I’m ok, eur ok?

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?

This entry was posted in Bonds, ECB, EU, Government Spending. Bookmark the permalink.

59 Responses to I’m ok, eur ok?

  1. Hepionkeppi says:

    “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”

    How would it be fair or even sensible to distribute same amount of money to the Estonians and Slovaks who earn maybe 300 euros per month, as to the Germans and French who earn maybe 3000 euros on average? Why would rich countries ever agree to this system, do you think it has any political feasibility to be adopted?

    Who’s with me on this one?

    Reply

    Gary Reply:

    @Hepionkeppi,

    “How would it be fair or even sensible to distribute same amount of money to the Estonians and Slovaks who earn maybe 300 euros per month, as to the Germans and French who earn maybe 3000 euros on average? Why would rich countries ever agree to this system, do you think it has any political feasibility to be adopted?”

    Do you mean that Germans and French should get less, because they already have more than others?
    I agree.

    I think the idea of distribution per capita is meant to increase aggregate demand where it is lacking.

    Reply

    WARREN MOSLER Reply:

    It would make for an interesting debate for sure.

    note the ECB is handing out ‘new euro’ that are only to be used for retiring debt.

    Reply

  2. PG says:

    WM at 5:14 pm

    “for every borrower there is a saver”

    A statement to consider carefully.

    It is clear that “for every borrower there is a lender.” But some borrowers, banks, are not savers, unless for the indirectly imposed constraint on reserves.

    Then there comes the question of numbers of borrowers (N), lenders (n), savers (M).

    Which hold?

    N > n. It seems me it does, as there are more borrowers than lenders.

    N > M ?

    N = M ?

    N < M ?

    Reply

    Mario Reply:

    @PG,

    I think this is accurate:

    N = n at the transactional level. How else can it be? Unless the government writes loans directly to the private sector, which in fact I did read that the Treasury has opened up a small business lending window, so I guess we are also a net borrower too then.

    the relationship between n and M is really immaterial

    and as Warren stated M = N at the transactional level. Again how else can it be? Our economy is a net saver b/c the government pays out interest and that is outside the private sector.

    Reply

    WARREN MOSLER Reply:

    yes, ‘savers’/interest receivers have differing propensities to spend

    Reply

  3. Walter says:

    Warren,

    Correct me if I am wrong.
    Both your proposals are based on the point that the necessary deficit spending is only sustainable on the level of the currency issuer, since that is the only party that can spend regardless finance.
    Consequently either the deficit spending has to move (partly) from member states (currency users) to ecb level (currency issuer) or the currency issuer status has (partly) to be returned to the member states if they are supposed to do the deficit spending.

    1. Annual distribution from ecb: This proposal basically transfers deficit spending to the currency issuer level where it is sustainable.
    I get the impression though that the eurozone finds that such mechanism has an ‘overkill’ element. Why the stronger members should need such distribution? For them it will create ‘unnecessary’ surpluses and this ‘excess’ deficit spending by the ecb will add to supply of the euro and weaken it.
    How do you see this ‘overkill’ aspect?

    It looks to me that the market sees the current selective bond buying by the ecb already as form of deficit spending in disguise.
    I do agree with you though that the formal aspect of ecb’s capital requirement needs to be addressed as you mentioned on Aug 9th on this website.

    2. Mosler bonds: If fiat money is a tax credit then this proposal basically returns the status of currency issuer (partly) to the member states so that necessary deficit spending becomes sustainable.
    I get the impression though that the stronger countries do not feel comfortable with this exposure to possible abuse of this status by some of the weaker ones.
    How would you tackle this exposure?

    3. In the meantime we see equities strongly down due to european debt woes, but eur/usd still around 1.44. Where do you see this go if equities will rebound (let’s assume they will)?

    Reply

    WARREN MOSLER Reply:

    it’s not inflationary if it doesn’t increase spending.

    the only exposure to weaker states is if they don’t comply with austerity measures and instead increase net spending. so they need some kind of enforcement.

    as long as the euro zone keeps tightening the fiscal noose they are supporting the euro. same for the US. so the question is who is doing it the most. hard to say. but bad for the unemployed for sure.

    Reply

  4. Ralph Gardner says:

    @Leverage,
    Thanks for the link. Those are some really interesting videos about the Chinese system.

    Reply

  5. Leverage says:

    While austerity has a lot of problems, it works partially ad cleansing a bit the political system and public spending. I can tell you that much as a spanish, there was sucha big load of crapp under the carpets that it’s STARTING to come out that I’m starting to like austerity even if it’s destructive, just because it’s fun. Oh and it will be so much more fun when there is real recession, then people may start to realize how it all is dysfunctional and look at the root of problems.

    The problem is the political system is corrupted and simply does not work, in EU, in USA, in the World (I recommend this: http://www.nakedcapitalism.com/2011/08/chinese-banks-these-things-arent-banks.html for MMT on steroids). Yes, I want tax cuts, but for who and for what; yes, I want public spending, but for who and for what?

    I don’t want money entering the system if it’s not for a decent reason, and unless there is some “blood” and reform, nothing good is coming out of this.

    Get money out of politics and reform, and we can have good public investment that decreases future costs and increases productivity (ie. less dependency on external oil). Get money out of politics and we can have taxes that favour the majority while we can increase other taxes to control inflation in the future.

    MMT right now would be pro-status quo; and let me tell you so much: the status quo right now SUCKS and is not sustainable anylonger.

    Reply

    Gary Reply:

    @Leverage,

    hungry and desperate people do not look at the root of the problems. They just want to survive so they will back any populist who will promise them something. So don’t look for something good coming out from desperate situation – it will likely be next Lenin or Hitler who would appear – if history is any guide.

    Reply

    Mario Reply:

    @Gary,

    I literally heard FOX news call Warren Buffet a SOCIALIST for suggesting we raise taxes on 0.03% of the population in America. THAT is insanity at its height. Jesus Christ FOX news is evil as evil can be (that is if you equate evil with lies and deception–and I do!). Warren Buffet a socialist…dear Lord almighty!!!

    Reply

    WARREN MOSLER Reply:

    they insulted the socialists? ;)

    ESM Reply:

    @Mario,

    Buffett is just talking his book. His business and net worth benefit tremendously from a hike in income tax rates because he has invested so heavily in tax-favored structures.

    It’s not uncommon for the ultra-wealthy to like high income taxes. They’ve already made their money, and to the extent they are competitive, high income taxes impede other people from competing with them in terms of wealth. It’s all just a big relative game, and people like Buffett and Gates think they can navigate the tax code better than just about anybody. The higher tax rates are the better.

    Mario Reply:

    @ESM,

    maybe so but there doesn’t appear to be too much competition up there to begin with since we’re only talking about the top 0.03% of the population here! I mean these guys are all already at the top and anybody below them would not have those taxes to contend with even if they are in the 0.04% percent tile. And frankly with that kind of wealth you KNOW the tax code by that point and can definitely find someone who does if you don’t. It may however make the top 0.03% wealth class start to “fight it out” amongst themselves (all 8,000 of them) as to whose going to stay on top and whose not, but frankly, whoever loses in that battle still has already won BIG TIME anyway b/c they’ll still be among the top 1-5% wealthiest people in the nation. What a loss!!! Based on the aggregate perspective here ESM, I think your point is moot in comparison to the rest of the 99.7% of the population out there. Yeah?

    djp Reply:

    @Mario,

    Population of US: 300,000,000
    Number of people making over 1,000,000 per year:
    Varies, but around 300,000. It’s gone down a bit.
    And there’s a lot of flow in and out, just because you’re
    over one year, doesn’t mean you will be the next.

    300,000/300,000,000 = 0.1%
    300,000 >> 8,000.

    100% – 0.03% = 99.97%.

    But that’s all just silliness and yanking your chain over orders of magnitude and being precise.

    Do you think that if someone has the ability to work 5 times as hard, that they should be allowed to do so and keep the same fraction of their income? Maybe they want to work for 1 year really hard, and then do other things for 3 or 4 years. Sadly, there aren’t enough jobs that offer this luxury, teaching seems to be about the only one – because the cycle is an annual cycle and fits into one tax year.

    Also, if Buffet really wanted to make a point he would go back and do a back of the envelope calculation estimating how much he thinks he should’ve paid in taxes if all of his AGI were ordinary income, and then write a check. That would be making a statement that people might really care about.

    Something tells me Buffett wouldn’t be in favor of a confiscation of wealth rather than an increase in taxes, but that you probably wouldn’t really distinguish much between the two.

    I wouldn’t call Buffett a socialist, just a hypocrite.

    Mario Reply:

    @Djp,

    yes there’s approximately 300,000 making over $1 million, however that’s not the 0.03% percentage bracket.

    According to the stats Buffet gives in his latest oped, there were approx. 8,274 people making more than $10 million in 2009. That’s where I got the 8,000 figure. I don’t know his stats but considering he’s accurate on the $1 million stat, I’m assuming he’s right on the over $10 million one too.

    Just b/c the man doesn’t voluntary destroy some of his wealth doesn’t make him a hypocrite. And just b/c he wants higher taxes on the 0.03% doesn’t mean that he should just pay that now for the heck of it. That’s just stupid. In fact what he does instead is maxes out his donation capabilities to non-profit. But that’s not the point either way. The point is a social one that requires a social change across the nation, a proper perspective on who should be paying out more here. That’s what it’s about. I see no reason why as to why he’s a hypocrite and definitely not a gosh darned socialist of all things! LOL

    Reply

    ESM Reply:

    @Mario,

    Your math still doesn’t work. 0.03% of 310MM people is still more than a factor of 10 higher than 8,274 people. Even if you’re talking about households (140MM), you’re still off by quite a large factor.

    That he won’t give away his wealth to the government voluntarily (which as we all know is meaningless anyway if he is not spending it himself) does not in itself make Buffett a hypocrite, but it is revealing that he doesn’t think that the government can do as good a job of spending his money as he can.

    Buffett is a hypocrite (or at least dishonest) in that he tries to use his status as an extremely wealthy person to acquire some sort of special moral authority to advocate for higher taxes. Given how shielded he his from higher income taxes (in fact because of his investments in insurance companies – which are tax-advantaged, in municipal bonds – which benefit from higher tax rates, and in a municipal bond insurance company – which benefits from higher muni bond prices and subsequent muni bond issuance, I’d say he actually would become wealthier in absolute terms from higher tax rates), his public preening on the issue is nauseating.

    Mario Reply:

    @ESM,

    You’re assuming the bracket is smoothed out equally. If we assume the figure is accurate for 2009 at 8,000 people claiing over $10 million in income, what that means is that there are ALOT more people that have over $1 million dollars but very few beyond $5 million and then even fewer beyond $10 million. I don’t know why you are assuming it would all be equal among the entire category from 1 million to 10 million. Clearly it’s not. Remember this is INCOME reported…not assets held. Apparently there’s only about 8,000 people as of 2009 that “earn” over 10 million a year (not including savings, real estate values, etc., etc.). We’re talking wages + interest for world-wide gross income–I’m assuming it’s not adjusted gross income, but either way it doesn’t matter…there’s only 8,000 of such people according to that stat. Shocking isn’t it? These are the people we’re fighting for to get tax cuts??? Bass ackwards mate. Bass ackwards. LOL

    djp Reply:

    @Mario,

    The problem is he thinks the gov can spend other people’s money better than they can, but he thinks his wealth is better spent through a tax sheltered foundation.

    He’s also devious in that I think he knowingly misleads people about orders of magnitude. Sort of saying something like how folks like him should be taxed more, and then in the next breath saying people with incomes of X should be taxed more because they can afford it. He’s using an obnoxious behavioral device to delude you into thinking these two categories of people are equivalent – when X is usually 1000-10000 times smaller than his wealth. I don’t know many people that can accumulate 1000 times their maximum annual income.

    NB, I haven’t even said anywhere that I am necessarily opposed to higher taxes for some. I have just, as elsewhere, argued that I don’t like to listen to arguments where it’s clear people are trying to deceive you somehow.

    But back to the real question. Do you think it would be unfair for someone to make $250,000 in a year working 5 times as hard as someone making $50,000 in a year and then to take a break for 4 years? I don’t. And if you do, then why is it ok for someone to arguably work hard for 9 months and then take a 3 month break? Or work 6 weeks at 2-3 times the intensity and then take 6 weeks off? Maybe we should destroy the offshore oil industry, teaching, and the tourism industry by taxing people on their hourly earnings! Just adjust all of those brackets to the equivalent of hourly wages.
    If you think the first scenario is ok, then you should not want a progressive tax. If you think the first is not ok, but that the other shorter timescale examples are ok, then what’s the magical timescale? Why is 1 year such a special time for the tax window? Was income averaging such a bad thing in the 80’s?

    Mario Reply:

    @Djp,

    I just don’t see much upside for Warren Buffet getting taxed higher.

    I also don’t think it’s about the government spending the money better than anyone else. Granted Buffet subscribes to these tax hikes for “revenue” reasons, which is where I disagree with him on, but he and I do agree that IF you’re going for revenue it’s better to go for the 0.03% of people BEFORE you go to the rest of the nation. For me it’s the tax hikes to the 0.03% is also to disturb their control money flow.

    I don’t know many people that can accumulate 1000 times their maximum annual income.

    the people that fall in the 0.03% tax bracket Djp CAN afford the tax hike far and away more than everyone else can afford entitlement cuts. Seriously man come on. I don’t think the 0.03% tax bracket has 1,000 times variance within it.

    Do you think it would be unfair for someone to make $250,000 in a year working 5 times as hard as someone making $50,000 in a year and then to take a break for 4 years?

    what’s “unfair” got to do with it? We all use the one year marker for collection purposes. The person “resting up” for 4 years would only be taxed on earned and unearned income during those 5 years, which appears would be $0.00 in your example since he’s resting up and not working for 4 out of 5 years. So, considering that’s the case, yes if you want to do fair/unfair, it does sound fair to me, since the other guy is working all 5 years. You either pay now or you pay over time. Is it “fair” that one guy pays his insurance premium each month or in one flat rate? Who cares?!?!?

    But regardless, people aren’t taxed by the IRS for just having a savings account, so your point is moot it seems to me. In other words, it’s about income levels and has nothing to do with the time taken to earn that income outside it being capped within a year’s worth of time. I guess we could pay taxes every week if you wanted to eh? There’s nothing wrong with gauging things off of an annual calendar, since relatively speaking, one could always choose a different time cap. Who cares?!?!

    WARREN MOSLER Reply:

    well stated!

    while my proposals are not status quo by most any measure, I do see the risks as you state them and try to propose things accordingly.
    So, for example, I eliminate much of what banks can do with my banking proposal, and what govts do as with my health care proposals.

    Reply

    Mario Reply:

    @Leverage,

    campaign finance reform…MMT is the only way that has the keys to solving that debacle. Everyone else things austerity is a must and if they do see the political corruption, they are likely turning to Ron Paul, the Tea Party, and ending the Fed. In other words they don’t go deep enough to the real cause. They get side-tracked on another political distraction along the sidelines.

    MMT goes to the core of things. Solving issues at the core is always the best way to get the most bang for your buck (no pun intended!). ;)

    Reply

  6. Chris Cook says:

    Bonds are so Last Century.

    But if you go further back you find some interesting stuff. For instance the FT Alphaville blog picked up on an FT Letter I wrote on the subject of Cook’s Conversion Plan for Greece.

    This was based upon a very interesting but arcane little subset of the UK’s balance sheet which is mistakenly categorised as National Debt.

    The UK’s ‘Consols’ are a bit of an anachronism: they are a class of interest-bearing 2.5% Perpetual Annuities dating back to 1888, when UK’s previous classes of perpetual annuities (there was no debt) was consolidated. Consols are technically redeemable at any time but of course never have been because long term interest rates have never dropped low enough.

    Consols are actually pretty cool, because – having no repayment date, and being redeemable only at the option of the issuer – they are credit instruments (akin to 2.5% Redeemable Preference Shares in UK Plc) rather than debt instruments like UK gilts.

    So, what may perhaps work better for the ECB could be a single consolidated Pool of Mosler-Cook Consols, which – instead of creating fragmented tranches of ECB debt of different durations and interest rates – would give a single continuous consolidated liquidity pool.

    The absence of debt, and an affordable interest rate (since the only credit risk relates to the dividend, not the principal) would give the troubled countries who exchange their debt for Consols some breathing space.

    But a long term solution requires fiscal not monetary action. Here I advocate that the ECB print € and finances massive investment in renewable energy and energy savings. They could thereby create an energy stream which would enable the ECB to transform the € from a baseless abstract Unit to a Unit based on an Energy Standard, simply by pegging the € to a convenient absolute Unit of energy against which transactions may generally be priced.

    Reply

    WARREN MOSLER Reply:

    Yes, consols would work, but I’m thinking just simple credit balances on the central bank’s books would work just as well?

    Interesting to peg the euro to energy.
    The ECB would have to make a market in “clean btu’s” or something like that?
    Seems more volatile than the alternative I’ve been suggesting, which is for the ECB
    to fund an ‘employed buffer stock’ of labor by offering to fund a public service job that pays maybe 10 euro/hr (or whatever they want the minimum wage to be) for anyone willing and able to work. While this won’t add a lot of aggregate demand, it will support an employed labor buffer stock vs today’s unemployed labor buffer stock the members are individually supporting. It should also include the much larger fiscal expenditures by the ECB which would serve to minimize the number of workers in the employed buffer stock pool.

    much as described in ‘full employment and price stability’ on this website.

    Reply

    beowulf Reply:

    @Chris Cook,

    Consols are actually pretty cool, because – having no repayment date, and being redeemable only at the option of the issuer – they are credit instruments (akin to 2.5% Redeemable Preference Shares in UK Plc) rather than debt instruments like UK gilts.

    That’s very interesting.

    Reply

    Leverage Reply:

    @Chris Cook,

    An energy standard, could work but has some inconveniences, it may restrict liquidity too much compared to the liquid necessary for all the transactions taking place in the system.

    Problem is, energy gets used, wasted and “lost” into the environment; as long as you can hoard energy-standard currency there would be decouple from actual money stock and actual energy flow. Now, if you can adjust money flow (velocity) to energy flow (economic activity and commerce), you may be into something.

    I still think Gesell got this right in early XX, a natural monetary system MUST force flow of money, but at the same time not devalue the money in the process ‘intrinsically’, so unit of account should be more or less stable. At least we need two different types of currencies with two different types of functions.

    About ‘consols’, nice story, is basically pure fiat but as long as it was counted as some sort of ‘debt instrument’, hysterics would still see it as a different thing instead of money and would still claim “public debt is 300% of GDP!”. This is the problem most people has: they do not understand what money is or how it works, so they keep talking about debt/GDP ratios instead of talking about inflation or not inflation.

    Reply

  7. Martin from Italy says:

    “and maybe even an interest rate cut,
    which only make things worse”

    Warren, could you explain why an interest rate cut would make thing worse?
    I just can’t understand this. Thanks.

    Reply

    WARREN MOSLER Reply:

    the economy is a net receiver of income from the euro govts. cutting rates cuts interest income earned in the private sector as it reduces govt deficits by same.

    Reply

    Martin from Italy Reply:

    @WARREN MOSLER,
    yes but at the same time it can expand bank loans to households and industries, so it stimulates the economy. Am i wrong?

    Reply

    Mario Reply:

    @Martin from Italy,

    what you mean a central bank could actually directly help people in the economy?!?!?!? You’re kidding right? Surely they can’t do that. I mean our economic models suggest…

    WARREN MOSLER Reply:

    i’ve proposed the central bank run the pool of $8/hr transition jobs. after all, the point is price stability

    Mario Reply:

    @Martin from Italy,

    still if demand is low and savings is high, consumption is low. Where are they going to invest and how successful will it be? This is why austerity is bad news and messes everything up.

    Plus how many people actually have solid credit to even qualify for a loan?

    Gary Reply:

    @Martin from Italy,

    I am unclear on this as well.

    Lower rates set by central bank affects the rates set by private banks, isn’t that so?
    If rates are lower – more loans will probably be taken out, isn’t that so?

    So the money that central bank won’t be spending into the economy must be offset against the money that will be be supplied due to more private loans.

    WARREN MOSLER Reply:

    yes, low cost of funds also means lower rates for savers, and the economy is a net saver

    Mario Reply:

    @Martin from Italy,

    more loans will probably be taken out, isn’t that so?

    not in a balance sheet recession like we’re in now. No excess cash and stable income and no good credit means no new loans. Plus savings rates are set against Fed Fund Rates, that why interest income is lower.

    So the money that central bank won’t be spending into the economy must be offset against the money that will be be supplied due to more private loans.

    not necessarily. Banks can sit on their money and invest it in various ways. These days speculation for banks is probably mathematically safer for them then making loans.

    Martin from Italy Reply:

    @Mario,
    “what you mean a central bank could actually directly help people in the economy?!?!?!? You’re kidding right? Surely they can’t do that.”
    Surely they can, and they have some channels to do it. One of them is the interest rate channel. As Gary wrote “If rates are lower – more loans will probably be taken out, isn’t that so? So the money that central bank won’t be spending into the economy must be offset against the money that will be be supplied due to more private loans.”
    Can we agree on this last statement?

    Martin from Italy Reply:

    @Mario,
    “more loans will probably be taken out, isn’t that so?

    not in a balance sheet recession like we’re in now. No excess cash and stable income and no good credit means no new loans. Plus savings rates are set against Fed Fund Rates, that why interest income is lower. ”

    Well that’s your opinion, you can’t state that as a fact. My opinion is that with lower rates, more loans will be taken out.

    “So the money that central bank won’t be spending into the economy must be offset against the money that will be be supplied due to more private loans.

    not necessarily. Banks can sit on their money and invest it in various ways. These days speculation for banks is probably mathematically safer for them then making loans.”

    Can’t understand what u mean. Banks sit on their money when nobody wants to loan it… As i wrote before, my opinion is that with lower rates more loans will be taken out.

    Mario Reply:

    @Martin from Italy,

    “my opinion is that with lower rates more loans will be taken out.”

    okay fair enough. But what does the data show? Using the current US situation as a guide, I don’t think an increase in loans is very likely until aggregate demand and de-leveraging change their current courses. Take a look at these stats as more info in this regard.

    http://research.stlouisfed.org/fred2/series/BUSLOANS

    research.stlouisfed.org/publications/es/10/ES1018.pdf

    Mario Reply:

    @Martin from Italy,

    if this were an inventory recession then what you’re saying is more likely. We don’t have balance sheet recessions as often but when they come everybody feels it.

    WARREN MOSLER Reply:

    yes, it lowers rates for borrowers, but for every borrower there is a saver, and, in fact, the economy is a net saver (govt is a net payer of interest).

    so the savers tend to get hurt more than the borrowers get helped. at least that’s what the evidence tells me?

    Mario Reply:

    @WARREN MOSLER,

    cutting rates cuts interest income earned in the private sector as it reduces govt deficits by same.

    you admit this now but then are in full support of perpetual zero rates. I agree with you on both points but they are obviously in direct conflict with each other. How are you resolving that?

    Reply

    macrosam Reply:

    @WARREN MOSLER,

    Yes, but doesn’t it mean that much less in taxes or more in spending that they can do within the constraints of austerity? Higher interest expense forces contraction elsewhere.

    Reply

    WARREN MOSLER Reply:

    remember, i favor a permanent 0 rate policy

  8. Mario says:

    great wrap up the EU debacle. Man it’s a lie to even call these people our “leaders” anymore.

    Reply

  9. gaius marius says:

    i’m sure you’re busy enough, WM, but i’d be interested on your take of david beckworth’s position on the continuing efficacy of central banking. the ‘loanable funds’ conception seems all wrong to me and i rather think fiscal deficit expansion did the yeoman’s work w/r/t sector balances in the 1933-36 period. but — along the lines of the FX/currency intervention discussion you’e recently posted — ‘off balance sheet spending’ can be powerful.

    Reply

    WARREN MOSLER Reply:

    confuses fixed and floating fx policy.

    letting gold ‘revalue’ was/is much like floating the currency.

    it alleviated/s a gold shortage the way deficit spending does with floating fx

    either way, it’s still entirely up to fiscal now.

    Reply

    gaius marius Reply:

    @WARREN MOSLER, that’s my view as well, having read your work and that of randy wray and richard koo.

    on some level, though, the US is trapped in a currency union with china and other dollar-pegging economies, is it not? a break of those floats would be helpful, i think, even if the effect might be relatively minor vis-a-vis fiscal policy.

    thanks for your thoughts!

    Reply

    Mario Reply:

    @gaius marius,

    well a break of those pegs would mean our dollar goes down while theirs goes up. Not so good an idea if you want a stronger economy here at home…unless we start to learn how sectoral balances work and apply them accordingly to offset such changes. At that point it would might be a feasible option to get back into the exporting game since the currency damage has already been done.

    WARREN MOSLER Reply:

    we can always keep domestic demand at full employment levels

    WARREN MOSLER Reply:

    i don’t see us as trapped. we can suspend fica, and offer an $8/hr federally funded job for anyone willing and able to work and get back to reasonably full employment no matter what china or anyone else says or does.

    gaius marius Reply:

    @WARREN MOSLER, quite so. thanks so much for your thoughts.

  10. Paul Palmer says:

    Usually, the political end to this nonsense is the election of a politician who wants to “Do something” that involves allowing the deficits to grow. Such as Reagan wanting to increase defense spending AND cut taxes.
    Now the “do something” is cut spending. There is no one with any “vision thing” that triumphs over budget cutting.

    Reply

    Clonal Antibody Reply:

    @Paul Palmer, See the article on this issue at the Trader’s Crucible

    Reply

  11. Gary says:

    “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.”

    But in order to finance the deficits – euro countries have to borrow – and thus their debt to GDP ratio will increase thus causing further panic.
    ECB will then step in and buy their bonds at the last minute.
    Yes, it is operationally sustainable – but the recurring panic will most likely make it politically unsustainable…
    It will also likely cause markets to fall all around the world.

    Reply

    WARREN MOSLER Reply:

    yes, my exact concern

    Reply

    Deus-DJ Reply:

    @WARREN MOSLER,

    We need some Mosler Bonds!

    Reply

    Mario Reply:

    @Deus-DJ,

    and quick!

  12. roger erickson says:

    Rentier,def. – can’t see the forex for the fees

    Numbskull’s Dictionary

    Reply

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