Unbelievable…
It strikes me as ironic that both houses found payroll tax cuts the only thing they could agree to drop.
Barack H. Obama made this cut his central promise and it is the most stimulative element in the package.
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Category Archives: Email
Re: Franklin Roosevelt’s Treasury secretary, Henry Morgenthau
(email exchange)
Yes, then, like now, they were afraid of the numbers, and couldn’t see them in context of the size of the economy.
They were also concerned that ongoing deficits were needed to sustain output and employment, just like they are today.
Within a year after that deficit spending on the war shot up to over 20% of GDP and the Depression ended.
My guess is that we need deficits averaging about 4-5% of GDP to sustain output and employment. Some periods, like now, we need more, some, like the late 90’s during that credit boom, we needed far less.
>
> On Tue, Feb 10, 2009 at 10:05 AM, Mike wrote:
>
> Franklin Roosevelt’s own Treasury secretary, Henry Morgenthau, lamented in
> an address to Congressional Democrats in May of 1939:
>
> ”We have tried spending money. We are spending more than we have ever
> spent before and it does not work. And I have just one interest, and if I am
> wrong … somebody else can have my job. I want to see this country
> prosperous. I want to see people get a job. I want to see people get enough
> to eat. We have never made good on our promises … I say after eight years
> of this Administration we have just as much unemployment as when we started
> … And an enormous debt to boot!”
>
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IMF statement
“Ten days ago, the IMF cut its world-growth estimate for this year to 0.5 percent, the weakest pace since World War II. Stimulus packages alone won’t succeed in dragging the global economy out of recession unless confidence is restored in the banking system, Strauss-Kahn said today.”
I do not agree.
An ongoing fiscal adjustment alone can easily do the trick.
The banking system is functioning well enough (clearing checks and making only the loans it feels are attractive on a risk adjusted basis) to support a full blown economic boom should the government get the fiscal right.
>
> Warren:
>
> Have you seen this analysis by the IMF. Tell me that they are clueless. My
> analysis is that they may be on the money.
>
IMF Says Advanced Economies Already in Depression
by Angus Whitley and Shamim Adam
Feb 7 (Bloomberg)
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Peggy Noonan quote
Yes, thanks!
>
> W: Here is a quote of Peggy Noonan whose WSJ columns I frequently read. I
> think she sums up the two parties’ basic positions succinctly. Nowhere does
> she recognize the reality of Federal spending driving the whole economy. She
> still sees the US Treasury as a kind of piggy bank that has to be full before
> you can draw on it for any purpose.
>
> ”The national conversation on the economy is frozen, and has been for a
> while. Republicans say tax cuts, tax cuts, tax cuts. Democrats say spend, new
> programs, more money. You can’t spend enough for the Democratic base, or
> cut taxes enough for the Republican. But in a time when all the grown-ups of
> America know spending is going to bankrupt us and tax cuts without spending
> cuts is more of the medicine that’s killing us, the same old arguments, which
> sound less like arguments than compulsive tics, only add to the public sense
> that no one is in charge.”
>
> Uncle D.
>
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Re: deficit spending adds to savings
(email exchange)
Think of it this way.
- Treasury spends $1 trillion by making deposits to bank accounts at the Fed. The spending adds $1 trillion of income and $1 trillion of new balances (not new balance shoes) that in the first instance are excess reserves at the fed.
- Treasury offers treasury securities for sale at auction. The purchase of those securities reduces the new, excess balances at the Fed, and replaces them with treasury securities, which are in fact nothing more than different accounts at the Fed. So operationally the Fed debits bank accounts on its books and credits securities accounts on its books.
- Again, the result is $1 trillion of new income and $1 trillion of new treasury securities held by the non government sectors.
Deficit spending adds exactly that much to our savings. The idea that ‘it has to come from somewhere’ and ‘borrowing removes savings’ are inapplicable with non convertibility currency/ floating FX policy.
If you count the new treasury securities as ‘money supply’ then it adds to money supply. If you don’t it doesn’t. Government spending is counted as GDP.
>
> On Feb 6, wrote:
>
> Question- Treasury needs to raise a trillion dollars to fund shortfall- so they
> sell a trillion dollars of treasuries which Fed reserve bank buys and puts on its
> balance sheet- what is the effect on economy? Money supply?
>
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McCain petition
Dear Donna:
I have long been a fighter against wasteful spending in Washington and long an advocate for a balanced budget — that will never change.
- Glad he lost, no deficit is a lot worse than any of the current proposals, even though they fall far short of my proposals:
- Full payroll tax holiday with Tsy making the payments for us.
- $300 billion to the states on a per capita basis with no strings attached.
- $8 job funding for anyone willing and able to work.
- Allow the Fed to lend unsecrured to it’s member banks (demanding collateral is redundant and disruptive with current FDIC arrangements).
- Implement a strategy to immediately reduce gasoline consumption.
- This reverses the current slide, and gives Congress time to implement their specific
proposals in an orderly manner.
I realize we face extraordinary challenges with our economy today, but that is not an excuse for more irresponsibly from Washington. I hope you will join me in saying no to this stimulus package as it currently exists by signing this petition.
Sincerely,
John McCain
Chair, Country First PAC
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Re: Niall Ferguson in the FT
(email exchange)
They’ve all forgotten imports are a real benefit, exports a real cost, so they are afraid that imports will go up if you make a fiscal adjustment unilaterally.
In fact, it’s the best of all worlds to do it unilaterally and let the imports flood in.
To paraphrase Nixon (?):
‘They are all half baked Keynesians now’.
>
> On Mon, Feb 2, 2009 at 9:53 PM, MAuer wrote:
>
> Any thoughts on this?
>
> Subject: Niall Ferguson in the FT
>
> Today’s born-again Keynesians seem to have forgotten that their prescription
> of a deficit-financed fiscal stimulus stood the best chance of working in a more
> or less closed economy. But this is a globalised world, where uncoordinated
> profligacy by national governments is more likely to generate bond market
> and currency market volatility than a return to growth.
>
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Outlook from a blog reader/fund manager
Outlook:
One month into 2009 – a new president installed in office – yet no more clarity. In fact more questions than answers.
After criticizing Hoover in the 1932 election for running deficits (sound familiar?), President Franklin Roosevelt tried diligently for six years to balance the budget and resuscitate the economy at the same time. It did not work. Then, willing to try anything after more than five years of failure, FDR said in one of his fireside chats in 1938, “We suffer primarily from a failure of consumer demand because of a lack of buying power. Therefore it is up to [the government] to create an economic upturn” by making “additions to the purchasing power of the nation.” This reluctant realization alone was not enough to pull the U.S. economy from the depths of the Great Depression. It took entry into World War II to drive deficit spending high enough such that GDP more than doubled in five years as unemployment declined from an estimated 18% to roughly 1%.
Today we find ourselves in a similar situation. The surpluses of the late 1990’s withdrew financial assets from the U.S. economy that were temporarily replaced from 2001-2007 by loose lending standards, house price appreciation, and mortgage equity withdrawal. When house prices began to roll over near the end of 2006, the U.S. economy needed a budget deficit that was large enough to offset the cumulative deleterious effects of the late 1990’s surpluses. This of course did not happen, and the situation has deteriorated as the diminution in aggregate demand has cycled in a vicious feedback loop with weaker economic data, a weaker banking system, and rising unemployment.
We had very high hopes for the Obama stimulus plan, and we still very much hope that it will work; but we are concerned that it is neither large enough nor swift enough to offset the contractionary forces we are facing.
From an economic perspective, it is not important if the stimulus occurs through additional spending or cutting taxes, it just needs to happen quickly. The recently-passed version of the stimulus seems short on rapid infrastructure spending and tax cuts, and long on pet projects and politically-driven initiatives. We recognize that many interested parties who view themselves as “conservative” are frustrated by what they view as fiscal incontinence by Washington. We agree that pet projects and deferred earmarking add viscosity to the stimulus effort, but nonetheless the spending and/or tax breaks need(s) to occur. Only the U.S. government has the balance sheet to offset the contractionary forces we are facing. We are fortunate that automatic stabilizers, such as lower tax revenues and expanding transfer payments, are more difficult for Washington to manipulate. It will be quite interesting to see the final shape and efficacy of the stimulus package. Our fingers are crossed that the stimulus in its final form plus the automatic stabilizers will foster aggregate demand large enough to break the back of this contraction. Equity markets will be watching closely.
Thank you for your continued support. I am always available to discuss our performance and portfolio.
Best regards,
Josh Davis
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Re: SNB and personal income
(email exchange)
We’ll see if the SNB can borrow all the USD it needs without the Fed on an ongoing basis.
External debt like this is the stuff of most government financial blowups.
Low crude prices and falling US import demand are keeping USD ‘hard to get’ for the rest of the world that somehow got caught short USD, probably by funding USD assets that have declined in price.
Separately, attached is a graph of personal income that of course doesn’t ‘prove’ anything about the macro effect interest rates being the opposite of what CBs think it is.
Fed cuts have reduced government payments of interest to the non government sectors that remain net savers.
Fed ‘quantitative easing’ has also removed interest income from the non government sectors.
To paraphrase from a source I can’t recall where it was better stated, any more victories like these and we’ll be ruined.
>
> On Mon, Feb 2, 2009 at 9:20 AM, Mauer wrote:
>
> What do you make of this?
>
> BN 13:02 *SNB SAYS BILLS TO FINANCE TO UBS TOXIC ASSET FUND
> 1) BN 13:02 *SNB SAYS BILLS TO FINANCE TO UBS TOXIC ASSET FUND
> 2) BN 13:02 *SNB BILLS TO HAVE MATURITY OF LESS THAN YEAR
> 3) BN 13:02 *SNB TO ISSUE BILLS TO FINANCE LOAN TO SNB STABFUND
> 4) BN 13:02 *SNB SAYS DOLLAR BILLS ARE NEW MONETARY POLICY
> INSTRUMENT
> 5) BN 13:00 *SNB TO ISSUE DOLLAR-DENOMINATED SNB BILLS
Thanks!
Didn’t know that- much appreciated!
>
> On Mon, Feb 2, 2009 at 10:56 AM, J A wrote:
>
> Warren,
>
> You know that there is a classic paper by Ferguson and Epstein who provide
> archival evidence that it was the banks that convinced the Fed to reverse its
> quantitative easing and low interest rate policy because it was driving them
> bankrupt. All their commercial loans had defaulted and the only income
> learning assets they had were Treasury securities, so the lower rates went the
> lower their income and in the end they were having trouble covering operating
> costs, so they convinced the Fed to raise rates. Much like Greenspan giving the
> banks the yield curve to ride to generate income after the 1989-90 real estate
> bust.
>
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Re: WSJ- States of Distress
(email exchange)
I’d just give a total of $300 billion to all the states on a per capita basis in which case fiscal responsibility isn’t applicable.
>
> Morris wrote:
>
> Why didn’t I think of this???
>
> Subject states to the same rules as corporations.
>
> Why isn’t there moral hazard to this upcoming bailout??? Why should fiscally
> responsible states pay for this??? Is this any worse than John Thain???
>
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