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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.

Agents already anticipating lost income from looming spending cuts

Posted by WARREN MOSLER on July 27th, 2011

MBA Mortgage applications decreased last week: The Market Composite Index decreased 5.0%, The Refinance Index decreased 5.5%, and the Purchase Index decreased 3.8%. The refinance share decreased to 69.6% from 70.1, and the ARM share increased to 6.1% from 5.8%. The average 30-year rate increased to 4.57% from 4.54% and the average 15-year rate increased to 3.67% from 3.66%.

Durable Good Orders decreased 2.1% in June to a seasonally adjusted $191.98 billion, led by a 8.5% decrease in transportation equipment. Orders excluding volatile transportation equipment increased 0.1% after a 0.7% gain.
Federal Reserve Bank of Chicago Manufacturing Index was down 0.1% in June to 84.0 from May as higher steel and machinery production partially countered a decline among auto makers.

32 Responses to “Agents already anticipating lost income from looming spending cuts”

  1. Roger Erickson Says:

    Here’s an idea, “donate” toxic assets & write off the original value!

    http://www.bloomberg.com/news/2011-07-27/bank-of-america-donates-then-demolishes-houses-to-get-rid-of-foreclosures.html

    Maybe all banks could coordinate to donate all CDOs to the Fraud-Bernard Deep Pockets foundation. His foundation staff supposedly lives at the bottom of the sea & wears concrete shoes.

    Reply

    beowulf Reply:

    @Roger Erickson,

    Oldest trick in the book. Corporations do this when they move their HQ from a downtown in decline to out in the burbs. The highest and best “sales price” will often be to donate the property to the city or a local university at some sky-high valuation to capture the tax write-off (I imagine there’s political pressure on the IRS to not sweat the details)
    Its all the same to city hall since they’re getting free real estate (and it distracts the press from the story of lost businesses). Since there’s no capital outlay and very little carrying cost– tax exempt after all– the idea is to wait for unfashionable areas to become fashionable again in order to cash out (like Atlanta did a couple weeks ago).
    http://www.bizjournals.com/atlanta/news/2011/07/11/jamestown-buys-city-hall-east-for-27m.html

    On the other hand, Detroit and Cleveland aren’t going to be repopulated in our lifetimes unless a Middle East peace deal entails moving all the Palestinians to the rust belt (which is probably the most cost-effective solution anyway). :o)

    Reply

    Mario Reply:

    @beowulf,

    it just goes to show what’s really going on. Corruption attracts corruption whether it’s private corruption or public corruption…who really freaking cares!! It’s corruption!!

    I really wish we could all get past this whole business versus government nonsense seriously. Both are vitally necessary and are not mutually exclusive for crying out loud. Now onto saving our economy!!

    Reply

    Roger Erickson Reply:

    @Mario,

    Just rename Detroit as Gresham, and advertise it as “dynamic”.

    Tom Hickey Reply:

    @Mario,

    Detroit is now hip as a center for young creatives, who are flocking there for the cheap RE, wide-open creative environment, and camaraderie.

    BTW, if you look at the projected climate change weather maps, Detroit and Chicago will be enjoying the temperate climate that Southern California now has.

  2. Ryan Says:

    Oddly enough it was the government being the fraudster this time. If you read up on this, Cleveland and Chicago and friends assess worthless properties at one or two hundred thousand in value and then continue to tax and special assess the banks because the house is vacant. Most cities have a vacant house tax. These fines and taxes in the poor neighborhoods are effectively a poor tax. Per dollar of home value the poor pay multiples more than the wealthy. They run off all the blue collar jobs in favor of economy 2.0 jobs then tax everyone out of the neighborhood and blame the bank for blight. Typical midwest politics…

    Reply

    MamMoTh Reply:

    @Ryan,

    Oddly enough it was the government being the fraudster this time.

    What’s odd about it?

    Reply

  3. Greg Says:

    Warren

    There is a discussion at Nick Rowes place on taxation and the value of fiat money going on now. It would be great if you added your $.02 I think. Min is valiantly holding down the fort!

    I cant link to it because keep getting a “503 service unavailable” for some reason

    His site is “Worthwhile Canadian Initiative”

    Reply

    anon Reply:

    What a joke.

    Monetarists are a group, irrelevant to the rest of the world, desperately trying to be relevant to each other.

    He has no idea what MMT says about taxes and money.

    It’s clear from their expressed frustration that he and Sumner both feel threatened by MMT.

    When its clear that Krugman is paying more regular attention to MMT than he is to Sumner, dispatch the ambulance forthwith.

    Reply

    zanon Reply:

    @anon,

    we are sadly a long time before MMT penetrates the Academy.

    People are blaming politicians for this nonsense. OK, that is fair. But politicians are only doing what Academics tell them is right thing. The heart of the rot is at Harvard & Princeton.

    Reply

    anon Reply:

    @zanon,

    OK

    but we’re equally far from politicians taking Sumner’s advice?

    anon Reply:

    speaking of Sumner

    he just posted on MMT again, after declaring he never would again:

    http://www.themoneyillusion.com/?p=10238

    Reply

    Ramanan Reply:

    @anon,

    Btw what is an OMP ?

    anon Reply:

    OMP = open market purchase

    MamMoTh Reply:

    OMP = Open Market Purchases

    studentee Reply:

    @anon,

    “mmt 1st generation”

    this will go over well :)

    Ramanan Reply:

    @anon/Mammoth,

    Thanks.

    I just went through some comments and Warren Mosler also asked “SORRY, DON’T KNOW WHAT OMP STANDS FOR?”

    studentee Reply:

    @anon,

    perhaps you and ramanan should go over there and argue the post-keynesian case

    Ramanan Reply:

    Studentee,

    I think Scott Sumner is a gone case. These guys simply do not understand Open Market Operations.

    They – actually almost everyone in the finance profession – keeps thinking that when the central bank purchases government securities in the open market or does any operations to increase reserves, that floods the market with “money” and that “flood” leads to an excess supply of money will lead economic agents to start guzzling resources at a massive scale leading to inflation.

    This obsession with the money stock is deeply ingrained in their blood supply.

    studentee Reply:

    @anon,

    “I think Scott Sumner is a gone case.”

    with out a doubt true, but the his posts on mmt have been very popular, and i think many people are reading. i know you have issues with mmt, but many of these posts simply read as sumner criticizing post-keynesian economics. might be a good chance to hear from someone familiar with the pk literature like yourself

    luigi Reply:

    @anon,

    A question about the economists:

    when they talk about banks, why they don’t go to a banker and ask how bankers lend?
    I mean, It’s so simple.

    MamMoTh Reply:

    @anon,

    Maybe he is a lost case, and his post was silly, but I don’t find it very useful to call him names but not answering his simple questions. Even if he is a lost cause, some of his readers might not.

    Everyone, Again, I’m still looking for the MMT model of different trend rates of inflation; 5%, 10%, 20%, 40%, 80%, etc, in different countries. And I’m not seeing anyone present such a model.

    Anyone?

    WARREN MOSLER Reply:

    all the great latin american inflations were traced to govt indexation

    Tom Hickey Reply:

    @anon,

    Warren and JKH are already on the case. :)

    Warren: “why don’t you ask me first before making this silly post?”

    Reply

    Tom Hickey Reply:

    @Greg,

    Here’s the linkto Nick on fiat and taxes.

    Reply

    WARREN MOSLER Reply:

    wont’ have time until tonite

    Reply

  4. anon Says:

    Can somebody here give a succinct definition of “default”?

    Is a missed or delayed principal or interest payment on US treasuries a default? (obviously yes)

    Is a missed or delayed transfer payment by the US treasury a default?

    Is the second a default without the first occuring?

    And what are people generally referring to in this case, or do they know?

    Reply

    luigi Reply:

    @anon,

    there is an article in Naked Capitalism:

    http://www.nakedcapitalism.com/2011/07/so-what-might-happen-if-we-get-to-august-3-with-no-deficit-deal.html

    hope that helps.

    Reply

    anon Reply:

    thanks for that

    but doesn’t really answer my question

    Smith is not one I’d look to for succinctness in general

    Reply

    Ramanan Reply:

    @anon,

    I don’t think the second has started to happen. The US Treasury is still making the payments.

    In one of the letters, Geithner also made it clear that the US has never prioritized payments before unlike what politicians suggest by citing “precedents”.

    Default is what is people make of it and since rating agencies have become strong, they may express their opinion on whether the US delaying payments such as payments to employees constitutes a default.

    What an event of default is usually defined in the debt covenants but I haven’t been able to find any for the US Treasuries!

    On the other hand, whether delaying payments to employees for example constitutes a default or not is a matter of opinion though it wouldn’t be too wrong to say that the US government defaulted on its obligation since it will be mentioned on the offer letter of the employee that the US will pay the salary on such and such date every month.

    However, that is not an event of default for the rating agencies since they are involved in rating bonds only and should follow the debt covenants. However they can still downgrade based on delay in non-bond payments.

    Reply

    Ramanan Reply:

    “…they may express their opinion on whether the US delaying payments such as payments to employees constitutes a default.”

    As in they can use the word default in sentences such as the US government has defaulted on making payments to its employees but they can’t use the same word in describing the situation if bond holders get paid on time. But they can still construct statements which is technically right but misleading.

    Reply

    WARREN MOSLER Reply:

    the media blurs it all

    Reply

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