Category Archives: Greece

ECB earns €555m on Greek bond holdings FT.com

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ECB earns €555m on Greek bond holdings

By Michael Steen in Frankfurt

(FT) —The European Central Bank said it earned €555m last year on its holdings of Greek sovereign bonds that were bought during the crisis in an attempt to calm financial market fears of a break-up of the eurozone.

The bank also revealed for the first time that nearly half of its holdings in the so-called Securities Markets Programme are of Italian debt. At the end of 2012 it held €99bn in Italian sovereign bonds, €30.8bn in Greek debt, €43.7bn in Spanish paper, €21.6bn in Portuguese debt and €13.6bn in Irish bonds.

Remember this?

Core Europe Sitting Pretty in their PIIGS Drawn Chariot

By Marshall Auerback and Warren Mosler

October 3, 2011 — The refusal to countenance a Greek default is now said to be dragging the euro zone toward even greater crisis. Implicit in this view, of course, is the idea that the current “bailout” proposals are operationally unsustainable and will lead to a broader contagion which will ultimately afflict the pristine credit ratings of core countries such as Germany and France.

Well, we see a very different view emerging: The “solution” currently on offer – i.e. the talk surrounding the European Financial Stability Fund (EFSF) now includes suggestions of ECB backing. This makes eminent sense. Let’s be honest: the EFSF is a political fig-leaf. If 440 billion euros proves insufficient, as many now contend, the fund would have to be expanded and the money ultimately has to come from the ECB — the only entity that can create new net financial euro denominated assets — which means that Germany need no longer fret about being asked for ongoing lump sums to fund the EFSF in a way that would ultimately damage its triple AAA credit rating.

Despite public protestations to the contrary, it is beginning to look like the elders of the euro zone have begun to embrace the reality that, when push comes to shove, it is the ECB that must write the check, and that it can continue to do so indefinitely.

That means, for example, the ECB can buy sufficient quantities of Greek bonds in the secondary markets to allow Greece to fund itself in the short term markets at reasonable interest rates. And it gets even better than that for the ECB, as the ECB also substantially enhances its profitability by continuing to buy deeply discounted Greek bonds and using Greece’s income stream to build the ECB’s stated capital. As long as it continues to buy Greek debt, Greece remains solvent, and the ECB continues to increase its accrual of profits that flow to capital.

The logical conclusion of all of this is ECB ownership of most of Greece’s debt, with austerity measures imposed by the ECB steering the Greek budget to a primary surplus, along with sufficient taxation to keep the ECB’s capital on the rise, and help fund the ECB’s operating budget as well. Now add to that similar arrangements with Ireland, Portugal, Spain and Italy and it’s Mission Accomplished!

Mission Accomplished? Are we daring to suggest that the Fathers of the euro zone had exactly this in mind when they signed the Treaty of Maastricht?

Or, put it another way: it’s all so obvious, so how could they not have this mind?

So let’s take a quick look at the central bank accounting to see if this seemingly outrageous thesis has merit.

Here is what is actually happening. By design from inception, when the ECB undertakes its bond buying operation, the ECB debt purchases merely shift net financial assets held by the ‘economy’ from Greek government liabilities to ECB liabilities in the form of clearing balances at the ECB. While the Greek government liabilities shift from ‘the economy’ to the ECB. Note: this process does not alter any ‘flows’ or ‘net stocks of euros’ in the real economy.

And so as long as the ECB imposes austerian terms and conditions, their bond buying will not be inflationary. Inflation from this channel comes from spending. However, in this case the ECB support comes only with reduced spending via its imposition of fiscal austerity. And reduced spending means reduced aggregate demand, which therefore means reduced inflation and a stronger currency. All stated objectives of the ECB.

We would stress that this is NOT our PROPOSED solution to the euro zone crisis (see here and here for our proposals), but it is clearly operationally sustainable, it addresses the solvency issues, and puts the PIIGS before the cart, which at least has the appearance of putting them right where the core nations of the euro zone want them to be.

Additionally, the ECB now officially has stated it will provide unlimited euro liquidity to its banks. This, too, is now widely recognized as non-inflationary. Nor is it expansionary, as bank assets remain constrained by regulation including capital adequacy and asset eligibility, which is required for them to receive ECB support in the first place.

To reiterate, it is becoming increasingly clear, crisis by crisis, that with ECB support, the current state of affairs can be operationally sustained.

The problem, then, shifts to political sustainability, which is a horse of a different color. And here is where the Greeks (and the other PIIGS) paradoxically have the whip hand. So long as the Greeks continue to accept the austerity, they wind up being burdened by virtue of their funding of the ECB. The ECB takes in their income payments from the bonds, and the ECB alone ensures that Greece remains solvent. It’s a great deal for the ECB and the core countries, such as Germany, France and the Netherlands, as it costs the core’s national taxpayers nothing. And, as least so far, Greece thinks the ECB is doing them a favor by keeping them out of default. The question remains as to whether the Greeks will continue to suffer from this odd variant of Stockholm (Berlin?) Syndrome.

Perhaps not if some of the more recent proposals make headway. As an example of what might be in store for Greece, consider the “Eureca Project”, publicly mooted in the French press last week. In essence, it aims to reduce “Greek debt from 145% to 88% of GDP in one step” without default (so protecting all northern European banks); reduce ECB exposure to Greek debt (that is, force Greece to pay the ECB for the bonds it has purchased in secondary bond markets) and it claims that it will “kick-start the Greek economy and revive growth and job creation” and promote “structural reform.”

So how is it going to do all of that? Simple: engage in the biggest asset strip in history. The proposal in essence calls for a non-sovereign entity to take all the public assets – hand them over to a holding company funded by the EU which pays Greece who then pay off all it debtors. End of process – except that if it is implemented, the Greeks could well say “Stuff it. Let’s default and take our chances. At least we get to keep our national assets.” That’s the risk that is being run if the ECB and the economic moralists in Germany take this too far. If this proposal were accepted, the eurocrats would in fact have a failed nation state on their hands in 3 months time — in the eurozone, not the Mideast or Africa.

By contrast, the current arrangements seem tame in comparison. They obviate the solvency issue, but even here one wonders how much more can be inflicted on countries such as Greece. We stress that the current arrangements have OPERATIONAL sustainability, not necessarily POLITICAL sustainability. The near universally accepted austerity theme is likely to result in continuously elevated unemployment, and a large output gap in general characterized by a lagging standard of living and high personal stress in general. This creates huge systemic risk insofar as it might well make sense for Greece (and others) ultimately to reject this harsh imposition of austerity. But, so far so good for the core nations, as there appears to be no movement in that directions (except on the streets of Athens, rather than in the Greek Parliament).

By the ECB continuing to fund Greece, and not allowing Greece to default, but instead to continue to service its debt, the whole dynamic has changed from doing Greece a favor by not allowing Athens to default to disciplining Greece by not allowing the country to default. And while that’s what the Germans SEEMINGLY haven’t yet figured out, if one is to judge from the current debate, particularly in Germany itself, at the same time they have approved the latest package and are quickly moving in the direction we are suggesting. Note that Angela Merkel has been most adamant on the particular question of allowing Greece to default or allowing an “orderly restructuring.” It’s also worth noting that when the ECB funds Greece, that funding facilitates Greek purchases of German goods and services, including military, at no cost to the German taxpayer. In fact, Germany gets to run larger trade surpluses, which means by accounting identity it is able to run lower government budget deficits, which allows it to feel virtuous and continue its incessant economic moralizing.

So what’s in it for Germany? That should be obvious by now: Germany gets to export to Greece, and to control/impose austerity on Greece, which keeps the euro strong, interest rates in Germany low, and FUNDS the ECB. All in the name of punishing the Greeks for past sins. It doesn’t get any better than that for the core nations. It’s time for the Germans to stop pushing their luck. Rather, they should embrace the genius of one of the so-called southern profligates, Italy, as they have surely created an operationally sustainable doomsday machine of which Machiavelli himself would be proud. How could this not be the Founding Fathers’ dream come true?

The earnings on the Greek debt are particularly significant as there has been a political agreement to pay back profits made from holding the bonds to the Greek government. Because the bonds still pay interest and were bought at depressed prices, they yield a lot of interest.

The €555m compares with income of €654m in 2011 on Greek debt – also published on Thursday – but only represents the ECB’s share of the earnings, which is a combination of interest paid on the bond and a paper profit derived from amortising its value over time.

The Eurosystem as a whole, which comprises all 17 national central banks that work with the ECB, would have made a significantly larger amount on the Greek bond holdings.

The ECB, which declared a net profit of €998m for 2012, up from €728m the year before, pays its profits to the other Eurosystem central banks, which then declare their own profits before passing money to national governments. Only then can any declared profits on Greek bond holdings be returned to Athens.

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Fiscal Devaluation in Europe

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It’s a policy designed to drive exports.
A form of protectionism.
It reduces consumption of imports to the extent domestic prices are helped by lower labor costs where domestic goods a compete directly with imports, which is probably limited.

And of course without further support of fx intervention (dollar and yen buying etc.) it makes the currency go up to the point where the effects are offset/no gains in employment, etc.

And if one nation does it the currency move hurts the others who don’t so it opens up a race to the bottom.

Recap:
It hurts low income consumers
It helps corporate profits
It supports the currency
And so those are the people that support it.
:(

Am I missing something?

Harvards Gopinath Helps France Beat Euro Straitjacket

By Rina Chandran

Feb 6 (Bloomberg) — When French President Francois Hollandeunveiled a plan in November for a business tax credit and higher sales taxes as a way to revive the economy, he was implementing an idea championed by economist Gita Gopinath.

Gopinath, 41, a professor at Harvard University in Cambridge, Massachusetts, has pushed for tax intervention as a way forward for euro-area countries that cannot devalue their exchange rates. Fiscal devaluation is helping France turn the corner during a period of extreme budget constraints, former Airbus SAS chief Louis Gallois said in a business- competitiveness report Hollande commissioned.

She advocated fiscal devaluation for Europes currency union in a 2011 paper she co-authored with her colleague Emmanuel Farhi and former student Oleg Itskhoki, an assistant professor at Princeton in New Jersey.

Despite discussions in policy circles, there is little formal analysis of the equivalence between fiscal devaluations and exchange-rate devaluations, they wrote. This paper is intended to bridge this gap.

The paper examines a remarkably simple alternative that doesnt require countries to abandon the euro and devalue their currencies, Gopinath said. By increasing value-added taxes while cutting payroll taxes, a government can create very similar effects on gross domestic product, consumption, employment and inflation.

The higher VAT raises the price of imported goods as foreign companies pay the levy. The lower payroll tax helps offset the extra sales tax for domestic companies, reducing the need for them to raise prices. Since exports are VAT exempt, the payroll-cost saving allows producers to sell goods cheaper overseas, simulating the effect of a weaker currency, according to the paper.

The policy also can help on the fiscal front, as increased competitiveness can lead to higher tax revenue, Gopinath said.

Hollande is seeking to revive Frances competitive edge by offering companies a 20 billion-euro ($27 billion) tax cut on some salaries as he attempts to turn around an economy that has barely grown in more than a year. He also will lift the two highest value-added tax rates. The plan was inspired partly by Gopinaths paper, said Harvard professorPhilippe Aghion, an informal campaign adviser to Hollande, who was elected president in May.

Aghion, who co-wrote a column in Le Monde newspaper last October advocating Gopinaths theory, said Gallois proposed to Hollande that its the right strategy for France. Gallois is slated to become a member of the board at automaker PSA Peugeot Citroen this year.

We contributed to the adoption of the policy by Hollande, and Gallois called to thank me, Aghion said in a telephone interview. There is wider interest in the policy. Italy, Spain, Greece — they should all be interested. Its an idea that would work.

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quick look ahead for the euro zone

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After describing since inception how the euro zone was going to get to where it is, here’s my guess on what’s coming next.  

First, to recap, it took them long enough and it got bad enough before they did it, but they did decide to ‘do what it takes’ to end the solvency issues and, after the Greek PSI thing, make sure the markets stopped discounting defaults as subsequently evidenced by falling interest rates for member nation debt.

But it’s solvency with conditionality, and so while they solved the solvency and interest rate issue, the ongoing austerity requirements have served to make sure the output gap stays politically too wide.  The deficits are high enough, however, for an uneasy ‘equilibrium’ of
near/just below 0% overall GDP growth and about 11% unemployment.

However, all of this is very strong euro stuff, where the euro appreciates at least until the (small) trade surplus turns to deficit.  This could easily mean 1.50+ vs the dollar (and worse vs the yen) for example. This process at the same time further weakens domestic demand which supports a need for higher member govt deficits just to keep GDP near 0.

So at some point next year I can see deficits that refuse to fall resulting in more demands for austerity, while the strong euro results in demands for ‘monetary easing’ from the ECB.  Of course with what they think is monetary easing actually being monetary tightening (lower rates, bond buying, everything except direct dollar buying, etc.) the fiscal and monetary just works to further support the too strong euro stronger.  

All this gets me back to the idea that the path towards deficit reduction in this hopelessly out of paradigm region keep coming back to the unmentionable PSI/bond tax.  Seems to me we are relentlessly approaching the point where further taxing a decimated population or cutting what remains of public services becomes a whole lot less attractive than taxing the bond holders.  And the process of getting to that point, as in the case of Greece, works to cause all to agree there’s no alternative.  With the far more attractive alternative of proactive increases in deficits that would restore output and employment not even making it into polite discussion, I see the walls closing in around the bond holders, along with the argument over whether the ECB writes down it’s positions back on page 1. And just the mention of PSI in polite company throws a massive wrench (spanner) into the gears.  For example, if bonds go to a discount, they’ll look towards ECB supported buy backs to reduce debt, again, Greek like.  And if prices don’t fall sufficiently, they’ll talk about a forced restructure of one kind or another, all the while arguing about what constitutes default, etc.

The caveats can change the numbers, but seems will just make matters worse.  

The US going full cliff is highly dollar friendly, much like austerity supports the euro.  In fact, the expiration of my FICA cut- the only bipartisan thing Obama has done- which apparently both sides have agreed to let happen, will alone add quite a bit of fiscal drag.  This means less euro appreciation, but also lower US demand for euro zone exports.  So the cliff does nothing good for the euro zone output gap.  

And Japan seems to be targeting the euro zone for exports with it’s euro and dollar buying weakening the yen, as evidenced by Japan’s growing fx reserves (where else can they come from?).

The price of oil could spike, which also makes matters worse.

In general, I don’t see anything good coming out of the current global political leadership.

Please let me know if I’m missing anything!

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Professor Stephanie Kelton in the LA Times!!!

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Forget the ‘fiscal cliff’

By Stephanie Kelton

Dec 21 (LA Times) — Look, up in the sky! It’s a “fiscal cliff.” It’s a slope. It’s an obstacle course.

The truth is, it doesn’t really matter what we call it. It only matters what it is: a lamebrained package of economic depressants bearing down on a lame-duck Congress.

This hastily concocted mix of across-the-board spending cuts and tax increases for all was supposed to force Congress to get serious about dealing with our nation’s debt and deficit. The question everyone’s asking is this: On whose backs should we balance the federal budget? One side wants higher taxes; the other wants spending cuts. And while that debate rages, the right question is being ignored: Why are we worried about balancing the federal budget at all?

You read that right. We may strive to balance our work and leisure time and to eat a balanced diet. Our Constitution enshrines the principle of balance among our three branches of government. And when it comes to our personal finances, we know that the family checkbook must balance.

So when we hear that the federal government hasn’t balanced its books in more than a decade, it seems sensible to demand a return to that kind of balance in Washington as well. But that would actually be a huge mistake.

History tells the tale. The federal government has achieved fiscal balance (even surpluses) in just seven periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, 1920-30 and 1998-2001. We have also experienced six depressions. They began in 1819, 1837, 1857, 1873, 1893 and 1929.

Do you see the correlation? The one exception to this pattern occurred in the late 1990s and early 2000s, when the dot-com and housing bubbles fueled a consumption binge that delayed the harmful effects of the Clinton surpluses until the Great Recession of 2007-09.

Why does something that sounds like good economics balancing the budget and paying down debt end up harming the economy? The answers may surprise you.

Spending is the lifeblood of our economy. Without it, there would be no sales, and without sales, no profits and no reason for any private firm to produce anything for the marketplace. We tend to forget that one person’s spending becomes another person’s income. At its most basic level, macroeconomics teaches that spending creates income, income creates sales and sales create jobs.

And creating jobs is what we need to do. Until the fiscal cliff distracted us, we all understood that. Today, we have roughly 3.4 people competing for every available job in America. The unemployment rate is like a macroeconomic thermometer when it registers a high rate, it’s an indication that the deficit is too small.

So in our current circumstance a growing but fragile economy policymakers are wrong to focus on the fact that there is a deficit. It’s just a symptom. Instituting tax increases and spending cuts will pull the rug out from under consumers, thereby disrupting the income-sales-jobs relationship. Slashing trillions from the deficit will only depress spending for year to come, worsening unemployment and setting back economic growth.

Conveying this is an uphill battle. The public has been badly misinformed. We do not have a debt crisis, and our deficit is not a national disgrace. We are not at the mercy of the Chinese, and we’re in no danger of becoming Greece. That’s because the U.S. government is not like a household, or a private business, or a municipality, or a country in the Eurozone. Those entities are all users of currency; the U.S. government is an issuer of currency. It can never run out of its own money or face the kinds of problems we face when our books don’t balance.

The effort to balance the books that’s at the heart of the fiscal cliff is simply misguided. Instead of butting heads over whose taxes to raise and which programs to cut, lawmakers should be haggling over how to use the tool of a federal deficit to boost incomes, employment and growth. That’s the balancing act we need.

Stephanie Kelton is an associate professor of economics at the University of Missouri-Kansas City and the founder and editor of New Economic Perspectives. @deficitowl

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The MMT Grand Bargain: Raise Social Security Benefits and Suspend FICA!!!

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Fact:

Every serious economic forecaster cuts his GDP and employment estimate
with tax hikes and spending cuts.

(AKA, the looming ‘fiscal cliff’!)

Fact:

Every serious economic forecaster would raise his GDP and employment estimate
with tax cuts and spending increases.

Fact:

All agree there would be no moral hazard or a waste and fraud issue with an increase in Social Security payments.

All agree that FICA is a highly regressive punishing tax on people working for a living, ideologically unacceptable to the ‘left’, and, of course, the ‘right’ is against any tax.

Fact:

Even with the presumed ‘current unsustainable path of future spending’ the Fed’s long term CPI (aka ‘inflation’) forecast remains at 2%, market participants via inflation indexed securities forecast equally low long term CPI increases, and there are no credible forecasts for any kind of ‘inflation’ problem from excess aggregate demand.

Fact:

The August 2011 debt ceiling debacle and downgrade of US credit, at the ‘worst possible time’, demonstrated that because the US ‘prints its own money’ the US government can’t run out of dollars; always has the unlimited ability to make any size dollar payment on a timely basis; is not dependent on and can never be dependent on dollar funding from foreigners, the IMF, or anyone else; pays interest rates based on rates voted on by the Federal Reserve; and is in no way is at any kind of risk whatsoever of becoming ‘Greece’.

Conclusion:

The MMT Grand Bargain for Prosperity:

1. Raise the minimum Social Security payment to $2,000 per month,

AND

2. Suspend FICA taxes

What’s so hard about this?

Feel free to distribute, particularly to your Congressmen!!!

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Italian article this am

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Misrepresents what I say a bit, but they do have my picture next to JFK!
;)

The IMF: sovereign currency, no longer the monopoly of the banks

Eliminate the public debt of the United States at once, and do the same with Great Britain, Italy, Germany, Japan, Greece. At the same time revive the ‘ economy, stabilize prices and oust the bankers. In a clean and painless, and faster than what you can imagine. With a magic wand? No. With a simple law, but able to replace the current system, in which to create money out of nothing are private banks. We only need a measure requiring the banks to hold a financial reserve real, 100%. To propose two economists at the International Monetary Fund, Jaromir Bene and Michael Kumhof. You, the bank, you want to make money on the loan of money? First you have to prove it really that much money. Too easy to have it by the central bank (which the factory from scratch) and then “extort” families, businesses and entire states, imposing exorbitant interest.

The study of two economists, “The Chicago Plan Revisited,” with “a revolutionary and” scandalous “‘Maria Grazia Bruzzone,” La Stampa “, emphasizes the global resonance of the dossier, that bursts like a bomb on the world capitalist system now jammed. The global debt came the exorbitant sum of 200 trillion, that is 200 trillion dollars, while the world GDP is less than 70 trillion. Translated: the world debt is 300% of gross domestic product of the entire planet. “And to hold this huge mountain of debt – which continues to grow – there are more advanced economies and developing countries,” says the Bruzzone, stressing that “the heart of the problem and the cross” is the highest “power” Japan, Europe and the United States. Hence the sortie “heretical” by Bene and Kumhof: simply write off the debt, it disappears.Sparked the debate was the last IMF report, which points the finger on austerity policies aimed at reducing thepublic debt . Policies that “could lead to recession in the economies ‘, since’ cuts and tax increases depress the ‘economy ‘.

Not only. The IMF would be really worried the crisis that is ravaging the ‘ Europe threatens to be worse than the 2008 financial. The surprise is that even the IMF now thinks that “austerity can be used to justify the privatization of public services,” with consequences “potentially disastrous”. But if the problem is the debt – public, but now “privatized” by finance – you can not delete? Solution already ventilated by the Bank of England, which holds 25% of the British sovereign debt: the Bank of England may reset it by clicking on the computer. Advantages: “You will pay much less interest, it would free up cash and you could make less harsh austerity.” The debate rages on many media, starting from the same “Financial Times”. thread which breaks now the revolutionary proposal of the two IMF economists targati: cancel the debt.

“The Chicago Plan Revisited,” writes Maria Grazia Bruzzone, raises and explores the “Chicago Plan” original, drawn up in the middle of the Great Depression of the ’30s by two other economists, Irving Fisher, Henry Simons of the University of Chicago, the cradle of liberalism . Cancel 100% of the debt? “The trick is to replace our system, where money is created by private banks – for 95-97% of the supply of money – money created by the state. It would mean return to the historical norm, before the English King Charles II put in private hands control of the money available, “back in 1666. It would mean a frontal assault on the “fractional reserve” banking, accused of seigniorage on the issue of currency speculation: if lenders are instead forced to hold 100% of its reserves to guarantee deposits and loans, “pardon the exorbitant privilege of create money out of nothing. ” As a result: “The nation regained control over the availability of money,” and also “reduces the pernicious cycles of expansion and contraction of credit.”

The authors of the first “Plan of Chicago” had thought that the cycles of expansion and contraction of credit lead to an unhealthy concentration of wealth: “They had seen in the early thirties creditors seize farmers effectively bankrupt, grab their lands or comprarsele for a piece of bread. ” Today, the authors of the new edition of this plan argue that the “trauma” of the credit cycle that expands and contracts – caused by private money creation – is a historical fact that is already outlined with Jubilees Debt ancient Mesopotamia, as well as in ancient Greece and even Rome. Sovereign control (the state or the Pope) on currency, recalls Bruzzone, Britain remained so throughout the Middle Ages, until 1666, when it began the era of the cycles of expansion and contraction. With the “bank privatization” of money, add the “Telegraph”, “opened the way for the agricultural revolution, and after the industrial revolution and the biggest leap Economic ever seen “- but it is not the case of” quibbling, “quips the newspaper.

According to the young economists of the IMF, is just a myth – disclosed “innocently” by Adam Smith – that the money has been developed as a medium of exchange based on gold, or related to it. Just as it is a myth, the study points out the IMF, what you learn from books: that is the Fed, the U.S. central bank, to control the creation of the dollar. “In fact, money is created by private banks to 95-97% through loans.” Private banks, in fact, do not lend as owners of cash deposits, the process is exactly the opposite. “Every time a bank makes a loan, the computer writes the loan (plus interest) and the corresponding liability in its balance sheet. But the money that pays the bank has a small part. If it does borrow from another bank, or by the central bank. And the central bank, in turn, creates out of nothing that lends the money to the bank. ”

In the current system, in fact, the bank is not required to have its own reserves – except for a tiny fraction of what it provides. Under a system of “fractional reserve”, each money created out of nothing is a debt equivalent: “Which produces an exponential increase in the debt, to the point that the system collapses on itself.” The economists of the IMF hours overturn the situation. The key is the clear distinction between the amount of money and the amount of credit between money creation and lending. If you impose banks to lend only numbers covered by actual reserves, loans would be fully funded from reserves or profits accrued. At that point, the banks can no longer create new money out of thin air. Generate profits through loans – without actually having a cash reserve – is “an extraordinary and exclusive privilege, denied to other business.”

“The banks – says Maria Grazia Bruzzone – would become what he mistakenly believed to be, pure intermediaries who have to get out their funds to be able to make loans.” In this way, the U.S. Federal Reserve “is approprierebbe for the first time the control over the availability of money, making it easier to manage inflation.” In fact, it is observed that the central bank would be nationalized, becoming a branch of the Treasury, and now the Fed is still owned by private banks. “Nationalizing” the Fed, the huge national debt would turn into a surplus, and the private banks’ should borrow reserves to offset possible liabilities. ” Already wanted to do John Fitzgerald Kennedy, who began to print – at no cost – “dollars of the Treasury,” against those “private” by the Fed, but the challenge of JFK died tragically, as we know, under the blows of the killer of Dallas , quickly stored from “amnesia” of powerful debunking.

Sovereign coin, issued directly by the government, the state would no longer be “liable”, but it would become a “creditor”, able to buy private debt, which would also be easily deleted. After decades, back on the field the ghost of Kennedy. In short: even the economists of the IMF hours espouse the theory of Warren Mosler, who are fighting for their monetary sovereignty as a trump card to go out – once and for all – from financial slavery subjecting entire populations, crushed by the crisis , the hegemonic power of a very small elite of “rentiers”, while the ‘ economic reality – with services cut and the credit granted in dribs and drabs – simply go to hell. And ‘the cardinal assumption of Modern Money Theory supported in Italy by Paul Barnard: if to emit “money created out of nothing” is the state, instead of banks, collapsing the blackmail of austerity that impoverishes all, immeasurably enriching only parasites of finance . With currency sovereign government can create jobs at low cost. That is, welfare, income and hope for millions of people, with a guaranteed recovery of consumption. Pure oxygen ‘s economy . Not surprisingly, adds Bruzzone, if already the original “Chicago Plan”, as approved by committees of the U.S. Congress, never became law, despite the fact that they were caldeggiarlo well 235 academic economists, including Milton Friedman and English liberal James Tobin, the father of the “Tobin tax”. In practice, “the plan died because of the strong resistance of the banking sector.” These are the same banks, the journalist adds the “Print”, which today recalcitrano ahead to reserve requirements a bit ‘higher (but still of the order of 4-6%) required by the Basel III rules, however, insufficient to do deterrent in the event of a newcrisis . Banks: “The same who spend billions on lobbying and campaign contributions to presidential candidates. And in front of the new “Chicago Plan” threaten havoc and that “it would mean changing the nature of western capitalism. ‘” That may be true, admits Bruzzone: “Maybe but it would be a better capitalism. And less risky. ”

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Forbes article: No, the US will not go into a debt crisis, not now, not ever

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>   
>   (email exchange)
>   
>   On Fri, Oct 19, 2012 at 1:09 PM, wrote:
>   
>   Author is self-described conservative.
>   

No, The United States Will Not Go Into A Debt Crisis, Not Now, Not Ever

By Pascal-Emmanuel Gobry

October 19 (Forbes) — If there’s one article of faith in Washington (and elsewhere), it’s the idea that the United States might get into a debt crisis if it doesn’t get its fiscal house in order.

This is not true.

The reason why it’s not true is because we live in a fiat currency system, where the United States government can create an infinite number of dollars at no cost to meet its obligations. A Treasury bill is a promise that the government will give you US dollars– something that the United States government can produce infinitely and at no cost.

That’s the reason why interest rates on United States debt have only gone down even as the debt has ballooned. That’s the reason why Great Britain has very low rates on its debt despite having very high debt-to-GDP. That’s the reason why Japan has an astounding debt-to-GDP ratio and still enjoys some of the lowest rates ever. Investors have bet for so long that there would be a run on Japanese debt and have ended up so ruined that in financial circles that trade is called “the Widowmaker”. (Here’s a more detailed analysis by my former colleague Joe Weisenthal at Business Insider.)

Well, what about Argentina? Argentina had to default on its debt because it had pegged its currency to the US dollar. It wasn’t sovereign with regard to its currency since it had to maintain its currency’s peg. It wasn’t Argentina’s debt that caused it to default, it was its currency peg.

What about Greece? Same thing. Greece hasn’t used its own currency for ten years. Of course it’s going bankrupt.

Does it seem that strange that governments can’t run out of money?

You don’t have to take my word for it. How about Alan Greenspan? He said (PDF): ”[A] government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit.”

But waaaaaaait, you shout, what about inflation? If the government prints money like crazy, won’t that create inflation?

Well, in theory, yes. But probably not. Why is that? Because the US has an even bigger advantage than just being sovereign in its own currency (hi Greece), it also holds the reserve currency. The US dollar is the main currency that is used in most international transactions, it is held by all of the world’s central banks, and so forth.

Why is this important? Well, another way to define inflation is to say that the supply of a currency gets out of whack with its demand: too much currency chasing too few people who want to hold it, and so its value drops. Well, when you have the reserve currency, the demand for your currency is always going to be extremely strong. There’s always going to be tons of people, all around the world, who want to use US dollars, because their transactions are conducted in US dollars. (And it’s highly unlikely that this will change soon–being the reserve currency has a network effect, meaning everyone uses the dollar as the reserve currency because everyone else uses it, creating a self-reinforcing cycle that’s extremely hard to break.)

In other words, while in theory printing tons of money could create inflation, in practice demand for the dollar is so high–and for structural reasons that have very little to do with how the US economy is doing at a particular point in time–that it’s hard to imagine a circumstance under which the US government would have to print so much that it would cause significant inflation.

And even if it did–well, for all the bad memories we have about it, the Stagflation of the 1970s was many things, but it was not Greece. Life in the 1970s was still relatively okay, despite the stagflation. That is to say, even in the extremely unlikely event that the government had to print so much money to get out of its debt that it caused moderate inflation, it still would not be a debt crisis of the kind that Greece and Spain are under right now. (Hyperinflation, meanwhile, is even less of a danger, since in recorded history it only happens in cases of not just reckless money printing, but also extremely serious exogenous shocks such as war, regime change, etc.)

Why am I writing this?

After all it’s already common knowledge among economists, Fed officials, and an increasing number of sophisticated investors.

Maybe so, but it’s still not common knowledge among politicians and among the general public. A lot of people still think that the US is under some risk of one day becoming like Greece, and it’s distorting our public debate.

It’s especially distorting it on the Right, where hysteria about deficits, and debt, and becoming like Greece has reached a fever pitch. Paul Ryan, especially, has framed his entire message on entitlement-cutting on the flawed premise that the US needs to cut its entitlement or it will suffer a debt crisis. This message, in turn, has infected broad swathes of the conservative movement (including very smart people in it), a movement that I consider myself a member of and want to see in strong intellectual health. But very few liberals–certainly no Democratic elected officials that I’m aware of, certainly not the President and the Vice President–are disputing the premise that the US is in any danger of a debt crisis.

In future posts, I will try to look at what the conservative movement can do to move past the idea of the debt crisis, and what it means.

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Mosler for Congress update

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I sent the following to my international audience looking to a return to prosperity
for all of us, which I now send along to you here in the USVI to keep you well informed!

(note that ‘closing the output gap’ means ‘eliminating unemployment’)

They have known me for a very long time and have been most supportive:

First let me thank all of you who have contributed, and have become part of what could quickly become much more than just another seat in Congress!!!

Donations have exceeded $25,000 and at only $25/minute for radio and TV adds the incremental spending has indeed made a difference- thanks again!

There are three weeks to go an any additional contributions will immediately be used to add to the advertising and promotional efforts.

When I ask our volunteers ‘out of ever 10 people they speak to in their neighborhoods, how many say they are voting for me’ they all say more than half!

Friday in St. Thomas while walking to a UVI event I heard a loud ‘Mosler!’ and looked over to see a patrol car with the window down and the officer looking at me. As soon as I turned his way he said ‘Everyone’s voting for you this time, you’re going to win you know!’

I’ve been in 5 ‘debates’ so far, with the candidates on a panel taking questions from a moderator. I’ve just focused on what I’m going to do about each issue, both for the national economy and the USVI economy, while the other candidates have had no specific agenda apart from promising to work hard (and taking cheap shots at each other, of course!)

More and more the audiences seem to be responding with ‘your the only one who knows what to do’. And the ‘anti incumbent’ feeling in general is actually alarmingly high as conditions here continue to deteriorate. Our cost of electricity, for example, just went up to over 50 cents/kw, while government salaries that were already half the national average were cut 8%, with thousands of lost jobs due to the closing of the Hovensa refinery here on St. Croix and widespread government layoffs of nurses and teachers in an already grossly under served community.

I assure you that if I get in Washington will soon be aware of the hurricane that’s come up from the USVI. The Fed chairman will suddenly face ‘innocent’ questions of profound magnitude, such as, ‘Isn’t true that a $trillion deficit adds exactly that much to global dollar net savings, and not a penny less or a penny more, or these two gentlemen next to me from the CBO would have stay late at work looking for their arithmetic mistake?’ ‘Isn’t it true, that by your own regulatory standards, loans to the ECB collateralized with euro deposits would be classified as unsecured loans?’ ‘Given that you do the actual spending on behalf of Congress simply by crediting accounts, and therefore ability to pay, insolvency, and prior funding for Congress, unlike for Greece, is never an issue, and, again unlike Greece, for all practical purposes the Fed sets US interest rates by voting and not the market, what then, is the short term or long term risk posed by deficit spending? And many more. And with all of these questions serving the agendas of various members of Congress there is every incentive for them to be asked. And not to mention testimony and discussions on banking, budgets, and trade. Looking forward to gettng the job done/close the output gap!!!

If any of you want to contribute to ‘THE CAUSE’ remember the limit is $2,500 per person and checks can be made out to ‘Mosler For Congress 2012’.

You can also click here or paypay and further information.

All the best!!!

Warren

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Why prices can go up when demand is low

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http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_27/09/2012_463278

Greece’s biggest employers group on Thursday said that rising costs, poor infrastructure, higher borrowing costs and red tape were among the main reasons that the cost of goods in the country has not dropped despite the ongoing crisis.
In a memo sent to the Development Ministry on Thursday, the Hellenic Federation of Enterprises (SEV) set out six reasons for the stubborn prices. These were:

1. Soaring energy costs as a result of higher energy rates, including a special tax tagged on electricity and gas bills.

2. The escalating cost of mostly-imported raw materials.

3. Poor infrastructure services. The report cited the substandard cargo loading and unloading facilities at the port of Volos, in central Greece, as an example.

4. The high transport costs which undermine competition.

5. The extra financial strain caused by the doubling of borrowing costs over the past year, the deterioration of payment terms for imported materials (e.g. packaging materials), the significant increase in taxes, and the long delay in VAT reimbursement.

6. Red tape and a complex administrative structure.

“Compressing labor costs is not fundamental in reducing prices,” SEV said in the memo. “A good example is energy intensive industries where energy costs make up for 40-50 percent of production costs. To offset the recently-imposed 20 percent rise in energy bills you would have to reduce labor costs by 80percent,» it said.

The federation said that the key steps for reducing the prices of manufactured products were lowering taxes, removing regulatory and administrative barriers, and improving the efficiency of the notoriously dysfunctional state apparatus.

Greece’s international lenders, the International Monetary Fund and the European Union, have demanded a reduction in labor costs to make the country more competitive.

But many Greeks, who have seen their disposable income plummet over the last few years, are frustrated that the cost of living has not fallen as well.

Tens of thousands of demonstrators took to the streets of Athens on Wednesday in protest at the anticipated cuts.

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