Monthly Archives: April 2011

U.S. Consumer Spending/Credit

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This is a good sign top line growth was continuing it’s modest growth in March.

Federal deficit spending continues to work to add the income and savings that allows consumers to both reduce their credit card debt and expand their consumption.

Deficit spending continues to be sufficient to support the modest GDP growth and employment growth we’ve been experiencing.

However, the risks remain as discussed at year end:

US deficit reduction efforts, with both sides agreeing that the deficit is THE problem, with some of the proposed cuts more than sufficient to trigger negative GDP growth and rising unemployment.

China’s fight against inflation leading to a hard landing.

UK and euro zone austerity measures passing the tipping point where further austerity measures slow growth sufficiently to increase national govt deficits.

Saudi crude oil price hikes both slowing world demand and triggering anti inflation responses that remove demand.

Additionally, world growth should slow by an unknown amount due to supply disruptions form the earthquake in Japan.

Consumers borrow more for student loans, new cars

April 7 (AP) — U.S. consumers borrowed more money in February to buy new cars and attend school, but they cut back on using their credit cards to make purchases. Borrowing increased by $7.6 billion, or 3.8 percent, in February. It was the fifth consecutive monthly gain. The category that includes car loans and student loans increased 7.7 percent. Borrowing in the category that covers credit cards fell 4.1 percent. That has risen only once in the more than two years since the 2008 financial crisis peaked. The gains pushed total borrowing up to a seasonally adjusted annual rate of $2.42 trillion in February. That’s 1 percent from the three-year low hit in September.

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UMKC Honor Roll: MMT/PH.D Graduate Students

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A very special thanks to all of you who help support our grad students.

As you can see from the attached list, many are now out spreading the word at the university level.

Also, Jim is still open to donations to the UMKC Ph.D program.

Hi Warren

I hope this finds you well.


I confess to exasperation with the economic nonsense about debt and deficits—and much else. I don’t know if its mendacity or stupidity—both perhaps. Those in office who know better, or should, are not stepping up and the steam roller moves on.

On a brighter note our department is a joy. The faculty are busy and doing good things and our students are the best ever. We now have 52 Ph.D. students, the largest program in the region, and have admitted several for next year. The masters program has 84 students, an all time high. The best master’s students often apply for the Ph.D. The faculty and students in our department have invested a great deal to build what we consider a highly successful program. I have attached a list of our Ph.D. graduates. You can see from the list they are doing well. Many are teaching and helping spread the ideas they learned at UMKC. They also send us students so we have a positive feedback going. With your support and intellectual commitment our department occupies an important spot in economics education.

Also I wanted you to know that 2011-12 will be my last year as chair. I am going to teach more and try to finish several papers and a book that have languished too long.

Warmest regards
Jim

Ph.D Grads

Willadee Waymeyer – Mid America Nazerene University
Jennifer Golec
Lana Ellis
Zarniah Hamid – University of Malayasia
Zohrah Nikina – University of California-Berkeley
Mutaz Nabulsi – Sprint Corporation
Nickolas Pologeorgous
Jason White – Northwest Missouri State University
Kurt Kruger – John Ward Associates
Doug Bowles – University of Missouri-Kansas City
Myles Gartland – Rockhurst University
Linwood Tauheed – University of Missouri-Kansas City
John Jumara – Park University
Robert Scott – Monmouth State
Jairo Parada – Colombia Federal University
Joelle Leclaire – Buffalo State University
Eric Tymoigne – Lewis and Clark College
Fadell Kaboub – Denison College
Robert Spalding – U.S. Air Force
Zadravka Todorova – Wright State University
Doug Meador – St. Francis University
Yan Liang – Willamette University
Ta He Jo – Buffalo State University
Linda Hauner – Commerce bank
David Harris – Benedictine College
Pavlina Tcherneva – Franklin & Marshall College
Michael Murray – Central College, Iowa
Jeremy O’Connor – Rockhurst University
Felipe Rezende – Hobart & William Smith
Flavia Dantes – Cortland College, New York

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Wray- the currency as a public monopoly

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Good to see this- been suggesting it for quite a while.

Working Paper No. 658, March 2011

Keynes after 75 Years: Rethinking Money as a Public Monopoly

L. Randall Wray

Economists and government policymakers fail to recognize that money is a public monopoly. The result of this misunderstanding is unemployment and inflation, says Senior Scholar L. Randall Wray. The best way to operate a money monopoly is to set the “price” and let the “quantity” float, as exemplified by Hyman P. Minsky’s universal employer-of-last-resort program.

Understanding how a monopoly money works would advance public policy formation a great deal, says Wray. And since banks are given the power to issue government money, failure to constrain what they purchase fuels speculative bubbles that are ultimately followed by a crash. The real debate should be over the proper role of government—how it should use the monetary system to achieve the public purpose.

ABSTRACT:
In this paper I first provide an overview of alternative approaches to money, contrasting the orthodox approach, in which money is neutral, at least in the long run; and the MarxVeblen-Keynes approach, or the monetary theory of production. I then focus in more detail on two main categories: the orthodox approach that views money as an efficiency enhancing innovation of markets, and the Chartalist approach that defines money as a creature of the state. As the state’s “creature,” money should be seen as a public monopoly. I then move on to the implications of viewing money as a public monopoly and link that view back to Keynes, arguing that extending Keynes along these lines would bring his theory up to date.

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Repost of my press release from August 2010

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Unfortunately it’s unfolding as feared.

MOSLER FOR SENATE

Tea Party’s Economic Agenda Would Cause Next Great Depression
Says Former Tea Party Democrat



Waterbury, CT – August 30, 2010, Warren Mosler, Independent candidate for US Senate, former Tea Party Democrat, and frequent speaker at Tea Party rallies, lashed out today at the political movement for its ill-thought demands to balance the budget which he contends is based on abject ignorance and counter to true Tea Party values. “The Tea Party’s demands to balance the budget and reduce the Federal deficit aren’t merely misguided, but dangerous, and would cause the worst depression in history,” stated Mosler, a financial expert with 37 years of experience in monetary operations. “I have been, and continue to be, a strong supporter of the core Tea Party values of lower taxes, limited government, competitive market solutions, and a return to personal responsibility. However, their proposals to balance the budget are the same suicidal policies that caused the 6 horrible depressions in the U.S. over the past 200 years. At the worst possible time to take money out of the economy, the Tea Party’s proposals would remove an estimated $1 trillion and cause the worst depression in world history, destroying tens of millions of jobs and ruining our children’s future.”

Explanation of the Modern Monetary System
Modern money, after the demise of the gold standard, is akin to a spreadsheet that simply works by computer. As Fed Chairman Bernanke explained on national television on 60 minutes, when the government spends or lends, it does so by adding numbers to private bank accounts. When it taxes, it marks those same accounts down. When it borrows, it simply shifts funds from a demand deposit (called a reserve account) at the Fed to a savings account (called a securities account) at the Fed. The money government spends doesn’t come from anywhere, and it doesn’t cost anything to produce. The government therefore cannot run out of money, nor does it need to borrow from the likes of China to finance anything. To better understand this, think about when a football team kicks a field goal; the number on the scoreboard goes from 0 to 3. Does anyone wonder where the stadium got those 3 points, or demand that the stadium keep a reserve of points in a “lock box”?

Moreover, government deficits ADD to our savings – to the penny – as a fact of accounting, not theory or philosophy. This means the Mosler payroll tax (FICA) holiday will directly increase incomes and savings, thus fixing the economy from the bottom up. For example, if the Mosler tax cut amounts to $20 billion per week, that will be the exact increase in income and savings for the rest of us as anyone in the Congressional Budget Office will confirm. For the Federal government, taxes don’t serve to collect revenue but are more like a thermostat that controls the temperature of the economy. When it is too hot, raising taxes will cool it down. And in this ice-cold economy, a very large tax cut is needed to warm the economy back up to operating temperature.

While Mosler fully supports the Tea Party desire to cut taxes, and recognizes the need to cut wasteful and unnecessary spending – in fact, his economic proposals will save the government hundreds of billions of dollars of unnecessary interest expense – he also recognizes that tax cuts have to be much larger than spending cuts in order to ensure that less money is taken out of the economy, and not more as the Tea Party is currently demanding.

About Warren Mosler
Warren Mosler is running as an Independent. His populist economic message features: 1) a full payroll tax (FICA) holiday so that people working for a living can afford to buy the goods and services they produce. 2) $500 per capita Federal revenue distribution for the states 3) An $8/hr federally funded job to anyone willing and able to work to facilitate the transition from unemployment to private sector employment. He has also pledged never to vote for cuts in Social Security payments or benefits. Warren is a native of Manchester, Conn., where his father worked in a small insurance office and his mother was a night-shift nurse. After graduating from the University of Connecticut (BA Economics, 1971), and working on financial trading desks in NYC and Chicago, Warren started his current investment firm in 1982. For the last twenty years, Warren has also been involved in the academic community, publishing numerous journal articles, and giving conference presentations around the globe. Mosler’s new book “The 7 Deadly Innocent Frauds of Economic Policy” is a non technical guide to the actual workings of the monetary system and exposes the most commonly held misconceptions. He also founded Mosler Automotive, which builds the Mosler MT900, the world’s top performance car that also gets 30 mpg at 55 mph.
Learn more at www.moslerforsenate.com


Media Contact:
Will Thompson
(267) 221-6056
will@hedgefundpr.net

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Obama and McConnell

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Stupid headline and stupid response.

Unemployment is a macro problem, and cutting spending does’t create jobs.

It’s the continuing saga of the blind leading the blind.

Looking for $31 billion in federal spending cuts this week.
And that’s just a down payment.

Obama: Shift From Foreign Oil Will Help Create More Jobs

April 2 (AP) — President Barack Obama says shifting the U.S. away from imported oil and toward cleaner forms of energy will add momentum to a trend that has led to 1.8 million new jobs in the past 13 months.

Obama used his weekly radio and Internet address Saturday to promote his ideas for bringing down gasoline prices by decreasing U.S. dependence on foreign oil. A blueprint he outlined in a recent speech calls for increasing domestic oil exploration and production, making cars and trucks more energy efficient and building vehicles that run on alternative fuels or electricity.

Noting that the U.S. doesn’t have enough oil reserves to meet its needs, he set a goal of reducing imports by one-third by 2025.

“By doing so, we’re going to make our economy less vulnerable to wild swings in oil prices,” Obama said. “We’re going to use cleaner sources of energy that don’t imperil our climate. And we’re going to spark new products and businesses all over the country by tapping America’s greatest renewable resource: our ingenuity.”

The address was Obama’s third in recent days on the issue. On Wednesday, he travels to the Philadelphia area to visit an arm of the Spanish company Gamesa, maker of giant turbines that generate electricity from wind.

Oil prices have climbed because of increasing demand in China and instability in some oil-producing countries in the Middle East. That, in turn, has pushed U.S. gasoline prices to new highs. The national average for a gallon of gas hit $3.619 on Friday, the highest price ever for this time of year, according to AAA and other sources. Prices have climbed 23.2 cents in the past month and more than 81 cents in the past year.

Senate Republican leader Mitch McConnell agreed with Obama on encouraging more domestic energy production. But he accused the administration of stifling that industry’s growth by canceling drilling leases, halting drilling off the Gulf Coast after last summer’s oil spill and increasing permit fees.

“As a result, thousands of U.S. workers have lost their jobs, as companies have been forced to move their operations overseas. That must end,” the Kentucky Republican said. “We must do more to find energy here at home, and the jobs that go with it.”

Obama said that sparking new products and businesses during a transition away from imported oil will help create jobs. The government reported Friday that 230,000 private sector jobs were created in March, bringing the total number created in the past 13 months to 1.8 million. The national unemployment rate also dipped to a two-year low of 8.8 percent last month.

“That’s a good sign,” Obama said. He recorded the address at a UPS shipping facility in suburban Maryland, where he examined all-electric and hybrid vehicles used by AT&T, Verizon, PepsiCo and other companies.

“But we have to keep up the momentum, and transitioning to a clean energy economy will help us do that,” Obama said.

House Speaker John Boehner, R-Ohio, focused his party’s weekly message on steps he said the government must take to encourage small businesses to create jobs. Among those steps are continuing to cut spending, blocking tax increases, reducing the bureaucracy and eliminating regulations. Boehner once owned a small plastics and packaging business in Ohio.

Boehner said Congress also needs to pass a bill funding the government through Sept. 30, when the budget year ends, and avoid a shutdown. The government’s authority to spend money expires next Friday.

“Washington’s inability to get spending under control is creating uncertainty for our job creators,” Boehner said. “It’s discouraging investment in small businesses and eroding confidence in our economy. To put it simply, the spending binge in Washington is holding our country back and keeping our economy from creating jobs.”

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social security solvency

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>   
>   (email exchange)
>   
>   Joe wrote:
>   
>   The argument Stephanie used in the youtube clip is summarized by her here.
>   
>   Here’s the quote:

“Funding Social Security is always and everywhere a political choice. The strongest evidence of this comes directly from the 2009 Annual Report of the Trustees. In that report, they predict gloom and doom for Social Security because “there is no provision in current law that would enable full payment of benefits, once the Trust Funds are exhausted”.

In contrast, the Supplementary Medical Insurance (SMI) Trust Funds are “both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet next year’s expected costs.”

It is that simple. The former is in ‘trouble’ because the government isn’t committed to making the payments, and the latter gets a clean bill of health because the government will always make the payments.”

>   
>   I think this really underlines how arbitrary the projections of financial doom from the
>   Peterson crowd, CBO, and other Government agencies are. Apart from the silly and
>   unreliable projections as far out as 25-65 years from now, the predictions of doom are
>   really based on provisions in law that Congress can change at any time. Which means that
>   just like the fake national debt crisis, the fake Social Security solvency crisis is
>   Congress’s fault.
>   
>   Washington politics at its finest.
>   

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Charts that look like demand isn’t booming

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Charts that Say Demand Isn’t Doing Much of Anything

Yes, there’s modest top line growth, but not a lot of evidence anything more than that is likely to happen any time soon, especially with global post earthquake issues, US fiscal cutbacks of at least $31 billion as a ‘down payment’ next week, Japan showing no inclination to rebuild without ‘paying for it’, UK austerity kicking in for real this month, continued tightening in the euro zone, and China still fighting inflation with spending and lending cuts.

Q1 GDP now forecast with a 2 handle, and manufacturing, though sort of strong, is only about 11% of GDP and considerable slack remains.

Given the more than 2 years of positive headline GDP growth, gasoline demand, previously a pretty good coincident indicator, is looking pretty flat.

Saudi crude production has been increased to make up for lost Libyan output, and not due to an increase in world demand.

These series are doing ok, but no sign of accelerating demand. In fact the growth rates are less than they were when the output gap was a whole lot smaller in 06 and 07.

No sign of demand picking up here.

Consumer buying plans don’t look inspiring either, which makes sense with rising food and fuel prices.

With ‘normal’ credit conditions, govt deficits would be plenty high for us to be doing a lot better than this by now.

So given today’s credit conditions, seems to me govt deficits are far too small to see much progress on the demand side, and tightening fiscal at this point only makes that more so.

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Employment report

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From Goldman:

There were a few modest weak spots in the report. First, average hourly earnings were unchanged for a second month. Second, the average work week failed to increase. Although this was expected by the consensus, worker hours remain below pre-recession levels and should be gradually rising over time. Third, the average duration of unemployment rose to a new high of 39.0 weeks (note that a methodological change at the start of this year lifted the mean duration of unemployment). Fourth, diffusion indexes reflecting the proportion of sectors with rising employment were generally soft.

And it’s rear view mirror

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