We WON!!! MMT got everything right…EVERYTHING!!!

We WON!!! MMT got everything right…EVERYTHING!!!

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45 Responses to We WON!!! MMT got everything right…EVERYTHING!!!

  1. Monica Smith says:

    Not exactly news but ……
    http://www.thestreet.com/story/11345976/1/fed-flipping-fueled-housing-collapse.html

    Reply

    Monica Smith Reply:

    @Monica Smith, Here’s the original study in pdf
    http://www.newyorkfed.org/research/staff_reports/sr514.pdf
    SUMMARY

    We explore a mostly undocumented but important dimension of the housing market crisis: the role played by real estate investors. Using unique credit-report data, we document large increases in the share of purchases, and subsequently delinquencies, by real estate investors. In states that experienced the largest housing booms and busts, at the peak of the market almost half of purchase mortgage originations were associated with investors. In part by apparently misreporting their intentions to occupy the property, investors took on more leverage, contributing to higher rates of default. Our findings have important implications for policies designed to address the consequences and recurrence of housing market bubbles.

    Reply

    WARREN MOSLER Reply:

    yes, but nothing that meant we had to let unemployment gap from 5-10%

    all we needed, and still need, is a simple fiscal adjustment.

    see ‘the 7 dif’

    Reply

    ESM Reply:

    @Monica Smith,

    Yes, there’s no question that the housing bubble and subsequent collapse was fueled by extensive fraud at the level of the homeowner, particular the speculators who closed on multiple homes on the same day and claimed that each one would be owner-occupied.

    Which is why the best response would have been for the government to facilitate the foreclosure process rather than obstruct it. In addition, the government should have encouraged the pursuit of deficiency judgments in the case of recourse mortgages, as well as torts for homeowner fraud.

    Reply

    WARREN MOSLER Reply:

    or my foreclosure proposal on this website

    Reply

  2. Ivan says:

    Getting it right and putting your money where your mouth is are two very different things. Let’s say you believe Portugal is the next Greece. To buy Portugal protection or short Portugese bonds, you are short that coupon at that price so you are paying out the yield to maturity on Portugese bonds while earning libor. That cost is enormous…approximately 12% per year. So, one year from now, Portugese debt has declined in value by 10% and you can pat yourself on the back and say how right you were but you just lost 2%.

    Reply

    Monica Smith Reply:

    @Ivan, Money is to be spent, not played with. People who play with money should expect to lose it.

    Reply

    Ivan Reply:

    What exactly does that mean in your skewed view of economics and society?

    Reply

    WARREN MOSLER Reply:

    you two need to meet offsite and work this out, thanks

    WARREN MOSLER Reply:

    hey, don’t be giving away all those insider secrets!
    and don’t forget that biblical admonition about pearls and swine…
    ;)

    Reply

  3. Luigi says:

    @Ramanan,

    It’s in general a good document? In the site of St.Louis FED I remember there was something about money multiplier and, you know, it’s not so plausible.

    Reply

  4. Dan Kervick says:

    Thanks Unforgiven. I saw your reply on the Mike Norman’s blog and came here as you have suggested. I have been googling the topic like crazy, but so far all I can come up with are things that deal with the primary dealers, nothing on the statutes governing the Fed. The thing is, I’m pretty sure I read something about this on one of the MMT blogs recently, with a link to a web page discussing the statute. But I can’t locate it now.

    Reply

    Ramanan Reply:

    @Dan Kervick,

    Forgot the link in #5

    http://research.stlouisfed.org/aggreg/meeks.pdf

    Reply

    Dan Kervick Reply:

    @Ramanan, Thanks Ramanan.

    Reply

  5. Dan Kervick says:

    Sorry to go off topic, but I have a Fed operations question: I was under the impression that the Fed could not legally buy treasury bonds in the primary market but that it had to purchase them in the secondary market. But I believe I read somewhere recently – perhaps here – that the Fed is permitted a limited amount of primary market purchases each year. Can anybody direct me to an authoritative answer to this question. I’m under the gun to get a correct answer because I need to get it right in an essay I’m publishing. Thanks in advance for any help!

    Reply

    Unforgiven Reply:

    @Dan Kervick,

    Here’s the content of my post on Mike Norman’s blog:

    @Dan Kervick –

    I’m coming up with this and that on the subject (I’m not well versed in it).

    Here’s something fairly recent:

    http://www.newyorkfed.org/markets/lttreas_faq.html

    Looks like there’s a limit on the number of offers per issue as well.

    Perhaps try this query in google:

    fed “primary dealer” 35 site:nyfed.org

    Or the like. Anything after “site:” will limit the results to pages from that site. No space after the colon.

    Perhaps someone else here can chip in some more info?

    Reply

    Ramanan Reply:

    @Dan Kervick,

    This?

    “Understanding Open Market Operations” by Michael Akhtar

    “The Federal Reserve is prohibited by law from adding to its net position by direct purchases of securities from the Treasury—that is, the Federal Reserve has no authority for direct lending to the Treasury. As a consequence, at most the Desk’s acquisition at Treasury auctions can equal maturing holdings.”

    Page 37 of pub/ Page 41 of pdf.

    Reply

  6. beowulf says:

    Interesting Dimitri Papadimitrious paper up at Levy Institute.
    The Levy Institute, with underwriting from the Labour Institute of the Greek General Confederation of Workers, has helped design and implement a program of direct job creation throughout Greece. Two-year projects, financed using European Structural Funds, have already begun… For those interested in the policy side, the report also provides a solid introduction to the conceptual justification behind a direct job creation program along the lines of Hyman Minsky’s “employer of last resort” idea…
    http://www.multiplier-effect.org/?p=2822

    I suppose the Fed could set up a lending facility to finance this Eurozone-wide, call it the Eisenhower Fund, or to minimize the domestic political blowback, the Reagan Fund.

    Aside from the human suffering it would relieve,which is reason enough to do it, one advantage of this approach is it wouldn’t take long for state governors here to ask why they can’t participate in the program (Austerians could hardly complain, it wouldn’t add to the federal deficit).

    Reply

    jonf Reply:

    @beowulf, Sounds like they have one foot on the brake and another on the accelerator. Austerity-spending cuts versus job creation on the other. How does that work anyway? Stay in neutral?

    Bring it here to the US? With our dysfunctional congress, no chance.

    Reply

    Unforgiven Reply:

    @jonf,

    Dysfunction is the only thing that saved us from the Super Committee!

    Reply

    jonf Reply:

    @Unforgiven, I thought I would start a popcorn concession during the debt debate. Some people around here thought we were going straight to hell and still do. But you know what they say: “you can’t fix stupid.” Some are still in awe why interest rates are not at 20% already. It’s coming they say, it’s coming.

    Monica Smith Reply:

    @Unforgiven, The Super Committee was designed to fail. Conservative politicians prefer planning to fail because failure is more certain than success. Moreover, failure promotes longevity in office while success is terminal. There’s nothing to “try and try again.”

    Ivan Reply:

    Yes Monica. The supercommittee was designed to fail so that your boy Obama can rail on the supposed “do nothing” congress. This website is about monetary operations. The more its participants identify themselves with one party or another reduces the chances that it will ever be taken seriously.

    You know the best way to get attention? Warren forms a new Macro fund based on MMT theories and manages it for a fraction of a normal hedge fund. When he makes $1bln off his bets, he’ll be taken seriously. Talk is cheap. Actions are critical.

    I remember talking to a macro trader a few years back when the yield curve was very steep. He was completely convinced that rates were going higher. What he didn’t understand is that an upward sloping yield curve makes shorting the bond market extremely expensive. Shorting the housing market was also very expensive. In both cases, time is not on your side.

    WARREN MOSLER Reply:

    i guess you still take it seriously…
    ;)

    roger erickson Reply:

    @Unforgiven, More accurate to call it miss-function. We keep trying to shoot ourselves in the foot, but, luckily, keep missing.

    Russian miss-function.

    beowulf Reply:

    @jonf,

    That’s where the magic happens. If the Fed created a lending facility for state governments– thereby waiving the 6 month time limit on muni loans– Congress wouldn’t have to vote for it since 13(3) (as amended by Dodd-Frank) allows them to establish lending facilities to benefit classes of individuals, partnerships and corporations. All sovereign governments (whether of Nations or US States) are a form of corporation known as a “body politic and corporate”.

    United States v. Maurice, 2 Brock. 96, 109 (CC Va. 1823) (Marshall, C. J.) (“The United States is a government, and, consequently, a body politic and corporate”)
    Cotton v. United States, 11 How. 229, 231 (1851) (“Every sovereign State is of necessity a body politic, or artificial person”).
    Cong. Globe, 42d Cong., 1st Sess., 661-662 (1871) (Sen. Vickers) (“What is a State? Is it not a body politic and corporate?”); id., at 696 (Sen. Edmunds) (“A State is a corporation”).

    http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=us&vol=491&invol=58

    Reply

    WARREN MOSLER Reply:

    except why would the fed want to do that if Congress doesn’t want to?

    beowulf Reply:

    Unlike half of Congress, Bernanke realizes that monetary policy is simply “pushing on a string” and that the economy is starving for additional govt spending. The Senate would approve, the House would object but since the Administration would be supportive (they tried to establish an infrastructure bank created in that Jobs bill that went nowhere), there’s nothing really standing in the Fed’s way.

    I read something the other day, not sure if its true, that once the Fed chairman states how he’ll vote in a FRB or FOMC meeting, by custom the other Fed governors vote with him (and in FOMC, the NY Fed president does the same). If that’s so, I guess its Bernanke’s call if the FRB would approve something like this.

  7. Dave Begotka says:

    That or he was licking his cat

    Reply

  8. Nick Boyd says:

    somebody here said in response to my comments of mr. mosler predicted every major collapsetoday including the.com bubble and real estate bubble. can someone point to specific articles or other material on the web documenting this? I am particularly interested in his rationale for the then upcoming real estate bumble.

    Reply

    jcmccutcheon Reply:

    @Nick Boyd,

    Here is one from 1999 http://www.epicoalition.org/docs/squeeze.htm . Trust me he’s and other MMT intellectuals have been very accurate with predictions. I guess its fairly ez to make predictions when you have the right model. There have been a few misses. Its hard to get timing right on anything.

    Reply

    WARREN MOSLER Reply:

    you can go back a few years with this blog and look at the bulletin board at http://www.mosler.org

    In mid 06 I said it looked like the deficit was too small to continue to support the credit structure and that the economy’s growth would slow
    until the deficit got over 5% of GDP, which is pretty much what happened.

    I didn’t specifically predict the real estate and/or financial crash because it didn’t need to happen.
    it all happened the way it did because of errant policy.

    Reply

    wh10 Reply:

    @WARREN MOSLER,

    Warren, interesting. What policies would have prevented it from happening the way it did? Timing and amount of liquidity provision?

    Reply

    wh10 Reply:

    @wh10, er.. rather price of liquidity provision? or do you mean fiscal policy leading up to the crisis?

    James Hogan Reply:

    @WARREN MOSLER,

    “it all happened the way it did because of errant policy.”

    OK, I’ll bite. What was the “correct” policy?

    I’ve never come up with an alternative to having enough income to support the price of the mortgage. Is there a better answer?

    Reply

    macrosam Reply:

    @James Hogan,

    Immediate payroll tax holiday, the silver bullet as mentioned in the mandatory readings section.

    WARREN MOSLER Reply:

    right, fiscal adjustment/payroll tax suspension and my rental proposal for mtg foreclosures

    Monica Smith Reply:

    @WARREN MOSLER, The real estate crash was engineered as a follow-on to the Savings and Loan crisis of the early ’80s. It was a multi-pronged effort, relying on urban renewal to hollow the cities out, the virtual elimination of the capital gains tax on homes, as Greenspan announced (about 1993), “to liberate the equity Americans had accumulated in their houses for the market” and then, to top it all off, Dubya’s announcement of the “ownership society” in February of 2003. The S&L debacle involved flipping raw land; the housing bubble involved flipping houses people didn’t need. Though, for a time, the latter had the “beneficial” side-effect of propping up the sale of shoddy imported appliances and furnishings. The “policy” position was the notion that lots of people living close together are trouble. Spread ‘em out, put ‘em on cages with wheels and they’ll be a lot easier to handle. That was the premise for “urban renewal,” dreamed up by people who hate living in cities.

    Reply

    WARREN MOSLER Reply:

    and if they hadn’t let aggregate demand collapse in Aug. 2008 by, for example,
    suspending FICA debits, there wouldn’t have been ‘the crash’

    Fundamentally, by definition, in real terms, we can ‘afford’ what we can construct,
    though it is possible to construct to the point where there aren’t sufficent man hours to maintain it.
    but seems we’re quite a ways from there.

    Ivan Reply:

    Blaming Bush? Are you kidding? Not the CRA? Not the expansion of the CRA under Clinton? Not the ever increasing congressional mandate for both FNMA and FHLMC to lend or guarantee an ever larger portion of their portfolio to those below the mediam income when only 17% of those in California (30% of the housing stock) could afford the median priced home? Not Barney Frank saying he’s willing to roll the dice on this????

    Oh..I understand…it’s Bush. Everything is Bush. I guess I’ll vote for Obama because he said all his problems in 3 years in office are because of Bush as well. 50 years from now…all Bush. All his fault.

    JBH Reply:

    @Monica Smith,

    I agree, a big govt trying to manipulate society always leads to a mess.

  9. ESM says:

    Looks like he got started on the egg nog a little early. :^)

    Reply

    Matt Franko Reply:

    @ESM, You are mistaking ‘combativeness’ with inebriation! ;)

    Reply

    RSG Reply:

    @Matt Franko,

    looks more like inebriation…which makes it hard to take him seriously

    Reply

    jonf Reply:

    @RSG, But he is right, you know. That counts for something.

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