St. Louis Fed gets it?

Email from Scott Fullwiler:

Check this out . . .

“As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills.6 In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets”

Somehow they then go on to say that there can be crowding out if the US is not dependent on credit markets. Doh!

September FOMC Preview and fiscal cliff comments


Karim writes:
September FOMC Preview

Its hard to remember going into an FOMC meeting with as wide a range of outcomes and as wide an array of views on those outcomes from markets and economists.

In play:

  • Do nothing
  • Extend forward guidance (to what date?)
  • Cut IOER
  • Unsterilized asset purchases
    • Open-Ended, or defined amount and time period?
    • MBS and/or USTs?

My own, relatively low conviction, view is that they only extend forward guidance, to mid-2015, from the list above. I think there is a 40% probability they announce new LSAPs that would run concurrently with the end of Twist2. If they do additional LSAPs, I think there is a 40% they are open-ended in nature. If they do additional LSAPS (defined amount), I think it will be a 400bn program over 6mths made up of 75% MBS and 25% USTs. The odds of a cut in IOER would around 25% in my view.

Assuming extending forward guidance is a done deal, as hinted in the minutes, here are some of the pro’s and cons in terms of gauging the likelihood of additional asset purchases.

Pros

  • The term ‘monetary’ accommodation used in the last Minutes suggests more than just forward guidance is being considered: Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.
  • Bernanke used the term ‘grave concern’ at Jackson Hole to describe the state of the labor market and the last payroll report looked lousy.
  • He defended the use of QE at Jackson Hole, so if the outlook remains weak, why not do more?

Because he doesn’t want to pick a fight with China again, as per my May 2011 post.

Cons

  • The Fed states that policy works through financial channels and with most borrowing rates near record lows, and equity markets near 4yr highs, those channels are working well right now. Why mess with success?


Yes, he knows it’s about rates, not quantities, and that policy has caused the term structure of rates to be where it is. However, the channel that remains elusive is how low rates are transmitted to aggregate demand, claims of creating 3 million jobs not withstanding.

  • The outlook hasn’t changed much since June when they announced Twist2, so why act now?
  • Its 2mths before the election and the Fed is only a side campaign issue now. For an institution that craves it independence, why do anything that may risk that?

Open-ended purchases would likely be tied to the forecast (i.e., ‘the Fed will buy 150bn/mth of MBS and USTs until the Committee is able to forecast meeting its mandate within its forecast horizon’). The issue is the Fed doesn’t have a common forecast (it takes an average of 17 members to produce the SEP). That common forecast is a work in progress (a Committee headed by Yellen). So an open-ended program may take place, but probably not until next year.

Odds of an IOER cut are low just because Bernanke did not mention it at all at Jackson Hole.

About three months ago I suggested the fiscal cliff was too far away for markets to care.
But now it’s a lot closer, and close enough for those to be affected directly by govt spending cuts to be acting accordingly.

But that also means that at least some of that cliff is already being discounted which means:

It won’t be as bad as expected if it happens.
If it’s avoided there will be a boost to the economy not in current forecasts.

What Obama Has Wrought

Looks like potentially a good MMT proponent if anyone knows him?

What Obama Has Wrought

By Glen Ford

September 5 (BAR) — The meticulously scripted spectacles of the two corporate party conventions are very poor backdrops for clear thinking – but luckily, the ordeals are almost over. What remains after the tents are folded, are the crimes of this administration and its predecessor: both horrifically evil in their own ways. History will mark Obama as the more effective evil, mainly because of the lack of opposition.

Most people don’t want to be a perceived as party-poopers – which is why the principled folks that have protested the evil antics of the corporate, imperial parties, in Tampa and Charlotte, are so much to be admired. Frankly, who wants to be the one to point out, in the middle of the festivities, that Michelle Obama was just a Chicago Daley machine hack lawyer who was rewarded with a quarter million dollar a year job of neutralizing community complaints against the omnivorous University of Chicago Hospitals? She resigned from her $50,000 seat on the board of directors of Tree-House Foods, a major Wal-Mart supplier, early in her husband’s presidential campaign. But, once in the White House, the First Lady quickly returned to flaking for Wal-Mart, praising the anti-union “death star” behemoth’s inner city groceries offensive as part of her White House healthy foods booster duties.

She also serves on the board of the Chicago Council on Global Affairs, the corporate foreign policy outfit to which her husband dutifully reported, each year, in his pucker-up to the presidency. The Obamas are a global capital-loving couple, two cynical lawyers on hire to the wealthiest and the ghastliest. They are no nicer or nastier than the Romneys and the Ryans, although the man of the house bombs babies and keeps a kill list. Yet, former “green jobs” czar Van Jones, a convention night chatterer on CNN who was fired by Obama for no good reason, chokes up when he speaks of the Black family that fronts for America – a huge act of national camouflage.

It is as useless to anchor a serious political discussion to this year’s Democratic and Republican convention speeches, as to plan the liberation of humanity during Mardi Gras. Truth is no more welcome at the former than sobriety is at the latter. So, forget the conventions and their multi-layered lies. Here are a few highlights of what Barack Obama has inflicted on the nation and the world:

Preventive Detention

George Bush could not have pulled off such an evisceration of the Bill of Rights, if only because the Democrats and an aroused street would not have allowed it. Bush knew better than to mount a full-court legislative assault on habeas corpus, and instead simply asserted that preventive detention is inherent in the powers of the presidency during times of war. It was left to Obama to pass actual legislation nullifying domestic rule of law – with no serious Democratic opposition.

Redefining War

Obama “led from behind” a 7-month Euro-American air and proxy ground war against the sovereign nation of Libya, culminating in the murder, after many attempts, of the nation’s leader. The president informed Congress that the military operation was not subject to the War Powers Act, because it had not been a “war” at all, since no Americans were known to have been killed. The doctrine was thus established – again, with little Democratic opposition – that wars are defined by the extent of U.S. casualties, no matter how many thousands of foreigners are slaughtered.

War Without Borders

Obama’s drone war policies, greatly expanded from that inherited from Bush, have vastly undermined accepted standards of international law. This president reserves the right to strike against non-state targets anywhere in the world, with whatever technical means at his disposal, without regard to the imminence of threat to the United States. The doctrine constitutes an ongoing war against peace – the highest of all crimes, now an everyday practice of the U.S.

The Merger of Banks and State

The Obama administration, with the Federal Reserve functioning as a component of the executive branch, has funneled at least $16 trillion to domestic and international banking institutions, much of it through a virtually “free money” policy that could well become permanent. This ongoing “rescue” of finance capital is unprecedented in sheer scope and in the blurring of lines between Wall Street and the State. The routine transfer of multi-billions in securities and debts and assets of all kinds between the U.S. Treasury, the Federal Reserve and corporate accounts, has created de facto structures of governance that may be described as institutional forms of fascism.

These are world-shaking works of Obama-ism. Even Obama’s “lesser” crimes are astounding: his early calls for austerity and entitlement-axing (two weeks before his inauguration) and determined pursuit of a Grand Accommodation with the GOP (a $4 trillion deal that the Republicans rejected, in the summer of 2011) reveal a politician intent on ushering in a smoother, more rational corporate hegemony over a thoroughly pacified civil society. Part and parcel of that pacification is the de-professionalization of teaching – an ambition far beyond de-unionization.

Of course, Obama begins with the delegitimization of Black struggle, as in his 2004 Democratic Convention speech (”…there is no Black America…only the United States of America.”) To the extent that the nation’s most progressive, anti-war constituency can be neutralized, all of Obama’s corporate and military goals become more doable. The key to understanding America has always been race. With Obama, the corporate rulers have found the key that fits their needs at a time of (terminal) crisis. He is the more effective evil.