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Archive for January, 2013

a word on the euro, US deficit doves, and Japan

Posted by WARREN MOSLER on 30th January 2013

As previously discussed, the euro looks to keep going up until the trade surplus reverses. Problem is the strong euro doesn’t necessarily cause the trade surplus to reverse, at least not in the short term. But it does tend to work against earnings and growth. And there’s nothing the ECB can do about it, short of buying dollars via direct intervention, which would be counter to their core ideology, as building dollar reserves would give the appearance of the dollar backing the euro. The solvency issue has now been behind them for quite a while, and still no sign of any ‘official’ recognition that deficits need to be higher to restore output and employment.

And, also as previously discussed, while the future was looking up for the US a few months ago, the caveat of ‘austerity’ has come into play with the year end FICA and other tax hikes, and now the odds are the sequesters are allowed to come into play March 1 as well. Note this has been Japan’s policy as well- fiscal tightening at the first sign of any hope for expansion. Fed policy also looks to remain restrictive as blatantly evidenced by the recent turn over of some $90 billion of ‘profits’ to the Treasury that otherwise would have been earned by the economy.

The headline ‘deficit doves’ pushing for larger deficits with their ‘out of paradigm’ arguments are also serving to continue to support austerity. They have been arguing that the low interest rates are a signal from the markets (as if they know anything about markets) indicating the economy wants the govt to sell more bonds. This is in response to the hawk’s equally out of paradigm argument that financing deficits will eventually drive up interest rates. So now that interest rates have started going higher, the dove’s case is for higher deficits is pretty much gone, removing the resistance to ‘getting our fiscal house in order’ just as the sequester date is approaching. Whether it’s gross ignorance or intellectual dishonesty doesn’t matter all that much at this point- it’s happening. At the same time oil and gasoline prices have been creeping up, taking a few more shekels away from consumers. January and it’s strong equity inflows/allocations and releases of December’s stats ends tomorrow. February’s releases of Jan stats will bring more post FICA hike clarity.

Japan’s weak yen, pro inflation policy seems to have been all talk with only a modest fiscal expansion to do the heavy lifting. Changing targets does nothing, nor does the BOJ have any tools that do the trick as evidenced now by two decades of using all those tools to the max. And while I’ve been saying all the while that 0 rates, QE, and all that are deflationary biases that make the yen stronger, there is no sign of that understanding even being considered by policy makers, so expect more of same. What has been happening to weaken the yen is a quasi govt policy of the large pension funds and insurance companies buying euro and dollar denominated bonds, which shifts their portfolio compositions from yen to euros and dollars, thereby acting to weaken the yen. I have no idea now long this will continue, but if history is any guide, it could go on for a considerable period of time. Yes, it adds substantial fx risk to those institutions, but that kind of thing has never gotten in the way before. And should it all blow up some day, look for the govt to simply write the check and move on.

Posted in Bonds, CBs, Comodities, Currencies, EU, Government Spending, Inflation, Interest Rates, Japan | No Comments »

Confidence Index decreased to 58.6

Posted by WARREN MOSLER on 29th January 2013

Not conclusive but a bit of evidence the FICA hike is beginning to take a toll.

From Gail:

The Conference Boards Consumer Confidence Index decreased to 58.6, the weakest since November 2011, from a revised 66.7 in December

January 29 — Says Lynn Franco, Director of Economic Indicators at The Conference Board: Consumer Confidence posted another sharp decline in January, erasing all of the gains made through 2012. Consumers are more pessimistic about the economic outlook and, in particular, their financial situation. The increase in the payroll tax has undoubtedly dampened consumers spirits and it may take a while for confidence to rebound and consumers to recover from their initial paycheck shock. Consumers appraisal of current conditions deteriorated in January. Those claiming business conditions are good declined to 16.7 percent from 17.2 percent, while those stating business conditions are bad increased to 27.4 percent from 26.3 percent. Consumers assessment of the labor market has also grown more negative. Those saying jobs are plentiful declined to 8.6 percent from 10.8 percent, while those claiming jobs are hard to get increased to 37.7 percent from 36.1 percent.

Posted in Uncategorized | No Comments »

Japan’s debt approaches 1 quadrillion yen

Posted by WARREN MOSLER on 29th January 2013

Debt approaching 1 quadrillion, and the highest as a % of GDP anywhere I know of, and still no bond vigilantes in sight!

Who would have thought???

Not to mention decades of 0 rates, massive QE, and in general the BOJ trying as hard as it can to inflate.

Maybe it’s not all that easy for a CB to cause inflation???

Anyway, net fiscal will add a bit to GDP, but nothing serious, and the hawkish rhetoric doesn’t seem to have changed any.

And note the cuts in welfare ‘paying for’ the increases in defense and infrastructure.

Of the Y92.6 trillion yen in spending, Y43.1 trillion will be financed with tax revenues and Y42.9 trillion with issuance of new bonds, adding to Japan’s massive public sector debt that already totals nearly Y1 quadrillion.

The FY2013 budget does show clear differences from those of the previous DPJ administration, with a clear shift away from social welfare toward defense and infrastructure programs.

It calls for a reduction of Y67 billion in welfare benefits over the next three years, an increase of Y712 billion, or 15.6% in public works programs and a Y35 billion, or 0.8% increase in spending for the Self-Defense Forces.

“Adequate amounts have been provided to ensure the safety of public infrastructure and to address public concerns about national defense,” Mr. Aso said.

The LDP’s call for aggressive public works spending got better reception after the collapse of an expressway tunnel in December that killed nine people. Simmering tensions with China have also increased support for spending programs to improve security of Japanese territory.

In a policy address Monday, Mr. Abe vowed to erase fiscal deficits in the medium-to-long term, but stopped short of saying when, leaving the task to his economic advisory panel.

Sayuri Kawamura, a Japan Research Institute economist, is worried that not enough attention has been given to the risk of fiscal implosion.

“As debt piles up, the cost of servicing that debt also goes up, eating deeper into tax revenue, and leaving less and less for policy programs. The government hasn’t explained how they are going to deal with this challenge,” Ms. Kawamura said.

Posted in Bonds, Deficit, Government Spending, Japan | No Comments »

from Karim: January looks ok so far

Posted by WARREN MOSLER on 28th January 2013

Agreed with Karim. So far no signs of actual damage from the FICA hike. Even bonds now indicating same.

The problem is personal- it’s hard for me to fathom FICA going up that much without some meaningful damage to GDP.

So I remain on the sidelines pending more Jan data.

ICSC 3% Retail Sales Growth Maintained for January, Fiscal Year (ICSC) January sales growth is tracking above ICSC’s 3% estimate for the month, even with a slight moderation of yoy sales growth as the month has progressed. All Super Bowl shopping will fall in January this year, so sales should gain momentum as the month closes. January U.S. store traffic growth continued to slow in the third week of the month, rising 3.1%, as stores transition from post-holiday clearance to more everyday merchandise. Traffic at enclosed malls remained unchanged yoy and apparel stores declined by low-single digits for the first time since the lull in early December. The 12% month-to-date traffic gain stems from large increases in early January. U.S. same store sales excluding Wal-Mart rose 2.7 percent in Dec. from a year earlier.

ICSC index drops every January but this year higher than last, as Karim indicated.

January auto sales seen continuing 2012′s strong pace (Reuters) Auto sales in January are expected to continue the torrid pace set at the end of last year, with sales rising as much as 15 percent. J.D. Power and LMC Automotive, in a joint press release, said they expect U.S. retail sales in January to reach the highest rate in five years. Including fleet sales to commercial customers, the research firms expect an annual sales rate for the month of 15 million vehicles. That would follow the strong showings in November and December, when the rate topped 15 million. “The year is off to a fast start, which bodes well for the remainder of 2013,” J.D. Power Senior Vice President John Humphrey said.

Strongest manufacturing expansion since March 2011 (Markit) The Markit Flash U.S. Manufacturing PMI rose to 56.1 in January from 54.0 in December. The output index rose to 57.2 from 54.5, the new orders index rose to 57.7 from 54.7, the new export orders index fell to 51.3 from 52.6, and the backlog of orders index fell to 49.5 from 50.3. Manufacturers reported a further rise in production levels during January. Companies attributed faster output growth to an increase in new orders. Overall incoming new work rose at the fastest rate since May 2010, largely reflecting higher demand in the domestic market. New export orders continued to increase, up for the third month running, albeit at a slower rate than in December. Asia was mentioned by survey respondents as a key source of new business.

Posted in Economic Releases | No Comments »

Email exchange on balanced budget multiplier

Posted by WARREN MOSLER on 28th January 2013

>   (email exchange)
>   Hi Warren, I’m a bit confused over one point. MEMMT says that only govt deficits (or an
>   external sector like foreign) can inject NFAs into nongovt. So if govt runs a balanced
>   budget over the years the NFAs left to nongovt will net to 0.


>   Now take Keynes’ consumption function and the multiplier. Govt invests 100$ into Mr A in
>   nongovt. Mr A will spend on average 75% of that, and will save the rest.


>   The next guy will spend 75% of the $ he got from A and save, and so on along an ever
>   dwindling series of consumption expenditures that will add to say 300$, ie the multiplier
>   effect.

Ok. This presumes there is unemployment/unmet savings desires. And the additional 100$ of nfa will have resulted in higher levels of employment that produced the 300$ of incremental output.

>   So, say that govt runs a balance budget, ie spends 1 billion and will tax 1 billion, however
>   the multiplier effect will have created in the aggregate a lot more $ out of the original
>   govt injection of 1 billion.

If it all reduces savings desires unemployment will fall and output will rise. The presumption is that the 1 billion tax cuts spending by less than 1 billion, while the spending is the full 1 billion. That is, savings desires fell as those who were taxed spent from savings (or borrowed to spend, same thing).

And just as the initial govt spending is spent and respent as you describe, the tax also cuts spending which further cuts spending etc.

The presumption of the idea that an equal spending and tax will lower unemployment must be based on one of two things.

First, somehow those taxed simply reduce their savings and their savings desires. This is certainly possible.

The second is first illustrated at the extreme.

As govt employment grows the number of people left in the private sector falls, and we don’t measure unemployment as a % of the private sector work force. So if half the workforce in Italy is in the public sector, and unemployment is 10%, that means unemployment is some 20% of the available private sector labor.

So if, for example, govt employment was 90% of the labor force, it would be impossible for reported unemployment to be over 10%.

With 100% public employees there is 0 unemployment as defined.

I discussed this back in 2008 and I need to repeat it in a post thanks!

>   And here is where I lose it. Will this mean that even in a balance budget regime in reality
>   govt is never able to tax as many FAs as the multiplier will have created in nongovt before
>   taxation is due? Is this disproving MEMMT and prove instead that a balance budget can
>   still create NFAs for nongovt? Thx P.

Not at all.

ME MMT fully explains the workings of the condition described.


Added link to Bill Mitchell’s dissertation on the subject here.

Posted in Employment, Government Spending | No Comments »

Monti Proposes More Than EU13.5 Billion in New Tax Breaks, Cuts

Posted by WARREN MOSLER on 28th January 2013

The headline is promising but the details don’t read at all well.

Italy needs aggregate demand/spending/sales/ouput/employment. Cutting corporate taxes does precious little of that, especially over 5 years beginning 2014. And tax cuts ‘paid for’ by spending cuts tend to reduce demand overall as well, as does fighting tax evasion. And there’s nothing he can do about bond yields.

And I doubt his opposition is offering anything better.

As the gag stated, the food was bad and the portions were small.

Monti Proposes More Than EU13.5 Billion in New Tax Breaks, Cuts

January 27 (Bloomberg) — Italian Prime Minister Mario Monti said that he plans tax breaks and reductions worth more than EU13b if hes elected to a second term in February. Monti spoke in an interview on La7 Television. Monti proposes cutting corporate taxes after 2014;Monti sees EU11.5b reduction in corporate taxes over 5-yr period; Monti says he plans tax breaks for first-home owners, families with children worth EU2b; Monti says he will revamp IMU property tax from this year; Monti says he will try to cut income tax rates after 2014; Tax cuts can be paid for through cutting spending, fightingtax evasion and keeping bond yields down.

Posted in Government Spending | No Comments »

Draghi Says Conditions Considerably More Favorable Than Last Yr

Posted by WARREN MOSLER on 25th January 2013

As previously discussed, looking like deficits high enough for stability and even modest growth, albeit with output and employment at tragically low levels, if they don’t further tighten fiscally.

It didn’t have be this way. They could have increased deficits pro actively vs via austerity.

Also, their ‘automatic fiscal stabilizers’ are very strong and, even if all is left alone, will tend to keep any recovery muted.

EU Headlines
Draghi Says Conditions Considerably More Favorable Than Last Yr
Merkel Takes Swipe at Yen
German Business Sentiment Rose More Than Forecast in January
Ifo Business Climate Index Rises
German Cooperative Banks See Growth Exceeding Government Outlook
France needs time to overtun rampant jobless rate: minister
Monti Says Monte Paschi Bailout Hinges on Bank of Italy
Italian PM under fire over bank crisis
Spain tries to peel back business rules

Posted in EU, Government Spending | No Comments »

No ‘Massive Mark to Market’ Event for Bonds This Year: Friesen

Posted by WARREN MOSLER on 24th January 2013

No ‘Massive Mark to Market’ Event for Bonds This Year: Friesen

By Madeleine Lim

Jan. 23 (Bloomberg) — While “shortage of yield” will provide support for stocks, unlikely to see “great rotation” out of USTs and investment-grade bonds this year, III Associates principal and Co-CIO Garth Friesen said in interview yesterday.

Growth set to be sluggish in major economies, earnings growth expected to slow down, driven by contractionary fiscal policies, particularly in Europe; tight fiscal policies likely in place for foreseeable future; supportive of fixed income

Central bank policy in major developed economies to remain highly accommodative,

With real yields negative across all maturities and central banks taking yield out of market, demand rising for carry-oriented investments; favors higher-rated HY, structured credit

While 10Y yields could rise another 25bps-50bps, sharp rise in UST yields unlikely as Fed purchases to support long end, while front end anchored by low-rate commitment; with thresholds unlikely to be breached this year or next, Fed to remain on hold

Bear markets in fixed income typically prompted by Fed policy tightening

Still some debate whether halt or curtailment of Fed asset purchases presents tightening; flow of purchases important to markets

Fed balance sheet not a near-term risk; balance sheet is a tool for Fed, which would only shrink balance sheet for policy purposes; given outlook for muted inflation, Fed not operating under time constraints

III has $2.3b in AUM, three lines: fixed income arbitrage, long-short credit, tail hedging business; mostly in G3/G7 currencies

Euro investments in swaps, funding markets, less exposure to sovereigns; credit exposure mainly U.S., some euro exposure

Posted in Bonds | No Comments »

Breakthrough tech from public support

Posted by WARREN MOSLER on 24th January 2013

Where Good Technologies Come From

Posted in Government Spending | No Comments »

Shirakawa Leaves Onus on Abe for Stimulus as Action Deferred

Posted by WARREN MOSLER on 23rd January 2013

Monetary doesn’t do the trick in any case. If this leads to a larger fiscal adjustment give him credit for the assist, intentional or not.

Shirakawa Leaves Onus on Abe for Stimulus as Action Deferred

By Toru Fujioka & Isabel Reynolds

January 22 (Bloomberg) — The Bank of Japan (8301)’s decision to hold off on fresh monetary stimulus for a year puts pressure on the Abe administration to revive growth through fiscal measures and risks capping losses in the yen that aid export competitiveness.

Posted in CBs, Japan | No Comments »

CSRCs Guo Says Intervention in Stock Market Necessary: Xinhua

Posted by WARREN MOSLER on 22nd January 2013

Not that a stock market is ‘necessary’. And not to forget that a 30% corporate income tax, as in the US, is at least as good as owning 30% of all taxable enterprises. If govt, want’s a larger share of corporate profits, it can just hike the tax rather than buy the stock.

If govt cares about stock prices, the question has to be why. If it’s because lower stock prices cause people to spend and consume less out of fear, you’d think cutting taxes on people working for a living would be more attractive than the govt buying stocks? If it’s due to an attack on a fixed fx currency, like HK, I’d rather float the currency than buy stocks.

CSRCs Guo Says Intervention in Stock Market Necessary

January 22 (Bloomberg) — China Securities Regulatory Commission Chairman Guo Shuqing said at the national securities
and futures supervision meeting that its necessary to intervene in Chinas stock market at key moments, the official Xinhua
News Agency reports.

* Chinas stock market is not mature, Guo was cited as saying

Posted in China, Equities, Government Spending | No Comments »

BOJ Adopts Abes 2% Target in Commitment to Ending Deflation

Posted by WARREN MOSLER on 22nd January 2013

This of course fundamentally does nothing of consequence for aggregate demand or the level of the currency. The extra deficit spending due to start in April is what will help a bit.

BOJ Adopts Abes 2% Target in Commitment to Ending Deflation

By Toru Fujioka and Masahiro Hidaka

January 22 (Bloomberg) — The Bank of Japan set a 2 percent inflation target and shifted to Federal Reserve-style open-ended asset purchases in its strongest commitment yet to ending two decades of deflation.

Posted in Government Spending, Inflation, Japan | No Comments »

World Unemployment to Hit Record High in 2013

Posted by WARREN MOSLER on 22nd January 2013

World Unemployment to Hit Record High in 2013: ILO

By Katy Barnato

January 22 (CNBC) — World unemployment could top record levels this year and continue rising until 2017, the International Labour Organization (ILO) said on Tuesday in its annual employment report.

2009 currently stands as the worst recorded year for world unemployment, with 198 million people across the globe without work.

In its 2013 Global Employment Trends report, the ILO forecasts unemployment numbers will rise by 5.1 million in 2013 to reach 202 million, topping 2009′s record.

The report also predicts unemployment will rise further in 2014 to reach 205 million.

Posted in Employment | No Comments »

Blast, drone kill 13 al Qaeda-linked militants in Yemen

Posted by WARREN MOSLER on 20th January 2013

Presumably with specific US Congressional approval…

Blast, drone kill 13 al Qaeda-linked militants in Yemen

Posted in Political | No Comments »


Posted by WARREN MOSLER on 20th January 2013

Hi Warren,

Just published the program as per your suggestions.

Thank you for supporting me and Bulgarian people, currently living and dying in misery. Hopefully they will show better judgment than the American ones.


Bulgaria MMT

Posted in Uncategorized | No Comments »

Friday update

Posted by WARREN MOSLER on 19th January 2013

So just like Japan, as soon as the economy starts doing a bit better we hike taxes. Still too early to say how the FICA hike will impact sales and profits, but it will. And spending cuts are on the way, though they may be delayed.

Not to forget the debt ceiling thing about to be kicked 3 months down the road as it stands guard to ensure ‘meaningful’ spending cuts.

Oil firm, but can still go either way. WTI converging to Brent indicates the seaway pipeline capacity increase may be enough to drain the surplus at pad 2, bringing wti up to brent, but too soon to tell for sure. And looks like the demand for saudi crude is dropping some, but not enough to dislodge them from being
swing producer/price setter.

Looks to me like the whole world is becoming ‘more competitive’ so it all cancels out. Bad for people, ok for stocks, with profits running at record highs as a % of GDP. Meaning the federal deficit has to be that much higher, all else equal, to fill the output gap.

The yen keeps going down. Looking more and more to me it’s off the radar screen intervention by the likes of insurance co’s, pension funds, and other quasi govt agencies got the note to buy fx denominated bonds in size. Not sure how far they will take it, but they have a serious herd instinct that has formed serious multi year bubbles in the past.

Europe? They fixed the solvency issue, sort of, and now just have the economy thing to deal with. Problem is the ECB grants solvency only with conditionality. Good luck to them.

Posted in Comodities, Currencies, Deficit, Equities, EU, GDP, Government Spending, Japan, Political | No Comments »

Oil Settles Higher After Saudi Arabia Cuts Output

Posted by WARREN MOSLER on 18th January 2013

As the article states, production fell because demand fell. If anything that would be oil unfriendly as the Saudis can only cut maybe another 5 million bpd without ‘permanent’ cutbacks, at which point they lose control of price on the downside.

Market price action, however, might be telling us the cutbacks were due to production issues in which case the risk is loss of control of price on the upside.

Oil Settles Higher After Saudi Arabia Cuts Output

January 10 (Rueters) — Oil futures rose on Thursday on news that top world oil exporter Saudi Arabia had cut back production in response to flagging demand, and after China reported strong demand for its exports.

U.S. light, sweet crude rose to a 14-week high of $94.70 a barrel before settling at $93.82, up 72 cents on the day. Brent crude futures rose as high as $113.29 a barrel before settling at $111.89, up 13 cents.

OPEC’s top producer slashed oil production by 700,000 barrels per day (bpd) to 9 million bpd during the last two months of 2012, according to industry sources. Major customers for Saudi crude said the cuts were driven by lower demand.

News of the Saudi supply curbs helped briefly push Brent over $113 a barrel for the first time since mid-October, well above the $100 a barrel price Riyadh has said it favors.

Oil and other markets also got a boost from Chinese trade data that showed strong export growth rebound in December, raising expectations of revived growth in the world’s No. 2 economy that could drive more fuel demand.

Crude pared some gains after the Philadelphia Federal Reserve Bank said its annual revisions showed that factory activity in the U.S. mid-Atlantic region grew at a lower pace in December than originally reported.

“The strong data from China indicates demand might be improving there and the Saudis have cut back production, but the downward revisions by the Philly Fed gave the market a little pause,” said Phil Flynn, analyst at Price Futures Group in Chicago.

Gains in U.S. crude pushed the benchmark to a level of 67 on the 14-day relative strength index. That is close to the 70 mark that, according to traders who follow technical charts, can indicate a commodity has been overbought.

U.S gasoline futures rose along with crude, but heating oil futures in the New York Harbor fell by 0.6 percent to around $3.05 per gallon.

Traders attributed the fall to speculation that cargoes of Russian gas oil may come to the Harbor. Physical oil traders told Reuters that up to six cargoes may be headed for New York.

Also helping oil’s advance on Thursday was news of a pipeline explosion in Yemen that halted most of the country’s oil exports.

Flows of oil through Yemen’s main crude export pipeline stopped on Thursday after it was blown up by unknown attackers, government and oil industry officials said.

“These three factors – Saudi Arabia, Yemen and the China data – are all helping to push up the market,” said Tamas Varga, an oil analyst at broker PVM Oil Associates in London.

Saudi Arabia says it favors an oil price of about $100 a barrel, but recent reports have suggested that the market is well supplied and that output from some regions, particularly North America, will grow rapidly over the next two years. U.S. government data showed that domestic oil output rose above 7 million barrels a day last week for the first time since 1993.

“Short term, the Saudi output figures are bullish, but longer term they are more bearish, because they suggest Saudi Arabia sees the need to cut to balance the market,” Varga said.

Posted in Comodities, Oil | No Comments »


Posted by WARREN MOSLER on 17th January 2013

Comments closing, can’t keep up with it!


Posted in Uncategorized | No Comments »

Check this Insanity – they want that 2% inflation

Posted by WARREN MOSLER on 17th January 2013


New Govt Office To Advise Small Firms On Consumption Tax

January 16 (Nikkei) — The government plans to set up a new office to provide advice to small businesses that wish to transfer consumption tax increases to the prices of their products and services, prior to the introduction of the 8% tax rate in April 2014, The Nikkei has learned.

Subcontractors are becoming concerned that they may be pressured into not passing tax increases over to their product and service prices, as many of them do not have the advantage in price negotiations.

The new office will address such concerns by helping firms to avoid taking on excessive costs. It will accept inquiries and complaints from throughout Japan by telephone and e-mail.

The Japan Fair Trade Commission will work closely with relevant ministries to inspect companies that are suspected of having rejected requests for price increases from their suppliers. The government also plans to come up with new legislation to impose strict controls on such companies.

Posted in Inflation, Japan | 20 Comments »

More Americans 75 and Older Keep Working

Posted by WARREN MOSLER on 14th January 2013

As previously discussed, the real answer to the ‘dependency ratio’ is in fact happening?

The trick is to let seniors collect full social security and their paychecks:

More Americans 75 and Older Keep Working

By Christine Dugas

January 1 (USA Today) — Sixty-five is the normal retirement age, but many Americans are working much later in life, and it’s not just because they need the money.

The number of workers who are 75 and older has skyrocketed by 76.7 percent in the past two decades, according to research by the AARP Public Policy Institute. “We are living longer, healthier lives,” says Kerry Hannon, author of Great Jobs for Everyone 50+. “And the types of work that people do is not as labor intensive as it was in our parents’ generation.”

Posted in Uncategorized | 22 Comments »