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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Archive for October, 2011

Pelosi Quote

Posted by WARREN MOSLER on 28th October 2011

“It is clear we must enter an era of austerity; to reduce the deficit through shared sacrifice.”
- Nancy Pelosi, Dem Leader, US House

Posted in Deficit | 34 Comments »

Italy Bond Yields Rise at Auction, 10-Year Bond Auction Yield at New Euro Era High

Posted by WARREN MOSLER on 28th October 2011

Nice, they announce proposal to confiscate 50% of Greek bonds from investors right in front of an Italian auction. And we thought we had sorry politicians…

Posted in Bonds, Greece | 9 Comments »

Euro Bailout Fund Chief Sees No Quick China Deal

Posted by WARREN MOSLER on 28th October 2011

Now it all starts unraveling. It’s all talk- another ‘optical illusion’ with no operational reality I sight. The China participation isn’t a done deal. The 50% haircut isn’t a done deal either as they haven’t yet figured out how to actually do it without a default event. The EFSF contributions aren’t a done deal either.

What they have done is further frightened investors to the point where the ECB will find itself buying a lot more bonds to keep member nation funding in check, while ‘negotiations’ drag on with no resolution, meaning, as previously discussed, this is the resolution.

Hoping i’m wrong…

Euro Bailout Fund Chief Sees No Quick China Deal

By Reuters

October 28 (CNBC) — The head of Europe’s bailout fund said on Friday he does not expect to reach a conclusive deal with Chinese leaders during a visit to Beijing but expects the surplus-rich country to continue buying bonds issued by the fund.

Posted in Bonds, China, ECB, Germany, Greece | 4 Comments »

Euro Zone Strikes Deal on 2nd Greek Package, EFSF

Posted by WARREN MOSLER on 27th October 2011

The markets like the announcement. Of course they also liked QE2…

Unfortunately, as previously discussed, without the ECB the EFSF isn’t sustainable. It’s like trying to lift up the bucket by the handle when you are standing in it.

Nor is it cast in stone yet, but all subject to details.

Also, the positive market response, if it continues, only encourages the continuing austerity measures that are weakening the euro economy and forcing already unsustainable deficits higher.

And, again, it’s a case of ‘the food was terrible and the portions were small.’

Starting with the 50% private sector loss on Greek bonds-

Presumably that ‘works’ if it indeed brings Greek debt down to 120% of GDP from 160% by 2020. But that implies the austerity measures won’t continue to reduce GDP and cause the Greek deficit to increase, as continues to be the case.

It presumes the 50% haircut will be considered sufficiently voluntary to not be a credit event that triggers a variety of global default clauses.

The rest of the ‘package’ presumes markets won’t reduce the presumed credit worthiness of member nations who fund the EFSF.

It presumes private sector funds will recapitalize the banks that lost capital on the write downs.

It presumes the EFSF won’t be needed to fully fund Portugal, Spain, and Italy.

It presumes banks and other investors required to be prudent and financially responsible to shareholders will continue to buy other euro member nation debt even after seeing the euro zone members allow Greece to default on half of their obligations.

That is, how could any bank now buy, for example, Italian debt, in full knowledge that euro zone policy options include a forced write down of that debt. And not in extreme, unforeseen circumstances, but under current conditions.

And how can prudent investors invest in the banks when they’ve just seen euro zone remove some 100 billion euro in equity by decree?

The problem is, it takes a presumption of general improvement to presume additional losses will not be incurred by investors.

And it takes a presumption of general improvement to presume the EFSF will be successful.

And that requires the presumption that continued austerity measures will result in a general improvement.

Even as all evidence (and most theory) is showing the opposite.

Euro deal leaves much to do on rescue fund, Greek debt

By Luke baker and Julien Toyer

October 27 (Reuters) — Euro zone leaders struck a last-minute deal to limit the damage from the currency bloc’s debt crisis early on Thursday but are still far from finalizing plans to slash Greece’s debt burden and strengthen their rescue fund.

Posted in Banking, Bonds, ECB, Germany, Greece, Interest Rates | 37 Comments »

Will be in NYC this Saturday at 1pm

Posted by WARREN MOSLER on 27th October 2011

I’ll be at Zuccotti Park, northeast park corner near their library area at 1pm on Saturday.

All invited to drop by!

Posted in Uncategorized | 158 Comments »

Valance Weekly Report 10.26.2011

Posted by WARREN MOSLER on 26th October 2011

Valance Weekly Report

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

Highlights
US – Consumer Confidence erosion mirroring Europe’s
EU – Business and Consumer Confidence at cycle lows
JN – Exports improve although domestic conditions remain weak
UK – Manufacturers’ optimism dropped sharply
CA – BoC cut its 2011/12 growth forecast
AU – Inflation moderated in Q3
NZ – RBNZ may delay hikes

Posted in Economic Releases, Valance | No Comments »

Crude Oil Update

Posted by WARREN MOSLER on 26th October 2011

Still seems to me that the idea that WTI appreciates to Brent as the Strategic Petroleum Reserve release winds down over the next few weeks is playing out as previously discussed. The WTI discount depends on a serious glut condition persisting, and the wind down of the approx 3.8 million barrels a week being delivered from the strategic petroleum reserve will work to reduce the glut by that amount.

If so, WTI is marching towards $110/barrel which seems to me could trigger substantial market reactions.

And about the same time the super committee deficit reduction talks will be in full swing, euro financing stresses elevated, exacerbated by confirmation of the 0 gdp growth forecasts hit the headlines, and further slowdown news from China complicating things as well.

The ‘answer’ remains as simple as it is further away from political reality than ever, even though the right policy responses couldn’t be more attractive to both sides:

The US budget deficit is too small.

Posted in China, Deficit, Oil, USA | 3 Comments »

MERKEL: ECB INVOLVEMENT IN EFSF LEVERAGE RULED OUT

Posted by WARREN MOSLER on 26th October 2011

Looks like Merkel is speaking purely for political effect, which may be all she’s capable of, unfortunately.

Fact is, from the beginning, without the ECB ultimately writing the check, it’s all been in ponzi.

And like all ponzi’s, it seems to work on the way up, and disintegrates on the way down.

With the ECB writing the check, deficits can be determined by further political/public purpose, without concern of ‘market forces’ undermining finance.

Without the ECB writing the check, it all probably keeps disintegrating, as none of the member nations can be inherently solvent without some form of ECB support.

MERKEL SAYS GOAL OF TONIGHTS DISCUSSIONS MUST BE TO HAVE A SOLUT ION WHICH PUTS GREECE AT A DEBT TO GDP RATIO OF 120 PCT BY 2020
MERKEL: ECB INVOLVEMENT IN EFSF LEVERAGE RULED OUT
MERKEL: GERMAN EFSF CONTRIBUTION WON’T EXCEED E211 BLN
MERKEL: BANK RECAP NECESSARY TO PREVENT CONTAGION
MERKEL: NEED PERMANENT SUPERVISION OF GREECE
MERKEL: TROIKA SUPERVISION DOESN’T SUFFICE
MERKEL: GREEK BOND HAIRCUT ALONE WON’T SOLVE PROBLEMS
MERKEL:PSI MUST BE MUCH HIGHER THAN AGREED ON JULY 21
MERKEL: NEED SIGNIFICANT PSI IN GREEK RESCUE

Posted in Deficit, ECB, Germany, Greece | 12 Comments »

US Treasury May Issue Debt With a Floating Interest Rate

Posted by WARREN MOSLER on 24th October 2011

Brilliant. Reminds me of Will Rogers. Think of all he’d have said if he’d understood MMT.

US Treasury May Issue Debt With Floating Interest Rate

By Jeff Cox

October 24 (CNBC) — Dealers and traders have been approached recently with plans to issue a floating-rate note that for investors would provide an opportunity to profit should rates go up and for the government a chance to restructure its debt even further.

Posted in Interest Rates, TREASURY, USA | 18 Comments »

Obama to announce action on mortgages

Posted by WARREN MOSLER on 24th October 2011

About time!

Obama to announce action on mortgages

By Kate Mackenzie

October 24 (Financial Times) — US regulators on Monday plan to unveil a major overhaul of an under-used mortgage-refinance program designed to help millions of Americans whose home values have tumbled, the WSJ says. The plan will streamline the refinance process by eliminating appraisals and extensive underwriting requirements for most borrowers, as long as homeowners are current on their mortgage payments. The measures will not require congressional approval, says Reuters, and the first of the initiatives will be unveiled during Obama’s three-day trip to western states beginning Monday. He will discuss the changes in mortgage rules at a stop in Nevada, which has one of the hardest-hit housing markets in the country. The Obama administration has been working with the Federal Housing Finance Agency, the regulator for Fannie Mae and Freddie Mac, to find ways to make it easier for borrowers to switch to cheaper loans even if they have little to no equity in their homes.

Posted in Financial Times, Housing, Obama | 11 Comments »

Germany, the 10th plague

Posted by WARREN MOSLER on 24th October 2011

Ok, it’s a stretch, but the biblical story of the 10 plagues does come to mind.

One by one various member nations have seen their funding taken away. The process begins with interest rates spiking to the point where, for all practical purposes, they can’t fund themselves without outside assistance.

There has been blood in the streets of Greece.

And the latest spread of the contagion to French interest rates, however politically incorrect, does bring to mind the plague of frogs, which was closely followed Sarkozy’s begging for the ECB, only to be turned down by Germany’s still hard hearted Merkel.

So might it be with the 10th plague, the killing of the first born, which, in the case of the euro is Germany, we will see the final liberation of the euro zone from it’s enslaving institutional structure?

Maybe next spring? When the chauffeur drives up in a Nissan to take them to the promised land?

Watching those German rates closely!

Posted in ECB, EU, Germany, Greece | 30 Comments »

Sarkozy Yields on ECB Crisis Role

Posted by WARREN MOSLER on 24th October 2011

He’ll be back…The way things are going there is no alternative, a point market forces continue to make.

And no amount of tea from China, at any price, would be sufficient given current institutional structure and policy.

And more discussion on whether Greece should be allowed to default, even as haircut talk rises to 60%, and as the notion of ‘voluntary’ comes under further discussion. After all, if they don’t have to pay their debts, why should any other member nation have to pay its debts? etc.

Sarkozy yields on ECB crisis role, pressure on Italy

By Julien Toyer and Andreas Rinke

October 24 (Reuters) — European Union leaders made some progress towards a strategy to fight the euro zone’s sovereign debt crisis on Sunday, nearing agreement on bank recapitalization and on how to leverage their rescue fund to try to stop bond market contagion.

But final decisions were deferred until a second summit on Wednesday and sharp differences remain over the size of losses private holders of Greek government bonds will have to accept.

French President Nicolas Sarkozy backed down in the face of implacable German opposition to his desire to use unlimited European Central Bank funds to fight the crisis.

Instead, the euro zone may turn to emerging economies such as China and Brazil for help in underpinning its sickly bond market.

Posted in China, Deficit, ECB, EU, Political | 7 Comments »

Cain’s Opportunity Zones suspend the minimum wage

Posted by WARREN MOSLER on 21st October 2011

Seems to be working for him…
:(

However, Cain, the former Godfather’s Pizza CEO, is expected to propose an addition to his signature tax reform plan in a speech today in Detroit. The new plan is expected to create “opportunity zones” in cities to foster small businesses and create jobs.

Major feature of opportunity zones is they suspend the minimum wage.

Posted in Employment | 83 Comments »

The deficit isn’t large enough

Posted by WARREN MOSLER on 20th October 2011

Well stated MMT based narrative.

The Problem With The Deficit? It’s Not Big Enough

Posted in Employment, GDP, Government Spending, Interest Rates | 76 Comments »

MMT on Bernie’s Dream Team to Write Lesiglation to Revamp the Fed!

Posted by WARREN MOSLER on 20th October 2011

Top Economists to Advise Sanders on Fed Reform

October 20, 2011

WASHINGTON, Oct. 20 – Nobel Prize-winning economist Joseph Stiglitz and other nationally-renowned economists agreed today to serve on a panel of experts to help Sen. Bernie Sanders (I-Vt.) draft legislation to reform the Federal Reserve.

Sanders announced formation of his expert advisory panel in the wake of a damning report that faulted apparent conflicts of interest by bank-picked board members at the 12 regional Fed banks.

Top executives from Goldman Sachs, J.P. Morgan Chase, General Electric and other firms sat on the boards of regional Federal Reserve banks while their firms benefited from the central bank’s policies during the financial crisis, the Government Accountability Office investigation found. The dual roles created an appearance of a conflict of interest, according to the GAO.

After the report was issued Wednesday, Sanders said he would work with top economists to develop legislation to restructure the Fed and tighten rules on conflicts of interest, ensure that the Fed fulfills its full-employment mandate, increase transparency, protect consumers and reduce income inequality.

Sanders’ panel of experts includes:

Joseph Stiglitz, the 2001 winner of the Nobel Prize. The economics professor at Columbia University is a former chief economist for the World Bank.

Jeffrey Sachs, director of The Earth Institute and an economics professor at Columbia University. He also is special advisor to United Nations Secretary-General Ban Ki-moon.

Lawrence Mishel, president of the Economic Policy Institute, the premier research organization focused on U.S. living standards and labor markets.

William Black, associate professor of economics and law at the University of Missouri, Kansas City. He worked with the Federal Home Loan Bank Board, the Federal Savings and Loan Insurance Corporation and the Office of Thrift Supervision.

Nomi Prins, a senior fellow at Demos, was a managing director at Goldman Sachs, a senior manager at Bear Stearns in London, a senior strategist at Lehman Brothers, and an analyst at the Chase Manhattan Bank (now JPM Chase)

Jane D’Arista, an Economic Policy Institute research associate, has written on the history of U.S. monetary policy and financial regulation, The former Boston University School of Law professor previously served as a staff economist for Congress.

Tim Canova, professor of economics and law and co-director of the Center for Global Law & Development at the Chapman University School of Law in Orange, Calif. He was an early critic of financial deregulation and warned of the dangers of the bubble economy.

Robert Johnson, senior fellow and director of the Project on Global Finance at the Roosevelt Institute. He was chief economist of the Senate Banking Committee and a senior economist for the Senate Budget Committee.

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C. He was a senior economist at the Economic Policy Institute, a consultant for the World Bank and the Joint Economic Committee of the U.S. Congress.

Gerald Epstein, chair of the economics department at the University of Massachusetts at Amherst. Epstein also is the co-director of the Political Economy Research Institute.

Robert Pollin, co-director of the Political Economy Research Institute and economics professor at the University of Massachusetts-Amherst. He has worked with the Joint Economic Committee and the U.S. Competitiveness Policy Council.

Stephanie Kelton, assistant professor at the University of Missouri, Kansas City and a research scholar at the Center for Full Employment and Price Stability.

James K. Galbraith, professor of government at the Lyndon B. Johnson School of Public Affairs. He served in several positions on the staff of the U.S. Congress, including Executive Director of the Joint Economic Committee.

The need for major reforms at the Federal Reserve was driven home by the GAO findings announced Wednesday and in an earlier report issued on July 21. Both unprecedented audits of the Federal Reserve were required by a Sanders’ amendment to last year’s Wall Street reform law.

Posted in Fed, Political | 57 Comments »

Merkel Cancels EFSF Speech to German Parliament

Posted by WARREN MOSLER on 20th October 2011

Merkel Cancels EFSF Speech to German Parliament, Lawmakers Say

By Brian Parkin

October 20 (Bloomberg) — German Chancellor Angela Merkel has canceled her planned speech to parliament in Berlin tomorrow because of a deadlock over proposals to leverage the European Financial Stability Facility to give it more firepower, three German lawmakers said.

The lawmakers are Norbert Barthle from Merkel’s Christian Democratic Union and opposition lawmakers Carsten Schneider and Priska Hinz.

Posted in Germany | 1 Comment »

RTRS – SENIOR EU SOURCES SAY UNAWARE OF ANY PLAN TO POSTPONE SUNDAY’S EU LEADERS’ SUMMIT

Posted by WARREN MOSLER on 20th October 2011

It’s been that kind of week.

The range of possible outcomes seems to keep widening?

Posted in EU | 4 Comments »

GERMAN GOVERNMENT DOESN’T EXCLUDE POSTPONING SUMMIT, WELT SAYS

Posted by WARREN MOSLER on 20th October 2011

As suspected.

Particularly when the G20 ordered them to resolve it this weekend…

Posted in Deficit, ECB, EU, Germany | No Comments »

Valance Weekly Report 10.19.2011

Posted by WARREN MOSLER on 19th October 2011

Valance Weekly Report

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

Highlights
US – Core CPI eases
EU – EU CPI at three year high; Greek austerity plan to be voted on tomorrow
JN – Data softens, gov’t cuts economic view
UK – BoC sees Q4 growth close to zero
CA – Mfg continues to support the economy
AU – RBA ready to cut rates?
NZ – RBNZ signals a likely need to hike

Posted in Economic Releases, Valance | No Comments »

From a friend in the euro zone public financial sector

Posted by WARREN MOSLER on 18th October 2011

“The problem is that in Europe you have 2% of people, acting in bad faith, that pursue the agenda that Alain Parguez has denounced several times and who are also unfortunately in top decision making positions. Then there is the 0.001% of people who understand the problems and try to solve them, but in general they have limited influence. Finally the 98% majority, composed of perfect idiots, is mostly influenced by the first group and thinks the second group is made of marginal people and dangerous side-liners.”

Posted in Email, EU | 35 Comments »