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.
Monthly Archives: September 2011
Treasury to Accommodate Fed on ‘Twist’
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.
Social Security is not ‘in Ponzi’
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.
CH News – 09.13.11
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.
China punishes state lenders for lending too much
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.
Deflation rearing its ugly head and the euro is up
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.
Mosler bonds get their first plug in the Irish media
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..
from prof Andrea Terzi
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.
Valance Chart Review
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.
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.