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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Archive for the 'Political' Category

Obama double talk on jobs

Posted by WARREN MOSLER on 20th May 2013

Note the flip flop.

Obama Says Job Market May ‘Stall’ as Result of Budget Cuts

By Hans Nichols

May 19 (Bloomberg) — President Barack Obama told a group of Democratic donors in Atlanta that the economy and job market could falter as a result of the automatic spending cuts that went into effect March 1.

“Because of some policies in Washington, like the sequester, growth may end up slowing,” Obama said at a luncheon for the Democratic Senatorial Campaign Committee. “We may see once again the job market stall.”

The president was in Atlanta to give the commencement address at Morehouse College and he told the donors that while he was energized by the spirit of the graduates “they are entering into a job market that is still challenging.”

Earlier, at the commencement ceremony, Obama gave the labor market a more positive rendering. He told the graduates “you’re graduating into a job market that’s improving.”

American employers added more workers than forecast in April, sending the unemployment rate down to a four-year low of 7.5 percent. More Americans than projected filed claims for jobless benefits last week and manufacturing in the Philadelphia region unexpectedly shrank in May, signs that a slowdown in growth is rippling through the U.S. economy.

Posted in Employment, Obama, Political | No Comments »

Overall view of the economy

Posted by WARREN MOSLER on 29th April 2013

This is my overall view of the economy.

The US was on the move by Q4 last year. A housing and cars (and student loans) driven expansion was happening, with slowing transfer payments and rising tax revenues bringing the deficit down as the automatic stabilizers were doing their countercyclical thing that would eventually reverse the growth. But that could take years. Look at it this way. Someone making 50,000 per year borrowed 150,000 to buy a house. The loan created the deposit that paid for the house. The seller of the house got that much new income, with a bit going to pay taxes and the rest there to be spent. Maybe a bit of furniture etc. was bought on credit as well, again adding income and (gross) financial assets to the recipients of the borrowers spending. And increasing sales added employment as well as output, albeit not enough to keep up with population growth etc.

I was very hopeful. Back in November, after the ‘Obama is a socialist’ sell off, I wrote that it was time to buy stocks and go play golf for three years, as, left alone, the credit accelerator in progress could go on for a long time.

But it wasn’t left along. Only a few weeks later the cliff drama began to intensify, with lots of fear of going over the ‘full cliff’. While that didn’t happen, we did go over about 1/3 cliff when both sides let the FICA reduction expire, thus removing some $170 billion from 2013, along with strong prospects of an $85 billion (annualized) sequester at quarter end. This moved me ‘to the sidelines’. Seemed to me taking that many dollars out of the economy was a serious enough negative for me to get out of the way.

But the Jan and then Feb numbers showed I was wrong, and that the consumer had continued to grow his spending as before via housing and cars, etc. Even the cliff constrained -.1 GDP of Q4 was soon revised up to .4. Stocks kept moving up and bonds moved higher in yield, even as the sequester kicked in, with the market view being the FICA hike fears were bogus and same for the sequester fears. Balancing the budget and getting the govt out of the way does indeed work to support the private sector. The UK, Eurozone, and Japan were exceptions. Austerity inherently does work. And markets were discounting all that, as it’s what market participants believed and the data supported.

Then, it all changed. April releases of March numbers showed not only suddenly weak March numbers, but Jan and Feb numbers revised lower as well. The slope of things post FICA hike went from positive to negative all at once. The FICA hike did seem to have an effect after all. And with the sequesters kicking in April 1, the prospects for Q2 were/are looking worse by the day.

My fear is that the FICA hikes and sequesters didn’t just take 1.5% of GDP ‘off the top’ as forecasters suggest, leaving future gains from the domestic credit expansion there to add to GDP as they had been. That is, the mainstream forecasts are saying when someone’s paycheck goes down by $100 per month from the FICA hike, or loses his job from the sequester, he slows his spending, but he still borrows to buy a car and/or a house as if nothing bad had happened, and so GDP is reduced by approximately the amount of the tax hikes and spending cuts, with a bit of adjustment for the ‘savings multipliers’. I say he may not borrow to buy the house or the car. Which both removes general spending and also slows the credit accelerator, shifting the always pro cyclical private sector from forward to reverse. And the ‘new’ negative data slopes have me concerned it’s already happening. Before the sequesters kicked in.

Looking at Japan, theory and evidence tells me the lesson is that lower interest rates require higher govt deficits for the same level of output and employment. More specifically, it looks to me like 0 rates may require 7-8% or even higher deficits for desired levels of output and employment vs maybe 3-4% deficits when the central bank sets rates at maybe 5% or so, etc. And US history could now be telling much the same.

And another lesson from Japan we should have learned long ago is that QE is a tax that does nothing good for output or employment and is, if anything, ‘deflationary’ via the same interest income channels we have here. Note that the $90 billion of profits the Fed turned over to the tsy would have been earned in the economy if the Fed hadn’t purchased any securities. So, as always in the past, watch for Japan’s QE to again ‘fail’ to add to output, employment, or inflation. However, their increased deficit spending, if and when it materialize, will support output, employment, and prices as it’s done in the past.

Oil and gasoline prices are down some, which is dollar friendly and consumer friendly, but only back to sort of ‘neutral’ levels from elevated ‘problematic’ levels And there is risk that the Saudis decide to cut price for long enough to put the kibosh on the likes of North Dakota’s and other higher priced crude, wiping out the value of that investment and ending the output and employment and currency support from those sources. No way to tell what they may be up to.

So my overall view is negative, with serious deflationary risks looming.

And the solution is still fiscal- a tax cut and/or spending increase.
However, that seems further away then ever, as the President is now moving towards an additional 1.8 trillion of deficit reduction.


Posted in CBs, Comodities, Credit, Employment, Fed, GDP, Government Spending, Japan, Political | No Comments »

The Stockman’s big swinging whip

Posted by WARREN MOSLER on 1st April 2013

The Man from Snowy River

By Banjo Paterson

So Clancy rode to wheel them — he was racing on the wing
Where the best and boldest riders take their place,
And he raced his stock-horse past them, and he made the ranges ring
With the stockwhip, as he met them face to face.
Then they halted for a moment, while he swung the dreaded lash,
But they saw their well-loved mountain full in view,
And they charged beneath the stockwhip with a sharp and sudden dash,
And off into the mountain scrub they flew.

Unemployment is everywhere and always a monetary phenomenon, and necessarily a government imposed crime against humanity. The currency is a simple public monopoly.

The dollars to pay taxes, ultimately come from government spending or lending (or counterfeiting…)

Unemployment can only happen when a govt fails to spend enough to cover the tax liabilities it imposed, and any residual desire to save financial assets that are created by the tax and by other govt policy.

Said another way, for any given size government, unemployment is the evidence of over taxation.

Motivation not withstanding, David Stockman has long been aggressively promoting policy that creates and sustains unemployment.

Comments below:

State-Wrecked: The Corruption of Capitalism in America

By David Stockman

March 30 (NYT) — The Dow Jones and Standard & Poors 500 indexes reached record highs on Thursday, having completely erased the losses since the stock markets last peak, in 2007. But instead of cheering, we should be very afraid.

Over the last 13 years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later within a few years, I predict this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too.

Phony money? What else are $US other than credit balances at the Fed or actual cash in circulation? Of course he fails to realize US treasury securities, also known as ‘securities accounts’ by Fed insiders, are likewise nothing more than dollar balances at the Fed, and that QE merely shifts dollar balances at the Fed from securities accounts to reserve accounts. It’s ‘money printing’ only under a narrow enough definition of ‘money’ to not include treasury securities as ‘money’. Additionally, of course, QE removes interest income from the economy, but that’s another story…

Since the S.&P. 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion).

And also debited/reduced/removed an equal amount of $US from Fed securities accounts. The net ‘dollar printing’ is 0.

Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent annually. Real median family income growth has dropped 8 percent, and the number of full-time middle class jobs, 6 percent. The real net worth of the bottom 90 percent has dropped by one-fourth. The number of food stamp and disability aid recipients has more than doubled, to 59 million, about one in five Americans.

Yes, and anyone who understood monetary operations knows exactly why QE did not add to sales/output/employment, as explained above.

So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants,

‘Paying off the debt’ is simply a matter of debiting securities accounts at the Fed and crediting reserve accounts at the Fed. There are no grandchildren or taxpayers involved, except maybe a few to program the computers and polish the floors and do the accounting, etc.

unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nations bills.

The nations bills are paid via the Fed crediting member bank accounts on its books. Today’s excess capacity and unemployment means that for the size govt we have we are grossly over taxed, not under taxed.

By default, the Fed has resorted to a radical, uncharted spree of money printing.

As above, ‘money printing’ only under a narrow definition of ‘money’.

But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.

With floating exchange rates, bank liquidity, for all practical purposes, is always unlimited. Banks are constrained by capital and asset regulation, not liquidity.

When it bursts, there will be no new round of bailouts like the ones the banks got in 2008.

There is nothing to ‘burst’ as for all practical purposes liquidity is never a constraint.

Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even todays feeble remnants of economic growth.

This dyspeptic prospect results from the fact that we are now state-wrecked. With only brief interruptions, weve had eight decades of increasingly frenetic fiscal and monetary policy activism intended to counter the cyclical bumps and grinds of the free market and its purported tendency to underproduce jobs and economic output. The toll has been heavy.

The currency itself is a simply public monopoly, and the restriction of supply by a monopolist as previously described, is, in this case the cause of unemployment and excess capacity in general.

As the federal government and its central-bank sidekick, the Fed, have groped for one goal after another smoothing out the business cycle, minimizing inflation and unemployment at the same time, rolling out a giant social insurance blanket, promoting homeownership, subsidizing medical care, propping up old industries (agriculture, automobiles) and fostering new ones (clean energy, biotechnology) and, above all, bailing out Wall Street they have now succumbed to overload, overreach and outside capture by powerful interests.

He may have something there!

The modern Keynesian state is broke,

Not applicable. Congress spends simply by having its agent, the tsy, instruct the Fed to credit a member bank’s reserve account.

paralyzed and mired in empty ritual incantations about stimulating demand, even as it fosters a mutant crony capitalism that periodically lavishes the top 1 percent with speculative windfalls.

Some truth there as well!

The culprits are bipartisan, though youd never guess that from the blather that passes for political discourse these days. The state-wreck originated in 1933, when Franklin D. Roosevelt opted for fiat money (currency not fundamentally backed by gold), economic nationalism and capitalist cartels in agriculture and industry.

Under the exigencies of World War II (which did far more to end the Depression than the New Deal did), the state got hugely bloated, but remarkably, the bloat was put into brief remission during a midcentury golden era of sound money and fiscal rectitude with Dwight D. Eisenhower in the White House and William McChesney Martin Jr. at the Fed.

Actually it was the Texas railroad commission pretty much fixing the price of oil at about $3 that did the trick, until the early 1970′s when domestic capacity fell short, and pricing power shifted to the saudis who had other ideas about ‘public purpose’ as they jacked the price up to $40 by 1980.

Then came Lyndon B. Johnsons guns and butter excesses, which were intensified over one perfidious weekend at Camp David, Md., in 1971, when Richard M. Nixon essentially defaulted on the nations debt obligations by finally ending the convertibility of gold to the dollar. That one act arguably a sin graver than Watergate meant the end of national financial discipline and the start of a four-decade spree during which we have lived high on the hog, running a cumulative $8 trillion current-account deficit. In effect, America underwent an internal leveraged buyout, raising our ratio of total debt (public and private) to economic output to about 3.6 from its historic level of about 1.6. Hence the $30 trillion in excess debt (more than half the total debt, $56 trillion) that hangs over the American economy today.

It also happens to equal the ‘savings’ of financial assets of the global economy, with the approximately $16 trillion of treasury securities- $US in ‘savings accounts’ at the Fed- constituting the net savings of $US financial assets of the global economy. And the current low levels of output and high unemployment tell us the ‘debt’ is far below our actual desire to save these financial assets. In other words, for the size government we have, we are grossly over taxed. The deficit needs to be larger, not smaller. We need to either increase spending and/or cut taxes, depending on one’s politics.

This explosion of borrowing was the stepchild of the floating-money contraption deposited in the Nixon White House by Milton Friedman, the supposed hero of free-market economics who in fact sowed the seed for a never-ending expansion of the money supply.

And the never ending expansion of $US global savings desires, including trillions of accumulations in pension funds, IRA’s, etc. Where there are tax advantages to save, as well as trillions in corporate reserves, foreign central bank reserves, etc. etc.

As everyone at the CBO knows, the US govt deficit = global $US net savings of financial assets, to the penny.

The Fed, which celebrates its centenary this year, fueled a roaring inflation in goods and commodities during the 1970s that was brought under control only by the iron resolve of Paul A. Volcker, its chairman from 1979 to 1987.

It was the Saudis hiking price, not the Fed. Note that similar ‘inflation’ hit every nation in the world, regardless of ‘monetary policy’. And it ended a few years after president Carter deregulated natural gas in 1978, which resulted in electric utilities switching out of oil to natural gas, and even OPEC’s cutting of 15 million barrels per day of production failing to stop the collapse of oil prices.

Under his successor, the lapsed hero Alan Greenspan, the Fed dropped Friedmans penurious rules for monetary expansion, keeping interest rates too low for too long and flooding Wall Street with freshly minted cash. What became known as the Greenspan put the implicit assumption that the Fed would step in if asset prices dropped, as they did after the 1987 stock-market crash was reinforced by the Feds unforgivable 1998 bailout of the hedge fund Long-Term Capital Management.

The Fed didn’t bail out LTCM. They hosted a meeting of creditors who took over the positions at prices that generated 25% types of annual returns for themselves.

That Mr. Greenspans loose monetary policies didnt set off inflation was only because domestic prices for goods and labor were crushed by the huge flow of imports from the factories of Asia.

No, because oil prices didn’t go up due to the glut from the deregulation of natural gas .

By offshoring Americas tradable-goods sector, the Fed kept the Consumer Price Index contained, but also permitted the excess liquidity to foster a roaring inflation in financial assets. Mr. Greenspans pandering incited the greatest equity boom in history, with the stock market rising fivefold between the 1987 crash and the 2000 dot-com bust.

No, it wasn’t about Greenspan, it was about the private sector and banking necessarily being pro cyclical. And the severity of the bust was a consequence of the Clinton budget surpluses ‘draining’ net financial assets from the economy, thereby removing the equity that supports the macro credit structure.

Soon Americans stopped saving and consumed everything they earned and all they could borrow. The Asians, burned by their own 1997 financial crisis, were happy to oblige us. They China and Japan above all accumulated huge dollar reserves, transforming their central banks into a string of monetary roach motels where sovereign debt goes in but never comes out. Weve been living on borrowed time and spending Asians borrowed dimes.

Yes, the trade deficit is a benefit that allows us to consume more than we produce for as long as the rest of the world continues to desire to net export to us.

This dynamic reinforced the Reaganite shibboleth that deficits dont matter and the fact that nearly $5 trillion of the nations $12 trillion in publicly held debt is actually sequestered in the vaults of central banks. The destruction of fiscal rectitude under Ronald Reagan one reason I resigned as his budget chief in 1985

I wonder if he’ll ever discover how wrong he’s been, and for a very long time.

was the greatest of his many dramatic acts. It created a template for the Republicans utter abandonment of the balanced-budget policies of Calvin Coolidge and allowed George W. Bush to dive into the deep end, bankrupting the nation

Hadn’t heard about an US bankruptcy filing? Am I missing something?

through two misbegotten and unfinanced wars, a giant expansion of Medicare and a tax-cutting spree for the wealthy that turned K Street lobbyists into the de facto office of national tax policy. In effect, the G.O.P. embraced Keynesianism for the wealthy.

He’s almost convinced me deep down he’s a populist…

The explosion of the housing market, abetted by phony credit ratings, securitization shenanigans and willful malpractice by mortgage lenders, originators and brokers, has been well documented. Less known is the balance-sheet explosion among the top 10 Wall Street banks during the eight years ending in 2008. Though their tiny sliver of equity capital hardly grew, their dependence on unstable hot money soared as the regulatory harness the Glass-Steagall Act had wisely imposed during the Depression was totally dismantled.

Can’t argue with that!

Within weeks of the Lehman Brothers bankruptcy in September 2008, Washington, with Wall Streets gun to its head, propped up the remnants of this financial mess in a panic-stricken melee of bailouts and money-printing that is the single most shameful chapter in American financial history.

The shameful part was not making a fiscal adjustment when it all started falling apart. I was calling for a full ‘payroll tax holiday’ back then, for example.

There was never a remote threat of a Great Depression 2.0 or of a financial nuclear winter, contrary to the dire warnings of Ben S. Bernanke, the Fed chairman since 2006. The Great Fear manifested by the stock market plunge when the House voted down the TARP bailout before caving and passing it was purely another Wall Street concoction. Had President Bush and his Goldman Sachs adviser (a k a Treasury Secretary) Henry M. Paulson Jr. stood firm, the crisis would have burned out on its own and meted out to speculators the losses they so richly deserved. The Main Street banking system was never in serious jeopardy, ATMs were not going dark and the money market industry was not imploding.

While the actual policies implemented were far from my first choice, they did keep it from getting a lot worse. Yes, it would have ‘burned out’ as it always has, but via the automatic fiscal stabilizers working to get the deficit high enough to catch the fall. I would argue it would have gotten a lot worse by doing nothing. And, of course, a full payroll tax holiday early on would likely have sustained sales/output/employment as the near ‘normal’ levels of the year before. In other words, Wall Street didn’t have to spill over to Main Street. Wall Street Investors could have taken their lumps without causing main street unemployment to rise.

Instead, the White House, Congress and the Fed, under Mr. Bush and then President Obama, made a series of desperate, reckless maneuvers that were not only unnecessary but ruinous. The auto bailouts, for example, simply shifted jobs around particularly to the aging, electorally vital Rust Belt rather than saving them. The green energy component of Mr. Obamas stimulus was mainly a nearly $1 billion giveaway to crony capitalists, like the venture capitalist John Doerr and the self-proclaimed outer-space visionary Elon Musk, to make new toys for the affluent.

Some good points there. But misses the point that capitalism is about business competing for consumer dollars, with consumer choice deciding who wins and who loses. ‘Creative destruction’ is not about a collapse in aggregate demand that causes sales in general to collapse, with survival going to those with enough capital to survive, as happened in 2008 when even Toyota, who had the most desired cars, losing billions when 8 million people lost their jobs all at once and sales in general collapsed.

Less than 5 percent of the $800 billion Obama stimulus went to the truly needy for food stamps, earned-income tax credits and other forms of poverty relief. The preponderant share ended up in money dumps to state and local governments, pork-barrel infrastructure projects, business tax loopholes and indiscriminate middle-class tax cuts. The Democratic Keynesians, as intellectually bankrupt as their Republican counterparts (though less hypocritical), had no solution beyond handing out borrowed money to consumers, hoping they would buy a lawn mower, a flat-screen TV or, at least, dinner at Red Lobster.

Ok, apart from the ‘borrowed money’ part. Congressional spending is via the Fed crediting a member bank reserve account. They call it borrowing when they shift those funds from reserve accounts at the Fed to security accounts at the Fed. The word ‘borrowed’ is highly misleading, at best.

But even Mr. Obamas hopelessly glib policies could not match the audacity of the Fed, which dropped interest rates to zero and then digitally printed new money at the astounding rate of $600 million per hour.

And ‘unprinted’ securities accounts/treasury securities at exactly the same pace, to the penny.

Fast-money speculators have been purchasing giant piles of Treasury debt and mortgage-backed securities, almost entirely by using short-term overnight money borrowed at essentially zero cost, thanks to the Fed. Uncle Ben has lined their pockets.

Probably true, though quite a few ‘headline’ fund managers and speculators have apparently been going short…

If and when the Fed which now promises to get unemployment below 6.5 percent as long as inflation doesnt exceed 2.5 percent even hints at shrinking its balance sheet, it will elicit a tidal wave of sell orders, because even a modest drop in bond prices would destroy the arbitrageurs profits. Notwithstanding Mr. Bernankes assurances about eventually, gradually making a smooth exit, the Fed is domiciled in a monetary prison of its own making.

It’s about setting a policy rate. The notion of prison isn’t applicable.

While the Fed fiddles, Congress burns. Self-titled fiscal hawks like Paul D. Ryan, the chairman of the House Budget Committee, are terrified of telling the truth: that the 10-year deficit is actually $15 trillion to $20 trillion, far larger than the Congressional Budget Offices estimate of $7 trillion. Its latest forecast, which imagines 16.4 million new jobs in the next decade, compared with only 2.5 million in the last 10 years, is only one of the more extreme examples of Washingtons delusions.

And with no long term inflation problem forecast by anyone, the savings desires over that time period are at least that high.

Even a supposedly bold measure linking the cost-of-living adjustment for Social Security payments to a different kind of inflation index would save just $200 billion over a decade, amounting to hardly 1 percent of the problem.

Thank goodness, as the problem is the deficit is too low, as evidenced by unemployment.

Mr. Ryans latest budget shamelessly gives Social Security and Medicare a 10-year pass, notwithstanding that a fair portion of their nearly $19 trillion cost over that decade would go to the affluent elderly. At the same time, his proposal for draconian 30 percent cuts over a decade on the $7 trillion safety net Medicaid, food stamps and the earned-income tax credit is another front in the G.O.P.s war against the 99 percent.

Never seen him play the class warfare card like this?

Without any changes, over the next decade or so, the gross federal debt, now nearly $17 trillion, will hurtle toward $30 trillion and soar to 150 percent of gross domestic product from around 105 percent today.

Not that it will, but if it does and inflation remains low it just means savings desires are that high.

Since our constitutional stasis rules out any prospect of a grand bargain, the nations fiscal collapse will play out incrementally, like a Greek/Cypriot tragedy, in carefully choreographed crises over debt ceilings, continuing resolutions and temporary budgetary patches.

No description of what ‘fiscal collapse’ might look like. Because there is no such thing.

The future is bleak. The greatest construction boom in recorded history Chinas money dump on infrastructure over the last 15 years is slowing. Brazil, India, Russia, Turkey, South Africa and all the other growing middle-income nations cannot make up for the shortfall in demand.


The American machinery of monetary and fiscal stimulus has reached its limits.

Do not agree. In fact, there are no numerical limits.

Japan is sinking into old-age bankruptcy and Europe into welfare-state senescence. The new rulers enthroned in Beijing last year know that after two decades of wild lending, speculation and building, even they will face a day of reckoning, too.

The state-wreck ahead is a far cry from the Great Moderation proclaimed in 2004 by Mr. Bernanke, who predicted that prosperity would be everlasting because the Fed had tamed the business cycle and, as late as March 2007, testified that the impact of the subprime meltdown seems likely to be contained. Instead of moderation, whats at hand is a Great Deformation, arising from a rogue central bank that has abetted the Wall Street casino, crucified savers on a cross of zero interest rates and fueled a global commodity bubble that erodes Main Street living standards through rising food and energy prices a form of inflation that the Fed fecklessly disregards in calculating inflation.

It’s not at all disregarded. And the Fed has only done ‘pretend money printing’ since they ‘unprint’ treasury securities as they ‘print’ reserve balances.

These policies have brought America to an end-stage metastasis. The way out would be so radical it cant happen.

How about a full payroll tax holiday? Too radical to happen???

It would necessitate a sweeping divorce of the state and the market economy. It would require a renunciation of crony capitalism and its first cousin: Keynesian economics in all its forms. The state would need to get out of the business of imperial hubris, economic uplift and social insurance and shift its focus to managing and financing an effective, affordable, means-tested safety net.

These are the conclusions of his way out of paradigm conceptualizing.

All this would require drastic deflation of the realm of politics and the abolition of incumbency itself, because the machinery of the state and the machinery of re-election have become conterminous. Prying them apart would entail sweeping constitutional surgery: amendments to give the president and members of Congress a single six-year term, with no re-election; providing 100 percent public financing for candidates; strictly limiting the duration of campaigns (say, to eight weeks); and prohibiting, for life, lobbying by anyone who has been on a legislative or executive payroll. It would also require overturning Citizens United and mandating that Congress pass a balanced budget, or face an automatic sequester of spending.


It would also require purging the corrosive financialization that has turned the economy into a giant casino since the 1970s. This would mean putting the great Wall Street banks out in the cold to compete as at-risk free enterprises, without access to cheap Fed loans or deposit insurance. Banks would be able to take deposits and make commercial loans, but be banned from trading, underwriting and money management in all its forms.

I happen to fully agree with narrow banking, as per my proposals.

It would require, finally, benching the Feds central planners, and restoring the central banks original mission: to provide liquidity in times of crisis but never to buy government debt or try to micromanage the economy. Getting the Fed out of the financial markets is the only way to put free markets and genuine wealth creation back into capitalism.

Rhetoric that shows his total lack of understanding of monetary operations.

That, of course, will never happen because there are trillions of dollars of assets, from Shanghai skyscrapers to Fortune 1000 stocks to the latest housing market recovery, artificially propped up by the Feds interest-rate repression.

No govt policy necessarily supports rates. Without the issuance of treasury securities, paying interest on reserves, and other ‘interest rate support’ policy rates fall to 0%. He’s got the repression thing backwards.

The United States is broke fiscally, morally, intellectually and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse.

How about a full payroll tax holiday???

If this sounds like advice to get out of the markets and hide out in cash, it is.

I tend to agree but for the opposite reason.

The deficit may have gotten too small with the latest tax hikes and spending cuts.

(feel free to distribute)

Posted in Banking, Bonds, CBs, China, Comodities, Currencies, Deficit, Employment, Exports, Fed, Government Spending, Greece, Inflation, Interest Rates, Oil, Political, Recession, trade | No Comments »

Warren Mosler – economist – George Jarkesy Radio Show

Posted by WARREN MOSLER on 15th February 2013

Link to audio

Posted in Government Spending, Interest Rates, Political | No Comments »

RBS: U.S. Equity Strategy Weekly; Assessing some Cracks in the Foundation

Posted by WARREN MOSLER on 13th February 2013

Good observations:

Assessing some Cracks in the Foundation

Most measures of investor sentiment rest deep within the optimistic domain. This, combined with the recent decline in volatility and performance correlation, suggests that investors have become much less concerned about the macro economy.

A serious correction has so far failed to materialize and shake out some of the optimism. Pull-backs are more evident in many of the larger markets outside of the U.S., including Brazil, France, Italy, Spain, and South Korea.

However, several leadership themes are beginning to give up some performance ground:

 I. Machinery. The group is starting to lag following a recent peak in the Mainstreet Farm Equipment Sales Index;

 II. Household Durables The stocks are correcting following a sideways move in the HMI;

 III. Autos & Components. This group is losing ground as auto sales growth decelerates;

 IV. Materials. The stocks have pulled back with the rise in the U.S. dollar and the weaker tone set by some global bourses.

Other important leadership themes at risk of rolling over include:

 I. Financials. High-yield credit spreads are beginning to widen and this is usually associated with performance turbulence for the sector.

 II. Consumer Discretionary. A softer tone to consumer confidence on the back of DC’s floundering and the rise in payroll taxes sets the stage for a pullback.

Yet, we continue to view these events as opportunity. The global leading data is rallying, while the monetary authorities continue to subsidize business cycle activity by holding interest rates substantially below the level of nominal GDP growth. In our opinion, these very powerful macro forces argue in favor of a bias towards economic leverage, beta, value and foreign exposure.

Posted in Economic Releases, Political | No Comments »

Blast, drone kill 13 al Qaeda-linked militants in Yemen

Posted by WARREN MOSLER on 20th January 2013

Presumably with specific US Congressional approval…

Blast, drone kill 13 al Qaeda-linked militants in Yemen

Posted in Political | No Comments »

Friday update

Posted by WARREN MOSLER on 19th January 2013

So just like Japan, as soon as the economy starts doing a bit better we hike taxes. Still too early to say how the FICA hike will impact sales and profits, but it will. And spending cuts are on the way, though they may be delayed.

Not to forget the debt ceiling thing about to be kicked 3 months down the road as it stands guard to ensure ‘meaningful’ spending cuts.

Oil firm, but can still go either way. WTI converging to Brent indicates the seaway pipeline capacity increase may be enough to drain the surplus at pad 2, bringing wti up to brent, but too soon to tell for sure. And looks like the demand for saudi crude is dropping some, but not enough to dislodge them from being
swing producer/price setter.

Looks to me like the whole world is becoming ‘more competitive’ so it all cancels out. Bad for people, ok for stocks, with profits running at record highs as a % of GDP. Meaning the federal deficit has to be that much higher, all else equal, to fill the output gap.

The yen keeps going down. Looking more and more to me it’s off the radar screen intervention by the likes of insurance co’s, pension funds, and other quasi govt agencies got the note to buy fx denominated bonds in size. Not sure how far they will take it, but they have a serious herd instinct that has formed serious multi year bubbles in the past.

Europe? They fixed the solvency issue, sort of, and now just have the economy thing to deal with. Problem is the ECB grants solvency only with conditionality. Good luck to them.

Posted in Comodities, Currencies, Deficit, Equities, EU, GDP, Government Spending, Japan, Political | No Comments »

Platinum Coin Idea Is Rejected by White House

Posted by WARREN MOSLER on 14th January 2013

This is far more problematic than markets realize.

The President had a choice. The debt ceiling thing expresses ‘the will of Congress’ where Congress makes laws for the executive branch to execute. The President has also sworn to uphold the Constitution which says the President has to pay the nation’s bills. The President has so far decided to abide by the will of Congress.

And, in any case, the Republican leadership says the fight is going to be about modifying the already in place sequestrations.

So seems it’s now ‘advantage Republicans’ on the spending cuts issue.

The economy hitting the debt ceiling and going cold turkey to a balanced budget is a far more catastrophic event than even going over the full cliff would have been, as it disables the ‘automatic fiscal stabilizers’ and instead triggers a pro cyclical downward spiral in output and employment. That is, when the $25 billion/week spending cuts kick in and the economy slows, the falling tax revenues mean spending has to be cut more, nor can total spending on unemployment ‘automatically’ go up, etc.

And don’t forget about the Jan 1 FICA hike now beginning to kick in which also seems markets are not discounting.

Platinum Coin Idea Is Rejected by White House

January 12 (Reuters) — The White House on Wednesday sees little profit in the notion of minting $1 trillion platinum coin as an escape hatch to avoid a debt default if Congress balks at raising the U.S. debt limit.

Posted in Government Spending, Political | 28 Comments »

Cliff notes

Posted by WARREN MOSLER on 6th December 2012

Jobless Claims Fell More Than Expected, Down by 25,000 to 370,000

I haven’t written much this week because I haven’t seen much to write about.

Still looks like both the economy and the markets are discounting the cliff. And still looks to me like ex cliff GDP would be growing at about 4% this quarter, with the Sandy-cliff related cutbacks keeping that down to maybe 2.5%. And going over the full cliff is taking off maybe 2% more, leaving GDP modestly positive.

Which is what stocks and bonds seem to be fully discounting.

As previously discussed, the housing cycle seems to have turned up, which looks to be an extended, multi year upturn with a massive ‘housing output gap’ to be filled. And employment is modestly improving as well, also with a large output gap to fill. Car sales are back over 15 million, and also with a large output gap to fill.

The way I see the politics unfolding, the full cliff will be avoided, if not in advance shortly afterwards, as fully discussed to a fault by the media. That means GDP growth head back towards 4% (and maybe more)

Nor do I see anything catastrophic happening in the euro zone. They continue to ‘do what it takes’ to keep everyone funded and away from default. And conditionality means continued weakness. Q3 GDP was down .1%, a modest improvement from down .2% in Q2, and a flat Q4 wouldn’t surprise me. The rising deficits from ‘automatic fiscal stabilizers’ (rising transfer payments and falling revenues) have increased deficits to the point where they can sustain what’s left of demand. And the recent report of German exports to the euro zone rising at 3.5% maybe indicating that the overall support for GDP will continue to come disproportionately from Germany. And rising net exports from the euro zone will continue to cause the euro to firm to the point of ‘rebalance’ which should mean a much firmer euro. And as part of that story, Japan may be buying euro to support it’s exports to the euro zone, as per the prior ‘Trojan Horse’ discussions, and as evidenced by the yen weakening vs the euro, also as previously discussed.

And you’d think with every forecaster telling the politicians that tax hikes and spending cuts- deficit reduction- causing GDP to be revised down and unemployment up, and the reverse- tax cuts and spending hikes causing upward GDP revisions and lower unemployment- they’d finally figure this thing out and act accordingly?

Probably not…

Posted in Bonds, Currencies, Deficit, Employment, EU, GDP, Government Spending, Housing, Political | 21 Comments »

more on the cliff

Posted by WARREN MOSLER on 15th November 2012

Stocks down again yesterday but interestingly bond yields up a tad, dollar down a tad, oil and metals up, and even long BMA ratios holding steady, etc.

The cliff isn’t nearly as large and threatening as the debt ceiling cliff would have been in 2011 if that thing hadn’t been extended, and we’d gone cold turkey into an immediate and forced balanced budget. But that event is the stock market’s ‘recent memory’ of stock market reaction functions.

And this time GDP is being supported by a private sector credit expansion/housing expansion, with private debt service ratios substantially lower due to cumulative federal deficits adding to nominal ‘savings’. And the federal deficit remains well above 5% of GDP, which historically has been more than enough to reverse a recession.

And then there’s the election factor. Post election I’m hearing (anecdotally) distraught Romney supporters thoroughly convinced the President is a ‘socialist’ bent on destroying capitalism, taxing the rich ‘job creators’ and giving it to what Romney called ‘the 47%’ dependent class, etc. etc. etc. Merits of this ‘belief’ aside, it looks to me it’s driving portfolios to shift out of equities. However, if not supported by an actual decline in earnings, which is how I see it, it’s all a case of ‘pushing on a spring’.

Yes, the euro zone is a problem, with Q3 GDP just reported at -.1%. But that’s an ‘improvement’ from q2′s -.2% as larger deficits are acting counter cyclically to cushion the austerity driven decline. And Rehn was just quoted on Spain favoring not adding to austerity measures, perhaps indicating a move to ‘let it be’ for a while, which will allow GDP to stabilize at modestly positive levels.

And China is no longer going backwards, so that negative has been reversed as well.

Back to the cliff, in fact letting tax rates go up for high income earners should have little effect on GDP, as the marginally propensity to spend for that segment is reasonably low. (of course that means there’s no point in taxing that income in the first place, but that’s another story). Nor does it mean investment or employment will suffer since investment is driven by sales prospects. And with higher tax rates, and business expense tax deductible, the after tax cost of investment goes down with higher tax rates. For example, in the 70′s, when my tax rate was around 70%, I clearly recall making very high risk investments figuring it was better than giving 70% to the govt. Point is, taxing income and savings that isn’t going to be spent is about social engineering, and not ‘funding the deficit’ or altering aggregate demand, and is intellectually honestly framed as such. So point here is, I score the effect of raising the highest tax rates at 0 regarding aggregate demand.

This all supports my take that the stock market has over discounted the cliff, partly for ideological reasons, partly due to the recent memory of what stocks did during the debt ceiling debacle, and partly from fear of what’s going on in the rest of the world.

So as we get through it all with modest top line and earnings growth continuing, I’m looking for valuations to quickly return to at least where they were before the election.

Posted in Deficit, Equities, GDP, Government Spending, Political | 37 Comments »

Whitney Tilson: ‘I Love the Fiscal Cliff’

Posted by WARREN MOSLER on 12th November 2012

A bit of equal time for the Democrats, as they join forces with the Republicans to hike unemployment and lower GDP, with all forecasters in agreement.

But I do thinks markets and the economy have already discounted at least most of it:

Whitney Tilson: ‘I Love the Fiscal Cliff’

By Bruno J. Navarro

November 9 (CNBC) — The so-called “fiscal cliff” is a good thing for Washington because it will force both Democrats and Republicans to cede ground on core issues, Whitney Tilson of T2 Partners said Friday on CNBC.

Tilson, a supporter of President Barack Obama and fundraiser for his re-election campaign, said that he expected resolution of the “fiscal cliff” would involve increasing taxes and eliminating deductions, as well as one important area: “Democrats are going to have to touch the third rail for them, which is entitlements, and Obama, I think, is willing to do that,” he said on “Fast Money.”

“Every Democrat I talked to is willing to do that, but only in the context of Republicans giving on the tax and deductions side aimed more at wealthiest folks in this country who are the ones that can afford to give more.”

Posted in Government Spending, Political | 18 Comments »

USVI Election results

Posted by WARREN MOSLER on 7th November 2012

Unfortunately, looks like a clear case of election fraud.

These results were nowhere near the surveys I saw and I got less than half the votes as last time even as it was clear a lot more people were voting for me and the anti incumbent atmosphere was intense.

And as the votes came in her % stayed the same throughout.

Will know more soon.


Posted in Political | 61 Comments »

USVI election update

Posted by WARREN MOSLER on 4th November 2012

I was told a recent poll of 300 showed:

Democrat incumbent: 48%
Warren Mosler Independent MMT candidate: 42%
Total others- Republican, Green, Indenpendt: 10%

And ‘momentum’ moving my way as my % has been continually rising.

Down here you need to get 50%+ to win, anything less triggers a runoff, where I’d be favored.

Looking forward to Tuesday, but starting to feel like I’ve volunteered for Afghanistan…

Many thanks to all the contributors!

And still time to send in a few bucks if you want to be part of the cause- will increase the advertising that much more thanks!


Mosler for Congress

Posted in Political | 23 Comments »

FedEx Says Economy Is Worsening, Cuts Outlook

Posted by WARREN MOSLER on 18th September 2012

Not a bad indicator. Might be we’re already starting to go over the fiscal cliff. Probably a lot of contracts delayed pending congressional approval. And the anticipation of higher taxes and lower demand doesn’t help either.

Fortunately for Obama, Romney’s moved the debate away from the economy.

Good news down here is our highly informal polling shows me at 50%+ in my Congressional race! Looking forward to straightening them all out in DC!

FedEx Says Economy Is Worsening, Cuts Outlook

September 18 (Reuters) — FedEx lowered its fiscal 2013 profit target on Tuesday, saying earnings could slide as much as 6 percent for the year, as a weakening world economy prompts customers to shift toward lower-priced and slower shipping options.

The world’s second-largest package delivery company said it now expects profit for its fiscal year, which ends in May, to come to $6.20 to $6.60 per share, below its prior forecast of $6.90 to $7.40 a share.

Wall Street had expected a full-year profit of $7.03 per share.

FedEx’s shares fell 2 percent in premarket trading from Monday’s close on the New York Stock Exchange.

“Weak global economic conditions dampened revenue growth (and) drove a shift by our customers to our deferred services,” Chief Financial Officer Alan Graf said in a statement.

Posted in Government Spending, Political | 49 Comments »

Ryan and Greenspan on Social Security

Posted by WARREN MOSLER on 28th August 2012

If any of you know Mr. Ryan kindly remind him of this exchange, thanks:

PAUL RYAN: “Do you believe that personal retirement accounts can help us achieve solvency for the system and make those future retiree benefits more secure?”

ALAN GREENSPAN: “Well, I wouldn’t say that the pay-as-you-go benefits are insecure, in the sense that there’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase.”

Posted in Government Spending, Political | 84 Comments »

Republicans Eye Return to Gold Standard

Posted by WARREN MOSLER on 23rd August 2012

Just when you think it can’t get any worse:

Republicans Eye Return to Gold Standard

By Robin Harding and Anna Fifield

August 23 (FT) — The gold standard has returned to mainstream U.S. politics for the first time in 30 years, with a “gold commission” set to become part of official Republican party policy.

Drafts of the party platform, which it will adopt at a convention in Tampa Bay, Florida, next week, call for an audit of Federal Reserve monetary policy and a commission to look at restoring the link between the dollar and gold.

The move shows how five years of easy monetary policy — and the efforts of congressman Ron Paul — have made the once-fringe idea of returning to gold-as-money a legitimate part of Republican debate.

Marsha Blackburn, a Republican congresswoman from Tennessee and co-chair of the platform committee, said the issues were not adopted merely to placate Paul and the delegates that he picked up during his campaign for the party’s nomination.

“These were adopted because they are things that Republicans agree on,” Blackburn told the Financial Times. “The House recently passed a bill on this, and this is something that we think needs to be done.”

The proposal is reminiscent of the Gold Commission created by former president Ronald Reagan in 1981, 10 years after Richard Nixon broke the link between gold and the dollar during the 1971 oil crisis. That commission ultimately supported the status quo.

“There is a growing recognition within the Republican party and in America more generally that we’re not going to be able to print our way to prosperity,” said Sean Fieler, chairman of the American Principles Project, a conservative group that has pushed for a return to the gold standard.

A commission would have no power except to make recommendations, but Fieler said it would provide a chance to educate politicians and the public about the merits of a return to gold. “We’re not going to go from a standing start to the gold standard,” he said.

The Republican platform in 1980 referred to “restoration of a dependable monetary standard,” while the 1984 platform said that “the gold standard may be a useful mechanism”. More recent platforms did not mention it.

Any commission on a return to the gold standard would have to address a host of theoretical, empirical and practical issues.

Inflation has remained under control in recent years, despite claims that expansion of the Fed’s balance sheet would lead to runaway price rises, while gold has been highly volatile. The price of the metal is up by more than 500 per cent in dollar terms over the past decade.

A return to a fixed money supply would also remove the central bank’s ability to offset demand shocks by varying interest rates. That could mean a more volatile economy and higher average unemployment over time.

Posted in Political | 36 Comments »

My comments on my Jan 2003 ten year outlook

Posted by WARREN MOSLER on 20th August 2012

>    Posted By Warren Mosler on January 15, 2003 at 13:04:00:
>   Here’s what’s being set up.
>   1. Bush tax stuff is way too small to turn the economy.
>   2. Over the next 24 months the economy weakens as the deficit grinds its way to the usual
>   5% of gdp or more – $500 billion + – mainly through falling revenue as unemployment
>   rises, corporate earnings wither, etc.

A month or so after this was written I met with Andy Card, Bush’s chief of staff, and told him much the same. He got it and they took immediate action to increase spending and cut taxes. It was shortly after that meeting that Bush was asked about the deficit and said he doesn’t look at numbers on pieces of paper, he looks at jobs, and did all he could to make the deficit as large as possible. It got up to 200 billion for Q3 or about 800 billion annually; enough to turn the economy enough to not lose the election.

>   3. Hillary Clinton wins the Presidency by a landslide promising to increase taxes on the
>   rich to assist the poor and balance the budget.

I forget why she didn’t run and/or lost to Kerry?

>   4. After the innaguration the program gets passed while the federal deficit remains around
>   $600 billion.
>   5. The economy recovers as it always does after a couple of years of 5%+ deficits restore
>   non govt net financial assets/savings/aggregate demand.

This is pretty much what happened under Bush.

>   6. Once again the Clintons ‘prove’ balancing the budget is good for the economy and win
>   two terms.
>   7. Half way into her 2nd term the strong economy drives the budget into surplus further
>   proving Clintonomics.

This happened under Bush as the strong economy driving by private credit expansion took the deficit down to 1% of GDP by mid 2006. Unfortunately the expansion included the sub prime fraud which was seriously unsustainable.

>   8. The next president is Hillary’s VP who gets the votes counted in his favor this time.
>   9. This next president gets clobbered with another economic downturn caused by the
>   previous surplus, and the federal budget goes into deficit.

It happened during the last few months of the Bush administration. And Obama did get clobbered by it.

>   This time they aren’t ‘fooled’ by Bush style tax cuts anymore, and try instead to again raise
>   taxes on the rich to assist the poor and balance the budget, but they do it too soon, before
>   the deficit is large enough to turn the economy, and it gets much worse.

My timing was far from perfect, but not terrible for a 10 year forecast?
Any other 10 year forecasts from back then on record?

Posted in Deficit, Employment, GDP, Government Spending, Political | 28 Comments »

Rasmussen daily presidential tracking poll

Posted by WARREN MOSLER on 19th August 2012

This is worth keeping an eye on as it was pretty much the only poll that had Romney in the lead pre Ryan, and now has Obama in the lead post Ryan. It’s the shift I find interesting.

Daily Presidential Tracking Poll

Posted in Obama, Political | 23 Comments »

Romney Says Paul Ryan to Be His Republican Running Mate

Posted by WARREN MOSLER on 13th August 2012

A very hard right turn.

The right doesn’t like Romney, but would have voted for him any way just to thwart Obama. And, if anything, the right sees this as a Ryan ‘sell out’ which he’ll strive to show otherwise, hardening his positions on ‘fiscal responsibility’ and the rest.

What this does do, however, is frighten the ‘left’ that had abandoned Obama into now turning out to vote for him.

That is, this creates an anti Romney that hadn’t previously been there.

Romney Says Paul Ryan to Be His Republican Running Mate

August 11 (Reuters) — U.S. Republican presidential candidate Mitt Romney on Saturday said he has selected Congressman Paul Ryan, 42, as his vice presidential running mate.

Romney, the presumptive Republican nominee, announced that he has tapped the House of Representatives Budget Committee chairman at an event in front of the retired battleship USS Wisconsin – coincidentally named for Ryan’s home state.

The announcement marks the end a months-long search by Romney for a running mate to join him in facing Democratic President Barack Obama and Vice President Joe Biden in the Nov.6 election.

Posted in Political | 15 Comments »


Posted by WARREN MOSLER on 27th July 2012

Seems the turning point may have been early June when Trichet made a proposal that included the ECB, as previously discussed.

And note, also as previously discussed, it’s all about ‘the euro’ meaning ‘strong currency.’

So a big relief rally with the solvency issue resolved, and then just the reality of a bad economy, and a too strong euro with no politically correct way to contain it, as dollar buying is ideologically all but impossible.

Also, as previously discussed, member govt deficits seem high enough for modest improvement, absent further aggressive austerity measures.


Posted in Currencies, EU, Political | 17 Comments »