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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 June, 2011

Bloomberg TV Interview

Posted by WARREN MOSLER on 30th June 2011

From Bloomberg:

“…the possibility of Geithner resigning is dominating our coverage tomorrow, and I’d hate for you to get shorted your appropriate time. Would it be possible to reschedule for Tuesday? We really think you have a great story, and would love to share it with our audience.”

Posted in Uncategorized | 24 Comments »

Warren on BB TV tomorrow at 0614

Posted by WARREN MOSLER on 30th June 2011

>   
>   Warren will be interviewed on Bloomberg TV by Erik Schatzker tomorrow at 0614 on his new
>   refinancing plan for Greece
>   

Posted in Proposal | 3 Comments »

The Mosler Plan for Greece

Posted by WARREN MOSLER on 29th June 2011

The Mosler Plan, as previously posted on this website, is now making the rounds in Europe as an alternative to the French Plan that is currently under serious consideration:

Abstract
The following is an outline for a proposed new Greek government bond issue to provide all required medium term euro funding for Greece on very attractive terms.

The new bond issue includes an addition to the default provisions that eliminates the risk of loss to investors. The language added to the default provisions states that while in default, and only in the case of default, these transferable securities can be used directly, by the bearer on demand, at face value plus accrued interest, for payment of any debts, including taxes, owed to the Greek government.

By eliminating the risk of loss, Greece will be able to independently fund all required financial obligations in the market place for the foreseeable future. The immediate benefits are both reduced interest costs that substantially contribute to deficit reduction, and the elimination of the need for the funding assistance from the European Union and the IMF.

Introduction- Restoring National Sovereignty
Current institutional arrangements have resulted in Greece being faced with escalating interest costs when it attempts to fund itself in the market place, to the point where timely funding is not currently available without external assistance. This requirement for external assistance to avoid default has further resulted in a loss of sovereignty, with the EU and IMF offering funding only on their approval of deficit reduction plans by the Greek government that meet specific requirements. Compliance with these demands from the EU and IMF not only include tax increases, spending cuts, and privatizations, but also include aggressive time lines for achieving their deficit reduction goals. It is also understood by all parties that the immediate near term consequences of these imposed austerity measures will include further slowing of the economy, and rising unemployment.

Greece will restore national sovereignty, and regain control of the process of full compliance with the general EU requirements for all member nations, only when it restores its financial independence. Financial independence will allow Greece to again be master of its own destiny, on an equal basis with the other EU members. And the lower interest rate that result(s) from this proposed bond issue will itself be a substantial down payment on the required deficit reduction, easing the requirements for tax increases, spending cuts, and privatizations.

While this proposal restores Greek national sovereignty, and eases funding burdens, we recognize that it is only the first step in restoring the Greek economy. Even with funding independence and low interest rates the Greek government still faces a monumental task in bringing Greece into full compliance with EU requirements and restoring economic output and employment. However, it should also be recognized that financial independence and low cost funding are the critical first steps to long term success.

The Bond Issue- No Risk of Financial Loss
Market based funding at the lowest possible interest rates requires investors who understand there is no ultimate risk of financial loss, and that the promise to pay principal and interest by the issuer is credible. To be credible, a borrower must have the means to meet all contractual euro obligations on a timely basis. For Greece this has meant investors must have the confidence that Greece can generate sufficient revenues through taxing and borrowing to repay its debts.

The credit worthiness of any loan begins with the default provisions. While there may be unconditional promises to pay, investors nonetheless value what their rights are in the event the borrower does not pay. Corporate debt often includes rights to specific collateral, priorities in specific revenues, and other credit enhancing support.

The new proposed Greek bond issue, with its provision that in the event of default the bonds can be used at face value, plus interest, for the payment of taxes by the bearer on demand, gives the bond holder absolute assurance that full maturity value in euro can always be achieved. And with this absolute assurance that these new securities are necessarily ‘money good’ the ability to refinance is established which dramatically reduces the risk of the default provisions actually being triggered. And, again, should there be a default event, the investor will still get full value for his investment as the entire euro value of the defaulted securities can be used at any time for the payment of Greek taxes. So while this discussion concerns the case of default, the removal of the risk of loss means there will always be demand for them at near risk free market interest rates, and that the default discussion is, for all practical purposes, hypothetical.

These new Greek government bonds will be of particular interest to banks, which, again, encourages bank ownership, which makes default that much more remote a possibility. This is because, in the case of default, a bank holding any of these defaulted securities will be able to use them for payment of taxes on behalf of bank clients (using that bank for payment of their taxes). Under these circumstances, a bank depositor client making payment of euro would, in effect, simultaneously buy the defaulted securities from the bank and use them to pay the Greek government taxes due. Again, the fact that the bank would be fully paid for its defaulted securities in the process of depositors paying their taxes means there will be no default in the first place, as these favorable consequences mean there will be continuous demand for new securities of this type at competitive market interest rates, to facilitate all Greek refinancing requirements.

The new ‘money good’ Greek bonds will be attractive to all global investors, both private and public. This will include international banks, insurance companies, pension funds, and other private investors, as well as sovereign wealth funds and foreign central banks which are accumulating euro reserves.

Fiscal Responsibility
As a member in good standing of the European Union, Greece, like all the member nations, is required to be in full compliance of all EU requirements. Therefore, while this proposal will restore national sovereignty, financial independence, and lower interest rates for Greece, austerity measures will continue to be required to bring Greece into EU compliance. However, Greece will gain substantial flexibility with regard to timing and other specific detail, and will be able to work to achieve its goals in an organized, orderly manner, without the continued pressures of default risk and without the specific terms and conditions currently being demanded by the EU and the IMF. Nor will the ECB be required to buy Greek bonds in the market place, obviating those demands as well.

Posted in Bonds, EU, Germany, Political, Proposal | 286 Comments »

Global indicators not so good this am

Posted by WARREN MOSLER on 29th June 2011

The hope is that the entire soft spot is a temporary consequence of the earthquake, and that China holds together, and that global austerity isn’t sufficient to slow overall growth:

Headlines:

Bank of England warns against quick fix to crisis (AP)
U.K. Services Drop Most Since January 2010 on Extra Holiday (Bloomberg)
U.K. Mortgage Approvals Increased Less Than Forecast in May (Bloomberg)
Bank of England Split on Interest Rate Policy as Consumers Struggle (Telegraph)
PBOC Adviser Sees China ‘Chronic’ Inflation Lasting Decade
Why China’s Heading for a Hard Landing, Part 3: A. Gary Shilling
Sweden: Slowdown After Strong Growth
Europe June Economic Confidence Drops to Lowest in 8 Months
Trichet Urges New Vision of Europe as Greeks Protest Austerity
Up to 15 EU banks to fail stress test
ECB’s Stark Rejects Brady-Bond Solution for Greece, Zeit Reports
French Greek Rollover Plan Depends on No Default Rating
French Output Grew Less Than Estimated on Consumer Spending
Growth of German retail sales maintained in June
French Jobless Claims Increase for First Time in Five Months
Spanish premier proposes new economic measures
Portugal plans tougher austerity measures
Spanish Existing Home Prices Decline 1.8% in Second Quarter
Mortgage Applications Dipped Last Week

Posted in China, ECB, EU, USA | 32 Comments »

mtg apps dip

Posted by WARREN MOSLER on 29th June 2011

How does that go again about low rates helping housing?

Mortgage Applications Dipped Last Week

June 29 (Reuters) — Applications for U.S. home mortgages slipped last week as demand waned, even as mortgage rates dropped, an industry group said Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 2.7 percent in the week ended June 24.

The MBA’s seasonally adjusted index of refinancing applications fell 2.6 percent, while the gauge of loan requests for home purchases lost 3.0 percent.

The refinance share of mortgage activity increased to 69.5 percent of total applications from 69.2 percent the week before.

Fixed 30-year mortgage rates averaged 4.46 percent in the week, down from 4.57 percent.

Posted in Fed, Housing, Interest Rates | 2 Comments »

DJ OPEC Secretary General: Sees No Good Reason For IEA Oil

Posted by WARREN MOSLER on 27th June 2011

Looks like some OPEC infighting.

The only way OPEC could block Saudi attempts to lower price would be production cuts beyond the Saudi’s ability to increase supply.

In the past, OPEC has never actually been able to do that, as apart from the Saudis the rest pretty much always pump flat out even after they agree to cut.

I suspect the Saudis and Obama also know Lybia will be back online soon with another 1 million barrels a day make it that much more problematic for the rest of OPEC to cut sufficiently to get the price up.

And the US and the Saudis probably also know world demand is falling short of forecasts, or they probably wouldn’t have undertaken the price cutting actions.

*DJ OPEC Secretary General: Sees No Good Reason For IEA Oil Release
*DJ OPEC Secy Genl: Wants Immediate Cessation Of Stocks Release
*DJ OPEC President Ready To Call Emergency Meeting If Needed
*DJ OPEC President: Hopes Oil Market Won’t Warrant Emergency Meeting

Posted in Comodities, Oil | 3 Comments »

China real estate comments

Posted by WARREN MOSLER on 27th June 2011

Yes, China understands it’s unlimited ability to support demand through deficit spending that includes funding through state owned banks.

The limits are their tolerance of inflation.

The question remains whether they can deliver a soft landing, rather than a hard landing, in their efforts to dampen inflation.

While theory says it’s possible, I’ve never seen it.

Other analysts say there are far more leveraged purchases of real estate than recognized in the official statistics.

To fight the effects of the global downturn, Chinese state-owned banks, on government orders, loaned about $3 trillion, mostly to giant state-owned enterprises. The money was reported to have largely financed infrastructure projects, such as China’s ambitious high-speed railway network.

But many of the loans wound up financing real-estate purchases instead, said Deng Yongheng, director of the Institute of Real Estate Studies at the National University of Singapore.

Prices at auctions for residential land in eight major cities doubled in 2009, largely because of highly leveraged purchases by state-owned companies, he and three co-authors calculate. In March 2010, state-owned companies bid up the price of one piece of Beijing land to 10 times the asking price, according to one analyst.

The magnitude of the leveraged purchases is hard to gauge.

One indication: Shortly after the Beijing land sale, the Chinese agency that oversees state-owned companies, ordered 78 firms–whose charters had nothing to do with real estate–to cease buying and selling property. Nearly a year later, in Feb. 2011, state-owned Xinhua news agency reported that just 14 firms had left the business and another 20 were expected to get out later in the year.

A spokesman for the agency said that the firms needed time to finish their projects, but added that there isn’t any prohibition against companies owned by provinces or municipalities to continue to invest in real estate.

Posted in China | 8 Comments »

Post-Quake Reconstruction Panel Calls for Tax Hikes

Posted by WARREN MOSLER on 27th June 2011

Nothing changes, seems:

Post-Quake Reconstruction Panel Calls for Tax Hikes

(Dow Jones) The Reconstruction Design Council issued a report Saturday recommending higher taxes to finance the recovery effort in areas hit hardest by the massive earthquake and tsunami. The panel set broad guidelines for resuscitating a huge swath of the country’s northeastern–an undertaking that will cost an estimated more than Y10 trillion ($125 billion). To pay for cleanup and recovery efforts, the council proposed temporary hikes in “core” taxes to redeem new “recovery bonds” backed by the full faith and credit of the government. It also called for a publicly-funded “loan assistance” facility to foster private investment, and special economic zones with less regulation and lower taxes to attract investment in agriculture and industry.

Posted in Japan | No Comments »

Comment

Posted by WARREN MOSLER on 26th June 2011

Comment:

Side note: I called “on point” on NPR last week to challenge the guest viz his talk of US default, etc. The guy who manages the phone calls told me I don’t know anything about money, and that of course the debt crisis is just that and that the US could certainly default. He would not put my call on the air. The obstacles to getting the message out are everywhere.

Posted in Deficit, Government Spending | 68 Comments »

US stimulus efforts curbed by deficit: Geithner

Posted by WARREN MOSLER on 26th June 2011

Leave it to Geithner to compound the absurdity in new directions:

US stimulus efforts curbed by deficit: Geithner

The massive US budget deficit means the United States will be unable to use deficit spending to stimulate the economy for many years to come, Treasury Secretary Timothy Geithner said Friday.

“It’s not going to be possible in the next decade. We’ve lost the chance,” Geithner told a conference in New Hampshire.
“We no longer have the luxury of that approach.”

Geithner said the $787 billion dollar economic stimulus passed in 2009 by Congress “was absolutely timely” but a temporary effort in response to the economic crisis.

“We’ll have at some point to pay that debt,” he said.

His comments come amid an impasse between the US administration and Republican lawmakers on curbing the budget deficit and lifting the debt ceiling to allow additional US borrowing.

The collapse of the talks on Thursday sparked fears that Congress will fail to raise the $14.29 trillion debt ceiling by an August 2 deadline and force the United States into a default which could trigger global economic shockwaves.

Currently, the US budget deficit is forecast to reach $1.6 trillion this year.

Posted in Deficit, Government Spending | 29 Comments »

Crude prices

Posted by WARREN MOSLER on 24th June 2011

Looks like the Saudis left the OPEC meeting saying they wanted crude 80-90 and didn’t need OPEC to do it.

The Saudis realize that to stay in power they need Obama’s support.

This latest move is an understanding with Obama to give him all the credit and keep the fact that the Saudis are price setters out of the headlines.

And there is probably an understanding that the Saudis will keep the price low enough so the US can later refill the reserve at the lower prices.

Posted in Comodities, Oil | 8 Comments »

Majority Leader Eric Cantor (R-VA) regarding a balanced budget amendment

Posted by WARREN MOSLER on 24th June 2011

RIP
USA
:(

House Majority Leader Eric Cantor (R-VA) today issued the following statement regarding House consideration of a balanced budget amendment, H.J. Res. 1, sponsored by Congressman Bob Goodlatte:

“We are being asked by the Obama Administration to approve a debt limit increase. While President Obama inherited a bad economy, his overspending and failure to enact pro-growth policies have made it worse and now our national debt is currently more than $14 trillion. House Republicans have made clear that we will not agree to raise the debt limit without real spending cuts and binding budget process reforms to ensure that we don’t continue to max out the credit card. One option to ensure that we begin to get our fiscal house in order is a balanced budget amendment to the Constitution, and I expect to schedule such a measure for the House to consider during the week of July 25th. I have no doubt that my Republican colleagues will overwhelmingly support this common sense measure and I urge Democrats to as well in order to get our fiscal house in order.”

Posted in Deficit, Government Spending, USA | 50 Comments »

quick update

Posted by WARREN MOSLER on 23rd June 2011

First, a few of today’s headlines to set the mood:

China factory sector close to stalling – Flash PMI
Europe Services, Manufacturing Weaken More Than Forecast
France’s Manufacturing, Services Growth Slows More Than Forecast
Trichet Says Risk Signals ‘Red’ as Crisis Threatens Banks
Italian Household Confidence Falls Amid Concerns on Growth, Jobs
U.K. Retail-Sales Index Declines to Lowest in a Year, CBI Says

Deficit-Cut Talks Hit Roadblock, Cantor Exits
Jobs Picture Grows Worse as Weekly Claims Post Jump
New US Home Sales Fall 2.1 Percent in May
Fed Slashes Growth Forecast, Sees High Unemployment
Oil Prices Plunge

It’s all unfolding like a slow motion train wreck.
The underlying deflationary forces were temporarily masked when QE2, under the misconception that it was somehow inflationary, caused global portfolio managers to exit the dollar, both directly and indirectly.

But now that psychology is fading, as the global lack of aggregate demand revealing the actual spending power just isn’t there to support things at the prices managers paid to place their bets.
And the next ‘really big shoe’ (as Ed Sullivan used to say) to fall could be China, as they move into their traditionally weaker second half.

Which looks to be closely followed by the US as some kind of austerity is passed by Congress, further supported by continuing austerity in the UK and the euro zone, and the setback in Japan and much of the rest of the world from the earthquake, and not to mention Brazil and India attempting to fight inflation.

Yes, the lower crude and product prices will help the consumer, but prices were lowered in reaction to a weakening consumer, so seems more likely they will slow the decline some rather than reverse it.

Posted in China, Comodities, Inflation | 12 Comments »

CBO Congressional Report- U.S. Could Face European-Style Debt Crisis

Posted by WARREN MOSLER on 23rd June 2011

How about the accounts sticking to accounting.

Just in case you thought there was any hope:

But most ominously, the CBO report warns of a “sudden fiscal crisis” in which investors would lose faith in the U.S. government’s ability to manage its fiscal affairs. In such a fiscal panic, investors might abandon U.S. bonds and force the government to pay unaffordable interest rates. In turn, the report warns, Washington policymakers would have to win back the confidence of the markets by imposing spending cuts and tax increases far more severe than if they were to take action now.

U.S. Could Face European-Style Debt Crisis: Congressional Report

June 22 (AP) — The rapidly growing national debt could soon spark a European-style crisis unless Congress moves forcefully, the Congressional Budget Office warned Wednesday in a study that underscores the stakes for a bipartisan group working on a plan to reduce red ink.

Republicans seized on the non-partisan report to renew their push to reduce costs in federal benefit programs such as Medicare — the federal government health care program that benefits the elderly.

The report said the national debt, now $14.3 trillion, is on pace to equal the annual size of the economy within a decade. It warned of a possible “sudden fiscal crisis” if it is left unchecked, with investors losing faith in the U.S. government’s ability to manage its fiscal affairs.

Democrats and Republicans have been stepping up budget talks aimed at averting what could be the disastrous first-ever default on U.S. government debt. A bipartisan group led by Vice President Joe Biden tasked with reaching an agreement has not made the politically difficult compromises on the larger issues, such as changes in Medicare, or tax increases.

The study reverberated throughout the Capitol as Biden and negotiators and senior lawmakers spent several hours behind closed doors. The talks are aimed at outlining about $2 trillion in deficit cuts over the next decade, part of an attempt to generate enough support in Congress to allow the Treasury to take on new borrowing.

Biden made no comment as he departed, except to say the group would meet again on Thursday and probably Friday as well.

The CBO, the non-partisan agency that calculates the cost and economic impact of legislation and government policy, says the nation’s rapidly growing debt burden increases the probability of a fiscal crisis in which investors lose faith in U.S. bonds and force policymakers to make drastic spending cuts or tax increases.

“As Congress debates the president’s request for an increase in the statutory debt ceiling, the CBO warns of a more ominous credit cliff — a sudden drop-off in our ability to borrow imposed by credit markets in a state of panic,” said Republican House Budget Committee Chairman Paul Ryan.

The findings aren’t dramatically new, but the budget office’s analysis underscores the magnitude of the nation’s fiscal problems as negotiators struggle to lift the current $14.3 trillion debt limit and avoid a first-ever, market-rattling default on U.S. obligations. The Biden-led talks have proceeded slowly and are at a critical stage, as Democrats and Republicans remain at loggerheads over revenues and domestic programs like Medicare and Medicaid.

With Republicans insisting that the level of deficit cuts at least equal the amount of any increase in the debt limit, it would take more than $2 trillion in cuts to carry past next year’s elections. House Republican leaders have made it plain they only want a single vote before the elections.

That $2 trillion-plus goal is proving elusive. And a top Senate Democrat warned Wednesday that it would be insufficient anyway.

“While I am encouraged by the bipartisan nature of the leadership negotiations being led by Vice President Biden, I am concerned by reports the group may be focusing on a limited package that will not fundamentally change the fiscal trajectory of the nation,” said Senate budget Committee Chairman Kent Conrad, a Democrat. “That would be a mistake.”

Democratic leaders, however, held a news conference Wednesday to argue for more economic stimulus measures such as a proposal floated by the White House to extend a payroll tax cut enacted last year. The move demonstrates the continuing appeal of deficit-financed policy solutions — suggested even as warnings of the dangers of mounting debt grow louder and louder.

“We absolutely need to reduce our deficit. We know that,” said Demoratic Senate Majority Leader Harry Reid. “But economists tell us that reducing spending is only half the equation. The other half is measures to create jobs.

President Barack Obama planned to meet with House Democratic leaders Thursday to discuss the status of the deficit reduction talks. The meeting comes as Democrats want the president to rule out Medicare benefit cuts as part of any budget deal.

The White House said the meeting will address deficit reduction through a “balanced framework,” a term the White House uses to describe cuts in spending coupled with increased tax revenue.

With the fiscal imbalance requiring the government to borrow more than 40 cents of every dollar it spends, the CBO predicts that without a change of course the national debt will rocket from 69 percent of gross domestic product this year to 109 percent of GDP — the record set in World War II — by 2023.

The CBO’s projections are based on a scenario that anticipates Bush-era tax cuts are extended and other current policies such as maintaining doctors’ fees under Medicare are continued as well. The debt would be far more stable under the budget office’s official “baseline” that assumes taxes return to Clinton-era rates and that doctors absorb unrealistic fee cuts.

Economists warn that rising debt threatens to devastate the economy by forcing interest rates higher, squeezing domestic investment, and limiting the government’s ability to respond to unexpected challenges like an economic downturn.

But most ominously, the CBO report warns of a “sudden fiscal crisis” in which investors would lose faith in the U.S. government’s ability to manage its fiscal affairs. In such a fiscal panic, investors might abandon U.S. bonds and force the government to pay unaffordable interest rates. In turn, the report warns, Washington policymakers would have to win back the confidence of the markets by imposing spending cuts and tax increases far more severe than if they were to take action now.

Posted in Bonds, Deficit, Government Spending | 32 Comments »

Bernanke’s press conference

Posted by WARREN MOSLER on 22nd June 2011

First, the Chairman’s comments along the lines of ‘addressing our long term deficit problem will lower the risk of interest rates spiking’ yet again clearly demonstrated our Fed Chairman remains lost in some kind of fixed exchange rate paradigm, and is steering things accordingly, both directly with Fed policy and indirectly with his advice to Congress, all of which continues to work to keep the output gap as high as it is.

Anyway, here’s my take on what’s happening, as per the Chairman:

Things have changed since QE2.

Job growth has increased, and unemployment is forecast to come down over time.

And inflation indicators have bottomed and turned up some, perhaps a bit too high short term, but are forecast to come back down to desired levels, given, as always assumed in Fed forecasts, appropriate monetary policy. And right now appropriate monetary policy means no more qe.

in other words, the room for further ‘monetary stimulus’ isn’t there.
it might interfere with the hoped for transient nature of recent cpi increases and not allow the cpi to come back in line with desired levels

that is, the Fed doesn’t see the risk/reward suggesting pushing any harder.

Which is exactly what China wanted to hear, but that’s another story.

Lastly, it was again stated the Fed hasn’t run out of bullets (as if it ever had any bullets), yet open options mentioned didn’t seem at all meaningful. And the Chairman maintained that because inflation is a monetary phenomena the Fed can always create inflation. Nice slogan, but talk is cheap, and so far the only inflation they’ve created is that of scaring portfolio managers out the dollar, which works until they cover their shorts in the broad sense, and that transitory inflation, as the Fed calls it, reverses.

None of this bodes well for aggregate demand.

My macro view remains the same-

because we fear becoming the next Greece, we continue to work turn ourselves into the next Japan.

Posted in Employment, Fed, GDP | 6 Comments »

Innocent fear mongering from St. Louis Fed’s Bullard

Posted by WARREN MOSLER on 22nd June 2011

This is bad beyond description, as it displays total ignorance of the difference between interest rate determination in fixed vs floating exchange rate regimes, which may be the only thing standing between this disaster of an economy and unimaginable prosperity.

Worse is that it goes unchallenged, apart from the still relatively small MMT community.

Fed Frets Over U.S. Fiscal Recklessness

Lawmakers and investors shouldn’t take comfort in low U.S. borrowing costs because markets are often “complacent” about the risk from excessive deficit spending, said James Bullard, president of the Federal Reserve Bank of St. Louis.

“When it does blow up it will be too late,” Bullard said in an interview last month in New York. “When markets lose confidence in the U.S. and say that they don’t trust us any more, rates will skyrocket and the crisis will be upon you.”

Posted in Credit, Fed | 25 Comments »

Japan- Noda Pledges to Build Consensus on Doubling Japan Sales Tax

Posted by WARREN MOSLER on 21st June 2011

You’d think they’d know better by now:

Noda Pledges to Build Consensus on Doubling Japan Sales Tax

By Toru Fujioka

June 21 (Bloomberg) — Japanese Finance Minister Yoshihiko Noda said he wants to work on building a consensus to double the nation’s 5 percent sales tax as his country tries to contain the largest debt burden in the world.

Government and ruling party officials have decided to postpone approving a panel recommendation to raise the consumption tax to 10 percent by fiscal 2015 to pay for social welfare, the Yomiuri newspaper reported today, without citing where it obtained the information.

“The issue is whether we can get approval for the core elements of our proposal,” Noda said at a press conference in Tokyo today, when asked whether the reference to doubling the sales tax could be removed to win approval for the recommendations. “We should make efforts to gain an understanding” for the recommendations, he said.

Prime Minister Naoto Kan, who chaired panel charged with examining social welfare, was scheduled to release a blueprint for tax policy this month to keep the budget sustainable.

Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have all warned that Japan risks a downgrade in its credit grade if it fails to push through changes.

A record earthquake, nuclear crisis and political wrangling within Kan’s ruling Democratic Party of Japan have complicated his efforts to restore Japan’s fiscal health. The nation’s debt burden is about 200 percent of gross domestic product, a load that will come under more pressure as the population ages.

Posted in Government Spending, Japan | 7 Comments »

CH News – China says willing to help economic growth in Europe

Posted by WARREN MOSLER on 21st June 2011

‘So what will you do for us if we buy your bonds instead of US bonds’ said the spider to the fly, as China continues to play us all off against each other.

(And it seems they have gotten ‘assurances’ regarding default risk.)

China says willing to help economic growth in Europe

June 21 (Reuters) — China is willing to help European countries realise stable economic growth, China’s Foreign Ministry said on Tuesday ahead of a visit by Chinese Premier Wen Jiabao to Hungary, Britain and Germany this week.

“The Chinese government has already taken a series of proactive measures to push Sino-Europe trade and economic cooperation, such as buying euro bonds,” ministry spokesman Hong Lei told a regular news briefing when asked about China’s view of the Greek debt crisis.

“China is willing to continue helping European countries realise economic growth in a stable manner through cooperation with relevant countries,” he added, without elaborating.

Wen’s latest visit to Europe from June 24 to 28 will come months after he visited France, Portugal and Spain, and offered to help European economies overcome their debt-driven crises.

The debt crisis afflicting Greece and weighing on the euro is likely to overshadow his visit.

Markets will watch keenly for how Wen handles economic expectations this time, especially with Greece’s woes deepening. Last week, China’s central bank urged European governments to contain debt levels or risk worsening the region’s unfolding debt crisis.

China signalled in April that it could buy more debt from the euro zone’s weaker states. There are no precise figures, but China has said it has bought billions of euros of debt.

Since euro-zone debt worries first rippled through markets last year, China has repeatedly said that it has confidence in the single-currency region and pledged to buy debt issued by some of its troubled member states.

China’s interest in a smooth resolution to the European debt troubles has been clear. Of its $3 trillion or more in foreign exchange reserves, about a quarter are estimated to be invested in euro-denominated assets.

Posted in China, EU, USA | 11 Comments »

Recent comments

Posted by WARREN MOSLER on 19th June 2011

Two quality recent comments:

Max says:

“If you make a list of the countries in the world that have the biggest homework in restoring their public finances to a reasonable situation in terms of debt levels, you find four countries: Greece, Ireland, Japan and the United States,” Vinals said.

Vinals = Jose Vinals, director of the IMF’s monetary and capital markets department.

IMF cuts U.S. growth forecast, warns of crisis

The IMF is a menace.

TC Says:

People believe the Government Budget Constraint must hold. They are wrong.

The intertemporal government budget constraint (ITBC) is “the government must balance its budget at some point in the future, and pay off all the debt it has accumulated.”

There is a reason I went after this exact part of economics. If you do believe in the fantasy of the Government Budget constraint, you’ll think the United States is doomed.

This single idea is absolutely toxic. The entire edifice of conventional government budget math is based on it. The words “Bond Vigilante” can only make sense because people believe this wrong idea.

This is why I went after it.

The Concise Way to Destroy the IGBC, and Why to Destroy it

As long as the ITBC has any followers, we are literally worse off than if we didn’t know anything. As long as the ITBC has followers at the IMF, we are going to be fighting with people who cannot and do not know the most basic facts about our economy.

Posted in Government Spending | 22 Comments »

Foreigners Make Run on US Housing Market

Posted by WARREN MOSLER on 19th June 2011

This is what happens when the Fed scares the heck out of global portfolio managers with otherwise benign QE2, and they deallocate dollar holdings to the point where the currency sells off enough to find real buyers of dollars who want them to buy cheap real assets like US real estate. That’s how ‘price discovery’ finds the real bid side for the dollar for large scale selling.

And when the deallocating stops, this process ends, as that selling pressure fades.

And with the Fed’s portfolio removing maybe $10 billion/month in interest income that otherwise would have gone to the economy, and lower crude prices and a narrowing trade gap in general making $US harder to get overseas, market forces then work to find the offered side of the dollar for that much size.

Foreigners Make Run on US Housing Market

By Diana Olick

June 15 (CNBC) — Falling home prices may be plaguing the US economy, but they are candy to foreign investors, who already have a weak dollar on their side.

Buyers from overseas spent roughly $41 billion on US residential real estate last year, a bump up from the previous year. US real estate agents report a surge this Spring especially, as foreign buyers see continued pressure on home prices and ample bargains.

“I don’t think they’re so concerned about the prices dropping as they are about getting value for their money,” says Rick Ambrose, a Coldwell Banker agent in Lake Mohawk, NJ.

Ambrose and his colleague Mary Pat Spekhardt recently hosted two groups of Japanese investors searching for homes on the scenic lake just about an hour outside of New York City.

“They can work here, be close to the city, be close to their corporations and still feel like they’re on vacation. I think that’s really what grabbed everybody. That’s what got them,” says Spekhardt.

The group of about 35 from Japan also toured properties in Las Vegas and Los Angeles, which are more popular choices among foreign investors.

A new survey by Trulia.com that tracks searches from potential foreign buyers found LA ranked number one in potential interest traffic, trailed by New York City, Cape Coral, Fl, Fort Lauderdale, FL and Las Vegas.

The greatest interest is from buyers in the UK, Canada and Australia.

“Prices now in the US are generally 30-40 percent off from the peak.

In addition, the weakness of the dollar gives the Japanese an advantage, as it does the Europeans, of another 20-25 percent off, so they’re seeing real bargains and opportunities,” notes Ambrose.

The interest is pretty widespread, with Brazilians trolling Miami and Russians and Chinese hunting in Chicago, according to Trulia’s survey.

What’s so interesting to me, though, is that foreigners are so much more ready to jump into the market now than US investors. Granted, they have, as noted, the weak dollar on their side, but they also seem to have a longer term view. US buyers are so afraid to a lose a little in the short term on paper, they don’t realize they could gain a lot in the long term. Of course foreign buyers are largely using cash, which many US buyers are lacking. Credit, or lack thereof, is playing against the US investor.

Prices in Miami are actually beginning to recover, especially in the condo market, thanks to foreign buyers, so much so that the foreigners are beating out the Americans.

I remember all the rage a long time ago when the Japanese were buying up commercial real estate in New York City.

Everyone was so appalled. Not so much now, even up in Lake Mohawk, NJ…

“It isn’t popular. It is unforeseen territory, and it’s unique. I think it’s a very smart choice. It’s not where everyone is looking,” says Spekhardt.

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