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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.

relief rally musings

Posted by WARREN MOSLER on November 22nd, 2011

The German 10 year just traded above 1.9%.
The 10th plague is now beginning to threaten the Pharaoh.

If I were cynical I’d think it would go down something like this:

First, German insiders give the nod to their cronies.
The Great European Relief Rally begins.
The euro begins to firm, stocks start to rally, etc.
Then, noises start coming out of Germany to the effect that
they might consider ECB support if austerity could be guaranteed,
causing prices to suddenly gap higher as shorts try to cover with no sellers in sight.

31 Responses to “relief rally musings”

  1. Andrew Says:

    Followed a few months later by a reversal when they “rediscover” austerity kills economic growth.


  2. Adam (ak) Says:

    Why some short-term bonds have negative yield? Couldn’t the investors just hold cash? Or do they think that these bonds will become even dearer at some point of time?


    Jose Reply:

    @Adam (ak),

    Perhaps investors think Swiss bonds are 100% safe whereas holding cash has risks – the risk that the bank may go under or that your home may burn if you keep the cash in a safe.

    Even with deposit insurance the investor may have to wait a long time to get his money back, because of legal questions etc. No such problem with the bonds issued by a sovereign entity like the CH.

    So is this negative yield a sign that investors are increasingly scared off any product that carries the label “issued by a EMU government” with it?


    Save America Reply:

    @Jose, @WARREN MOSLER, I just got back from switzerland, many civil servants there were very rude to me and my mother. They literally laughed in my face when they heard my southern drawl. So snobbish. After that experience I would NEVER as an american send money or gold to that country. My friend in croatia works for Nestle, he could only get a loan in swiss francs. I asked him why, Croatia has thier own kuna and sovereign currency, why won’t the bank of zagreb issue loans to you in your native currency. He said he pays 55% income tax, Nestle will not allow him to open a bank account in another country and have his paycheck deposited there. 100 hour work weeks and a rising swiss franc have finally broken his will, that donkey is soon to sit down and let the loan default, and many others in croatia are going to do the same to swiss loans. Why should swiss currency be so strong? What do they make, how much oil do they have? After the IRS gets done shining a light on all those tax haven cockroaches in the swiss alps, what is left? Ricola and tiger woods ex wife? That aint enough to save switzerland. LOL! If americans are expecting safety in switzerland when the financial floodgates finally break, they are suckers. Warren I think your problem is you see too many things through financial rosy colored glasses,what scenarios have you played that involve the financial markets there shutting down or collapsing? Is that impossible in your world view? Whats it matter who is short or long at that point? I was on the ground in germany with your green t-shirt on my chest and people are pissed off, they hate the french, the italians, the west germans hate the east germans, they all hate the influx of muslims and labor from turkey, drug users out in the open all over the place, my parents were there in the US military before the fall of the wall, it was a good place then, today it is a terrible awful mess. Everyone I talked to was bitter and angry and the people that lived there before the wall came down were 5 times as bitter and unhappy because they knew how good it used to be and what garbage it has become now. Graffiti everywhere, no respect by thier youth for anything. I think germany has MUCH bigger problems than financial issues and how many zeroes are in thier spreadsheets, societal collapse is happening. It broke my mother’s heart to see how terribly people treated her and each other compared to how it was a few decades back, over here we all celebrate reagan and gorbachev, but that wall coming down has created many bitter people over there that blame the USA for all thier ills and they are becoming violent.


    Geoff Reply:

    @Adam (ak),

    Negative yields are usually due to technical factors, likely related to the need for collateral for other trades.


    Kristjan Reply:

    @Adam (ak),
    Could It be that market expectations are defationary?


  3. Jan Says:

    will the euro continue to firm when they will consider the ecb support?


    Walter Reply:

    Seems to me a positive when the solvency issue will be off the table. But market may react negative to large scale euro-style qe, like it did with usd.
    In the meantime German bund auction technically uncovered……how much longer we have to wait?



    don’t know. seeing early signs but nothing definitive yet



    i’d say it would seriously firm


  4. Mario Says:

    I just got an email from Biden and co. saying how he & Obama want to cut FICA for employees down to 3.1% from it’s current 4.2% which is already down by 2% from the original 6.2%. At least that’s SOMETHING and a start. But apparently repubs refuse to do it.

    If you care, let your reps know you want them to cut the FICA to 3.1%….it’s a start at least and definitely achievable by the end of the year.


    Save America Reply:

    @Mario, Why does your conspiracy theory have to blame the Repubs for this? I have heard it said it is the asians who hold our bonds who do not want the payroll tax holiday. Salinger kept talking about US military expenditure, and Mosler always says the smart guy gets the sucker to do his work and we should let China make stuff for us while we goof off. So I asked Salinger why doesn’t Obama go to China and say look guys, policing the world oil shipments is expensive, so contribute some financing and asian men (they got a 90 million surplus) and some chinese ships to keep world oil lanes free and clear. It seems like it is indeed the CHINESE who have made the suckers of us, getting us to have this large military that costs us in lives of our children, and resources for building military stuff to keep the oil flowing and transported and get HATED all over the world for it while they reap the benefits and expand thier soft power.

    “If society consumed no energy, civilization would be worthless. It is only by consuming energy that civilization is able to maintain the activities that give it economic value. This means that if we ever start to run out of energy, then the value of civilization is going to fall and even collapse absent discovery of new energy sources.”

    ~ Dr. Tim Garrett, University of Utah

    The New Oil Cycle is Suffocating Economic Growth
    In the new oil cycle, the developing world, with its much lower sensitivity to high prices now sets the floor on oil. Most of all, the new oil cycle caps growth in the developed world. The new oil cycle kills the economies of the OECD nations


    Save America Reply:

    @Save America, It is only by consuming energy that civilization is able to maintain the activities that give it economic value.

    If 1 Billion Chinese Kids turn on Adult Swim on thier TV’s and 1 billion Western Kids turn on old Mr. Moto reruns on thier tv’s, and 1 billion european kids turn on the playstation 3 to shoot each other up in quake 3 deathmatch, and warren and friends fire up the supercomputer big box hardware to out-trade each other in nano second alogorithms, a whole lotta damn energy gonna be consumed fo sho! But all that spinning of wheels achieves what?


    Mario Reply:

    @Save America,

    I don’t know what you are talking about man, but I definitely get your intelligence and enthusiasm. I like it. But I still don’t know what you’re talking about…I’m just saying if you want to get more of a fica cut maybe let your reps know. That’s all. Repubs are apparently shooting it down….that’s all I heard, I have no personal data or experience to back it up. But I do know that it’s on the President’s agenda…that means there is a high probability chance that repubs are against it. ;)


    Save America Reply:

    @Mario, I am just a dumb southern country boy that learned some economics picking cotton and praying for rain. Mario I was just on a cruise where this bright minded multi millionaire woman came up telling me about this book web of debt and preaching jefferson and franklin to me. I said I know about the book, what is your goal, she said we just need to EDUCATE people and make them aware of the evil fed. Then things will get better in this world. I said maam I think many people are aware, but they are not willing to take action. I asked her to perform a thought experiment for me, how bad would things have to get for her personally before she would do like the founding fathers and exercise her 2cnd ammendment rights and get a gun and defend her freedoms. She looked at me like I was a raving lunatic and walked off, her mind just couldn’t go into that place. How this woman preaching franklin and web of debt hadn’t already mentally worked out what her own maximum level of personal oppression would be fascinated me. I have asked this of a lot of people over the years, not to go shoot anyone or hurt anybody, but just have they got thier mental line in the sand drawn at which point they should start taking serious personal action to protect thier freedoms, through organized peaceful resistance, or whatever other measure. What about you mario, how much oppression would you have to personally suffer before you say enough? Could you give it some brain cycles and give us an answer? Can’t hurt just to think about it a little can it? Maybe some societal engineers are reading this blog and your answers could help them know how many humans we could plop on planet earth before it descends into mass chaos. It is just a thought experiment that could maybe foster more debate here. Warren is in a room with a gun pointed at your head, and you need his business cards to get out, and the room is filling up with diseased vagrants and religious nuts and turkeys voting for thanksgiving, they are entering the room faster than warren can give you legitimate business cards to exit the room. Whats worse some crazy nut is going to use his plane as a missle to blow up the room. The air and water are getting scarce in the room. Some ivory tower types are over in the corner talking about bowling score during all this madness. Rushing warren and a few taking his bullets is the only way for the group to survive perhaps? You don’t have to kill warren, just disarm him. The system aint working for a lot of people, and I don’t see any real serious debate anywhere for real issues, too many people, not enough resources,

    The feds took this guys fish because he caught it with a net instead of his rod and reel, and gonna make big money off it and keep it, that was his line in the sand, he is suing….

    Mike Norman on his facebook page is freaking out about the woman whose baby got crushed by the officer that kicked her in the stomach, people are getting pissed Mario all over. That is why I come here, Warren makes me laugh and smile :) Every court needs a Jester to take the edge off…

    Save America Reply:

    @Mario, PS Mario, my line in the sand was when the VA system killed my father, putting him in an MRI several months after they put a pacemaker in him and blew it up and caused heart attack that killed him, and then the hospital chief of staff promising me that won’t happen again and they did the same dumb thing a few months later, the system is so broken, I see military widows and disabled vets losing thier houses because the “government” can’t get thier benefits issues sorted out even after 1 or 2 years of time, this is no way to honor our heroes, the system is broken, empty houses rotting in florida while vets and widows are kicked into the streets – sounds really dumb doesn’t it? Makes no sense to me, but in financial never never land it is perfectly logical. As warren says, the financial sector is a lot more trouble than it is worth…. more horror stories if you care to read, there were judges locking up kids to get payoffs by the private prison companies to inflate thier profits, this is a sad world when kids are imprisoned to make more green pieces of paper, and warren said there should be congressional investigations into all of this, we humans are merely cogs in an ugly machine in many places… I just don’t think calling my congressmen Mario is going to get the job done, and your life is precious and your time priceless, I want you to use it effectively that will produce results

    Mario Reply:


    @Save America

    Man I am so sorry for your loss Save. God bless you and your family. I feel that man, and I’m sorry.

    What about you mario, how much oppression would you have to personally suffer before you say enough? Could you give it some brain cycles and give us an answer?

    oh yeah. Trust me…I’ve thought about that one long and hard for many years now. And since you asked me, I’ll you my pov about it all….I won’t ever fight or be violent with anyone. That’s my conclusion. And actually the latest events at UC Davis only brought me to a whole new level of peace and the process of peace and how important that is for humans. So I am doing that now in just about every way and any way I can find day-in, day-out.

    I love the founding fathers, but I personally love Jesus even more than that! I know you’ll get a real good belly laugh out of me saying that one!! LOL ;) But I do look to Jesus as a wonderful mentor and teacher and friend and example. And he lived under the Roman Empire no less!!! That dude took some PAIN for the team relatively speaking!! So I figure if he and Saint Peter and all the other disciples and Gnostics of that time could man up to the Romans, then sh*t I can man up to these days as well. And if you read the Bible, you’ll notice that Jesus’ disciples weren’t exactly all that peaceful and lovey-dovey…they really wanted a revolution and a new “king” and all that jazz. Peter even had a blade on hand when they came for Jesus and swiped off a dude’s ear (so the story goes at least) which the J-man took care of for all involved. Very sweet of him I must say (and wildly cool too). Sorry I am a closet Jesus freak I apologize. I just don’t like evangelizing that’s all…it doesn’t suit my palate per say.

    ANYWAY that’s my pov on the matter and I’m prepared (I hope) to take it all the way if need be….however I don’t think it will get that bad. I am willing to bet the USA won’t be crucifying anyone anytime soon for example. In fact although things are bad and getting worse these days, I do think that on A LARGER TIME-FRAME (like thousands of years that is) we are actually seeing higher highs and lower lows as a human race. It’s almost like we’ve now switched from fighting wars amongst ourselves to fighting finances amongst ourselves and complex derivatives and bond subsidies and things of that nature. It’s kind of fun like a giant video game or something….well maybe not fun exactly but definitely better than the good old days of the 100 years wars and things of that nature.

    I would be lying if I said you don’t stimulate my brain after reading your posts! So thanks for speaking you mind…we definitely need more of those these days! ;)

    Love ya bro and definitely appreciate having a buddy watch my back…too much of that is never a bad thing. ;)

    Cheers mate.

    Save America Reply:

    @Mario, I just got back from the holy land, saw the sea of galilee and the jordan river, Jesus lived in a really nice place. The whole mediterranean for the most part has some really great places. We went to his mother mary’s house in ephesus (they claim) – another great area. Napolean said his favorite figure in history was Jesus, he built up followers through love, not military conquest. We just have to forgive the sinners, none of us are perfect:

    3:20 AM More on Fed meetings: talks with officials allowed firms to tell clients about “Operation Twist” ahead of time, pointing to a boom in long-term bonds. The speculation, along with global economic problems, prompted investors to buy the debt, pushing up prices and bringing down yields. Investors basically helped the Fed to lower borrowing costs. [ Global & FX, Top Stories] Comment!

    3:11 AM Fed officials regularly meet with leading investors in order to understand how they might respond to monetary policy changes, avoid surprising markets, and learn about unseen dangers, the WSJ reports. However, the meetings provide investors with early insights into possible Fed actions, allowing them to tip off their clients.

    beowulf Reply:

    I have to say, Biden spam mail sounds much less interesting than “Geithner” spam mail (what makes this letter for me is the phrase, “being a versatile banker of repute”). :o)

    Dear Beneficiary,
    I am Timothy F. Geithner. The Secretary of the Treasury under the U.S Department of the Treasury. The executive agency responsible for promoting economic prosperity and ensuring the financial security of the United States. However, by virtue of my position as the Secretary of the Treasury, I have irrevocably instructed the Federal Reserve Bank to approve your fund release via issuance of a CERTIFIED cheque drawn on Standard Chartered Bank california, USA, which is the authourized bank for your fund release.

    However, as a former President and Chief Executive Officer of the Federal Reserve Bank of New York, and being a versatile banker of repute with about 25 years experience in the financial sector, I wish to state categorically that a CERTIFIED cheque of $6,500,000.00 USD drawn on Standard Chartered Bank will be issued and sent to you via the US Postal Service at no cost to you. Every and all cost associated with the delivery of the cheque has been pre-paid by the U.S Government. The only cost associated with your fund release is the cost of processing a “Fund Clearance Certificate”, which is estimated to the value of $150.00 USD…


    Mario Reply:


    oh man. LOL Did you read the comments at ZH too? Man I love ZH just for reading the comments. Those guys may all be about guns and gold but man they are some funny freaking dudes….great drinking and poker buddies I’d say!

    Hilarious…I’ve never even heard of Standard Chartered Bank in CA, USA and I’ve been all over this state.

    Oh boy!! Just did a google search on it….


    Unforgiven Reply:


    What’s really scary is their grammar is getting so much better.

    There are so many infected computer systems out there that are being used as relays for this phishing/spam mail. Hackers used to be in it for the rep, now they’re in it for the money.

  5. Andrew Judd Says:

    At the moment the ECB is transfering sovereign default risk from the banks to the ECB where Germany is up for 27% of the losses. Banks which then dont need the money are then investing with the ECB for no extra money introduced.

    We still have inflation here and I dont think there can be any doubt at all that the ECB will continue to ensure that inflation is maintained.


  6. Save America Says:

    Why we remain optimistic in the face of reality
    (…) The results of the brain scans suggested why this might be the case. All participants showed increased activity in the frontal lobes of the brain when the information given was better than expected; this activity actively processed the information to recalculate an estimate. However, when the information was worse than estimated, the more optimistic a participant was (according to the personality questionnaire), the less efficiently activity in these frontal regions coded for it, suggesting they were disregarding the evidence presented to them.

    Dr Sharot adds: “Our study suggests that *we*pick* and choose the information that we listen to. The more optimistic we are, the less likely we are to be influenced by negative information about the future. This can have benefits for our mental health, but there are obvious downsides. Many experts believe the financial crisis in 2008 was precipitated by analysts overestimating the performance of their assets even in the face of clear evidence to the contrary.”

    Commenting on the study, Dr John Williams, Head of Neuroscience and Mental Health at the Wellcome Trust, said: “Being optimistic must clearly have some benefits, but is it always helpful and why do some people have a less rosy outlook on life? Understanding how some people always manage to remain optimistic could provide useful insights into what happens when our brains do not function properly.”


    You may think you’re defending your favorite platform because it’s just that good. But, according to a recently published study out of the University of Illinois, you may instead be defending yourself because you view criticisms of your favorite brand as a threat to your self image. The study, which will be published in the next issue of the Journal of Consumer Psychology, examines the strength of consumer-brand relationships, concluding that those who have more knowledge of and experience with a brand are more personally impacted by incidents of brand “failure.”


    roger erickson Reply:

    @Save America, Here’s the other side.

    The study results below are suggestive of a psychological drive in humans to defer to PRESUMED specialists, and to delegate – which would seem to make sense for members of a social species.

    Yet, if not qualified by proven relevance to local vs global context, that specific trait may be highly adaptive only for small groups – and fatal for large groups.

    It boils down to a scaling task; i.e., We have to continually re-organize our basic behaviors, in order to scale up further!

    These results expose yet another, specific, genetic fallacy of scale. One of the requirements for continued adaptation – is not adhering to tradition. Tradition simply doesn’t scale. Some unpredictable practice details ALWAYS have to be changed. We should get on with discovering what has to change, instead of simply denying our problems of scale. Genetic evolution is too slow to meet the tempo currently required, so we’ll have to meet this task via behavioral education & training. Have you changed YOUR child-rearing and K-12 school curriculum to meet this rapidly scaling demand? What about Officer Training & University edu? What about continuous briefing programs for Congressional delegates?

    Are we training Congresspeople to adequately re-scale CONTEXT-SAMPLING differently each year? Is a campaign auction the best way to shape public policy? Is it scalable, at all?

    Can the practice of PREFERRED DEFERRAL work if our population doubles again? In your lifetime? How do we mobilize self-organization as quickly as we expand our population?

    On the perpetuation of ignorance: System dependence, system justification, and the motivated avoidance of sociopolitical information.

    Steven Shepherd & Aaron Kay,
    Journal of Personality and Social Psychology, Nov 7, 2011.


    Save America Reply:

    @roger erickson, “It boils down to a scaling task; i.e., We have to continually re-organize our basic behaviors, in order to scale up further!”

    Bingo! Scaling, something I used to talk with warren about on the old board, arnold kling brought up similar memes many years ago…. The government must be changed for real progress…

    “It is always costly to ensure that agents [government officials] act on behalf of the citizens and that they do not use their power to extract rents from their constituents…

    The costs of monitoring agents increase not only with the geographic size of the collective but also with the number of people in the collective. This is because in a larger collective each member captures a smaller share of the rents created by collective enforcement and therefore has less incentive to monitor the agent…With the stake in the collective inversely related to group size, we can expect less monitoring and more rent seeking and rent extraction as group size increases.”
    – Terry L. Anderson and Peter J. Hill, The not so Wild, Wild West, p. 30

    Terry Anderson and Peter Hill make an argument that suggests that democracy does not scale well. As the size of the constituency group gets large, the politician becomes less accountable. Politicians find it easier to extract rents and abuse powers.

    The end-of-session legislative victories for President Bush and the GOP illustrate the problem. CAFTA passed, but with large concessions to special interests that threaten to undermine the trade benefits. The energy bill was an exercise in pork, as was the transportation bill. To anyone outside of the political/lobbyist complex, it was an all-too-typically dismal legislative performance.

    Lack of accountability is one political characteristic that is clearly bipartisan. For example, take my government in Montgomery County, Maryland, which has been controlled by Democrats for decades. The nine-member County Council answers only to special-interest constituencies, primarily public sector unions. I see little hope of changing that. My county is a poster child for what Steven Malanga described as The Real Engine of Blue America.


    Save America Reply:

    @Save America,” Can the practice of PREFERRED DEFERRAL work if our population doubles again? In your lifetime? How do we mobilize self-organization as quickly as we expand our population?”

    From the above link: I would like a government that is modest in its exercise of power, and in which special interests are not excessively powerful. Instead, at all levels of government, I see the opposite. What can be done?

    I think that Anderson and Hill offer a clue. The sheer size of modern electoral constituencies makes politics a matter of financial muscle and mass marketing. Only with smaller electoral constituencies would the incentive structure change to reduce the arrogance and rent-seeking of elected officials and powerful interest groups.

    We Need 250 States

    In 1790, the largest state in the union, Virginia, had a population of under 700,000. Today, Montgomery County has a population of over 900,000. Our nine-member County Council answers to about the same number of registered voters as the entire House of Representatives of the United States at the time of the founding of the Republic.

    We cannot have an accountable democracy with such large political units. We need to break the political entities in the United States down to a manageable size.

    Instead of the present 50 states, the largest of which have more than 30 million people each, we should break the country into 250 states, with 1.2 million people each. Some rural states would increase in geographic area. At the other end of the population density scale, the largest metropolitan areas would be divided into multiple states.

  7. Talvez... Says:

    I’m kinda liking my Public Finances textbook. It gets to the part where it speaks of counter-cyclic financial policy (aka, what to do when there is a crisis) and it says that the Government should spend, and that it should do so resorting to money creation – he says that the effect of expenditures made with resort to taxation or borrowing are slim. My professors disagree with the author in that aspect. I’m searching for more information on that now.

    I wonder when everyone, Germany included, realises money is lacking and that they need to make some more.



    the way i would say it is that spending is lacking


    Talvez... Reply:

    Isn’t that the same as saying money is lacking? Doesn’t money represent spending, since its creation involves its spending?


    Zaid Reply:


    Not the same thing… One is a stock, the other is a flow.


    I mostly don’t use the word money

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