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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 November, 2012

Mike again ;)

Posted by WARREN MOSLER on 30th November 2012

Posted in Uncategorized | 107 Comments »

China hates QE

Posted by WARREN MOSLER on 27th November 2012

This was my suspicion back in maybe May, 2011 when Bernanke made his strong dollar speech after China had let their T bill portfolio run off after the Fed had begun QE1.

Either China doesn’t understand QE or they are taking this position anyway, for further political purpose.

And in any case, in general they all remain blind to the fact that imports are real benefits and exports real costs.

China dismisses Brazil currency proposal at WTO, criticizes QE

By Tom Miles

Nov 26 (Reuters) — China blamed quantitative easing for damaging emerging economies and rejected Brazil’s proposal of using world trade rules to compensate for currency misalignments, during a debate at the WTO on Monday.

“We, together with many other countries, have been critics of this irresponsible and beggar-thy-neighbor policy,” China’s deputy permanent representative to the World Trade Organization, Zhu Hong, said, referring to the monetary stimulus policy often shortened to QE.

“It has a lingering negative impact on developing, emerging economies in particular,” Zhu said during a debate on currency fluctuations at the WTO in Geneva, according to a transcript provided by a Chinese official.

The meeting was called to discuss Brazil’s proposal that WTO rules should include a system for dealing with currency misalignments.

Brazil’s Ambassador Roberto Azevedo, who some trade diplomats say is a contender to replace WTO chief Pascal Lamy when he steps down next year, has gradually hardened up his demands on the issue.

After getting WTO members to agree to examine the available literature on the subject last year,Brazil circulated a proposal on November 5, explaining that WTO rules contained language about dealing with currency-related trade distortions but no adequate instruments to act directly.

“The WTO seems to be systemically ill-equipped to cope with the challenges posed by the macro and microeconomic effects of exchange rates on trade,” Brazil said in its proposal, a copy of which was obtained by Reuters.

“Members may wish, against this background, to consider the need for exchange-rate trade remedies and to start some analytical work to that effect.”

The proposal did not mention quantitative easing and explicitly called for analysis “from a systemic perspective” rather than from any one country’s experience.

But it was accompanied by a graph showing the estimated misalignment of Brazil’s own currency, the real, with an over-valuation of nearly 40 percent in 2011.

Brazil has previously called quantitative easing, a form of monetary stimulus, “selfish” and blamed it for stealing exports from emerging markets.

But China’s Zhu said the issue was one for the International Monetary Fund, not the WTO.

“Currency issue in nature is a monetary policy issue. The right path to resolve this issue is by enhancing the responsibility of and promoting coordination among the international reserve currency issuers,” Zhu said.

BAD PRECEDENT

Brazil’s push for the WTO to take up the currency proposal has rolled onward despite struggling to gain vocal support, partly because it is unclear if such an idea would be workable in practice.

Donald Kohn, a former vice chairman of the Federal Reserve and a member of the Bank of England’s Financial Policy Committee, said that although he was not familiar with the proposal, such ideas did not make sense from an economic point of view in general.

“Emerging market economies should adapt, and they should change regulation to allow their exchange rates to be more flexible where that’s appropriate,” he told Reuters after giving a speech in Geneva earlier this month.

“But I think it’s not going to work and I think it’s unproductive to ask the industrial economies to do things that are not in their self-interest, within the rules of the game. Secondly, if what they’re talking about is tightening up on trade and restricting trade, that’s a very bad precedent.”

Posted in Bonds, CBs, China | 67 Comments »

Manifesto

Posted by WARREN MOSLER on 27th November 2012

Congrats to Paolo Barnard who has published this manifesto based on the principles in ‘Soft Currency Economics’ and what is now known as MMT!

Wish I could read Italian!

NON ERAVAMO I PIIGS. TORNEREMO ITALIA

Posted in Uncategorized | 35 Comments »

Italian article this am

Posted by WARREN MOSLER on 26th November 2012

Misrepresents what I say a bit, but they do have my picture next to JFK!
;)

The IMF: sovereign currency, no longer the monopoly of the banks

Eliminate the public debt of the United States at once, and do the same with Great Britain, Italy, Germany, Japan, Greece. At the same time revive the ‘ economy, stabilize prices and oust the bankers. In a clean and painless, and faster than what you can imagine. With a magic wand? No. With a simple law, but able to replace the current system, in which to create money out of nothing are private banks. We only need a measure requiring the banks to hold a financial reserve real, 100%. To propose two economists at the International Monetary Fund, Jaromir Bene and Michael Kumhof. You, the bank, you want to make money on the loan of money? First you have to prove it really that much money. Too easy to have it by the central bank (which the factory from scratch) and then “extort” families, businesses and entire states, imposing exorbitant interest.

The study of two economists, “The Chicago Plan Revisited,” with “a revolutionary and” scandalous “‘Maria Grazia Bruzzone,” La Stampa “, emphasizes the global resonance of the dossier, that bursts like a bomb on the world capitalist system now jammed. The global debt came the exorbitant sum of 200 trillion, that is 200 trillion dollars, while the world GDP is less than 70 trillion. Translated: the world debt is 300% of gross domestic product of the entire planet. “And to hold this huge mountain of debt – which continues to grow – there are more advanced economies and developing countries,” says the Bruzzone, stressing that “the heart of the problem and the cross” is the highest “power” Japan, Europe and the United States. Hence the sortie “heretical” by Bene and Kumhof: simply write off the debt, it disappears.Sparked the debate was the last IMF report, which points the finger on austerity policies aimed at reducing thepublic debt . Policies that “could lead to recession in the economies ‘, since’ cuts and tax increases depress the ‘economy ‘.

Not only. The IMF would be really worried the crisis that is ravaging the ‘ Europe threatens to be worse than the 2008 financial. The surprise is that even the IMF now thinks that “austerity can be used to justify the privatization of public services,” with consequences “potentially disastrous”. But if the problem is the debt – public, but now “privatized” by finance – you can not delete? Solution already ventilated by the Bank of England, which holds 25% of the British sovereign debt: the Bank of England may reset it by clicking on the computer. Advantages: “You will pay much less interest, it would free up cash and you could make less harsh austerity.” The debate rages on many media, starting from the same “Financial Times”. thread which breaks now the revolutionary proposal of the two IMF economists targati: cancel the debt.

“The Chicago Plan Revisited,” writes Maria Grazia Bruzzone, raises and explores the “Chicago Plan” original, drawn up in the middle of the Great Depression of the ’30s by two other economists, Irving Fisher, Henry Simons of the University of Chicago, the cradle of liberalism . Cancel 100% of the debt? “The trick is to replace our system, where money is created by private banks – for 95-97% of the supply of money – money created by the state. It would mean return to the historical norm, before the English King Charles II put in private hands control of the money available, “back in 1666. It would mean a frontal assault on the “fractional reserve” banking, accused of seigniorage on the issue of currency speculation: if lenders are instead forced to hold 100% of its reserves to guarantee deposits and loans, “pardon the exorbitant privilege of create money out of nothing. ” As a result: “The nation regained control over the availability of money,” and also “reduces the pernicious cycles of expansion and contraction of credit.”

The authors of the first “Plan of Chicago” had thought that the cycles of expansion and contraction of credit lead to an unhealthy concentration of wealth: “They had seen in the early thirties creditors seize farmers effectively bankrupt, grab their lands or comprarsele for a piece of bread. ” Today, the authors of the new edition of this plan argue that the “trauma” of the credit cycle that expands and contracts – caused by private money creation – is a historical fact that is already outlined with Jubilees Debt ancient Mesopotamia, as well as in ancient Greece and even Rome. Sovereign control (the state or the Pope) on currency, recalls Bruzzone, Britain remained so throughout the Middle Ages, until 1666, when it began the era of the cycles of expansion and contraction. With the “bank privatization” of money, add the “Telegraph”, “opened the way for the agricultural revolution, and after the industrial revolution and the biggest leap Economic ever seen “- but it is not the case of” quibbling, “quips the newspaper.

According to the young economists of the IMF, is just a myth – disclosed “innocently” by Adam Smith – that the money has been developed as a medium of exchange based on gold, or related to it. Just as it is a myth, the study points out the IMF, what you learn from books: that is the Fed, the U.S. central bank, to control the creation of the dollar. “In fact, money is created by private banks to 95-97% through loans.” Private banks, in fact, do not lend as owners of cash deposits, the process is exactly the opposite. “Every time a bank makes a loan, the computer writes the loan (plus interest) and the corresponding liability in its balance sheet. But the money that pays the bank has a small part. If it does borrow from another bank, or by the central bank. And the central bank, in turn, creates out of nothing that lends the money to the bank. ”

In the current system, in fact, the bank is not required to have its own reserves – except for a tiny fraction of what it provides. Under a system of “fractional reserve”, each money created out of nothing is a debt equivalent: “Which produces an exponential increase in the debt, to the point that the system collapses on itself.” The economists of the IMF hours overturn the situation. The key is the clear distinction between the amount of money and the amount of credit between money creation and lending. If you impose banks to lend only numbers covered by actual reserves, loans would be fully funded from reserves or profits accrued. At that point, the banks can no longer create new money out of thin air. Generate profits through loans – without actually having a cash reserve – is “an extraordinary and exclusive privilege, denied to other business.”

“The banks – says Maria Grazia Bruzzone – would become what he mistakenly believed to be, pure intermediaries who have to get out their funds to be able to make loans.” In this way, the U.S. Federal Reserve “is approprierebbe for the first time the control over the availability of money, making it easier to manage inflation.” In fact, it is observed that the central bank would be nationalized, becoming a branch of the Treasury, and now the Fed is still owned by private banks. “Nationalizing” the Fed, the huge national debt would turn into a surplus, and the private banks’ should borrow reserves to offset possible liabilities. ” Already wanted to do John Fitzgerald Kennedy, who began to print – at no cost – “dollars of the Treasury,” against those “private” by the Fed, but the challenge of JFK died tragically, as we know, under the blows of the killer of Dallas , quickly stored from “amnesia” of powerful debunking.

Sovereign coin, issued directly by the government, the state would no longer be “liable”, but it would become a “creditor”, able to buy private debt, which would also be easily deleted. After decades, back on the field the ghost of Kennedy. In short: even the economists of the IMF hours espouse the theory of Warren Mosler, who are fighting for their monetary sovereignty as a trump card to go out – once and for all – from financial slavery subjecting entire populations, crushed by the crisis , the hegemonic power of a very small elite of “rentiers”, while the ‘ economic reality – with services cut and the credit granted in dribs and drabs – simply go to hell. And ‘the cardinal assumption of Modern Money Theory supported in Italy by Paul Barnard: if to emit “money created out of nothing” is the state, instead of banks, collapsing the blackmail of austerity that impoverishes all, immeasurably enriching only parasites of finance . With currency sovereign government can create jobs at low cost. That is, welfare, income and hope for millions of people, with a guaranteed recovery of consumption. Pure oxygen ‘s economy . Not surprisingly, adds Bruzzone, if already the original “Chicago Plan”, as approved by committees of the U.S. Congress, never became law, despite the fact that they were caldeggiarlo well 235 academic economists, including Milton Friedman and English liberal James Tobin, the father of the “Tobin tax”. In practice, “the plan died because of the strong resistance of the banking sector.” These are the same banks, the journalist adds the “Print”, which today recalcitrano ahead to reserve requirements a bit ‘higher (but still of the order of 4-6%) required by the Basel III rules, however, insufficient to do deterrent in the event of a newcrisis . Banks: “The same who spend billions on lobbying and campaign contributions to presidential candidates. And in front of the new “Chicago Plan” threaten havoc and that “it would mean changing the nature of western capitalism. ‘” That may be true, admits Bruzzone: “Maybe but it would be a better capitalism. And less risky. ”

Posted in Banking, Currencies, EU, Government Spending | 40 Comments »

yen intervention?

Posted by WARREN MOSLER on 21st November 2012

Seems this is what these charts would look like if Japan was selling yen to buy dollars and euro to support their exporters?

Posted in Currencies, Japan | 34 Comments »

Huffpost comments!

Posted by WARREN MOSLER on 20th November 2012

So glad to see the comments in defense that are as right on as anything I could have written!

Posted in Articles | 24 Comments »

Israel Postpones Ground Assault to Give Talks a Chance

Posted by WARREN MOSLER on 20th November 2012

Israel doesn’t take the bait.
The rocket attacks could have only been meant to trigger an invasion.

Israel Postpones Ground Assault to Give Talks a Chance

By Gwen Ackerman and Alisa Odenheimer

November 20 (Bloomberg) — Israel postponed a decision on launching a ground invasion into the Gaza Strip, giving international negotiators a chance to craft a cease-fire, a government official said as U.S. Secretary of State Hillary Clinton headed to the region.

Posted in Uncategorized | 28 Comments »

Keynes 1939 radio address

Posted by WARREN MOSLER on 19th November 2012

Posted in Employment | 7 Comments »

Early Thought follow up… A follow up conversation with Warren Mosler

Posted by WARREN MOSLER on 19th November 2012

Please click here to listen to a conversation with Warren Mosler. We did an audio call with Warren in late June and he was spot on. So I thought it was a good time to circle back with him. Topics include: US stocks (they look good…deficit to GDP in US a support for market/econ), US rates, Europe and China.

Posted in China, Equities, EU, USA | 6 Comments »

SCE was downloaded on a massive scale today

Posted by WARREN MOSLER on 19th November 2012

Posted in Books | 7 Comments »

Japan- unemployment and suicide

Posted by WARREN MOSLER on 18th November 2012

Posted in Japan | 7 Comments »

Clinton says budget deal critical to U.S. global role, security

Posted by WARREN MOSLER on 18th November 2012

In case you thought Hillary had a clue:

Clinton says budget deal critical to U.S. global role, security

By David Brunnstrom

November 17 (Reuters) — U.S. Secretary of State Hillary Clinton said on Saturday that reaching a deal to resolve America’s budget crisis is critical to its global leadership and national security and would bolster efforts to project U.S. economic power around the world.

Speaking in Singapore during a tour of Asia and Australia, Clinton said that when she was in Asia last year during the height of debate about the U.S. debt ceiling, leaders from across the region asked her if the U.S. Congress would actually allow the United States to default on its debt.

“Let’s be clear,” she said. “The full faith and credit of the United States should never be in question.”

However, Clinton, who spoke at Singapore Management University, said that with Washington gearing up for another round of budget negotiations, she was “again hearing concerns about the global implications of America’s economic choices”.

She said that despite all the differences between the U.S. political parties, “we are united in our commitment to protect American leadership and bolster our national security”.

“Reaching a meaningful budget deal is a critical to both,” she said. “It would shore up our ability to project economic power around the globe, strengthen our position in the competition of ideas shaping the global marketplace, and remind all nations that we remain a steady and dependable partner.

“For us, this is a moment to once again prove the resilience of our economic system and reaffirm America’s leadership in the world,” Clinton said, stressing that U.S. leadership depended on its economic strength.

“Global leadership is not a birthright for the United States or any nation. It must be constantly tended and earned anew.”

U.S. President Barack Obama and his Republican rivals are in talks aimed at avoiding what has been dubbed a “fiscal cliff” at the year-end, which experts say could push the U.S. economy back into recession.

If Congress cannot agree to less extreme steps, from Jan. 2, about $600 billion worth of tax increases and spending reductions, including $109 billion in cuts to domestic and defense programs, will begin to kick in.

Both sides are eager to reassure the public that Washington will not see a repeat of the white-knuckle budget standoff that spooked consumers and investors last year, and Republican and Democratic congressional leaders emerged from a meeting with Obama on Friday pledging to find common ground to avert the fiscal cliff.

“HISTORY BEING WRITTEN”

Clinton said responding to threats would remain central to U.S. foreign policy, but could not be Washington’s only foreign policy.

Maintaining U.S. strength would require following through on a policy of intensified engagement with the Asia-Pacific region and elevating the role of economics in foreign relations.

Clinton said the visit of Obama to Asia from Sunday – within days of his Nov. 6 reelection – showed the importance of the region in U.S. eyes. Obama will visit Thailand, Cambodia to attend an East Asian summit, and Myanmar.

“Why is the American president spending all this time in Asia so soon after winning reelection?” Clinton asked. “Because so much of the history of the 21st century is being written here.”

Clinton said the United States was making progress in talks with countries on both sides of the Pacific towards finalizing a Trans-Pacific Partnership trade pact, which would lower barriers and raise regulatory standards in a region accounting for 40 percent of world trade.

“We will continue to work with Japan and we are offering to assist with capacity building so that every country in ASEAN can eventually join,” she said, referring to the 10-member Association of Southeast Asian Nations.

Clinton said the United States would welcome the interest of any country willing to meet the standards of the TPP – including China, where some view the pact with suspicion and as a U.S. attempt to contain China’s rapid growth, something U.S. officials deny.

The United States, Australia, New Zealand, Chile, Peru, Singapore, Vietnam, Malaysia and Brunei agreed this year to let Mexico and Canada into the negotiations, which could reach a conclusion next year. Japan’s prime minister said this month he wants to enshrine backing for the pact in his party’s election platform.

Clinton said that with the U.S. government working to bring down trade barriers and create a level playing field for U.S. firms, it was also up to them to raise their game abroad.

“Too many are sitting on the sidelines,” she said. “I hear it over and over when I travel: ‘Where are the American businesses?’ At a time when America’s domestic growth depends more than ever on our ability to compete internationally, this has to change.”

Posted in Government Spending | 2 Comments »

Huffington post- It’s not the deficit, stupid!

Posted by WARREN MOSLER on 16th November 2012

It’s Not the Deficit, Stupid!

By Warren Mosler

Posted in GDP, Government Spending, UK, USA | 39 Comments »

My tax cuts are expiring; blame the deficit on me ;) !

Posted by WARREN MOSLER on 16th November 2012

My visit to Andy Card at the White House in early 2003 led to the Bush tax cuts that are expiring,
and the payroll tax holiday I promoted from 2008- 2010 is expiring as well.

:(

Posted in Deficit | 18 Comments »

Rehn on Spain says no more pain…

Posted by WARREN MOSLER on 15th November 2012

Sorry about the title
Couldn’t help myself…
;)

No further austerity for Spain, says Rehn

November 15 (FT) — Spain will need no further austerity measures until the end of next year even though it will easily miss its deficit targets, EU economic commissioner Olli Rehn, said. We are not so much focused on the nominal targets, even though they often make easier headlines because they are exact percentages, Mr Rehn said. To my mind, [it is] both the right way of doing it from an economic point of view but also the correct way of applying [EU rules]. He added that Spain must still do more in 2014, when Madrid is required to get its budget deficit, which was 11 per cent of gross domestic product at the end of last year, down below the EU threshold of 3 per cent. Spain was supposed to reduce its deficit to 6.3 per cent of GDP this year and 4.5 per cent next year.

Posted in EU, Government Spending | 8 Comments »

more on the cliff

Posted by WARREN MOSLER on 15th November 2012

Stocks down again yesterday but interestingly bond yields up a tad, dollar down a tad, oil and metals up, and even long BMA ratios holding steady, etc.

The cliff isn’t nearly as large and threatening as the debt ceiling cliff would have been in 2011 if that thing hadn’t been extended, and we’d gone cold turkey into an immediate and forced balanced budget. But that event is the stock market’s ‘recent memory’ of stock market reaction functions.

And this time GDP is being supported by a private sector credit expansion/housing expansion, with private debt service ratios substantially lower due to cumulative federal deficits adding to nominal ‘savings’. And the federal deficit remains well above 5% of GDP, which historically has been more than enough to reverse a recession.

And then there’s the election factor. Post election I’m hearing (anecdotally) distraught Romney supporters thoroughly convinced the President is a ‘socialist’ bent on destroying capitalism, taxing the rich ‘job creators’ and giving it to what Romney called ‘the 47%’ dependent class, etc. etc. etc. Merits of this ‘belief’ aside, it looks to me it’s driving portfolios to shift out of equities. However, if not supported by an actual decline in earnings, which is how I see it, it’s all a case of ‘pushing on a spring’.

Yes, the euro zone is a problem, with Q3 GDP just reported at -.1%. But that’s an ‘improvement’ from q2′s -.2% as larger deficits are acting counter cyclically to cushion the austerity driven decline. And Rehn was just quoted on Spain favoring not adding to austerity measures, perhaps indicating a move to ‘let it be’ for a while, which will allow GDP to stabilize at modestly positive levels.

And China is no longer going backwards, so that negative has been reversed as well.

Back to the cliff, in fact letting tax rates go up for high income earners should have little effect on GDP, as the marginally propensity to spend for that segment is reasonably low. (of course that means there’s no point in taxing that income in the first place, but that’s another story). Nor does it mean investment or employment will suffer since investment is driven by sales prospects. And with higher tax rates, and business expense tax deductible, the after tax cost of investment goes down with higher tax rates. For example, in the 70′s, when my tax rate was around 70%, I clearly recall making very high risk investments figuring it was better than giving 70% to the govt. Point is, taxing income and savings that isn’t going to be spent is about social engineering, and not ‘funding the deficit’ or altering aggregate demand, and is intellectually honestly framed as such. So point here is, I score the effect of raising the highest tax rates at 0 regarding aggregate demand.

This all supports my take that the stock market has over discounted the cliff, partly for ideological reasons, partly due to the recent memory of what stocks did during the debt ceiling debacle, and partly from fear of what’s going on in the rest of the world.

So as we get through it all with modest top line and earnings growth continuing, I’m looking for valuations to quickly return to at least where they were before the election.

Posted in Deficit, Equities, GDP, Government Spending, Political | 37 Comments »

Professor Kelton’s presentation on the cliff

Posted by WARREN MOSLER on 14th November 2012

Stephanie Kelton’s Tremendous Presentation On The Fiscal Cliff, And The Potential Tragedy Of A ‘Deal’ here.

Posted in GDP, Government Spending | 20 Comments »

Kelton on CSPAN

Posted by WARREN MOSLER on 14th November 2012

Link to Stephanie Kelton on the fiscal cliff here.

Posted in GDP, Government Spending | 61 Comments »

Whitney Tilson: ‘I Love the Fiscal Cliff’

Posted by WARREN MOSLER on 12th November 2012

A bit of equal time for the Democrats, as they join forces with the Republicans to hike unemployment and lower GDP, with all forecasters in agreement.

But I do thinks markets and the economy have already discounted at least most of it:

Whitney Tilson: ‘I Love the Fiscal Cliff’

By Bruno J. Navarro

November 9 (CNBC) — The so-called “fiscal cliff” is a good thing for Washington because it will force both Democrats and Republicans to cede ground on core issues, Whitney Tilson of T2 Partners said Friday on CNBC.

Tilson, a supporter of President Barack Obama and fundraiser for his re-election campaign, said that he expected resolution of the “fiscal cliff” would involve increasing taxes and eliminating deductions, as well as one important area: “Democrats are going to have to touch the third rail for them, which is entitlements, and Obama, I think, is willing to do that,” he said on “Fast Money.”

“Every Democrat I talked to is willing to do that, but only in the context of Republicans giving on the tax and deductions side aimed more at wealthiest folks in this country who are the ones that can afford to give more.”

Posted in Government Spending, Political | 18 Comments »

Latest Boehnalities

Posted by WARREN MOSLER on 9th November 2012

Typical moronic Boehnalities:

“the deficit is a drag on the economy”
NO, THE DEFICIT IS THE ACCOUNTING RECORD OF THE ADDITION TO SAVINGS

“can’t continue spending money we don’t have”
ENTIRELY INAPPLICABLE
THE FED ‘SPENDS’ BY CREDITING MEMBER BANK ACCOUNTS.

Posted in Deficit | 55 Comments »