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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 November 15th, 2011

Republicans, fearing Greece, agreeing to tax hikes

Posted by WARREN MOSLER on 15th November 2011

Shows the Republicans truly do fear the US becoming the next Greece,
as they begin to lean towards tax hikes.

Meanwhile, they continue keeping us on the road to Japan.
Or worse.
A lot worse.

Republicans Consider Breaking No-Tax Vow as Deadline Looms

By Brian Faler

November 15 (Bloomberg) — For Senator John Cornyn, it was the situation in Greece.

The Texas Republican said he is willing to back tax increases as part of a major deficit-reduction deal because he fears the European debt crisis could spread to the U.S.

“We’ve never been in this spot before,” said Cornyn, who also leads his party’s effort to elect more Republicans to the Senate. “We’re looking over at Europe and what’s happening in Greece and Italy — we risk having another huge financial crisis in this country, and we’ve got to try to solve the problem.”

He is one of a growing number of Republicans, many with otherwise impeccable anti-tax credentials, who say they are willing to raise taxes to reach a big deficit-reduction deal with Democrats.

That may help insulate them from charges of stubbornness if Congress’s bipartisan supercommittee doesn’t meet its Nov. 23 deadline to find a way to cut $1.5 trillion. For now, it’s helped shift Washington’s debate to how much, rather than whether, to raise taxes.

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said he is encouraged by the shift even as Democrats scoff at a specific Republican proposal.

“It’s a step in the right direction for them to just rhetorically cross that line,” said Conrad.

‘Real Trouble’

Asked if Republicans were trying to set up a blame game should the supercommittee fail, Conrad said, “I hope not” because “if we aren’t beyond that, we are in real trouble.”

Democrats say the Republican deficit plan relies too heavily on spending cuts and would give the wealthy too much of a tax break. Some question whether its numbers add up.

At issue is a proposal by the supercommittee’s Republicans to trade permanent cuts in income tax rates, with the top rate dropping to as little as 28 percent, for new limits on deductions, exclusions and other tax breaks. They estimate that it would produce $300 billion to reduce the deficit.

The plan’s principal author is Senator Pat Toomey, a Pennsylvania Republican who previously led the Club for Growth, a Washington anti-tax group. House Speaker John Boehner, an Ohio Republican, today endorsed the proposal, calling it a “fair offer.”

Some conservative organizations are accusing Republicans of trying to hide tax increases through the Toomey plan.

Norquist Reaction

“Closing tax loopholes is all well and good,” said Americans for Tax Reform president Grover Norquist in an opinion article in Politico. “But doing so to raise revenues is just as much a tax hike as raising tax rates.” He added, “Any congressman who wants to keep his promise to voters to oppose tax increases” must oppose the plan.

Many Republican lawmakers are also unhappy with the proposal. “We don’t have a tax problem — we have a spending problem,” said Senator Jim DeMint, a South Carolina Republican. “For us to get lulled into ‘how much to raise taxes’ in this thing is foolish.”

Senator Orrin Hatch, the top Republican on the tax-writing Finance Committee, said, “Some of these loopholes really aren’t loopholes.” He called them “important policy provisions, like the home interest mortgage deduction.”

Republican supporters of the plan say they are trying to lock in lower income-tax rates that will otherwise jump if, as is currently scheduled, the tax cuts enacted in President George W. Bush’s administration expire at the end of next year. President Barack Obama opposes extending the Bush-era cuts for those earning more than $250,000, and Republicans are unlikely in the 2012 elections to win the Senate votes they would need to keep the tax cuts in effect.

‘Biggest Tax Increase’

“What we’re trying to do is avoid the biggest tax increase in the history of the country,” Senator Charles Grassley, an Iowa Republican, said of Toomey’s plan.

Toomey declined to comment other than to point to a Nov. 10 Wall Street Journal editorial quoting him as calling his proposal a “bitter pill” that is “justified to prevent the tax increase that’s coming.”

A number of Republicans are playing down anti-tax pledges they signed with Norquist’s group. “We take an oath to uphold the Constitution” and “that trumps any and every consideration,” said Cornyn.

“I didn’t know I was signing a marriage vow,” said Representative Mike Simpson of Idaho, one of 40 House Republicans who recently signed a letter signaling willingness to raise taxes as part of a major deficit-cutting deal.

Shifting Opinion

Senator Lamar Alexander of Tennessee, the chamber’s third- ranking Republican, said he saw a sign of shifting opinion when three of the supercommittee Republican members — Toomey, Rob Portman of Ohio and Arizona’s Jon Kyl — briefed Senate colleagues on their plan and no one complained.

“For Pat Toomey and Portman and Kyl to come in and tell a whole roomful of Republicans that ‘we’ve put $250 billion of tax increases on the table’ and not get a murmur of dissent is remarkable,” said Alexander.

Senator Saxby Chambliss, a Georgia Republican, said his party’s lawmakers should consider bigger tax increases if it would lead to a larger debt-reduction deal, because the political price they would pay will essentially be the same.

“You’re going to be criticized by the same people irrespective of what the number is,” said Chambliss.

Posted in Deficit, Government Spending, Greece, Political | 43 Comments »

Retail Sales/Empire/PPI/Evans- GDP remains firm

Posted by WARREN MOSLER on 15th November 2011

As previously discussed, GDP looks to be growing sequentially, and should do fine next year if fiscal policy doesn’t tighten.

But still not so good for people working for a living, pretty good for corporate earnings.

And risks remain- Europe, China, Super Committee, etc. etc.

And look for a relief rally if Europe all agrees the ECB writes the check,
followed by a sell off due to the austerity that accompanies it.

Karim writes:

Data confirms Q4 GDP growth tracking 3.25%.; slight boost to Q1 estimate; more like 2.75% vs 2.5% previously.


  • Up 0.5% headline and 0.6% control group
  • Iphone 4s definitely helped as electronics sales rise 3.7% for the month, largest gain since 11/09


  • Rises to 6mth high of 0.6 from -8.48 in October; but 0.6 still weak historically.
  • Also, new orders and employment component both soften in the month.


  • Pipeline pressures receding as -0.3% headline, -0.4% on consumer goods, -1.1% intermediate stage, and -2.5% crude stage


  • Evans advocating 3% inflation target and linking policy guidance to unemployment/inflation objective
  • Also acknowledges he is ‘sufficiently outside’ consensus at the Fed
  • Bullard rejects linking policy to numerical objectives and states would need to see evidence of deterioration in U.S. economy to support additional easing

Posted in Deficit, Fed, GDP, Government Spending, Inflation | 3 Comments »

A note from S&P’s John Chambers

Posted by WARREN MOSLER on 15th November 2011

This makes me sleep a lot better…

November 15, 2011

Dear Warren,

On Nov. 11-12, I spoke at the Caixin Summit 2011 in Beijing on the subject of who will solve the debt crisis. My comments pertained to the euro area and to the rest of the world, and I stated that, in Standard & Poor’s view:

  • External imbalances are as much at the root of the current crisis as fiscal imbalances;
  • Better coordination among international policymakers can help to attenuate these external imbalances;
  • Prior domestic economic reforms will facilitate coordination;
  • Generally, a high level of financial claims is more of a symptom of past failures to reform than the disease itself;
  • If international cooperation and economic reform come up short (which is not our base case), global growth could sputter, public and private sector indebtedness could remain high, and some speculative-grade sovereigns could resolve their fiscal difficulties through default.

Standard & Poor’s believes that what is taking place in the euro area, in several respects, is a microcosm of what is happening globally.

To read my full comments, please click here to access the article.

Please contact me with any comments or questions.

John Chambers
Chairman of the Sovereign Ratings Committee

Posted in GDP, trade | 10 Comments »

Trading Desk reports “mayhem” in the AAA Eurozone markets

Posted by WARREN MOSLER on 15th November 2011

I just received this.
Seems money managers with fiduciary responsibility are holding off on buying any euro member securities since the 50% Greek haircuts were announced.

Our Trading Desk reports “mayhem” in the AAA Eurozone markets
- France 11bps wider
- Netherlands 6bps wider
France now 178bps over Germany
Increasing talk/fear of Eurozone break up and capitulation trades in AAA markets are widespread.
We are seeing no real demand for anything – even Germany.
Tomorrow’s Shatz auction looks a big ask with a yield of 30bps and no risk appetite out there.

Posted in Uncategorized | 8 Comments »

Korea Exports decline

Posted by WARREN MOSLER on 15th November 2011

Not wrong to think ‘falling off a cliff’ after reading this.

Global demand is softening as public sector deficit spending remains insufficient to offset the relatively low levels of private sector ‘borrowing to spend’:


Posted in trade | 2 Comments »