For immediate release:

Warren Mosler, candidate, Delegate to Congress, USVI

Christiansted, St. Croix-  Warren Mosler has released part I of his 3 part Action Plan for the USVI.  ”With closing of Hovensa, we face the catastrophic loss of thousands of jobs, a drop in population of perhaps 3,000 people, loss of an estimated $100 million of annual revenue for our government, untold private sector business closings, a substantial drop of enrollment in our schools, and many other negative social and economic consequences” said Mosler. ‘I have organized a three part Action Plan that I will be releasing–one part at a time as they are completed.  If we act now, we can mitigate some of the potential negative consequences and begin building a prosperous future for our Virgin Islands.”

Action Plan, USVI

Part I:  Hovensa Response
1.  I propose that we inform Hovensa that if they close the USVI will not permit anyone to reopen the refinery.  This will cause Hovensa to reconsider their decision to close the refinery.  However, and more important, if they do close, the possibility of the refinery reopening will impede the effort to bring new businesses to St. Croix.  That’s because there are many businesses that would not want to be located on a small island like St. Croix with the possibility that the refinery might resume operations.  Refineries make an island like St. Croix less valuable.  I’m sure, for example, no one would think a refinery opening on St. Thomas or St. John would add value to those islands.
2.  I propose that we require that the cleanup begin immediately, even with the oil storage facility in operation.  It is important for the territory’s recovery that the unused portion of the facility be brought back to its original condition as specified in the contract with the USVI government as soon as possible.
3.  I propose that we require that current employees of the refinery and residents of the USVI be given priority for the cleanup jobs.  This will provide a multiyear transition period for the qualifying Hovensa employees and the USVI.
4.  I propose that we determine whether there is any residual equipment at Hovensa that might be useful to the USVI and arrange for its purchase.  The prices should be very attractive.

Part II and Part III will be released over the next several days.

Contact:  Reginald Perry, 340 692 7710

My proposals remain:

1. A full FICA suspension:

The suspension of FICA paid by employees restores spending which supports output and employment.
The suspension of FICA paid by business helps keep costs down which in a competitive environment lowers prices for consumers.

2. $150 billion one time distribution by the federal govt to the states on a per capita basis to get them over the hump.

3. An $8/hr federally funded transition job for anyone willing and able to work to assist in the transition from unemployment to private sector employment.

Call me an inflation hawk if you want. But when the fiscal drag is removed with the FICA suspension and funds for the states I see risk of what will be seen as ‘unwelcome inflation’ causing Congress to put on the brakes long before unemployment gets below 5% without the $8/hr transition job in place, even with the help of the FICA suspension in lowering costs for business.

It’s my take that in an expansion the ‘employed labor buffer stock’ created by the $8/hr job offer will prove a superior price anchor to the current practice of using the current unemployment based buffer stock as our price anchor.

The federal government caused this mess for allowing changing credit conditions to cause its resulting over taxation to unemploy a lot more people than the government wanted to employ. So now the corrective policy is to suspend the FICA taxes, give the states the one time assistance they need to get over the hump the federal government policy created, and provide the transition job to help get those people that federal policy is causing to be unemployed back into private sector employment in a more orderly, more ‘non inflationary’ manner.

I’ve noticed the criticism the $8/hr proposal- aka the ‘Job Guarantee’- has been getting in the blogosphere, and it continues to be the case that none of it seems logically consistent to me, as seen from an MMT perspective. It seems the critics haven’t fully grasped the ramifications of the recognition of the currency as a (simple) public monopoly as outlined in Full Employment AND Price Stability and the other mandatory readings.

So yes, we can simply restore aggregate demand with the FICA suspension and funds for the states, but if I were running things I’d include the $8 transition job to improve the odds of both higher levels of real output and lower ‘inflation pressures’.

Also, this is not to say that I don’t support the funding of public infrastructure (broadly defined) for public purpose. In fact, I see that as THE reason for government in the first place, and it should be determined and fully funded as needed. I call that the ‘right size’ government, and, in general, it’s not the place for cyclical adjustments.

4. An energy policy to help keep energy consumption down as we expand GDP, particularly with regard to crude oil products.

Here my presumption is there’s more to life than burning our way to prosperity, with ‘whoever burns the most fuel wins.’

Perhaps more important than what happens if these proposals are followed is what happens if they are not, which is more likely going to be the case.

First, given current credit conditions, world demand, and the 0 rate policy and QE, it looks to me like the current federal deficit isn’t going to be large enough to allow anything better than muddling through we’ve seen over the last few years.

Second, potential volatility is as high as it’s ever been. Europe could muddle through with the ECB doing what it takes at the last minute to prevent a collapse, or doing what it takes proactively, or it could miss a beat and let it all unravel. Oil prices could double near term if Iran cuts production faster than the Saudis can replace it, or prices could collapse in time as production comes online from Iraq, the US, and other places forcing the Saudis to cut to levels where they can’t cut any more, and lose control of prices on the downside.

In other words, the risk of disruption and the range of outcomes remains elevated.

Mitt Romney’s Ridiculous Comparison of US to Greece

By John Carney

Dec 21 (CNBC) — I realize that Republicans want the United States to accumulate less debt. That’s a fine policy position to take. I’m somewhat sympathetic to the idea that debt can drag down the economy.

But there’s no need to start saying crazy things like the U.S. is about to become Italy or Greece if Obama is elected for another term. This simply isn’t in the cards.

The problems faced by Greece and Italy are nowhere near comparable to those faced by the United States. We have far more dynamic economies — and far lower tax rates — than those countries. More important, our government can indirectly self-finance by having the Federal Reserve buy Treasurys on the secondary market.

As we’ve seen, the Fed has an unlimited balance sheet, something that Greece and Italy do not enjoy.

Our government will never run out of money. Greece and Italy can definitely run out of money.

So it’s a shame to see Mitt Romney, the Republican frontrunner for president, spouting this nonsense.

From The Hill:

Mitt Romney said that the United States would experience a financial crisis similar to that of Greece or Italy if President Obama were elected to a second term, and hit rival Newt Gingrich’s plan for the federal judiciary as unconstitutional during an interview Monday night with Fox News’s Bill O’Reilly.

“I think we hit a Greece-like wall. I think before the end of his second term, if he were re-elected, there’s a very high risk that we would hit a financial crisis that Greece or Italy have faced,” Romney said.

This is worse than ignorant. It is actually malfeasant. Having one of the leading politicians in the country talk like this can only induce further economic panic.

(Hat tip: Warren Mosler)

In case you had any respect whatsoever for Romney’s understanding of monetary operations and fiscal policy.

In fact, no one has been invoking Greece since the S&P downgrade when interest rates went down, and pundits from both sides pointed out the difference is we ‘print our own money.’

Romney: US could face ‘financial crisis’ like Greece, Italy if Obama is reelected

By Justin Sink

Dec 20 — Mitt Romney said that the United States would experience a financial crisis similar to that of Greece or Italy if President Obama were elected to a second term, and hit rival Newt Gingrich’s plan for the federal judiciary as unconstitutional during an interview Monday night with Fox News’s Bill O’Reilly.

“I think we hit a Greece-like wall. I think before the end of his second term, if he were reelected, there’s a very high risk that we would hit a financial crisis that Greece or Italy have faced,” Romney said.

“I think it’s also very possible that we would continue to see very high levels of unemployment. I think you would see industry in this country, entrepreneurs, big and small, decide to go elsewhere, to take their investment dollars to other nations. This president has put together the most anti-investment, anti-growth and anti-job series of policies that I’ve seen since Jimmy Carter,” he added.

Shows the Republicans truly do fear the US becoming the next Greece,
as they begin to lean towards tax hikes.

Meanwhile, they continue keeping us on the road to Japan.
Or worse.
A lot worse.

Republicans Consider Breaking No-Tax Vow as Deadline Looms

By Brian Faler

November 15 (Bloomberg) — For Senator John Cornyn, it was the situation in Greece.

The Texas Republican said he is willing to back tax increases as part of a major deficit-reduction deal because he fears the European debt crisis could spread to the U.S.

“We’ve never been in this spot before,” said Cornyn, who also leads his party’s effort to elect more Republicans to the Senate. “We’re looking over at Europe and what’s happening in Greece and Italy — we risk having another huge financial crisis in this country, and we’ve got to try to solve the problem.”

He is one of a growing number of Republicans, many with otherwise impeccable anti-tax credentials, who say they are willing to raise taxes to reach a big deficit-reduction deal with Democrats.

That may help insulate them from charges of stubbornness if Congress’s bipartisan supercommittee doesn’t meet its Nov. 23 deadline to find a way to cut $1.5 trillion. For now, it’s helped shift Washington’s debate to how much, rather than whether, to raise taxes.

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said he is encouraged by the shift even as Democrats scoff at a specific Republican proposal.

“It’s a step in the right direction for them to just rhetorically cross that line,” said Conrad.

‘Real Trouble’

Asked if Republicans were trying to set up a blame game should the supercommittee fail, Conrad said, “I hope not” because “if we aren’t beyond that, we are in real trouble.”

Democrats say the Republican deficit plan relies too heavily on spending cuts and would give the wealthy too much of a tax break. Some question whether its numbers add up.

At issue is a proposal by the supercommittee’s Republicans to trade permanent cuts in income tax rates, with the top rate dropping to as little as 28 percent, for new limits on deductions, exclusions and other tax breaks. They estimate that it would produce $300 billion to reduce the deficit.

The plan’s principal author is Senator Pat Toomey, a Pennsylvania Republican who previously led the Club for Growth, a Washington anti-tax group. House Speaker John Boehner, an Ohio Republican, today endorsed the proposal, calling it a “fair offer.”

Some conservative organizations are accusing Republicans of trying to hide tax increases through the Toomey plan.

Norquist Reaction

“Closing tax loopholes is all well and good,” said Americans for Tax Reform president Grover Norquist in an opinion article in Politico. “But doing so to raise revenues is just as much a tax hike as raising tax rates.” He added, “Any congressman who wants to keep his promise to voters to oppose tax increases” must oppose the plan.

Many Republican lawmakers are also unhappy with the proposal. “We don’t have a tax problem — we have a spending problem,” said Senator Jim DeMint, a South Carolina Republican. “For us to get lulled into ‘how much to raise taxes’ in this thing is foolish.”

Senator Orrin Hatch, the top Republican on the tax-writing Finance Committee, said, “Some of these loopholes really aren’t loopholes.” He called them “important policy provisions, like the home interest mortgage deduction.”

Republican supporters of the plan say they are trying to lock in lower income-tax rates that will otherwise jump if, as is currently scheduled, the tax cuts enacted in President George W. Bush’s administration expire at the end of next year. President Barack Obama opposes extending the Bush-era cuts for those earning more than $250,000, and Republicans are unlikely in the 2012 elections to win the Senate votes they would need to keep the tax cuts in effect.

‘Biggest Tax Increase’

“What we’re trying to do is avoid the biggest tax increase in the history of the country,” Senator Charles Grassley, an Iowa Republican, said of Toomey’s plan.

Toomey declined to comment other than to point to a Nov. 10 Wall Street Journal editorial quoting him as calling his proposal a “bitter pill” that is “justified to prevent the tax increase that’s coming.”

A number of Republicans are playing down anti-tax pledges they signed with Norquist’s group. “We take an oath to uphold the Constitution” and “that trumps any and every consideration,” said Cornyn.

“I didn’t know I was signing a marriage vow,” said Representative Mike Simpson of Idaho, one of 40 House Republicans who recently signed a letter signaling willingness to raise taxes as part of a major deficit-cutting deal.

Shifting Opinion

Senator Lamar Alexander of Tennessee, the chamber’s third- ranking Republican, said he saw a sign of shifting opinion when three of the supercommittee Republican members — Toomey, Rob Portman of Ohio and Arizona’s Jon Kyl — briefed Senate colleagues on their plan and no one complained.

“For Pat Toomey and Portman and Kyl to come in and tell a whole roomful of Republicans that ‘we’ve put $250 billion of tax increases on the table’ and not get a murmur of dissent is remarkable,” said Alexander.

Senator Saxby Chambliss, a Georgia Republican, said his party’s lawmakers should consider bigger tax increases if it would lead to a larger debt-reduction deal, because the political price they would pay will essentially be the same.

“You’re going to be criticized by the same people irrespective of what the number is,” said Chambliss.

Dear Senator Sanders,

Thank you for your attention to this matter!
My comments appear below:

The Veil of Secrecy at the Fed Has Been Lifted, Now It’s Time for Change

By Senator Bernie Sanders

November 2 (Huffington Post) — As a result of the greed, recklessness, and illegal behavior on Wall Street, the American people have experienced the worst economic crisis since the Great Depression.

Not to mention the institutional structure that rewarded said behavior, and, more important, the failure of government to respond in a timely manner with policy to ensure the financial crisis didn’t spill over to the real economy.

Millions of Americans, through no fault of their own, have lost their jobs, homes, life savings, and ability to send their kids to college. Small businesses have been unable to get the credit they need to expand their businesses, and credit is still extremely tight. Wages as a share of national income are now at the lowest level since the Great Depression, and the number of Americans living in poverty is at an all-time high.

Yes, it’s all a sad disgrace.

Meanwhile, when small-business owners were being turned down for loans at private banks and millions of Americans were being kicked out of their homes, the Federal Reserve provided the largest taxpayer-financed bailout in the history of the world to Wall Street and too-big-to-fail institutions, with virtually no strings attached.

Only partially true. For the most part the institutions did fail, as shareholder equity was largely lost. Failure means investors lose, and the assets of the failed institution sold or otherwise transferred to others.

But yes, some shareholders and bonds holders (and executives) who should have lost were protected.

Over two years ago, I asked Ben Bernanke, the chairman of the Federal Reserve, a few simple questions that I thought the American people had a right to know: Who got money through the Fed bailout? How much did they receive? What were the terms of this assistance?

Incredibly, the chairman of the Fed refused to answer these fundamental questions about how trillions of taxpayer dollars were being spent.

The American people are finally getting answers to these questions thanks to an amendment I included in the Dodd-Frank financial reform bill which required the Government Accountability Office (GAO) to audit and investigate conflicts of interest at the Fed. Those answers raise grave questions about the Federal Reserve and how it operates — and whose interests it serves.

As a result of these GAO reports, we learned that the Federal Reserve provided a jaw-dropping $16 trillion in total financial assistance to every major financial institution in the country as well as a number of corporations, wealthy individuals and central banks throughout the world.

Yes, however, while I haven’t seen the detail, that figure likely includes liquidity provision to FDIC insured banks which is an entirely separate matter and not rightly a ‘bailout’.

The US banking system (rightly) works to serve public purpose by insuring deposits and bank liquidity in general. And history continues to ‘prove’ banking in general can work no other way.

And once government has secured the banking system’s ability to fund itself, regulation and supervision is then applied to ensure banks are solvent as defined by the regulations put in place by Congress, and that all of their activities are in compliance with Congressional direction as well.

The regulators are further responsible to appropriately discipline banks that fail to comply with Congressional standards.

Therefore, the issue here is not with the liquidity provision by the Fed, but with the regulators and supervisors who oversee what the banks do with their insured, tax payer supported funding.

In other words, the liability side of banking is not the place for market discipline. Discipline comes from regulation and supervision of bank assets, capital, and management.

The GAO also revealed that many of the people who serve as directors of the 12 Federal Reserve Banks come from the exact same financial institutions that the Fed is in charge of regulating. Further, the GAO found that at least 18 current and former Fed board members were affiliated with banks and companies that received emergency loans from the Federal Reserve during the financial crisis. In other words, the people “regulating” the banks were the exact same people who were being “regulated.” Talk about the fox guarding the hen house!

Yes, this is a serious matter. On the one hand you want directors with direct banking experience, while on the other you strive to avoid conflicts of interest.

The emergency response from the Fed appears to have created two systems of government in America: one for Wall Street, and another for everyone else. While the rich and powerful were “too big to fail” and were given an endless supply of cheap credit, ordinary Americans, by the tens of millions, were allowed to fail.

The Fed necessarily sets the cost of funds for the economy through its designated agents, the nations Fed member banks. It was the Fed’s belief that, in general, a lower cost of funds for the banking system, presumably to be passed through to the economy, was in the best interest of ‘ordinary Americans.’ And note that the lower cost of funds from the Fed does not necessarily help bank earnings and profits, as it reduces the interest banks earn on their capital and on excess funds banks have that consumers keep in their checking accounts.

However, there was more that Congress could have done to keep homeowners from failing, beginning with making an appropriate fiscal adjustment in 2008 as the financial crisis intensified, and in passing regulations regarding foreclosure practices.

Additionally, it should also be recognized that the Fed is, functionally, an agent of Congress, subject to immediate Congressional command. That is, the Congress has the power to direct the Fed in real time and is thereby also responsible for failures of Fed policy.

They lost their homes. They lost their jobs. They lost their life savings. And, they lost their hope for the future. This is not what American democracy is supposed to look like. It is time for change at the Fed — real change.

I blame this almost entirely on the failure of Congress to make the immediate and appropriate fiscal adjustments in 2008 that would have sustained employment and output even as the financial crisis took its toll on the shareholder equity of the financial sector.

Congress also failed to act with regard to issues surrounding the foreclosure process that have worked against public purpose.

Among the GAO’s key findings is that the Fed lacks a comprehensive system to deal with conflicts of interest, despite the serious potential for abuse. In fact, according to the GAO, the Fed actually provided conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans.

The GAO has detailed instance after instance of top executives of corporations and financial institutions using their influence as Federal Reserve directors to financially benefit their firms, and, in at least one instance, themselves.

For example, the CEO of JP Morgan Chase served on the New York Fed’s board of directors at the same time that his bank received more than $390 billion in financial assistance from the Fed. Moreover, JP Morgan Chase served as one of the clearing banks for the Fed’s emergency lending programs.

This demands thorough investigation, and in any case the conflict of interest should have been publicly revealed at the time.

Getting this type of disclosure was not easy. Wall Street and the Federal Reserve fought it every step of the way. But, as difficult as it was to lift the veil of secrecy at the Fed, it will be even harder to reform the Fed so that it serves the needs of all Americans, and not just Wall Street. But, that is exactly what we have to do.

Yes, I have always supported full transparency.

To get this process started, I have asked some of the leading economists in this country to serve on an advisory committee to provide Congress with legislative options to reform the Federal Reserve.

Here are some of the questions that I have asked this advisory committee to explore:

1. How can we structurally reform the Fed to make our nation’s central bank a more democratic institution responsive to the needs of ordinary Americans, end conflicts of interest, and increase transparency? What are the best practices that central banks in other countries have developed that we can learn from? Compared with central banks in Europe, Canada, and Australia, the GAO found that the Federal Reserve does not do a good job in disclosing potential conflicts of interest and other essential elements of transparency.

Yes, full transparency in ‘real time’ would serve public purpose.

2. At a time when 16.5 percent of our people are unemployed or under-employed, how can we strengthen the Federal Reserve’s full-employment mandate and ensure that the Fed conducts monetary policy to achieve maximum employment? When Wall Street was on the verge of collapse, the Federal Reserve acted with a fierce sense of urgency to save the financial system. We need the Fed to act with the same boldness to combat the unemployment crisis.

Unfortunately employment and output is not a function of what’s called ‘monetary policy’ so what is needed from the Fed is full support of an active fiscal policy focused on employment and price stability.

3. The Federal Reserve has a responsibility to ensure the safety and soundness of financial institutions and to contain systemic risks in financial markets. Given that the top six financial institutions in the country now have assets equivalent to 65 percent of our GDP, more than $9 trillion, is there any reason why this extraordinary concentration of ownership should not be broken up? Should a bank that is “too big to fail” be allowed to exist?

Larger size should be permitted only to the extent that it results in lower fees for the consumer. The regulators can require institutions that wish to grow be allowed to do so only in return for lower banking fees.

4. The Federal Reserve has the responsibility to protect the credit rights of consumers. At a time when credit card issuers are charging millions of Americans interest rates between 25 percent or more, should policy options be established to ensure that the Federal Reserve and the Consumer Financial Protection Bureau protect consumers against predatory lending, usury, and exorbitant fees in the financial services industry?

Banks are public/private partnerships chartered by government for the further purpose of supporting a financial infrastructure that serves public purpose.

The banks are government agents and should be addressed accordingly, always keeping in mind the mission is to support public purpose.

In this case, because banks are government agents, the question is that of public purpose served by credit cards and related fees, and not the general ‘right’ of shareholders to make profits.

Once public purpose has been established, the effective use of private capital to price risk in the context of a profit motive should then be addressed.

5. At a time when the dream of homeownership has turned into the nightmare of foreclosure for too many Americans, what role should the Federal Reserve be playing in providing relief to homeowners who are underwater on their mortgages, combating the foreclosure crisis, and making housing more affordable?

Again, it begins with a discussion of public purpose, where Congress must decide what, with regard to housing, best serves public purpose. The will of Congress can then be expressed by the institutional structure of its Federal banking system.

Options available, for example, include the option of ordering that appraisals and income statements not be factors in refinancing loans originated by Federal institutions including banks and the Federal housing agencies. At the time of origination the lenders calculated their returns based on mortgages being refinanced as rates came down, assuming all borrowers would be eligible for refinancing. The financial crisis and subsequent failure of policy to sustain employment and output has given lenders an unexpected ‘bonus’ through a ‘technicality’ that allows them to refuse requests for refinancing at lower rates due to lower appraisals and lower incomes.

6. At a time when the United States has the most inequitable distribution of wealth and income of any major country, and the greatest gap between the very rich and everyone else since 1928, what policies can be established at the Federal Reserve which reduces income and wealth inequality in the U.S?

The root causes begin with Federal policy that has resulted in an unprecedented transfer of wealth to the financial sector at the expense of the real sectors. This can easily and immediately be reversed, which would serve to substantially reverse the trend income distribution.

Sincerely,

Warren Mosler

The news flow from last week was so voluminous it was nearly impossible to process. For good measure I want to start today’s commentary with a simple recap of what happened.

On the negative side -

· Greece called a referendum and threw bailout plans up in the air taking Greek 2yrs from 70% to 90% or +2000bps.
· Italian 10yr debt collapsed 40bps with spreads to Germany out 70bps. The moves were far larger in the 2yr sector.
· France 10y debt widened 25bps to Germany. At one point spreads were almost 40 wider.
· Italian PMI and Spanish employment data were miserable.
· German factory orders plunged 4.3 percent on the month.
· The planned EFSF bond for 3bio was pulled.
· Itraxx financials were +34 while subs were +45.
· Draghi predicted a recession for Europe along with disinflation.
· The G20 was flop – there was no agreement on IMF involvement in Europe.
· The US super committee deadline is 17 days away with no clear agreement.
· The 8th largest US bankruptcy in history took place.
· US 10yr and 30yr rallied 28bps, Spoos were -2.5%, the Dax was -6% and EURUSD was -3%.
· German CDS was up 16bps on the week.

On the positive side -

· The Fed showed its hand with tightening dissents now gone and an easing dissent in place.

Too bad what they call ‘easing’ at best has been shown to do nothing.

· The Fed’s significant downside risk language remained intact.

Downside risks sound like bad news to me.

· In the press conference Ben teed up QE3 in MBS space.

Which at best have been shown to do little or nothing for the macro economy.

· US payrolls, claims, vehicle sales and productivity came in better than expected.

And the real output gap if anything widened.

· S&P earnings are coming in at +18% y/y with implied corporate profits at +23 percent q/q a.r.

Reinforces the notion that it’s a good for stocks, bad for people economy.

· Mortgage speeds were much faster than expectations suggesting some easing refi pressures.

And savers holding those securities saw their incomes cut faster than expected.

· The ECB cut 25bps and indicated a dovish forward looking stance.

Which reduced euro interest income for the non govt sectors

· CME Margins were reduced.

Just means volatility was down some.

· There was a massive USDJPY intervention which may be a precursor to a Swiss style Japanese policy easing.

Which, for the US, means reduced costs of imports from Japan, which works against US exports, which should be a good thing for the US as it means for the size govt we have, taxes could be lowered to sustain demand, but becomes a bad thing as our leadership believes the US Federal deficit to be too large and so instead we get higher unemployment.

· The Swiss have indicated they want an even weaker CHF – possibly EURCHF 1.40.

When this makes a list of ‘positives’ you know the positives are pretty sorry

· The Aussies cut rates 25bps

Cutting net interest income for the economy.

More of the blind leading the blind. The one thing they all agree on, at great expense to global well being, is the budget deficits are all too large and the need for shared sacrifice and all that.

No chance for anything constructive to come out of any of this.

And these masters of their money machines don’t even know how to inflate, as they all desperately try to inflate with their versions of quantitative easing, which, functionally, is just another demand draining tax.

*DJ Merkel, Obama Discussed How To Boost EFSF Firepower Without ECB
*DJ Obama To Merkel: We Are Totally Invested In Your Success – Source
*DJ Geithner, Schaeuble May Meet To Discuss IMF Role In Euro Crisis -Source

While the symptoms get continuous attention as they get threatening enough, the underlying cause-the austerity- does not.

The euro zone, like most of the world, is failing to meet its further economic objectives because of a lack of aggregate demand.

And in the euro zone, the fundamental problem is that the member nations, as credit sensitive ‘currency users’ are necessarily pro cyclical in a downturn, much like the US states, and therefore incapable of independently meeting their further economic objectives.

So even as the euro zone struggles to address it’s solvency crisis that threatens the union itself as well as at least part of what remains of the global financial architecture, the underlying shortage of euro net financial assets continues to undermine output and employment, with GDP growth now forecast to fall to 0 with a chance of going negative in the current quarter.

What this means is that without adopting an alternative to the current policy of applying enhanced austerity as the means of addressing the solvency issue, it all remains in a very ugly downward spiral with social collapse far less than impossible.

So yes, the solvency issue can continue to be managed by the ECB, the issuer of the euro, continuing to buy national government debt as needed. But that doesn’t add net euro financial assets to the economy. It merely shifts financial assets held by the economy from the debt of the national governments to deposits at the ECB. So it does nothing with regards to output, employment, inflation, etc. as recent history has shown.

In fact, nothing the world’s central banks do adds net financial assets to their economies. And much of what they do actually removes net financial assets from their economies, making things worse. Note that last year the Fed turned over some $79 billion in profits to the Treasury. Those profits came from the economy, having been removed from the economy by the Fed’s policy of quantitative easing, which the old text books rightly used to call a tax.

And meanwhile, the imposed austerity that accompanies the bond purchases does directly alter output and employment- for the worse.

Additionally, for all practical purposes, there is universal global support for austerity as the means supporting global output and employment.

So even if the euro zone gets the solvency issue right, with the ECB writing the check to remove all funding constraints, the ongoing austerity will continue to depress the real economies.

The obvious hasn’t been making the headlines:

A no vote means a lot more immediate austerity than a yes vote.

A no vote means Greece can’t borrow at all, and therefore govt. checks will only clear if Greece immediately cuts back to where it is only spending tax revenue.

A yes vote means Greece can continue to spend quite a bit more than tax revenues, to the tune of the check from the benefactors.

And with no one in government at any level having any kind of a plan to leave the euro, and no idea how to manage a new currency in any case, that option continues to have no political support.

So the choices are:
Yes, we accept a relatively modest deficit cut as per the EU proposal.
No, we prefer to go cold turkey to a balanced budget and a seriously draconian cut.

Meanwhile, tick, tick, tick, the entire euro economy continues to slow, and continuously nudge up the entire region’s budget deficit, as they all work their way towards the same fate as Greece.

And, tick, tick, tick, the US deficit reduction process moves forward, with multi trillion dollar reductions already proposed by both parties.

Greek Vote Threatens Bailout

By Alkman Granitsas, Marcus Walker, and Costas Paris

November 1 (WSJ) — ATHENS—Greek Prime Minister George Papandreou stunned Europe by announcing a referendum on his country’s latest bailout—a high-stakes gamble that could undermine the international effort to preserve the euro.

A “yes” vote in the referendum could deflate the massive street protests and strikes that threaten to paralyze Greece as it tries to enact a brutal austerity program to earn rescue loans from the euro zone and the International Monetary Fund.

He’ll be back…The way things are going there is no alternative, a point market forces continue to make.

And no amount of tea from China, at any price, would be sufficient given current institutional structure and policy.

And more discussion on whether Greece should be allowed to default, even as haircut talk rises to 60%, and as the notion of ‘voluntary’ comes under further discussion. After all, if they don’t have to pay their debts, why should any other member nation have to pay its debts? etc.

Sarkozy yields on ECB crisis role, pressure on Italy

By Julien Toyer and Andreas Rinke

October 24 (Reuters) — European Union leaders made some progress towards a strategy to fight the euro zone’s sovereign debt crisis on Sunday, nearing agreement on bank recapitalization and on how to leverage their rescue fund to try to stop bond market contagion.

But final decisions were deferred until a second summit on Wednesday and sharp differences remain over the size of losses private holders of Greek government bonds will have to accept.

French President Nicolas Sarkozy backed down in the face of implacable German opposition to his desire to use unlimited European Central Bank funds to fight the crisis.

Instead, the euro zone may turn to emerging economies such as China and Brazil for help in underpinning its sickly bond market.

Top Economists to Advise Sanders on Fed Reform

October 20, 2011

WASHINGTON, Oct. 20 – Nobel Prize-winning economist Joseph Stiglitz and other nationally-renowned economists agreed today to serve on a panel of experts to help Sen. Bernie Sanders (I-Vt.) draft legislation to reform the Federal Reserve.

Sanders announced formation of his expert advisory panel in the wake of a damning report that faulted apparent conflicts of interest by bank-picked board members at the 12 regional Fed banks.

Top executives from Goldman Sachs, J.P. Morgan Chase, General Electric and other firms sat on the boards of regional Federal Reserve banks while their firms benefited from the central bank’s policies during the financial crisis, the Government Accountability Office investigation found. The dual roles created an appearance of a conflict of interest, according to the GAO.

After the report was issued Wednesday, Sanders said he would work with top economists to develop legislation to restructure the Fed and tighten rules on conflicts of interest, ensure that the Fed fulfills its full-employment mandate, increase transparency, protect consumers and reduce income inequality.

Sanders’ panel of experts includes:

Joseph Stiglitz, the 2001 winner of the Nobel Prize. The economics professor at Columbia University is a former chief economist for the World Bank.

Jeffrey Sachs, director of The Earth Institute and an economics professor at Columbia University. He also is special advisor to United Nations Secretary-General Ban Ki-moon.

Lawrence Mishel, president of the Economic Policy Institute, the premier research organization focused on U.S. living standards and labor markets.

William Black, associate professor of economics and law at the University of Missouri, Kansas City. He worked with the Federal Home Loan Bank Board, the Federal Savings and Loan Insurance Corporation and the Office of Thrift Supervision.

Nomi Prins, a senior fellow at Demos, was a managing director at Goldman Sachs, a senior manager at Bear Stearns in London, a senior strategist at Lehman Brothers, and an analyst at the Chase Manhattan Bank (now JPM Chase)

Jane D’Arista, an Economic Policy Institute research associate, has written on the history of U.S. monetary policy and financial regulation, The former Boston University School of Law professor previously served as a staff economist for Congress.

Tim Canova, professor of economics and law and co-director of the Center for Global Law & Development at the Chapman University School of Law in Orange, Calif. He was an early critic of financial deregulation and warned of the dangers of the bubble economy.

Robert Johnson, senior fellow and director of the Project on Global Finance at the Roosevelt Institute. He was chief economist of the Senate Banking Committee and a senior economist for the Senate Budget Committee.

Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C. He was a senior economist at the Economic Policy Institute, a consultant for the World Bank and the Joint Economic Committee of the U.S. Congress.

Gerald Epstein, chair of the economics department at the University of Massachusetts at Amherst. Epstein also is the co-director of the Political Economy Research Institute.

Robert Pollin, co-director of the Political Economy Research Institute and economics professor at the University of Massachusetts-Amherst. He has worked with the Joint Economic Committee and the U.S. Competitiveness Policy Council.

Stephanie Kelton, assistant professor at the University of Missouri, Kansas City and a research scholar at the Center for Full Employment and Price Stability.

James K. Galbraith, professor of government at the Lyndon B. Johnson School of Public Affairs. He served in several positions on the staff of the U.S. Congress, including Executive Director of the Joint Economic Committee.

The need for major reforms at the Federal Reserve was driven home by the GAO findings announced Wednesday and in an earlier report issued on July 21. Both unprecedented audits of the Federal Reserve were required by a Sanders’ amendment to last year’s Wall Street reform law.

The news out of Europe has turned from mixed for the last week or so to troubling.

On the one hand they seem to realize that the answer is the ECB writing the check, and on the other they seem to be saying they don’t want to do that. And on the one hand they say Greece won’t default, and on the other is a serious discussion of the ramifications of default. And as the haircut talk on private holders of Greek debt has gone from 21% to 50% and maybe more, the ECB says they will keep their Greek bonds which will presumably mature at par, but at the same time additional ECB capital calls are under consideration due to what they call increased risk of loss.

The idea that the EFSF alone writing checks to support Portugal, Spain, and Italy would weaken the credit worthiness of the core has also been discussed, which is why talk of ECB support had materialized.

Meanwhile, even as the austerity continues to bite, perhaps to the point where the austerity is now causing deficits to be larger, additional austerity measures continue to be demanded and imposed.

And where the banks stand with regard to solvency is anyone’s guess as well.

In other words, it’s all moving further away from any sense of resolution, with uncertainty about as high now as it’s ever been, as is the potential for a catastrophic financial event.

So how do you reconcile these two releases?

How about, they want the market to price in large haircuts so the ECB can buy the bonds that much cheaper?

Just guessing!

ECB Says Private-Sector Involvement in Rescues is Stability Risk

By Jeff Black

October 13 (Bloomberg) — The ECB said the involvement of the private sector in euro-area bailouts through enforced investor losses is a risk to financial stability and would have “direct negative effects” on the banking sector. While private-sector involvement “is certain to place significant stress on the solvency of banks and other private financial institutions in the country concerned, it will also have an impact on the balance sheets of banks in other euro-area countries,” the bank said in its monthly bulletin today. “The ECB has strongly advised against all concepts that are not purely voluntary or that have elements of compulsion, and has called for the avoidance of any credit events and selective default or default.”

Europe eyes bigger Greek losses for banks

By Jan Strupczewski

October 12 (Reuters) — Euro zone countries will ask banks to accept losses of up to 50 percent on their holdings of Greek debt. Ahead of a make-or-break summit of European leaders on October 23 at which a comprehensive new Franco-German crisis plan is expected to be discussed, four euro zone officials told Reuters that a “haircut” of between 30 and 50 percent for Greece’s private creditors was under consideration. That is far more than the 21 percent loss they had asked banks, pension funds and other financial institutions to accept in July as part of a second rescue package for Athens.

Shows how quick Republicans are to ‘step up’ from Romney. Shows there’s a lot more than racism working against President Obama.

And shows translating Tea Party rhetoric into logically consistent policy proposals is highly problematic at best.

With Cain leading, his 999 proposal is suddenly getting more serious media attention, and getting ripped to shreds.

Leaves the Republicans, and the nation, without any headline proposals to debate, Romney holding on as the default candidate, and President Obama holding on to a narrow lead.

Cain Beats Romney as GOP Frontrunner for Primary

By John Harwood

October 12 (CNBC) — Business executive Herman Cain has jumped to the top of the volatile Republican presidential race in a campaign season dominated by economic anxiety.

Among Republican primary voters, Cain leads former Massachusetts Gov. Mitt Romney 27 percent to 23 percent, according to the latest NBC News/Wall Street Journal poll.

Texas Gov. Rick Perry, who led the August NBC/WSJ survey with 38 percent supported, plummeted to third place with 16 percent. He was followed by Rep. Ron Paul with 11 percent, former House Speaker Newt Gingrich with 8 percent, Rep. Michele Bachmann with 5 percent, former Utah Gov. Jon Huntsman with 3 percent and former Sen. Rick Santorum with 1 percent.

Cain’s rapid rise, from 5 percent in the previous poll, underscores the volatility of the 2012 GOP nomination contest. Like the rank-and-file’s earlier flirtations with Donald Trump, Michele Bachmann and Perry, this one, too, may not last.

Bill McInturff, the Republican pollster who conducts the Journal/NBC survey with his Democratic counterpart Peter Hart, cautioned that this latest “speculative bubble” reflects the Republican base sifting a presidential field without a dominant front-runner. Romney holds a lead in fund-raising and in New Hampshire’s first-in-the-nation primary, but has so far been unable to capture the heart of his party.

“He’s the remainder-man candidate for the Republicans,” Hart said. “Acceptable, but not their first choice.”

Yes, it is highly regressive, and, worse, the 9% Federal sales tax is a transactions tax that discourages those transactions it taxes.

And, taking him at his word, it balances the budget, which leaves the economy even more short of aggregate demand than the current tax structure, meaning unemployment would be that much higher unless it somehow drives up private sector debt expansion by $trillions per year.

Cain: I’m the Only One Who Wants to Kill Tax Code

By Jeff Cox

October 12 (CNBC) — Now that Herman Cain’s stock has been rising in the Republican presidential scrabble, he’s drawing a clear line between himself and the other candidates when it comes to taxes.

Where his fellow GOP challengers are content to tinker with the current convoluted tax code, Cain says he is the only one who wants to junk the current system altogether and come up with a simpler way that everyone can understand.

It’s all part of his 9-9-9 proposal, which he discussed on CNBC.

“Their plans or ideas all pivot off the existing tax code,” the former CEO of Godfather’s Pizza said in an interview Wednesday. “My plan is the only one that throws out the tax code and is a fresh presentation of how we raise revenue on an expanded base.”

Cain has unexpectedly become one of the Republican leaders in the crowded field. Entering the race as a virtual unknown, Cain shocked the race by winning last month’s Florida straw poll. Recent surveys from Gallup and others have him in a virtual dead-heat with Mitt Romney, the frontrunning former Massachusetts governor.

At its core, the Cain plan slaps a 9 percent flat tax — no loopholes, no exceptions — on businesses, individuals and sales.

While the exact figures have yet to be released, the candidate said he has had his plan scored by an analytical firm and he will show that it generates more revenue while stimulating growth for the ailing U.S. economy.

“No, it is not regressive,” he said. “First of all, by putting it on sales tax — that third ’9′ — we are going to pick up revenue that we are not getting today. That helps to lower the rate for everybody including the people that are making the least amount of money.”

First, The ECB should turn the bonds it buys into Mosler bonds, by requiring the govt of issue to legally state that in the case of non payment, the bearer on demand can use those bonds for payment of taxes to the govt of issue.

The ECB holding Mosler bonds will shift the default option from the issuer to the ECB, as in the case of non payment,
the ECB would have the option to make it’s holdings available for sale to tax payers of that nation to offset their taxes.

Therefore, conversion to Mosler bonds will ensure that the ECB’s holdings of national govt debt are ‘money good’ without regard to external credit ratings, and give the ECB control over the default process.

Second, I see several substantial reasons Greece should not be allowed to default, which center around why it’s in the best interest of Germany for Greece not to default.

Sustaining Greece with ECB purchases of Greek debt costs German tax payers nothing.

The purchases are not inflationary because they are directly tied to reduced Greek spending and increased Greek taxes, which are both deflationary forces for the euro zone.

Funding Greece facilitates the purchase of German exports to Greece.

Funding Greece does not reward Greek bad behavior.
Instead, it exacts a price from Greece for its bad behavior.

With the ECB prospectively owning the majority of Greek debt, and, potentially, Greek Mosler bonds, Greece will be paying interest primarily to the ECB.

The funding of Greece by the ECB carries with it austerity measures that will bring the Greek budget into primary balance.

That means Greek taxes will be approximately equal to Greek govt expenditures, not including interest, which will then be largely payments to the ECB.

So if default is not allowed, the Greek govt spending will be limited to what it taxes, and additional tax revenues will be required as well to pay interest primarily to the ECB.

But if default is facilitated, Greece will still be required to spend only from tax revenues, but the debt forgiveness will mean substantially lower interest payments to the ECB than otherwise.

And while without default, it can be said that the holders of Greek bonds have been bailed out, the euro zone will be considering the following:

The ECB buys Greek bonds at a discount, indicating holders of those bonds have, on average, taken a loss.

The EU in general did not consider the purchase of Greek bonds as bad behavior that is rightly punished with a default.

In fact, it was EU regulation and guidelines that resulted in the initial purchases of Greek bonds by its banking system.

Therefore, I see the main reason Greece will not be allowed to default is that not allowing default serves the further purpose of Germany and the EU by every measure I can think of.

It sustains the transfer of control of fiscal policy to the ECB.
It’s deflationary which helps support the value of the currency.
It provides for an ongoing income stream from Greece to the ECB.

Note, however, that not long ago it was not widely recognized as it now is that the ECB can write the check without nominal limit.

Before the EU leaders recognized that fundamental of monetary operations, Greek default was serious consideration for financial reasons as it was believed the funding of Greece and subsequently the rest of the ‘weaker’ euro zone nations would threaten the entire euro zone’s ability to fund itself.

It is the realization that the ECB is the issuer of the currency, and is therefore not revenue constrained, that leads to the conclusion that not allowing Greece to default best serves public purpose.

(as always, feel free to distribute, repost, etc.)

With the super committee on deficit reduction now in session,
let’s not forget that at year end
both parties showed that they will violate their presumed ‘core values’ when convenient.

This was written in February.
At year end I was suggesting the year end tax package might slow the economy due to ‘multipliers’ even though the headline numbers showed a tax reduction.

http://tax.com/taxcom/taxblog.nsf/Permalink/UBEN-8E3J74?OpenDocument

Obama and the GOP: United Against the Working Poor
David Cay Johnston | Feb. 14, 2011 11:57 AM EST

 
Who says bipartisanship is dead?

 
On Capitol Hill, the Democrats and Republicans may no longer play cards and drink together, but that does not seem to stop them from working together to shift tax burdens down the income ladder even when it violates their promises on the campaign trail.

 
Grover Norquist calls bipartisanship the political equivalent of date rape. But there is one group that President Obama, many congressional Democrats, and all congressional Republicans ganged up on in December — the working poor.

 
The tax compromise passed in December has been hailed everywhere as a payroll tax cut combined with an extension of the Bush tax cuts, despite the fact that it raised taxes on a third of Americans. The killing of Obama’s Making Work Pay tax credit, which the White House called the biggest middle-income tax cut ever, and the replacement of it with the Republicans’ payroll tax cut raised taxes on single workers whose wages come to $20,000 or less and married couples with less than $40,000 in wages.

 
That’s 51 million taxpayers, the Tax Policy Center estimated. (See Table T10-277.)

 
Among the poorest fifth of tax units, whose annual cash income is less than $17,878, two-thirds got hit with a tax increase. On average, their taxes went up $134, which is 1.3 percent of this group’s total cash income.

 
Consider a single worker who makes $6,000. That was the average wage of the bottom third of workers in 2009, the Medicare tax database shows. Killing the Making Work Pay credit in favor of the payroll tax cut amounted to a tax increase of $252, or 4 percent of total income.

 
Looked at another way, some workers will labor for 23 days this year and next just to pay increased taxes.

 
The pattern of the Republican-Obama tax plan is a clear stepladder in which the more you make, the more you benefit, and the less you make, the more you pay. This is a form of socialism: upward redistribution to enrich those at the top.

 
While two-thirds of the poorest Americans — the ones getting by on less than $1,500 a month — face a tax increase, the share of people hit with tax increases falls off quickly as you move up the income stepladder.

 
In the next lowest quintile, taxpayers with cash incomes of under $35,000, 40 percent saw their taxes rise, while in the middle quintile (under $64,000), one in five got a tax increase. In the fourth quartile (under $104,600), one in eight got a tax hike, and in the top quartile, one in 20 did.

 
At the top, just 1.8 percent of the top 1 percent (more than $564,600) were hit with a tax increase. Just 1.3 percent among the top tenth of 1 percent (more than $2 million) got a tax hike. These best-off one in 1,000 Americans got a tax cut worth on average $45,000 each, all financed with borrowed money.

 
In raising taxes on the working poor (and the just plain poor), our supposedly socialist president proved himself at one with Ronald Reagan, the subject of all sorts of hagiography this month on what would have been his 100th birthday. Hardly any of the effusive praise points out that while Reagan polished his image as a tax cutter, he was in fact a tax raiser par excellence who presided over a massive expansion of government spending that primarily benefited the affluent and rich.

 
Reagan raised taxes in seven of the eight years he was governor of California, including when he abandoned his “taxes should hurt” rhetoric to impose withholding so he could expand state spending on the Highway Patrol and other policing. In Washington, Reagan presided over 11 increased levies.

 
The perpetually obsequious Washington press corps let his administration call these tax increases “revenue enhancers.” The late Murray N. Rothbard, a hero to libertarians and self-proclaimed dean of the Austrian school of economics, called this Reaganism “a nice touch of creative Orwellian semantics.”

This is the speech I would make if I were President Obama:

My fellow Americans, let me get right to the point.

I have three bold new proposals to get back all the jobs we lost, and then some.
In fact, we need at least 20 million new jobs to restore our lost prosperity and put America back on top.

First let me state that the reason private sector jobs are lost is always the same.
Jobs are lost when business sales go down.
Economists give that fancy words- they call it a lack of aggregate demand.

But it’s very simple.
A restaurant doesn’t lay anyone off when it’s full of paying customers,
no matter how much the owner might hate the government,
the paper work, and the health regulations.

A department store doesn’t lay off workers when it’s full of paying customers,
And an engineering firm doesn’t lay anyone off when it has a backlog of orders.

Restaurants and other businesses lay people off when their customers stop buying, for any reason. So the reason we lost 8 million jobs almost all at once back in 2008 wasn’t because all of a sudden all those people decided they’d rather collect unemployment than work.
The reason all those jobs were lost was because sales collapsed.
Car sales, for example, collapsed from a rate of almost 17 million cars a year to just over 9 million cars a year.
That’s a serious collapse that cost millions of jobs.

Let me repeat, and it’s very simple, when sales go down, jobs are lost,
and when sales go up, jobs go up, as business hires to service all their new customers.

So my three proposals are specifically designed to get sales up to make sure business has a good paying job for anyone willing and able to work.

That’s good for businesses and all the people who work for them.

And these proposals are bipartisan.
They are supported by Americans ranging from Tea Party supporters to the Progressive left, and everyone in between.

So listen up!

My first proposal if for a full payroll tax suspension.
That means no FICA taxes will be taken from both employees and employers.

These taxes are punishing, regressive taxes that no progressive should ever support.
And, of course, the Tea Party is against any tax.
So I expect full bipartisan support on this proposal.

Suspending these taxes adds hundreds of dollars a month to the incomes of people working for a living. This is big money, not just a few pennies as in previous measures.

These are the people doing the real work.
Allowing them to take home more of their pay supports their good efforts.
Right now take home pay is barely enough to pay for food, rent, and gasoline, with not much left over. When government stops taking FICA taxes out of their pockets, they’ll be able to get back to more normal levels of spending.

And many will be able to better make their mortgage payments and their car payments,
which, by the way, is what the banks really want- people who can make their payments.
That’s the bottom up way to fix the banks, and not the top down bailouts we’ve done in the past.

And the payroll tax holiday is also for business, which reduces costs for business, which, through competition, helps keep prices down for all of us. Which means our dollars buy more than otherwise.

So a full payroll tax holiday means more take home pay for people working for a living,
and lower costs for business to help keep prices and inflation down,
so sales can go up and we can finally create those 20 million private sector jobs we desperately need.

My second proposal is for a one time $150 billion Federal revenue distribution to the 50 state governments with no strings attached.
This will help the states to fill the financial hole created by the recession,
and stay afloat while the sales and jobs recovery spurred by the payroll tax holiday
restores their lost revenues.

Again, I expect bipartisan support.
The progressives will support this as it helps the states sustain essential services,
and the Tea Party believes money is better spent at the state level than the federal level.

My third proposal does not involve a lot of money, but it’s critical for the kind of recovery that fits our common vision of America.
My third proposal is for a federally funded $8/hr transition job for anyone willing and able to work, to help the transition from unemployment to private sector employment.

The problem is employers don’t like to hire the unemployed, and especially the long term unemployed. While at the same time, with the payroll tax holiday and the revenue distribution to the states,business is going to need to hire all the people it can get. The federally funded transition job allows the unemployed to get a transition job, and show that they are willing and able to go to work every day, which makes them good candidates for graduation to private sector employment.

Again, I expect this proposal to also get solid bipartisan support.
Progressives have always known the value of full employment,
while the Tea Party believes people should be able to work for a living, rather than collect unemployment.

Let me add here that nothing in these proposals expands the role or scope of the federal government.
The payroll tax holiday is a cut of a regressive, punishing tax,
that takes the government’s hand out of the pockets of both workers and business.

The revenue distribution to the states has no strings attached.
The federal government does nothing more than write a check.

And the transition job is designed to move the unemployed, who are in fact already in the public sector, to private sector jobs.

There is no question that these three proposals will drive the increase in sales we need to
usher in a new era of prosperity and full employment.

The remaining concern is the federal budget deficit.

Fortunately, with the bad news of the downgrade of US Treasury securities by Standard and Poors to AA+ from AAA, a very important lesson was learned.

Interest rates actually came down. And substantially.

And with that the financial and economic heavy weights from the 4 corners of the globe
made a very important point.

The markets are telling us something we should have known all along.
The US is not Greece for a very important reason that has been overlooked.
That reason is, the US federal government is the issuer of its own currency, the US dollar.
While Greece is not the issuer of the euro.

In fact, Greece, and all the other euro nations, have put themselves in the position of the US states. Like the US states, Greece and other euro nations are not the issuer of the currency that they spend. So they can run out of money and go broke, and are dependent on being able to tax and borrow to be able to spend.

But the issuer of its own currency, like the US, Japan, and the UK,
can always pay their bills.
There is no such thing as the US running out of dollars.
The US is not dependent on taxes or borrowing to be able to make all of its dollar payments.
The US federal government can not go broke like Greece.

That was the important lesson of the S&P downgrade,
and everyone has seen it up close and personal and they all now agree.
And now they all know why, with the deficit at record high levels, interest rates remain at record low levels.

Does that mean we should spend without limit and not tax at all?
Absolutely not!
Too much spending and not enough taxing will surely drive up prices and inflation.

But it does mean that right now,
with unemployment sky high and an economy on the verge of another recession,
we can immediately enact my 3 proposals to bring us back to
a strong economy with good jobs for people who want them.

And some day, if somehow there are too many jobs and it’s causing an inflation problem,
we can then take the measures needed to cool things down.

But meanwhile, as they say, to get out of hole we need to stop digging,
and instead implement my 3 proposals.

So in conclusion, let me repeat these three, simple, direct, bipartisan proposals
for a speedy recovery:

A full payroll tax holiday for employees and employers
A one time revenue distribution to the states
And an $8/hr transition job for anyone willing and able to work to facilitate
the transition from unemployment to private sector employment as the economy recovers.

Thank you.

GOP may OK tax increase that Obama hopes to block

By Charles Babington

August 22 (AP) — News flash: Congressional Republicans want to raise your taxes. Impossible, right? GOP lawmakers are so virulently anti-tax, surely they will fight to prevent a payroll tax increase on virtually every wage-earner starting Jan. 1, right?

Apparently not.

Many of the same Republicans who fought hammer-and-tong to keep the George W. Bush-era income tax cuts from expiring on schedule are now saying a different “temporary” tax cut should end as planned. By their own definition, that amounts to a tax increase.

Former Massachusetts Gov. Mitt Romney did not flatly rule out an extra year for the payroll tax cut, but he “would prefer to see the payroll tax cut on the employer side” to spur job growth, his campaign said.

Romney completely misses the point, unless he wants it known he’s for favoring employers over employees?

Jobs come mainly from sales, and cutting payroll taxes for workers increases spending, sales, and jobs.

Cutting payroll taxes for business also has benefits, as that reduces costs which puts downward pressure on prices which helps consumers and does thereby add to sales, but in a much smaller way.

I continue to propose we suspend FICA entirely.

Looks to me like this latest discussion will only strengthen suspicions that Republicans are trying to keep the economy from improving to hurt the President’s chances of winning next year.