The Center of the Universe

St Croix, United States Virgin Islands

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 June, 2012

Small Business on Obamacare: No Reason to Hire or Invest

Posted by WARREN MOSLER on 28th June 2012

Business hires to service customers and expand when there’s enough aggregate demand to sustain sales at profitable prices. With or without Obamacare.

Small Business on Obamacare: No Reason to Hire or Invest

By Patricia Orsini

June 28 (CNBC) — Small business owners, who have been waiting for the Supreme Court’s decision on Obamacare before hiring and investing, say the ruling raises more questions than it answers.

Posted in Obama, Political | 104 Comments »

Italian Business Confidence Unexpectedly Rises to 88.9 in June

Posted by WARREN MOSLER on 27th June 2012

Another glimmer of hope in a June number that deficits are sufficient for stability:

Italian Business Confidence Unexpectedly Rises to 88.9 in June

June 27 (Bloomberg) — Italian business confidence unexpectedly rose in June from the lowest level in almost three years. The manufacturing-sentiment index rose to 88.9, from a revised 86.6 in May, the lowest since August 2009, Istat said. Istat originally reported a May reading of 86.2.

Posted in Deficit, EU, Government Spending | 20 Comments »

Euro zone economy

Posted by WARREN MOSLER on 26th June 2012

After weak April and May numbers, I’ve been on the lookout for possible hints that euro zone economies may now be flattening.

Austerity tends to drive down demand which also causes deficits to increase to the point where they stabilize GDP.

Therefore, if the euro zone just leaves their fiscal policies alone at some point those automatic fiscal stabilizers work to prevent further declines.

Meanwhile, no euro zone banks have had liquidity cut off by the ECB, and it doesn’t look like any euro zone govt will be missing any payments any time soon, so govt deficit spending will continue to add income and ‘savings’ to their real economies.

French Consumer Confidence Stalls as Hollande Readies Budget

June 26 (Bloomberg) — French consumer confidence stalled as President Francois Hollande prepared tax increases and spending cuts to help reduce the nation’s budget deficit.

Household sentiment was unchanged at 90 in June, national statistics Insee said today in a release from Paris. Economists expected a reading of 89, according to the median of 14 estimates gathered by Bloomberg News.

Broadbent Says Indicators Suggest U.K. GDP Growth May Be Flat

June 26 (Bloomberg) — Bank of England policy maker Ben Broadbent said that indicators suggest the U.K. economy may be broadly flat in the next quarter or two.

“The near-term indicators suggest that, abstracting from the various short-term distortions (the effect of the Golden Jubilee holiday, for example), output is broadly flat in the next quarter or two, as it has been for the past 18 months,” he said in answers to a questionnaire from the U.K. Treasury Committee published today in London.

Posted in EU, Government Spending, Political | 6 Comments »

Demand leakages- the 800lb economist in the room

Posted by WARREN MOSLER on 25th June 2012

I can’t say I’ve seen anyone in the deficit debates talking about the demand leakages? Not a mention in the mainstream press, financial news media, or any of the thousands of economic reports?

That’s like discussing the right horsepower for a truck or an airplane without any consideration of the weight of the vehicle.

Demand leakages are unspent income. And if any agent doesn’t spend his income, some other agent has to spend more than his income or that much output doesn’t get sold.

And if the non govt sectors collectively don’t spend all of their income, it’s up to the govt to make sure its income is less than its spending, or that much output does’t get sold, which translates into what’s commonly called the ‘output gap’. Which is largely a sanitized way of saying unemployment.

And with the private sector necessarily pro cyclical, the (whopping) private sector spending gap in this economy can only be filled with by govt via either a (whopping) tax cut and/or spending increase, depending on your politics.

So why the ‘demand leakages’? The lion’s share is due to tax advantages for not spending your income, including pension contributions, IRA’s, and all kinds of corporate reserves. Then there’s foreign hoards accumulated to support foreign exporters. And it all should be a very good thing- net unspent income like that means that for a given size govt our taxes can be that much lower. Personally, I’d rather have a tax cut than a policy to get other people to spend their unspent income. But that’s just me…

And then there’s the fear mongering about the likes of the $200 trillion present value of US govt unfunded liabilities. But 0 mention of the present value of all demand leakages- that future income that will be unspent as it’s squirreled away in the likes of retirement plans, corporate reserves, and foreign central banks.

If history is any guide, the demand leakages will probably continue to outstrip even the so called ‘runaway spending of our irresponsible government,’ like they’ve always done in the past, as evidenced by nearly continuous output gaps/excess unemployment.

Worse, every mainstream economist learned that it’s the demand leakages that create the ‘need’ for govt deficits. But somehow fail to even mention it, even casually.

If anything, they voice no objections to the popular misconception that we need more savings to have funds for investment, thereby tacitly supporting the call for higher levels of demand leaks and the need for even higher levels of govt deficit spending.

And all you hear are calls for deficit reduction, both public and private, all in the face of geometrically expanding demand leakages.

Am I missing something?

Posted in Deficit, Employment, GDP, Government Spending | 79 Comments »

Endorsement of Mosler’s 3-point plan

Posted by WARREN MOSLER on 25th June 2012

Endorsement of Mosler’s 3-point plan

After hearing an explanation of Modern Monetary Theory by Warren Mosler, Occupy Dallas endorses his remedy for our nation’s current economic condition:

1-cut FICA taxes to end this regressive policy and allow greater spending.
2-disbursement of federal funds to states on per-capita basis
3-guaranteed “transitional” employment for anyone seeking a job at $8/hr

We feel these proposals are simple and effective and will serve the interests of the 99% far better than any “austerity” measures being considered by politicians in both major parties.

Posted in Proposal | 15 Comments »

Germany rebuffs Obama’s advice on euro crisis

Posted by WARREN MOSLER on 25th June 2012

Until they all get ‘in paradigm’ the 99% don’t have a chance.

Germany rebuffs Obama’s advice on euro crisis

June 25 (AP) — Germany’s finance minister is rejecting U.S. President Barack Obama’s calls on Europe to move faster in fighting its debt crisis, telling him to get the American deficit under control instead.

Wolfgang Schaeuble told public broadcaster ZDF in an interview late Sunday that “people are always very quick at giving others advice.”
He says: “Mr. Obama should first of all take care of reducing the American deficit, which is higher than in the eurozone.”

Posted in Political | 10 Comments »

N.Y. Times letter

Posted by WARREN MOSLER on 24th June 2012

Letters: How to Mend Trust in the U.S. Economy

June 23 (NYT)

To the Editor:

Re “Broken Trust Takes Time to Mend” (Economic View, June 17):

Tyler Cowen argues that the “slow cure” for our economic malaise is to allow asset prices, wealth, trust, etc. to slowly rise. He states that the textbook cure of significant “Keynesian” government stimulus spending will not quickly restore prosperity because fiscal stimulus does not “rebuild confidence.”

Unfortunately, Professor Cowen seems not to understand that if the government were to let contracts for, say, $1 trillion to private enterprise to rebuild our failing highways, bridges, and municipal water and sewage systems, and provide resources for our shrinking public and higher education systems, this would quickly restore companies’ confidence in the profit opportunities that are available if they hire workers and buy materials from other United States companies. When these newly hired workers go out and spend their wages, the confidence of United States retailers would immediately surge as these additional customers break down the doors to get at the merchandise on the shelves.

Nothing will build the confidence and trust of business and workers quicker than the continuous ringing of cash registers. Paul Davidson

Morton Grove, Ill., June 17

The writer is editor of the Journal of Post Keynesian Economics and author of “The Keynes Solution: The Path to Global Economic Prosperity” (Palgrave Macmillan, 2009).

Posted in Government Spending | 5 Comments »

Enough of the bookkeeping, Mr Osborne

Posted by WARREN MOSLER on 23rd June 2012

From Sam Brittan. Veteran FT writer.

A permanent secretary under an earlier Labour administration once asked me what I thought were the limits to permissible Budget deficits. My answer was: “Up to the point where the gains to output and employment are offset by the inflationary effects of a fall in the exchange rate.”

Posted in Government Spending, UK | 16 Comments »

Mike Norman Economics: General theory and special cases in Modern Monetary Theory

Posted by WARREN MOSLER on 22nd June 2012

General theory and special cases in Modern Monetary Theory

Posted in Uncategorized | 296 Comments »

Early Thought follow up… A conversation with Warren Mosler– great investor, thinker, sports car manufacturer, author, blogger….

Posted by WARREN MOSLER on 21st June 2012

Please click on the link below to listen to a conversation with Warren Mosler. Topics include: Demand leakage (how to fix end-demand), Fed Policy (QE is counterproductive) and overall market/econ outlook for US, Europe and China.

Please click here for the audio

Posted in Fed, Government Spending | 22 Comments »

Canada Tightens Mortgage Rules: Equivalent to 100bp Rate Hike

Posted by WARREN MOSLER on 21st June 2012

too many new homes being built?

Karim writes:

Canada Tightens Mortgage Rules: Equivalent to 100bp Rate Hike

  • Long expected but well overdue, Canadian FM Minister Flaherty announced yesterday a series of rule changes yesterday that tighten rules for home mortgages in Canada
  • The most significant is shortening the longest amortization period from 30yrs to 25yrs. In terms of monthly payments, this has the same impact as a 100bp rise in mortgage rates. About half of all mortgages have 30yr terms.
  • They also lowered LTV from 85% to 80% and tightened standards even more on mortgage loans in excess of $1mm.
  • This should definitely be viewed a form of tightening that will delay BoC rate hikes, and may even allow the Bank greater leeway to ease rates if they want to.
  • Standard behavior in the past is for borrowers to lock in terms before new rules go into effect. But with the broader message here that household debt levels are dangerously high, and more measures may be forthcoming to cool down the housing market, it wouldn’t be surprising if new mortgage activity isn’t as great as in years past.
  • The most basic market impact is for lower short-term rates and a weaker C$ based on likely narrower rate differentials to the U.S. going forward.

Posted in Housing | 2 Comments »

UK Daily | U.K. Manufacturing Demand Strengthened in June, CBI Report Shows

Posted by WARREN MOSLER on 21st June 2012

As suspected, signs that UK deficit spending is looking large enough to support a bit of growth. Now watch for the proclamations about how austerity works…

UK Headlines:
U.K. Manufacturing Demand Strengthened in June, CBI Report Shows

CML Says U.K. Gross Mortgage Lending Rose 24% in May From April

U.K. Retail Sales Rise More Than Forecast After April Slump

Posted in Government Spending, UK | No Comments »

German, French private sector output data

Posted by WARREN MOSLER on 21st June 2012

With exports sagging it’s looking to me like:
Germany is going to need more public or private sector deficit spending to support sales and employment, while the French deficit may be large enough to stabilize their economy, albeit at far too low levels of output and employment.

Steepest drop in German private sector output for three years

June 21 (Markit) — Flash Composite Output Index at 48.5 in June from 49.3 in May, Flash Services Activity Index at 50.3 from 51.8, Flash Manufacturing PMI at 44.7 from 45.2, and Flash Manufacturing Output Index at 44.9 from 44.6. Reduced business activity reflected a marked fall in manufacturing production in June. Meanwhile, service sector activity was close to stagnation during the latest survey period. The latest drop in incoming new work reflected reductions in both the manufacturing and service sectors. Manufacturers indicated a steep and accelerated downturn in new export business during June, with the pace of reduction the fastest since April 2009.

Rate of decline in French private sector output eases in June

June 21 (Markit) — Flash Composite Output Index rises to 46.7 in June from 44.6 in May, Flash Services Activity Index climbs to 47.3 from 45.1, Flash Manufacturing PMI rises to 45.3 from 44.7, and Flash Manufacturing Output Index increases to 45.2 from 43.6. Slower falls in activity were recorded in both the manufacturing and service sectors during June. This mirrored similar moderations in the respective rates of decline in new business. Panellists indicated that clients remained hesitant in committing to new contracts amid an uncertain economic climate, although some respondents noted greater numbers of client enquiries and sales of new products.

Posted in EU, Government Spending, trade | No Comments »

EU Leaders Urged to Set Timetable for Action (Again)

Posted by WARREN MOSLER on 20th June 2012

Doesn’t seem to me ‘avoiding market turbulence’ is actually of any particular concern in the euro zone:

EU Leaders Urged to Set Timetable for Action (Again)

By Catherine Boyle

June 20 (CNBC) — Ahead of two key European policymaker meetings on the credit crisis Friday, politicians are yet again being urged to set out a clear timetable for action to avoid further market turbulence.

Posted in EU, Political | 6 Comments »

Romney’s fiscal message

Posted by WARREN MOSLER on 19th June 2012

And all evidence shows President Obama agrees.


The mission to restore America begins with getting our fiscal house in order. President Obama has put our nation on an unsustainable course. Spending is out of control. Yearly deficits are massive. And unless we curb Washington’s appetite for spending, the national debt will grow to the size of our entire economy this year.

As President, Mitt Romney will cut federal spending and bring much-needed reforms to entitlement programs. Mitt will work toward balancing the budget, reducing the size and reach of the federal government, and returning power to states and the people.


Exercise fiscal responsibility to restore economic opportunity.
Washington is addicted to deficit spending. As President, Mitt Romney will cut spending to finally move our nation toward a balanced budget.

During the Bush years, the nation’s deficit—the gap between what Washington collects and spends each year—hovered between 2 percent and 4 percent of GDP. These levels were already problematic and a cause for concern. During the Obama administration, however, the deficit exploded to 10 percent of GDP.

One major problem with sky-high deficit spending is that it necessarily leads to another practice that undermines the nation’s fiscal foundation: borrowing unhealthy sums to pay for what we already cannot afford. America is on an unsustainable path that, within just a few short years, will cripple the economy and foreclose any opportunity for recovery.

Mitt Romney will bring fiscal restraint to Washington by placing a hard cap on federal spending to force our government to live within its means and put an end to deficit spending.

Mitt will also curb federal spending by repealing Obamacare, the federal takeover of health care that is scheduled to cost taxpayers one trillion dollars over the next ten years. He will also focus on eliminating wasteful government spending and right-sizing the federal government to save taxpayer dollars.

Mitt Romney’s goal is to put the federal government on a course toward a balanced budget and true fiscal responsibility.

Reform entitlement programs to keep them solvent and put America on a path to prosperity.
Federal spending on entitlement programs like Medicaid, Medicare, and Social Security has not only spiraled out of control, but has placed their very solvency in danger. Unfortunately, President Obama has failed in his fundamental responsibility to articulate a serious vision and plan for the future of these programs. At present, the total cost of U.S. entitlement programs accounts for more than half of all federal spending. Combined with interest payments on the national debt, so-called “mandatory” spending is over 60 percent of all federal spending.

Many of our fellow citizens have no idea that our growing entitlement spending has created a looming crisis. This is because politicians have a habit of hiding our country’s long-term liabilities. Mitt Romney believes that the federal government should publish a balance sheet each year—just as it requires public companies to do—so that Americans can understand the burden that future entitlement spending will place on our budget and economy. Over the course of his campaign, Mitt will propose the specific steps he will take as President to ensure the long-term solvency of Medicare and Social Security. While reforms are needed, Mitt also believes that these changes should not reduce benefits for current seniors or break the promises they have relied upon for their economic security in retirement.

Mitt knows that our economic future—along with the future of entitlement programs—depends on fundamental reform. If we wisely begin to reform entitlements and commit to live within our means, we can bestow on the next generation an America that is stronger and even more prosperous than the one we know today.

Posted in Deficit, Government Spending, Obama, Political | 44 Comments »

Greece after math

Posted by WARREN MOSLER on 18th June 2012

Looking like it was another ‘buy the rumor sell the news’ near term.

After you do the maths it still doesn’t add up.

It can’t add up.


Given today’s institutional structures- pension funds, insurance reserves, etc.- that include massive, tax advantaged, demand leakages where private sector credit expansion is bound to periodically fall short full employment levels. And with the private sector necessarily pro cyclical, counter cyclical fiscal adjustments are, for all practical purposes, entirely in the realm of the issuer of the currency- the ECB, and not the users of the currency- the euro member nations.

In other words, as previously discussed, the maths can’t add up without the ECB, directly or indirectly, writing the check.

And that includes the banking system, which, to serve public purpose, requires credible deposit insurance, again meaning support from the issuer of the currency.

The last few weeks have demonstrated that the ECB does ‘write the check’ for bank liquidity even though it’s not legally required to do that,(and even though some think it’s not acting within legal limits) but it won’t just come out and say it.

And, apart perhaps from the Greek PSI (100 billion euro bond tax), which they still call ‘voluntary’, no government has missed a payment, also with indirect ECB support either through bond buying or via the banking system, but, again, it won’t just come out and say it’s an ongoing policy.

So while the ECB can and has ‘written the check’ as needed, there has been no formal proclamation of any sort that it will continue to do so. Nor does it look like there will be any such over policy announcement for a considerable period of time.

This means any manager of ‘other people’s money’ with any fiduciary responsibility will continue to remain on the sidelines.

And even as markets fluctuate, and then some, underneath it all payments are met on a timely basis and the banking system continues to function to service deposits and loans.

And budget deficits will continue to be deemed too large, (at least until private sector credit expansion exceeds the ‘savings desires’/demand leakages) ensuring the maths don’t ever add up without the assumption of the ECB writing the check.

One last thing.

Publicly, at least, they all still think the problem in the euro zone is that the public debts/deficits are too high. And to reduce debt the member nations need to cut spending and/or hike taxes, either immediately or down the road.

A good economy with rising debt and ECB support to keep it all going isn’t even a consideration.

They’ve painted themselves into an ideological corner.

And deficit spending, exacerbated by austerity, may nonetheless be high enough for it all to muddle through at current (deplorable) levels of economic performance.

This economic ‘torture chamber’ of mass unemployment can, operationally, persist indefinitely, even as, politically, it’s showing signs of coming apart.

The founders of the euro believed a single currency would work to prevent a third great war. So they did what it took politically to get the consensus needed to create the euro. Ironically not realizing what they created to promote unity has turned out to be the instrument of social disintegration.

Posted in Employment, EU, GDP, Greece | 82 Comments »


Posted by WARREN MOSLER on 14th June 2012

Yes, a banking license means unlimited ECB support.
The ‘talk’ continues to move in the right direction.


Hollande Says Europe Needs Mechanisms Against Speculation

By Gregory Viscusi

June 14 (Bloomberg) — French President Francois Hollande said that Italy has been unjustly attacked by financial markets and that Europe needs mechanisms to counter speculation.

Speaking in Rome today at a joint press conference with Italian Prime Minister Mario Monti, Hollande said that both leadders agreed on measures to spur economic growth. Growth is necessary for debt reduction, he said.

Europe must do its duty in helping to deliver growth for Greece, which has made enormous efforts during its bailout program, Hollande said.

Europe can improve its crisis response, and has the means to control its fuuture, he said. Many ideas are on the table to combat the crisis, he said, citing a banking license for the permanent rescue fund, which would give it “greater power.”

Posted in EU, Government Spending, Greece | 22 Comments »

Spanish Banks’ Net ECB Loans Jump to Record 288 Billion Euros

Posted by WARREN MOSLER on 14th June 2012

And no business disruption:

Spanish Banks’ Net ECB Loans Jump to Record 288 Billion Euros

By Charles Penty and Emma Ross-Thomas

June 14 (Bloomberg) — Spanish lenders’ net borrowings from the ECB jumped to a record 287.8 billion euros ($361.4 billion) in May, highlighting the thirst of the financial system for funding before the country’s banking bailout.

Net average ECB borrowings climbed from 263.5 billion euros in April, the Bank of Spain said on its website today. Gross borrowing was 324.6 billion euros in May, up from 316.9 billion euros in April.

Spain on June 9 became the fourth euro member to seek a bailout since the debt crisis began almost three years ago, asking for as much as 100 billion euros to rescue lenders pummeled by a real estate slump now in its fifth year.

The increase in ECB borrowings “conveys the severity of the predicament some banks found themselves in ahead of last week’s bailout,” Martin van Vliet, an economist at ING Bank in Amsterdam, said in an e-mailed comment. “Now that concerns about the solvency of Spain’s banks will be addressed, financing difficulties should gradually start to ease. But we should expect the Spanish banking system to remain heavily dependent on central bank funding for quite some time.”

The net amount subtracts the average amount parked by Spanish banks at the overnight deposit facility, van Vliet said.

Posted in Banking, ECB | 2 Comments »

Germany signals shift on 2.3 trillion redemption fund for Europoe

Posted by WARREN MOSLER on 13th June 2012

Getting there as previously discussed:

Germany signals shift on 2.3 trillion redemption fund for Europoe

By Ambrose Evans-Pritchard

June 13 (Telegraph) — The German government has begun opening the door to shared debts for the first time in a profound change of policy, agreeing to explore proposals for a €2.3 trillion (£1.9 trillion) stabilization fund in order to stop the eurozone’s crisis escalating out of control.

Mr Merkel rejected the Redemption Pact last November as “totally impossible”, even though it was drafted by Germany’s Council of Economic Experts or Five Wise Men and is widely-viewed as the only viable route out of the current impasse. Photo: Alamy

Officials in Berlin say privately that Chancellor Angela Merkel is willing to drop her vehement opposition to plans for a “European Redemption Pact”, a “sinking fund” that would pay down excess sovereign debt in the eurozone.

“It is conceivable so long as there is proper supervision of tax revenues,” said a source in the Chancellor’s office. The official warned that there would be no “master plan” or major break-through at the EU summit later this month.

Mr Merkel rejected the Redemption Pact last November as “totally impossible”, even though it was drafted by Germany’s Council of Economic Experts or Five Wise Men and is widely-viewed as the only viable route out of the current impasse.

Fast-moving events may have forced her hand. She is under immense pressure from the US, China, Britain, and Latin Europe to change course as the crisis engulfs Spain and Italy, threatening a global cataclysm.

Posted in EU, Germany | 13 Comments »

U.K. Economy Barely Grew In Quarter Through May, Niesr Estimates

Posted by WARREN MOSLER on 13th June 2012

Another hint the austerity induced deficit may have gotten large enough to stabilize things and promote a bit of growth.

U.K. Economy Barely Grew In Quarter Through May, Niesr Estimates

By Svenja O’Donnell

June 12 (Bloomberg) — The U.K. economy barely grew in the quarter through May after contracting in the previous three months, according to the National Institute of Economic and Social Research.

Gross domestic product grew 0.1 percent in the period, after declining at the same rate in the three months through April, Niesr, whose clients include the Bank of England and the U.K. Treasury, said in an e-mailed statement in London today.

Data today showed U.K. manufacturing fell more than economists forecast in April, while industrial production was unchanged, pointing to continued weakness in the economy at the start of the second quarter. Britain has slipped back into recession and Bank of England policy makers have warned of threats to the economy from the euro-area crisis.

“Economic activity remains very weak,” the institute said. “We expect the U.K. economy to remain broadly ‘flat’ over the next six months.”

The U.K. economy is forecast to recover in 2013, Niesr said, though “significant downside risks persist.”

Posted in Deficit, Government Spending, UK | 8 Comments »