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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 August, 2011

Posen Says G7 Central Banks Should Do More QE

Posted by WARREN MOSLER on 31st August 2011

He should know better by now. Must be a slow learner.

Posen Says G7 Central Banks Should Do More QE, Reuters Reports

Aug. 31 (Bloomberg) — Bank of England policy maker Adam Posen said central banks in advanced economies should undertake more quantitative easing to aid the global recovery and make it easier for governments to fix their fiscal problems, Reuters reported.

“Additional monetary stimulus is the last line of defence for the advanced economies today,” he said, according to Reuters. Previous asset purchases by the Bank of England and the Federal Reserve had a “positive significant impact.”

Posen also said advanced economies are not facing inflation dangers, Reuters reported, citing an article he wrote for the news agency.

Posted in CBs | 25 Comments »

SZ News

Posted by WARREN MOSLER on 30th August 2011

Budget surplus, strong currency to the point where it weakens exports if they don’t buy sufficient fx to keep the currency down. Fits the pattern.

Swiss July Consumer Indicator Declines to Lowest in 1 1/2 Years
Aug. 30 (Bloomberg) — A gauge of Swiss consumer demand dropped to the lowest in 1 1/2 years in July, adding to signs the economy is cooling.

The consumption indicator declined to 1.29 from a revised 1.52 in the previous month, Zurich-based UBS AG said in an e-mailed statement today. That’s the lowest since February 2010. It had previously reported a June reading of 1.48.

Switzerland’s Government Expects Budget Surpluses Through 2013
Aug. 30 (Bloomberg) — Switzerland’s government said it expects to post budget surpluses in every year through 2013.

The consolidated surplus for the state, cantons, communities and the country’s social-security system will widen to an estimated 0.8 percent of gross domestic product this year from 0.4 percent in 2010, the government in Bern said in an e-mailed statement today. In 2012 and 2013, the surplus may narrow
to 0.6 percent and 0.5 percent of GDP, respectively.

Public debt under the European Union’s so-called Maastricht criteria will decline to an estimated 36.4 percent of GDP this year from 38.4 percent in 2010, according to the statement. In 2012 and 2013, it is seen decreasing to 35.7 percent and 34.1 percent, respectively.

Posted in Currencies, Government Spending, trade | 8 Comments »

Central Banks Cannot Go Bust – But Can Cause Trouble

Posted by WARREN MOSLER on 29th August 2011

CNBC: Central Banks Cannot Go Bust – But Can Cause Trouble

As previously discussed, since the S&P downgrade, the talk of the US becoming the next Greece has gone conspicuously quiet.

And, as suggested may happen, the anti deficit talk is shifting to inflation.

And that’s a much tougher sell in Congress. Especially with no forecast showing any inflation risk, including tips, and a Fed still fighting deflation.

Posted in CBs, Government Spending, Inflation | 110 Comments »

Valance Weekly Economic Chart Book

Posted by WARREN MOSLER on 29th August 2011

Valance Weekly Economic Chart Book

Posted in Economic Releases | No Comments »

DJ Fed’s Plosser:We Will Continue To Support Dollar Funding Issues -CNBC

Posted by WARREN MOSLER on 26th August 2011

*DJ Fed’s Plosser:We Will Continue To Support Dollar Funding Issues -CNBC

This means unlimited, unsecured, Fed $US loans to foreign central banks.

Hope they don’t game us this time…

Posted in CBs, Fed | 22 Comments »

July CPI Shows 1st Increase In 2.5 Years

Posted by WARREN MOSLER on 26th August 2011

Bet they’re sorry now for all that deficit spending, two decades of 0 rates, and untold QE ‘money printing’- inflation is finally ripping!


July CPI Shows 1st Increase In 2.5 Years

May 25 (Dow Jones) — Japan’s core consumer price index rose 0.1% in July from a year earlier for the first time in two and a half years, despite a revision to the data’s base year giving a downward bias to the index, government data showed Friday.

The outcome was higher than the median forecast for a 0.1% drop in a poll of economists surveyed by Dow Jones and the Nikkei. The index declined 0.2% from a year earlier in June.

Core CPI for the Tokyo metropolitan area–an early indicator of price trends for the rest of Japan–fell 0.2% on year in August, compared with a forecast 0.1% fall. In July, it declined 0.1%.

The results came after the government changed the data’s base year to 2010 from 2005, which was expected to produce a lower-than-usual figure.

Posted in Deficit, Government Spending, Inflation, Japan | 6 Comments »

Jackson Hole- comments tomorrow’s speech by Fed Chairman Bernanke

Posted by WARREN MOSLER on 25th August 2011

First, I see no public purpose in burning any crude oil to fly the Chairman and his entourage to make any speech.

He could just as easily deliver this one from the steps of the Fed in DC.
Congress should demand a statement of public purpose before endorsing any travel by its agents.

Next is what I expect from the speech.
The short answer is not much.

I don’t see more QE as the purpose of QE is to bring long rates down, and they are already down substantially. And the Fed now has sufficient evidence to confirm that long rates are mainly a function of expectations of future FOMC votes on rate settings.

To that point, when the Fed announced QE, and market participants believed it would spur growth, and therefore FOMC rate hikes somewhere down the road, long rates worked their way higher. And when the Fed ended QE, and market participants believed the economy would be slower to recover, long rates worked their way lower. Not to mention China hates QE and it still looks to me there’s an understanding in place where China allocates reserves to $US as long as the Fed doesn’t do any QE.

The Fed could cut it’s target Fed funds rate, the cost of funds for the banking system, down to 0 and lower that cost of funds by a few basis points. But those few basis points can hardly be expected to have much effect on anything.

It’s not the Fed has run out of bullets, it’s that the Fed has never had any bullets of any consequence.
And with the few it’s fired, it hasn’t realized the odds are the gun has been pointed backwards.
For example, it still looks to me lower rates, if anything, reduce aggregate demand via the interest income channels.

And QE isn’t much other than a tax on the economy, that also removes interest income.

So look for a forecast of modest GDP growth with downside risks, core inflation remaining reasonably firm even as unemployment remains far too high, all of which support continued Fed ‘accommodation’ at current levels.

Posted in Bonds, CBs, China, Employment, Fed, Interest Rates | 34 Comments »


Posted by WARREN MOSLER on 25th August 2011

Once again, management is quick to sell the shareholders down the river with a fat coupon, low strike, dilutive preferred.

This is one of the inherent risks of being a common shareholder under current law.

It keeps stocks cheaper than otherwise, which makes them more attractive as takeover candidates, as
when you own the whole thing you don’t have this risk.

BUS 08/25 13:10 Berkshire Hathaway to Invest $5 Billion in Bank of America
BN 08/25 13:10 *BOFA TO SELL 50,000 SHRS PFD :BAC US
BN 08/25 13:10 *BOFA TO SELL 50,000 SHRS :BAC US

Berkshire Hathaway to Invest $5 Billion in Bank of America

By JoAnne Norton

August 25 (Bloomberg) — Berkshire Hathaway Inc. agreed to
buy 50,000 preferred shares of Bank of America Corp. for $5
billion, the bank said today in a statement.

Posted in Banking, Equities | 7 Comments »

Valance Weekly Report 8.24.2011

Posted by WARREN MOSLER on 25th August 2011

Valance Weekly Report

US – Philly Fed collapse
EU – Confidence weakening
JN – Corp Service Prices Unchanged, Industry Activity Increased
UK – Weak Retail, factory orders improving
CA – Positive CPI met expectations
AU – “Currency intervention isn’t warranted”
NZ – Exodus continues

Posted in Economic Releases, Valance | 5 Comments »


Posted by WARREN MOSLER on 24th August 2011

Right, and still looks to me that with an 8%+ US federal budget there won’t be a major collapse in aggregate demand.

Karim writes:

Main story is in the revisons

  • July durables -1.5% ex-aircraft and defense (up 4% headline)
  • But the core measure was revised from -.4% to +.6% for June and from 1.7% to 1.9% for May
  • Shipments (matters more for current quarter GDP) up 0.2% ex-aircraft and defense (2.5% headline)
  • Core shipments for June revised from 1% to 1.9%
  • 3mth annualized rate for core shipments up from 11.1% to 13.6%
  • Big caveat is this is July data

Posted in Deficit, GDP | 22 Comments »


Posted by WARREN MOSLER on 24th August 2011

The US sales from the strategic reserve have been about 1 million bpd and are due to end soon. Saudis have upped output by about 1 million per day as well. My concern is how the US output will be ‘replaced’ next month as it looks like Libya won’t be back online as before any time soon. So unless demand falls it will be up to the Saudis. If they don’t have the capacity they could lose control of prices to the upside.

From CNBC:

Libyan oil production was just shy of 1.6 million barrels per day in February, before the uprising swept across the country, leading to six months of civil war. Production in May was down to 60,000 barrels per day, according to the International Energy Agency (IEA).

“The medium-term outlook is that they probably have the potential to produce more than the 1.6 million, so it’s a very bullish scenario for anyone who is ready to invest in Libya,” Johannes Benigni, managing director of JBC Energy, told CNBC Wednesday morning. “The reality factor is, everyone knows that Libya was easier to run in a dictatorship than in a democratic or semi-democratic environment, and those guys first have to prove that they are able to bring back stability.”

The TNC, headed by Mustafa Jalil, appears to be relatively cohesive at the moment, but the rebels are composed of a complex mix of political, tribal and social alliances that analysts worry may not hold once their common enemy is beaten.

Benigni said that he expected that Libya could pump 400,000 barrels per day by the end of the year, but that in the best case scenario it would be 12-18 months before it returned to pre-war levels.

Goldman Sachs had forecast average output of 250,000 barrels per day in 2012, with a potential to increase to 585,000 barrels per day by the end of the year if rebels were to take control of infrastructure in the west of the country. The rebellion, which began in the east of the country, rapidly seized parts of the Libyan oil industry. Goldman’s predictions were based around output from those eastern facilities.

In a report issued on Tuesday, however, the bank said that the seizure of western oil assets increases the likelihood that output could ramp up more swiftly.

Analysts have been struggling to obtain reliable information on the state of much of the Libyan oil infrastructure. A report from Exclusive Analysis, the risk forecasting firm, said that exports would be likely to resume from the east within three months and from the west within six to nine months.

Posted in Comodities, Oil | 4 Comments »

German ZEW looking ominous

Posted by WARREN MOSLER on 24th August 2011

If the slowdown causes the deficit to go up, they will just have to cut that much more.


Posted in Germany | 1 Comment »

statement by President Herbert Hoover, Nov 1928

Posted by WARREN MOSLER on 24th August 2011

In Nov. 1928, Hoover gave a speech (accepting the Republican nomination) saying, in part:

“We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poorhouse is vanishing from among us. We have not yet reached the goal, but, given a chance to go forward with the policies of the last eight years, we shall soon with the help of God be in sight of the day when poverty will be banished from this nation.”

Posted in Uncategorized | 2 Comments »

Japan To Cut Policy Spending By 10% Under FY12 Budget

Posted by WARREN MOSLER on 23rd August 2011

Continuing the policy that got it to where it is:

Japan To Cut Policy Spending By 10% Under FY12 Budget

August 23 (Kyodo) — Finance Minister Yoshihiko Noda instructed other Cabinet members Tuesday to cut policy spending by 10 percent in the fiscal 2012 budget from the current year, aiming to secure funds that would help cover burgeoning welfare costs in Japan and reflect the policy priority of a new prime minister.

The government decided to delay by a month the deadline for its offices to submit their request for the state budget, in a move to concentrate more on reconstruction work following the March earthquake and tsunami.

Noda also ordered government spending of no more than 71 trillion yen ($924.5 billion), excluding costs to service existing debt, in the year starting next April and capping the issuance of new bonds at 44 trillion yen, both at the same level as the fiscal 2011 budget.

But spending and debt issuance necessary for quake-relief efforts will be managed separately from the capping rules, as the government intends to issue reconstruction bonds that would be serviced with proceeds from provisional tax hikes, although there remains opposition to the idea even within the ruling coalition.

The envisaged 10 percent policy spending cut would lead the government to secure 1.2 trillion yen.

Combined with some tax revenue hikes, the government will secure 1.7 trillion yen to cover an annual increase of nearly 1.2 trillion yen in social security costs, which have been growing amid the aging population, and 600 billion yen which would reflect the policy priority of a new prime minister succeeding the incumbent, Naoto Kan, who is certain to step down within this month.

The instruction came before the Cabinet approves in mid-September the guidelines for submission of budget requests by ministries and agencies, a process that has been delayed this year due to the March 11 disaster.

The government offices normally file their requests with the Finance Ministry at the end of August and the government formulates a national budget in December for a new fiscal year starting April 1.

The Cabinet decided Tuesday on a government ordinance to postpone the deadline for submission, effective Friday.

The delay comes as the government focuses on reconstruction work, which has required it to make separate budgetary arrangements. Japan has already implemented two extra budgets for fiscal 2011 and is considering a third that could be bigger than the previous two.

Posted in Deficit, Government Spending, Japan | 27 Comments »

I’m ok, eur ok?

Posted by WARREN MOSLER on 22nd August 2011

First, the euro funding issue/crisis could vanish with a simple announcement, like:

The ECB hereby guarantees all the debt of the national governments.

But they won’t do that.
They are worried about their ability to subsequently enforce the Growth and Stability Pact, which has already proven unenforceable.

In fact, the only enforcement tool for austerity seems to rest with the ECB, which conditions its funding on austerity.

This is also the disciplinary principle behind my proposed ECB annual revenue distribution of maybe 10% of euro zone GDP to the national govts on a per capita basis-
The ECB would have the right to withhold future distributions to members who fail to comply with deficit rules. But this proposal isn’t even a consideration, so not likely to happen.

Mosler bonds (in the case of default they can be used for payment of taxes) for individual euro nations offer real hope, but time is short and the political process long.

That leaves the euro zone with what it’s been doing all along.
Muddle along anticipating, entertaining, debating, various funding proposals,
but ultimately,
when it gets bad enough,
relying on the ECB writing the check and buying national govt debt in the market place to facilitate ongoing funding.

All contingent with the member nation in question complying with terms and conditions of austerity set by the ECB.

It’s all highly deflationary, strong euro medicine, while it lasts.
It’s also operationally sustainable.
And phase 1- where austerity reduces deficits- has proven politically sustainable as well.

However we may now be entering phase 2,
where austerity results in falling GDP and higher deficits for all the euro members.
Yes, it’s operationally sustainable and continues to support the euro.

So the question is whether austerity measures intended to bring deficits down, that instead cause deficits to increase, are politically sustainable.

And, if not, what next?
And when?
How bad does it all have to get before they change policy?
And what change would that be?
The first step would probably be some ‘new’ form of QE,
and maybe even an interest rate cut,
which only make things worse,
as they wait for the appropriate lag before said policy ‘kicks in’.

And how long would it all continue to deteriorate before they stop waiting for it to ‘kick in’ and again change policy?

US deficit reduction round 2 coming soon as well.

To again quote that carpenter working on his piece of wood,
‘no matter how many times i cut it, it’s still too short’.

Is a misguided fuss over a reserve drain going to bring down global capitalism?

Posted in Bonds, ECB, EU, Government Spending | 59 Comments »

Statement by President Herbert Hoover on March 8, 1932

Posted by WARREN MOSLER on 22nd August 2011

This statement was issued by President Herbert Hoover on March 8, 1932:

“The whole of the administrative officials are cooperating with the special Economy Committee appointed by the House of Representatives in the drive to bring about further drastic economies in Federal expenditure.

“You will recollect that the budget sent to Congress represented reductions in expenditures for the next fiscal year of about $365 million below the present fiscal year. The House Appropriations Committee has reduced the amounts of bills so far reported out by about $112 million. Of this, however, between 60 and 70 million is a deferment until Congress meets next December when they will be compelled to meet positive obligations by deficiency bills. To this extent, therefore, the reductions do not help next year’s expenditures.

“In order to meet the requirements of the Ways and Means Committee that expenditures must be reduced by $125 million in order to balance the budget, it is necessary that further cuts be made. There is very little room left for reductions by administrative action and the House Appropriations Committee has passed upon the major supply bills except the Army and Navy. Further economies must be brought about by authorization of Congress, either by reorganization of the Federal machinery or change in the legal requirements as to expenditure by the various services.

“The Director of Veterans’ Affairs has proposed to the special House Committee on Economy some changes in the laws relating to pensions and other allowances which would produce economies of between 50 and 60 millions per annum. The Postmaster General is placing before the committee changes in the legal requirements of Post Office expenditures. The Secretary of Agriculture has suggested changes in the law requiring expenditures in the Department of Agriculture, and the other departments are engaged in preparation of similar drastic recommendations.

“I believe the Committee on Economy, through administrative reorganization and such methods as I have mentioned, will be able to find a large area of economy.

“Nothing is more important than balancing the budget with the least increase in taxes. The Federal Government should be in such position that it will need issue no securities which increase the public debt after the beginning of the next fiscal year, July 1. That is vital to the still further promotion of employment and agriculture. It gives positive assurance to business and industry that the Government will keep out of the money market and allow industry and agriculture to borrow the monies required for the conduct of business. I cannot overemphasize the importance of the able nonpartisan effort being made by the Ways and Means Committee and the Economy Committee of the House whose work are complementary to each other.

Posted in Uncategorized | 28 Comments »

Spending Cuts, Not Tax Hikes, Best for Deficit: NABE

Posted by WARREN MOSLER on 22nd August 2011

Spending cuts have higher multiples, but in any case it’s all beside the point.

The problem is the deficit is too small, not too large.

After the post S&P downgrade discussions, where all agree the US govt ‘prints the dollar’
the argument that there could be a Greek like financial crisis has quietly vanished.

The only remaining case against the deficit,
which no one is making,
for obvious reasons,
is that inflation from ‘overspending’ is too high, and even higher levels of unemployment are needed to fight inflation.

Spending Cuts, Not Tax Hikes, Best for Deficit: NABE

August 22 (AP) — The majority of economists surveyed by the National Association for Business Economics believe that the federal deficit should be reduced only or primarily through spending cuts.

The survey out Monday found that 56 percent of the NABE members surveyed felt that way, while 37 percent said they favor equal parts spending cuts and tax increases. The remaining 7 percent believe it should be done only or mostly through tax increases.

As for how to reduce the deficit, nearly 40 percent said the best way would be to contain Medicare and Medicaid costs. Nearly a quarter recommended overhauling the tax system and simplifying tax rates and exemptions. About 15 percent said the government should enact tough spending caps and cut discretionary spending.

The latest survey by the NABE was conducted in the two weeks ending Aug. 2, the day that the Senate passed and President Obama signed legislation to cut spending by more than $2 trillion and raise the nation’s debt ceiling.

The agreement managed to avert a potential default, but Standard & Poor’s downgraded U.S. credit from AAA to AA+, citing the political wrangling over the deal as a reason.

According to the survey of 250 economists who are members of NABE, nearly 49 percent of those responding said the country’s fiscal policy should be more restrictive, while nearly 37 percent said they believe the government should do more to stimulate the economy. The remainder said fiscal policy should remain the same.

At the same time, more than 70 percent of the people that responded said they expect U.S. fiscal policy to be more restrictive over the next two years.

Posted in Employment | 34 Comments »

payroll tax hike on the way?

Posted by WARREN MOSLER on 22nd August 2011

GOP may OK tax increase that Obama hopes to block

By Charles Babington

August 22 (AP) — News flash: Congressional Republicans want to raise your taxes. Impossible, right? GOP lawmakers are so virulently anti-tax, surely they will fight to prevent a payroll tax increase on virtually every wage-earner starting Jan. 1, right?

Apparently not.

Many of the same Republicans who fought hammer-and-tong to keep the George W. Bush-era income tax cuts from expiring on schedule are now saying a different “temporary” tax cut should end as planned. By their own definition, that amounts to a tax increase.

Former Massachusetts Gov. Mitt Romney did not flatly rule out an extra year for the payroll tax cut, but he “would prefer to see the payroll tax cut on the employer side” to spur job growth, his campaign said.

Romney completely misses the point, unless he wants it known he’s for favoring employers over employees?

Jobs come mainly from sales, and cutting payroll taxes for workers increases spending, sales, and jobs.

Cutting payroll taxes for business also has benefits, as that reduces costs which puts downward pressure on prices which helps consumers and does thereby add to sales, but in a much smaller way.

I continue to propose we suspend FICA entirely.

Looks to me like this latest discussion will only strengthen suspicions that Republicans are trying to keep the economy from improving to hurt the President’s chances of winning next year.

Posted in Deficit, Employment, Political | 17 Comments »

either you believe in representative gov or you don’t…

Posted by WARREN MOSLER on 20th August 2011

Poll: 30% of Texans believe humans and dinosaurs lived together

By Ross Ramsey

Nearly a third of Texans believe humans and dinosaurs roamed the earth at the same time and more than half disagree with the theory that humans developed from earlier species of animals according to the University of Texas/Texas Tribune Poll.

Did humans live at the same time as the dinosaurs? 30% of Texas voters agree with that statement; 41 percent disagree, and 30 percent don’t know.


Supporters of Gov. Rick Perry were more likely than any other group to believe that dinosaurs and humans roamed the earth together ten millennia ago.

Posted in Political | 70 Comments »

Hugo’s gold

Posted by WARREN MOSLER on 19th August 2011

The latest run up may be due to Chavez’s move to bring home a couple of hundred tons being held for him overseas.

Many gold bugs are convinced the world’s CB’s don’t actually have any gold, and that this move will expose that presumed fraud.

We’ll soon find out.


Posted in CBs, Comodities | 89 Comments »