US Approaching Insolvency, Fix To Be ‘Painful’: Fisher

I waited a couple of days before doing this thinking there might be some retractions.
Or some serious mainstream push back.
But apparently not.
Apparently this high ranking Fed official, as well as the mainstream financial press,
actually believes the US Government could lose it’s ability to make payments,
demonstrating they all have no grasp of actual Fed monetary operations.

This is further confirmed when he goes on to discuss
‘tightening’ where he indicates that in addition to rate hikes,
‘tightening’ can be done by reducing reserves per se.
He doesn’t seem to realize that this went out with the gold standard.

Highlights below:

US Approaching Insolvency, Fix To Be ‘Painful’: Fisher

March 22 (Reuters) — The United States is on a fiscal path towards insolvency and policymakers are at a “tipping point,” a Federal Reserve official said on Tuesday.

“If we continue down on the path on which the fiscal authorities put us, we will become insolvent, the question is when,” Dallas Federal Reserve Bank President Richard Fisher said in a question and answer session after delivering a speech at the University of Frankfurt. “The short-term negotiations are very important, I look at this as a tipping point.

But he added he was confident in the Americans’ ability to take the right decisions and said the country would avoid insolvency.

“I think we are at the beginning of the process and it’s going to be very painful,” he added.

Fisher earlier said the US economic recovery is gathering momentum, adding that he personally was extremely vigilant on inflation pressures.

“We are all mindful of this phenomenon. Speaking personally, I am concerned and I am going to be extremely vigilant on that front,” Fisher said in an interview with CNBC.

Fisher also said that the U.S. Federal Reserve had ways to tighten its monetary policy other than interest rates, including by selling Treasurys, changing reserves levels and using time deposits.

He added that he does not support the Fed embarking on an additional round of quantitative easing.

“Barring some extraordinary circumstance I cannot forsee…I would vote against a QE3,” Fisher told CNBC. “I don’t think it’s necessary. Again, we have a self-sustaining recovery.”

Claims/DGO


Karim writes:

  • More positive signs for the labor market as initial claims fall another 5k to 382k; more importantly, claims are now steadily below 400k (5 of the past 7 weeks)
  • DGO ex-air and defense fall 1.3%; Core shipments rise 0.8%
  • Slight upward revisions to both core orders and shipments for January
  • DGO remains highly volatile, with the machinery component in particular driving the volatility. Machinery orders up 16.3% in December, followed by -12.7% and -4.2% in Jan and Feb.

Nothing in today’s data that would alter the baseline view for the Fed expressed in last week’s FOMC statement (hawkish)

BoJ Gov Shirakawa – Japan’s Fiscal Situation “Very Severe”

Because they think they could be the next Greece they *are* Japan.

BOJ’s Shirakawa Says Japan’s Fiscal Situation Is ’Very Severe’

By Mayumi Otsuma

March 23 (Bloomberg) — Bank of Japan Governor Masaaki Shirakawa said that while Japan’s fiscal situation is “very severe,” investors’ trust in the country’s policy makers is keeping bond yields low. He spoke in parliament today in Tokyo.

Japan Mulls Postwar-Style Reconstruction Agency, Adds Cash

By Takashi Hirokawa and Keiko Ujikane

March 23 (Bloomberg) — Japan may set up a reconstruction agency to oversee earthquake repairs, while data showed the central bank pumped record liquidity into lenders, as the nation grappled with its worst disaster since World War II.

Underwriting Bonds

“If a central bank starts to underwrite government bonds, there may be no problems at first, but it would lead to a limitless expansion of currency issuance, spur sharp inflation and yield a big blow to people’s lives and economic activities,” as has happened in the past, Shirakawa said.

By law, the central bank can directly buy JGBs only in extraordinary circumstances with the permission of the Diet. Vice Finance Minister Fumihiko Igarashi said in parliament that the government needed to be “cautious” in considering whether to have the BOJ make direct purchases.

Bond sales, cuts to other spending and tax measures could pay for reconstruction, Economic and Fiscal Policy Minister Kaoru Yosano said yesterday. Morgan Stanley MUFG Securities Co. analysts led by Robert Feldman in Tokyo wrote in a note this week that policy makers will likely implement “several” spending packages of 10 trillion yen or more.

Loan Programs

Fiscal spending won’t be the only channel for stimulus, according to Chotaro Morita, chief strategist at Barclays Capital Japan Ltd. in Tokyo.

“We expect the utilization of government lending” vehicles such as the Government Housing Loan Corporation and Finance Corporation for Municipal Governments, as was done in the wake of the 1995 Kobe earthquake, Morita wrote in a report to clients yesterday. This would help reduce the increase in government-bond issuance, he said.

In the wake of the devastation of World War II, Japan’s government set up the Economic Stabilization Board in August 1946. Among its duties was to ration commodities and oversee the revival of the nation’s industries.

To maintain short-term financial stability, BOJ policy makers have added emergency cash every business day since the quake. Lenders’ current-account balances at the central bank yesterday exceeded the 36.4 trillion yen record set in March 2004, when officials were implementing so-called quantitative easing measures to counter deflation. Deposits have climbed from about 17.6 trillion yen on March 10.

Japan Forecasts Earthquake Damage May Swell to $309 Billion

By Keiko Ujikane

March 23 (Bloomberg) — Japan’s government estimated the damage from this month’s record earthquake and tsunami at as much as 25 trillion yen ($309 billion), an amount almost four times the hit imposed by Hurricane Katrina on the U.S.

The destruction will push down gross domestic product by as much as 2.75 trillion yen for the year starting April 1, today’s report showed. The figure, about 0.5 percent of the 530 trillion yen economy, reflects a decline in production from supply disruptions and damage to corporate facilities without taking into account the effects of possible power outages.

The figures are the first gauge of the scale of rebuilding Prime Minister Naoto Kan’s government will face after the quake killed more than 9,000 people. Japan may set up a reconstruction agency to oversee the rebuilding effort and the central bank has injected record cash to stabilize financial markets.

Damages will probably amount to between 16 trillion yen and 25 trillion yen, today’s report said. It covers destruction to infrastructure in seven prefectures affected by the disaster, including damages to nuclear power facilities north of Tokyo.

Wider implications on the economy, including how radiation will affect food and water supply, are not included in the estimate.

Bank of Japan board member Ryuzo Miyao said today that it may take more time to overcome the damage of the quake than it did after the 1995 disaster in Kobe, western Japan.

Power Shortage

Tokyo’s power supply may fall 20,500 megawatts short of summer demand, or 34 percent less than the peak consumption last year, according to figures from Tokyo Electric Power Co. The utility is capable of supplying 37,500-megawatts and plans to add about 2,000 megawatts of thermal generation by the end of this month, company spokesman Naoyuki Matsumoto said by telephone today.

The government had previously projected growth of 1.5 percent for the year starting April 1 after growing an estimated 3.1 percent this year.

Bank of America Merrill Lynch cut its GDP projection for fiscal 2011 to 1 percent from 1.7 percent. RBS Securities and Nomura Securities Co. have also cut their forecasts while noting that the economy will still expand because the rebuilding will spur demand and help offset damage on growth in the period.

Rebuilding efforts in fiscal 2011 could push up GDP by 5 trillion yen to 7.75 trillion yen, the government said today.

Japan’s growth will return to normal “very soon” as reconstruction work starts, Justin Lin, the World Bank’s chief economist, said in Hong Kong today. At the same time, some are worried the boost won’t come soon enough.

Biggest Concern

“My biggest concern is that a positive impact from reconstruction may take a while to materialize,” said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “This earthquake and tsunami destroyed infrastructure and that will delay a recovery in production, a major driving force for the economy.”

The government maintained its assessment of the economy for March as the economic indicators released before the earthquake showed exports and production rebounding, while also voicing “concern” about the impact of the temblor on the economy.

“Although the Japanese economy is turning to pick up, its ability to self-sustain itself is weak,” the Cabinet Office said in a monthly report.

The U.S. National Hurricane Center in August 2006 calculated the damage of Hurricane Katrina, which slammed into New Orleans the year before, at $81 billion.

Future assessments will need to address damage to much of the northeast’s economy, and the disruptions to electricity and distribution systems that’s spread south to Tokyo and beyond.

Toyota Motor Corp. said yesterday it will halt car assembly in Japan through March 26. Sony Corp. said it shut five more plants.

Export Decline

Koji Miyahara, president of the Japanese Shipowners’ Association, said today exports may decline for six to 12 months after the earthquake, adding that the disaster won’t affect the industry in the longer term as reconstruction efforts take hold.

Kan is now faced with the challenge of finding ways to pay for the damage to the economy. BOJ Governor Masaaki Shirakawa has reiterated a reluctance to underwrite debt from the government and said today that nation’s fiscal situation is “very severe.”

Nikkei story

>   
>   For those who think that Japan will pull out all the stops and throw a lot of money at the
>   recovery effort:
>   

Thanks,

Also, the highest numbers I’ve seen are maybe 5% of GDP spread out over maybe 5 years.

Y2.5tln In Pension Funding May Go To Recovery Effort

March 22 (Nikkei)— The government is entertaining a proposal to divert money supposed to cover its underfunded contributions to the basic national pension into a supplementary budget for recovering from the disaster in eastern Japan.

The draft fiscal 2011 budget contains about 2.5 trillion yen for maintaining the government’s 50% share of the pension program’s cost. This money is to be drawn from the special-account funds that have become known as the buried treasure of Kasumigaseki, the seat of Japan’s bureaucracy.

This buried treasure is under consideration in the government as a solution to the problem of paying for the recovery efforts. Cutbacks to a monthly child care subsidy and other banner policies of the ruling Democratic Party of Japan appear unlikely to free up the necessary funding, which some put at 10 trillion yen.

The proportion of the government’s annual pension contributions that can be paid out of tax revenues has risen incrementally and now stands at 36.5%. Buried treasure has been used to make up the difference since fiscal 2009.

The fiscal 2011 spending plan follows this pattern with a roughly 2.5 trillion yen top-up. About 1.2 trillion yen will come from surplus funds held by the Japan Railway Construction, Transport and Technology Agency and another 1.1 trillion yen or so from the surplus in the fiscal investment and loan program special account.

The deficit bond authorization legislation needed to use the buried treasure faces an uncertain future in the Diet. Opposition to diverting money supposed to go to the pension program is strong within the ruling coalition.

The government will consider tapping into pension fund assets to cover its fiscal 2011 contribution — something that, in the absence of a clear direction for tax reform, could weaken the program’s fiscal base.

Warren Mosler of Mosler Automotive Seeks Managing Partner

Warren Mosler of Mosler Automotive Seeks Managing Partner

Warren Mosler, founder and owner of Mosler Automotive, manufacturer of the Mosler MT900 road and race cars, has announced that he is seeking to sell a majority interest in Mosler Automotive to a managing partner. “I’m 61 years old, about to start collecting social security, and living too far away here in the US Virgin Islands to properly manage the company on a day to day basis. It’s time for me to find an enthusiast interested being on the Florida site full time and taking the reins as majority owner,” said Warren Mosler, who founded the company in 1985, “With the latest Mosler Photon road car, (winner of the Car and Driver Lightning Lap), and increased production capacity coming online, job One for the new owner/manager will be implementing a global marketing effort.”

Mosler Automotive is based in Riviera Beach in Florida, and includes Mosler Europe in Cambridgeshire in the UK, where Martin Short leads Mosler’s immensely successful international racing efforts. With over 20 teams world wide racing Moslers on circuits all over the world.

“In GT3 racing the Mosler remains very competitive around a race track compared to the latest and greatest entries from competing manufacturers including Ferrari, Porsche, and Lamborghini, despite hundreds of pounds of ballast and other restrictions to slow it down. It looks spectacular and will surely remain competitive for a very long time to come. This last weekend saw a pole and double Mosler GT3 win in Australia where 5 Moslers compete in the Australian GT Series.” said Martin Short, “In other European series, the Moslers are allowed to compete without severe restrictions, and the result is lap times many seconds a lap quicker than GT3 cars and over-all victories for the series. We are as far afield as Japan in the Super GT series.”.

Warren is willing to sell a majority interest in his company to the right buyer for a fraction of the value of the real estate and the inventory. “I want a partner who has the right stuff to keep this company on top” said Mosler.

Links:

Mosler Auto

Mosler UK

Mosler Challenge

Klark Quinn wins again in the Aussie GT series March 2011.

IMF’s Lipsky Says Advanced-Nation Debt Risks Future Crisis as Yields Set to Rise

If any of you can forward this to John please do, thanks.
We went through all this from way back in his Salomon Bros. days- he should know better.

Comments below.

Lipsky Says Advanced-Nation Debt Risks Future Crisis as Yields Set to Rise

By Kevin Hamlin

March 20 (Bloomberg) — The mounting debt burden of the world’s most developed nations, set for a post-World War II record this year, is unsustainable and risks a future fiscal crisis, the International Monetary Fund’s John Lipsky said.

The average public debt ratio of advanced countries will exceed 100 percent of their gross domestic product this year for the first time since the war, Lipsky, the IMF’s first deputy managing director, said in a speech at a forum in Beijing today.

“The fiscal fallout of the recent crisis must be addressed before it begins to impede the recovery and create new risks,” said Lipsky. “The central challenge is to avert a potential future fiscal crisis, while at the same time creating jobs and supporting social cohesion.”

John, there is no potential future fiscal crisis for nations that issue their own non convertible/floating fx currencies.

Lipsky’s view clashes with Nobel laureate Joseph Stiglitz, who told the same forum yesterday that further fiscal stimulus is needed to aid growth, and that European nations focused on austerity have a “fairly pessimistic” outlook. At stake is sustaining the developed world’s rebound without a deepening in the debt crisis that’s engulfed nations from Greece to Ireland.

Long-term bond yields could climb 100 to 150 basis points, driven by the 25 percentage point rise in sovereign debt ratios since the global financial crisis and projected increases in borrowing in coming years, according to Lipsky.

So? You know there is no solvency issue. So do you forecast increased aggregate demand, a too small output gap and too low unemployment because of that? What sense does that make???

A basis point is 0.01 percentage point. Yields on benchmark 10-year Treasury notes closed at 3.27 percent last week, with comparable-maturity German debt at 3.19 percent and Japanese bonds at 1.21 percent.

‘Unsustainably Low’

Bank of England Governor Mervyn King reiterated his view at a conference four days ago in Beijing that “long-term real interest rates are unsustainably low” in the aftermath of policy makers’ unprecedented monetary stimulus during the 2008 financial crisis.

And Professor Geoffrey Harcourt’s star pupil, of all people. Shame shame shame. What’s his problem- unemployment might get too low???

Total U.S. public debt was more than $14 trillion at the end of 2010, a 72 percent increase during five years, while Japan’s debt is about double the size of its $5 trillion economy. The European turmoil has forced policy makers to create rescue packages for Ireland and Greece.

This is slipped in now for the second time by Kevin Hamlin, the author of this article, in a way that suggests its associated with Lipsky, King, etc. though he obviously didn’t get any direct quotes from them, or he would have used them. In any case, its an inexcusable error to push the analogy that Ireland and Greece, users of the euro and not the issuer (the ECB is the issuer) are analogous to currency issuers like the US, Japan, and the UK.

While interest payments on debt have remained stable at about 2.75 percentage points of GDP over the last three years, “higher deficits and debts together with normalizing economic growth sooner or later will lead to higher interest rates,” Lipsky said. The IMF estimates fiscal deficits for developed nations will average about 7 percent of GDP this year.

The cost of repaying debt would increase by 1.5 percentage points of GDP by 2014 even if interest rates rise only about 100 basis points, Lipsky said.

And so what then? Create excess aggregate demand that would overly shrink the output gap? If so, I don’t see it in any IMF forecast?

IMF studies show that each 10-percentage-point increase in the debt ratio slows annual real economic growth by around 0.15 percentage point because of the adverse effect on investment and lower productivity growth, according to Lipsky, a former chief economist at JPMorgan Chase & Co.

He should know those studies are not applicable to what he’s talking about.

Mosler win 2 events in Australia

Klark Quinn sweeps the Vodka O Australian GT round at Clipsal 500

KLARK QUINN powered to a second win on the streets of Adelaide in his VIP Petfoods motorsport Mosler today at the Clipsal 500 to take an early lead in the 2011 Vodka O Australian GT Championship.

After tasting success by way of a dramatic victory in the one-hour Murray Walker GT Tourist Trophy race on Friday night, Quinn again led from start-to-finish in today’s 12-lap sprint race to record his second of two wins this weekend.

Guest on Reuters Insider

>   
>   (email exchange)
>   
>   Hi Warren – No, its not live. It’s going to be taped in two separate segments, and probably put
>   up on the platform on Monday. FYI, its not cable TV, but internet. We also do live shows, infact
>   most of them are live. We did a live FOMC show this week on Tuesday which included former
>   Fed governor Mark Olsen and and Bill Ford from the Atlanta Fed. We wanted to have you
>   appear on that occasion but the timing didn’t work.
>   

Link will be posted when available.