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.

Poll: 30% of Texans believe humans and dinosaurs lived together

By Ross Ramsey

Nearly a third of Texans believe humans and dinosaurs roamed the earth at the same time and more than half disagree with the theory that humans developed from earlier species of animals according to the University of Texas/Texas Tribune Poll.


Did humans live at the same time as the dinosaurs? 30% of Texas voters agree with that statement; 41 percent disagree, and 30 percent don’t know.

Supporters of Gov. Rick Perry were more likely than any other group to believe that dinosaurs and humans roamed the earth together ten millennia ago.

According to a video appearing on the left-leading website Think Progress, a reporter asked Perry what he would do about the Federal Reserve.

Standing next to a “Perry President” sign, the governor replied, “If this guy prints more money between now and the election, I don’t know what y’all would do to him in Iowa, but we would treat him pretty ugly down in Texas.”

“I mean, printing more money to play politics at this particular time in American history, is almost treacherous, or treasonous, in my opinion,” he added.

It doesn’t look to me like anything particularly bad has actually yet happened to the US economy.

The federal deficit is chugging along at maybe 9% of US GDP, supporting income and adding to savings by exactly that much, so a collapse in aggregate demand, while not impossible, is highly unlikely.

After recent downward revisions, that sent shock waves through the markets, so far this year GDP has grown by .4% in Q1 and 1.2% in Q2, with Q3 now revised down to maybe 2.0%. Looks to me like it’s been increasing, albeit very slowly. And today’s employment report shows much the same- modest improvement in an economy that’s growing enough to add a few jobs, but not enough to keep up with productivity growth and labor force growth, as labor participation rates fell to a new low for the cycle.

And, as previously discussed, looks to me like H1 demonstrated that corps can make decent returns with very little GDP growth, so even modestly better Q3 GDP can mean modestly better corp profits. Not to mention the high unemployment and decent productivity gains keeping unit labor costs low.

Lower crude oil and gasoline profits will hurt some corps, but should help others more than that, as consumers have more to spend on other things, and the corps with lower profits won’t cut their actual spending and so won’t reduce aggregate demand.

This is the reverse of what happened in the recent run up of gasoline prices.

Japan should be doing better as well as they recover from the shock of the earthquake.

Yes, there are risks, like the looming US govt spending cuts to be debated in November, but that’s too far in advance for today’s markets to discount.

A China hard landing will bring commodity prices down further, hurting some stocks but, again, helping consumers.

A euro zone meltdown would be an extreme negative, but, once again, the ECB has offered to write the check which, operationally, they can do without limit as needed. So markets will likely assume they will write the check and act accordingly.

A strong dollar is more a risk to valuations than to employment and output, and falling import prices are very dollar friendly, as is continuing a fiscal balance that constrains aggregate demand to the extent evidenced by the unemployment and labor force participation rates. And Japan’s dollar buying is a sign of the times. With US demand weakening, foreign nations are swayed by politically influential exporters who do not want to let their currency appreciate and risk losing market share.

The Fed’s reaction function includes unemployment and prices, but not corporate earnings per se. It’s failing on it’s unemployment mandate, and now with commodity prices coming down it’s undoubtedly reconcerned about failing on it’s price stability mandate as well, particularly with a Fed chairman who sees the risks as asymmetrical. That is, he believes they can deal with inflation, but that deflation is more problematic.

So with equity prices a function of earnings and not a function of GDP per se, as well as function of interest rates, current PE’s look a lot more attractive than they did before the sell off, and nothing bad has happened to Q3 earnings forecasts, where real GDP remains forecast higher than Q2.

So from here, seems to me both bonds and stocks could do ok, as a consequence of weak but positive GDP that’s enough to support corporate earnings growth, but not nearly enough to threaten Fed hikes.

Consumer borrowing up in June by most in 4 years

By Martin Crutsinger

May 25 (Bloomberg) — Americans borrowed more money in June than during any other month in nearly four years, relying on credit cards and loans to help get through a difficult economic stretch.

The Federal Reserve said Friday that consumers increased their borrowing by $15.5 billion in June. That’s the largest one-month gain since August 2007. And it is three times the amount that consumers borrowed in May.

The category that measures credit card use increased by $5.2 billion — the most for a single month since March 2008 and only the third gain since the financial crisis. A category that includes auto loans rose by $10.3 billion, the most since February.

Total consumer borrowing rose to a seasonally adjusted annual level of $2.45 trillion. That was 2.1 percent higher than the nearly four-year low of $2.39 trillion hit in September.

Says it all:

Boehner-Reid Debt Plan

By Sen. Jim DeMint

July 26 — I have troubling news. I’m very careful about criticizing my party’s leaders, but what is happening in Washington right now cannot be ignored.

House Speaker John Boehner (R-OH) has abandoned the Cut-Cap-Balance Act and is now pushing a new plan that is nearly identical to the one proposed by Senate Majority Leader Harry Reid (D-NV).

The Boehner-Reid plan gives the President an immediate increase in the debt limit and only promises to cut spending in the future. It violates all three principles of the Cut-Cap-Balance Pledge because it does not substantially cut current spending, it does not truly cap future spending, and it does not require the passage of a strong Balanced Budget Amendment before raising the debt limit.

In short, I oppose the Boehner-Reid plan because it won’t balance the budget and stop the debt that is destroying our country.

The Boehner-Reid Plan

You will hear many claims about this plan over the next few days as it is pushed through the House and Senate. Some of these claims will be true, but many will be false. Here are the facts. The Boehner-Reid plan:

Provides two increases in the debt limit — $900 billion and $1.6 trillion — totaling $2.5 trillion. It gives the President an immediate $900 billion increase given that Congress does not vote to disapprove it. It gives the President another $1.6 trillion increase next year if a bill written by a new Super Committee passes both houses and becomes law.

Reduces spending by only $1.2 trillion over the next ten years. This amount won’t even come close to balancing the budget, as the debt is expected to grow by as much as $10 trillion over the next decade. The plan also reduces spending by only $6 billion in 2012. Considering that our government currently spends $10 billion a day, $6 billion is far too little to cut over the first year of the plan.

Calls for a vote on the Balanced Budget Amendment but does not require its passage. Without passage of a strong Balanced Budget Amendment, Congress will never break its addiction to spending.

Makes it virtually impossible to stop the debt limit from going up. The debt ceiling increases can only be stopped if Congress passes a resolution of disapproval and then votes to override the President’s veto with two-thirds support in the House and Senate.

Creates a new, 12-member Super Committee to write another “grand bargain” to reduce the deficit by at least $1.6 trillion. It does not, however, prohibit the Super Committee from writing a bill to raise taxes and destroy jobs. The bill can then be fast-tracked through the House and Senate with no amendments.

Why It Should Be Rejected

After reviewing the details of Boehner-Reid plan, I cannot support it.

It won’t balance the budget and stop the debt. Even if the cuts called for in the plan were real, the debt will still increase by $7 trillion over the next ten years.

It won’t protect our AAA bond rating. According to financial reports, this plan will not reduce long-term spending by enough to prevent a downgrade. If we lose our AAA rating, it will create higher interest rates and cause our debt to grow even faster.

It will likely result in higher taxes that will destroy even more jobs. The unemployment rate is over 9 percent. We cannot afford to lose more jobs when so many Americans are struggling to find work.

There are some in my party who think I should ignore the flaws of the Boehner-Reid plan, bite my tongue, and support my party’s leaders. If I thought this were a political game, that might make sense. But the future of our country is at stake, I don’t believe this plan will save it, and I have a moral obligation to say so.

The Way Forward

Fortunately, there is a much better solution.

The Cut-Cap-Balance Act would balance the budget, stop the debt, and protect our AAA bond rating. This legislation passed the House with bipartisan support but was blocked by Democrats in the Senate.

The votes in the Senate for Cut-Cap-Balance are there if Republicans stand firm. 23 Democrats in the Senate have expressed support for the Balanced Budget Amendment at some point in their careers. They’re blocking it now because they believe Republicans will blink and agree to something much less.

And that’s exactly what will happen if the Boehner-Reid plan is passed. It gives the big spenders in Washington everything they wanted — an increase in the debt limit, phony spending cuts, and a mechanism to pass tax increases.

Please call your senators today and urge them to oppose the Boehner-Reid plan and to demand passage of the Cut, Cap, Balance Act.

Respectfully,

Jim DeMint
United States Senator
Chairman, Senate Conservatives Fund

In Defense of Holding the Line

By Erick Erickson

July 26 — I’m getting beat to hell and back by conservatives for insisting the GOP hold the line on Cut, Cap, and Balance. Even here at RedState, I’m getting accused of “ideological intransigence.” Yeah, here at RedState. There’s a first time for everything.

People want a deal. People want John Boehner’s deal. People are upset with me for not liking John Boehner’s deal. People are telling me, “They only have one house, Erick. You can’t expect them to not compromise. They control nothing.”

I’ve said all along I expect a deal and a compromise. Here’s the problem and I need you to understand this from perspective, whether you agree with me or not.

See, I worked to send people to Washington, DC to solve problems, to make things right, to fix the things that were broken, and to send power back to the states. They are not doing that.

We all saw Democrats go to Washington in 2008 and take the whole thing. They controlled everything and they made everything worse. They passed a stimulus bill that killed or ruined hundreds of thousands of jobs in the private sector while growing the government. They increased dependency on the federal government. And then they passed Obamacare and socialized American healthcare. But it doesn’t fully take effect until 2014. We saw Democrats willing to lose their positions to lurch the nation left.

So we sent to Washington an army of conservatives to Washington to defund Obamacare and stop the White House. And now they’ve gotten there and have refused to fight. They promised and put in writing that they’d cut $100 billion from the federal government budget in 2011 and they ultimately cut only $38 billion. The Congressional Budget Office, when it was done scoring it, said they really were only cutting about $500 million and it would cost more money that it was worth it to actually cut those dollars.

So they said, “But we”ll stand firm on the debt ceiling. We’ll hold the line.” Everybody gave them a pass and said, “Okay, hold the line on the debt ceiling.”

Now here we are the week before the deadline. John Boehner laments they should have done it sooner, but he refused to do it sooner. The Speaker has prevented the Republicans from submitting legislation to ensure we would not default so that he would have leverage over his own members to force them to take a deal. And now they are dealing.

What is their deal?

Their deal creates another committee to look at spending — the 18th in the past 30 years. These 18 committees have never done anything except raise taxes. Their spending cuts are put off a decade and future congresses ignore them.

Boehner’s spending caps are easily waived as they’ll be rules, not laws. And they punt.

A lot of you are emailing and getting on twitter saying to take the deal. Take the compromise. Why should we compromise? That’s what we always do. Even when in the majority we compromise. The Democrats didn’t compromise on healthcare. But you people want to compromise. Republicans, whether in the majority or minority, are always compromising in favor of bigger government and imaginary spending cuts.

To make matters worse, why the hell are the Republicans the ones coming up with the plans if they only control one house of one branch of the federal government? Why are they doing it? We’re on the third damn plan. They aren’t even compromising with the Democrats. They are compromising with themselves.

The Democrats are holding their line. The GOP is splitting conservatives. The Democrats are saying “Raise the debt ceiling. Don’t cut anything.” And Boehner is saying okay and putting in cuts that take affect in year eight of ten so none of them will be around to be held accountable. Why?

The GOP came up with Paul Ryan’s plan. They passed it. They took bullets. The GOP put him in a witness protection program and dropped it like a hot potato.

So then the GOP passed Cut, Cap, and Balance and the Democrats beat them up and again accused the GOP of killing grandma. The leadership was lukewarm to it and never fought for it. And immediately after voting for it, the leadership said, “Now, let’s move on to the third plan.”

Are these all just symbolic votes? If so, I’d rather some substance. This symbolism is getting the GOP killed with nothing to show for it.

Why the hell are we on our third plan when the Democrats haven’t even come up with one plan? They haven’t even passed a budget in over 800 days. We’re in this mess because Harry Reid, in December of 2010, refused the raise the debt ceiling so the GOP could own the problem. The GOP fell into the trap with eyes wide open.

And the Republicans are falling for it yet again.

And now I’m being accused of thinking this is all a game even by long time RedState readers. I do not think this is all a game.

I know the credit rating is going to be downgraded and I don’t want it to happen. You people who want the deal are so worked up in emotion that you are ignoring all the facts. Here are the facts:

1. S&P says we need a deal of at least $4 trillion in cuts to avoid a credit rating drop.

2. Neither Boehner nor Reid get us there.

3. The only plan that gets us there is Cut, Cap, and Balance and the GOP is running away from it as fast as they can. The GOP already passed it and it just four votes shy of a majority in the Senate.

No one wants to fight. “No, we’ve already had that vote. It can’t pass the Senate,” they say.

There will be no default on August 2nd. We know it will not happen. How do we know? Because we have more money coming in each month than is needed to pay principle and interest on our national debt. And we have had multiple prior occasions where we have gone passed the deadline and the world did not suddenly end. It is all political rhetoric. Shame on you for succumbing to fear.

Barack Obama does not want to be remembered as the President on whose watch the nation defaulted. His leverage goes away on August 3rd and the GOP holds all the cards. We won’t default. We can improve our negotiating position.

The GOP could hold the line. And because they won’t hold the line, they are tanking our credit behind a bunch of smoke and mirrors. If the Democrats blame the GOP when the credit rating drops, the GOP will damn well deserve the blame if they stick with Boehner’s plan.

They could at least fight to turn the tide. They could at least hold the line.

As previously discussed, the President is no longer involved, and if Congress does get a bill to his desk he’ll sign it.

Grand Bargain Talks Collapse

By Carol E Lee and Janet Hook

July 22 (WSJ) — A high-stakes effort by President Barack Obama and House Speaker John Boehner to hatch a landmark deficit reduction deal collapsed in anger Friday, sending Washington into a weekend of negotiations over how the world’s top financial power can make good on its debt obligations.

In a letter to his colleagues, Mr. Boehner said he called off talks with the president. He informed Mr. Obama Friday night he planned to start negotiations with the Senate to seek what would likely be a smaller deal.

“In the end we couldn’t connect. Not because of different personalities, but because of different visions for our country,” Mr. Boehner wrote in the letter. Later, at a press conference, Mr. Boehner accused the president of “moving the goal post.”

Mr. Obama, visibly frustrated in his own news conference before Mr. Boehner’s, was critical of the GOP. He summoned Congressional leaders back to the White House Saturday morning where “they have to explain to me how it is we are going to avoid default.”

The president also sounded less optimistic than he has in recent weeks that congressional leaders could strike a deal that would avoid a government default. He said he has consulted with Treasury Secretary Tim Geithner about the consequences of default.

Mr. Boehner said talks broke down because Mr. Obama came back at the last minute and asked for $400 billion in additional revenues on top of the $800 billion he thought they had agreed to. “Dealing with this White House is like dealing with a bowl of Jell-O,” Mr. Boehner said.

Senior White House officials said Mr. Obama called Mr. Boehner Thursday and sought more revenues, saying they were needed to win Democratic votes. They said the president was willing to negotiate the matter. Mr. Obama followed up with two more phone calls to the speaker, the White House said, and they weren’t returned until Friday evening when Mr. Boehner called to say the talks were off.

The demise of the grand bargain, the latest twist in Washington’s months-long search for an agreement to raise the debt ceiling, left the next steps uncertain. Congressional aides say the outlines of a deal must be clear by Monday if Congress is to approve a deal that would prevent the U.S. government from defaulting Aug. 2.

Treasury Department officials say that without more borrowing authority by that date, the government will run out of cash to pay all its bills, including Social Security benefits, military pensions and payments to contractors.

Several smaller options have been discussed that would cut the deficit between $1 trillion and $2.5 trillion. Changes to big government programs and the tax code won’t likely be tackled. That could solve the debt-ceiling problem, but create a new one if credit-rating firms think the agreement doesn’t justify their triple-A ratings on U.S. debt.

A debt downgrade, while not as serious as a default, could send interests rates higher and cause investors to panic. Mr. Obama raised that prospect Friday night in making the case for a larger deal.

“If we can’t come up with a serious plan for actual deficit and debt reduction, and all we’re doing is extending the debt ceiling for another six, seven, eight months, then the probabilities of downgrading U.S. credit are increased, and that will be an additional cloud over the economy and make it more difficult for us and more difficult for businesses to create jobs that the American people so desperately need,” Mr. Obama said.

Mr. Obama also said as leaders work through the weekend, they should keep in mind that the stock markets will be opening Monday.

The debt ceiling whiplash, with lawmakers lurching from one proposal to the next, has put financial markets on edge. Bond investors still appear to believe a deal will be inked, but others are bracing for volatile markets if the weekend’s negotiations don’t produce results.

“If I were, particularly, a foreign holder of U.S. debt, I’d be asking myself, ‘Who is running that country,’” said John Fath, managing partner for BTG Pactual, a Brazil-based investment bank. “This is like riding on a motorcycle and going right in front of an 18-wheeler. Are they out of their minds?”

Messrs. Obama and Boehner had incentives to push for more. They were thinking in part about their legacies, while many of their followers were focused on sticking to what they saw as their parties’ basic principles. Mr. Obama may have been willing to accept changes to programs such as Medicare, and Mr. Boehner may have countenanced tax-revenue increases.

Liberal groups Friday called Mr. Obama’s re-election campaign and Democratic congressional offices attacking the grand bargain. Justin Ruben, executive director of MoveOn.org, said it would “betray the core Democratic commitment to the middle class.”

Senior Republican aides said disagreements over taxes and changes to entitlement programs became too large to overcome.

Rep. Steve LaTourette (R., Ohio), a close friend of Mr. Boehner’s, said after an afternoon meeting of the GOP caucus: “The speaker was the most melancholy I’ve ever seen him. He’s always been a tremendous optimist. He feels he’s getting nowhere fast.”

Messrs. Obama and Boehner were discussing a deal that would set the stage for $2.7 trillion in spending cuts over 10 years and $800 billion in revenues generated through the tax code—a figure Mr. Obama suggested increasing to $1.2 billion, both sides agree. The plan would have included some of the spending cuts up front, while deferring other cuts and a tax overhaul until later.

Senior White House officials said the first part of the package, which would have immediately become law, also included an extension of unemployment insurance and the payroll tax break for employees.

A hurdle that emerged Thursday was the mechanism that would ensure Congress made good on its promise. Republicans wanted the so-called trigger to be elimination of the individual mandate in Mr. Obama’s health-care law, people familiar with the matter said. The White House refused to include that as a trigger, but said Mr. Obama would consider other options.

A smaller deal cut between congressional leaders would be a poor political outcome for both parties. The cuts likely wouldn’t be deep enough to satisfy conservatives, but would be big enough to irk liberals, and neither could claim credit for putting the U.S. on a path to long-term fiscal stability.

Senior Republican aides said they don’t know what shape a deal will ultimately take, but they said they need to present House members with an agreement by Monday to have time to pass legislation in both chambers by Aug. 2.

House Republicans will not back down from their demand for dollar–for–dollar spending cuts accompanying the debt limit increase. They have increasingly discussed a short-term debt increase, accompanied by the $1.5 trillion in spending cuts identified by budget negotiators. House Majority Leader Eric Cantor (R.,Va.) said the GOP would offer such a plan for avoiding default “in the coming days.”

“America will pay its bills and meet its obligations, and in coming days we will offer a path forward that meets the president’s request for a debt-limit increase, manages down the debt and achieves serious spending cuts,” Mr. Cantor said.

Getting a substantial deal matters as much for financial markets as the political fate of the nation’s leaders. Standard & Poor’s has said it could lower its AAA rating on U.S. government debt if it believes any deficit-reduction agreement is inadequate or the triggers put in place aren’t credible. A lower rating would boost borrowing costs for the government, businesses and households, possibly harming the recovery and roiling financial markets.

“What we mean by credible is something that we think people are actually going to do,” David T. Beers, managing director of sovereign and public finance ratings, said in a recent interview.

I see three ‘dug in’ groups:

There are those pledged never to cut Social Security benefits or eligibility. I personally heard Senator Blumethal pledge this while running for office. And Barney Frank was on saying much he same thing.

There are those pledged to never increase taxes.

There are those who believe it’s in the best interest of out economy to ‘cut off it’s credit card’ and, like a drug addict, go ‘cold turkey’ to a balanced budget. They believe that govt is the problem, and that getting govt ‘out of the way’ it will make room for the private sector to flourish. In other words this third group believes they are doing right by America by voting against any increase in the debt ceiling.

This makes getting any bill to the President to sign highly problematic.

And in this case, doing nothing is the worst case scenario.

Karim writes:

Not sure how they pull this off:

“If CBO scored this plan, it would find net tax relief of approximately $1.5 trillion. To the extent future Congresses find that the dynamic effects of tax reform result in additional revenue beyond these targets, this revenue must go to additional rate reductions and deficit reduction, not to new spending.”

Classic!

Bottom line- they sign Grover Norquist pledges because it gets them elected

The Mosler Plan, as previously posted on this website, is now making the rounds in Europe as an alternative to the French Plan that is currently under serious consideration:

Abstract
The following is an outline for a proposed new Greek government bond issue to provide all required medium term euro funding for Greece on very attractive terms.

The new bond issue includes an addition to the default provisions that eliminates the risk of loss to investors. The language added to the default provisions states that while in default, and only in the case of default, these transferable securities can be used directly, by the bearer on demand, at face value plus accrued interest, for payment of any debts, including taxes, owed to the Greek government.

By eliminating the risk of loss, Greece will be able to independently fund all required financial obligations in the market place for the foreseeable future. The immediate benefits are both reduced interest costs that substantially contribute to deficit reduction, and the elimination of the need for the funding assistance from the European Union and the IMF.

Introduction- Restoring National Sovereignty
Current institutional arrangements have resulted in Greece being faced with escalating interest costs when it attempts to fund itself in the market place, to the point where timely funding is not currently available without external assistance. This requirement for external assistance to avoid default has further resulted in a loss of sovereignty, with the EU and IMF offering funding only on their approval of deficit reduction plans by the Greek government that meet specific requirements. Compliance with these demands from the EU and IMF not only include tax increases, spending cuts, and privatizations, but also include aggressive time lines for achieving their deficit reduction goals. It is also understood by all parties that the immediate near term consequences of these imposed austerity measures will include further slowing of the economy, and rising unemployment.

Greece will restore national sovereignty, and regain control of the process of full compliance with the general EU requirements for all member nations, only when it restores its financial independence. Financial independence will allow Greece to again be master of its own destiny, on an equal basis with the other EU members. And the lower interest rate that result(s) from this proposed bond issue will itself be a substantial down payment on the required deficit reduction, easing the requirements for tax increases, spending cuts, and privatizations.

While this proposal restores Greek national sovereignty, and eases funding burdens, we recognize that it is only the first step in restoring the Greek economy. Even with funding independence and low interest rates the Greek government still faces a monumental task in bringing Greece into full compliance with EU requirements and restoring economic output and employment. However, it should also be recognized that financial independence and low cost funding are the critical first steps to long term success.

The Bond Issue- No Risk of Financial Loss
Market based funding at the lowest possible interest rates requires investors who understand there is no ultimate risk of financial loss, and that the promise to pay principal and interest by the issuer is credible. To be credible, a borrower must have the means to meet all contractual euro obligations on a timely basis. For Greece this has meant investors must have the confidence that Greece can generate sufficient revenues through taxing and borrowing to repay its debts.

The credit worthiness of any loan begins with the default provisions. While there may be unconditional promises to pay, investors nonetheless value what their rights are in the event the borrower does not pay. Corporate debt often includes rights to specific collateral, priorities in specific revenues, and other credit enhancing support.

The new proposed Greek bond issue, with its provision that in the event of default the bonds can be used at face value, plus interest, for the payment of taxes by the bearer on demand, gives the bond holder absolute assurance that full maturity value in euro can always be achieved. And with this absolute assurance that these new securities are necessarily ‘money good’ the ability to refinance is established which dramatically reduces the risk of the default provisions actually being triggered. And, again, should there be a default event, the investor will still get full value for his investment as the entire euro value of the defaulted securities can be used at any time for the payment of Greek taxes. So while this discussion concerns the case of default, the removal of the risk of loss means there will always be demand for them at near risk free market interest rates, and that the default discussion is, for all practical purposes, hypothetical.

These new Greek government bonds will be of particular interest to banks, which, again, encourages bank ownership, which makes default that much more remote a possibility. This is because, in the case of default, a bank holding any of these defaulted securities will be able to use them for payment of taxes on behalf of bank clients (using that bank for payment of their taxes). Under these circumstances, a bank depositor client making payment of euro would, in effect, simultaneously buy the defaulted securities from the bank and use them to pay the Greek government taxes due. Again, the fact that the bank would be fully paid for its defaulted securities in the process of depositors paying their taxes means there will be no default in the first place, as these favorable consequences mean there will be continuous demand for new securities of this type at competitive market interest rates, to facilitate all Greek refinancing requirements.

The new ‘money good’ Greek bonds will be attractive to all global investors, both private and public. This will include international banks, insurance companies, pension funds, and other private investors, as well as sovereign wealth funds and foreign central banks which are accumulating euro reserves.

Fiscal Responsibility
As a member in good standing of the European Union, Greece, like all the member nations, is required to be in full compliance of all EU requirements. Therefore, while this proposal will restore national sovereignty, financial independence, and lower interest rates for Greece, austerity measures will continue to be required to bring Greece into EU compliance. However, Greece will gain substantial flexibility with regard to timing and other specific detail, and will be able to work to achieve its goals in an organized, orderly manner, without the continued pressures of default risk and without the specific terms and conditions currently being demanded by the EU and the IMF. Nor will the ECB be required to buy Greek bonds in the market place, obviating those demands as well.

He has to tax where there is negative propensity to spend and cut where there is negative propensity to save.

>   
>   (email exchange)
>   
>   On Thu, Jun 16, 2011 at 8:15 AM, Stephanie wrote:
>   

Obama’s White House Press Secretary says, ”Obama approaches the deficit talks with a “singular concern, which is that the outcome of the deficit reduction talks produce a result that significantly reduces the deficit while doing no damage to the economic recovery and no damage to our progress in creating jobs.”

And this is with the Democrats in power!

Workers’ share of national income plummets to record low

OBAMA WARNS AGAINST `PANIC’ AS ECONOMY HAS UPS AND DOWNS

From Marshall Auerback:

Amazing that Obama is telling people not to panic over the economy. Means to me he is panicking.

Then again, he should be. He’s basically negotiating terms of surrender on Republican terms. And we have the spectacle of his Treasury Secretary and the soon to depart head of the CEA telling us that we’ve just hit a small “bump in the road”, along with trumpeting the idea of how ‘profitable’ the bailouts have turned out to be. This gives the impression that the trillions thrown at the problem are sufficient and therefore, we have to “rein in” fiscal stimulus, or we become the next Greece.

It’s all insane. Obama really doesn’t deserve another term of office, as he’s a complete fraud, but the other party has undergone a bout of Glenn Beck induced insanity and that probably saves the President.

Then again, he’s following the old model: if you’re going to panic, best to panic early.

Recognizing that ‘it’s all one piece’
The rest of the credit stack seems to be moving up in yield roughly in line with equities.

The slowdown seems to be getting serious.

Hopefully the euro zone and UK haven’t yet reached the tipping point where austerity shifts from reducing deficits to adding to them (due to induced economic weakness).

And hopefully Japan decides to go with an all out reconstruction plan without increasing taxes or otherwise ‘paying for it.’

And hopefully China’s second half weakness doesn’t get out of hand.

And hopefully the US Congress doesn’t accomplish any serious near term deficit reduction.

And hopefully the Fed informs us all that QE and 0 rates reduce interest income for the economy, as indicated in Bernanke’s 2004 published paper. And therefore, as he indicated, a fiscal adjustment is called for to sustain aggregate demand at congressionally mandated levels.

Credit Graph Packet

The rhetoric continues to deteriorate.
Labor is fundamentally a scarce resource.
Policy should encourage business to use as few workers as possible.
And, of course for any given size govt taxes can always be adjusted to sustain aggregate demand for optimal employment/output.

Obama Tells Companies to ‘Step Up’ and Hire Workers

May 12 (Reuters) — President Obama urged businesses to “step up” and hire workers, pressing banks and other corporations to do more to help an economy that he said would take “several years” to recover fully.

In a town-hall style meeting conducted by CBS News on Wednesday, Obama said the weak housing market and high gasoline prices were the biggest “headwinds” dragging on the economy.

“We’ve got a lot more work to do to get businesses to invest and to hire,” he told the audience in remarks broadcast on Thursday.

“It’s going to take us several years for us to get back where we need to be.”

The strength of the U.S. economy is likely to be the main factor that determines whether Obama will succeed in holding on to the White House next year.

He said businesses and banks that reaped the rewards of extraordinary measures to pull the country out of a deep recession had a responsibility now to invest hordes of cash into U.S. jobs.

“It is time for companies to step up,” Obama said.

“American taxpayers contributed to that process of stabilizing the economy. Companies havebenefited from that, and they’re making a lot of money, and now’s the time for them to start betting on American workers and American products.”

U.S. companies created jobs at the fastest pace in five years in April, according to the Labor Department, pointing to underlying strength in the economy even as the jobless rate hit 9.0 percent.