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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 July, 2012

Interest income loss from rate cuts

Posted by WARREN MOSLER on 31st July 2012

Word’s getting around, from CS:

The side-effect of the Fed’s near-zero interest medicine – the collapse in personal interest income over the last few years. The decline in interest income actually dwarfs estimates of debt service savings. Exhibit 2 compares the evolution of household debt service costs and personal interest income. Both aggregates peaked around $1.4 trn at roughly the same time – the middle of 2008. According to our analysis of Federal Reserve figures, total debt service – which includes mortgage and consumer servicing costs – is down $206bn from the peak. The contraction in interest income amounts to roughly $407bn from its peak, more than double the windfall from lower debt service.

Posted in Fed, Interest Rates | 22 Comments »

Saudi Crude Oil Production

Posted by WARREN MOSLER on 31st July 2012

Saudi production up a tad for July.

With the Saudis posting prices and letting their clients buy all they want at the posted prices, this shows marginal global net demand has yet to fall off, and, in fact increased a bit.

And, if Saudi excess capacity isn’t as high as the 12.5 million bpd reported a relatively small supply disruption could result in an immediate spike in price.

Posted in Comodities, Oil | 10 Comments »

More from the 1996 conference

Posted by WARREN MOSLER on 30th July 2012

More from the AVM 1996 conference anticipating today’s issues attached.

Feel free to distribute:


Page 1

Page 2

Posted in Currencies, EU | 21 Comments »

Trade Weighted Euro vs EU Trade Balance

Posted by WARREN MOSLER on 30th July 2012

Interesting dynamics at work. Trade can drive the currency and/or the currency can drive trade.

Looks to me like early on it was the trade that was driving up the currency, But more recently the currency looks to be driving trade.

That is, portfolio managers have been shifting out of euro due to the crisis, cheapening it to the point where the trade flows are on the other side of their portfolio shifting.

For example, someone selling his euro for dollars is effectively selling them to an American tourist buying tacos in Spain. Euros shift from the portfolio manager to the Spanish exporter.

Trade flows are generally large, price driven ships to turn around, and continuous as well. Portfolio shifts, while they can also be large, are more often ‘one time’ events, driven by fear/psychology, as has likely been the case with the euro. So a turn in psychology that ‘rebalances’ portfolios to more ‘normal’ ratios can be very euro friendly.

>   (email exchange)
>   This was an interesting chart from Nomura that came out over the weekend discussing
>   the current account against the portfolio flows – suggests that the portfolio flows
>   have turned significantly negative for Europe and are much bigger than the positive
>   effects of the current account.

Yes, agreed. this says much the same story I was telling, only better!

Posted in Currencies, EU, trade | 11 Comments »

Eurogroup chair sees decisions soon in debt crisis

Posted by WARREN MOSLER on 29th July 2012

Note that past remarks indicate the euro leaders equate ‘success’ with ‘strong euro’, particularly the ECB, with its single mandate.

So with the euro reacting positively to Draghi’s ‘pledge’, which came after a decline in the euro, more of same is encouraged.

Eurogroup chair sees decisions soon in debt crisis

By Geir Moulson

July 29 (AP) — The German and Italian leaders issued a new pledge to protect the eurozone, while the influential eurogroup chairman was quoted Sunday as saying that officials have no time to lose and will decide in the coming days what measures to take.

The weekend comments capped a string of assurances from European leaders that they will do everything they can to save the 17-nation euro. They came before markets open for a week in which close attention will be focused on Thursday’s monthly meeting of the European Central Bank’s policy-setting governing council.

Last Thursday, ECB President Mario Draghi said the bank would do “whatever it takes” to preserve the euro — and markets surged on hopes of action.

German Chancellor Angela Merkel and Italian Premier Mario Monti “agreed that Germany and Italy will do everything to protect the eurozone” in a phone conversation Saturday, German government spokesman Georg Streiter said, a statement that was echoed by Monti’s office.

That was nearly identical to a statement issued Friday by Merkel and French President Francois Hollande, which followed Draghi’s comments.

Posted in Currencies, ECB, EU | 7 Comments »

mmt euro discussion origins

Posted by WARREN MOSLER on 29th July 2012

This is from Pavlina’s paper for those of you tracing origins of MMT euro discussion:

Link here.

Notice how in private correspondence Mosler applies the same logic in analyzing the ramifications of the restrictions on deficit spending in the current plan for European Monetary Union:

Operating factors will require reserve adds and drains to keep the system in balance and maintain control of the interbank rate. However, the ECB is able only to act defensively, like all CBs [Central Banks]. It cannot proactively lend Eurosa reserve add, without an offsetting drain. The deficit spending I refer to is needed to offset the need of the private sector to be a net nominal saver in Euros. In the currently proposed system, even the increasing demand for currency in circulation must be accommodated via collateralized loans from the ECB. Net nominal wealth of the system cannot increase. The private sector demand for an increase in net nominal wealth will have to be from the reverse happening at the member nation level. If member nations are restricted from doing this [to deficit spend], a vicious deflationary spiral will result. (Mosler, 1996)

Posted in Currencies, ECB, EU | 4 Comments »


Posted by WARREN MOSLER on 27th July 2012

Seems the turning point may have been early June when Trichet made a proposal that included the ECB, as previously discussed.

And note, also as previously discussed, it’s all about ‘the euro’ meaning ‘strong currency.’

So a big relief rally with the solvency issue resolved, and then just the reality of a bad economy, and a too strong euro with no politically correct way to contain it, as dollar buying is ideologically all but impossible.

Also, as previously discussed, member govt deficits seem high enough for modest improvement, absent further aggressive austerity measures.


Posted in Currencies, EU, Political | 17 Comments »

History of MMT and the euro, 1996 Bretton Woods Conference

Posted by WARREN MOSLER on 26th July 2012

Found this on the net in the PK archives.
Shows MMT was on it well before this date.
Feel free to distribute

To: PKT Academics
Re: Bretton Woods Conference

Confirmed attendance includes senior staff from Deutchebank,
Credit Suisse, J.P. Morgan, Banker’s Trust, Salomon Bros,
Lehman Bros, Harvard Management, III, Petrus, Paine Webber,
Paribas, and BZW. A keynote speaker will be Professor Charles
Goodhart from the LSE. Bernard Connolly will be the historian.
Speakers for each topic are currently being arranged.

There is currently room for two academic representatives.
Please contact me at mosler@xxxxxxxx if you have interest.


An Invitational Conference

Bretton Woods, New Hampshire

June 12-15, 1996

The purpose of this conference is to bring together a selected
group of portfolio managers, analysts, researchers
traders, and academics who have a common understanding
of monetary operations.

The objective of this conference is to achieve agreement on the use
of a common conceptual framework for undertaking
contemporary macroeconomic analysis.

Portfolio managers in attendance are responsible for well over
$50 billion in assets. The economists and analysts from the
international dealer community represent some of the world?s
largest and most sophisticated fixed income trading and sales

We believe that this group has the potential to establish an international
standard for the presentation and analysis of economic data.

Several of the fundamentals are Post Keynesian…

Deposit money is endogenous
Central Banks set short term rates exogenously
Deposits exist solely as the result of loans

Extension of these fundamentals includes…

Internal sovereign debt functions as interest
rate support
Taxes create a demand for the goverment’s
Fiat currency is defined exogenously

Conference Moderator……..Warren B. Mosler

Wednesday, June 12, 1996

11:30 AM Welcome and Introduction
12:00 PM Luncheon
12:30 PM History of the Awareness of Monetary Operations
Charles Goodheart


1:00 PM Review of the Fundamentals of Monetary Operations
1:30 PM Monetary Policy Options


2:00 PM The function of Government Securities
2:30 PM Currency Definition
3:00 PM Fiscal Policy Options and Implications


3:30 PM Review of Current Conditions
4:00 PM Macro-economic Implications
4:30 PM World Bank, IMF Policy Implications
6:00 PM Hor?s d?ouvres
7:00 PM Dinner



9:00 AM Integrating Foreign Trade, Investment, Fiscal and Monetary
10:00 AM Full Employment, Zero Inflation Model
11:30 AM Lunch


1:00 PM Current Political Situation
Bernard Connolly
2:00 PM Maastricht Fiscal Criteria Implications
3:00 PM Post 1999 Credit Implications
3:30 PM Functionality of the Euro
4:30 PM Drafting a Consensus
6:00 PM Hor’s d’Ouvres
7:00 PM Dinner

FRIDAY, JUNE 14, 1995

Review and Discussion

Warren B. Mosler
Director of Economic Analysis
III Finance

See “Soft Currency Economics:”

Posted in Uncategorized | 32 Comments »

June DGOs/July 20 Claims-Weaker CapEx; Jumpy Claims

Posted by WARREN MOSLER on 26th July 2012

Karim writes:

June DGOs/July 20 Claims-Weaker CapEx; Jumpy Claims

  • Durables data was unequivocally weak. Core orders (ex-defense and aircraft) were down 1.4%. The 3mth annualized rate is now -5.1%, a steady decline from the double digit growth pace of 2011. This feeds into Bernanke’s view that some of the gains in employment and capex in the past year were corrections for overly deep cuts in 2008-09 rather than the start of a new uptrend.
  • Core shipments were up 1.2%. That has greater implications for Q2 GDP (out tomorrow), whereas the orders data has greater implications for Q3 and Q4. Expect a slightly above consensus GDP number tomorrow (1.8% vs 1.4% consensus).
  • Claims dropped by 35k to 353k. Even though the labor department stated there were no quirks, +/- 35k weekly swings in the data as we’ve had for 3 straight weeks does seem quirky.
  • The 4-week average of claims did drop to 367k, the lowest since March.
  • At the very least, the report suggests the labor market is holding up at worst, and suggests another 100k-type gain in payrolls for July.

Posted in Employment, Fed, GDP | No Comments »


Posted by WARREN MOSLER on 25th July 2012

Yes, I think it’s all still happening as suggested last month after Trichet proposed a plan that included the ECB.

Lots of market vol, doubts, fears, etc. and all for good reason as it could fall apart as easily as it could all succeed. I still lean towards the latter.

From Dave Vealy:


From what I am aware, first time an ECB official raises this issue. A significant positive surprise if this is the case, as it would signficantly increase the ESM’s capacity for intervention.


Posted in Banking, EU | 10 Comments »

Contact Decides Victor In Dramatic BEC Brands Race – BRITCAR – The Checkered Flag

Posted by WARREN MOSLER on 19th July 2012

Contact Decides Victor In Dramatic BEC Brands Race

Posted in Uncategorized | 11 Comments »

Don’t forget, Obamacare’s ‘tax and spend’ is good for GDP and stocks

Posted by WARREN MOSLER on 18th July 2012

At the macro level:

Govt spending equal to taxing is positive for nominal gdp, top line growth, etc.

Taxing removes spending power, but usually not as much as the total tax, as not all of that would have been spent. Govt spending is all spent by definition. So there is usually a ‘positive multiplier’.

Obamacare not only taxes and spends, but it deficit spends (at least according to the pundits), adding a bit more to nominal GDP.

I suggest you trade accordingly!

Posted in GDP | 35 Comments »

Bernanke on deficits

Posted by WARREN MOSLER on 18th July 2012

>   (email exchange)
>   On Wed, Jul 18, 2012 at 10:39 AM, wrote:
>   Bernanke just said, “We will simply not be able to pay our bills” if we don’t attack the
>   long-run fiscal sustainability issue.

Yes, hasn’t change a bit from from these statements earlier this year:

Bernanke Points to ‘Increased Possibility of a Sudden Fiscal Crisis’

By Matt Cover

( — Federal Reserve Chairman Ben Bernanke said that the current trajectory of the federal budget – marked by large annual deficits – was “clearly unsustainable” and that “serious economic consequences” could result.

“Having a large and increasing level of government debt relative to national income runs the risk of serious economic consequences,” Bernanke told the Senate Budget Committee Tuesday.

“Even the prospect of unsustainable deficits has costs, including an increased possibility of a sudden fiscal crisis. As we have seen in a number of countries recently, interest rates can soar quickly if investors lose confidence in the ability of a government to manage its fiscal policy.”

Bernanke said that while nobody knows when a fiscal crisis will come, it is surely “ever closer.”

Posted in Deficit, Fed, Government Spending | 39 Comments »

Housing on a sustainable uptrend?

Posted by WARREN MOSLER on 18th July 2012

Looks to me like housing is finally in a very sustainable uptrend, supported by adequate federal deficit spending, modestly improving personal income, relatively high affordability, low consumer debt ratios, very low levels of actual inventory, tightening rental markets, etc. etc.

And looks to me that housing starts could double and still be at relatively low levels, so there’s years of upside with modest growth rates.

It also means GDP could gravitate up to the 3-4% range by year end, and stay above 0% even should we go over the fiscal cliff.

Housing Starts Rise at Fastest Pace in Three Years

July 18 (CNBC) — Groundbreaking on new U.S. homes rose in June to its fastest pace in over three years, lending a helping hand to an economy that has shown worrisome signs of cooling.

Posted in GDP, Housing | 13 Comments »

U.K. Unemployment Rate Hits 9-Month Low, Defying Recession

Posted by WARREN MOSLER on 18th July 2012

More hints from europe that deficits may be high enough to support a bit of GDP growth?

Euro-Region Construction Output Advanced in May, Led by Germany

By Simone Meier

July 18 (Bloomberg) — Euro-area construction output rose in May, as gains in Germany and Portugal offset declining production in Italy, Spain and the Netherlands.

Construction in the 17-nation euro area advanced 0.1 percent from April, when it dropped 3.7 percent, the European Union’s statistics office in Luxembourg said today. From a year earlier, construction output declined 8.4 percent.

In Germany, Europe’s biggest economy, construction output increased 3.1 percent from April, when it fell 5.5 percent, today’s report showed. Portugal and France reported increases of 3.6 percent and 0.4 percent, respectively. In Italy, output fell 1.4 percent from the previous month, when it dropped 4.3 percent. Spanish output slumped 3.3 percent after a 3 percent drop in April, and the Netherlands had a decline of 0.7 percent.

In the 27-nation EU, output rose 1.6 percent from April, when it fell 6.9 percent. Ireland and Greece are not required to provide monthly data on construction output.

U.K. Unemployment Rate Hits 9-Month Low, Defying Recession

By Scott Hamilton

July 18 (Bloomberg) — U.K. unemployment fell to a nine- month low in the quarter through May. Unemployment based on International Labour Organization methods fell to 8.1 percent of the workforce from 8.2 percent in the period through April. Jobless-benefit claims rose 6,100 in June. The number of people in work climbed 181,000 to 29.4 million with full- time work accounting for most of the increase. London gained 61,000, partly reflecting hiring for the Olympic Games that open on July 27. The claimant-count rate was 4.9 percent. Claims rose 6,900 in May instead of the 8,100 rise initially reported. June was affected by a rule change that forced more lone parents to claim Jobseeker’s Allowance.

Posted in GDP, Germany, UK | 2 Comments »

Fed Chairman remains a non trivial obstacle to prosperity

Posted by WARREN MOSLER on 17th July 2012

From Chairman Bernanke earlier today:

The second important risk to our recovery, as I mentioned, is the domestic fiscal situation. As is well known, U.S. fiscal policies are on an unsustainable path, and the development of a credible medium-term plan for controlling deficits should be a high priority. At the same time, fiscal decisions should take into account the fragility of the recovery.

Posted in Fed, Government Spending | 85 Comments »

John’s got it!

Posted by WARREN MOSLER on 17th July 2012

Congress, Not the Fed, Needs to ‘Get to Work’

By John Carney

July 17 (CNBC) — The Senate Banking Committee’s grilling of Federal Reserve Chairman Ben Bernanke just got weird.

Senator Charles Schumer, the New York Democrat, proposed a novel theory of political management of the economy shortly before 11 am Tuesday morning.

The gist of the theory: If the elected branches of government cannot agree to act, the responsibility for the economy falls to the Fed.

Schumer’s argument amounted to the idea that that because disagreements between Republican and Democrats (and, of course, the political ambitions of members of both parties in a presidential election year) are blocking any agreement to provide fiscal relief to the economy, the Fed should “get to work.”

It’s tempting to say that this is the drunk’s theory of the bar tab.

The drunk has been drinking so much he can’t work—and therefore can’t afford to pay his tab. So it’s up to the bartender to pour another cocktail and extend the tab a bit longer.

But this would be insulting to drunks everywhere. The drunk actually understands the economics of the bar better than Schumer understands the difference between monetary and fiscal policy.

The economy right now suffers because the private sector is attempting to save more than it spends, mostly by paying down its enormous debt burden. Because everyone’s income comes from someone else’s spending, reduced overall spending results in income reduction. In our economy, that means higher unemployment.

If the economy is going to grow while households and businesses pay down their debts instead of spending, someone else must take the opposite side of the trade by growing spending more than its income.

With the rest of the world heading toward recession, the only plausible source of this added income is the government. In other words, the government must cut taxes relative to spending (or grow spending relative to taxes) to replace the lost income in the private sector.

What the economy certainly isn’t suffering from right now is a shortage of liquidity or a meager money supply. Which is to say, we’ve reached the limits of what the Fed can do to spur growth. (Although perhaps not the limits of what the Fed can do to fend off a sharp turn downward in the economy.)

To hear a member of the shirker branch of our government blame the Fed for not doing enough would be laughable if we weren’t living with the consequences of the shirking.

Sen. Schumer—and his fellow lawmakers—are the ones who should “get to work.”

Posted in Fed, Government Spending, Interest Rates | 13 Comments »

Another vice presidential candidate

Posted by WARREN MOSLER on 17th July 2012


‘The Dollar Is Going to Go to Hell’: Trump

By Justin Menza

July 17 (CNBC) — The U.S. needs to pay down its debt, and that won’t happen if Federal Reserve Chairman Ben Bernanke “goes wild” with more stimulus, Donald Trump told CNBC’s “Squawk Box” on Tuesday.

“The fact is that the country owes $16 trillion, and we just can’t keep doing this,” Trump said. “The dollar is going to go to hell.”

Trump said the artificial Fed stimulus has done nothing, and the only way to get the country back on track is to start paying down debt.

Posted in Currencies, Fed | 35 Comments »

Your HuffPost Blog Post – The Economics of Eurozone Trade Differentials and Fiscal Transfers

Posted by WARREN MOSLER on 16th July 2012

The Economics of Eurozone Trade Differentials and Fiscal Transfers

Posted in ECB, EU, trade | 8 Comments »

The economics of euro zone trade differentials and fiscal transfers

Posted by WARREN MOSLER on 14th July 2012

Trade differentials have been blamed for the euro crisis, implying that that if trade had some how been balanced there wouldn’t have been the kind of liquidity crisis we’ve been witnessing.

While I do recognize the trade differentials, it remains my deduction that the source of the ongoing liquidity crisis is the absence of the ECB (the only entity not revenue constrained) in critical functions, including bank deposit insurance and member nation deficit spending. And I continue to assert that the euro zone liquidity crisis is ultimately obviated only by the ECB ‘writing the check’, as has recently indeed been the case, however reluctantly.

Trade issues within the euro zone, however, will remain a point of economic and political stress even with a full resolution of the liquidity issues, which leads to discussions of fiscal transfers.

Fiscal transfers can take two forms. One is direct payments to individuals, such as unemployment compensation. Another is the placement of enterprises in a region.

The US does both. For example, it funds unemployment compensation and also spends to directly support all federal agencies, including contracting private sector agents for goods and services to provision the federal govt and its agencies.

And here’s where mainstream economics has left out a critical understanding. In real terms, the allocation of the production of goods and services to a region is a real cost to that region.

This is because that region has to supply its labor to the production of output that is directed to the public sector for the mutual benefit of all the regions.

Note that this is not the case with the likes of unemployment compensation, where the payment is made without any ‘real output’ transmitted to the public sector.

For the euro zone, this means that if Germany, for example, located a military production facility in Greece, where Germany got the benefit of the output, in ‘real terms’ Greece would be ‘paying’ for Germany’s military.

This type of thing could work to readily ‘balance’ euro zone trade, at the real expenses of the ‘deficit’ nations.

Which is exactly what happens in the US, for example, when a military procurement expenditure is located in a region of high unemployment.

And yes, I fully appreciate the obstacles to this actually happening, including deficit myths that prevent full employment and politics that need no further discussion, so thanks in advance for not telling me about them!

But the point remains- the trade differentials in the euro zone are not in the least an insurmountable problem, at least not in theory…

Posted in ECB, EU, trade | 105 Comments »