Posted by WARREN MOSLER on 12th April 2012
Just because he got filthy rich inventing the vacuum cleaner doesn’t mean he knew macro.
Yes, they were on the gold standard, but the forces at work took us off it about a year and a half later.
Statement by President Herbert Hoover on March 8, 1932.
“Nothing is more important than balancing the budget with the least increase in taxes. The Federal Government should be in such position that it will need issue no securities which increase the public debt after the beginning of the next fiscal year, July 1. That is vital to the still further promotion of employment and agriculture. It gives positive assurance to business and industry that the Government will keep out of the money market and allow industry and agriculture to borrow the monies required for the conduct of business. I cannot overemphasize the importance of the able nonpartisan effort being made by the Ways and Means Committee and the Economy Committee of the House whose work are complementary to each other.
Posted in Defecit, Government Spending | 20 Comments »
Posted by WARREN MOSLER on 2nd April 2011
> (email exchange)
> Joe wrote:
> The argument Stephanie used in the youtube clip is summarized by her here.
> Here’s the quote:
“Funding Social Security is always and everywhere a political choice. The strongest evidence of this comes directly from the 2009 Annual Report of the Trustees. In that report, they predict gloom and doom for Social Security because “there is no provision in current law that would enable full payment of benefits, once the Trust Funds are exhausted”.
In contrast, the Supplementary Medical Insurance (SMI) Trust Funds are “both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet next year’s expected costs.”
It is that simple. The former is in ‘trouble’ because the government isn’t committed to making the payments, and the latter gets a clean bill of health because the government will always make the payments.”
> I think this really underlines how arbitrary the projections of financial doom from the
> Peterson crowd, CBO, and other Government agencies are. Apart from the silly and
> unreliable projections as far out as 25-65 years from now, the predictions of doom are
> really based on provisions in law that Congress can change at any time. Which means that
> just like the fake national debt crisis, the fake Social Security solvency crisis is
> Congress’s fault.
> Washington politics at its finest.
Posted in Defecit, Government Spending | 30 Comments »
Posted by WARREN MOSLER on 24th August 2009
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Just in case you thought he knew how the monetary system works.
The nonsense about the penalty for deficit spending being anything but possible inflation makes him part of the problem:
â€œThere are risks associated with exit strategies from the massive monetary and fiscal easing,â€ Roubini wrote. â€œPolicy makers are damned if they do and damned if they donâ€™t.â€
Government and central bank officials may undermine the recovery and tip their economies back into â€œstagdeflationâ€ if they raise taxes, cut spending
Yes, that would reduce demand and is a deflationary bias.
and mop up excess liquidity in their systems to reduce fiscal deficits,
Roubini says. He defines â€œstagdeflationâ€ as recession and deflation.
Those who maintain large budget deficits will be punished by bond market vigilantes, as inflationary expectations and yields on long-term government bonds rise and borrowing costs climb sharply, he wrote. That will in turn lead to stagflation, Roubini said.
Mainstream economics is a disgrace
Posted in Defecit, GDP, Government Spending | 26 Comments »
Posted by WARREN MOSLER on 12th August 2009
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Some interesting bits.
Supports my contention that we are seeing real wealth flowing upward and will continue to do so.
Note the distribution of consumption, which has been moving north as well.
Proposed tax policy won’t change any of this- higher incomes will more than offset increased marginal tax rates for the top tax brackets, and consumption will increase.
And yes, an economy can work via aggregate demand coming predominately from the top, with the bottom at subsistence levels. And we are moving in that direction.
Interestingly, as this happens the wealthy are considered ‘good’ when they hire hundreds of service people to take care of their homes, boats, personal fitness, and entertaining, etc. as they are ‘providing jobs.’
This also fits well with the export economy model our leaders are pushing hard to achieve. And the trade numbers are looking like they are succeeding. Notice the trade gap narrowing as standards of living fall.
Interesting research from ML-BAS highlighting the importance of the tax policy debate for US consumption growth and consequently US GDP:
US Consumption (Currently 72% of GDP)
- Outlook for consumption depends on consumer outlookâ€”on disposable income, wealth, and credit quality.
- Wealthy (top 10% of earners) have a surprisingly high share of consumption (42%) with the middle class (40-90 percentile) composing 46% of consumption.
The US consumer as a whole is not overleveragedâ€”the middle class is.
- 200% debt to income and 25% debt to assets ratios are substantially higher than the wealthyâ€™s corresponding ratios of approx. 120% and 8% respectively.
Housing wealth has a bigger impact on consumption than stock market wealth.
Wealthy have weathered the last two years a lot better than the middle class:
- Retained employment much better.
- Suffered lower wealth losses
- Substantially less proportion of assets in housing.
- Overleveraged middle class burdened by real estate losses will not help consumption rebound.
- Lower income segment has a relatively small proportion of income, suffers from a disproportionate share of unemployment which lags GDP out of a recession.
- Wealthy â€“with modest leverage, near full employment, and experiencing a faster rebound in their wealth should lead consumption if all else stays the same.
- However, reliance on government borrowing has increased as a result of addressing the credit crisis as well as the potentially ambitious health care reform bill.
- Rising taxes (especially the â€œsoak the richâ€ policies that are on the table) may offset potential consumption growth as the most important determinant of consumption is after tax income.
- The outlook for tax policy on the top earners may provide a key swing factor to the consumption outlook.
Posted in Defecit, GDP | 4 Comments »
Posted by WARREN MOSLER on 23rd July 2009
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The ‘problem’ is lack of income to service the debt, not the debt per se. Take a look at the personal income chart, particularly the interest income component.
Restoring the ability to pay restores the quality of the debt.
With the deficit terrorists in charge it’s going to continue ugly for a considerable period of time for the population at large.
Meanwhile, businesses figure out how to scratch out a living with less top line growth and modestly improving earnings, and banks benefit from the net interest margins at the expense of ‘savers’ pretty much offsetting their ongoing loan losses.
So who’s been the big winner this year to date?
Stocks up 50%, financials up more with record earnings in some cases.
Corporate bonds up as corporate borrowing costs fall.
Consumer interest rates remain high.
Household savings earning near 0.
Unemployment near 10%.
GDP now around flat and forecast to modestly improve.
Real wealth is again flowing upward.
> (email exchange)
> Take a look at this next chart, which has gained some currency in
> the worried circles of financial people. It’s worth a bit of study.
> It shows you the other dancers on the floor.
> The first thing to jump out at you is that subprime is only about
> a $1.5 trillion market – not anywhere near the biggest of the risky
> loans. There are other layers here.
Posted in Defecit, GDP, Housing | 1 Comment »