Karim writes:

Yes and upward revision for prior month as well

Interesting data point. Perhaps a bit more evidence of the real wealth flowing from low to high income Americans:

The proof is emerging in dealer showrooms, where customers are buying more of Detroit’s cars and paying higher prices. In July, G.M., Ford and Chrysler sold their vehicles at an average price of $30,400 — $1,350 more than a year ago and higher than an overall industry gain of $1,100, according to the auto research Web site Edmunds.com.

Independent candidates for U.S. Senate, Warren Mosler, left, and John Mertens, second from left, talk with Republican candidates Rob Simmons, second from right, and Peter Schiff, right, following a debate at Trinity College in Hartford, Conn., Tuesday, July 27, 2010. (Jessica Hill, Associated Press / July 27, 2010)

Credit and Credibility

As previously discussed, it is possible their deficits already got high enough and the euro low enough to support very modest growth when market forces intervened to stop further fiscal expansion.

One problem now is proactive cuts can set them back if a combination of private sector credit and exports doesn’t expand at the same time.

And expanding exports remains problematic as that would tend to strengthen the currency to the point where net exports remain relatively low, and there is nothing they can do to keep the euro down should that happen.

Another problem is the market forces that are working to limit their fiscal expansion will continue to hamper their ability to fund themselves, especially with continuing talk of ‘restructuring’ which, functionally, is a form of default.

I’ve read the ECB is now buying about 10 billion euro/week of national govt bonds in the secondary markets and ‘learning and demonstrating’ that it is not inflationary, doesn’t cause a currency collapse, and poses no operational risk to the ECB as some feared it might. As they all become ‘comfortable’ with this look for market forces to ‘force’ them to expand the buying geometrically as happened with their funding of their banking system, where much of the ‘risk’ is now at the ECB as they accept collateral for funding from their member banks that no one else will.

Operationally the ECB can fund the whole shooting match. And if they can address the moral hazard the usual way via the growth and stability pact, this time with the leverage of being able to threaten to cut off ECB funding to punish non compliance.

This ’solution’ of the ECB buying national govt debt in the secondary markets is conceptually/functionally nearly identical to my proposal of per capita distributions to the national govts by the ECB. The difference is my proposal would not have ‘rewarded bad behavior’ as theirs does, but that’s a relatively minor consideration for them at the moment, and if they continue doing what they are doing, they have ’saved the euro,’ even though having the ECB fund all the banks and national govts wasn’t their original idea of how it all would end up.

European Industrial Orders Increase for Third Month

Trichet Says Current Situation Requires ‘Credible Measures’

ECB’s Trichet Says Italian Budget Cuts Go in ‘Right Direction’

German debt agency asked to issue bonds

Schäuble defends German austerity

German Government Won’t Turn to Tax Cuts Amid Deficit Reduction

S&P’s Kraemer Sees No ‘Serious Risk’ of Euro Break Up

Merkel Defends Spending Cuts, Gets Backing From Trichet

Germany Sees Jobless Numbers at Under 3 Million

French Consumer Spending Gains on Signs Job Market Is Improving

French Economy to Expand 1.4% This Year on Exports, Insee Says

Zapatero Says Not Cutting Deficit Would Raise Interest Costs

Link:

The Definitive Case Against Privatizing Social Security

Do we have enemies that are using our misunderstanding of our monetary system to undermine our actual national defense?

Could they be playing on our deficit phobia that’s taken hold to subdue us?

Or is it all just innocent fraud?

While there is certainly spending on waste and fraud in the military that should be addressed, weakening our actual defense capabilities we would otherwise elect to support is an entirely different matter.

What was a serious problem has just taken on a new dimension.

The deficit terrorists are now a force that’s subverting our real defense needs.

On Mon, Jun 14, 2010 at 5:37 AM, Project on Defense Alternatives wrote:

Dear Warren Mosler: I am pleased to announce publication of “Debt, Deficits, and Defense: A Way Forward” by the Sustainable Defense Task Force (members listed below). The report, which is now publically accessible, identifies options for $100 billion annual savings in the US defense budget for consideration by the recently appointed deficit reduction commission.


You can access the report on the home page of the Project on Defense Alternatives here: http://www.comw.org/pda


You will also find there a video of the briefing the Task Force held on 11 June in the US Capitol with over 100 congressional staffers, NGO leaders, and journalists in attendance.

The report concludes that, in order to find significant savings and put defense on a sustainable path, we must change how we produce military power and the ways in which we put it to use. It sees recent official reform efforts as a first step, but concludes that “they fall far short of what is possible and what is needed to put defense spending and defense strategy back in check.” The report offers suggestions for strengthening current reforms and argues that, in addition, we must rethink our military commitments and our defense strategy.


You can follow discussion of the report and other debates on US Defense Policy on the PDA Defense Strategy Review page, here http://www.comw.org/wordpress/dsr/


Thanks, Carl Conetta and Charles Knight – best contact: pda@comw.org

Sustainable Defense Task Force

– Carl Conetta, Project on Defense Alternatives
– Benjamin H Friedman, Cato Institute
– William D Hartung, New America Foundation
– Christopher Hellman, National Priorities Project
– Heather Hurlburt, National Security Network
– Charles Knight, Project on Defense Alternatives
– Lawrence J Korb, Center for American Progress
– Paul Kawika Martin, Peace Action
– Laicie Olson, Center for Arms Control and Non-Proliferation
– Miriam Pemberton, Institute for Policy Studies
– Laura Peterson, Taxpayers for Common Sense
– Prasannan Parthasarathi, Boston College
– Christopher Preble, Cato Institute
– Winslow Wheeler, Center for Defense Information

govt deficits = ‘non govt’ savings:

The recovery in wealth last year was a result of resurgent financial markets and increased savings, the report said. The Standard & Poor’s 500 Index rose 20 percent in 2009 and the U.S. savings rate averaged 4.2 percent compared with 2.6 percent a year earlier.

>   
>   (email exchange)
>   
>   On Fri, Jun 11, 2010 at 3:57 AM, wrote:
>   
>   What’s interesting about this to me is Slovakia. The Capital, Bratislava,
>   is 45 minutes from Vienna by car, and they’re third on the list! Ever
>   hear bad things about Slovakia? FLAT TAX of 19 percent for several years
>   now and more and more industry growing there. Great restaurants, clubs,
>   and more so quality of life has greatly increased. Magna has several
>   facilities there as do VW etc etc.
>   

Yes, it’s a ‘race to the bottom’ with whoever has the lowest taxes winning business from other EU nations, eventually forcing them to do same.

This is what’s happened to US States, with the States with the lowest tax rates and benefits getting businesses from other States. The problem is that means that States have to spend the least on education and public services to win business, in a race to the bottom.

It’s a fallacy of composition in action. If you stand up at a football game you see better, but soon everyone is standing up so nothing’s gained and no one can sit down (in the case of the football game at least until the front row sits down).

One of the public purposes of the federal govt is to set min standards that prevent races to the bottom

World’s Millionaires Increase by 14%, Boston Consulting Reports

By Alexis Leondis

June 10 (Bloomberg) —The global millionaires’ club expanded by about 14 percent in 2009 with Singapore leading the way, The Boston Consulting Group said.

The number of millionaire households increased to 11.2 million, according to the study released yesterday by the Boston-based firm. Singapore posted a 35 percent gain, followed by Malaysia, Slovakia and China. In 2008, the number of millionaire households fell about 14 percent to 9.8 million.

“Given the severity and magnitude of the crisis, I’m surprised at how fast global wealth has come back,” Bruce Holley, a senior partner in the firm’s New York office and topic expert for wealth management and private banking for the U.S., said in a telephone interview before the report was released.

Global wealth rose by 11.5 percent after falling 10 percent in 2008, as assets under management increased to $111.5 trillion, close to the annual study’s record $111.6 trillion in 2007. North America, defined as the U.S. and Canada, had the greatest gain in assets at $4.6 trillion to $35.1 trillion. The U.S. also had the most millionaire households at 4.72 million, the survey said, while Europe remained the wealthiest region, with $37.1 trillion.

Current numbers may differ from those in last year’s report because of currency fluctuations and newer available data, said Peter Damisch, a BCG partner and a co-author of the report. The study looked at 62 countries representing more than 98 percent of global gross domestic product.

Wealth Recovery

The recovery in wealth last year was a result of resurgent financial markets and increased savings, the report said. The Standard & Poor’s 500 Index rose 20 percent in 2009 and the U.S. savings rate averaged 4.2 percent compared with 2.6 percent a year earlier.

Global wealth dropped in 2008 for the first time since the survey’s 2001 inception as the credit crisis sent stock indexes tumbling and slashed the value of real-estate holdings, hedge- fund and private-equity investments.

Less than 1 percent of households globally were considered millionaires, which is defined as investable assets of more than $1 million, exclusive of real estate and property such as art. Wealth became more concentrated with millionaire households controlling 38 percent of the world’s assets compared with 36 percent a year earlier, the study said.

Singapore also had the highest proportion of millionaire households at 11.4 percent, followed by Hong Kong and Switzerland. The fourth, fifth and sixth spots were in the Middle East — Kuwait, Qatar and the United Arab Emirates. The U.S. was seventh-highest at 4.1 percent.

Growth Rate

The amount of offshore wealth, defined as assets housed in a country other than the investor’s legal residence, increased to $7.4 trillion after declining to $6.8 trillion in 2008 as global regulators pressured countries such as Switzerland to cut down on bank secrecy. Switzerland remained the largest offshore center, with about 27 percent, or $2 trillion, of assets, the report said.

Global wealth will increase at an average annual rate of almost 6 percent from yearend 2009 through 2014, which is higher than the 4.8 percent annual growth rate from yearend 2004 through 2009, the study said. Wealth in the Asia-Pacific region, excluding Japan, is expected to rise almost double the global rate. Last year’s survey said total wealth wouldn’t return to pre-recession levels until 2013.

‘Still Feel Burned’

The report’s authors also looked at the performance of 114 wealth management firms worldwide and found revenue declined by an average of 7.3 percent as assets under management increased an average of 14.3 percent. Reasons for decreased revenue include fewer transactions, tougher price negotiations and a shift to lower-risk asset classes and investments that are liquid and simple, the study said.

Investors feel frustrated and distrustful following the market events beginning in 2008, despite the increase in wealth, Holley said.

“People still feel burned,” said Holley. “I think the numbers in the report suggest a much rosier experience than how people actually feel.”

This means we can have far lower taxes for any given amount of govt spending.

Hope they all see it that way!

Friday, May 21, 2010

The Administration and the IMF on the Multiplier
In a soon to be published paper, several economists at the International Monetary Fund report estimates of government spending multipliers which are much smaller than those previously reported by the U.S.

Administration. In order to obtain the estimates the IMF economists use a very large complex model called the Global Integrated Monetary and Fiscal (GIMF) Model developed by Douglas Laxton and his colleagues at the IMF . The paper is quite technical, but the bottom line summary is that a one percent increase in government purchases (as a share of GDP) increases GDP by a maximum of 0.7 percent and then fades out rapidly. This means that government spending crowds out other components of GDP (investment, consumption, net exports) immediately and by a large amount.

The IMF estimate is much less than the multiplier reported in a paper released last year by Christina Romer of the President’s Council of Economic Advisers and Jared Bernstein of the Vice President’s Office. The attached graph shows how huge the difference is. It shows the impact on GDP of a one percentage point permanent increase in government purchases as a share of GDP reported in the IMF paper (labeled GIMF) and in the Administration paper (labeled Romer-Bernstein).

John Cogan, Volker Wieland, Tobias Cwik and I raised questions about Romer-Bernstein paper soon after it was released last year because the estimates seemed to be much different from comparable estimates based on more modern new Keynesian models. We classified the Romer-Bernstein estimates as old Keynesian. Since then many technical papers have been written on this subject, of which a recent paper by Michael Woodford is the most comprehensive in my view. The IMF model is of the new Keynesian variety and adds more evidence of the huge policy differences between new Keynesian and old Keynesian models.

Posted by John B. Taylor at 12:48 AM

Getting worse by the minute.

>   
>   (email exchange)
>   
>   On Thu, May 27, 2010 at 7:51 PM, wrote:
>   
>   Does anyone know of some way to talk to her?
>   This is embarrassing.
>   

Clinton spotlights US debt as diplomatic threat

Clinton says debt, deficit threaten U.S int’l position

U.S. committed to tough political steps on budget

Clinton urges new “national security” budget (Adds quotes, updates throughout)

By Andrew Quinn

May 27 (Reuters) — The United States’ huge national debt — now topping $13 trillion — is becoming a major threat to U.S. security and leadership in the world, Secretary of State Hillary Clinton said on Thursday.

“The United States must be strong at home in order to be strong abroad,” Clinton said in remarks on the Obama administration’s new national security doctrine, which was made public on Thursday.

“We cannot sustain this level of deficit financing and debt without losing our influence, without being constrained in the tough decisions we have to make,” Clinton said, adding that it was time to “make the national security case about reducing the deficit and getting the debt under control.”

The new Obama security strategy joins diplomatic engagement with economic discipline and military power to boost America’s standing, and pledges expanded partnerships with rising powers like India and China to share the global burden.

Clinton emphasized controlling the budget deficit, saying it was “personally painful” for her to see the yawning U.S. spending gap after her husband, former President Bill Clinton, ended his second term in 2001 with budget surpluses.

“That was not just an exercise in budgeteering. It was linked to a very clear understanding of what the United States needed to do to get positioned to lead for the foreseeable future, far into the 21st century,” she said.

Clinton said that as a Democratic U.S. senator from New York during the administration of former President George W. Bush, she had voted against “tax cuts that were never sustainable, wars that were never paid for” — but without success.

“Now we’re paying the piper,” she said.

Clinton in February blamed “outrageous” advice from Former Federal Reserve Chairman Alan Greenspan in part for the grim U.S. deficit picture.

POLITICALLY TOUGH

President Barack Obama, who pushed through his own huge stimulus spending plan last year amid the global financial crisis, was committed to taking the politically difficult steps needed to put government finances back in order, Clinton said.

“We are in a much stronger economic position than we were. And that matters. That matters when we go to China. That matters when we try to influence Russia. That matters when we talk to our allies in Europe,” Clinton said.

Obama has formed an 18-member bipartisan commission to study ways to reduce the U.S. deficit projected at about $1.5 trillion this year and bring long-term debt to manageable levels. It aims to find $229 billion in savings in 2015 to bring the deficit down to 3 percent of the overall economy from about 10 percent now.

The U.S. debt this week topped $13 trillion, according to USDebtClock.org, a website that tracks real-time growth in U.S. debt. That amounts to about 90 percent of annual gross domestic product, a level that could start impacting the economy.

Big budget deficits and rising U.S. debt are becoming major issues in the run-up to November’s congressional elections, and the European debt crisis that has unnerved financial markets has fueled these voter concerns.

While arguing for tighter overall economic discipline, Clinton said it was no time for the United States to roll back spending on international diplomatic and development programs, particularly as civilian agencies take up more of the work in Iraq and Afghanistan formerly done by the military.

“In order for us to meet the obligations that are now being asked of our civilian personnel, it costs money,” Clinton said, adding that it was time to look at an overall “national security budget” that would encompass funding for diplomatic, development and military operations.

“You cannot look at a defense budget, a State Department budget and a USAID (U.S. Agency for International Development) budget without defense overwhelming the combined efforts of the other two and without us falling back into the old stovepipes that I think are no longer relevant for the challenges of today,” Clinton said.

innocent fraud or subversion?

or both?

Galbraith attacked for teaching “NAKED Keynesianism” !!!

Link

Seems there is no actual default provision, instead, the dollar loan can be rolled over indefinitely?

Link:

Full PDF

10 May 2010 – ECB decides on measures to address severe tensions in financial markets

The Governing Council of the European Central Bank (ECB) decided on several measures to address the severe tensions in certain market segments which are hampering the monetary policy transmission mechanism and thereby the effective conduct of monetary policy oriented towards price stability in the medium term. The measures will not affect the stance of monetary policy.

Agreed.

In view of the current exceptional circumstances prevailing in the market, the Governing Council decided:

1. To conduct interventions in the euro area public and private debt securities markets (Securities Markets Programme) to ensure depth and liquidity in those market segments which are dysfunctional. The objective of this programme is to address the malfunctioning of securities markets and restore an appropriate monetary policy transmission mechanism. The scope of the interventions will be determined by the Governing Council.

This does not help with primary funding. It reads like it’s about defining acceptable collateral.

In making this decision we have taken note of the statement of the euro area governments that they “will take all measures needed to meet [their] fiscal targets this year and the years ahead in line with excessive deficit procedures” and of the precise additional commitments taken by some euro area governments to accelerate fiscal consolidation and ensure the sustainability of their public finances.
In order to sterilise the impact of the above interventions, specific operations will be conducted to re-absorb the liquidity injected through the Securities Markets Programme. This will ensure that the monetary policy stance will not be affected.

This insures the overnight rate target is met.

2. To adopt a fixed-rate tender procedure with full allotment in the regular 3-month longer-term refinancing operations (LTROs) to be allotted on 26 May and on 30 June 2010.

3. To conduct a 6-month LTRO with full allotment on 12 May 2010, at a rate which will be fixed at the average minimum bid rate of the main refinancing operations (MROs) over the life of this operation.

Setting term rates.

4. To reactivate, in coordination with other central banks, the temporary liquidity swap lines with the Federal Reserve, and resume US dollar liquidity-providing operations at terms of 7 and 84 days. These operations will take the form of repurchase operations against ECB-eligible collateral and will be carried out as fixed rate tenders with full allotment. The first operation will be carried out on 11 May 2010.

Unsecured dollar loans from the Fed to the ECB to be reloaned to member banks vs eligible collateral. This is to keep dollar libor at the Fed’s target rate. It’s a very high risk strategy for the Fed.

Looks like the plan is for a straight euro loan from the IMF to Greece:

“IMF support will be provided under a three-year €30 billion (about $40 billion)Stand-By Arrangement (SBA)—the IMF’s standard lending instrument. In addition, euro area members have pledged a total of €80 billion (about $105 billion) in bilateral loans to support Greece’s effort to get its economy back on track. Implementation of the program will be monitored by the IMF through quarterly reviews.”

FACTSHEET
IMF Stand-By Arrangement
November 23, 2009

In an economic crisis, countries often need financing to help them overcome their balance of payments problems. Since its creation in June 1952, the IMF’s Stand-By Arrangement (SBA) has been used time and again by member countries, it is the IMF’s workhorse lending instrument for emerging market countries. Rates are non-concessional, although they are almost always lower than what countries would pay to raise financing from private markets. The SBA was upgraded in 2009 to be more flexible and responsive to members countries’ needs. Borrowing limits were doubled with more funds available up front, and conditions were streamlined and simplified. The new framework also enables broader high-access borrowing on a precautionary basis.

Lending tailored to member countries’ needs

The SBA framework allows the Fund to respond quickly to countries’ external financing needs, and to support policies designed to help them emerge from crisis and restore sustainable growth.

Eligibility. All member countries facing external financing needs are eligible for SBAs subject to all relevant IMF policies. However, SBAs are generally used by middle income member countries more often, since low-income countries have a range of concessional instruments tailored to their needs.

Duration. The length of a SBA is flexible, and typically covers a period of 12–24 months, but no more than 36 months, consistent with addressing short-term balance of payments problems.

Borrowing terms. Access to IMF financial resources under SBAs are guided by a member country’s need for financing, capacity to repay, and track record with use of IMF resources. Within these guidelines, the SBA provides flexibility in terms of amount and timing of the loan to help meet the needs of borrowing countries. These include:

• Normal access. Borrowing limits were recently doubled to give countries access of up to 200 percent of quota for any 12 month period, and 600 percent of total credit outstanding (net of scheduled repurchases).

• Exceptional access. The IMF can lend amounts above normal limits on a case-by-case basis under its Exceptional Access policy, which entails enhanced scrutiny by the Fund’s Executive Board. During the current global economic crisis, countries facing acute financing needs have been able to tap exceptional access SBAs.

• Front-loaded access. The new SBA framework provides increased flexibility to front load funds where warranted by the strength of the country’s policies and the nature of its financing needs.

• Rapid access. Fund support under the SBA can be accelerated under the Fund’s Emergency Financing Mechanism, which enables rapid approval of IMF lending. This mechanism was utilized in several instances during the recent crisis.

Precautionary access. The new SBA framework has expanded the range of high access precautionary arrangements (HAPAs), a type of insurance facility against very large financing needs. Precautionary arrangements are used when countries do not intend to draw on approved amounts, but retain the option to do so should they need it. Three HAPAs, with Costa Rica, El Salvador, and Guatemala, were approved during the crisis.

Fewer conditions, focus on objectives

When a country borrows from the IMF, it agrees to adjust its economic policies to overcome the problems that led it to seek funding in the first place. These commitments, including specific conditionality, are described in the member country’s letter of intent (which often has a memorandum of economic and financial policies).

Building on earlier efforts, the IMF has further reformed the conditions of its lending to focus on criteria that are measurable and observable. These changes include:
Quantitative conditions. Member countries progress is monitored using quantitative program targets. Fund disbursements are tied to the observance of such targets. Examples include targets for international reserves and government deficits or borrowing, consistent with program goals.

Structural measures. The new SBA framework has eliminated structural performance criteria. Instead, progress in implementing structural measures that are critical to achieving the objectives of the program are assessed in a holistic way in the context of program reviews.

Frequency of reviews. Regular reviews by the IMF’s Executive Board play a critical role in assessing performance under the program and allowing the program to adapt to economic developments. The SBA framework allows flexibility in the frequency of reviews based on the strength of the country’s policies and the nature of its financing needs.

Lending terms

Repayment. Repayment of borrowed resources under the SBA are due within 3¼-5 years of disbursement, which means each disbursement is repaid in eight equal quarterly installments beginning 3¼ years after the date of each disbursement.

Lending rate. The lending rate is tied to the IMF’s market-related interest rate, known as the basic rate of charge, which is itself linked to the Special Drawing Rights (SDR) interest rate. Large loans carry a surcharge of 200 basis points, paid on the amount of credit outstanding above 300 percent of quota. If credit remains above 300 percent of quota after three years, this surcharge rises to 300 basis points, and is designed to discourage large and prolonged use of IMF resources.

Commitment fee. Resources committed under all SBAs are subject to a commitment fee levied at the beginning of each 12 month period on amounts that could be drawn in the period (15 basis points for committed amounts up to 200 percent of quota, 30 basis points on committed amounts above 200 percent and up to 1,000 percent of quota and 60 basis points on amounts exceeding 1,000 percent of quota). These fees are refunded if the amounts are borrowed during the course of the relevant period. As a result, if the country borrows the entire amount committed under an SBA, the commitment fee is fully refunded, while no refund is made under a precautionary SBA under which countries do not draw.

Service charge. A service charge of 50 basis points is applied on each amount drawn.

FACTSHEET

Special Drawing Rights (SDRs)

January 31, 2010

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. With a general SDR allocation that took effect on August 28 and a special allocation on September 9, 2009, the amount of SDRs increased from SDR 21.4 billion to SDR 204.1 billion (equivalent to about $ 321 billion).

The role of the SDR

The SDR was created by the IMF in 1969 to support the Bretton Woods fixed exchange rate system. A country participating in this system needed official reserves—government or central bank holdings of gold and widely accepted foreign currencies—that could be used to purchase the domestic currency in foreign exchange markets, as required to maintain its exchange rate. But the international supply of two key reserve assets—gold and the U.S. dollar—proved inadequate for supporting the expansion of world trade and financial development that was taking place. Therefore, the international community decided to create a new international reserve asset under the auspices of the IMF.

However, only a few years later, the Bretton Woods system collapsed and the major currencies shifted to a floating exchange rate regime. In addition, the growth in international capital markets facilitated borrowing by creditworthy governments. Both of these developments lessened the need for SDRs.

The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions. In addition to its role as a supplementary reserve asset, the SDR, serves as the unit of account of the IMF and some other international organizations.

Basket of currencies determines the value of the SDR

The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold—which, at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods system in 1973, however, the SDR was redefined as a basket of currencies, today consisting of the euro, Japanese yen, pound sterling, and U.S. dollar. The U.S. dollar-value of the SDR is posted daily on the IMF’s website. It is calculated as the sum of specific amounts of the four currencies valued in U.S. dollars, on the basis of exchange rates quoted at noon each day in the London market.
The basket composition is reviewed every five years by the Executive Board to ensure that it reflects the relative importance of currencies in the world’s trading and financial systems. In the most recent review (in November 2005), the weights of the currencies in the SDR basket were revised based on the value of the exports of goods and services and the amount of reserves denominated in the respective currencies which were held by other members of the IMF. These changes became effective on January 1, 2006. The next review will take place in late 2010.

The SDR interest rate

The SDR interest rate provides the basis for calculating the interest charged to members on regular (non-concessional) IMF loans, the interest paid and charged to members on their SDR holdings and charged on their SDR allocations, and the interest paid to members on a portion of their quota subscriptions. The SDR interest rate is determined weekly and is based on a weighted average of representative interest rates on short-term debt in the money markets of the SDR basket currencies.

SDR allocations to IMF members

Under its Articles of Agreement, the IMF may allocate SDRs to members in proportion to their IMF quotas. Such an allocation provides each member with a costless asset. However, if a member’s SDR holdings rise above its allocation, it earns interest on the excess; conversely, if it holds fewer SDRs than allocated, it pays interest on the shortfall.
There are two kinds of allocations:

General allocations of SDRs. General allocations have to be based on a long-term global need to supplement existing reserve assets. Decisions to allocate SDRs have been made three times. The first allocation was for a total amount of SDR 9.3 billion, distributed in 1970-72 in yearly installments. The second allocation, for SDR 12.1 billion, was distributed in 1979–81 in yearly installments.

The third general allocation was approved on August 7, 2009 for an amount of SDR 161.2 billion and took place on August 28, 2009. The allocation increased simultaneously members’ SDR holdings and their cumulative SDR allocations by about 74.13 percent of their quota.

Special allocations of SDRs. A proposal for a special one-time allocation of SDRs was approved by the IMF’s Board of Governors in September 1997 through the proposed Fourth Amendment of the Articles of Agreement. Its intent is to enable all members of the IMF to participate in the SDR system on an equitable basis and correct for the fact that countries that joined the Fund after 1981—more than one-fifth of the current IMF membership—had never received an SDR allocation.

The Fourth Amendment became effective for all members on August 10, 2009 when the Fund certified that at least three-fifths of the IMF membership (112 members) with 85 percent of the total voting power accepted it. On August 5, 2009, the United States joined 133 other members in supporting the Amendment. The special allocation was implemented on September 9, 2009. It increased members’ cumulative SDR allocations by SDR 21.5 billion using a common benchmark ratio as described in the amendment.

Buying and selling SDRs

IMF members often need to buy SDRs to discharge obligations to the IMF, or they may wish to sell SDRs in order to adjust the composition of their reserves. The IMF acts as an intermediary between members and prescribed holders to ensure that SDRs can be exchanged for freely usable currencies. For more than two decades, the SDR market has functioned through voluntary trading arrangements. Under these arrangements a number of members and one prescribed holder have volunteered to buy or sell SDRs within limits defined by their respective arrangements. Following the 2009 SDR allocations, the number and size of the voluntary arrangements has been expanded to ensure continued liquidity of the voluntary SDR market.

In the event that there is insufficient capacity under the voluntary trading arrangements, the Fund can activate the designation mechanism. Under this mechanism, members with sufficiently strong external positions are designated by the Fund to buy SDRs with freely usable currencies up to certain amounts from members with weak external positions. This arrangement serves as a backstop to guarantee the liquidity and the reserve asset character of the SDR.

On Tue, May 4, 2010 at 4:53 AM, lars wrote:

friends, romans, countrymen!

attached you’ll find an interview with the economist randall wray on the following topic:

Truths and myths of the Federal Reserve
Is the Federal Reserve an almighty-like “creature” or rather extremely limited in its essential operations? L. Randall Wray, an expert on monetary policy, answers questions with regard to the Fed and central banks in general.

Truths and myths of the Federal Reserve

All the charts are looking about the same to me.

We had a big move down, which found support helped by the automatic fiscal stabilizers, followed by a brief V shaped bounce that appears to be followed by a leveling off at modest rates of growth and absolute levels well below previous highs of a few years ago, which weren’t all that high to begin with.

And most of the V looks to have been from oversold inventories.

Looks like at least for now the great moderation has returned but with a much larger output gap/unemployment rate?

New jobs can get us back to a ‘get a job buy a car’ credit expansion, but looks like that could be a while.

And external risks remain, with euro zone aggregate demand at risk and maybe China as well if second half State sponsored lending does its usual swan dive.

Also, my nagging suspicion that a 0 rate policy is fundamentally highly deflationary, allowing the benefit of lower levels of taxation, continues to be reinforced by the data.

In other words, it feels like for the current size of govt. we are grossly overtaxed.
See the smaller attachment for my selected charts, the larger for the full chart package.

Link:

Abreviated Chart Book

Full Chart Book

Looks to me like It’s going to come down to very fine points of law, and take a very long time:

Goldman Response

Poll Finds Tea Party Backers Wealthier and More Educated

By Kate Zernike and Megan Thee-Brenan

April 14 (NYT) — Tea Party supporters are wealthier and more well-educated than the general public, and are no more or less afraid of falling into a lower socioeconomic class, according to the latest New York Times/CBS News poll.

The 18 percent of Americans who identify themselves as Tea Party supporters tend to be Republican, white, male, married and older than 45.

They hold more conservative views on a range of issues than Republicans generally. They are also more likely to describe themselves as “very conservative” and President Obama as “very liberal.”

And while most Republicans say they are “dissatisfied” with Washington, Tea Party supporters are more likely to classify themselves as “angry.”

The Tea Party movement burst onto the scene a year ago in protest of the economic stimulus package, and its supporters have vowed to purge the Republican Party of officials they consider not sufficiently conservative and to block the Democratic agenda on the economy, the environment and health care. But the demographics and attitudes of those in the movement have been known largely anecdotally. The Times/CBS poll offers a detailed look at the profile and attitudes of those supporters.

Their responses are like the general public’s in many ways. Most describe the amount they paid in taxes this year as “fair.” Most send their children to public schools. A plurality do not think Sarah Palin is qualified to be president, and, despite their push for smaller government, they think that Social Security and Medicare are worth the cost to taxpayers. They actually are just as likely as Americans as a whole to have returned their census forms, though some conservative leaders have urged a boycott.

Tea Party supporters’ fierce animosity toward Washington, and the president in particular, is rooted in deep pessimism about the direction of the country and the conviction that the policies of the Obama administration are disproportionately directed at helping the poor rather than the middle class or the rich.

The overwhelming majority of supporters say Mr. Obama does not share the values most Americans live by and that he does not understand the problems of people like themselves. More than half say the policies of the administration favor the poor, and 25 percent think that the administration favors blacks over whites — compared with 11 percent of the general public.

They are more likely than the general public, and Republicans, to say that too much has been made of the problems facing black people.

Asked what they are angry about, Tea Party supporters offered three main concerns: the recent health care overhaul, government spending and a feeling that their opinions are not represented in Washington.

“The only way they will stop the spending is to have a revolt on their hands,” Elwin Thrasher, a 66-year-old semiretired lawyer in Florida, said in an interview after the poll. “I’m sick and tired of them wasting money and doing what our founders never intended to be done with the federal government.”

They are far more pessimistic than Americans in general about the economy. More than 90 percent of Tea Party supporters think the country is headed in the wrong direction, compared with about 60 percent of the general public. About 6 in 10 say “America’s best years are behind us” when it comes to the availability of good jobs for American workers.

Nearly 9 in 10 disapprove of the job Mr. Obama is doing over all, and about the same percentage fault his handling of major issues: health care, the economy and the federal budget deficit. Ninety-two percent believe Mr. Obama is moving the country toward socialism, an opinion shared by more than half of the general public.

“I just feel he’s getting away from what America is,” said Kathy Mayhugh, 67, a retired medical transcriber in Jacksonville. “He’s a socialist. And to tell you the truth, I think he’s a Muslim and trying to head us in that direction, I don’t care what he says. He’s been in office over a year and can’t find a church to go to. That doesn’t say much for him.”

The nationwide telephone poll was conducted April 5 through April 12 with 1,580 adults. For the purposes of analysis, Tea Party supporters were oversampled, for a total of 881, and then weighted to their proper proportion in the poll. The margin of sampling error is plus or minus three percentage points for all adults and for Tea Party supporters.

Of the 18 percent of Americans who identified themselves as supporters, 20 percent, or 4 percent of the general public, said they had given money or attended a Tea Party event, or both. These activists were more likely than supporters generally to describe themselves as very conservative and had more negative views about the economy and Mr. Obama. They were more angry with Washington and intense in their desires for a smaller federal government and deficit.

Tea Party supporters over all are more likely than the general public to say their personal financial situation is fairly good or very good. But 55 percent are concerned that someone in their household will be out of a job in the next year. And more than two-thirds say the recession has been difficult or caused hardship and major life changes. Like most Americans, they think the most pressing problems facing the country today are the economy and jobs.

But while most Americans blame the Bush administration or Wall Street for the current state of the American economy, the greatest number of Tea Party supporters blame Congress.

They do not want a third party and say they usually or almost always vote Republican. The percentage holding a favorable opinion of former President George W. Bush, at 57 percent, almost exactly matches the percentage in the general public that holds an unfavorable view of him.

Dee Close, a 47-year-old homemaker in Memphis, said she was worried about a “drift” in the country. “Over the last three or four years, I’ve realized how immense that drift has been away from what made this country great,” Ms. Close said.

Yet while the Tea Party supporters are more conservative than Republicans on some social issues, they do not want to focus on those issues: about 8 in 10 say that they are more concerned with economic issues, as is the general public.

When talking about the Tea Party movement, the largest number of respondents said that the movement’s goal should be reducing the size of government, more than cutting the budget deficit or lowering taxes.

And nearly three-quarters of those who favor smaller government said they would prefer it even if it meant spending on domestic programs would be cut.

But in follow-up interviews, Tea Party supporters said they did not want to cut Medicare or Social Security — the biggest domestic programs, suggesting instead a focus on “waste.”

Some defended being on Social Security while fighting big government by saying that since they had paid into the system, they deserved the benefits.

Others could not explain the contradiction.

“That’s a conundrum, isn’t it?” asked Jodine White, 62, of Rocklin, Calif. “I don’t know what to say. Maybe I don’t want smaller government. I guess I want smaller government and my Social Security.” She added, “I didn’t look at it from the perspective of losing things I need. I think I’ve changed my mind.”

To my great friends at AVM/III,

After 4 years in research and 20 years in sales, I am moving to trading (at Barclays). The ticker to buy puts on Barclays is “BARC LN Equity OMON”. I will be working for Ronti Pal who runs our swap and treasury desk. I will be managing a book that will (hopefully) take advantage of some of our longer term (6-12mos) strategic views. I am looking forward to this new challenge. Thankfully this is not “good-bye” as I asked to still act as a Relationship Manager for AVM. While I will not cover you guys day to day, I will still represent your interests here. So feel free to contact me for any issues. My first job in that role is to assign new capable coverage so that you are in good hands. I am happy to tell you that Colin McCleod will be filling that role with Sean Mahon as his back-up. Sean graduated from Harvard about four years ago and has developed into a motivated and capable saleperson. Sean went to Princeton and has been my right hand man for the last two years. So you have an “Ivy League” line-up :) Both are personable and have high integrity.

I started talking to AVM sometime in 1992 while at JP Morgan. It has been rewarding to get to know all the talented and creative people at your shop. I will miss covering you day to day but I look forward to maintaining a dialogue with some of you.

Cheers,

John Lobley