How MMT sees the President’s speech

MMT sees the President’s speech the way New Yorker’s would see this speech
if it was given by a New York City Mayor back in the days when they still had subway tokens:

My fellow New Yorkers,

I have a proposal to help our retired NYC workers that you can all pass, and it will be fully paid for.

I propose that all retired NYC workers be given 20 subway tokens per month so that they can better afford to ride the trains.

And to pay for this program, I propose that for every 10 subway tokens we collect at the turnstiles, one token will be set aside to be given to the retirees.

Yes, I know we have a long term token deficit problem, as each year we issue many more tokens than we collect. And as you know, we have established a committee to deal with this by Thanksgiving.

But, as I said, this program will be fully paid for, with tokens set aside as we collect them….

Feel free to distribute.

Strains rise in short-term eurozone lending

I’ve also heard that borrowers of euro are actually getting cut off which is the stuff of a hard landing scenario.

Strains rise in short-term eurozone lending

By David Oakley

September 8 (FT) — Strains in the eurozone short-term lending markets have jumped sharply this week amid worries that the sovereign debt crisis will deepen, threatening the ability of banks to fund themselves.

The main gauge of tension in the funding markets has risen to levels last seen in April 2009 – and has leapt threefold since July – as banks hoard cash and refuse to lend to each other amid worries loans will not be repaid in a deteriorating financial climate.

Strategists say the eurozone’s financial system would be close to breakdown without emergency loans from the European Central Bank, which they warn cannot last forever.

Nick Matthews, senior European economist at RBS, said: “We are at a key moment in the eurozone debt crisis. There are tensions in the financial system with still many banks having difficulties accessing the private markets for loans. These banks have to rely on the ECB as a backstop. But this is not a long-term sustainable solution.”

Don Smith, economist at Icap, the broker, said: “We have seen a step-change in worries about the banking system because of the sovereign crisis in recent weeks and days. Banks are refusing to lend to each other because of worries over counterparty risk.”

The extra premium eurozone banks have to pay to borrow over three months compared with risk-free overnight rates – considered a pure measure of credit risk – rose to 78 basis points on Tuesday. This spread between Eonia overnight rates and Euribor three-month rates fell back to 74bp on Thursday, but is still 10bp higher than the middle of last week.

In comparison, from January to June, the spread averaged around 20 to 25bp.

Another sign of strain in the eurozone markets is the sharp rise in the amount of money banks are depositing at the ECB. This rose to €169bn on Tuesday, the highest level since August 2010. It remained at elevated levels of €166bn on Wednesday. That compares with €4.98bn on June 15.

Before the financial crisis the amount of money deposited at the ECB was close to zero as banks freely lent money to other banks rather than opting for the safety of parking the cash at the central bank.

Italian banks, in particular, have struggled to access the markets in recent weeks as fears over the country’s sluggish economy and concerns over the government’s commitment to fiscal reforms have worried investors.

Consequently, Italian banks have been forced to borrow more from the ECB. The amount of money Italian banks borrowed from the ECB jumped to €85bn in August, twice the amount of June, which stood at €41bn.

The total amount of loans the ECB has lent to eurozone banks stands at €438bn, with the peripheral nations of Greece, Ireland and Portugal, which have been shut out of the private markets since the start of the year, heavily reliant on central bank funds. Greek banks, for example, have €103bn in outstanding loans from the ECB, double the amount they borrowed at the end of 2010.