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On Wed, Jun 10, 2009 at 8:48 PM, Scott Fullwiler wrote:

(email exchange)

>   On Wed, Jun 10, 2009 at 8:48 PM, Scott Fullwiler wrote:
>   
>   Thanks, Ian.
>   
>   Warren . . . Ian was one of my students at your presentation last week . . . some people are
>   learning how this works, at least. I feel like a proud papa!

Yes, congrats!

I’m nominating this for both the stupidest article of the year and the stupidest article of all time in the category of ’statements by economic experts:’

And it was only a few weeks ago Bernanke explained the Fed/government makes payments by simply changing numbers in bank accounts and that their spending is not operationally constrained in any way by revenues.

Fed Would Be Shut Down If It Were Audited, ‘Expert’ Says

June 10th (CNBC)—The Federal Reserve’s balance sheet is so out of whack that the central bank would be shut down if subjected to a conventional audit, Jim Grant, editor of Grant’s Interest Rate Observer, told CNBC.

With $45 billion in capital and $2.1 trillion in assets, the central bank would not withstand the scrutiny normally afforded other institutions, Grant said in a live interview.

“If the Fed examiners were set upon the Fed’s own documents-unlabeled documents-to pass judgment on the Fed’s capacity to survive the difficulties it faces in credit, it would shut this institution down,” he said. “The Fed is undercapitalized in a way that Citicorp is undercapitalized.”

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(email exchange)

>   On Fri, May 15, 2009 at 9:22 AM, wrote:

>   Hi Warren. Roubini (the contemporary Dr. Doom) is suggesting this morning that
>   the Chinese currency should be the new global reserve currency.
>   
>   Don’t you need a country that runs an external payments deficit (or at least not a
>   surplus)?

Helps a lot! Unless someone out there wants to get short your currency so everyone else can get long!

>   that also has deep and unrestricted capital markets?

At least not restricted to the point no one else can hold financial assets denominated in your currency.

The other big thing that helps is that they all want to export to you.

The word ‘reserve currency’ has come to mean others use it as their fx reserves?

If so, they first must want to have fx reserves, and the usual reason for that is to support their exporters to the region of the ‘reserve currency.’

So he’s saying China is scheming to be a major net importer? Doubt it, though that’s what I would do if I were them.

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The ’short cut’ would be to allow banks to mark to model aggressively and then write off the losses over 20 years so the losses don’t alter capital ratios.

And while it does drive down their ‘economic net worth’ and reveals ‘actual shareholder equity’ immediately, as long as they can fund themselves with insured deposits and central bank funding operations, they are not affected.

They may even be allowed to pay dividends based on reported (though arguably overstated) earnings.

And they can still raise new capital if the new investors can get in at levels that give sufficient returns on investment.

Also, as is the case in the various US plans, the price the assets are sold at is critical.

The government does not want to overpay and subsidize bank shareholders, and there is no advantage for a bank to sell too low.

This plan also adds to the ‘financial stress’ of the German national government and weakens its creditworthiness as their economy continues to deteriorate and deficit funding needs grow.

While more support from the ECB has been discussed, it is not a certainty.

>   
>   On Wed, May 13, 2009 at 7:07 AM, wrote:
>   
>   Original Message 5/13 7:02:27
>   The German government today approved a “bad bank” plan to take
>   toxic assets off the balance sheet of banks. The plan will likely be
>   passed by parliament within six weeks.
>   
>   The key idea of the plan is to give banks up to 20 years to cover their
>   losses from toxic structured assets without putting much taxpayer >   money at risk.
>   
>   
>   Judging by the initial draft, the key elements of the plan are:
>   
>   Banks can deposit toxic structured assets at 90% of the book
>   value in an in-house special purpose vehicle (”bad bank”).
>   
>   In return, the banks receive bonds that are guaranteed by the
>   government’s bank support agency (SoFFin) against a fee. The
>   banks thus swap bad assets against good assets.
>   
>   Independent auditors will determine the “true” value of the toxic
>   structured assets.
>   
>   The banks than have up to 20 years to build up reserves in equal
>   annual instalments to cover the difference between the face value
>   (minus the 10% haircut) and the “true” value. In the end, the banks
>   will also have to make up for any difference between the “supposed
>   ”true” value of the toxic assets and the amount that their “bad
>   banks” realise upon winding down the bad assets.
>   
>   
>   The problems of the Landesbanken, which go well beyond toxic structured
>   assets, will be dealt with by a separate procedure to be unveiled within a
>   few weeks.
>   
>   We haven’t seen all details of the law yet, and it may well be changed
>   in parliament.
>   
>   For banks, participation in the scheme is voluntary. The basic idea, namely
>   to ease bank balance sheets constraints up-front and to give them up to 20
>   years time to build up reserves against losses from toxic structured assets,
>   looks sound. As usual, the devil could be in the detail. So far, German banks
>   have accepted government support only late and reluctantly because they
>   consider the conditions attached as too harsh. If few banks participate, the
>   ”bad bank” plan may not much impact on lending behaviour of banks.

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(email exchange)

>   
>   On Tue, May 12, 2009 at 11:22 AM, J A Kregel wrote:
>   
>   And you can add to this the undeclared policy (confirmed to me last week) that
>   Chinese reserve diversification to hedge dollar exposure will be primarily in
>   stockpiling natural resources, not currency diversification
>   

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(email exchange)

This will drive up prices of food and energy longer term.

Still no plan to quickly bring down crude demand to offset declines in supply side incentives.

>   
>   Obama doesn’t buy the idea that US tax credits encourage oil and
>   gas production. His FY-2010 budget would delete eight such tax
>   breaks – start importing Brazilian ethanol.
>   

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Yes, thanks.

I just saw a replay of the Obama comedy routine of a few days ago.

It wasn’t at all clever or funny, but sarcastic, mean spirited, cheap shots and arrogant self glorification, etc. and delivered as such. The shots against Clinton, Summers, and Biden- who I criticize perhaps more than anyone- were particularly cruel and tasteless, and unthinkable that their ‘boss’ would publicly humiliate them like that unless he intended to fire them. And the hostile undertone was similar to that of his attacks on the Chrysler secured lenders and corporations with legal untaxed offshore earnings.

The progression is getting worse. Wouldn’t surprise me if he starts losing support from some of the more intellectual Democrats before the end of the year.

>   
>   More on the theme of who could have predicted that a mainstream Canadian
>   newspaper could be on this side of the debate ?
>   

Amid the rhetoric, a profound threat to capitalism

by Avner Mandelman

May 9 (Globe and Mail) —

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>   
>   On Sat, May 2 and 3:48 PM, Bill wrote:
>   
>   I want to amplify a couple of Warren’s points that the media that I’ve seen has
>   missed. To me the key is the internal inconsistency of the Obama
>   administration’s reasoning. Contracts were sacred (AIG bonuses). Now, secured
>   creditors, who negotiated for a lower yield in return for priority (i.e., the prudent
>   lenders), are attacked by the administration as morally evil for not giving up their
>   rights.
>   
>   It’s one thing to use bankruptcy powers against unsecured creditors (and that
>   includes secured creditors to the extent they are undersecured). That’s an
>   inherent risk of being an unsecured creditor, particulary in a nation like the U.S.
>   that allows Chapter 11 reorganizations. (Reorgs may be the interest of unsecured
>   creditors as a class, but they can be hell on particular unsecured creditors.)
>   
>   Secured creditors are not the same, particularly where they are fully secured. The
>   Supreme Court has emphasized that the bankruptcy laws cannot be used to
>   commit a “taking” without just compensation.
>   
>   But the point I want to emphasize is this — why is the same administration
>   refusing to wipe out risk capital (equity and subdebt) in favored banks and instead
>   providing them with myriad federal subsidies while demanding that fully secured
>   auto creditors take a deep haircut? To state the obvious, risk capital has the
>   lowest priority — none. Moreover, it is supposed to be wiped out to create the
>   proper incentives. Conversely, senior debt is not supposed to be wiped out (or
>   extorted into serious haircuts) — that creates perverse incentives. Does anyone
>   seriously believe that if Goldman or Pimco held the large senior debt positions in
>   Chrysler the administration would have extorted and demonized them?
>   
>   Best,
>   
>   Bill
>   

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>   
>   Sounds like the IMF & misguided bankers everywhere are systematically
>   degrading everyone’s economy.
>   

Yes!

>   
>   Do enough people anywhere understand national currency systems?
>   

No!

>   
>   Are ALL financial service industries more trouble than they’re worth?
>   

Best i can tell. There probably are a few that are OK, just haven’t identified them.

We need our banks only to:

1. Manage the payments system
2. Provide a ’safe’ depository/insured deposits
3. Make and hold loans deemed to further public purpose that are not subject to liquidity issues of the lender.

In 1972 the US had 2.6 million housing starts with a population of only 200 million people, all financed by a bunch of boring savings and loans staffed by VERY modestly paid loan officers who left at 3:30 every day to play golf. (I was one of them.)

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(email exchange)

>   
>   On Thu, Mar 19, 2009 at 6:15 PM, Mauer wrote:
>   
>   Just to clarify: are there any circumstances in which the Federal Reserve
>   could “create” inflation or hyperinflation a la the Bank of Zimbabwe?
>   

Yes, if they raised rates high enough.

Seriously!

That would mean a large jump in government deficit spending on interest and a hike in the marginal cost of production. This is what happened after Volcker raised rates to over 20%. That inflation broke only because deregulation of natural gas in 1978 brought out enough supply to replace 15 million barrels per day of crude that was being burned for power, which broke the Saudi monopoly.

>   
>   Or does the unique privilege accorded to the central bank having the
>   reserve currency always preclude that?
>   

Just the way any non convertible currency works. Inflation isn’t all that much of a function of interest rates.

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Hi Ron,

Add this?

But let me add that it’s our fault. We make the laws and the regulations. If anyone violates the laws there are prisons waiting for them.

If they acted within our laws, however flawed, it’s our responsibility to alter those laws to serve public purpose as we can best determine.

Therefore, while addressing the current injustices will be pursued with the full force of the law, I will be moving just as forcefully to alter existing law to remove the incentives that encouraged this outrageous behavior, and put in additional safe guards, along with appropriate supervision, to ensure public purpose is served by our corporate structures.

All the best!

Warren

Statement of Congressman Ron Klein, as prepared for delivery

Hearing of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises

“American International Group’s Impact on the Global Economy: Before, During, and After Federal Intervention”

Wednesday, March 18, 2009

Thank you, Chairman Kanjorski, for holding this important hearing.

I am disgusted by the deplorable saga of AIG, and I join my constituents in their unfettered outrage about the millions of dollars in bonuses that are being awarded to AIG employees.

The American people understand that we are going through a difficult time, and are prepared to sacrifice and work together to get our country back on track. But they will not stand for taxpayer dollars being lavished on bonuses for people who bear responsibility for this crisis, and neither will I.

When I am back in my district in South Florida, I talk to people who have lost their jobs. Who have closed the doors to their small business because they can’t get a loan on reasonable terms. Who have lost their health care, or their home, or their pension and retirement savings.

Yet here I am sitting across from the AIG Chairman and CEO who is distributing million dollar bonuses to those who drove company in the ground. There is a tremendous disconnect between South Florida and the executive offices of AIG.

I just want to know one thing. What were you thinking?

I look forward to the testimony, and a frank discussion today.

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>   
>   On Tue, Mar 17, 2009 at 11:19 AM, James wrote:
>   
>   Warren
>   
>   It has been a while since we’ve spoken; I hope you are doing well.
>   As you can imagine we have had a busy and interesting year. The
>   University, like many others, is dealing with budget issues. It looks
>   like we will not get hit too hard this year.
>   

Well done!

>   
>   We finally have a chancellor and provost who work with us much more
>   cooperatively. The governor has pledged no cuts to the university in
>   exchange for no tuition increases and we hope the legislature agrees.
>   
>   Our program is prospering. A New York Times articles ranked us as
>   one of the top three heterodox programs in the US. We now have 48
>   Ph.D. students, the largest program in the region, and have received
>   several applications for next year.
>   

Excellent!

>   
>   Several students are writing dissertations and will graduate
>   in the next year.
>   

Are they ready for my pop quiz??? :)

>   
>   I might add that this year we have reached another goal for the
>   program. When we started we knew we would have to go slowly
>   and hoped we could attract good students. We wanted to attract
>   international students, but we also wanted to build the program
>   around students from the US. This year our applications are
>   more than half from American students and of very high quality.
>   

Good to hear it!

>   
>   We will soon be renewing assistantships for those now being
>   supported and making offers to new students. We have
>   selected four for new offers and there are seven more to
>   whom we would make offers, but presently lack the funding.
>   I have been seeking additional funding from the university
>   and there are hopeful prospects in that quarter we should
>   know in the next few days. We have also received funds
>   from grants and contracts that should support two or three more.
>   

Very good!

>   
>   In light of the more uncertain budget for the upcoming year
>   we have been asked to secure funding before we make offers.
>   We seek your continued support, at last year’s level of $116,000,
>   in order to move on these offers. If you would be willing to raise
>   your support to fund two additional students it would be most
>   helpful both to those students and in our effort to garner more
>   support from the university-they like matches. Funding two
>   more would require an additional $33,000 for stipends and
>   waivers; a total of $149,000.
>   

CC’d to AVM to if they want to help again and the rest of my list, and posted on my blog.

>   
>   Another issue we face is that our stipend level has not changed
>   in over ten years and is now below that of almost all Ph.D. programs.
>   For example, Middle Tennessee State, a program not known as an
>   intellectual powerhouse, offers stipends the economics Ph.D. students
>   of $14,000, ours are $10,000. Further, international students must
>   have a minimum level of financial support before they qualify for a
>   student visa. Our total support to them, including stipend and all
>   tuition waivers, is about $2,800 below the threshold for a visa.
>   We can raise the stipend for international students to overcome
>   this, but the consequence is that make fewer offers and would
>   discriminate unfairly against American students. The university
>   is aware of the problem, but budget restraints stand in the way
>   of a solution in the near term. The official position of the
>   administration at this point is that we should offer support
>   to fewer students in order to raise the stipend for others.
>   We have resisted this as harmful to the long term interests
>   of the program, but some change will be needed before much
>   longer. I would like to discuss this with you sometime soon
>   to get your ideas.
>   

Ok, no immediate ideas but will think about it.

>   
>   As I’m sure you know the people in our department have invested
>   a great deal of sweat equity over the years to build what we consider
>   a highly successful program. UMKC was recognized this year as one
>   of the top six universities in the US engaged in community and urban
>   affairs progress. With your support, intellectual commitment, and
>   good spirit our department occupies an important spot in this activity.
>   For this I am deeply grateful and hope you feel our efforts have
>   warranted your support.
>   

Glad to have been able to help!

>   
>   To summarize our request we ask for $116,000 for continuing
>   support and if you agree $33,000 to support two additional
>   students; a total of $149,000 for nine students.
>   

I’m good with the $116,000.

Sending this to my list to see if it fits anyone else to support the world’s only ‘in paradigm’ grad program.

I know a lot of them are supporting schools that teach it backwards so maybe they would feel good directing some of that this way.

Best!

Warren

>   
>   Warmest regards
>   
>   Jim
>   

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Yes, thanks, as expected!

>   
>   On Tue, Mar 17, 2009, at 8:47, wrote:
>   
>   Looks like China is interested in prosperity as well, just leaving the Europeans behind!
>   

Last November China announced a CNY4trn stimulus package. The first part of the money started to be spent at the end of February on a high speed rail network forming a triangle between Shanghai, Hangzhou and Nanjing, cutting travel times between the cities of up to 8 hours down to just 1 hour. Trains will run at upto 350km an hour - (do you realise the fastest train in the States is between New York and Boston, that for a 5 minute period only gets up to 80mph).


Overall the country will invest CNY600bn in railways this year, and a minimum of CNY600bn a year until 2012.


When you look at infrastructure projects on the ground like this, and combine it with the development in the local bond market (both local authority and corporate bonds), and the major international development with ASEAN +3 (free trade area next year plus the trial renminbi bloc), the economic and financial development with most of the former USSR in terms of the Shanghai Cooperation Organisation, and the push towards a free trade agreement with the Gulf Cooperation Council, is it really that difficult to see China achieving the 8% GDP growth target that it is aiming for?

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>   
>   On Thu, Mar 12, 2009 at 9:10 AM, EDWARD wrote:
>   
>   In conjunction with lowering rates to 0.25% (3m libor target- this is important- its NOT
>   the overnight or refi rate) and maintaining a 0-75bp range they also announced the following:
>   
>   *SNB PLANS TO BUY WISS FRANC BONDS
>   *SNB SAYS TO BUY CURRENCIES TO AVOID FRANC APPRECIATION
>   

Beggar thy neighbor export driven policy here too- yet another player trying to drive down their currency!

Failing to see the advantages of increasing domestic demand, seems most are turning to policies to drive exports.

Too bad we don’t have the leadership to take advantage of this once in a lifetime opportunity ratchet up our real standard of living.

>   
>   *SNB TO BUY SWISS FRANC BONDS BY PRIVATE SECTOR
>   
>   With the following statements:
>   
>   *SNB SAYS RISING FRANC COMMENTS TIGHTENS MONETARY CONDITIONS
>   *SNB TO COUNTERACT RISK OF DEFLATION, ECONOMIC WORSENING
>   *SNB SAYS SWISS FRANC APPRECIATED SUBSTANTIALLY SINCE AUGUST 07
>   *SNB SEES ANNUAL INFLATION AT CLOSE TO ZERO FOR NEXT TWO YEARS
>   *SNB EXPECTS INCREASED CONTRACTION IN 1Q
>   *SNB SAYS SWISS EXPORT SECTOR PARTICULARLY HIT
>   *SNB SAYS ECON WORSENING HAS CONTINUED IN PAST TWO MONTHS
>   *SNB: SWISS AVG 2009 INFLATION SEEN -0.5%, 2010 INFLATION 0%
>   *SNB SAYS MAGNITUDE OF ECONOMIC CONTRACTION IN 4Q UNEXPECTED
>   
>   They are deploying all weapons, rightly perceiving the vast threat to their economy
>   and stepping up to the front lines- unlike the ECB who would still prefer to discuss
>   targeted limits to easing rates and inflationary threats which do not exist.
>   

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Maybe they’re reading my blog???

>   
>   On Mar 13, 2009 at 7:06 am, John wrote:
>   
>   NOYER SAYS RISING DEFICITS MAY INCREASE SAVING BY EUROPEANS
>   
>   Story to follow.
>   

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>   
>   On Thu, Mar 12, 2009 at 3:31 PM, Tom wrote:
>   
>   Christina Romer gave a speech on Monday at Brookings in which she
>   strongly argued for dollar devaluation as a tool to create economic
>   recovery.
>   

Continues the beggar they neighbor policies that Paulson pushed.

>   
>   This is the sort of thing that provides political cover for Fed Chairman Ben
>   Bernanke to pursue a more aggressive quantitative easing policy.
>   

Yes, of course he doesn’t matter for anything of consequence, but that’s another story.

>   
>   Romer, who is chair of the Council of Economic Advisors, praised FDR’s
>   1933 decision to allow the gold price to float up from $20.63/oz. to
>   $34.85/oz.
>   

Yes, should have floated it entirely.

Back then, the gold standard constrained even the US Treasury from borrowing.

We don’t have that issue, so moving the USD down for that reason is moot.

>   
>   That decision offers a template for what the Fed could do today, she said
>   (italics mine):
>   
>   This monetary expansion [in the wake of the 1933 devaluation] couldn’t
>   lower nominal interest rates because they were already near zero. What it
>   could do was break expectations of deflation.
>   

That pesky, ridiculous, ‘inflation expectations theory’ again!

>   
>   Prices had fallen 25% between 1929 and 1933. People throughout the
>   economy expected this deflation to continue. As a result, the real cost of
>   borrowing and investing was exceedingly high.
>   

Expectations had nothing to do with it. Lack of aggregate demand did. And the Treasury was revenue constrained due to the gold standard.

>   
>   Consumers and businesses wanted to sit on any cash they had because
>   they expected its real purchasing power to increase as prices fell.
>   

Not the reason. When on a gold standard, a rising value of gold is expressed by falling prices for everything else as gold is fixed.

Hence the revaluation upward of the price of gold which was a devaluation of the dollar. (Dollar buys less gold)

>   
>   Devaluation followed by rapid monetary expansion broke this deflationary
>   spiral. Expectations of rapid deflation were replaced by expectations of
>   price stability or even some inflation. This change in
>   expectations brought real interest rates down dramatically.
>   

No, deficit spending supported demand and broke the deflation.

>   
>   The change in the real cost of borrowing and investing appears to have had
>   a beneficial impact on consumer and firm behavior. The first thing that
>   turned around was interest-sensitive spending. For example, car sales
>   surged in the summer of 1933. One sign that lower real interest rates were
>   crucial is that real fixed investment and consumer spending on durables
>   both rose dramatically between 1933 and 1934, while consumer spending
>   on services barely budged.
>   

Must have been something else going on.

>   
>   Romer’s analysis of the Roosevelt devaluation parallels Bernanke’s almost
>   exactly.
>   

Comforting!

>   
>   Bernanke also has written that loose monetary policy was the key to the
>   economic recovery of 1933-34. Further on in her speech, Romer cautions
>   against letting up on stimulative measures too quickly, lest the economy
>   plunge back into recession, such as happened to the U.S. in 1937.
>   

In 1937 there was a new whopping social security tax that was ‘off budget’ and sent the economy into a tailspin as it drained billions of financial assets from the private sector.

Doesn’t anyone in DC know how any of it works?????

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>   
>   Here are some comments — this was interesting reading, and I do think it
>   makes sense on strictly a macro level (which is obviously what he’s going for).
>   

yes!

>   
>   #1 explanation is interesting, especially regarding the example of parents and
>   children with coupons. I do feel, however, that the author doesn’t give much
>   consideration to the inflationary results of the ‘govt check don’t bounce’ thesis
>   (I’m referencing the debate the author describes at the Australia conference).
>   While it’s probably true, I do think inflation has a material impact (at least at
>   the micro level, which I suppose isn’t really the point of this article).
>   

Right, the point is inflation is the issue, not solvency or sustainability. But critics of deficit spending never even attempt to quantify the inflationary aspect.

Instead, they seem to focus on ‘money supply’ for their inflation forecasting and ‘inflation expectation’ issues, both of which are not causal, but that’s another story.

>   
>   Under #2, I think the rhetoric about do we have to send goods and services back
>   in time to pay for historical debt is a red herring and not applicable (and I’m not
>   surprised the Senator couldn’t really say much about it off-hand while his wife ‘got
>   it’). It’s the debt servicing that people worry about, and that is in current terms
>   (no time machine required). However, the thesis of gov’t checks not bouncing
>   speaks to how the debt can be serviced.
>   

yes, and that distribution is entirely in the hands of the living who are in no case ruled from the grave.

>   
>   Paying off China — to book a Treasury Note sale, the gov’t on its own books would
>   debit cash (for the receipt)

yes, and the Tsy’s account at the Fed is debited. right now we have a self imposed constraint that says the tsy’s balance at the fed can’t be negative.

but that is not an operational constraint, just a self imposed constraint

>   and credit the liability (to book the obligation).

again, via the Fed.

>   The buyer’s accounts mentioned wouldn’t really be booked by the gov’t I don’t think,
>   but I get the point.

the buyer’s funds go to the fed where they are ‘accounted for’ as owning the securities.

>   
>   #3 and #7 go together in what is really being discussed is the use of leverage
>   (spending more than what you have). As long as the discussion stays at the macro
>   level, that’s fine as the gov’t can just keep printing money (again, ignoring any effects
>   of inflation).
>   

and by printing you mean simply ’spending’ as that’s all there is- changing numbers on bank accounts. using the word ‘printing’ rather than ’spending’ is used by the mainstream to color thinking in a fixed fx direction that no longer is applicable.

>   
>   But, it is quite a slippery slope to intertwine micro-level examples such as a hybrid car
>   factory and such as once you leave the gov’t level, leverage can have catastrophic
>   results (see the current deleveraging in the economy and how that’s affecting people on
>   a micro level). All this is fine as long as you have no monetary constraints, but for anyone
>   with no access to a US$ printing machine, it falls apart.
>   

Included with my 3 current proposals to reverse the current situation is the govt funding an $8 hr job for anyone willing able to work.

The other two are a full payroll tax holiday and $300 billion to the states on a per capita basis with no strings attached. Together they restore demand, output, and employment.

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(email exchange)

Yes, classic!

>   
>   On Wed, Mar 4, 2009 at 9:32 AM, Joshua wrote:
>   
>   Regardless of our feelings towards deficits and debt, we have to be proud of our
>   knowledgeable politicians…see below…
>   
>   Here’s the transcript: Stunning
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HOUSE COMMITTEE ON WAYS AND MEANS

WASHINGTON, D.C.

REP. CHARLES B. RANGEL HOLDS A HEARING ON THE PRESIDENT’S BUDGET

PROPOSAL FOR FISCAL YEAR 2010

MARCH 3, 2009

SPEAKERS:

REP. CHARLES B. RANGEL, D-N.Y.

CHAIRMAN

REP. PETE STARK, D-CALIF.

REP. SANDER M. LEVIN, D-MICH.

REP. JIM MCDERMOTT, D-WASH.

REP. LINDA T. SANCHEZ, D-CALIF.

SANCHEZ: Thank you, Mr. Chairman.

And thank you, Secretary Geithner, for being with us this afternoon. I was absent for part of the hearing, so pardon me if I’m asking questions that have already been answered. But I know that a lot of criticism has been leveled at this budget because of a fear of future debt. That’s what we keep hearing. We can’t burden, you know, future generations. My question to you is a very specific one. Do we really need to balance the budget in order to reduce our future deficit — or our future — pardon me — debt burden, or can we reduce our debt burden while still running deficits, because some people would have you believe that the two must go hand in hand?

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Seems the prospect of euro nations going to the IMF has struck a raw nerve.

No doubt any plan to access ECB funding would include some kind of austerity condition similar to what the IMF would require.

This would weaken aggregate demand in the entire region.

They must be a lot more worried about a default than they are letting on.

>   
>   On Wed, Mar 4, 2009 Dave wrote:
>   
>   Greece just sold Eur7.5bn 10 yr bonds 50bp cheaper on ASW levels from 2 days ago…..
>   
>   ”Euro area members will not default. Without getting into the details, European
>   Commissioner for Economic & Monetary Affairs, Joaquin Almunia, confirms that there
>   exists a solution for euro area member states threatened with default. As our FI strategists
>   pointed out in their 2009 Outlook piece in December, despite the Maastrich Trearty “no
>   bail out” clauses, Article 122 of the EU Treaty allows financing of member states in
>   exceptional circumstances. Almunia doesn’t want to flesh out how this financing would
>   work, but at least he is verifying that a financing facility exists for struggling euro zone
>   members.
>   

Eurozone can bail out members if needed - Almunia

by Jan Strupczewski and Marcin Grajewski

Mar 3 (Reuters) — The euro zone has a way of bailing out its members if they face a crisis before they have to seek IMF help, but this must remain confidential, European Monetary Affairs Commissioner Joaquin Almunia said on Tuesday.

Although no bailout possibility existed under European Union laws for euro zone countries, there was a solution that could be used, Almunia told a seminar.

“If a crisis emerges in one euro area country, there is a solution…

Before visiting the IMF, you can be sure there is a solution and you can be sure that it is not clever to talk in public about this solution,” he said.

“But this solution exists. Don’t fear for this moment — we are equipped intellectually, politically and economically to face this crisis scenario, but by definition these kinds of things should not be explained in public,” he said.

German Finance Minister Peer Steinbrueck said in February that although EU rules said countries should not help each other within the currency area, all members of the bloc would have to help “if it came to a serious situation”.

In the same speech he mentioned Ireland as being in a “very difficult situation”. Other euro zone countries such as Greece have seen their bond spreads over Germany widen, reflecting worries about rising budget deficits and sparking market speculation about the possible break-up of the euro zone.

Almunia reiterated on Tuesday no such option existed. “The probability of this happening is zero. Who is crazy enough to leave the euro area?

Nobody.

How many candidates to join the euro area I know? A number that is bigger than last year,” he said.

German Foreign Minister Frank-Walter Steinmeier also said on Feb. 20 that a process had begun to consider how financially strong euro zone nations could help weaker members, though it was too early to say what measures might be taken.

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(email exchange)

Yes, thanks!

>   
>   On Tue, Mar 3, 2009, Bill wrote:
>   
>   John Adams once wrote in a letter to Thomas Jefferson:
>   
>   ”All the perplexities, confusion and distresses in America arise not from defects in the
>   constitution or confederation, nor from want of honor or virtue, as much from downright
>   ignorance of the nature of coin, credit, and circulation.”
>   

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(email exchange)

Thanks, along with the personal income data, and the end of the inventory liquidations through most of December, seems to be early anecdotal evidence of a flattening after year end. Several other series have had minor turns up as well.

(0 GDP growth still means rising unemployment)

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>   On Tue, Mar 3, 2009 at 3:41 PM, Russell wrote:
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ATA Truck Tonnage Index Rose 3 Percent in January

by Connie Heiss

Feb 27 (ATA Trucking) — From the American Trucking Association: ATA Truck Tonnage Index Rose 3 Percent in January

The American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index climbed 3 percent in January 2009, marking only the second month-to-month increase in the last seven months. Still, the gain did little to erase the revised 7.8 percent contraction in December 2008. In January, the seasonally adjusted tonnage index equaled just 104.7 (2000 = 100), its second-lowest level since October 2002. …

Compared with January 2008, the index declined 10.8 percent, which was slightly better than December’s 12.5 percent year-over-year drop.

ATA Chief Economist Bob Costello said that there was no reason to get excited about January’s 3 percent month-to-month improvement. “Tonnage will not fall every month, and just because it rises every now and then doesn’t mean the economy is on the mend,” Costello said. “Furthermore, tonnage is contracting significantly on a year-over-year basis, which is highlighting the current weakness in the freight environment.”

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