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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.

quick update

Posted by WARREN MOSLER on June 23rd, 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.

12 Responses to “quick update”

  1. Crake Says:

    Warren, any opinions (what is/are goal, reasons, etc.) for the release of strategic oil reserves today?

    Reply

    WARREN MOSLER Reply:

    the saudis said they wanted prices between 80 and 90 when the opec meeting broke up,

    and they decided to help make obama look good by making it a joint venture to get prices down.

    not that a US president would use up the reserve, knowing when it’s gone the games up, as a means to win an election, or anything like that…

    Reply

  2. Crake Says:

    Ah, so Saudis should increase production materially in tandem with this?

    Reply

    roger erickson Reply:

    @Crake,

    if they don’t, then Obama is toast; big time

    hint: the Saudis are more loyal to the Bush clan than Obama

    Reply

    WARREN MOSLER Reply:

    they just set price and let quantity adjust if they want to keep prices low

    Reply

  3. Rodger Malcolm Mitchell Says:

    It’s only a “train wreck” for the middle- and low-classes. For the wealthy, things could not be better, and getting better still. I won’t burden this blog with overly long comments, so if you want to see the logic, it’s at Nose Cutters

    Rodger Malcolm Mitchell

    Reply

  4. Art Says:

    Funny how right under the article it says “Share and Enjoy.” :)

    Reply

  5. TC Says:

    You should charge people for this stuff.

    Reply

    Tom Hickey Reply:

    @TC,

    Its’ the teaser to get the professionals to follow the blog and learn about MMT. :)

    Reply

  6. art Says:

    Out of paradigm, but not bad on Greece and the eurozone core:
    http://www.finfacts.ie/irishfinancenews/article_1022604.shtml

    “The euro is undervalued for strong economies like Germany and France, boosting their exports and growth, and overvalued for poorer debt laden countries like Greece and Portugal. This permits Germans, for example, to enjoy a huge trade surplus, work only 32.5 hours a week in factories, and have single earner households, while the Greeks and Portuguese suffer under the yoke of then new imperialism—EU imposed austerity and deflation. Surely, the poorer countries are in need of fiscal reform, but they can’t accomplish that without selling off all their national assets and being banged down into poverty if they continue doing business in the euro.”

    Reply

    WARREN MOSLER Reply:

    like the dollar is over valued for michigan and undervalued for texas?

    Reply

    Art Reply:

    @WARREN MOSLER,

    “like the dollar is over valued for michigan and undervalued for texas?”

    Isn’t it? Not sure it proves anything, but MI ranks slightly ahead of TX in per-capita federal aid, 36 versus 43rd:

    http://www.census.gov/compendia/statab/2011/ranks/rank22.html

    P.S. Wyoming is #1, Alaska #2. Does that mean that Sarah Palin is now only slightly less powerful than Dick Cheney? :)

    Reply

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