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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 January, 2012

Fin Min Azumi: To Take Decisive Forex Steps If Needed

Posted by WARREN MOSLER on 31st January 2012

With the aggressive fx policies of former Treasury Secretary Paulson fading, the Swiss not being tongue lashed as a currency manipulator and international outlaw for selling their currency, and the euro member nations seeking all the ‘help’ they can get:
I’m watching for other nations seeking export led growth, like Japan, resuming prior policies of keeping their real wages ‘competitive’ by buying the currencies of their target markets.

Japan’s Fin Min Azumi To Take Decisive Forex Steps If Needed

Jan 25 (Dow Jones) — Japan’s finance minister issued a fresh warning Tuesday that he will take “decisive steps” if speculators push the yen up too sharply, after the Japanese currency rose to its strongest level in around three months overnight.

“There is no change in my stance” on foreign exchange issues, Jun Azumi said at a news conference after a regular Cabinet meeting. “If there is excessive volatility or really speculative movement, I will be vigilant against it, and I will take decisive steps if necessary.”
The phrase “decisive steps” is a Japanese code for currency-market intervention.

But Azumi added that Japan’s economy “isn’t necessarily in a bad shape.” He voiced hopes that Europe’s debt crisis would ease, helping Japanese stock markets stabilize.

The yen briefly surged to Y76.21 Monday, as investors fleeing Europe’s debt crisis took shelter in Japan’s currency despite warnings from Japanese policymakers that yen strength was unwarranted.

Posted in Currencies | 6 Comments »

Warren Mosler interview on Barry Armstrong’s Boston biz radio show

Posted by WARREN MOSLER on 30th January 2012

Barry Armstrong Show

Posted in Deficit, Employment, Fed, Government Spending, Radio | 27 Comments »

One of the interest income channels

Posted by WARREN MOSLER on 30th January 2012

Interest income

Posted in Fed, Interest Rates | 10 Comments »

Draghi Sees No Evidence ECB Loans Are Financing Economy Yet

Posted by WARREN MOSLER on 30th January 2012

Evidence of real progress will be a statement like:
‘Draghi sees no evidence of any possible channel from ECB loans to the economy’

Bank liquidity is something like wheels on a car.
Without wheels the car won’t function, but neither are wheels alone enough to make it go.

Banks are public/private partnerships, with govt’s role being liquidity provider, as private capital in the first loss position prices risk. And with unlimited liquidity provision comes the necessity of full regulation and supervision of the asset/capital side.

In the US the unlimited liquidity provision comes mainly via FDIC insured deposits, supplemented by funding from the Fed. The Fed is the liquidity provider of last resort for its member banks, while at the same time it uses the banking system’s cost of funds as its instrument of monetary policy.

The euro zone hasn’t figured this out yet.
The liquidity provider of last resort is the ECB, as it’s the ‘issuer of the currency’, and as such not itself liquidity constrained. The member nations are like the US states, and are necessarily liquidity constrained, and therefore not ‘empowered’ to be liquidity providers of last resort to their member banks.

So in that sense, as the bank funding by the ECB grows, it’s all gravitating towards what all other nations have in place. The problem is the euro zone leaders don’t understand that aspect of banking, as evidenced by the way they are resisting the shift to ECB funding, and, in fact, working towards moving banks away from ECB funding.

Draghi Sees No Evidence ECB Loans Are Financing Economy Yet

By Jana Randow and Simone Meier

Jan 28 (Bloomberg) — “Do we know that actually this money is going to finance the real economy? We don’t have evidence of this kind yet,” ECB President Mario Draghi told Davos. “There is a lag. We will have to see.” “We know for sure we have avoided a major, major credit crunch, a major funding crisis,” he said today. “You have parts of the euro area where credit is more or less normal, but you have other parts where credit is seriously contracting.” “If you take 0.5 trillion euros and then you take off the reimbursement of other short-term facilities by the banking system in December, you get a figure of roughly 220 billion euros, which is exactly the amount of bank bonds that were to come due in this period of time,” he said.

Posted in Banking, ECB, Fed | 17 Comments »

EU Leaders to Agree on Rescue Fund, Balanced Budget

Posted by WARREN MOSLER on 30th January 2012

No let up on the austerity demands, which are now to be legislated via balanced budget rules.

EU Leaders to Agree on Rescue Fund, Balanced Budget

Jan 29 (Reuters) — European Union leaders will sign off on a permanent rescue fund for the euro zone at a summit on Monday and are expected to agree on a balanced budget rule in national legislation, with unresolved problems in Greece casting a shadow on the discussions.

The summit – the 17th in two years as the EU battles to resolve its sovereign debt problems – is supposed to focus on creating jobs and growth, with leaders looking to shift the narrative away from politically unpopular budget austerity. The summit is expected to announce that up to 20 billion euros of unused funds from the EU’s 2007-2013 budget will be redirected towards job creation, especially among the young, and will commit to freeing up bank lending to small- and medium-sized companies.

But discussions over the permanent rescue fund, a new ‘fiscal treaty’ and Greece will dominate the talks.

Negotiations between the Greek government and private bondholders over the restructuring of 200 billion euros of Greek debt made progress over the weekend, but are not expected to conclude before the summit begins.

Until there is a deal between Greece and its private bondholders, EU leaders cannot move forward with a second, 130 billion euro rescue program for Athens, which they originally agreed to at a summit last October.

Instead, they will sign a treaty creating the European Stability Mechanism (ESM), a 500 billion-euro permanent bailout fund that is due to become operational in July, a year earlier than first planned. And they are likely to agree the terms of a ‘fiscal treaty’ tightening budget rules for those that sign up.

The ESM will replace the European Financial Stability Facility (EFSF), a temporary fund that has been used to bail out Ireland and Portugal and will help in the second Greek package.

Leaders hope the ESM will boost defenses against the debt crisis, but many – including Italian premier Mario Monti, IMF chief Christine Lagarde and U.S. Treasury Secretary Timothy Geithner – say it will only do so if its resources are combined with what remains in the EFSF, creating a super-fund of 750 billion euros ($1 trillion).

The International Monetary Fund says an agreement to increase the size of the euro zone ‘firewall’ will convince others to contribute more resources to the IMF, boosting its crisis-fighting abilities and improving market sentiment.

But Germany is opposed to such a step.

Chancellor Angela Merkel has said she will not discuss the issue of the ESM/EFSF’s ceiling until leaders meet for their next summit in March. In the meantime, financial markets will continue to fret that there may not be sufficient rescue funds available to help the likes of Italy and Spain if they run into renewed debt funding problems.

“There are certainly signals that Germany is willing to consider it and it is rather geared towards March from the German side,” a senior euro zone official said.

The sticking point is German public opinion which is tired of bailing out the euro zone’s financially less prudent. Instead, Merkel wants to see the EU – except Britain, which has rejected any such move – sign up to the fiscal treaty, including a balanced budget rule written into constitutions. Once that is done, the discussion about a bigger rescue fund can take place.

Posted in Deficit, EU, Government Spending | 7 Comments »

US Pension research article

Posted by WARREN MOSLER on 27th January 2012

This is from modest returns and low rates causing ‘savers’ to have to pony up more to provide future nominal incomes.

And it’s a drag on aggregate demand which should be a good thing, as it means we can have lower taxes for any given size govt.
But instead, of course, we let it keep unemployment high and the output gap wide in general.

Pensions & Investments News Alerts:

Verizon to dial up $1.26 billion for pension plans

Boeing to add $1.5 billion to pension plans in 2012

Raytheon, Lockheed Martin to add billions to pension plans

Ford to roll out $3.5 billion in pension contributions

Posted in Interest Rates | 61 Comments »

GDP/Euro Lending Data

Posted by WARREN MOSLER on 27th January 2012

Good report!
Additional notations below:

Karim writes:
U.S. GDP growth in Q4 a bit weaker than expected at 2.8%

Perhaps the FOMC had word of this, explaining the unexpected dovishness?

1.9% of that growth accounted for by inventories. Other contributions: (consumer spending 2%, fixed investment 0.4%, government spending -0.9%, net exports -0.1%).

Rebuilding post earthquake supply lines probably now complete.
Govt spending continues weak, as revenues increase some and the federal deficit falls some.
Imports rise quickly with any increase in consumer spending.

In growth terms: (consumer spending 2%, fixed investment 3.3%, government spending -4.6%, exports 4.7% and imports 4.4%).

So stripping away inventories, growth was below trend. Plus savings rate fell back to 3.7% from 3.9%.

Domestic savings down with spending up indicates increasing consumer debt.
The question is whether this is ‘wanted’ as per increased desires to buy on credit,
or because the decline in govt deficit spending ‘forced’ more consumer debt for ‘essentials’

And, core PCE slowed from 2.1% to 1.1%.

Also explains FOMC dovishness as they see risk as asymmetrical, fearing deflation more than inflation.

In sum, will keep QE3 talk very much alive

And somewhat moot, even as Q1 GDP forecasts are being revised down some, as most don’t think QE matters much for the real economy.

What’s becoming understood is that while there is ‘more the Fed can do’
for all practical purposes there is nothing they can do to further support the real economy.

Euro money and lending data shockingly weak in December.

Might partially explain how some banks apparently got the balance sheet room to buy more national govt debt?

In particular, record single month decline in lending to the non-bank private sector (74bn). Of that, 37bn decline in lending to non-financial corporates and 8bn drop in lending to households.

This should be very supportive of additional ECB rate cuts over the next few months.

Posted in Banking, Deficit, EU, Exports, GDP, Government Spending, Inflation | 7 Comments »

Why Won’t The Fed Tell Congress the Truth About Our Debt? – CNBC

Posted by WARREN MOSLER on 26th January 2012

Why Won’t The Fed Tell Congress the Truth About Our Debt?

By Warren Mosler

Posted in Congress, Fed | 33 Comments »

The Fed’s operation tweet vs twist

Posted by WARREN MOSLER on 26th January 2012

Seems to me the force keeping yields down on the short end can be called operation tweet, as the Fed is simply announcing its forecasts for lower rates, which are subject to immediate change, data dependent.

But with operation twist, the Fed actually buys the longer term securities vs just talking about them, as it also lightens up on the shorter term securities.

So after the current knee jerk reaction to tweet I’m looking at the ramifications of twist to dominate.

Posted in Fed | 17 Comments »

Japan Sees Its Public Debt Exceeding A Quadrillion Yen Next Year

Posted by WARREN MOSLER on 26th January 2012

THEN they’ll be the next Greece…

Japan Sees Its Public Debt Exceeding A Quadrillion Yen Next Year

Jan 26 (Bloomberg) — Japan’s Finance Ministry said the country’s public debt will probably exceed a quadrillion yen for the first time next year, adding pressure on Prime Minister Yoshihiko Noda to raise taxes to restore the nation’s finances.

Posted in Government Spending, Japan | 6 Comments »

Greece hopes for debt swap deal by end of week

Posted by WARREN MOSLER on 26th January 2012

So it could be that the creditors have agreed to swap their bonds for 30 year bonds with ‘half their face value’ but maybe also with about equal economic value, which can in theory be done if the coupon and quality of the new bonds is high enough.

But, again, seven months of negotiations shows it’s not all that easy to come to agreement, and also that for reasons probably not entirely disclosed the bond holders have substantial bargaining power.

Greece hopes for debt swap deal by end of week

Jan 26 (AP) — Greece is aiming to complete negotiations on its debt swap deal by the end of the week, the government’s spokesman said Wednesday, adding that the talks were at their “most delicate phase.” Charles Dallara, head of the Institute of International Finance will head back to Athens on Thursday for the negotiations on a bond swap, known as the Private Sector Involvement. Athens is trying to get its private creditors to swap their Greek government bonds for new ones with half their face value, thereby slicing some euro100 billion ($130 billion) off its debt. The new bonds would also push the repayment deadlines 20 to 30 years into the future.

Posted in Bonds, ECB, Greece | 8 Comments »

The Fed Is Misleading Congress About Europe – US Business News Blog – CNBC

Posted by WARREN MOSLER on 25th January 2012

The Fed Is Misleading Congress About Europe – US Business News Blog – CNBC

By Warren Mosler

Posted in ECB, Fed | 6 Comments »

The Fed is Starving Economy of Interest Income – US Business News Blog – CNBC

Posted by WARREN MOSLER on 24th January 2012

The Fed is Starving Economy of Interest Income

By Warren Mosler

He left out the part about needing a fiscal adjustment to compensate but this is part one of a three part presentation of something I wrote.

Posted in Bonds, Deficit, Fed, Interest Rates | 51 Comments »

Council of Foreign Relations on recent recovery – looks like this recovery is the worst ever!

Posted by WARREN MOSLER on 24th January 2012

I may have mentioned that for the size govt we have we are grossly over taxed?


Real GDP is growing, but weakly compared with the postwar average recovery.

The recovery from the 1980 recession was even weaker at this stage, but that reflected a double-dip recession in 1981.

The economy would have to grow at a 7.6 percent annualized rate in order to catch up with the average postwar recovery by the end of 2012.

The consensus forecast for 2012 growth as reported by Bloomberg is 2.1 percent, up just slightly from a forecast of 2.0 percent as of last October.


Soft home prices have been central to the weakness of the recovery.

The continued weakness of nominal home prices is a postwar anomaly.


In every previous postwar recovery, the stock of household debt has risen as the recovery has begun.

In the current recovery, the collapse in home prices has severely damaged household balance sheets. As a result, consumers have avoided taking on new debt.

The result is weak consumer demand and, hence, a slow recovery.


The slow recovery is obvious in the labor market, where job growth remains painfully sluggish compared to the average recovery.

The recent uptick at the end of the Current Recovery linev(red) is the result of encouraging payroll data announced on January 6th 2012.


Because of the depth of the recent recession, one might expect stronger-than-average improvement in industrial production.

Despite the predicted snapback, the increase in industrial production during this recovery is actually slightly slower than in the average postwar case.


Capacity in manufacturing, mining, and electric and gas utilities usually grows steadily from the start of a recovery.

However, during the current recovery, investment has been so low that capacity is actually declining. Plants and machinery are depreciating faster than they are being installed.


The growth in world trade exceeds even the best postwar experiences.

However, this reflects the depth of the fall during the recession.


The federal deficit since the start of the recovery has been much higher than in previous postwar cases.

Although the deficit has shrunk slightly, its level creates significant challenges for policymakers and the economy.


The traditional American enthusiasm for the road has been dulled by a combination of weak recovery and high fuel prices.

When compared to other postwar recessions, total vehicle miles traveled in this current recovery has not only lagged the average, but has registered no growth whatever.

Posted in Deficit, Economic Releases, Employment, GDP, Government Spending, Recession | 44 Comments »

euro shares slipping on Greece

Posted by WARREN MOSLER on 24th January 2012

It wouldn’t be taking this long if there was a way to get’er done?

Not to mention that once haircuts are finalized the obvious political response from the opposition in Italy, for example, is “if Greece doesn’t have to pay why do we?’

Europe Shares Retreat From Highs as Greece Talks Stall

Jan 24 (Reuters) — European shares retreated from near six-month highs as concerns deepened that Greece might head towards a disorderly default and technical analysts said the recent rally could be coming to a close.

Posted in EU, Greece | 5 Comments »

ILO global unemployment report

Posted by WARREN MOSLER on 24th January 2012

They don’t need to ‘create jobs’ as there is already more to do than there are people to do it.
They need to remove fiscal drag with tax cuts and/or spending increases to allow the needs to be funded:

Sustained Global Unemployment: Interesting stats from the International Labor Organization noting that there are nearly 200million unemployed globally and that another 40million jobs need to be created each year for the next decade. To generate sustainable growth while maintaining social cohesion the world must create 600million production jobs over the next decade which would still leave 900million workers and their families below the $2 a day poverty line, largely in developing countries. These numbers are fairly sobering when you consider that the world’s largest economy only managed to net create around 1.9million jobs in the recent ‘recovery’ and only around 7 million jobs even during the ‘boom’ years between 2002-2007.

Posted in Emerging Markets, Employment | 2 Comments »

Japan Fiscal Pressure Rises as Tax Increase Not Enough

Posted by WARREN MOSLER on 24th January 2012

Good luck to them:

Prime minister Yoshihiko Noda told parliament that he will move to double sales tax to 10pc, saying the future of the world’s third-largest economy depends on tackling its massive public debt.

Mr Noda said the country has “no time to spare” in cutting its fiscal burden.

“It’s impossible for young people to believe that things will get better tomorrow in a society where debts resting on future generations continue growing,” he said. “It is not too much to say that the revival of hope of the entire society depends on the success of this combined reform.”

Japan Fiscal Pressure Rises as Tax Increase Not Enough

By Mayumi Otsuma

Jan 24 (Bloomberg) — Japan’s government said it will probably miss its goal of balancing the budget by 2020 even with its proposed doubling of the sales tax, underscoring the scale of the nation’s fiscal challenges.

The primary budget deficit, which excludes the cost of servicing debt, will be the equivalent of 3.1 percent of gross domestic product for the year through March 2021, the Cabinet Office said in Tokyo today. Hours after the release, Prime Minister Yoshihiko Noda reiterated his call for opposition lawmakers to engage in talks on boosting the sales levy.

Addressing the shortfall through faster growth may be a limited option for Japan, where the central bank has already cut the key interest rate near zero and the traditional boost from a trade surplus last year evaporated — for the first time since 1980. Absent structural changes that boost incentives to spend and invest, today’s report signals further fiscal tightening will be needed to rein in the world’s largest public debt.

“To balance the budget, the rate needs to rise further,” said Takuji Okubo, chief Japan economist at Societe Generale SA in Tokyo, referring to the sales-tax level. “We’ve passed the point where we can soft-land the fiscal situation. The question is how hard the landing is going to be.”

Posted in Government Spending, Japan | 8 Comments »

China Forex Reserves Dip for 2nd Month in Dec

Posted by WARREN MOSLER on 23rd January 2012

I’ve been watching the fundamentals for the exchange rate to deteriorate for the last couple of years. Could be the timing is now right with FDI flows as well as trade flows looking like they may have turned.


China Forex Reserves Dip for 2nd Month in Dec

May 25 (PTI) — From K J M Varma China’s foreign exchange reserves amounting to over USD 3 trillion declined for the second straight month in December, snapping the trend of years of accumulation.

Chinese lenders bought USD 142.5 billion on behalf of their clients in December, while they sold USD 157.8 billion, marking the second monthly deficit, China’s State Administration of Foreign Exchange (SAFE) said in a statement.

The December deficit stood at USD 15.3 billion, up from USD 800 million in November.

China sits on the world’s largest forex reserves.

The SAFE data came after the central bank had said earlier this month that the country’s yuan funds outstanding for foreign exchanges fell to 25. 36 trillion yuan in December.

Analysts said the deficit, like falling yuan funds, is a result of a narrowing trade surplus, a slowdown in the growth of foreign direct investment and weakened expectation for yuan’s appreciation.

Last year, Chinese banks bought USD 1.6 trillion in foreign currency, and sold USD 1. 23 trillion, leading to a surplus of USD 367.8 billion, the SAFE statement said.

Reports of the decline came as China starts celebrating the lunar New Year, or the Spring Festival from January 23. This will mark the beginning of the ‘Year of the Dragon’, according to the Chinese Zodiac that assigns one animal, real or fabricated, to each year, repeating every 12 years.

However, experts say that this year is expected to be a tough one for China as it is seeing a declining trend in exports which is narrowing the decades of trade surplus.

Besides the dip in the forex reserves, China also saw a decline in the double digit growth rate in its economy, which grew by 9.2 per cent in 2011, with official projections that it will decline to 8.5 per cent this year in the face of falling exports and global financial crisis.

China’s trade surplus fell to 6-year low at USD 155 billion in 2011 amid shrinking exports market, even as its foreign trade surged by 22.5 per cent to hit an all-time high of USD 3.64 trillion.

The annual trade surplus narrowed to 14.5 per cent year-on-year to USD 155.14 billion in 2011, according to the General Administration of Customs (GAC).

China is the world’s second-largest importer and is expected to become the top importer in 2-3 years and contribute to global economic recovery, a senior research fellow from the Center for US-China Relations, Tsinghua University, Zhou Shijian, was quoted by the official media here as saying.

Posted in China | 8 Comments »

Press release, Warren Mosler

Posted by WARREN MOSLER on 21st January 2012

For immediate release:

Warren Mosler, candidate, Delegate to Congress, USVI

Christiansted, St. Croix-  Warren Mosler has released part I of his 3 part Action Plan for the USVI.  ”With closing of Hovensa, we face the catastrophic loss of thousands of jobs, a drop in population of perhaps 3,000 people, loss of an estimated $100 million of annual revenue for our government, untold private sector business closings, a substantial drop of enrollment in our schools, and many other negative social and economic consequences” said Mosler. ‘I have organized a three part Action Plan that I will be releasing–one part at a time as they are completed.  If we act now, we can mitigate some of the potential negative consequences and begin building a prosperous future for our Virgin Islands.”

Action Plan, USVI

Part I:  Hovensa Response
1.  I propose that we inform Hovensa that if they close the USVI will not permit anyone to reopen the refinery.  This will cause Hovensa to reconsider their decision to close the refinery.  However, and more important, if they do close, the possibility of the refinery reopening will impede the effort to bring new businesses to St. Croix.  That’s because there are many businesses that would not want to be located on a small island like St. Croix with the possibility that the refinery might resume operations.  Refineries make an island like St. Croix less valuable.  I’m sure, for example, no one would think a refinery opening on St. Thomas or St. John would add value to those islands.
2.  I propose that we require that the cleanup begin immediately, even with the oil storage facility in operation.  It is important for the territory’s recovery that the unused portion of the facility be brought back to its original condition as specified in the contract with the USVI government as soon as possible.
3.  I propose that we require that current employees of the refinery and residents of the USVI be given priority for the cleanup jobs.  This will provide a multiyear transition period for the qualifying Hovensa employees and the USVI.
4.  I propose that we determine whether there is any residual equipment at Hovensa that might be useful to the USVI and arrange for its purchase.  The prices should be very attractive.

Part II and Part III will be released over the next several days.

Contact:  Reginald Perry, 340 692 7710

Posted in Political | 11 Comments »

US, Europe Face More Ratings Downgrades in Coming Years

Posted by WARREN MOSLER on 21st January 2012


US, Europe Face More Ratings Downgrades in Coming Years
The US tops the list of downgrade candidates because its debt and deficit troubles are unlikely to be resolved with the political infighting in Washington, a new study says.

Posted in Articles | 17 Comments »