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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 August, 2012

Jackson Hole speech

Posted by WARREN MOSLER on 31st August 2012

The Chairman seems to be well aware of the upturn in housing, which he mentioned twice. But he was careful to not reveal an upbeat attitude that he knows would cause rates to spike in expectation of the Fed ‘normalizing’ policy with ‘neutral’ being a Fed funds rate maybe 1% over the inflation rate, or something like that.

In other words, he wants longer term rates, and mtg rates in particular, to stay down for now, which causes him to guard any optimism he may have, and then some.

It falls under ‘managing expectations’ and my best guess is he’s waiting for unemployment to fall below 8% before he publicly becomes more optimistic.

“Key sectors such as manufacturing, housing, and international trade have strengthened, firms’ investment in equipment and software has rebounded, and conditions in financial and credit markets have improved.”

“Rather than attributing the slow recovery to longer-term structural factors, I see growth being held back currently by a number of headwinds. First, although the housing sector has shown signs of improvement, housing activity remains at low levels and is contributing much less to the recovery than would normally be expected at this stage of the cycle.”

Posted in Fed, Housing, Uncategorized | 22 Comments »

Gasoline Rising to Holiday High as Storm Surge Presses Obama

Posted by WARREN MOSLER on 29th August 2012

Headwind for consumers again:

Gasoline Rising to Holiday High as Storm Surge Presses Obama

By Asjylyn Loder

August 28 (Bloomberg) — Hurricane Isaac and a deadly blast at Venezuela’s Amuay refinery pushed gasoline to an almost four- month high and threatened to revive a debate about energy costs in the run-up to the presidential election in November.

Futures jumped yesterday in New York as Isaac forced closures of Gulf Coast refineries and reduced rates at others. That market is also reeling from an Aug. 25 explosion in Venezuela that killed at least 48 people and closed the country’s largest fuel-making plant. Futures are up 23 percent since their 2012 settlement low of $2.5501 a gallon on June 21.

Prices at the pump will be the highest ever for the U.S. Labor Day holiday, AAA said yesterday. The surge reignites an issue that has pitted President Barack Obama, who has called for the elimination of billions of dollars of subsidies enjoyed by the oil and gas industry, against the presumptive Republican nominee Mitt Romney. It also spurs speculation that Obama will release supplies from the Strategic Petroleum Reserve to ease prices for consumers.

“Given this administration’s belligerent rhetoric against the oil industry, it’s going to be very easy for Romney to pin the blame on Obama,” said Stephen Schork, president of Schork Group Inc., a consulting firm in Villanova, Pennsylvania. “The White House will be on the defensive. It makes an SPR release likely sooner rather than later.”

Gasoline for September delivery advanced 7.68 cents, or 2.5 percent, to $3.1548 a gallon yesterday on the New York Mercantile Exchange, the highest level since April 30. Futures fell 2.87 cents, or 0.9 percent, to settle at $3.1261 today.

Retail Prices

Retail prices for regular grade increased 0.6 cent to $3.756 a gallon yesterday, the highest level since May 7, according to AAA, the largest U.S. motoring group. Gasoline at the pump cost $4.138 in California yesterday, $4.008 in Connecticut and $3.973 in New York.

The nationwide average fuel cost rose to $3.75 a gallon on Aug. 26, the highest price ever for that day, Michael Green, a spokesman for AAA in Washington, said in an e-mail.

“We expect the national average price of gasoline for Labor Day this year to be the highest ever for the holiday,” he said.

Drivers could be paying $4 a gallon by the end of September, Schork said. The first presidential debate is scheduled for Oct. 3.

Winter-Grade Fuel

Gasoline futures for October delivery fell 0.6 percent to settle at $2.9333 a gallon, 19.28 cents a gallon below the September contract. The discount reflects speculation that demand will slip as peak driving season ends with the Sept. 3 Labor Day holiday, and the switch to winter-grade fuel that doesn’t have to meet as stringent emissions rules and is cheaper to produce.

Obama has described his energy strategy, unveiled in March, as an “all-of-the-above” approach that encourages fossil fuel development, energy efficiency and renewable technology. He has also called for a repeal of what he estimated is $4 billion in subsidies every year.

Romney’s energy plan, released last week, faulted Obama for discouraging drilling on federal land, stifling offshore exploration, imposing costly regulations and subsidizing uncompetitive technology that can’t survive without government backing.

Solyndra LLC, a solar-panel maker in Fremont, California, that received a $535 million U.S. loan guarantee, sought bankruptcy protection in September and fired its 1,100 workers.

Refinery Shutdowns

Gasoline advanced yesterday as refiners including Exxon Mobil Corp., Phillips 66 (PSX) and Valero Energy Corp. (VLO) said they are temporarily shutting down Gulf Coast plants as Isaac churns toward the Louisiana coast.

Six plants with a combined ability to process about 1.15 million barrels of crude a day are shut, according to data compiled by Bloomberg. That’s 6.7 percent of U.S. capacity.

In addition, plants including Motiva Enterprises LLC’s Norco, Louisiana, Exxon’s Baton Rouge operations and Marathon Petroleum Corp.’s Garyville facility are at lower rates. Valero’s Memphis plant was said to be operating at minimum rates after Royal Dutch Shell Plc shut the Capline pipeline that transports crude oil from the Gulf to the Midwest.

“Right or wrong, higher gasoline prices don’t help Obama,” Kyle Cooper, director of research for IAF Advisors, a Houston consulting group, and Cypress Energy Management LP, a $20 million natural-gas hedge fund based in Houston, said by phone yesterday. “All Obama’s rhetoric and all his propaganda can’t do a thing if the refineries are flooded. He can’t change physics. And Romney will take the other side of it, but this storm is not Obama’s fault.”

Posted in Comodities | 17 Comments »

they know nothing…

Posted by WARREN MOSLER on 28th August 2012

G7 Urges Oil Exporters to Increase Production

August 28 (Reuters) — The Group of Seven finance ministers urged oil-producing countries on Tuesday to raise output to ensure the market is well supplied, while warning that Western nations were ready to tap strategic oil reserves to offset rising prices that could hurt global growth.

“We stand ready to call upon the International Energy Agency to take appropriate action to ensure that the market is fully and timely supplied,” the G7 said in a statement. “The current rise in oil prices reflects geopolitical concerns and certain supply disruptions. We encourage oil-producing countries to increase their output to meet demand.”

Oil prices have strengthened as Hurricane Isaac approached the U.S. coast and the administration of President Barack Obama said separately on Tuesday that it was still open to a possible release from the Strategic Petroleum Reserve.

“That option has been on the table for some time, and remains on the table, but we have no announcements to make today,” White House spokesman Jay Carney told reporters traveling to Iowa with President Barack Obama.

Earlier this year, the White House considered tapping the reserve but held off after oil prices fell. Reuters reported this month the White House was dusting off those plans, and some energy experts viewed Isaac as a potential trigger for such a move.

Oil production in the U.S. Gulf of Mexico was down more than 90 percent on Tuesday as Hurricane Isaac headed toward the Louisiana as a Category 1 storm. The storm was expected to make landfall as early as Tuesday night.

Energy analysts do not expect extensive damage to oil and gas infrastructure if the storm stays in line with current projections.

Still, any supply disruptions could raise pressure for a release of emergency oil supplies.

“We remain vigilant of the risks to the global economy. In this context and mindful of the substantial risks posed by elevated oil prices, we are monitoring the situation in oil markets closely,” the G7 said.

Finance ministers also noted that Saudi Arabia had committed at a G20 meeting of world leaders in Mexico earlier this year to use its spare oil production capacity to ensure adequate supply.

The comments from the finance ministers is a strong signal that a release may be imminent, said Jan Stuart, head of energy research at Credit Suisse in New York.

“A significant group of industrialized countries now appears to be ready to make reserves available — they know that when you make statements at this level, you also need to be ready to follow through,” Stuart said.

Posted in Comodities | 12 Comments »

Ryan and Greenspan on Social Security

Posted by WARREN MOSLER on 28th August 2012

If any of you know Mr. Ryan kindly remind him of this exchange, thanks:

PAUL RYAN: “Do you believe that personal retirement accounts can help us achieve solvency for the system and make those future retiree benefits more secure?”

ALAN GREENSPAN: “Well, I wouldn’t say that the pay-as-you-go benefits are insecure, in the sense that there’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase.”

Posted in Government Spending, Political | 84 Comments »

1999 paper reposted

Posted by WARREN MOSLER on 28th August 2012

Exchange Rate Policy and Full Employment

By Warren Mosler

Posted in Deficit, Employment, Fed, Government Spending | 4 Comments »

FICA taxes share of Federal tax ‘revenues’

Posted by WARREN MOSLER on 27th August 2012

Posted in Uncategorized | 37 Comments »

General Theory quote

Posted by WARREN MOSLER on 27th August 2012

“gold-mining is the only pretext for digging holes in the ground which has recommended itself to bankers as sound finance” – JM Keynes, 1936

Posted in Uncategorized | 33 Comments »

2013 TED Prize Nomination Acknowledgement

Posted by WARREN MOSLER on 25th August 2012

>   
>   (email exchange)
>   
>   On Fri, Aug 24, 2012 at 6:25 PM, Barry wrote:
>   
>   FYI.
>   
>   Cross fingers!
>   

Thank you for your 2013 TED Prize Nomination.
Your nomination and nominee will be reviewed over the coming weeks and you will be notified as to the success of your nomination by mid-September.

With best wishes,

The TED Prize team

http://www.tedprize.org

http://www.twitter.com/tedprize

Best,
The TED Prize Team

Posted in Uncategorized | 4 Comments »

interesting comment on my blog

Posted by WARREN MOSLER on 25th August 2012

Mosler knows!
Thayer knew!
Ruml knew!
Jim Lacey apparently knows, and so did a couple of economists that helped the USA prosecute and win WW2: Robert Nathan and Simon Kuznets.

Keep from All Thoughtful Men: How U.S. Economists Won World War II

I got to page 34.

“Orthodox economic thinking at the beginning of World War II held that taxes should finance wars on a pay-as-you-go basis.”

A fascinating book about what looks to be how MMT won the War. I’m still reading.
And I’m betting that we didn’t need to use all of Great Britain’s gold that they shipped to New York at the start of the war….

Posted in Uncategorized | 20 Comments »

MMT in Italy

Posted by WARREN MOSLER on 24th August 2012

Translation:
The national launching of the book by W. Mosler – The Seven Deadly Innocent Frauds

MI – Feast of the Southern Italians (Meriondalisti italiani)
MMT Democracy
Modern Monetary Theory
To build an economy that saves lives, saves the state, and saves democracy
A state with sovereign money, legitimized by the citizens, that spends with a positive deficit for the benefits of us 99%, that is the only true democracy.
Daniele Basciu of MMT Democracy – Italy will be at the event in Vasto, CH
The national launching of the book by W. Mosler – The Seven Deadly Innocent Frauds

Posted in Uncategorized | 32 Comments »

Fred Thayer

Posted by WARREN MOSLER on 24th August 2012

Sadly, looks like Fred passed away about 6 years ago.

I got to know him pretty well working with him on the concepts in the paper, and I picked up a lot of little bits and pieces info on capitalism I still find myself using now and then. One that comes to mind is that one of the costs of capitalism is the scrap heap of failed enterprises, for example, which represents real costs that didn’t work out.

Fred Thayer / Pitt professor and prolific author of letters to the editor

By Joe Smydo

To take a lesson from Fred Thayer, one didn’t have to be his student at the University of Pittsburgh’s Graduate School of Public and International Affairs.

In newspaper op-ed pieces and letters to the editor, Dr. Thayer offered sharply worded commentary on economics, deregulation, unemployment, transportation, the business of professional football and merit pay for elected officials (often peppering his sentences with parenthetical remarks).

The professor wrote to academic journals, elected officials and faculty colleagues, too, cajoling, criticizing and pushing audiences toward what he considered more enlightened thinking and more rational public policy.

“Competitive bidding on government contracts never works well because it cannot work well,” he said in a Nov. 6, 1989, letter to the Pittsburgh Post-Gazette. “When many contractors seek business (the process calls for numerous bids), each bidder knows he must either lie to win (by offering an unreasonably low price), bribe an official or join with other bidders to illegally divide the business. Unfortunately, only bribes and collusion produce high-quality work.”

Dr. Thayer, 82, of Mt. Lebanon, died Saturday at Mercy Hospital following a stroke. His wife, Carolyn Easley Thayer, called him a “very brilliant, simple man.”

Not everyone enjoyed his advice. “But most people took it in good stride,” said a longtime Pitt colleague, Professor Jerome B. McKinney.

Frederick Clifton Thayer Jr. was born Sept. 6, 1924, in Baltimore, the son of Frederick Sr. and Marian Walter Thayer. The family moved to Pittsburgh, and Dr. Thayer graduated from South Hills High School in 1942.

Mrs. Thayer said a last-minute appointment to the U.S. Military Academy at West Point may have been the only way her husband, from a family of modest means, could have gone to college. He graduated in 1945 and spent 25 years in the Army and Air Force, sometimes flying transport planes, other times driving a desk at the Pentagon and the Council on Foreign Relations.

The Thayers met at Ohio State University, when she was a senior and he was working on a master’s degree and teaching in the Reserve Officer Training Corps. They married in October 1952 and had two children, Jeffrey, of Mt. Lebanon, and Sarah Thayer Schneider of Glen Rock, N.J.

Dr. Thayer received his doctorate from the University of Denver in 1963. Jeffrey Thayer recalled his childhood awe at the 750-page document, later published as “Air Transport Policy and National Security.”

“To me, the most important thing about my dad wasn’t what he did but what he said … I just think everything he ever said just made total sense to me,” Mr. Thayer said, recalling the time he was listening to the radio when Steelers broadcaster Myron Cope began discussing a letter the professor sent him.

After retiring a colonel in 1969, Dr. Thayer joined the Pitt faculty and built a reputation as a fiery advocate for what he considered sound public policy. Students, now some of the region’s leaders, loved him; administrators, who considered him a gadfly, didn’t, Professor Donald M. Goldstein said.

“He had a wicked pen, a poison pen,” Dr. Goldstein said. “We used to tangle, too, but in a nice way.”

Dr. Thayer taught at Pitt until about 1990, then took miscellaneous teaching assignments in the United States and overseas.

“He was always what you might call an individual who took a position that encouraged you to think better or more creatively,” Dr. McKinney said. Sometimes, he said, that meant taking an edgy or unorthodox view.

In his November 1989 newspaper letter, Dr. Thayer argued that low bidders must rely on cost overruns, shoddy work and litigation to make a profit on government contracts. “What we need is legal collusion [planning], with government openly dividing the business among available contractors,” he said.

Dr. Thayer at least once skewered a colleague in print but more often sent colleagues two or three typewritten pages to rebut or enhance a point he heard them make. Dr. McKinney said colleagues sometimes wondered how he had time to write the missives he sent “streaming past your desk.”

Think big deficits cause recessions? Think again!

By Frederick C. Thayer

Posted in Uncategorized | 33 Comments »

Gold standard thoughts

Posted by WARREN MOSLER on 24th August 2012

>   
>   (email exchange)
>   
>   On Fri, Aug 24, 2012 at 5:28 AM, Dave wrote:
>   
>   When you get a chance could you send a quick note out on problems with this type of
>   thinking?
>   

The reasons nations have gone off the gold standard isn’t because it was working so well and their economies were doing well. The reason they go off, like the US did in 1934, was because it was a disaster.

Historically nations suspend their gold standards in times of war, when they need their economies to function to the max. If a gold standard was so good for an economy, why suspend it when you need max economic performance? Obviously because it is not conducive of maximum real output.

The ideological issue is whether the primary function of the currency is to be an investment/savings vehicle, or a tool for provisioning government and optimizing real economic performance. In a market economy you can’t fix the price of two things without a relative value shift causing you to be buying one of them and running out of the other. Likewise, you can’t sustain full employment and a stable gold price if there is a shift in relative value between the two.

A gold standard is a fixed exchange rate policy, where the govt continuously offers to buy or sell gold at a fixed price.

This means the holder of a dollar, for example, has the option of ‘cashing it in’ for a fixed amount of gold from the govt, and a holder of gold has the option of selling it at a fixed price to the govt.

Therefore a new gold discovery which causes gold to be sold to the govt is inflationary and tends to increase output and employment, and a gold ship sinking in transit or a sudden desire to hoard gold is deflationary and tends to decrease output and employment. And there’s nothing that can be done about these relative value shifts, except to ride them out. The only public purpose served (by definition) is the stable nominal price of gold set by Congress.

With a gold standard, like any fixed fx regime, interest rates are necessarily set by market forces. With the govt’s spending being convertible currency, it is limited to spending only to the extent it has sufficient gold reserves backing the currency it spends. With gold reserves generally pretty much constant and not expandable in the short run, this means govt spending is limited to what it can tax and/or borrow. So when the govt wants to deficit spend, doing so by ‘printing’ new convertible dollars risks those dollars being ‘cashed in’ for gold. Govt borrowing, therefore, functions to remove that risk by delaying conversion privileges until the borrowings mature. This means the govt is competing with the right to convert when the govt borrows. In other words, the holder of the gold certificates has the option of either converting to gold or buying the treasury securities. The interest rate the treasury must pay therefore represents the indifference rate of holders of the convertible currency between cashing in the currency for gold now or earning the interest rate and not being able to convert until maturity. Note that it’s in fixed exchange rate environments that govt borrowing costs have soared to triple digits as govts have competed with their conversion features, and that govts generally lose those fights as the curve goes vertical expressing the fact that at that point there is no interest rate that can keep holders of the currency from wanting to convert.

Note that this also means the nations gold reserves are the net financial equity that supports the entire dollar credit structure, a source of continuous financial fragility and instability.

It’s all here in a paper I did in the late 1990′s.

Hope this helps!

A few more thoughts:

Being on the gold standard doesn’t prevent a financial crisis, but it makes the consequences far more severe.

We were on a gold standard when the roaring 20′s private sector debt boom lead to the crash of 1929 and the depression that followed. 4,000 banks closed before we went off gold in 1934, and it was only getting worse which is why we went off of it.

Gold would not have prevented the pre 2008 sub-prime boom, but it would have made the consequences far more severe. Including no Fed liquidity provision to offset a system wide shortage due to hoarding and banks bidding ever higher for funds that didn’t exist, most all firms losing inventory financing and being forced to liquidate inventories as rates spiked competing for funds that didn’t exist, and no deficit spending for unemployment comp as federal revenues fell from the collapse. In other words, the automatic fiscal stabilizers we rely on can’t be there. Instead it’s a deflationary disaster that only ends when prices fall sufficiently to reflect changes in relative value between gold and everything else.

Note that the recent decade of gold going from under $600 to over $1,600 is viewed as a sign ‘inflationary’ and a 250% ‘dollar devaluation’ as it takes 2.5x as many dollars to buy the same amount of gold. But if we were on a gold standard, and all else equal, and gold had been fixed at $600 back then, the same relative value shift would be manifested as the general price level falling that much in an unthinkable deflationary nightmare.

Posted in Banking, CBs, Comodities, Deficit, Government Spending, Inflation | 91 Comments »

Republicans Eye Return to Gold Standard

Posted by WARREN MOSLER on 23rd August 2012

Just when you think it can’t get any worse:

Republicans Eye Return to Gold Standard

By Robin Harding and Anna Fifield

August 23 (FT) — The gold standard has returned to mainstream U.S. politics for the first time in 30 years, with a “gold commission” set to become part of official Republican party policy.

Drafts of the party platform, which it will adopt at a convention in Tampa Bay, Florida, next week, call for an audit of Federal Reserve monetary policy and a commission to look at restoring the link between the dollar and gold.

The move shows how five years of easy monetary policy — and the efforts of congressman Ron Paul — have made the once-fringe idea of returning to gold-as-money a legitimate part of Republican debate.

Marsha Blackburn, a Republican congresswoman from Tennessee and co-chair of the platform committee, said the issues were not adopted merely to placate Paul and the delegates that he picked up during his campaign for the party’s nomination.

“These were adopted because they are things that Republicans agree on,” Blackburn told the Financial Times. “The House recently passed a bill on this, and this is something that we think needs to be done.”

The proposal is reminiscent of the Gold Commission created by former president Ronald Reagan in 1981, 10 years after Richard Nixon broke the link between gold and the dollar during the 1971 oil crisis. That commission ultimately supported the status quo.

“There is a growing recognition within the Republican party and in America more generally that we’re not going to be able to print our way to prosperity,” said Sean Fieler, chairman of the American Principles Project, a conservative group that has pushed for a return to the gold standard.

A commission would have no power except to make recommendations, but Fieler said it would provide a chance to educate politicians and the public about the merits of a return to gold. “We’re not going to go from a standing start to the gold standard,” he said.

The Republican platform in 1980 referred to “restoration of a dependable monetary standard,” while the 1984 platform said that “the gold standard may be a useful mechanism”. More recent platforms did not mention it.

Any commission on a return to the gold standard would have to address a host of theoretical, empirical and practical issues.

Inflation has remained under control in recent years, despite claims that expansion of the Fed’s balance sheet would lead to runaway price rises, while gold has been highly volatile. The price of the metal is up by more than 500 per cent in dollar terms over the past decade.

A return to a fixed money supply would also remove the central bank’s ability to offset demand shocks by varying interest rates. That could mean a more volatile economy and higher average unemployment over time.

Posted in Political | 36 Comments »

BOE Says QE Benefits to Economy Counter Harm Done to Savers

Posted by WARREN MOSLER on 23rd August 2012

Nice to see they are getting challenged on this.

With govt the net payer of interest to the economy the critics should ultimately win this one. You would need some seriously skewed propensities to spend to overcome the raw interest rate channels.

BOE Says QE Benefits to Economy Counter Harm Done to Savers

By Jennifer Ryan

August 23 (Bloomberg) — The Bank of England defended its quantitative-easing program against criticism that it affected savers, saying these costs must be weighed against the economic benefits and that the plan limited the depth of the slump.

“Without the bank’s asset purchases, most people in the U.K. would have been worse off,” the central bank said in a report published in London today. “This would have had a significant detrimental impact on savers and pensioners along with every other group in our society. All assessments of the effect of asset purchases must be seen in this light.”

The report is a response to a government request that the central bank explain the impact of its bond purchases, which began in March 2009 and will reach 375 billion pounds ($596 billion) in November. It aims to counter a government claim that loose monetary policy penalizes “savers, those with ‘drawdown pensions’ and those retiring now.”

The central bank said QE widened the deficits in defined-benefit pension plans that were already facing a shortfall before the program started, though that burden may fall on employers and future employees rather than those nearing retirement now. The impact on defined contribution plans has been “broadly neutral.”

Asset-Price Impact

The central bank also said that QE helped to boost other asset prices, benefiting returns on pensions and other savings. The comments echo those made by Deputy Governor Charles Bean in February, when he said the impact of QE on assets such as equities provides an “offset to the fall in annuity rates.”

The effect “is thus more complex than it seems at first blush,” Bean said in a speech that month.

“By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds,” today’s report said. However, those holdings “are heavily skewed, with the top 5 percent of households holding 40 percent of these assets.”

The Bank of England said the biggest factor in the drop in interest income that savers receive from deposits was the reduction in the key interest rate to a record low of 0.5 percent, not asset purchases.

Explaining the widening of deficits in defined benefit pension plans and the fall in the annuity income that can be purchased from other pension funds, it said the “main factor” has been the fall in equity prices relative to gilt prices.

This “was not caused by QE,” the central bank said. “It happened in all the major economies, much of it occurred prior to the start of asset purchases, and stemmed in large part from the reluctance of investors to hold risky assets, such as equities, given the deterioration in the economic outlook. Indeed, by boosting the economy, monetary policy actions in the U.K. and overseas probably dampened this effect.”

Posted in CBs, UK | 11 Comments »

Asmussen statement

Posted by WARREN MOSLER on 22nd August 2012

>   
>   (email exchange)
>   
>   On Wed, Aug 22, 2012 at 3:02 AM, wrote:
>   
>   You are totally right about him, I sent you a word doc with his exact words
>   (emphasis mine)
>   

Repeat: Asmussen: ECB Wants To Eliminate Doubts About Euro
2012-08-20 05:36:05.371 GMT

–First Ran On Mainwire At 2257 GMT/1857 ET Sunday


FRANKFURT (MNI) – The European Central Bank wants to remove any doubt about the permanence of the common currency, ECB Executive Board member Joerg Asmussen said in a newspaper interview published in Monday’s edition of the German daily Frankfurter Rundschau.

The German board member told the paper that financial market certainty regarding the continued existence of the euro was a necessary condition for the currency’s stability.

The ECB’s planned new bond-buying program is superior to its predecessor, the Securities Market Program, and the Governing Council will work on details at its next meeting, Asmussen said.

Noting the high risk premia for some sovereign bonds in the euro area, which he said were in part due to concerns about the reversibility of the euro, Asmussen said that such an exchange rate risk was theoretically not admissible in a currency union and was leading to the incomplete transmission of ECB monetary policy to some euro area economies.

“Our measures attempt to repair this defect in the monetary policy transmission mechanism,” he said. The worries about the euro’s permanence are no wonder, he added, given “how carelessly” the currency is talked about in Europe.

“It is precisely these concerns about the continued existence of the euro that we want to rid market participants of,” he said.

Asmussen asserted that the ECB is acting within its mandate, adding that “a currency can only be stable if there is no doubt about its existence.”

The new bond-buying program meant to address this issue “will be better conceived” than the SMP, he said, repeating that the ECB will only act in tandem with the EFSF or ESM and that interested countries must submit a request and satisfy “comprehensive economic policy conditions.”

The ECB’s Governing Council “will decide in complete independence whether, when and how bonds are purchased on the secondary market,” he added.

What happened last summer with Italy, which failed to use the time bought by ECB bond purchases to make necessary adjustments, cannot be allowed to happen again, he said.

Moreover, in the new program the ECB will deal with the problem of senior status, which interferes with affected countries’ return to capital markets because private investors fear being disadvantaged vis-a-vis the ECB, he said.

Asked if the new program could be successful because it will be unlimited in time and scope, Asmussen confirmed that ECB President Mario Draghi had said as much.

“But wait and see,” he said. “We are working on the design of the new program and will occupy ourselves with these questions in our next meeting.”


Credit and money growth in the euro area are “moderate,” and “inflation expectations in the entire Eurozone are firmly anchored to our target,” he said. “We are monitoring price developments very closely and have all the necessary instruments to fight possible inflationary dangers effectively and in a timely manner.”

Posted in Banking, Bonds, ECB | 19 Comments »

Joerg Asmussen

Posted by WARREN MOSLER on 21st August 2012


Karim writes:

Germany’s director at the ECB, Joerg Asmussen, has signaled his full backing of Draghi’s bond purchasing plan reports the Daily Telegraph.

This is one more step in turning the Bundesbank’s opposition into the equivalent of Lacker’s dissent at the FOMC. One dissent cant derail the overwhelming majority. That is especially true now that a fellow countryman also supports the plan. Technically speaking, Asmussen’s position (as an Executive Board Member) is senior to that of the Bundesbank President (Governing Council): Sort of like Janet Yellen vs John Williams.

As background, note Asmussen was a Merkel appointee and had no prior affiliation with the Bundesbank.
See professional career here.

Posted in ECB | No Comments »

The 10th plague

Posted by WARREN MOSLER on 21st August 2012

As previously discussed, action was taken after the disease began infecting the core.

Headlines:
Germany backs Draghi bond plan against Bundesbank
Bundesbank Says German Economy May Cool Further in Second Half
Spain Home Rents Rise, First Time Since January, Fotocasa Says

And, also as previously discussed, I’m watching for signs deficits may be high enough for
euro zone GDP stability this quarter.

Germany backs Draghi bond plan against Bundesbank

By Ambrose Evans-Pritchard

August 20 (Telegraph) — “A currency can only be stable if its future existence is not in doubt,” said Jrg Asmussen, the powerful German member of the ECB’s executive board. Mr Asmussen told the Frankfurter Rundschau that the surge in Club Med bond yields over recent months “reflects fears about the reversibility of the euro, and thus a currency exchange risk” rather than bad economic policies in struggling states. Mr Asmussen confirmed that purchases may be “unlimited” in scale, a far cry from the half-hearted intervention of the past two years, which failed to stem capital flight. The Daily Telegraph can confirm reports in Der Spiegel that ECB technicians are examining plans to cap Spanish and Italian bond yields, among other options.

Bundesbank Says German Economy May Cool Further in Second Half

By Stefan Riecher

August 20 (Bloomberg) — “The prevailing uncertainty in the euro area could have a more negative impact on economic activity in Germany in the second half of the year,” the Bundesbank said in its monthly report. “However, as long as demand for German products from non euro-area countries remains essentially intact, a reversal of the cyclical trend in Germany is highly unlikely.” Growth in Europe’s largest economy slowed to 0.3 percent in the second quarter from 0.5 percent in the first as demand from euro-area trading partners waned. “In addition to ongoing strong construction activity, the outlook for private consumption remains favorable,” the Bundesbank said.

Spain Home Rents Rise, First Time Since January, Fotocasa Says

August 21 (Bloomberg) — Rental prices for Spanish homes rose 0.8 percent in July from June, recording the first monthly increase since January, real-estate website Fotocasa.es and IESE Business School said in an e-mailed statement.

Average rental prices stood at 7.56 euros ($9.38) per square meter, up from 7.49 euros per square meter in June, according to the statement.

Posted in Deficit, Government Spending | 3 Comments »

My comments on my Jan 2003 ten year outlook

Posted by WARREN MOSLER on 20th August 2012

>   
>    Posted By Warren Mosler on January 15, 2003 at 13:04:00:
>   
>   Here’s what’s being set up.
>   
>   1. Bush tax stuff is way too small to turn the economy.
>   
>   2. Over the next 24 months the economy weakens as the deficit grinds its way to the usual
>   5% of gdp or more – $500 billion + – mainly through falling revenue as unemployment
>   rises, corporate earnings wither, etc.
>   

A month or so after this was written I met with Andy Card, Bush’s chief of staff, and told him much the same. He got it and they took immediate action to increase spending and cut taxes. It was shortly after that meeting that Bush was asked about the deficit and said he doesn’t look at numbers on pieces of paper, he looks at jobs, and did all he could to make the deficit as large as possible. It got up to 200 billion for Q3 or about 800 billion annually; enough to turn the economy enough to not lose the election.

>   
>   3. Hillary Clinton wins the Presidency by a landslide promising to increase taxes on the
>   rich to assist the poor and balance the budget.
>   

I forget why she didn’t run and/or lost to Kerry?

>   
>   4. After the innaguration the program gets passed while the federal deficit remains around
>   $600 billion.
>   
>   5. The economy recovers as it always does after a couple of years of 5%+ deficits restore
>   non govt net financial assets/savings/aggregate demand.
>   

This is pretty much what happened under Bush.

>   
>   6. Once again the Clintons ‘prove’ balancing the budget is good for the economy and win
>   two terms.
>   
>   7. Half way into her 2nd term the strong economy drives the budget into surplus further
>   proving Clintonomics.
>   

This happened under Bush as the strong economy driving by private credit expansion took the deficit down to 1% of GDP by mid 2006. Unfortunately the expansion included the sub prime fraud which was seriously unsustainable.

>   
>   8. The next president is Hillary’s VP who gets the votes counted in his favor this time.
>   
>   9. This next president gets clobbered with another economic downturn caused by the
>   previous surplus, and the federal budget goes into deficit.
>   

It happened during the last few months of the Bush administration. And Obama did get clobbered by it.

>   
>   This time they aren’t ‘fooled’ by Bush style tax cuts anymore, and try instead to again raise
>   taxes on the rich to assist the poor and balance the budget, but they do it too soon, before
>   the deficit is large enough to turn the economy, and it gets much worse.
>   

My timing was far from perfect, but not terrible for a 10 year forecast?
Any other 10 year forecasts from back then on record?

Posted in Deficit, Employment, GDP, Government Spending, Political | 28 Comments »

Rasmussen daily presidential tracking poll

Posted by WARREN MOSLER on 19th August 2012

This is worth keeping an eye on as it was pretty much the only poll that had Romney in the lead pre Ryan, and now has Obama in the lead post Ryan. It’s the shift I find interesting.

Daily Presidential Tracking Poll

Posted in Obama, Political | 23 Comments »

Mike Norman MMT video

Posted by WARREN MOSLER on 17th August 2012

You’re the best!!

Still laughing!!!

Posted in Bonds, Deficit, Government Spending, Inflation | 58 Comments »