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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 March, 2012

Saudi price setting

Posted by WARREN MOSLER on 30th March 2012

Saudi Oil Minister: There’s No Shortage of Supply

By Amena Bakr

March 1 (Reuters) — Top oil exporter Saudi Arabia sought to soothe fears about high oil prices, saying on Tuesday world supplies were well in excess of demand and that $125-a-barrel crude prices were not justified given the anemic state of the world economy.

Cleverly trying disguise their role as swing producer/price setter.

Saudi Oil Minister Ali al-Naimi said the kingdom had satisfied all of its customers’ requests for oil and stood ready to raise output to full capacity of 12.5 million barrels per day (bpd), if needed.

Yes, at their posted prices. That’s how monopoly works. The monopolist sets price and lets quantity demanded adjust.

“I want to assure you that there is no shortage of supply in the market,” Naimi told reporters at a press briefing in Doha, Qatar. “We are ready and willing to put more oil on the market, but you need a buyer.”

As the only nation with said excess capacity, they are necessarily swing producer/price setter.

Oil is trading above $123, just $24 short of an all-time high, as tighter Western sanctions on Iran threaten to slow the country’s exports.

“Oil prices today are unjustifiable on a supply and demand basis,” said Naimi. “We really don’t understand why the prices are behaving the way they are.”

Oh really? How about because that’s where you are setting your prices?

Try lowering your prices by $10 and see what happens?

He said supply of oil was now out-pacing demand by more than 1 million bpd and that customers were not asking for extra crude.

Right, at their posted prices.

“From our point of view, we have had no customer not satisfied. We have satisfied every request for every customer that has come asking,” said Naimi. “We ask the customers, ‘Do you need more?’ and invariably the answer is ‘No thank you.’”

Yes, that’s how monopoly works.

Riyadh is now pumping 9.9 million bpd – the highest in decades – and is willing to produce at full capacity of 12.5 million bpd immediately, should demand warrant, Naimi said. He said he expected output next month to stay at 9.9 million bpd.

Saudi spare production capacity now stands at 2.5 million bpd, he said.

And no one else has any spare capacity to speak of.

“We spent a lot of money building that capacity. We finished building it in 2009, and it is there to be used,” said Naimi.

Yes, they would like more demand at their posted prices.

How hard is this to understand?

The risk now is that WTI converges to Brent when the new pipeline out of Cushing starts flowing, which will be June 1 last I heard.

Storage inside the kingdom was full and Riyadh was holding about 10 million barrels outside of Saudi Arabia in Rotterdam, Sidi Kerir and Okinawa, he said.

“Our inventories both in Saudi Arabia and worldwide are full.”

Posted in Oil | 55 Comments »

NORWAY OIL FUND TO CUT EUROPE BOND HOLDINGS TO 40% FROM 60%

Posted by WARREN MOSLER on 30th March 2012

Rats leaving the sinking ship…

NORWAY OIL FUND TO CUT EUROPE BOND HOLDINGS TO 40% FROM 60%

Posted in Bonds, EU | 2 Comments »

Was Quantitative Easing A Tax?

Posted by WARREN MOSLER on 30th March 2012

Good to see someone telling it like it is!

Was Quantitative Easing a Tax?

By John Carney

March 29 (CNBC) — In the last of his four lectures to students at George Washington University, Ben Bernanke explained how the Fed’s quantitative easing programs worked. As it turns out, they were akin to a tax hike.

This aspect of government asset purchase-and-resale-for-profit programs is not well understood. I explained it in terms of a Treasury program last week.

A tax takes dollars out of the private sector, leaving households and businesses with fewer dollars and the government with more dollars. When the government buys something for $10 and sells it back to the private sector for $12, the net effect is the same as if the government had taxed away those $2.

Bernanke doesn’t come out and call quantitative easing a tax. But he comes close.

“The Fed’s asset purchases are not government spending, because the assets the Fed acquired will ultimately be sold back into the market. Indeed, the Fed has made money on its purchases so far, transferring about $200 billion to the Treasury from 2009 through 2011, money that benefited taxpayers by reducing the federal deficit,” he explains in one of the prepared slides.

Here’s a good rule of thumb. If something reduces the federal deficit, it is either the equivalent of a spending cut or a tax hike.

Posted in Deficit, Fed | 27 Comments »

eu credit growth slows

Posted by WARREN MOSLER on 28th March 2012

So much for the LTRO “bazooka”:

EMU Growth Watch: Credit Growth Slows

Frankfurt, Germany (AP) — The European Central Bank says the flow of credit available to businesses slowed down in February — a sign that the bank’s massive series of cheap loans to the financial system has yet to kickstart a lagging eurozone economy. Figures Wednesday showed loans to nonfinancial corporations — a key credit indicator — grew by only 0.4 percent on an annual basis, down from 0.7 percent in January. The ECB made two massive rounds of cheap loans to banks Dec. 21 and Feb. 29, adding about €500 billion ($666 billion) in net new credit to the financial system. The loans were introduced in the hope that the money would eventually find its way to businesses and consumers as loans and, in turn, promote growth. The loans are credited with easing the eurozone debt crisis by removing fears that one or more of Europe’s shaky banks might fail, and by making it easier for heavily indebted governments such as Italy to borrow on bond markets.

Our Take: LTRO’s do not mean banks will be lending.

Posted in Credit, EU | 19 Comments »

Global themes

Posted by WARREN MOSLER on 27th March 2012

  • Austerity everywhere keeps domestic demand in check and export channels muted
  • Non govt credit expansion pretty much stone cold dead in the US and Europe
  • Rising oil energy prices subduing global aggregate demand
  • US federal deficit just about enough to muddle through with modest GDP growth
  • Rest of world public deficits also insufficient to close output gaps, including China which has calmed down considerably
  • Zero rate policies/QE/etc. in the US, Japan, and Europe doing their thing to keep aggregate demand down and inflation low as monetary authorities continue to get that causation backwards
  • All good for stocks and shareholders, not good for most people trying to work for a living
  • Europe still in slow motion train wreck mode, with psi bond tax risk keeping investors at bay and ECB waiting for things to get bad enough before intervening

So still looking to me like a case of

‘Because we fear becoming the next Greece, we continue to turn ourselves into the next Japan’

The only way out at this point is a private sector credit expansion, which, in the US, traditionally comes from housing, but doesn’t seem to be happening this time. Past cycles have seen it come from the sub prime expansion phase, the .com/y2k boom, the S&L expansion phase, and the emerging market lending boom.

But this time we’re being more careful of ‘bubbles’ (just like Japan has done for the last two decades). So I don’t see much hope there.

Still watching for the euro bond tax idea to surface, which I see as the immediate possibility of systemic risk, but no real sign yet.

Posted in Bonds, CBs, China, Comodities, Deficit, ECB, Equities, Exports, Fed, GDP, Germany, Government Spending, Greece, Housing, Interest Rates, Japan, Political, USA | 37 Comments »

Bitter Money Fights Shaped U.S History (Part 1): Johnson & Kwak

Posted by WARREN MOSLER on 26th March 2012

The authors are making fools of themselves with this statement:

As a nation, we will have to make a choice, one way or another. If the national debt grows faster than the economy for long enough, investors could lose their appetite for Treasury bonds, making it impossible for the government to borrow money at any price — as almost happened in 1813.

Posted in Deficit, Government Spending | 56 Comments »

Mosler Squad Outlast Rivals For Season Opener Win – BRITCAR – The Checkered Flag

Posted by WARREN MOSLER on 26th March 2012

Mosler Squad Outlast Rivals For Season Opener Win – BRITCAR – The Checkered Flag

Posted in Uncategorized | 13 Comments »

New Home Sales Unexpectedly Slip 1.6% in February

Posted by WARREN MOSLER on 23rd March 2012

Seems low interest rates aren’t all the tool they’re cracked up to be?
But they’ve only been low for a bit over 3 years.
Monetary policy works with a lag and all that.
Much like Japan.
Again like the carpenter said of his piece of wood, no matter how much cut off it’s still too short?

Along the same lines, next thing they’ll be doing is increasing savings incentives to help investment.

And note the slight twist on the same theme, increasing bank capital requirements to support confidence.

It’s about aggregate demand, and how you can’t drain yourself to prosperity.

How hard is that?

New Home Sales Unexpectedly Slip 1.6% in February

March 23 (Reuters) — New U.S. single-family home sales fell in February, but a jump in prices to their highest level in eight months kept hopes alive of a recovery in the housing market.

The Commerce Department said on Friday sales slipped 1.6 percent to a seasonally adjusted 313,000-unit annual rate. January’s sales pace was revised down to 318,000 units from the previously reported 321,000 units.

Sales for November and December were revised up a bit.

Economists polled by Reuters had forecast sales at a 325,000-unit rate in February. Compared to February last year, new home sales were up 11.4 percent.

The median price for a new home rose 8.3 percent to $233,700, the highest level since June. Compared to February last year, the median price was up 6.2 percent.

The report, which rounded off a week of mixed housing data, followed a similar pattern seen in the market for used homes. Home resales fell in February, but prices rose from a year earlier. Housing starts slipped, while permits for home building approached a 3-1/2 year high in February.

Posted in Fed, Government Spending, Housing, Interest Rates | 21 Comments »

Bank of America tests Alternative to Foreclosure

Posted by WARREN MOSLER on 23rd March 2012

Must be reading my blog

BofA Tests an Option to Foreclosure

Bank of America is launching a pilot program that will allow homeowners at risk of foreclosure to hand over deeds to their houses and sign leases that will let them rent the houses back from the bank at a market rate.

While the initial scope of the “Mortgage to Lease” program is small—the bank began sending letters Thursday offering leases to 1,000 homeowners in Arizona, Nevada and New York—it represents a big change in the way banks deal with borrowers who can’t afford their mortgages.

Posted in Housing | 2 Comments »

Corporate profit margins

Posted by WARREN MOSLER on 22nd March 2012

Click here for larger version

Posted in Equities | 19 Comments »

Did Taxpayers Really ‘Profit’ From Treasury Mortgage Program? – US Business News Blog – CNBC

Posted by WARREN MOSLER on 22nd March 2012

Did Taxpayers Really ‘Profit’ From Treasury Mortgage Program?

By John Carney

Posted in Fed | 26 Comments »

Spanish rates

Posted by WARREN MOSLER on 22nd March 2012

LTRO’s and bank liquidity not withstanding, Spanish rates reversed and began moving higher immediately after they thumbed their noses at the markets and announced they had decided not to take additional austerity measures to meet their immediate deficit targets.

Not being the issuer of the euro, like all the euro member nations, they are fully exposed to a Greek like liquidity crisis, as they can not spend without prior funding, much like the US states.

Click here for larger version

Posted in Bonds, ECB | 3 Comments »

EUR PMIs-Big GDP Implications

Posted by WARREN MOSLER on 22nd March 2012

And not only no change in fiscal policy, but more of same. As the carpenter said about his piece of wood, ‘no matter how much I cut off it’s still too short.’

Fertile ground for the ‘bond tax’ (PSI) for the next round of austerity, to reduce the need to further cut public services and raise domestic taxes.


Karim writes:

As mentioned before, PMI surveys in Europe are the most timely and important economic data point for the ECB; they have the greatest weight in the ECB’s model of estimating current quarter and quarter ahead growth.

Today’s data was weaker across the board, with Germany surprisingly weak in particular.

  • Euro composite PMI fell for the second month in a row, from 49.3 to 48.7
  • Weakness was led by manufacturing, down from 49 to 47.7
  • German manufacturing was especially weak, falling from 50.2 to 48.1
  • French PMI slipped back below 50, from 50.2 to 49

The impact on GDP according to NowCasting (which uses a similar framework as the ECB) was a downward revision to Q2 real GDP growth from +0.6% (annualized) to -0.6% (annualized) for the EuroZone, and from 0.1% (annualized) to -1.2% (annualized) for Germany.

This data should certainly push up the probability of an ECB policy rate cut in May or June.

Posted in EU, GDP, Germany | 12 Comments »

Hints of Portugal PSI?

Posted by WARREN MOSLER on 21st March 2012

From Morgan Stanley
Note the talk of a PSI (bond tax):

5. Portugal: Portugal’s five-year bonds are trading at ~16%, right around the level where Greek bonds traded last April when Eurozone officials began to turn their attention to forcing losses on private sector creditors. The key area of concern in the market is a €9.7B bond maturing in September 2013 that is not covered by the country’s €78B bailout. Portugal needs ~€25B-€30B to fund itself through 2015. Portuguese officials hope that a pickup in market confidence will allow it to return to the bond market in time to refinance the 2013 bond. The Portuguese funding concerns have been widely discussed in the press. While there has been speculation that the country could be next in line for a debt restructuring, this outcome has been disputed by both Portuguese and troika officials.

Posted in ECB, EU | 5 Comments »

MMT inspired euro fix

Posted by WARREN MOSLER on 20th March 2012

Spend in euro denominated tax credits.

Central banks pay ecb rates on said deposits charged to issuer.

Eurachma
Esceuro
Passeuro
Punteuro
Leuro

All perfectly legal under current institutional arrangements

Posted in Currencies, ECB, EU | 32 Comments »

Central bank gold buying

Posted by WARREN MOSLER on 19th March 2012

Cutting spending, hiking taxes, and no qualms about buying gold…

Gold up on central bank buying talk but outlook weak

By Frank Tang and Amanda Cooper

Three weeks of upbeat U.S. data have made investors more confident about the economy and less eager to hold gold as insurance against another slowdown. The resulting steep rise in benchmark 10-year U.S. Treasury yields has weighed on gold.

Central banks have also reportedly been active buyers of gold in recent weeks, having bought as much as 4 metric tons of metal, according to an industry source and theFinancial Times on Friday.

They were net buyers of gold last year for a second straight year with a 439.7 tonnes purchase in 2011. In the two decades prior to 2010, central banks as a group had consistently been net sellers of gold. Analysts said that talk of official-sector gold buying should bolster investor confidence as central banks tend to be very long-term owners of the precious metal.

Posted in CBs | 30 Comments »

Warren on Barry Armstrong radio

Posted by WARREN MOSLER on 18th March 2012

Link to latest interview:

The Financial Exchange with Barry Armstrong

Posted in Radio | 13 Comments »

Inflation expectations

Posted by WARREN MOSLER on 16th March 2012

Seems all those hyper inflation forecasts haven’t had all that much influence.

;)

Cleveland Fed Estimates of Inflation Expectations

The Federal Reserve Bank of Cleveland reports that its latest estimate of 10-year expected inflation is 1.38 percent. In other words, the public currently expects the inflation rate to be less than 2 percent on average over the next decade.

Posted in Fed, Inflation | 12 Comments »

BINI SMAGHI SAYS EU MUST ACT TO SHOW GREEK PSI AN EXCEPTION

Posted by WARREN MOSLER on 15th March 2012

‘Must’ is a good choice of words because if they fail the consequences are financially catastrophic.

*BINI SMAGHI: EU MUST RECOGNIZE PORTUGAL MAY NEED MORE AID

*BINI SMAGHI SAYS EU MUST ACT TO SHOW GREEK PSI AN EXCEPTION


*FORMER ECB OFFICIAL BINI SMAGHI COMMENTS IN FT OPINION ARTICLE

*BINI SMAGHI SAYS PORTUGAL MAY NEED EU100 BILLION *BINI SMAGHI SAYS IRELAND MAY NEED ADDITIONAL EU80 BILLION

Posted in ECB, Greece | 13 Comments »

more on Ireland testing the waters

Posted by WARREN MOSLER on 14th March 2012

>   
>   (email exchange)
>   
>   One prominent Irish minister said explicitly that we should use Greece as a bargaining chip >   to renegotiate the promissory note. The whole government and press went crazy saying that >   she was completely out of line etc.
>   

that’s how it starts?
;)

Posted in ECB, EU | 21 Comments »