Daily Archives: April 26, 2013 @ 10:24 am (Friday)

GDP miss ‘just’ govt

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This plays to investors who think a drop in govt spending is good for the private sector as it ‘gets govt out of the way’ and ‘opens the door’ for that much more private sector growth in short order.

While this could be sort of but not necessarily true at full employment, it is of course not true in any case with with today’s excess capacity.

Seems they forget that today, cuts in govt spending immediately translate into cuts in private sector sales, which are the driver of private sector output and employment.

Yes, private sector credit expansion has (had?) begun to ‘kick in’, somewhat more than replacing the decline in govt deficit spending from the ‘automatic fiscal stabilizers’ of slowing transfer payments and rising revenues from higher incomes. The causation was from more ‘borrowing to spend’ in the economy to less deficit spending.

And that all can accelerate and continue for many years before, left alone, the deficit gets too small (and shrinking) to support the growing private sector credit expansion, as it all becomes unsustainable and implodes.

But at any point during that credit expansion, a pro active dose of govt deficit reduction can remove sufficient income to restrict the private sector’s credit expansion. People who may have borrowed to buy a house or a car, for example, suddenly losing their jobs and those purchases not happening, etc.

So the idea that 3% GDP is a ‘given’ due to private sector credit expansion and therefore a proactive tax hike and spending cut of maybe 1.25% of GDP will lower that to 1.75% growth misses that dynamic, as it presumes the proactive fiscal adjustments don’t throw a monkey wrench into the credit expansion dynamics. Like what’s been happening in the euro zone.

—– Original Message —–
At: Apr 26 2013 07:39:34

The miss was mostly a result of government declining, again. This is really the surprise. Trade was also a drag, but from a surprise perspective government is the winner. In all, gov subtracted a chunky 0.8ppts from the topline – meaning if you add it back Q1 would have printed 3.3%.

Having said that, this a rearview mirror report and what we already know about the handoff to Q2 is that it was weak. Indeed, we are looking for a rather paltry 1% outcome here in Q2.

Finally, in terms of today’s report, no underlying detail is inconsistent with our thinking about the handoff to Q2.

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Rogoff and Reinhart NYT response

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The intellectual dishonesty continues.
As before, it’s the lie of omission.

R and R are familiar with my book ‘The 7 Deadly Innocent Frauds of Economic Policy’ and, when pressed, agree with the dynamics.

They know there is a more than material difference between floating and fixed exchange rate regimes that they continue to exclude from their analysis.

They know that one agents ‘deficit’ is another’s ‘surplus’ to the penny, a critical understanding they continue to exclude.

They know that ‘demand leakages’ mean some other agent must spend more than its income to sustain output and employment.

They know federal spending is via the Fed crediting a member bank reserve account, a process that is not operationally constrained by revenues. That is, there is no dollar solvency issue for the US government.

They know that ‘debt management’, operationally, is a matter of the Fed simply debiting and crediting securities accounts and reserve accounts, both at the Fed.

They know that if there is no problem of excess demand, there is no ‘deficit problem’ regardless of the magnitudes, short term or long term.

They know unemployment is the evidence deficit spending is too low and a tax cut and/or spending increase is in order, and that a fiscal adjustment will restore output and employment, regardless of the magnitude of deficits or debt.

Carmen’s husband Vince was the head of monetary affairs at the Fed for many years, serving both Alan Greenspan and Ben Bernanke. He knows implicitly how the accounts clear and how the accounting works, to the penny. He knows the currency itself is a case of monopoly. He knows the Fed, not ‘the market’ necessarily sets rates. He knows that, operationally, US Treasury securities function as interest rate support, and not to fund expenditures. He knows it all!

Carmen, Vince, please come home! I hereby offer my personal amnesty- come clean NOW and all is forgiven! As you well know, coming clean NOW will profoundly change the world. As you well know, coming clean NOW will profoundly alter the course of our civilization!

Carmen, Vince, either you believe in an informed electorate or you don’t!?

(feel free to distribute)

Debt, Growth and the Austerity Debate

By: Carmen Reinhart and Kenneth Rogoff

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Franklin College Receives Swiss Institutional University Recognition

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Congrats!!!

FW from President Gregory Warden:

It is with great pleasure and tremendous pride that I am able to announce that the Swiss University Conference [SUK/CUS], the governing body for higher education in Switzerland, has granted Franklin College Switzerland full university institution accreditation, stating in its recent notification:

We are pleased to inform you of the positive decision made by the SUK [CUS] on April 18, 2013 regarding the accreditation of Franklin College Switzerland as a university institution.

The notice of accreditation went on to state:

The expert team is convinced that Franklin College Switzerland has gone through a major development since the last accreditation. This is largely the result of the realization of the recommendations by the 2005 OAQ expert team. Franklin College Switzerland now is better integrated within the Swiss landscape, as well as being connected within Europe. According to the expert team, it has above all strengthened its research activities. The qualifications and in particular the research activities of the faculty have significantly increased since the last accreditation.

In 2005 the Swiss University Conference granted Swiss university accreditation to all major programs of study leading to the Franklin College Bachelor of Arts degreemaking Franklin the first and only university to receive such recognition. With our new institutional accreditation, it is with even greater pride that Franklin is now the first and only university to have institutional university accreditation in both the United States and Switzerlanda distinction that will serve Franklin and its past and future graduates well.

In the Swiss Center of Accreditation and Quality Assurance in Higher Educations expert team recommendation to the Swiss University Conference they stated that Franklin College fulfills all accreditation standards, making the following statement and recommendation:

Franklin College is an American and private institution of higher education in Europe, and thus it represents a kind of hybrid organization. It has introduced new educational principles into the European setting, it is very international by its course offerings and by its student body, and in its teaching it puts heavy emphasis on the general skills and human values, that are especially appropriate for the 21st century world. Its programs are well linked to meet the current challenges in higher education, also on a global scale. Its teaching methods are innovative and appropriate. The students also have a strong feeling of belonging to the Franklin community. The network of its alumni appears to be very active, spread all over the world. The Franklin graduates appear to be well placed especially in international companies. Its strategic goals appear very appropriate to meet the needs and challenges higher education at large is currently facing at least in Europe, but also globally. The experts group recommends accreditation of Franklin College Switzerland, without conditions.

Everyone associated with Franklin should be very proud of all that has been achieved since it was founded in 1969. This recognition is an affirmation of the quality of the institution as a whole and the hard work and contributions of so many peoplefaculty, staff, students, alumni, parents and trustees. Franklin would not be the special place it is today if it were not for each and everyones efforts on its behalf.

Thank you and best regards,

P. Gregory Warden
President

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