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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

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 »

Small Business on Obamacare: No Reason to Hire or Invest

Posted by WARREN MOSLER on 28th June 2012

Business hires to service customers and expand when there’s enough aggregate demand to sustain sales at profitable prices. With or without Obamacare.

Small Business on Obamacare: No Reason to Hire or Invest

By Patricia Orsini

June 28 (CNBC) — Small business owners, who have been waiting for the Supreme Court’s decision on Obamacare before hiring and investing, say the ruling raises more questions than it answers.

Posted in Obama, Political | 104 Comments »

Euro zone economy

Posted by WARREN MOSLER on 26th June 2012

After weak April and May numbers, I’ve been on the lookout for possible hints that euro zone economies may now be flattening.

Austerity tends to drive down demand which also causes deficits to increase to the point where they stabilize GDP.

Therefore, if the euro zone just leaves their fiscal policies alone at some point those automatic fiscal stabilizers work to prevent further declines.

Meanwhile, no euro zone banks have had liquidity cut off by the ECB, and it doesn’t look like any euro zone govt will be missing any payments any time soon, so govt deficit spending will continue to add income and ‘savings’ to their real economies.

French Consumer Confidence Stalls as Hollande Readies Budget

June 26 (Bloomberg) — French consumer confidence stalled as President Francois Hollande prepared tax increases and spending cuts to help reduce the nation’s budget deficit.

Household sentiment was unchanged at 90 in June, national statistics Insee said today in a release from Paris. Economists expected a reading of 89, according to the median of 14 estimates gathered by Bloomberg News.

Broadbent Says Indicators Suggest U.K. GDP Growth May Be Flat

June 26 (Bloomberg) — Bank of England policy maker Ben Broadbent said that indicators suggest the U.K. economy may be broadly flat in the next quarter or two.

“The near-term indicators suggest that, abstracting from the various short-term distortions (the effect of the Golden Jubilee holiday, for example), output is broadly flat in the next quarter or two, as it has been for the past 18 months,” he said in answers to a questionnaire from the U.K. Treasury Committee published today in London.

Posted in EU, Government Spending, Political | 6 Comments »

Germany rebuffs Obama’s advice on euro crisis

Posted by WARREN MOSLER on 25th June 2012

Until they all get ‘in paradigm’ the 99% don’t have a chance.

Germany rebuffs Obama’s advice on euro crisis

June 25 (AP) — Germany’s finance minister is rejecting U.S. President Barack Obama’s calls on Europe to move faster in fighting its debt crisis, telling him to get the American deficit under control instead.

Wolfgang Schaeuble told public broadcaster ZDF in an interview late Sunday that “people are always very quick at giving others advice.”
He says: “Mr. Obama should first of all take care of reducing the American deficit, which is higher than in the eurozone.”

Posted in Political | 10 Comments »

EU Leaders Urged to Set Timetable for Action (Again)

Posted by WARREN MOSLER on 20th June 2012

Doesn’t seem to me ‘avoiding market turbulence’ is actually of any particular concern in the euro zone:

EU Leaders Urged to Set Timetable for Action (Again)

By Catherine Boyle

June 20 (CNBC) — Ahead of two key European policymaker meetings on the credit crisis Friday, politicians are yet again being urged to set out a clear timetable for action to avoid further market turbulence.

Posted in EU, Political | 6 Comments »