    Reply

    Matt Franko Reply:

    Beo,

    I’ll take all the 30-yrs they want to sell me at a 15% yield!

    You know with the Fed taking in all of the new UST issuance, and these exporters still running big BOP surpluses with us, pretty soon foreigners will own a majority of US Treasuries issued to the ‘public’. At that point US investors (as minority ‘owners’) could take advantage of a big sell off in Treasuries as long as they waited for yields to go high enough…. somebody should tell DoD. ;)

    Resp,

    Reply

    beowulf Reply:

    Franko, you’re a gentleman and a patriot. Politico had a April 2009 story with more details about this war game:
    instead of military brass plotting America’s defense, it was hedge-fund managers, professors and executives from at least one investment bank, UBS…[including] Steven Halliwell, managing director of a hedge fund called River Capital Management…Paul Bracken, a professor and expert in private equity at the Yale School of Management.
    Nice to see UBS was there, maybe they were ordered to do community service as part of their criminal tax evasion settlement a few weeks earlier. :o)

    Participants described the event as a series of simulated global calamities, including the collapse of North Korea, Russian manipulation of natural gas prices, and increasing tension between China and Taiwan. “They wanted to see who makes loans to help out, what does each team do to get the other countries involved, and who decides to simply let the North Koreans collapse,” said a participant. There were five teams: The United States, Russia, China, East Asia and “all others”…
    At the end of the two days, the Chinese team emerged as the victors of the overall game – largely because the Russian and American teams had made so many moves against each other that they damaged their own standing to the benefit of the Chinese… Bracken said the Chinese have a middle option between dumping and holding US dollars – they could sell dollars in increments, ratcheting up economic uncertainty in the United States without wiping out their own savings. “There’s a graduated spectrum of options here,” Bracken said.

    http://dyn.politico.com/printstory.cfm?uuid=88593103-18FE-70B2-A835D1F6D5DC8F3A

    A pity Ramanan wasn’t there representing India, he would have tied them all into knots with WTO provisions and Wynne Godley articles as he seized the commanding heights. :O)

    Reply

    Matt Franko Reply:

    Beo, You know one of my Walter Mitty schemes what we could do, is put together a UST PD here in the DC area. It would be the only “in paradigm” PD in the country. We could approach the govt from the angle that “we are on their side”, (ie we would not send our people on TV to badmouth the US Treasury credit rating, etc… as we know what a Treasury security really is, etc..).

    We could co-locate our trading floor on top of some of the hardened IT infrastructure in this area (Ft. Meade or certain other protected infrastructure in this area, there are many such ‘access points’ in this area). And provide other protected physical infrastructure, to have survivability in case of some sort of National Security situation, we could still operate, etc.. . Sell them on the National Security implications of having a geographically separate PD in a different area than NYC, and one that is “on the side of the US” (many foreign owned PDs, yada), etc… some of this may appeal to people at Treasury who are concerned about the national security vulnerabilities of the current arrangements.

    Then we could use the PD platform as a “soap box” on which to unapologetically step up at the UST auctions and buy, and send our people out into the media to educate the public on the realities, demonstrate these realities in the operation of our business, and maybe even make some money at the same time.

    I’ve looked into it and it looks like you need about $200M in capital to apply so I’m coming up about $199.9M short. Just missed the Mega Millions last Friday for $316M only by six numbers! ;)

    Hang in there Beo!, Resp,

    beowulf Reply:

    we don’t need capital, we need a sole source bid. You’re selling to the wrong Department, this actually sounds like something the Pentagon would go for. You need to pitch Admiral Mullen with the analogy that just as world’s largest Air Force is the USAF and the second largest Air Force is the US Navy, clearly America’s financial security is too important to leave only to the “lone wolf” Dept of Tsy.
    Oh yeah and the Defense Production Act is kinda broad.

    Loans under this section may be… made without regard to the limitations of existing law, other than section 1341 of title 31, United States Code…
    Any Federal agency or any Federal reserve bank, when designated by the President, is hereby authorized to act… as fiscal agent of the United States… All actions and operations of fiscal agents under authority of or pursuant to this section shall be subject to the supervision of the President… The President is authorized to prescribe… either specifically or by maximum limits or otherwise, rates of interest, guarantee and commitment fees, and other charges which may be made in connection with loans, discounts, advances, or commitments guaranteed by the guaranteeing agencies through fiscal agents under this section.

    http://www.law.cornell.edu/uscode/html/uscode50a/usc_sec_50a_00002091—-000-.html

    WARREN MOSLER Reply:

    Reads like the right president could get’r done

    beowulf Reply:

    “Reads like the right president could get’r done”

    You now have me thinking about President Larry the Cable Guy.
    http://movies.netflix.com/Movie/Larry-the-Cable-Guy-Git-R-Done/60037590#height1208

    But definitely, a President with the heart of a riverboat gambler can get a lot done. Fritz Hollings wrote recently about how President Kennedy used another section of the Defense Production Act to impose textile tariffs. Soldiers wear socks after all, so it was a defense production issue. Unfortunately, our current President has the heart of the law professor he once was and in that sense McCain (like Kennedy, his only real job was in the Navy) was probably better suited temperamentally for what was required.

  5. Tom Hickey Says:

    The real thing these folks should be fearing is that the US cannot remain the world’s superpower with an exponentially increasing brain deficit. :(

    Reply

    Matt Franko Reply:

    Tom,

    But aren’t these countries really “trapped” in these USD FAs? I mean as long as these countries maintain a BOP surplus, they can’t really get out of them the way I am starting to look at it (Currencies stay within their currency zone). Maybe ‘China’ can buy some real things as all companies over there are govt. But maybe “Japan” really can’t get out of them unless they at least at first stop exporting as a ‘step 1′.

    You know, one of the “big things” in western culture is “exit strategy”, for instance Warren is looking for someone to come in to his automotive company, and if so he will ‘exit’ a bit. What is China’s “exit strategy” with all of this USD business? Or Japan’s? Do you think perhaps non-western cultures do not think in terms of, or value an “exit strategy”? And we in the west are missing this?

    Resp,

    Reply

    Tom Hickey Reply:

    What’s the problem? China and Japan are net exporters. They sold up their stuff in the US and took USD. Presumably they wanted to save their dollars until they want to spend them for stuff in the dollar zone. They can buy our stuff, or sell the tsys to someone else that wants to save in USD. But being net exporters for the foreseeable future with the US a global marketplace, they are unlikely do anything that would affect their access to the US marketplace.

    When and if the rest of the world has enough USD, then they will either raise the price of exports to the US or do something else with their stuff. Right now, the US has a favorable trade advantage, buying other countries’ stuff on the cheap.

    Is the Admiral saying that won’t last forever? Probably it won’t. It won’t be the end of the world for the US either if the US is intelligent enough to plan ahead for resource needs.

    This looks to me like more hand-wringing.

    Reply

    save america Reply:

    http://outerdnn.outer.jhuapl.edu/rethinking/VideoArchives.aspx

    Hickey, check out the rickards interview above. he was warren’s neighbor in the USVI and they have debated in the past. He gives you some inside info on the CHINA option. China was sending out secret agents to buy some gold, 500 tons I believe that they added to public inventory as a “show of strength” He said they are also forcing thier local gold miners to give them gold at off-market prices of maybe around 1K, instead of 1.4K. He said they are destroying thier mines with all the uncontrolled cyanide leaching and ruining many waterways. He doesn’t expect they can massively increase thier gold hoards and next to the US, and the west in general, they are small fries and says with fort knox gold and fed gold (which is currently the property of other nations, but physically located here in the US we are a gold superpower). Middle east with oil, us with the food/agriculture and gold and military, thier ag land turning into desert and the wind blowing the wrong way at fukushima going to possibly irradiate thier cows and rice fields for DECADES! (sad :( )

    Tom Hickey Reply:

    When push comes to shove, and the way climate change is going it’s going to come to that, the strongest will take.

    beowulf Reply:

    “Warren is looking for someone to come in to his automotive company, and if so he will ‘exit’ a bit. What is China’s “exit strategy” with all of this USD business…”

    The People’s Liberation Army buys out Warren’s company. Win-win! :o)

    Reply

    roger erickson Reply:

    On the hopeful side, this may be the biggest decoy operations since WWII – mounted, appropriately, under the codenames Operation Glimmer http://en.wikipedia.org/wiki/Operation_Glimmer
    and Operation Taxable http://en.wikipedia.org/wiki/Operation_Taxable

    You really can’t make this stuff up.

    Even if that’s the case, surely there are simpler ways to bake more cakes and eat them too? Is the threat that dire? Are adding too much Bernays sauce?
    http://www.youtube.com/results?search_query=bernays&aq=f

    Reply

    beowulf Reply:

    “On the hopeful side, this may be the biggest decoy operations since WWII ”
    You’re quite the optimist Roger, I’m of the opinion the WH isn’t deceptively ignorant, it is sincerely ignorant.

    Strawberry Picker had a couple interesting comments on this point (the first in October, the second in January):
    “Warren, I just got through meeting with Dr. Julianne Malveaux, she recently had a meeting with Obama where she said he gave her a personal shoutout and also that she was 1 of 5 economists to meet personally with Biden too all in the same week. The discussions were about economic policy…She said they are terribly worried about deficits in the administration.”

    “All I know is Dr. Malveaux told me face to face she was on his and bidens economic team and that china is calling the shots in washington now, so everytime Mosler says those washington boys are ignorant to money, that may not be the case, they may know what is going on, but thier asian overlords have different plans.”

    Reply

    save america Reply:

    Warren won’t fix his IT issues, so I can’t post the gems I have every so often.

    save america Reply:

    Test for mike.

    Beowolf, I recently watched an Interview with Dr. Malveaux on C-span,

    http://www.c-spanvideo.org/program/KenW

    she interviewed an author (ken walsh) who was talking about the presidents and thier relationship to the slaves and african americans in the whitehouse.

    The relevant part came at the end, she asked the author with black unemployment so high, in his opinion why doesn’t Obama do something more to help? The author responded that Obama is very determined to be viewed as having no racial motivations one way or the other, but said perhaps in his 2cnd term – assuming he wins – that many more social programs to help the african-americans would be on his agenda and we would see a new Obama. Can Obama wait til a 2cnd term to start this agenda?

    WARREN MOSLER Reply:

    reminds me of Bernanke saying he had more tools left. begged the question, what’s he waiting for?

    it’s possible, but odds are pretty low

  6. Craig Says:

    I say three cheers for a new “Monetary Party”. Why? Progressives are wrong because their answer is raise taxes. Tea Party is wrong because their answer is to cut spending.

    The Monetary Party will cut taxes, limit inflation, and spend money where the private sector is weakest: long-term R&D and next gen technology development.

    Warren – weren’t you planning on running for office?

    Reply

    WARREN MOSLER Reply:

    already ran. lost.

    I’d cut spending with my 0 rate proposal. save maybe 300 billion a year in interest expense over time?

    which would mean lower taxes than otherwise.

    i’d also increase the minimum social security payout to something reasonable and make it universal for age 65 and over.

    and eliminate fica

    and a lot of other things in my proposals, like the $8/hr transition job to better anchor the currency

    Reply

    beowulf Reply:

    I’d cut spending with my 0 rate proposal. save maybe 300 billion a year in interest expense over time?
    CBo budget estimate last year put net interest over next decade at about$5 trillion, so that’s definitely in the ball park.

    Going to 0 rate has something for everyone– you can tell liberals its how the govt can stop paying bondholders for the right to use its own money, you can tell conservatives that its how taxes can be set hundred of billions lower and won’t increase the federal deficit a penny. And of course, the deficit hawks will be as grateful as liberated hostages once you show them how Uncle Sam can eliminate most of its long term deficit without touching defense, entitlements or discretionary spending (ha ha, no they won’t really be grateful.).
    http://www.americanthinker.com/entitlements_08-850.jpg

    Reply

  7. mike norman Says:

    Back in 2002 I was invited to participate in the National Security Seminar at the Army War College. I was asked to bring an “economic perspective” on national security issues. It so happened that was shortly after I first met Warren Mosler, who introduced me to MMT and who started to change the way I saw things. (Warren jokes that ever since that time my life has become miserable! And he’s right!! But I digress.)

    Anyway, when it came time for me to speak, I told these officers and generals that a day would come not too far off in the future, where the military will face its greatest challenge: overcoming the belief that we as a nation were limited in our ability to make the investments and expenditures needed to ensure our own security.

    Back then my understanding of MMT was a fraction of what it is today, however, I knew enough to realize that one day a horribly flawed belief system would become a very dangerous and potentially fatal thing to life as we know it in the United States.

    Well, that day is here.

    Reply

    Kristjan Reply:

    I was in Indian reservation in Arizona years ago and this old Indian told me that money is white man’s disease. Sun is shining and grass is growing but white man is sick when he doesn’t have money. It turns out he was onto something.

    Reply

    beowulf Reply:

    “When an Indian Child has been brought up among us, taught our language and habituated to our Customs, yet if he goes to see his relations and makes one Indian Ramble with them, there is no persuading him ever to return.

    [But] when white persons of either sex have been taken prisoners young by the Indians, and lived a while among them, tho’…treated with all imaginable tenderness to prevail with them to stay among the English, yet in a Short time they become disgusted with our manner of life…and take the first good Opportunity of escaping again into the Woods, from whence there is no reclaiming them.”
    Benjamin Franklin
    http://kowincidence.blogspot.com/2003_08_03_archive.html

    Reply

    WARREN MOSLER Reply:

    early description of how the great satan necessarily takes most of our children.

    nature of man since the beginning

  8. PG Says:

    Kind of news could be published

    Military Chief of the United States show signs of infection by DF-viruses.

    Conscious citizens express concern.

    DF-viruses propagate Deficitosis, a socially damaging neurosis, that makes infected people specially dangerous if they are in position to take decisions with wide and strong impact.

    Reply

  9. Ivan Says:

    I’m regularly fighting the fight on the WSJ blog. Yesterday I was on several times in response to Marco Rubio’s editorial. I’ve found that the best approach is to focus on the accounting identities without sharing an opinion…at first. Even that gets me attacked. I then posted this which, while not really MMT per se, it was designed to put some things in perspective for those hysterical about the deficit. Let me know your thoughts and if you think this is a way to fight the good fight:

    Consider the following:

    -US GDP is approximately $14.6 Trillion.

    -US Public Debt is approximately $14.1 Trillion

    -US Citizens Hold Approximately $9.7 Trillion of the $14.1 Trillion or 72%

    -The United States owes $9.7 trillion to its own citizens. The government is an aggregation of its citizens. Thus, the United states owes $9.7 trillion to itself.

    -The remaining $4.4 trillion is held by foreigners. That is a grand total of 30% of one single year’s output. Thinking of it in terms of households, that’s like earning $100,000 per year, having $30,000 in debt, and $1500 in debt service at 5%. That’s a pretty manageable number…not accounting for the fact that the US Govt has a monopoly on the issuance of dollars.

    Foreigners holding our dollars can do 1 of 3 things. They can spend them, save them, or sell them. If they spend them, exports increase, increasing jobs in the U.S. If they sell them, especially in the case of Japan and China, they risk a weaker dollar which makes their exports less competitive. If they save them, they take currency risk. How did they get these dollars? They got them by selling us products that we want at a price we were willing to pay. We have the products and they have the savings and the currency risk.

    Remember…public sector deficits equal private sector financial assets. The $14.1 trillion in debt equates to $14.1 trillion in financial assets, $9.7 trillion of which is sitting right here in the hands of American Citizens. This is why the debt isn’t inflationary and hasn’t and won’t cause the dollar to collapse. We can all take a deep breath now and put the public hysteria behind us.

    And no…for all the conservatives out there…I’m not an Obama apologist or supporter…just to be clear.

    Reply

    WARREN MOSLER Reply:

    good up to this part:

    “This is why the debt isn’t inflationary and hasn’t and won’t cause the dollar to collapse.”

    it’s because the savings held is the amount of savings people want to hold. in fact, they want more, as evidenced by unemployment. that’s why it’s not inflationary

    Reply

  10. Ivan Says:

    By the way, this is depressing. Two of the most respected men in American economics believe we’re going broke. We have “$75 trillion in debt”.

    Bill Gross Says U.S. Debt Has Little Value, Echoes Buffett (2)
    2011-03-31 06:07:45.320 GMT

    (Updates Treasury yield and price in 10th paragraph.)

    By Wes Goodman
    March 31 (Bloomberg) — Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said Treasuries “have little value” because of the growing U.S.
    debt burden.
    The U.S. has unrecorded debt of $75 trillion, or close to 500 percent of gross domestic product, counting what it owes on its bonds plus obligations for Social Security, Medicare and Medicaid, Gross wrote in his monthly investment outlook. The U.S. will experience inflation, currency devaluation and low-to- negative interest rates after accounting for consumer-price gains if it doesn’t reform its entitlement programs, he said.
    Pimco “has been selling Treasuries because they have little value within the context of a $75 trillion total debt burden,” Gross wrote in the report published on Newport Beach, California-based company’s website. Congress “must make ‘debt’
    a four-letter word.”
    The comment echoes Warren Buffett, the billionaire investor who recommended avoiding long-term fixed-income bets in U.S.
    dollars because the currency’s purchasing power will drop.
    Treasuries have handed investors a 0.1 percent loss this quarter, adding to a 2.7 percent decline in the final three months of 2010, based on Bank of America Merrill Lynch data.
    President Barack Obama’s government has increased the U.S.
    publicly traded debt to a record $9.05 trillion, leading Gross to compare the nation to Greece, which had its credit ratings cut two steps by Standard & Poor’s on March 29.
    “We are out-Greeking the Greeks,” he wrote.

    Inflation Risk

    Gross said in an interview March 11 that he eliminated government-related debt from his Total Return Fund because investors aren’t being adequately compensated for the risk of quickening inflation.
    Buffett has shortened the maturities of Omaha, Nebraska- based Berkshire Hathaway Inc.’s bond holdings as the Federal Reserve eased monetary policy to stimulate the economy, according to regulatory filings.
    “I would recommend against buying long-term fixed-dollar investments,” Buffett, chairman and chief executive officer of Berkshire, said March 25 in New Delhi. “If you ask me if the U.S. dollar is going to hold its purchasing power fully at the level of 2011, 5 years, 10 years or 20 years from now, I would tell you it will not.”

    Consumer Prices

    Treasuries were little changed today, with benchmark 10- year notes yielding 3.44 percent as of 6:52 a.m. in London, according to Bloomberg Bond Trader prices. The 3.625 percent note maturing in February 2021 traded at 101 1/2.
    The Fed said in November it would pump $600 billion into the U.S. economy by purchasing Treasuries to sustain the economic expansion.
    The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, has widened to
    2.46 percentage points from 1.82 percentage points six months ago. The 10-year average is 2.0 percentage points.
    Treasury 10-year notes pay 1.34 percent after subtracting consumer-price increases, the so-called real yield. That’s down from last year’s high of 2.39 percent in December.
    Pimco’s record $236.9 billion Total Return Fund gained 7 percent in the past year, beating 82 percent of its competitors, according to data compiled by Bloomberg. The company is a unit of insurer Allianz SE in Munich.

    For Related News and Information:
    Top Stories: TOP
    Developed markets monitor: DMMV
    Bond yield forecasts: BYFC
    Top bond market news: TOP BON
    World bond markets: WB
    Credit market watch: CMW
    Sovereign debt monitor: SOVR
    Credit crunch: WWCC
    Short-term liquidity SLIQ
    Bonds for sale: PREL

    –Editor: Rocky Swift

    To contact the reporter on this story:
    Wes Goodman in Singapore at +65-6212-1568 or wgoodman@bloomberg.net.

    To contact the editor responsible for this story:
    Rocky Swift at +81-3-3201-2078 or
    rswift5@bloomberg.net.

    Reply

    mike norman Reply:

    Gross is doing all he can to “talk his book.” Remember, he’s short Treasuries.

    Reply

    ESM Reply:

    I agree. The PIMCO guys are ruthless about using the media to enhance the value of their book. One example I remember happened in 2002 — Paul McCulley was on CNBC extolling Brazilian government bonds as undervalued. As I was able to surmise from SEC reports filed several months later, PIMCO was dumping Brazilian debt at precisely the same time, going from overweight to underweight.

    I doubt very much Bill Gross or Paul McCulley believes the default nonsense. More likely, they are bullish on the economy and think interest rates will rise as the Fed normalizes monetary policy.

    Reply

  11. Ivan Says:

    Another thought that I just posted on the Journal blog. I need to go back to work or focus on my golf game because this is really depressing to think about:

    Some key phrases on this blog and what they really mean:

    “We need to pay off the debt” Reply: Public sector debt equals private sector financial assets dollar for dollar. This is Economics 101. You can’t pay off the debt without wiping out private sector financial assets. Accounting identity.

    “We need a balanced budget or a balanced budget amendment”. Reply: If we cut spending by $1 trillion, that is an immediate GDP reduction of 7%. (GDP = C+I+G+NX) Assume that causes the labor force to decline by 7%, that’s 11 million people losing their jobs and spending power. It also reduces taxes by approximately $300 bln. As we’re balancing the budget, we can’t pay them unemployment benefits. We also need to cut spending by another $300 bln. That’s another 2.2% decline in the economy and another 3 million jobs lost. More lost tax revenues, more people stop buying things, tax revenues continue to decline…so we cut further. This goes on and on until we’re in the deepest depression in the history of the United States…or what’s left of it.

    Reply

    WARREN MOSLER Reply:

    not to forget that spending cuts need to figure in unemployment benefits that will go up as well as lost revenue.
    so a headline 1T cut might not reduce the deficit, and, depending on multipliers might increase it.

    Reply

  12. JJTV Says:

    Bill Gross wrote an article today saying the US will default if we do not reform “entitlements”. It is unfortunate my company 401k plan has only three fixed income options. One of those being the Pimco Total Return Fund.

    Link below:

    http://www.pimco.com/Pages/Skunked.aspx

    Reply

  13. mike norman Says:

    Battle of the titans: Warren buying Treasuries. Bill Gross shorting them!

    Reply

    Tom Hickey Reply:

    As I recall, Gundlach was talking up long when Gross was talking up short.

    Reply

  14. Obsvr-1 Says:

    Chairman of the Joint Chiefs Adm. Mike Mullen: national debt the greatest national security threat…

    If he and other politicos truly understood MMT, then would embrace MMT principles and modify the statement to say “Institutionalized fraud and crime corrupting our economic engine is the single largest threat to National Security and Well being”.

    The process of Institutionalizing fraud and crime is when the FIRE industry (actually any industry) effectively write the laws (through lobbyists) and influence law makers (through campaign contributions and revolving door promises). A focused effort on waste, fraud and abuse would boost confidence and restore equal rule of law for everyone.

    Embracing MMT would put an end to the senseless budget debates, blathering over the debt ceiling and gov’t shutdown histrionics. Instead efforts and resources can be focused on reducing unemployment and fixing the economy without decimating the social safety nets or budget cuts out of ignorance.

    Reply

  15. Mario Says:

    Hey all,

    I’m just a dude that’s not as learned in these areas as most if not all of you dudes who frequent this lovely blog but check this out…what if we did this (what do you think?):

    #1. Allowed the Treasury to run a deficit with the Fed (aka no more bond issuance REQUIRED).

    #2. Stopped selling bonds at auction to PD’s…allowing PD’s to re-deploy huge amounts of cash wherever they want…likely to economic rent but that’s no matter at this point.

    #3. THEN the Fed/Treasury can buy/sell bonds to PD’s freely as they wish as one more way to monitor inflationary pressures in the market from all that extra capital out there that up until now used to always go to bond subsidies at auction whenever the Treasury spent.

    In this way, we’d have 3 main ways to tame inflation…fiscal policy, monetary policy, and buying/selling bonds at auction to PD’s.

    What do you guys think?

    Reply

    Obsvr-1 Reply:

    good #1, how about 2.3.4 below

    #1. Allowed the Treasury to run a deficit with the Fed (aka no more bond issuance REQUIRED).

    #2 shut down and phase out US Bond market

    #3 Establish neutral inflation/deflation, maximum employment fiscal and tax policy with automatic pro/counter cyclical stabilizers.

    #4 shrink gov’t and focus on attacking waste, fraud and abuse.

    Reply

    WARREN MOSLER Reply:

    leave out 3. it’s moot

    Reply

    Mario Reply:

    Warren you would say #3 is moot b/c buying bonds is simply an asset swap and therefore not inflationary or deflationary. Is that correct?

    The one thing I seem to be aware of is the propensity to bubble-creations. That “asset swap” can allow for another bubble to be created. All that cash that used to just be in their “savings account” (in bonds) is now in their checking account and will go wherever their greedy little hands can put it (ag comms, equities, etc.). I guess that’s not so much of the problem as getting things regulated in all these various asset classes.

    The only thing that is more or less inflationary about these asset swaps is the effect the money transfers have from one asset to another. Speculation in comms, wealth effect in equities, insanity in real estate versus a comparatively more luke-warm/timid savings rate in bonds.

    It’s for that luke-warm/timid quality about bonds that makes me say we could use it to “ciphen off” excess investment capital that is “bubbling over” elsewhere…granted if regulation was truly enforced and effective then there would be no need for that…I agree. So yes I guess the point is moot.

    Reply

    WARREN MOSLER Reply:

    yes, if asset prices spill over to aggregate demand it’s a different matter that then requires a fiscal adjustment.

    short of that it’s the market allocating by price, which is always a work in progress.

    and the key is not to let a bursting bubble result in anything but a as temporary a rise in unemployment as possible.

    also, the housing market, for example, wouldn’t have imploded as it did if incomes hadn’t been wiped out by the sudden rise in unemployment as the govt failed to make the right fiscal response during the financial crisis.

    sustaining the aggregate demand needed for decent the income earning opportunities for people who want to work goes a long way to promoting real stability. and the trick is not to over tax for a given size govt and given set of credit conditions

    Mario Reply:

    if we stopped selling bonds at auction to PD’s…wouldn’t that essentially destroy the bond market? I mean how much of a percentage of total bonds sales do these bond auctions account for? 50%? 25%?

    Surely a major shift in the bond market composition would have some kind of meaningful effect on our economy no? Mortgage rates, interest rates, etc?

    Or would you say that these are all only reflections of the Fed Funds Rate? and so nothing would fundamentally change in the bond market.

    Reply

    WARREN MOSLER Reply:

    yes, a major chunk of the financial sector would fall by the wayside. a good first step

    Mario Reply:

    that’s all really interesting stuff Warren. A little radical for sure but still completely functional, operational, and accurate…and frankly it seems a lot less radical (and more stable) than what we have in place now!!! Taxes really are the big key to stabilizing things for people and the economy b/c they are probably the most direct and all-encompassing route to reaching the citizens of any economy.

    Sounds good to me!!! thanks man! ;)

    Tom Hickey Reply:

    Not really that radical from the historical perspective, Mario.

    Financialization

    Simon Johnson, The Quiet Coup

    Financial Sector Back To Accounting For Nearly One-Third Of U.S. Profits

    WARREN MOSLER Reply:

    how about ‘non mainstream’

  16. Mike Valotta Says:

    It never ends…

    http://news.yahoo.com/s/usnews/howthenationaldebtaffectsyou

    Reply

  17. Obsvr-1 Says:

    ha ha, moot for this audience, but not for the clowns in Washington.

    Reply

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