So how about all that talk that it’s ‘regulation’ that’s holding back the US economy?

The regulation and govt. ‘interference’ in China is far beyond anything imaginable in the US, yet their growth rates are far beyond
anything imaginable for the US, and they manage higher levels of employment with consumption at only about 35% of GDP.

So what’s the difference?

How about Chinese annual deficits running well over 20% of GDP (state lending is functionally very close to state deficit spending) in the normal course of business?

Much like the US did in WWII?

With similar growth rates?

Ok, so 25% might be a tad too high for the kind of price stability most in the US would prefer.

And so now China is fighting a 6% inflation rate.

Hardly ‘hyper inflation’

And certainly no reason for us not to go to the 12-14% annual deficits we probably need to sustain full employment, given current credit conditions.

In other words, for the size govt. we currently have, we remain grossly over taxed.

China’s Policies Fueling ‘Growing Frustrations,’ Locke Says

 
Sept. 20 (Bloomberg) — U.S. Ambassador to China Gary Locke said the Asian country’s business climate is leading to “growing frustrations” among business and government leaders abroad, planting “seeds of doubt” in the minds of investors.

 
“There is a gap between the goals China identified in its five-year plan and the steps it is taking to achieve them,” Locke told U.S. business executives in Beijing. “Goals like expanding domestic consumption and fostering innovation require an acceleration and expansion of the economic reforms China has undertaken in the last few decades.”

 
Business groups including the Beijing-based American Chamber of Commerce in China, which hosted Locke today, are increasingly concerned that China aims to boost its companies through subsidies and anticompetitive rules at the expense of foreign companies. The European Union Chamber of Commerce in China said this month that discriminatory laws and regulations still impede its members in the world’s second-largest economy.

 
Locke said that foreign businesses face “substantial restrictions” in industries from “aviation to health care to financial services and several others.” To ease investor doubts, Locke said China should abolish restrictive practices like requiring “joint ventures in so many fields” and allowing both local and foreign companies to “make investment decisions without expansive government interference.”

 
Credit Cards

 
Access for financial firms was an area of concern, Locke said, singling out credit cards where he said China’s restrictions had created a domestic monopoly that failed to best serve consumers’ needs. State-owned banks were also skewed toward serving government-sector companies, he said.

 
“A more open and diverse Chinese financial system would help spur China’s economic reform efforts by helping finance the most dynamic firms in the economy and by putting more money in the pockets of the Chinese people through better savings options,” Locke said, according to a copy of the speech handed out to reporters before he spoke.

 
Foreign companies are shut out of industries such as mining, power generation and transportation altogether through China’s policy of selecting “national champions,” he said.

 
China’s policies deny its companies from receiving technology, management skills and jobs that more investment would bring, as well as “creating seeds of doubt in the minds of foreign investors as to whether they are truly welcome in China,” he said.

 
In a report in March, AmCham found 24 percent of respondents to an annual business climate survey said China’s economic reforms had done nothing to improve the environment for U.S. businesses in the country, up from 9 percent who said the same in a poll released last year.

 
No Equal Treatment

 
China’s government hasn’t lived up to Premier Wen Jiabao’s pledge last year that foreign companies would receive equal treatment, the EU chamber said in a report released Sept. 8.

 
Carmakers must take a Chinese partner and are limited to a 50 percent stake in their ventures, while telecommunication companies are effectively shut out from the world’s biggest mobile phone market, the report said. Foreign banks’ ownership of domestic financial firms is capped at 20 percent and overseas wind-turbine makers must tie up with local rivals on the grounds of “national security,” it said.

 
Locke said China’s reform process would be aided by letting its currency, known as the yuan or renminbi, appreciate.

 
Global Responsibility

 
“Allowing the renminbi to appreciate more rapidly would help reduce inflation, including the price of goods and services coming into China, allowing Chinese consumers to buy more with the income that they have,” he said.

 
Locke said China had a responsibility as the world’s second-biggest economy to help revive global growth, adding that reforms and greater market access were “critical to creating jobs in America.”

 
Wen this month said developed nations shouldn’t rely on China to bail out the world economy, and must cut deficits and free up their own markets. The U.S. should “ditch” protectionist measures and “open their arms” to Chinese investments, Xinhua News Agency said in a commentary today.

 
‘Houses in Order’

 
“Countries must first put their own houses in order,” Wen said Sept. 14 at the World Economic Forum in the Chinese city of Dalian. “Developed countries must take responsible fiscal and monetary policies.”

 
After serving as President Barack Obama’s commerce secretary, Locke was named as ambassador after Jon Huntsman resigned in April to run for the 2012 Republican presidential nomination.

 
Locke, 61, a former governor of Washington from 1997 to 2005, also represented the state in Congress from 1982 to 1993. From 2005 to 2008, he was a partner at Davis Wright Tremaine LLP, a business and litigation law firm that represents clients in the U.S. and China.

 
The “single largest barrier” to improved U.S.-China cooperation is the “lack of openness in many areas of Chinese society — including many areas of the Chinese economy,” Locke said.

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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Seems to me that though forecasts have been revised down, gdp growth continues to improve sequentially quarter to quarter for 2011,

q1 .5
q2 1.0
q3 1.5-2 forecast

And core cpi remains firm with the last 2.0 print.

Congress appears to accept the tax cutting elements of the jobs proposals, which would increase aggregate demand.

All this allows the fed to reflect sufficient (though cautious) optimism with regards to the economy,
giving reason to not make additional adjustments at this time, as many are anticipating.

And short and long rates are already low enough to be causing concern that they are brewing a future bubble of some sort.

Additionally, under their ‘expectations theory’,
that signal of optimism will give the economy more support than the proposed
‘monetary adjustments’ might have.

In fact, if they do make adjustments, they are concerned that will be taken as a no confidence vote from the Fed, and
could, in their minds, cause things to get worse.

furthermore, they are hesitant to make the speculated ‘final’ adjustments, and ‘use up their last bullets’ as they
are more than concerned they won’t have much effect, if any, and they want to at least keep the illusion that
there is more they can do.

But I’m only guessing at this point, and see the following outcomes:

Fed unchanged because the economy isn’t bad enough for an ease helps stocks and hurts bonds.

Fed does something shows the economy is bad enough to need help which hurts stocks and helps bonds.

And either outcome is quickly forgotten after initial market reactions.

In case you thought Sweden knew how it worked:

Sweden Pledges to Keep Budget Balanced as Economy Slows

 
Sept. 20 (Bloomberg) — Sweden pledged to keep budget
surpluses intact as Europe’s debt crisis and slowing U.S. growth
threaten to stifle the largest Nordic economy’s expansion.
Sweden’s budget will be in balance next year after a
surplus of 0.1 percent this year, Finance Minister Anders Borg
said today at a presentation of the 2012 budget in Stockholm.
The economy will grow 4.1 percent in 2011 and 1.3 percent in
2012, the same as estimated in August, he said.
“We now have the freedom to act and room to maneuver that
we need if the situation deteriorates,” Borg said. “If we end
up with a really serious downturn we should of course have some
kind of deficit but those deficits should not be so big that
they create uncertainty.”
Prime Minister Fredrik Reinfeldt said last week that his
minority government will ensure the budget steers clear of
deficits in case more stimulus is needed should the European
debt crisis deepen and global growth slows. The government last
month scrapped planned income tax cuts amid narrowing surpluses
and opposition from a majority of parliament.

It’s been more than 10 years since the economics department at UMKC (University of Missouri at Kansas City) introduced its own currency.
It’s called the buckaroo, named in sync with the school mascot, the kangaroo.
It all began when the department indicated a desire to have students contribute their time to community service.
I suggested they do it by introducing a new currency, which would both, for the most part, accomplish the intended purpose and give the students and up close and personal knowledge of currency dynamics.

It works something like this:

All students are required to submit 20 buckaroos by the end of the semester to get their grades.
Buckaroos can be earned by doing designated community service jobs.
There is no limit to how many buckaroo a student may earn.
Buckaroos are freely transferable.

First, a bit of history. In the late 1990′s, when the program began, it was reported that students had exchanged buckaroo with each other at a price of $5 each.
More recently, buckaroo have been reportedly exchanged for $15 each.

Therefore, the buckaroo has problably been the strongest ‘paper currency’ in the world, outperforming the S and P and most other investements.

There has always been ‘full employment’ in that any student can work for and be paid buckaroo at the designated community organizations without limit.

There has been a 0 interest rate policy since inception, in that the UMKC does not offer interest bearing buckaroo deposits.

The UMKC has run a continuous fiscal buckaroo deficit in that, from inception, it has always spent more buckaroo than it has collected.

The value of the buckaroo has been ‘internally stable’ from inception, in that one buckaroo has always been able to purchase 1 hour of student labor.

The buckaroo has been operating continuously in a small, open economy, with multiple other currencies trading around it simultaneously.

There has been continuous full employment with no capital controls, no trade restrictions, and no banking arrangements.

Furthermore, it has been obvious to the students that:

The buckaroo is a (simple) case of a public monopoly.
The UMCK’s buckaroo fiscal deficit is exactly equal to the buckaroos saved by the students and their associates.
The value of the buckaroo is a function of what the students have to do to earn a buckaroo from the UMKC.
The buckaroo functions first to move student labor from private to public domain.
The buckaroo has operated and sustained its public purpose independently of foreign central bank policies.

Additionally, the students have recognized how variations in outcomes from the utilization of other currencies
can be traced directly to variations in the policies of the issuers of the various currencies.

For example, it’s obvious to the students that if the UMKC attempted to run a fiscal surplus- spend fewer than the 20 buckaroo per student it required as payment to get one’s grades- the results would be highly problematic and counter to public purpose.

It’s also obvious to the students that if, for example, the UMKC started paying 2 buckaroo per hour rather than 1, the buckaroos would probably
exchange for $7.50 each rather than the current $15.00 each.

They also recognize how problematic it would be if UMKC limited its total buckaroo spending
to anything less than what the students wanted to earn
to be able to both pay the required tax of 20 buckaroo and save buckaroo as they may desire.

And they also recognize that if the UMKC decided to buy other goods and service with buckaroo from willing sellers,
they could do that, but that said purchases would tend to reduce the student labor that the community service providers would attract.

The UMKC, as well as the students, have failed to identify any public purposes that may be served by having the UMKC pay interest
on buckaroo savings, so the 0 interest rate policy remains in place.

The students fully recognize that if the UMKC ends the 20 buckaroo tax, the buckaroo will have no further value.

The students have gained an awareness of how, for example,
wealthy students can opt out of community service by purchasing buckaroo from more needy students.

They have reconized how the issues of theft and corruption influence the currency and people’s lives.

In general, the buckaroo as been a fully functioning currency that has directed student labor to community service,
and at the same time provided an invaluable educational experience to the students.

And it’s also made it obvious that the world’s leaders and their economists are necessarily subversive and/or ignorant.

thanks, well researched and much needed!!!

http://blogs.independent.ie/independent_blog/2011/09/economic-solutions-political-impediments-and-the-circus-that-we-call-europephilip-pilkington-conflicting-messages-coming-ou.html

FINANCIAL CRISIS: Deeper malaise at heart of the European project

 
PHILIP PILKINGTON

Conflicting messages coming out of euroland of late. On the one hand we have a German constitutional court ruling that any permanent action on behalf of the European authorities to stymie the current crisis and pose a risk to other countries are unconstitutional. Add to that Angela Merkel saying that eurobonds are ‘absolutely wrong’. Yet on the other hand, we have Jose Manuel Barroso, the president of the European Committee, coming out saying that a eurobond proposal is imminent. Clearly these two official statements conflict with one another.
Lying behind this latest conflict in euroland is a much deeper conflict: that between full fiscal union and breakup. Eurobonds are seen by many in the EU as the first step toward full federal integration. Sure, the proponents tell us that eurozone-wide bonds would only be issued to back the currently deteriorating position of the sovereign nations in fiscal difficulty, but it’s obvious to all that institutional reforms would have to follow.

 
Eurobonds would effectively centralise the burden of government expenditure in the eurozone. All states would back the eurobond and all states would, in turn, be backed by the eurobond. Sovereign government debt would gradually wane in importance as the European-wide bonds rose in prominence. With this would come the debate over how fiscal policy should be managed in the union. If states no longer bear the ultimate burden of financing themselves why should they be allowed to make their own taxing and spending decisions?

 
The trajectory then appears inevitable. Those in the eurozone who want to centralise fiscal policy would soon be front and center stage in the political debate. And those opposed to such centralisation would be equally to the fore. The former would argue that since member states were no longer financing themselves, fiscal responsibilities need to be given to a higher authority. While the latter would make the case that having some eurocrat in Frankfurt or Brussels involved in micromanaging the decisions of a nation state’s taxing and spending is a ghastly prospect — they might allege that it is reminiscent of the old Soviet centralised bureaucracy; now less a Politburo than a Politeuro.

 
Those opposed to centralisation would probably end up calling for the break up of the eurozone proper — that, after all, would be the logical end point of their argument.

 
So, what on earth should we do? The dangers of having a centralised fiscal authority are obvious; but the break up of the eurozone would prove remarkably unpleasant for all those involved.

 
The central question is what the eurocrats would do once they had control over fiscal policy. If they continued on as they are — as arch-conservatives geared only toward curbing inflation, even when such inflation simply doesn’t exist — they would destroy the eurozone. Simple as. Trade imbalances and an uneven economic landscape necessitate government surpluses to be run in some countries and deficits in others. To think otherwise is to think in moral terms rather than economic terms. But if the eurocrats did continue in their highly conservative — dare I say, unrealistic — tracks, we would have constant fiscal crises on our hands and eventually member states who were not allowed to run necessarily loose fiscal policies would drop out of the union.

 
What the eurozone needs is a central authority with an extremely flexible fiscal policy. Without this the project is doomed from the outset and we may as well just start looking for the cheapest way to get out now before further costs are incurred.

 
In fact, the eurozone already has an institution that can effectively allow such a flexible fiscal policy to be pursued: the ECB. The ECB, like it’s US cousin the Federal Reserve, has control over the issuance of currency and in that capacity it can effectively pay for anything it wants — provided, of course, that which it pays for is denominated in the currency it issues (Euros, in the case of the ECB). This simple fact comes as a shock to many, but consider what former Federal Reserve chairman Alan Greenspan recently said regarding the Fed:
“The United States can pay any debt it has because we can always print money to do that,” said Greenspan in an interview with Meet the Press recently.

 
Well, the same is true for the ECB. They have the legal mandate to create as much currency as they see fit and that currency can be effectively used to pay for anything that is denominated in said currency; that includes national government debt. It follows from this that the ECB can, in fact, create any amount of money that can then be used to retire the government debt of those sovereigns now facing default and crisis. This is a much simpler solution than eurobonds because it doesn’t pose any risk to other eurozone countries. And it can also be used in order to ensure fiscal flexibility in the future and ensure that the eurozone prospers rather than collapses.

 
This proposal was originally put together by economist and government bond expert Warren Mosler. Here’s how it would work:

 
The ECB would create €1trn on an annual basis and distribute it among the eurozone nations on a per capita basis. So, Germany, since it has a larger population, would get more than, say, Ireland. Each country would then use their newly acquired funds to begin paying down their stock of public sector debt. When they reached a reasonable level of debt — say 60% debt-to-GDP — the transfers would either discontinue or could be renegotiated to allow compliant countries to spend them (provided, of course, there are no major inflationary pressures in the eurozone at the time).

 
Since the payments take place on an annual basis the ECB and other European authorities could use them as leverage over the sovereign nations to ensure that they complied with responsible deficit targets. This would be far more effective than the current system — which effectively fines member-states for non-compliance — as the penalties for non-compliance would be immediately visible and would not require time-consuming legal and administrative action.

 
This all seems so simple, so what are the objections? Why won’t the ECB do this and solve the crisis?

 
Well, economically speaking the problems are basically non-existent. We’ve learned from the Quantitative Easing (QE) programs in the US and Britain (as well as in Japan some years ago) that so-called ‘debt monetisation’ is not inflationary. Buying up government debt certainly increases the amount of bank reserves in the private sector and according to the old economics textbooks this should lead to increased lending and thus inflation. But such inflation simply has not occurred in either country (yes, there is some inflation in Britain right now but this is largely due to oil/food price increases and VAT rises — it is NOT ‘demand-pull’).

 
This revelation is both surprising and important. Recent studies by economists working within central banks show that mainstream economists have basically been getting the whole thing wrong. In reality expanding bank reserves will not increase lending and so it is not inherently inflationary. Consider this paper by economists at the Bank of International Settlements (BIS) — known among economists as ‘the central bank’s central bank — published in late 2009. The authors write:

 
“The preceding discussion casts doubt on two oft-heard propositions concerning the implications of the specialness of bank reserves. [These are] first, [that] an expansion of bank reserves endows banks with additional resources to extend loans, adding power to balance sheet policy. Second, there is something uniquely inflationary about bank reserves financing.”

 
The authors continue:

“In fact, the level of reserves hardly figures in banks’ lending decisions. The amount of credit outstanding is determined by banks’ willingness to supply loans, based on perceived risk-return trade-offs, and by the demand for those loans. The aggregate availability of bank reserves does not constrain the expansion directly.”

 
So much for the inflation argument!

 
The other argument is that such debt monetisation might lead to a devaluation of the currency in question. If there are more Euros floating around the banking system, even if they aren’t spent into circulation, their value will decrease. In actual fact there is no evidence of any direct link between exchange-rate depreciation and the creation of money.

 
This doesn’t mean that depreciation may not occur due to monetisation but it does mean that we have to consider other variables. For example: what are the trade-off effects? If no action is taken and the eurozone crisis continues to spiral out of control will the currency depreciate anyway? You can bet your socks on that! So, exchange-rate issues are far more complex than simply ‘more money = devalued currency’.

 
In fact, the objections to this sort of plan are typically moral rather than economic in nature. Many commentators have begun to realise that a great deal of the discourse that has cropped up around the eurocrisis is not actually economic at all — it is moral. This is phenomenon about which economic commentators can say little, although it is a very real problem. However, if such moralising leads the eurocrats and the politicians to fiddle while Rome burns we may very well see the ECB creating bank reserves to backstop the banks anyway if a default occurs. Such will be messy. And we have seen it can be avoided. But what can one do? If nothing else necessity is certainly the mother of invention.

With the super committee on deficit reduction now in session,
let’s not forget that at year end
both parties showed that they will violate their presumed ‘core values’ when convenient.

This was written in February.
At year end I was suggesting the year end tax package might slow the economy due to ‘multipliers’ even though the headline numbers showed a tax reduction.

http://tax.com/taxcom/taxblog.nsf/Permalink/UBEN-8E3J74?OpenDocument

Obama and the GOP: United Against the Working Poor
David Cay Johnston | Feb. 14, 2011 11:57 AM EST

 
Who says bipartisanship is dead?

 
On Capitol Hill, the Democrats and Republicans may no longer play cards and drink together, but that does not seem to stop them from working together to shift tax burdens down the income ladder even when it violates their promises on the campaign trail.

 
Grover Norquist calls bipartisanship the political equivalent of date rape. But there is one group that President Obama, many congressional Democrats, and all congressional Republicans ganged up on in December — the working poor.

 
The tax compromise passed in December has been hailed everywhere as a payroll tax cut combined with an extension of the Bush tax cuts, despite the fact that it raised taxes on a third of Americans. The killing of Obama’s Making Work Pay tax credit, which the White House called the biggest middle-income tax cut ever, and the replacement of it with the Republicans’ payroll tax cut raised taxes on single workers whose wages come to $20,000 or less and married couples with less than $40,000 in wages.

 
That’s 51 million taxpayers, the Tax Policy Center estimated. (See Table T10-277.)

 
Among the poorest fifth of tax units, whose annual cash income is less than $17,878, two-thirds got hit with a tax increase. On average, their taxes went up $134, which is 1.3 percent of this group’s total cash income.

 
Consider a single worker who makes $6,000. That was the average wage of the bottom third of workers in 2009, the Medicare tax database shows. Killing the Making Work Pay credit in favor of the payroll tax cut amounted to a tax increase of $252, or 4 percent of total income.

 
Looked at another way, some workers will labor for 23 days this year and next just to pay increased taxes.

 
The pattern of the Republican-Obama tax plan is a clear stepladder in which the more you make, the more you benefit, and the less you make, the more you pay. This is a form of socialism: upward redistribution to enrich those at the top.

 
While two-thirds of the poorest Americans — the ones getting by on less than $1,500 a month — face a tax increase, the share of people hit with tax increases falls off quickly as you move up the income stepladder.

 
In the next lowest quintile, taxpayers with cash incomes of under $35,000, 40 percent saw their taxes rise, while in the middle quintile (under $64,000), one in five got a tax increase. In the fourth quartile (under $104,600), one in eight got a tax hike, and in the top quartile, one in 20 did.

 
At the top, just 1.8 percent of the top 1 percent (more than $564,600) were hit with a tax increase. Just 1.3 percent among the top tenth of 1 percent (more than $2 million) got a tax hike. These best-off one in 1,000 Americans got a tax cut worth on average $45,000 each, all financed with borrowed money.

 
In raising taxes on the working poor (and the just plain poor), our supposedly socialist president proved himself at one with Ronald Reagan, the subject of all sorts of hagiography this month on what would have been his 100th birthday. Hardly any of the effusive praise points out that while Reagan polished his image as a tax cutter, he was in fact a tax raiser par excellence who presided over a massive expansion of government spending that primarily benefited the affluent and rich.

 
Reagan raised taxes in seven of the eight years he was governor of California, including when he abandoned his “taxes should hurt” rhetoric to impose withholding so he could expand state spending on the Highway Patrol and other policing. In Washington, Reagan presided over 11 increased levies.

 
The perpetually obsequious Washington press corps let his administration call these tax increases “revenue enhancers.” The late Murray N. Rothbard, a hero to libertarians and self-proclaimed dean of the Austrian school of economics, called this Reaganism “a nice touch of creative Orwellian semantics.”

So far looks like a soft landing, as they seem to be successfully regulating state lending, which in China is akin to deficit spending,
sufficiently to slow things down just enough to cool demand just enough to take the edge off of their inflation problem.

So while ‘it’s not over until it’s over’ so far it’s looking promising.

China consumer, business sentiment slips: survey
Sept 16 (MarketWatch) — Chinese households and entrepreneurs are beginning to feel less upbeat about the future, but analysts are divided over whether the mood shift could soon warrant moderate policy easing as authorities seek to cushion the economy from a rapid slowdown.

 

Sentiment among households, entrepreneurs and bankers weakened in the most recent quarter, according to a survey by the People’s Bank of China released earlier this week.

 
Households’ inflation expectations nudged up to 74.8 from 72.2, while the outlook for income expectations and job expectations declined 50.3 from 52.1, according to the PBOC survey.

 
Meanwhile, confidence among bankers eased to 54.9 from 57. Most of those polled believe further monetary-policy tightening was on the way, with interest rates set to rise in the fourth quarter.

 

Entrepreneurs’ confidence was battered by higher input costs, slowing orders, and harder-to-access credit. Business confidence fell to 70.2 from 75.8 in the prior quarter.

 
Daiwa Capital Markets analysts said the deteriorating sentiment suggests the PBOC will allow domestic banks to ramp up new lending by an additional 500 billion yuan ($78.32 billion) in the fourth quarter.

 
The higher loan growth should be seen as “fine tuning” of policy toward a “more balanced approach,” the Daiwa analysts said.

 
“The purpose of this loosening is to avoid a hard landing, rather than to engineer another economic boom,” Daiwa said in a note Thursday.

It remains my position that Congress should not allow the Fed
to lend unsecured to foreign central banks without specific Congressional approval.

But the Fed does currently have that authority and they are again using it to keep $ libor from rising.
And that lending must be in unlimited quantities to insure $ libor is capped at the Fed’s target rate.

The Fed doesn’t want $ libor to go up because many US domestic loans are indexed to $ libor,
including adjustable rate mortgages.

That’s why I’ve been proposing the Fed not let its member banks index loans to $ libor, but instead
let them index to the fed funds rate, or some other rate controlled by the Fed.

That would return direct control of US $ interest to the Fed, obviating the need to use unsecured (and unlimited)
$US lending to foreign central banks.

By the way, when testifying to Congress the Fed Chairman states the lending is secured, with the Fed getting euro deposits as collateral.
And he believes that.

However, the euro are on deposit at the European Central Bank, who is also the borrower of the $ from the Fed.
So if he ECB defaults on the $ loans,
the only way the Fed could use those euro
is by instructing the ECB to transfer them to another’s account so the Fed can buy the dollars it wants.
So what are the odds of the ECB even taking the call from the fed if they just defaulted on it’s dollar loans from the Fed?
And what can the Fed do if the ECB doesn’t make payment and won’t let the Fed use its euro at the ECB to buy dollars?

It’s like lending your dollars to someone in a far away land who uses his watch for collateral.
But he gets to keep wearing the watch, and he’s out of your legal jurisdiction.

http://blogs.independent.ie/independent_blog/2011/09/bailouts-are-wily-germans-really-looking-for-the-fire-escape-.html

Valance Weekly Report

(To download PDF, right click link and select save link as)

Highlights
US – Initial Claims disappointed
EU – The ECB cut its growth forecast
JN – Q2 Real GDP Revised Lower
UK – Jobless-benefit claims continue to rise
CA – Lost jobs in August
AU – Unemployment rate rising
NZ – Manufacturing sales fell in Q2

Income Slides to 1996 Levels in U.S. The income of the typical American family—long the envy of much of the world—has dropped for the third year in a row and is now roughly where it was in 1996 when adjusted for inflation.

Interesting story, in that I’ve heard indirectly that my book,
The 7 Deadly Innocent Frauds of Economic Policy,
has been making the rounds at the Treasury as well as the Fed and other agencies,
and,
most interesting,
staffers who say they’ve read it asked that their names not be revealed.

Treasury to Accommodate Fed on ‘Twist’
Published: Wednesday, 14 Sep 2011 | 5:47 AM ET

 
The US Treasury would effectively accommodate a possible Federal Reserve stimulus to drive down long-term interest rates, according to people familiar with the matter.

 
The Treasury would play a crucial role if the Fed decided to launch “Operation Twist”, where the central bank would buy more longer-term Treasury securities to drive down long-term interest rates by reducing the amount of such debt available to other investors.

Ponzi would be if the govt. was dependent on borrowing to make payment.

The US Congress spends by instructing the Fed to credit someone’s member bank account at the Fed.
This process is operationally independent from taxing and/or borrowing.
It is not dependent on revenues of any sort.

All Social Security payments are a matter of the Fed entering data on its computer.

That is, all Federal spending can be said to be ‘printing money’.
And Federal taxing can be said to be ‘unprinting money’.

Also, Federal borrowing is nothing more than the shifting of dollars from reserve accounts at the Fed to securities accounts at the Fed.
And paying down the Federal debt is nothing more than the shifting of dollars from securities accounts at the Fed to reserve accounts at the Fed.
Neither is involved in the actual making of payments by the Fed.

Bottom line, the notion of Ponzi isn’t applicable when it comes to the issuer of the currency.

Greece, the US states, corporations, and individuals are users of the currency and can be in Ponzi.
The Fed, Bank of Japan, Bank of England, and European Central Bank are issuers of their own currency,
so for them Ponzi does not apply.

Please forward this to the Republican candidates, the President, and all members of Congress, thanks.

Ok news so far for August, some slowing but no sign of a hard landing yet!

On Tue, Sep 13, 2011 at 8:03 AM, Evelyn Richards wrote:
 

HIGHLIGHTS
-China’s retail sales up 17% in Aug
-China’s fixed asset investment up 25% in Jan-Aug
-Yuan Forwards Decline Most in a Month on Greece Debt Concern
-China Aims to Play Role in Stabilizing Europe, Researcher Says
-China August Fiscal Revenue Rises 34.3% on Year, Ministry Says
-China Called on as Emergency Lender as Italy Faces Crisis
-China unlikely to loosen monetary policy
 

China’s retail sales up 17% in Aug
Sep. 13, 2011 (China Knowledge) – China’s retail sales reached RMB 1.47 trillion
in August this year, up 17% year-on-year, said the National Bureau of
Statistics.

Total retail sales in urban areas rose 17.1% year-on-year to RMB 1.28 trillion
last month, while retail sales in rural areas rose 16.4% to RMB 192.2 billion in
the same period.

Retail sales in the catering industry also grew and increased to 16.7%
year-on-year to RMB 171.7 billion in August, while retail sales of consumer
goods rose 17% to RMB 1.3 trillion.

Last month, the retails sales of automobiles continued to top the country’s
retails sales list, reaching RMB 174.6 billion, up 12.4% year-on-year, while
retail sales of oil and related products came in second, hitting RMB 126.7
billion, with a growth of 38.4%.

In the first eight months of this year, the country’s retail sales totaled RMB
11.49 trillion, 16.9% more than in the corresponding period of last year.
Retails sales of automobiles grew 14.9% to RMB 1.29 trillion during the period,
and retail sales of oil and related products amounted to RMB 928.2 billion,
39.5%.
 

China’s fixed asset investment up 25% in Jan-Aug
Sep. 13, 2011 (China Knowledge) – China’s total fixed asset investment surged
25% year on year to RMB 18.06 trillion in the first eight months of this year,
according to statistics released by the National Bureau of Statistics.

The growth rate was 0.4 percentage points lower than that in the first seven
months.

Last month, the country’s fixed asset investment climbed 1.16% from July.

Fixed asset investment in primary industry saw a 23% increase, hitting RMB 417.6
billion, while investment in secondary and investment in tertiary industry grew
27% and 23.6% year on year to RMB 7.92 trillion and RMB 9.73 trillion,
respectively, according to the latest statistics.

The country’s investment in the industrial sector jumped 26.6% year-on-year to
RMB 7.71 trillion, including RMB 638.9 billion in the mining sector and RMB 6.24
trillion in the manufacturing, up 15.9% and 32.2% year on year, respectively.
The power, gas and water producing and supplying industry saw its fixed-asset
investment climb 1.9% year on year to RMB 833.5 billion in the first eight
months.

In the first eight months, investment in real estate development surged up 33.2%
year on year to RMB 3.78 trillion.

Meanwhile, fixed asset investment in China’s eastern, central and western areas
booked notable year-on year increases of 22.6%, 30.1% and 29.4%, respectively.
 

Yuan Forwards Decline Most in a Month on Greece Debt Concern
Sept. 13 (Bloomberg) — China’s yuan forwards dropped the
most in a month amid speculation Greece is nearing default,
which may prompt policy makers to slow the currency’s
appreciation.
The People’s Bank of China set the daily reference rate
0.09 percent lower today, the most in almost four weeks, as
Asian currencies weakened. The chance of a default by Greece in
the next five years has soared to 98 percent as Prime Minister
George Papandreou fails to reassure investors that his country
can survive the euro-region crisis, credit-default swaps showed.
“What you may see actually is a weaker pace of
appreciation,” said Leong Sook Mei, regional head of global
currency research at Bank of Tokyo Mitsubishi UFJ Ltd. in
Singapore. “There was lots of risk aversion with regards to the
Greece issue. The overall trend of appreciation won’t stop as
yet until we see decisive signs of Chinese growth coming off and
inflation easing.”
Twelve-month non-deliverable forwards slid 0.33 percent to
6.3305 per dollar as of 4:58 p.m. in Hong Kong, according to
data compiled by Bloomberg. The premium to the onshore spot rate
was 1.1 percent, compared with 1.2 percent yesterday.
The yuan dropped 0.17 percent to 6.3991 per dollar in
Shanghai, according to the China Foreign Exchange Trade System.
In Hong Kong’s offshore market, the yuan declined 0.02 percent
to 6.3855.
A central bank statement yesterday that inflation is still
too high is “hawkish,” Tim Condon, head of Asia research at
ING Groep NV, said in an e-mailed note today.
Policy makers will want to see a second consecutive month
of lower headline inflation before declaring “victory,” Condon
wrote. He reiterated the bank’s call for one more 25-basis point
increase in benchmark interest rates by the end of the year.
China’s inflation eased in August, rising 6.2 percent from
a year earlier, compared with 6.5 percent in July, which was the
fastest since June 2008.
 

China Aims to Play Role in Stabilizing Europe, Researcher Says
Sept. 13 (Bloomberg) — China is playing its role as a
responsible major world economy and is trying to help stabilize
global confidence by supporting European governments, Zhang
Yansheng, a researcher affiliated with the nation’s top economic
planning agency, said today.
Chinese policy makers are thinking in a “global context”
and about the need to prevent a “domino effect” in the debt
crisis, Zhang said in Beijing today when asked to comment on
reports that China is in talks to make investments in Italy that
may include government bonds. If Italy “falls” it may drag
down Europe, the world and China’s economy, he said.
There is a limit to what China can do to help, Zhang said.
Zhang, who is a researcher at the Institute of Foreign
Economic Research affiliated to the National Development and
Reform Commission, said he was giving his own views on the
matter.
 

China August Fiscal Revenue Rises 34.3% on Year, Ministry Says
Sept. 13 (Bloomberg) — China’s August fiscal revenue rose
34.3 percent from a year earlier to 754.6 billion yuan and
fiscal expenditure rose 25.9 percent to 807.7 billion yuan,
according to a statement on the Ministry of Finance’s website
today.
Fiscal revenue for the first eight months this year rose
30.9 percent to 7.4 trillion yuan, the statement said.
 

China Called on as Emergency Lender as Italy Faces Crisis
Sept. 13 (Bloomberg Businessweek) — China’s status as the fastest- growing major economy and holder of the largest foreign-exchange reserves lured another bailout candidate as Italy struggles to avoid a collapse in investor confidence.

Italian officials held talks in the past few weeks with Chinese counterparts about potential investments in the country, an Italian government official said yesterday, adding that bonds weren’t the focus. Finance Minister Giulio Tremonti met with Chinese officials in Rome earlier this month, his spokesman Filippo Pepe said by phone today, declining to say exactly when the talks took place or what was discussed.

Foreign Ministry spokeswoman Jiang Yu, asked about buying Italian assets, said Europe is one of China’s main investment destinations, without specifically mentioning Italy.

Italy joins Spain, Greece, Portugal and investment bank Morgan Stanley among distressed borrowers that turned to China since the 2007 collapse in U.S. mortgage securities set off a crisis that widened to engulf euro-region sovereign debtors. Stocks rose on the potential Chinese investment in Italy even as previous commitments failed to have a lasting impact.

“It’s a clear pattern of China’s intention to help stabilize the euro area,” said Nicholas Zhu, head of macro- commodity research for Asia at Australia & New Zealand Banking Group in Shanghai and a former World Bank economist. “The benefit to China is that it will help in the perception of host countries if China is viewed as a responsible stakeholder in the global community.”

Bond Auction
Italy today is auctioning as much as 7 billion euros ($10 billion) of bonds to help pay for 14.5 billion euros of bonds maturing on Sept. 15. The euro region’s third-largest economy sold 11.5 billion euros of bills yesterday and priced its one- year notes to yield 4.153 percent, up from 2.959 percent at the previous auction last month.

The yield on Italy’s 10-year bond rose to 5.69 percent as of 10:01 a.m. in Rome, pushing the spread with the equivalent German securities up 13 basis points to 396 basis points. The MSCI Asia Pacific index of stocks advanced 0.3 percent as of 4:50 p.m. in Tokyo after the Standard & Poor’s 500 index gained 0.7 percent overnight.

Chinese Image
For China, any purchases of European debt may allow the world’s largest exporter to be seen as helpful as it rebuffs calls to allow its exchange rate to appreciate at a faster pace. The world’s second largest economy has amassed record currency reserves of $3.2 trillion by selling yuan to limit gains.

Chinese policy makers are thinking in a “global context” and about the need to prevent a “domino effect” in the European debt crisis, Zhang Yansheng, a researcher affiliated with the nation’s top economic planning agency, said today.

China’s central bank referred questions to the State Administration of Foreign Exchange, which didn’t respond to a request for comment. China Investment Corp., the nation’s sovereign-wealth fund, also didn’t respond.

Italy’s bond-yields rose to a euro-era record last month as the region’s sovereign debt crisis spread from Greece, the first to receive a European Union-led bailout. Prime Minister Silvio Berlusconi’s government rushed a 54 billion-euro austerity package to convince the European Central Bank to buy its debt.

Redemptions
Even so, the size of Italy’s debt — at 1.9 trillion euros more than Spain, Greece, Ireland and Portugal combined — leaves it vulnerable to any rise in borrowing costs as it refinances maturing securities. The country still needs to sell about 70 billion euros of debt this year to cover its deficit and finance redemptions.

“We have heard this story before with regard to the likes of Spanish and Portuguese bonds, and in the end it was ECB buying and EU bailouts that seemed to have taken place rather than anything with a Chinese influence,” Gary Jenkins, a strategist at Evolution Securities in London, wrote in a research note.

Any Chinese purchases of euro-region debt to date haven’t produced a lasting cut in yield premiums for Greece, Portugal or Spain.

The extra yield investors demand to buy Greek 10-year debt over German bunds is about 23 percentage points, up from 14 percentage points three months ago. The equivalent spread for Portugal over Germany is 9.5 percentage points, up from 7.7 points over that period. Spain’s gap rose to 3.6 points from 2.5 points.

Too Big
“The issue with Europe is bigger than China alone can help with,” said Ju Wang, a fixed-income strategist at Barclays Capital in Singapore, adding that Italy’s debt load alone is a sum exceeding half the Chinese foreign-exchange reserves. “China probably will continue to help to shore up the euro, but its involvement in direct purchases of troubled Europe debt is unlikely to be too aggressive.”

If Italy “falls” it may drag down Europe, the world and China’s economy, said Zhang, a researcher at the Institute of Foreign Economic Research affiliated to the National Development and Reform Commission.

Japanese Finance Minister Jun Azumi said today that European policy makers should decide themselves whether they need fiscal assistance from Japan. U.S. Treasury Secretary Timothy F. Geithner will travel to Poland on Sept. 16 to participate in a meeting of European government finance officials trying to contain the region’s debt crisis.

‘Helping Hand’
Premier Wen Jiabao said in June that China can offer “a helping hand” to Europe by buying a limited volume of sovereign bonds. The Asian nation pledged that month to buy Hungarian government bonds and agreed to extend a 1 billion euro loan for the financing of development projects in the European country that needed an International Monetary Fund-led bailout in 2008.

Spain’s prime minister secured a Chinese pledge to invest in his nation’s faltering savings banks and in government debt on an April visit to Beijing.

In October, Wen said China will buy Greek bonds to support Greece’s shipping industry, while Chinese state-run banks agreed to $267.8 million in loans to three Greek shippers. President Hu Jintao visited Portugal in November and said China is “available to support, through concrete measures, Portuguese efforts to face the impacts caused by the international financial crisis.”

Diversification
Any Chinese purchases of euro-denominated debt may help it diversify its reserves away from dollars. The biggest foreign owner of U.S. government debt has doubled its holdings of Treasuries in the three years through June to about $1.17 trillion.

China is playing a “white knight” role in assisting Europe and buying itself goodwill that will enable it to purchase more sensitive European assets such as technology companies, according to Stamford, Connecticut-based Faros Trading in a June report. The European Union still has an arms embargo on China, imposed after the Tiananmen Square massacre in 1989.

Some of China’s investments have returned losses. China Investment Corp. paid $3 billion for a 9.4 percent stake in private equity firm Blackstone in 2007 at a 4.5 percent discount to its initial public offering price of $31. The stock traded at $12.31 yesterday, which translates to a loss of more than $1.7 billion loss for China, according to data compiled by Bloomberg.

CIC, as the wealth fund is known, widened its investment horizon to 10 years from five years, the company said in July.

“They are trying to be helpful by diversifying a little within the euro zone community,” Michael Spence, a Nobel laureate in economics, said while attending a conference in Beijing today. “With relatively high yields, if there is a credible plan in Italy — Italy has very low private debt, its public debt is relatively stable if they adopt sensible policies — so could be quite a good investment as well.”
 

China unlikely to loosen monetary policy
Sept 13 (The Australian) – CHINA’s central bank says stabilising prices remains its priority, reinforcing signs that Beijing is unlikely to loosen the reins on the world’s No. 2 economy any time soon despite mounting global uncertainties.

In a statement last night, the People’s Bank of China also gave fresh acknowledgment that its traditional measuring tools have failed to keep up with recent changes in the Chinese financial system. The bank said it is considering issuing an adjusted version of its benchmark measure of the supply of money in the economy to help plug the resulting gaps.

The PBOC’s statement came after economic data over the previous three days showing growth and inflation both easing somewhat, but remaining strong.

The data reinforced a growing consensus among economists that Beijing has likely pressed pause on any big monetary policy moves — after a series of rate increases over the last year — as it balances concerns about the weakness in advanced economies like Europe and the US against ongoing wariness over consumer prices at home.

“There is some control over the causes of rising prices, but they haven’t been eliminated,” the PBOC said last night. “Inflation remains high and stabilising prices remains the top macro-control policy.” The bank said China needs to continue its “prudent” monetary policy and maintain steady and appropriate credit growth.

Data issued by the PBOC on Sunday showed that money-supply growth slowed further last month, which the central bank said was in line with its “prudent” monetary policy. China’s broadest measure of money supply, M2, was up 13.5 per cent at the end of August from a year earlier, slower than the 14.7 per cent rise at the end of July, and below economists’ expectations of 14.5 per cent.

But the PBOC’s statement last night also said it is researching the addition of an “M2-Plus” measure of money supply, because the current M2 measure — which gauges bank deposits and cash in circulation — doesn’t capture funds in wealth management products, which have expanded dramatically this year. That means the M2 readings have understated the total growth in money, which is a factor in inflation.

“The official M2 growth number has become a little less reliable than it once was,” said Standard Chartered economists Li Wei and Stephen Green in a research note last week.

The PBOC noted that growth in lending hasn’t been slow so far this year, pointing out that bank lending in August was up about 10 billion yuan ($1.5bn) from the same month last year, when monetary policy was still loose.

“Overall liquidity conditions are appropriate and banks’ provision levels are normal,” the PBOC said. China’s financial institutions issued 548.5bn yuan of new yuan loans in August, up from 493bn yuan in July and above economists’ expectations of 500bn yuan.

China’s consumer price index rose 6.2 per cent in August from a year earlier, slowing from July’s 6.5 per cent increase, which was the fastest rise in more than three years.

While lending was up in August, helping to sustain the economy and avoid a hard landing, seems that might not be repeated in September:

China Bank Lending Quickens as Tightening Relaxes

China’s bank lending quickened to 548.5 billion yuan in August, rebounding from a seven-month low of 492.6 billion yuan in July, due to a slight relaxation in Beijing’s credit tightening campaign.
 

But inflation, not growth, remains the top concern for Beijing and China’s central bank is unlikely to alter its current “prudent” monetary policy stance, analysts said.
 

“August lending was stronger than expected, but it’s too early to say that the central bank is ready to relax,” E Yongjian, an economist with the Bank of Communications in Shanghai, said.
 

“As inflation is relatively high and the external environment remains uncertain, the central bank is expected to maintain its current stance, but it is unlikely to take any big moves like an increase in interest rate or the required reserve ratio,” he added.
 

Sources told Reuters earlier that the People’s Bank of China (PBOC) has punished some state lenders with “designated bills” for lending too much in August.
 

China’s broad money supply, M2, rose 13.5 percent, slowing down further from 14.7 percent in July, the central bank said on Sunday.

Interesting day so far.
Stocks down, interest rates down, commodities down, including gold (seems the found Hugo’s gold?) but the euro is up some, after falling some last week.

With federal deficits too low most everywhere, it’s like a general crop failure, with the question being which crops will go up the most vs each other.

Not easy to say, but the euro has to be a bit of a favorite given the sincerity and intensity of their commitment to austerity/deficit reduction? And their new good buddies, the Swiss, now helping out by buying euro as others buy their currency with their new cap in place.

However lower crude and product prices do help the US more than the rest, so that’s a factor that gives the dollar an edge. And the portfolio shifting/speculation/trend following in illiquid markets can overpower the underlying fundamentals as well medium term.

And the dollar and the euro are seeing bids from China and Japan now and then as those nations work to protect their softening export markets.

My least favorite currency longer term may be the yuan, with its inflation issue and ongoing deficit spending, both direct and via state bank lending, though they too seem to be cutting back some. But until FDI (foreign direct investment) lets up, those ‘flows’ continue to support the yuan.

And commodity currencies are in a class of their own, weakening with weakening commodity prices.

It’s also noteworthy that the deflation is coming at a time when central banks, for all practical purposes, can’t be much more inflationary by (errant) mainstream standards of measurement. Unfortunately, however, it’s not that they are out of bullets, it’s that the presumed lethal live ammo has turned out to be blanks, with mounting evidence that the gun was pointed backwards as well.

The obvious answer is a simple fiscal adjustment- just a few keystrokes on the govt’s computers can immediately restore aggregate demand/employment/output- but they’ve all talked themselves out of that one.

However it’s not total doom and gloom.
For example, the US deficit is large enough to muddle through with decent corporate earnings and a bit of minor ‘job creation’ as well.

And sequentially, GDP is slowly improving: .5 q1, 1.0 q2, and maybe 1-2% for q3.
Good for stocks, not so good for people, but the bar is now set so low and the understanding so skewed that ‘blood in the streets’ isn’t yet even a passing thought, so don’t expect much to change any time soon.

And standby for the ECB writing the next check, no matter how large, to keep that all muddling through as well.

JOBS CRISIS: Will NewERA really get Ireland back to work?

By Philip Pilkington

Sept 12 (Independent) — Last week President Obama announced a new $450bn stimulus program to promote US job growth and help kickstart the economy. Stirrings from within financial community and commentary from Nobel Laurete Paul Krugman – the two most reliable sources on such matters– indicate that this measure isn’t nearly big enough, but its certainly a step in the right direction.

Meanwhile in Ireland, Minister for State Fergus O’ Dowd announced… well, he announced an announcement. In an interview on Thursday he said that an announcement on the status of the NewERA project – which aims to directly create jobs in Ireland – is ‘imminent’.

So how does the cleverly named NewERA (standing for Economic Recovery Act) add up as a stimulus programme?

The project was originally supposed to be of the order of around €4bn but this figure has recently come under scrutiny from the press who say that senior government ministers indicate that it might be ‘watered down’ due to internal government as well as EU/IMF pressure. Even if the €4bn figure pulls through that’s still only around 2.5% of GDP. That’s less than Obama’s latest offering which, as stated above, is probably insufficient for the US – let alone Ireland, which is in far worse shape.

NewERA is set to be funded through two mechanisms. The first is by raising money by selling off state assets. While all the money from ‘privatisation’ was supposed to go toward paying down government debt, wily negotiators convinced the IMF to slip them a bit on the side to go toward this new investment project.

The second revenue stream is borrowed money from the National Pension Reserve Fund – a fund that has become something of a government piggy-bank since the financial crisis hit in 2008.

The key thing to note is that the NewERA project is that it is not a stimulus package in the typical sense of the term. Stimulus packages are usually implemented by governments using fiscal policy — that is, the government’s ability to create and spend money into the economy. In recessions such stimulus is undertaken by governments running budget deficits.

This means that the government spends money without immediately levying taxes on anyone. This is important as it adds new money into the economy rather than simply taking money out and then recycling it back in. We will return to this very important point in a moment, for now let us take a look at the project itself.

The focus of the project is on infrastructure. To say that such a focus on infrastructure is welcome would be a vast understatement.One of the targets is water infrastructure which, to anyone who has had their water cut off during the cold Irish winter, is of obvious importance.

Another is energy – with a focus on clean, renewable energy – which, given the rising energy prices, will be welcomed by everyone. And finally we have a project to improve broadband access across the country — an extremely important prerequisite to having businesses invest in any given location these days.

Such a focus on infrastructure will also ensure that many of the jobs go to laid-off construction workers. This is the perfect demographic to target as when the housing mania went down the drain so too did many construction jobs, giving rise to high unemployment levels among this group.

Another important aspect to the project is that it will get the debate going on fiscal stimulus. It will also ensure that there is an active government organisation in place to lobby for and help initiate stimulus plans in the future.

This really is one of the most important aspects of the project because, small as it currently is, when the world economy starts getting back on track and international leaders start getting their acts together, we will all (hopefully) have learned our lessons from the last financial crisis and will not rely on asset price bubbles to stimulate — or should I say simulate — economic growth.

This means that governments will have to play an increasingly large role in economies in order to ensure sufficient demand without sending households on any more debt binges. Governments will likely not just have to intervene in terms of regulating banking institutions but also through direct investment to ensure that economic growth continues at a reasonable level without demanding massive private sector indebtedness.

The Japanese, for example, who have been suffering for years after a massive housing and stock bubble burst in 1991, have learned this lesson well. The NewERA project will ensure that there is a precedent for powerful, streamlined government-led investment projects that help-out rather than crowd-out private sector activity. Such projects will be key to stabalising all developed economies in coming decades.

The only issue that can really be taken with the NewERA project is how it’s being funded. Selling off state assets during a slump is never a good idea — “No one would sell assets in this environment,” mumbled one minister in a Dail debate on NewERA this year. And dipping into the National Pension Reserve Fund is a bad habit.

However, the government have little choice and, although this will only provide a very short-term stimulus, it is probably one of the single best economic policies to come out of the current Fine Gael/Labour government so far.

But the obstacles currently faced on spending for the NewERA project will become increasingly apparent as time wears on. When we entered the Euro we gave up our ability to issue currency and with it our ability to spend without revenue constraints – now, as in the case of the NewERA project, we essentially have to make do with what we have.

This will become more and more of a burden in the future as the Irish government gradually learn from the Japanese and come to realise that the only realistic way for households to pay down debt is for the government to increase its spending.

If the Europeans continue to ignore this simple but powerful truth and keep calling for austerity, the Irish will have to do something about this themselves. There are a few options on the table in this regard without dropping out of the eurozone. One is the issuance of ‘Mosler bonds’.

These are government bonds backed with the guarantee that should the government default, the bonds will be accepted to extinguish tax liabilities. There is good reason to believe that these would give the Irish government significant fiscal policy space by driving down yields on bonds as they became a ‘sure thing’ for investors (such a plan would also prevent default).

Other options– such as running a parallel currency – will be discussed by major international figures, including former member of the Bank of England’s Monetary Policy Commitee and leading London School of Economics economist Charles Goodhart, at a conference taking place on the 22nd and 23rd of this month at the Mont Clare Hotel in Dublin.

And a good thing too, as even though all the talk is currently focused elsewhere, this will soon become a pressing national policy concern that people will simply not be able to ignore.

More information on the conference can be found at: http://www.feasta.org/debt-conference or contact info@feasta.org..

The US government currently owes about $14.2 Trillion. Who did we borrow that money from, and how did those financiers get that money?

Has that money always been on earth? If not, then where did it come from? Did somebody issue it into existence? If so, then by what authority did they do so, and for what reason do nations lack that authority?

This is an excellent question. Where does the money that the Government borrows come form? And the answer is: It comes from the Treasury and the Fed! And it cannot come from any other source. This is what so few people realize, perhaps because economists are too reluctant to explain.
 

When the Government ‘borrows’, it sells Treasury securities and receives reserves from banks. Bank reserves are deposits at the Fed owned by banks. Deposits at the Fed can only come into existence through two channels:
1. Government spending (e.g., when the Treasury buys output from business or pays federal employees); and
2. Fed lending (e.g., when the Fed makes loans to banks).
This means that the money that government borrows (bank reserves) ultimately comes from the Treasury or from the Fed.
 

This simple statement has significant consequences:
-The Government does not borrow money created by others,
-The Government does not borrow anything it cannot create itself,
-The Government has no functional need to borrow,
-The Government issues securities because if it did not, the banks would have an excessive amount of reserves and the interest rate would go to zero,
-When the Government borrows, it functionally makes monetary policy (in the same way as the Fed doing open market operations),
-Governments self inflict deficit and debt rules onto themselves that are causing the world economy to collapse
-Rules for governments that aim to promote jobs and prosperity should be:
1. Do not overtax the economy for any desired size of the government sector;
2. Let deficits grow until we reach full employment;
3. Do ‘quality spending’ to create jobs and control prices.

Looks to me like things continue to modestly improve with the first three quarters of this year showing sequential improvement.
Good for corporate earnings, not so good for people in general.

see attached charts and comments

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,

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

Feel free to distribute.