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Archive for May, 2012

Brazil Cuts Rates to Record Low as Economy Stalls

Posted by WARREN MOSLER on 31st May 2012

Another central bank may have it backwards as lower rates turn out to be deflationary and slow things down via interest income channels?

Brazil Cuts Rates to Record Low as Economy Stalls

May 30 (Bloomberg) — Brazil’s central bank cut interest rates on Wednesday for the seventh straight time to a record low 8.50 percent, moving into uncharted territory in a bid to shield a fragile recovery from a gloomy global outlook.

President Dilma Rousseff has made lower interest rates one of the top priorities of her government which is struggling to steer the economy back to the 4 percent-plus growth rates that made Brazil one of the world’s most attractive emerging markets in the last decade.

The central bank’s monetary policy committee, known as Copom, voted unanimously to lower the benchmark Selic rate 50 basis points from 9 percent, in line with market expectations.

“At this moment, Copom believes that the risks to the inflation outlook remain limited,” the bank said in a statement that accompanied the decision. The statement used the exact same language as the previous statement when the bank cut the Selic rate in April.

With Wednesday’s cut, the central bank has now lopped 400 basis points off the Selic rate since August 2011, when it surprised markets by starting an easing cycle despite widespread concerns at the time about surging consumer prices.

Inflation has eased since then with some help from a sluggish global economy, bringing the annual rate to well below the 6.5 percent ceiling of the central bank’s target range.

That has allowed the central bank to test the boundaries on interest rates, ushering in what some economists predict might be a new era of lower borrowing costs for Brazil.

The size of Wednesday’s rate cut marked a slowdown in the pace of easing after two straight reductions of 75 basis points in March and April. The central bank signaled after its April policy meeting that future rate cuts might be more cautious.

The previous low for the Selic was set in 2009, when the central bank in the administration of former President Luiz Inacio Lula da Silva slashed the rate to 8.75 percent to fend off the global financial crisis.

Posted in BRIC, CBs, Inflation, Interest Rates | 139 Comments »

The (Semantic) Problem with MMT: An Exercise in Framing | | New Economic PerspectivesNew Economic Perspectives

Posted by WARREN MOSLER on 29th May 2012

The (Semantic) Problem with MMT: An Exercise in Framing

By J.D. Alt

Posted in Deficit, Government Spending | 54 Comments »

Looking like a euro zone solution has evolved

Posted by WARREN MOSLER on 28th May 2012

Looks like the drama could be about over, with the ECB now deciding to support the entire banking system.

The ECB guarantees bank liquidity via lending to any member bank with qualifying collateral. The list of qualifying collateral is kept sufficiently inclusive and haircuts sufficiently low to ensure liquidity.

With national govt debt on the list of qualifying collateral, this allows the banking system to support national govt funding needs.

And it all comes at a time where euro zone deficit spending is sufficient to support flat to modest growth. And at a time when the politics are unlikely to push for additional material proactive austerity measures.

With modest growth and relative stability will come proclamations along the lines of ‘the austerity worked’, however, without the austerity it all would have ‘worked’ just as well, but from a starting point of a lower output gap.

Posted in ECB, EU | 66 Comments »

Dallara Says Greek Euro Exit May Exceed 1 Trillion Euros

Posted by WARREN MOSLER on 25th May 2012

>   
>    Apparently, MMT is a hard concept for the IIF to grasp.
>   

Yes!
Incompetent disgrace.
No reason an exit has to cost them anything in real terms.

But because they believe otherwise they’ll work to keep Greece in.

Dallara Says Greek Euro Exit May Exceed 1 Trillion Euros

By Andrew Davis and Rebecca Christie

May 25 (Bloomberg) — The cost of Greece exiting the euro would be unmanageable and probably exceed the 1 trillion euros ($1.25 trillion) previously estimated by the Institute of International Finance, the group’s managing director said.

The Washington-based IIF’s projection from earlier this year is “a bit dated now” and “probably on the low side,”Charles Dallara said in an interview in Rome today. “Those who think that Europe, and more broadly the global economy, are really prepared for a Greek exit should think again.”

The European Central Bank’s exposure to Greek liabilities is more than twice as big as the ECB’s capital, said Dallara, who represented banks in their negotiations with the Greek government on its debt restructuring. As a result, he predicted the bank would be unable to provide liquidity and stabilize the euro-area financial sector.

“The ECB will be insolvent” if Greece were to exit the euro, Dallara said. “Europe would have to first and foremost recapitalize its central bank.”

Posted in ECB, Emerging Markets | 35 Comments »

FT: Big European funds dump euro assets

Posted by WARREN MOSLER on 25th May 2012

Thanks!

These are onetime events that tend to reverse after running their course.
Aka inventory liquidation

Big European funds dump euro assets

By David Oakley and Alice Ross

May 24 (FT) — Some of Europe’s biggest fund managers have confirmed they are dumping euro assets amid rising fears over a possible Greek exit from the eurozone and single currency turmoil.

The euro’s sudden fall this month caught many investors by surprise. Europe’s single currency has lost 5 per cent in the past three weeks after barely moving against the US dollar for much of the year. On Thursday, the euro hit a fresh 22-month low at $1.2514.

Amundi, Europe’s second-biggest private fund manager, and Threadneedle Investments, the big UK manager, have cut their exposure to the euro in recent days as frustration grows with political leaders’ efforts to resolve the crisis.

US-based Merk Investments, the currency specialists, has cut all of its euro holdings in its flagship fund this month.

“We sold our last euro on May 15,” said Axel Merk, chief investment officer. “We’re concerned about how dysfunctional the process is. No one is there to talk to in Greece.”

Amundi, which manages money for some of the continent’s biggest pension funds and companies, said the risk of the crisis spreading to the bigger economies of Spain and Italy was growing because policy makers had failed to convince investors it had built a sufficient firewall.

Other big fund managers fear the likelihood of a so-called “Grexit”, in the event of Athens leaving the euro, has risen sharply in the past week.

European leaders put off any decisions on shoring up the region’s banks at a late-night summit on Wednesday despite rising concerns that instability in Greece was undermining confidence in the eurozone’s financial sector. Citigroup says the euro could fall close to parity in the event of a disorderly exit.

Richard Batty, investment director at Standard Life Investments which has been underweight in European equities and bonds for the past two years, said: “This is a crisis that looks like worsening and that is why the euro has come under pressure.”

Neil Williams, chief economist at Hermes Fund Managers, which has reduced its exposure to European peripheral equities to close to zero, said: “There is a failure by the politicians to convince the markets they are tackling the problems in the eurozone.”

Trading desks at investment banks say that asset managers and pension funds in particular have been selling the euro in recent days.

Amundi, which was created through a merger of Crédit Agricole Asset Management and Société Générale Asset Management three years ago and has €659bn in assets under management, has switched some of its money out of euro-denominated bonds into dollar assets.

Eric Brard, global head of fixed income at Amundi, said: “Although we have reduced our exposure to the euro, a weaker euro could be good news for Europe and exporting companies in the region.”

He added: “Our baseline scenario is that the eurozone will not break up and Greece will remain in the monetary union. However, taking a pragmatic view, in recent weeks the market’s perception of risks of a eurozone break-up and Greece exiting have risen.”

Threadneedle, which has £73bn under management, has reduced its euro exposure through its absolute return fund in the belief the euro will fall further.

Posted in EU | 6 Comments »

Frozen Europe Means ECB Must Resort to ELA

Posted by WARREN MOSLER on 25th May 2012

They have become resigned to the idea that the ECB must write the check for the banking system as do all currency issuers directly or indirectly as previously discussed.

And they now also know the ECB is writing the check for the whole shooting match directly or indirectly also as previously discussed.

With deficits as high as they are and bank and government liquidity sort of there, the euro economy can now muddle through with flattish growth and a large output gap. Ok for stocks and bonds and not so good for people.

Next the action moves to moral hazard risk in an attempt to keep fiscal policies tight without market discipline.

But that’s for another day as first the work on an acceptable framing of the full ECB support they’ve backed into.

Frozen Europe Means ECB Must Resort to ELA

By Dara Doyle and Jeff Black

May 25 (Bloomberg) — The first rule of ELA is you don’t talk about ELA.

The European Central Bank is trying to limit the flow of information about so-called Emergency Liquidity Assistance, which is increasingly being tapped by distressed euro-region financial institutions as the debt crisis worsens. Focus on the program intensified last week after it emerged that the ECB moved some Greek banks out of its regular refinancing operations and onto ELA until they are sufficiently capitalized.

European stocks fell and the euro weakened to a four-month low as investors sought clarity on how the Greek financial system would be kept alive. The episode highlights the ECB’s dilemma as it tries to save banks without taking too much risk onto its own balance sheet. While policy makers argue that secrecy is needed around ELA to prevent panic, the risk is that markets jump to the worst conclusion anyway.

“The lack of transparency is a double-edged sword,” said David Owen, chief European economist at Jefferies Securities International in London. “On the one hand, it increases uncertainty, but at the same time we do not necessarily want to know how bad things are as it can add fuel to the fire.”

Under ELA, the 17 national central banks in the euro area are able to provide emergency liquidity to banks that can’t put up collateral acceptable to the ECB. The risk is borne by the central bank in question, ensuring any losses stay within the country concerned and aren’t shared across all euro members, known as the euro system.

ECB Approval

Each ELA loan requires the assent of the ECB’s 23-member Governing Council and carries a penalty interest rate, though the terms are never made public. Owen estimates that euro-area central banks are currently on the hook for about 150 billion euros ($189 billion) of ELA loans.

The program has been deployed in countries including Germany, Belgium, Ireland and now Greece. An ECB spokesman declined to comment on matters relating to ELA for this article.

The ECB buries information about ELA in its weekly financial statement. While it announced on April 24 that it was harmonizing the disclosure of ELA on the euro system’s balance sheet under “other claims on euro-area credit institutions,” this item contains more than just ELA. It stood at 212.5 billion euros this week, up from 184.7 billion euros three weeks ago.

The ECB has declined to divulge how much of the amount is accounted for by ELA.

Ireland’s Case

Further clues can be found in individual central banks’ balance sheets. In Ireland, home to Europe’s worst banking crisis, the central bank’s claims on euro-area credit institutions, where it now accounts for ELA, stood at 41.3 billion euros on April 27.

Greek banks tapped their central bank for 54 billion euros in January, according to its most recently published figures. That has since risen to about 100 billion euros, the Financial Times reported on May 22, without citing anyone.

Ireland’s central bank said last year it received “formal comfort” from the country’s finance minister that it wouldn’t sustain losses on collateral received from banks in return for ELA.

“If the collateral underpinning the ELA falls short, the government steps in,” said Philip Lane, head of economics at Trinity College Dublin. “Essentially, ELA represents the ECB passing the risk back to the sovereign. That could be the trigger for potential default or, in Greece’s case, potential exit.”

Greek Exit

The prospect of Greece leaving the euro region increased after parties opposed to the terms of the nation’s second international bailout dominated May 6 elections. A new vote will be held on June 17 after politicians failed to form a coalition, and European leaders are now openly discussing the possibility of Greece exiting the euro.

A Greek departure could spark a further flight of deposits from banks in other troubled euro nations, according to UBS AG economists, leaving them more reliant on funding from monetary authorities. Banks in Greece, Ireland, Italy, Portugal and Spain saw a decline of 80.6 billion euros, or 3.2 percent, in household and corporate deposits from the end of 2010 through March this year, according to ECB data.

“ELA is a symptom of the strain in the system, and Greece is the tip of the iceberg here,” Owen said. “As concerns mount about break-up, that sparks deposit flight. Suddenly we’re talking about 350 billion, 400 billion as bigger countries avail of ELA.”

German ELA

ELA emerged as part of the euro system’s furniture in 2008, when the global financial crisis led to the bailouts of German property lender Hypo-Real Estate AG and Belgian banking group Dexia. While the Bundesbank’s ELA facility has now been closed, Dexia Chief Executive Officer Pierre Mariani told the bank’s shareholders on May 9 that it continues to access around 12 billion euros of ELA funds.

ELA was a measure that gave central banks more flexibility to keep their banks afloat in situations of short-term stress, said Juergen Michels, chief euro-area economist at Citigroup Global Markets in London.

“It seems to be now a more permanent feature in the periphery countries,” Michels said, adding there’s a risk that “the ECB loses control to some extent over what’s going on.”

The ECB was forced to confirm on May 17 it had moved some Greek banks onto ELA after the news leaked out, roiling financial markets. The ECB said in an e-mail that as soon as the banks are recapitalized, which it expected to happen “soon,” they will regain access to its refinancing operations. The ECB “continues to support Greek banks,” it added.

‘Life Support’

By approving ELA requests, the ECB is ensuring that banks that would otherwise not qualify for its loans have access to liquidity.

“The ELA is a perfect life-support system, but it’s not a system for what happens after that,” said Lorcan Roche Kelly, chief Europe strategist at Trend Macrolytics LLC in Clare, Ireland. “What you need is a bank resolution mechanism, a method to get rid of a bank that’s insolvent. In Ireland, and perhaps in Greece as well, the problem is that you’ve got banking systems that are insolvent.”

For Citigroup chief economist Willem Buiter, there is a bigger issue at stake. ELA breaks a key rule that is designed to bind the monetary union together, he said.

“It constitutes a breach of the principle of one monetary, credit and liquidity policy on uniform terms and conditions for the whole euro system. The existence of ELA undermines the monetary union.”

Posted in Bonds, Currencies, ECB, EU | 8 Comments »

Still no political support to leave euro

Posted by WARREN MOSLER on 24th May 2012

*GREEK DATA RC POLL CONDUCTED MAY 21 TO MAY 23 ON 1,019 PEOPLE
*GREEK DATA RC POLL SHOWS 56% GREEKS SAY DRACHMA A CATASTROPHE
*GREEK DATA RC POLL SAYS 83% GREEKS WANT TO KEEP EURO
*GREEK DATA RC POLL SAYS 64% GREEKS WON’T ABANDON EURO
*GREEK DATA RC POLL SAYS 30% GREEKS THINK LIKELY TO LEAVE EURO
*GREEK DATA RC POLL GIVES DEMOCRATIC LEFT 3.3% SUPPORT
*GREEK DATA RC POLL SHOWS PASOK WITH 10.6% SUPPORT

Posted in ECB, EU | 19 Comments »

Issuers vs Users of a Currency

Posted by WARREN MOSLER on 23rd May 2012

Interview with The Norwich Bulletin, Oct 6, 2010

Posted in Currencies, Deficit, Government Spending | 41 Comments »

macro update

Posted by WARREN MOSLER on 23rd May 2012

The US economy seems to be muddling through at modestly positive GDP growth, supported by a still sort of high enough 8% or so govt fiscal deficit.

The year and fiscal cliff is a looming disaster but it’s too soon for markets to discount a high chance of it actually happening.

Lower oil prices are helping the US consumer and the $US.

The stronger $US works against US exports some and earnings translations a bit as well. Weaker global demand also works against US exports.

Deficit spending in the euro zone has also been rising some, and after the latest rounds of austerity and subsequent deficit increasing weakness may total something close to 7% of GDP.

That should be enough to muddle through as well. Austerity hikes unemployment and deficits to the point where the resulting deficit is sufficient to sustain things. Without another round of austerity there should be some sort of stability of output and employment.

That is, while it’s doubtful the ‘new europe’ will engage in meaningful fiscal expansion, it may not proactively raise taxes and/or cut spending in any meaningful way, either.

So as the member nations stumble their way through each successive securities auction, it won’t surprise me if their economies sort of stabilize around 0 growth or so. And then begin to pick up a tiny bit. All supported by the current, higher levels of deficit spending.

And the lower euro could help their exports some as well.

Yes, there will be all kinds of credit related vol, but under it all there will be sales and profits taking place. The businesses that are still around are the survivors who know how to get by in this kind of economy, where, while slower than it ought to be, there is still about $40 trillion worth of goods and services getting bought/sold in the US and Europe. GDP growth has gone to near 0, but not GDP itself.

Posted in Deficit, EU, GDP, Government Spending, USA | 38 Comments »

Secret Greek Fund Revealed

Posted by WARREN MOSLER on 22nd May 2012

Except it’s just about an ‘allowable entry’, not a ‘fund’.

The BOG, functionally a ‘branch’ of the ECB, just ‘accounts for’ negative member bank balances as loans.

Presumably on a ‘legally’ collateralized basis.

That’s what CB’s do in the normal course of business.

CB’s don’t ‘have funds’ in their currency of issue any more than the scorekeeper in a card game has any points.

Europe Shares Seen Higher; Secret Greek Fund Revealed

By Matthew West

May 22 (CNBC) — European shares were set to open higher on Tuesday as investors came to the conclusion that the markets were most likely over-sold and news emerged overnight of around 100 billion euros ($127 billion) of liquidity provided by the European Central Bank to the Greek central bank to prop up Greece’s financial system.

Posted in CBs, ECB, Greece | 19 Comments »

China Notes

Posted by WARREN MOSLER on 21st May 2012

>   
>   (email exchange)
>   
>   Attached is an interesting article from the FT discussing the investment slowdown in China.
>   While the official picture remains one of a gradual slowdown, more anecdotal data on
>   electricity production and bank loans suggests that the slowdown is much more severe – this
>   is likely to negatively impact the EM and the Asian suppliers to China such as Australia and
>   Korea.
>   

Full article: China Investment Boom Starts to Unravel

Posted in China, Comodities, Energy | 26 Comments »

51% Predict U.S. Government Will Go Bankrupt Before Budget Is Balanced

Posted by WARREN MOSLER on 21st May 2012

51% Predict U.S. Government Will Go Bankrupt Before Budget Is Balanced

Just over half of U.S. voters are still skeptical that their elected officials will get the federal budget under control before it’s too late.

A new Rasmussen Reports national telephone survey finds that 51% of Likely Voters believe the federal government will go bankrupt and be unable to pay its debt before the federal budget is balanced. Thirty-six percent (36%) disagree and think it’s more likely that the federal budget will be balanced first. Thirteen percent (13%) are not sure. (To see survey question wording, click here.)

Posted in Deficit, Government Spending | 100 Comments »

Video from Venice presentation

Posted by WARREN MOSLER on 21st May 2012

Venice video link here.

Also, Trichet Friday, the German elections, and G8 reports seem to be setting the tone for the euro zone to do something about the solvency issue. This is very good for equities and the rest of the credit stack.

At the same time it does not seem likely that any growth proposals will include fiscal relaxation, so the euro zone will have to get by the best it can with the deficits it has, which I’d guess should mean flat GDP, +/- 1% or so.

The US should also continue to muddle through with modest top line growth, and inflation low enough and the output gap wide enough to keep this Fed from hiking any time soon.

Posted in Equities, EU, Political, Proposal | 16 Comments »

Trichet proposal

Posted by WARREN MOSLER on 18th May 2012

Not much of a plan, but note that it now makes ECB centric proposals respectable.

This is serious progress:

Ex-ECB Chief Trichet Unveils Bold Plan to Save Euro

May 17 (Reuters) — Europe could strengthen its monetary union by giving European politicians the power to declare a sovereign state bankrupt and take over its fiscal policy, the former head of the European Central Bank said on Thursday in unveiling a bold proposal to salvage the euro.

The plan offered by Jean-Claude Trichet, who stepped down last November as ECB president, would address a fundamental weakness of the 13-year-old single currency, the survival of which is threatened by the Greek crisis.

The monetary union has always defied economic principles, because the euro was launched ahead of European fiscal or political union. This has caused strains for countries running huge budget deficits – namely Greece, Portugal, Ireland, Spain and Italy – that have led to financing difficulties and over-stretched banking systems.

For the European Union, a fully fledged United States of Europe where nation states cede a large chunk of fiscal authority to the federal government appears politically unpalatable, Trichet said.

An alternative is to activate the EU federal powers only in exceptional circumstances when a country’s budgetary policies threaten the broader monetary union, he said.

“Federation by exception seems to me not only necessary to make sure we have a solid Economic and Monetary Union, but it might also fit with the very nature of Europe in the long run. I don’t think we will have a big (centralized) EU budget,” Trichet said in a speech before the Peterson Institute of International Economics here.

“It is a quantum leap of governance, which I trust is necessary for the next step of European integration,” he said.

His proposal was presented in Washington on the eve of the G8 meeting of the world’s major economies, hosted by U.S. President Barack Obama who will press Europe to intensify its efforts to resolve the sovereign debt crisis, which threatens a fragile global recovery.

It also comes ahead of a critical meeting of EU leaders on May 23 to discuss ways to support growth. Its strict budgetary policies to date have led to recessions in many countries, political unrest and in Greece a political stalemate after recent elections.

Trichet said the building blocks already are in place for moving ahead with his fiscal plan.

Countries have agreed to surveillance of each other’s budgets and they have agreed to levy fines on countries that run excessive budget deficits, giving them fiscal oversight authority.

The next step would be to take a country into receivership when its political leaders or its parliament cannot implement sound budgetary policies approved by the EU. The action would have democratic accountability if it were approved by the European Council of EU heads of states and the elected European Parliament, he said.

The idea earned a warm reception from leading economists and prominent Europeans attending the session.

“It is a very radical proposal, couched as a modest step,” said Richard Cooper, international economist at Harvard.

Caio Koch Weser, former German economics minister, said he found it “very attractive” because it addresses the problem of a strong European Central Bank, a weak European Commission which acts as the EU’s executive branch, and a confused European Council, which provides political leadership.

Posted in ECB, EU | 55 Comments »

Nick Hanauer on consumers

Posted by WARREN MOSLER on 17th May 2012

Nick Hanauer on consumers:

I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is a “circle of life” like feedback loop between customers and businesses. And only consumers can set in motion this virtuous cycle of increasing demand and hiring. In this sense, an ordinary middle-class consumer is far more of a job creator than a capitalist like me.

So when businesspeople take credit for creating jobs, it’s a little like squirrels taking credit for creating evolution. In fact, it’s the other way around.

Anyone who’s ever run a business knows that hiring more people is a capitalists course of last resort, something we do only when increasing customer demand requires it. In this sense, calling ourselves job creators isn’t just inaccurate, it’s disingenuous.

That’s why our current policies are so upside down. When you have a tax system in which most of the exemptions and the lowest rates benefit the richest, all in the name of job creation, all that happens is that the rich get richer.

Posted in Uncategorized | 67 Comments »

Quick update

Posted by WARREN MOSLER on 17th May 2012

US economy muddling through, growing modestly, particularly given the output gap, but growing nonetheless.

Lower crude prices should also help some.

I had guessed the Saudis would hold prices at the $120 Brent level, given their output of just over 10 million bpd showed strong demand
and their capacity to increase to their stated 12.5 million bpd capacity remains suspect. And so with the Seaway pipeline now open (last I heard)
to take crude from Cushing to Brent priced markets I’d guessed WTI would trade up to Brent.

But what has happened is the Saudi oil minister started making noises about lower prices and when ‘market prices’ started selling off the Saudis ‘followed’ by lowering their posted prices, sustaining the myth that they are ‘price takers’ when in reality they are price setters.

So to date, contrary to my prior guess, both wti and brent have sold off quite a bit, and cheaper imported crude is a plus for the US economy. Which is also a plus for the $US, as a lower import bill makes $US ‘harder to get’ for foreigners.

But the trade for quite a while has been strong dollar = weak US stocks due to export pricing/foreign earnings translations, and also because US stocks have weakened on signs of euro zone stress, which has been associated with a weaker euro. So when things seem to be looking up for the euro zone, the euro tends to go up vs the dollar, with US stocks doing better with any sign of ‘improvement’ in the euro zone.

It’s all a tangled case of cross currents, which makes forecasting anything particularly difficult.

Not to mention possible dislocations from the whale, which may or may not have run their course, etc.

And then there’s the news from Greece.

First, they made a full bond payment yesterday of nearly 500 million euro to bond holders who did not accept the PSI discounts. This is confounding for the obvious reasons, signals it sends, moral hazard, credibility, etc. etc. But it’s also a sign the politicians are doing what they think it takes to keep the euro going as the currency of the euro zone. Same goes for the decision to fund Greece as per prior agreements even when there is no Greek govt to talk to, and lots of signs any new govt may not honor the arrangements.

Even if that means tricking private investors out of 100 billion, rewarding those who defy them, whatever. Tactics may be continuously reaching new lows but all for the end of keeping the euro as the single currency.

It also means that while, for example, 10 year Spanish yields may go up or down, the intention is for Spain, one way or another, to fund itself, even if short term. Doesn’t matter.

And more EFSF type discussions. The plan may be to start using those types of funds as needed, keeping the ECB out of it for that much longer, regardless of where longer term bonds happen to trade.

As for the euro zone economy, yes, growth is probably negative, but if they hold off on further fiscal adjustments, the 6%+ deficit they currently are running for the region is probably, at this point, enough to muddle through around the 0 growth neighborhood. The upside isn’t much from there, as with limited private sector credit growth opportunities, and substantial net export growth unlikely, and strong ‘automatic stabilizers’ any growth could be limited by those automatic fiscal stabilizers. Not to mention that this type of optimistic scenario likely strengthens the euro and keeps a lid on net exports as well.

And sad that this ‘bullish scenario’ for the euro zone means their massive output gap doesn’t even begin to close any time soon.

For the US, this bullish scenario has similar limitations, but not quite as severe, so the output gap could start to narrow some and employment as a percentage of the population begin to improve. But only modestly.

The US fiscal cliff is for real, but still far enough away to not be a day to day factor. And it at least does show that fiscal policy does work, at least according to every known forecaster with any credibility, which might open the door to proactive fiscal? Note the increasing chatter about how deficits don’t seem to drive up interest rates? And the increasing chatter about how the US, Japan, UK, etc. aren’t like the euro zone members with regards to interest rates?

Same in the euro zone, where discussion is now common regarding how austerity doesn’t work to grow their economies, with the reason to maintain it now down to the need to restore solvency. This is beginning to mean that if they solved the solvency riddle some other way they might back off on the austerity. And now there is a political imperative to do just that, so things could move in that direction, meaning ECB support for member nation funding, directly or indirectly, which removes the ‘ponzi’ aspect.

Posted in Currencies, Deficit, ECB, Employment, Equities, EU, Germany, Government Spending, Greece, Inflation, Oil, Political | 30 Comments »

Romney: Debt is like ‘prairie fire’

Posted by WARREN MOSLER on 15th May 2012

Romney: Debt is like ‘prairie fire’

Posted in Deficit, Government Spending, Political | 95 Comments »

Hollande faces budget shortfall test

Posted by WARREN MOSLER on 15th May 2012

Not even a passing mainstream thought to look at currency users like France, Spain, Italy, California, and Illinois, that are facing severe market discipline via solvency/interest rate risk any differently from currency issuers like the UK, US, Japan, and Denmark where those types of market forces remain stubbornly inapplicable.

One would think something so obvious and ‘in their face’ year after year, decade after decade, might get their attention…

Hollande faces budget shortfall test

(FT) François Hollande has promised that he would take whatever measures necessary to rein in France’s heavy public debt, which is rising close to 90 per cent of gross domestic product. He knows that to win backing for his growth initiative from German chancellor Angela Merkel depends on assuring her that France will meet its obligations on its own public finances. The European Commission’s forecast projected a budget deficit next year of 4.2 per cent, compared to the target of 3 per cent set by Brussels and to which Mr Hollande is committed. That amounts to a gap of some €24bn. Mr Hollande is unlikely to give further details of his plans until he gets an independent report on the public finances at the end of June (after National Assembly elections).

Dutch austerity consensus unravels

(FT) Freedom party leader Geert Wilders brought down the country’s ruling coalition last month when he pulled out of talks over budget cuts needed to meet strict EU deficit limits, triggering elections scheduled for September 12. Mr Wilders is campaigning fiercely against what he calls the government’s “subservience” to Brussels’ demands for budget cuts. A poll released on Monday suggests voters are turning against the last-minute budget deal reached after the government fell between the ruling liberals and centre-left opposition parties. The April 26 deal pledged the Netherlands to meet an EU deadline to slash its 2013 budget deficit to below 3 per cent of gross domestic product, down from a projected 4.7 per cent.

Posted in EU | Comments Off

Mosler win at Snetterton

Posted by WARREN MOSLER on 15th May 2012

Mosler Squad Win Much Interrupted BEC Snetterton Race

By James Broomhead

Posted in Uncategorized | 2 Comments »

Athens Stock Exchange

Posted by WARREN MOSLER on 14th May 2012

They have certainly had their ups and downs:

Click here for larger version

Posted in Equities, Greece | 6 Comments »