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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.

U.S. and Eur Data/GDP Downgrades

Posted by WARREN MOSLER on November 23rd, 2011

Karim writes:

U.S. data on the soft side (October)

  • Most notable is core durable goods orders (capex has been gwth leader of late) falling 1.8% and 3mth annual rate slowing to 4% from 7.3%
  • Core shipments (more important for current quarter growth) down 1.1%
  • Personal spending up 0.1%.
  • Personal income up 0.4% (mostly via wages) and savings rate up from 3.3% to 3.5%
  • Headline Price index-0.1% and core unchanged, so reasonable increase in real incomes. Core PCE Index now 1.5% 3mth annualized vs 2% last month

EUR Composite PMI ‘surprises’ to upside in November, rising from 46.5 to 47.2

  • Interesting that manufacturing (more volatile and more of a leading indicator) much weaker than services.
  • Also, German new orders fall 2.6pts to 42.6

Q4 GDP estimates in U.S. being shaved 0.25-0.50% on the data. Current range 2.5-3.25%.
Failure to extend payroll tax cut would have impact almost entirely in Q1 2012 (annual withholding ceilings typically reached early in the year)-about 1% on GDP.

European estimates are about -1.5% annualized for both Q4 and Q1. Germany among the weakest (due to manufacturing) with estimates in the -2.5% area.

PMI data in Europe has had a very good track record signaling ECB policy rate changes. This data pretty much cements another rate cut next month.

25 Responses to “U.S. and Eur Data/GDP Downgrades”

  1. Nick Boyd Says:

    I’ve read Mr. Mosler’s “frauds” book and gotta say that he appears to be seriously misguided (although some ideas and ways to look at things there are great).

    While he talks about simplicity in the beginning, he forgets to apply the “smell test” to most of his findings and conclusions later in the book. And boy, do they fail the smell test.

    First, Mosler completely fails to differentiate between theoretical “production” and actually creating value. For instance, jobs don’t exist for the sake of jobs. Building and demolishing the same house over and over might keep construction workers employed for years, but would do nothing to improve the economy.

    Nor does he differentiate between theoretical “spending power” and actual demand for VALUABLE things. For instance, we can give every American enough “spending power” to buy 20 TVs and yet, most would never buy 20 TVs. For the simple reason that there is no VALUE in that for most people once the have 3 or 4 (unless you have 20 rooms and even then it’s doubtful).

    I can go on and on. You can employ people at $8/hr polishing rocks, mining dirt, etc. There would be no effect on the economy except inflation.

    Injecting money through government “spending” does not mean that the money will flow to any productive sectors in the economy. And the QE1&2 have conclusively demonstrated this.

    Likewise, showering States with money will not solve the problem because the money will go to the bottomless pit of unproductive and parasitic spending.

    Mr. Mosler fails to account for the basic human trait: selfishness. As long as there exist incentives to get something for nothing or (or much for little), people (e.g. bankers) will continue to do so.

    Taking risk out of the market in the form of unlimited FDIC insurance will not improve the economy, but will keep the money flowing into the bottomless pit of selfishness of those who are first to receive the free money.

    If Mr. Mosler were right, all we had to do with the MBS crisis was to keep the ponzi scheme going by injecting extra “digital” capital.
    However, once the MBS sellers ran out of buyers (kinda like with the 20 TVs example), no amount of extra capital would generate demand for those things simply because people would spend this free money on things other than MBS. There is a limit on how much real estate people will want to buy no matter how much free money you give them.

    Just like the constitution is a check on people’s power through taking the power away and giving it to a piece of paper, so a gold standard or any similar way of backing fiat money is a natural check on people’s power and propensity to “spend” such money into the bottomless pit of unproductive selfishness.

    Like I said, while some “models” in the book could help develop sound policy, many more considerations must me taken into account before someone like Mr. Mosler arrives at something that will actually make everyone (and not just select few) wealthier in real terms.



    You need to read it again. It’s all in there.


    Save America Reply:

    @Nick Boyd, “You can employ people at $8/hr polishing rocks, mining dirt, etc. There would be no effect on the economy except inflation.”

    I have many friends at NASA who just got laid off. Currently though they still have a “work ethic” and even if you gave them a stupid make work job of polishing toy shuttles, it would keep this “work ethic” somewhat intact. But if you send them home to play Quake Deathmatch after a few years if or when the private sector needed them to build a space elevator, I don’t think they could put down the playstation 3 controller and go back to a real job. Do you?


    Save America Reply:

    @Nick Boyd,

    “Warren makes eleven points and I agree with two – the elimination of payroll taxes and converting banks into utilities.”

    We all agree banking needs serious reform, why is it so hard to achieve Nick? I remember someone telling me one of the Goldman Sachs boyz I believe had a poster in his office of himself and a senator shaking hands on agreeing to the repeal of glass-steagal, he was really proud of that moment.

    Nick says : “Injecting money through government “spending” does not mean that the money will flow to any productive sectors in the economy. And the QE1&2 have conclusively demonstrated this.”

    From the article above mosler said: “The reason banks aren’t lending isn’t because they don’t have money to lend. Lending is constrained only by bank capital and the creditworthiness of willing borrowers, not by gold or any other concept of bank reserves. That’s why quantitative easing – i.e. the Fed printing money to buy securities – has no effect on bank lending.”

    Nick says : “There is a limit on how much real estate people will want to buy no matter how much free money you give them.”

    My recent trip to europe Nick, I wanted to buy some real estate, in england next to RAF Lakenheath, barclays wouldn’t play ball. In Germany near wiesbaden/frankfurt – deutsche bank wouldn’t play ball. In Italy near vicenza, same problem. Bank of Zagreb was willing to help in opatija and dubrovnik if I wanted to borrow in swiss francs. I have just watched Marijuana Inc. on CNBC, and decided I am going to california and going to get lots of loans to buy land there and grow a real CASH CROP, even warren is pushing for legalized marijuana, I literally “smell” the winds of change ;)( I don’t really care about the profits, but all the coolest liberal chicks I know always seem to smoke lotta dope)

    Nick today I also got to watch a CNBC program on privatized prisons, another issue Warren has raised here on this blog. In Colorado they are paying prisoners 60 cent a day to grow hormone free fish that is sold in whole foods market, as well as make car parts and many other things. What a win/win – prisoners get a skill and give them a sense of worth, consumers get a made in USA product that makes prices go down. But there was some fish farmer that said it put him out of business, better to be put out by USA private prisons than cheap labor in china eh? At least we are keeping the skills within our borders that way.


    Save America Reply:

    @Save America, Also nick I have heard chuck schumer wants to give residency to anyone who comes to USA and buy a house for 250K or greater. The russian oligarchs I recently visited are ITCHING to DEATH for this opportunity, they want to expand thier prostitution and drug empires in miami, LA, and new york and if chuck schumer passes it, we are going to see a huge influx of immigrants I think. I hope I can get that illegal alien loan officer in Miami I always criticized here to give me some loans to buy land in Cuba if they open up that market, I want some beachfront condos there so I can put up a few mistresses, american mistresses are too expensive, I want the cuba price ;) I talked to a guy that was a colonel in the bay of pigs and a personal friend of castros when they were little boys (thats why he didn’t get killed after the failed invasion) he said he is scared to death of capitalists coming into cuba buying up land, that he has a few hundred acres that family owns and lots of grandmothers and such currently have a place to live, but when the banks and capitalists come in, all the old people gonna be left homeless.


    Walid M Reply:

    @Nick Boyd,

    Warren has been prescient on just about every economic issue we are witnessing …so in practise the evidence is on his side ..and in theory ? well at least he has MMT . What have you got one to offer us ?



    glad someone noticed.


    JS Reply:

    @Nick Boyd,
    Wonderful comments of utmost innocence! :-)

    “You can employ people at $8/hr polishing rocks, mining dirt, etc. There would be no effect on the economy except inflation.”

    Half of the economy comprises people who are doing the equivalent of polishing rocks, mining dirt etc at substantially higher hourly rates… A rational distribution of the necessary workload would require people to work just half of the time for the same effective standard of life; so actually there is a huge inflation of… working hours.

    “Mr. Mosler fails to account for the basic human trait: selfishness.”
    The basic human trait is stupidity. Mosler quite accounts for it in a constructive way.

    “a gold standard or any similar way of backing fiat money is a natural check on people’s power and propensity to “spend” such money into the bottomless pit of unproductive selfishness”

    The only productive use for gold I know is to lower the contact resistance of electronic circuits. It is beyond my comprehension to understand why people think such property would be necessary to “back” a social arrangement – fiat money – that can only exist as a product of human activity coordination .



    as long as people have to exchange their time to get paid the currency will have that much value.

    the currency is worth what you have to do to get it.

    i was musing about that many years ago with Charles Goodhart, making the point that if you not only had to work an hour to get paid, but you had to submit to an electric shock to get your paycheck, that would add value to the currency as well. Which brought up the image of Europe consisting of the high voltage and low voltage nations…


  2. rodney Says:

    Lots of strawman arguments in your comments nick. we already pay people to be unemployed. No inflation there. But why? The answer is that inflation is a phenomenon that occurs when spending exceeds the economy’s capacity to produce. Doesn’t matter whether the people spending it are productive or not. You also seem to be confused about the nature of quantatative easisng. It’s not government spending. It’s an asset swap. Forget all that ausrian stuff your carrying around.


  3. Yeago Says:

    i had no idea someone could be so passionate about PMI


  4. chris Says:

    I’ve been looking for a reasonable challange to the MMT explanation and have found none so far. Mr. Boyd, if your going to challange MMT, at least put some thought into it!


    Save America Reply:

    @chris, Jim Rickards did enter into a debate with Mosler that Rickards never seemed to finish, but I found some good Rickards videos on why china won’t dominate us anytime soon. Being the original “occupy moslereconomics” guy, I really liked this meme Mosler put forth of idle resources going to waste, like grapes rotting on the vine. I used to ask him about all the women who weren’t birthing babies, and could potentially have 10-20 or more, and how wasteful it was to have all these idle uteruses that were not contributing to societal growth. (I certainly tried to do my part to impregnate as many women as possible when I was younger instead of letting thier bodies go to waste and rot on the vine) It seemed at that point his “wasteful idling meme” couldn’t bridge the gap from unemployed humans to non birthing mothers. Who else here thinks it is a travesty that our smartest, healthiest potential mothers have decided to outsource population growth to 3rd world mothers who don’t have the smarts or safe happy environments to bring the children up in like western woman does? Why add more radicalized children to the world who are ignorant and/or religous nuts? Where are the societal engineers really working on the macro problems facing humanity? Maybe there will be a positive impact of this unemployment issue, momma’s going home from the workforce and having and raising babies like used to happen. I just saw this really funny movie – “the help” where women had to hire blacks in the south to raise thier babies, eat my s?*t! LOL!


    Hugo Heden Reply:

    @Save America,

    There was probably some funny jokes in there?

    Involuntary unemployment is probably something different that voluntary childlessness? The former is a macroeconomic issue leading to increased crime, social despair, domestic violence, drug abuse etc — problems that are very large and persist across generations. The latter is … umm .. not?


    chris Reply:

    @Save America, My understanding of MMT does not advocate hiring people to polish rocks or mine dirt unless there is a economic demand for such services. What you suggest occurs under the current system where money is simply given away. The public gets nothing under the current unemployment system. MMT encourages gov. Spending to increase aggrigate demand by purchasing goods and services that contribute to public good. MMT is not about welfare for the masses!

    Under MMT, maximizing economic benefit is like riding a bike. You use economic indicators like your senses to gage where to turn, when to apply controls etc… The economic controls are Gov. Spending, taxation and economic policy.

    Like Warren said, read the book!


    Save America Reply:

    @chris, Sir I have read the book, many times, presented his book to several hedge fund managers, the director of GOOOH, and a few senators and military officers in washington DC, dr. malveaux, personal economics adviser to obama and some other economists, and now recently some teachers at cambridge, and some military officers in a few european countries, warrens proposals talk about a job gaurantee program. Hiring a nasa engineer to do “something” is better than giving him money to do nothing but go home and play quake deathmatch. Are you sure you read the book? What am I missing? I make mistakes all the time, fix me….

  5. Chris Says:

    I think we can all agree on one thing; It’s good that your distributing the book to so many influential people.


  6. Trixie Says:

    @Save America, re: Censorship

    You come here telling your personal sob stories. And frankly, there is a lot of “LOL” I could find in that while “debating” about society. Then we’ll see who runs off crying like a little girl.

    “I take that as my cue to say goodbye”

    Good riddance.


  7. Steve Says:

    Warren, do Roberts’ arguments have merit?
    Bankers have seized Europe: Goldman Sachs Has Taken Over

    By Paul Craig Roberts

    Global Research, November 26, 2011

    On November 25, two days after a failed German government bond auction in which Germany was unable to sell 35% of its offerings of 10-year bonds, the German finance minister, Wolfgang Schaeuble said that Germany might retreat from its demands that the private banks that hold the troubled sovereign debt from Greece, Italy, and Spain must accept part of the cost of their bailout by writing off some of the debt. The private banks want to avoid any losses either by forcing the Greek, Italian, and Spanish governments to make good on the bonds by imposing extreme austerity on their citizens, or by having the European Central Bank print euros with which to buy the sovereign debt from the private banks. Printing money to make good on debt is contrary to the ECB’s charter and especially frightens Germans, because of the Weimar experience with hyperinflation.

    Obviously, the German government got the message from the orchestrated failed bond auction. As I wrote at the time, there is no reason for Germany, with its relatively low debt to GDP ratio compared to the troubled countries, not to be able to sell its bonds.
    If Germany’s creditworthiness is in doubt, how can Germany be expected to bail out other countries? Evidence that Germany’s failed bond auction was orchestrated is provided by troubled Italy’s successful bond auction two days later.

    Strange, isn’t it. Italy, the largest EU country that requires a bailout of its debt, can still sell its bonds, but Germany, which requires no bailout and which is expected to bear a disproportionate cost of Italy’s, Greece’s and Spain’s bailout, could not sell its bonds.

    In my opinion, the failed German bond auction was orchestrated by the US Treasury, by the European Central Bank and EU authorities, and by the private banks that own the troubled sovereign debt.

    My opinion is based on the following facts. Goldman Sachs and US banks have guaranteed perhaps one trillion dollars or more of European sovereign debt by selling swaps or insurance against which they have not reserved. The fees the US banks received for guaranteeing the values of European sovereign debt instruments simply went into profits and executive bonuses. This, of course, is what ruined the American insurance giant, AIG, leading to the TARP bailout at US taxpayer expense and Goldman Sachs’ enormous profits.

    If any of the European sovereign debt fails, US financial institutions that issued swaps or unfunded guarantees against the debt are on the hook for large sums that they do not have. The reputation of the US financial system probably could not survive its default on the swaps it has issued. Therefore, the failure of European sovereign debt would renew the financial crisis in the US, requiring a new round of bailouts and/or a new round of Federal Reserve “quantitative easing,” that is, the printing of money in order to make good on irresponsible financial instruments, the issue of which enriched a tiny number of executives.

    Certainly, President Obama does not want to go into an election year facing this prospect of high profile US financial failure. So, without any doubt, the US Treasury wants Germany out of the way of a European bailout.

    The private French, German, and Dutch banks, which appear to hold most of the troubled sovereign debt, don’t want any losses. Either their balance sheets, already ruined by Wall Street’s fraudulent derivatives, cannot stand further losses or they fear the drop in their share prices from lowered earnings due to write-downs of bad sovereign debts. In other words, for these banks big money is involved, which provides an enormous incentive to get the German government out of the way of their profit statements.

    The European Central Bank does not like being a lesser entity than the US Federal Reserve and the UK’s Bank of England. The ECB wants the power to be able to undertake “quantitative easing” on its own. The ECB is frustrated by the restrictions put on its powers by the conditions that Germany required in order to give up its own currency and the German central bank’s control over the country’s money supply. The EU authorities want more “unity,” by which is meant less sovereignty of the member countries of the EU. Germany, being the most powerful member of the EU, is in the way of the power that the EU authorities desire to wield.

    Thus, the Germans bond auction failure, an orchestrated event to punish Germany and to warn the German government not to obstruct “unity” or loss of individual country sovereignty.

    Germany, which has been browbeat since its defeat in World War II, has been made constitutionally incapable of strong leadership. Any sign of German leadership is quickly quelled by dredging up remembrances of the Third Reich. As a consequence, Germany has been pushed into an European Union that intends to destroy the political sovereignty of the member governments, just as Abe Lincoln destroyed the sovereignty of the American states.

    Who will rule the New Europe? Obviously, the private European banks and Goldman Sachs.

    The new president of the European Central Bank is Mario Draghi. This person was Vice Chairman and Managing Director of Goldman Sachs International and a member of Goldman Sachs’ Management Committee. Draghi was also Italian Executive Director of the World Bank, Governor of the Bank of Italy, a member of the governing council of the European Central Bank, a member of the board of directors of the Bank for International Settlements, and a member of the boards of governors of the International Bank for Reconstruction and Development and the Asian Development Bank, and Chairman of the Financial Stability Board.

    Obviously, Draghi is going to protect the power of bankers.

    Italy’s new prime minister, who was appointed not elected, was a member of Goldman Sachs Board of International Advisers. Mario Monti was appointed to the European Commission, one of the governing organizations of the EU. Monti is European Chairman of the Trilateral Commission, a US organization that advances American hegemony over the world. Monti is a member of the Bilderberg group and a founding member of the Spinelli group, an organization created in September 2010 to facilitate integration within the EU.

    Just as an unelected banker was installed as prime minister of Italy, an unelected banker was installed as prime minister of Greece. Obviously, they are intended to produce the bankers’ solution to the sovereign debt crisis.

    Greece’s new appointed prime minister, Lucas Papademos, was Governor of the Bank of Greece. From 2002-2010. He was Vice President of the European Central Bank. He, also, is a member of America’s Trilateral Commission.

    Jacques Delors, a founder of the European Union, promised the British Trade Union Congress in 1988 that the European Commission would require governments to introduce pro-labor legislation. Instead, we find the banker-controlled European Commission demanding that European labor bail out the private banks by accepting lower pay, fewer social services, and a later retirement.

    The European Union, just like everything else, is merely another scheme to concentrate wealth in a few hands at the expense of European citizens, who are destined, like Americans, to be the serfs of the 21st century.



    not much.


  8. Sam Says:

    @ Warren: “not much”

    Well at any rate, his conclusion:

    “The European Union, just like everything else, is merely another scheme to concentrate wealth in a few hands at the expense of European citizens, who are destined, like Americans, to be the serfs of the 21st century.”

    is the same as Marshall Auerback’s in his article,”A Financial Coup d’etat in the Making?”

    I think Steve’s question might warrant a fuller answer, since the Austrian’s seem to have a tremendous amount of influence with the average Joe–not that they read economics, but that their anti-government and “common sense” points of view percolate down and are very influential.



    the current institutional arrangements and policies are severely damaging 1% as well as the 99%, and the 1% do far better with full employment as they have more output to try to exploit.


  9. Sam Says:

    “the current institutional arrangements and policies are severely damaging 1% as well as the 99%, and the 1% do far better with full employment as they have more output to try to exploit.”

    Warren, that is probably true for the productive 1%, but the government has been extorted into handing over trillions to the financial industry to make-up for their casino playing; presumably someone got very rich in a very big hurry, and presumably they are getting richer by further investing that money elsewhere? These are not innocent players?



    Hence my proposals for the financial sector


  10. Sam Says:

    “Hence my proposals for the financial sector.”

    OK :-)


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