Tag Archives: MMT

MMT to Obama- Taxes Function to Regulate Aggregate Demand, Not to Raise Revenue per se

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We, the undersigned economics and financial professionals,
seeking to foster world prosperity,
send the following urgent message to President Obama and the US Congress:

Taxes Function to Regulate Aggregate Demand (total spending),
Not to Raise Revenue per se

That means:

Federal spending is NOT inherently dependent on revenues from taxing or borrowing.

ANY constraints, including debt ceilings and budgeting rules, are necessarily self imposed by Congress.

The US can’t EVER have a funding crisis like Greece- there is no such thing for ANY issuer of its own currency.

The correct analogy is between Greece and the US states.
A US state can indeed become unable to fund itself, and look to the US Federal Reserve Bank for funding, much like Greece is getting assistance from the European Central Bank. But as issuers of their own currencies, the notion of a funding crisis for the US Federal Reserve Bank or the European Central Bank is entirely inapplicable.

Furthermore, federal borrowing is nothing more than a matter of the Federal Reserve debiting reserve accounts and crediting securities accounts. And paying off the Federal debt, as done continuously as US Treasury securities mature, is nothing more than a matter of the Federal Reserve debiting securities accounts and crediting reserve accounts.

THERE ARE NO GRANDCHILDREN INVOLVED IN THIS PROCESS!!!

Nor is there any inherent financial risk posed by foreigners or anyone else buying or not buying US Treasury securities.

Additionally, the risk of federal overspending relative to taxation, as available labor and materials become fully employed,
is higher prices, and not insolvency or any kind of funding crisis.

Therefore, with our currently recognized and highly problematic shortage of aggregate demand,
as evidenced by unemployment and economic slack in general, you’ve all got it backwards.

Given the current depressed state of the US economy, an informed Congress would be in heated debate
over whether to increase federal spending, or decrease taxes.

And with the current risk of inflation largely from crude oil prices and food prices,
which are now closely linked, for all practical purposes price stability is also currently in your hands.

Signed:

Warren Mosler
President, Valance Co.

Roger Erickson, PhD; Chairman
Operations Institute

Joseph M. Firestone, Ph.D.
Managing Director, CEO
Knowledge Management Consortium International
A Division of Executive Information Systems, Inc.

Stephanie Kelton, Ph.d
University of Missouri, Kansas City

Thomas E. Nugent
Chief Investment Officer, Victoria Capital Management, Inc.

Chris Hanley
Owner/Broker Farchette & Hanley Real Estate, US Virgin Islands

Art Patten
President, Symmetry Capital Management, LLC

Andrea Terzi
Franklin College Switzerland

Bernard J. Weis
Norfolk Markets

***If you wish to sign on, return this email with how you would like your name and associations to appear, thanks, and please distribute this to other academics and financial professionals who may be interested in signing on***

Obama Urges Democrats Help Him ‘Finish the Job’

April 15 (Reuters) — President Barack Obama said Thursday a Republican debt-reduction plan would create “a nation of potholes” as he used the first events of his 2012 re-election bid to strike a sharp contrast with his opponents.

Seeking to reignite the energy of supporters that propelled his candidacy in 2008, Obama said “extraordinary progress” has been made during his two years in the White House but much work remains.

He called on supporters to help him finish the job.

The president, who offered a 12-year plan Wednesday to reduce the U.S. deficit by $4 trillion, skewered a proposal by Republican Representative Paul Ryan.

Ryan would trim about the same amount without raising taxes and by making cuts in spending, such as on medical and social programs for the poor and elderly. Republicans have attacked Obama’s plan for raising taxes on wealthy Americans.

“Under their vision, we can’t invest in roads and bridges and broadband and high-speed rail,” Obama said.

“We would be a nation of potholes.”

The Republican approach, he said, is that “we can’t afford to do big things anymore” and says to the underprivileged, “tough luck, they’re on their own.”

Obama, who reluctantly agreed to extend Bush-era tax cuts late last year even for the richest Americans, said if the wealthy were to “pay a little more in taxes,” it would help solve America’s fiscal challenge without forsaking its responsibility to its people.

“If we apply some practical common sense to this, we can solve our fiscal challenges and still have the America that we believe in. That’s what this budget debate is about and that’s what the presidential campaign is going to be about.”

Obama has tried to straddle a middle ground and sought compromise with his political adversaries since Republicans took command of the House of Representatives and picked up strength in the Senate in elections last November.

He said he recognized that some of his liberal supporters have been frustrated “because we’ve had to compromise with the Republicans a couple of times,” and that he felt the same way sometimes.

“We knew this wasn’t going to be easy.”

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Death by 1000 cuts: The economics of innocent subversion

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Even NY Fed Chief Bill Dudley, well aware of his role as a manager of expectations, is worried:

Dudley Headlines:

DUDLEY SAYS IMPORTANT NOT TO OVERREACT TO RISING INFLATION
DUDLEY ATTRIBUTES LOSS OF MOMENTUM TO RISING OIL PRICES
DUDLEY SAYS U.S. ECONOMY LOST SOME MOMENTUM IN PAST TWO MONTHS

Last I heard Congress agreed cut $38 billion in spending from this year’s budget as a ‘down payment’ on reducing the federal deficit.

Followed by every economic forecaster on Wall St. and Main St. reducing estimates for this years’s GDP by maybe 1/2% or more. (These are people who get paid to be right, and not to produce propaganda.)

I have no problem with cutting wasteful and unnecessary spending, but when we have this kind of shortage of aggregate demand said cuts would be more than matched with either tax cuts and/or other spending increases, to sustain aggregate demand.

(Aggregate demand is the total spending, private and public, that supports employment and output).

The proposals are now to get to work on more serious deficit reduction- maybe $5 trillion over the next 10 years, or about $500 billion or so per year.

Ask your favorite forecasters what that does to GDP. I’ll guess they’ll tell you it would be a proactive reduction of more than 3% per year. Plus multipliers. And maybe a 50% increase in unemployment as the output gap skyrockets from already insanely high levels.

In other words, maybe 10 years of negative growth, unless private sector (including non residents) spending somehow increases at least by that much.

For domestic sector spending to increase to fill what my mate Bill Mitchell likes to call the spending gap, there would need to be an increase in private sector debt (which is likewise measured as a drop in private sector savings).

With today’s credit conditions, I don’t see where that could possibly come from. Borrowing to spend on houses and cars- the traditional engine of consumer growth- rising to levels sufficient to close the output gap seems highly unlikely. Particularly when federal deficit reduction is cutting incomes and savings.

For the foreign sector (non residents) to fill that spending gap, the trade gap would have to somehow stop going up and suddenly drop down by that amount. Not impossible, but a very ugly process (for us)- massive decline in our real terms of trade, etc.- should that actually happen.

So why is this happening? Why are we drinking the hemlock?

Because both sides- Democrats and Republicans- have it all dead wrong.

They both agree the federal deficit is too large and is a dire threat to our well being.

When, in fact, the exact opposite is the case- the output gap/unemployment is telling us- screaming at us- that the federal deficit is too small, and that Congress should be arguing over whether they should cut taxes and/or increase spending.

(And throw in an energy policy, and fast, but that’s for another post).

But because they think we could be the next Greece and face a federal funding crisis, they continue to work to turn us into the next Japan with two lost decades- and worse.

It’s either ignorance or subversion, so let me take the liberty to again borrow from John Kenneth Galbraith and call it innocent subversion.

“The worst part is that, because both sides have no clue about the real functioning of the monetary system, they have both been hard at work misinforming the public. And, since they both watch and react to daily polling numbers, unless something is done, they will continue to react to the reflections of their own ignorance.”

Atty Donovan Hamm

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U.S. Consumer Spending/Credit

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This is a good sign top line growth was continuing it’s modest growth in March.

Federal deficit spending continues to work to add the income and savings that allows consumers to both reduce their credit card debt and expand their consumption.

Deficit spending continues to be sufficient to support the modest GDP growth and employment growth we’ve been experiencing.

However, the risks remain as discussed at year end:

US deficit reduction efforts, with both sides agreeing that the deficit is THE problem, with some of the proposed cuts more than sufficient to trigger negative GDP growth and rising unemployment.

China’s fight against inflation leading to a hard landing.

UK and euro zone austerity measures passing the tipping point where further austerity measures slow growth sufficiently to increase national govt deficits.

Saudi crude oil price hikes both slowing world demand and triggering anti inflation responses that remove demand.

Additionally, world growth should slow by an unknown amount due to supply disruptions form the earthquake in Japan.

Consumers borrow more for student loans, new cars

April 7 (AP) — U.S. consumers borrowed more money in February to buy new cars and attend school, but they cut back on using their credit cards to make purchases. Borrowing increased by $7.6 billion, or 3.8 percent, in February. It was the fifth consecutive monthly gain. The category that includes car loans and student loans increased 7.7 percent. Borrowing in the category that covers credit cards fell 4.1 percent. That has risen only once in the more than two years since the 2008 financial crisis peaked. The gains pushed total borrowing up to a seasonally adjusted annual rate of $2.42 trillion in February. That’s 1 percent from the three-year low hit in September.

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UMKC Honor Roll: MMT/PH.D Graduate Students

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A very special thanks to all of you who help support our grad students.

As you can see from the attached list, many are now out spreading the word at the university level.

Also, Jim is still open to donations to the UMKC Ph.D program.

Hi Warren

I hope this finds you well.


I confess to exasperation with the economic nonsense about debt and deficits—and much else. I don’t know if its mendacity or stupidity—both perhaps. Those in office who know better, or should, are not stepping up and the steam roller moves on.

On a brighter note our department is a joy. The faculty are busy and doing good things and our students are the best ever. We now have 52 Ph.D. students, the largest program in the region, and have admitted several for next year. The masters program has 84 students, an all time high. The best master’s students often apply for the Ph.D. The faculty and students in our department have invested a great deal to build what we consider a highly successful program. I have attached a list of our Ph.D. graduates. You can see from the list they are doing well. Many are teaching and helping spread the ideas they learned at UMKC. They also send us students so we have a positive feedback going. With your support and intellectual commitment our department occupies an important spot in economics education.

Also I wanted you to know that 2011-12 will be my last year as chair. I am going to teach more and try to finish several papers and a book that have languished too long.

Warmest regards
Jim

Ph.D Grads

Willadee Waymeyer – Mid America Nazerene University
Jennifer Golec
Lana Ellis
Zarniah Hamid – University of Malayasia
Zohrah Nikina – University of California-Berkeley
Mutaz Nabulsi – Sprint Corporation
Nickolas Pologeorgous
Jason White – Northwest Missouri State University
Kurt Kruger – John Ward Associates
Doug Bowles – University of Missouri-Kansas City
Myles Gartland – Rockhurst University
Linwood Tauheed – University of Missouri-Kansas City
John Jumara – Park University
Robert Scott – Monmouth State
Jairo Parada – Colombia Federal University
Joelle Leclaire – Buffalo State University
Eric Tymoigne – Lewis and Clark College
Fadell Kaboub – Denison College
Robert Spalding – U.S. Air Force
Zadravka Todorova – Wright State University
Doug Meador – St. Francis University
Yan Liang – Willamette University
Ta He Jo – Buffalo State University
Linda Hauner – Commerce bank
David Harris – Benedictine College
Pavlina Tcherneva – Franklin & Marshall College
Michael Murray – Central College, Iowa
Jeremy O’Connor – Rockhurst University
Felipe Rezende – Hobart & William Smith
Flavia Dantes – Cortland College, New York

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Wall of Shame

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Unsustainable budget threatens nation

March 24 (Politico) — Repeated battles over the 2011 budget are taking attention from a more dire problem—the long-run budget deficit.

Divided government is no excuse for inaction. The bipartisan National Commission on Fiscal Responsibility and Reform, under co-chairmen Erskine Bowles and Alan Simpson, issued a report on the problem in December supported by 11 Democrats and Republicans — a clear majority of the panel’s 18 members.

As former chairmen and chairwomen of the Council of Economic Advisers, who have served in Republican and Democratic administrations, we urge that the Bowles-Simpson report, “The Moment of Truth,” be the starting point of an active legislative process that involves intense negotiations between both parties.

There are many issues on which we don’t agree. Yet we find ourselves in remarkable unanimity about the long-run federal budget deficit: It is a severe threat that calls for serious and prompt attention.

This is just plain wrong, of course, but look at the list of supporters, below, disgracing themselves.

While the actual deficit is likely to shrink over the next few years as the economy continues to recover, the aging of the baby-boom generation and rapidly rising health care costs are likely to create a large and growing gap between spending and revenues. These deficits will take a toll on private investment and economic growth. At some point, bond markets are likely to turn on the United States — leading to a crisis that could dwarf 2008.

There is absolutely no applicable theory or evidence to support any of this. Any presumed supporting evidence or theory always applies to a gold standard or other fixed rate regime, but is always entirely inapplicable to our current non convertible currency/floating exchange rate regime.

“The Moment of Truth” documents that “the problem is real, and the solution will be painful.” It is tempting to act as if the long-run budget imbalance could be fixed by just cutting wasteful government spending or raising taxes on the wealthy. But the facts belie such easy answers.

The commission has proposed a mix of spending cuts and revenue increases. But even this requires cuts in useful programs and entitlements, as well as tax increases for all but the most vulnerable.

All this can do is lower aggregate demand, which means reduced real output and higher unemployment in general. How do any of these economics professionals think that producing less, including less real investment, addresses our very real needs?

The commission’s specific proposals cover a wide range. It recommends cutting discretionary spending substantially, relative to current projections. Everything is on the table, including security spending, which has grown rapidly in the past decade.

So do they think that current Social Security payments result in a too high standard of living for our seniors? I don’t see any of them flying on private jets to sporting events on their Social Security? In fact, current levels of Social Security payments are just barely enough to keep them from needing to eat out of garbage cans. And there certainly is no shortage of the real goods and services they consume, particularly with unemployment so high and the output gap in general so wide?

It also urges significant tax reform. The key principle is to limit tax expenditures—tax breaks designed to encourage certain activities—and so broaden the tax base. It advocates using some of the resulting revenues for deficit reduction and some for lowering marginal tax rates, which can help encourage greater investment and economic growth.

The commission’s recommendations for slowing the growth of government health care expenditures — the central cause of our long-run deficits — are incomplete. It proposes setting spending targets and calls for a process to suggest further reforms if the targets aren’t met. But it also lays out a number of concrete steps, like increasing the scope of the new Independent Payment Advisory Board and limiting the tax deductibility of health insurance.

How about taking a look at the real goods and services we devote to actual health care, and making decisions accordingly? Seems that used to be what economists did, before they got lost in finance to the point of absurdity?

To be sure, we don’t all support every proposal here. Each one of us could probably come up with a deficit reduction plan we like better. Some of us already have. Many of us might prefer one of the comprehensive alternative proposals offered in recent months.

Yet we all strongly support prompt consideration of the commission’s proposals. The unsustainable long-run budget outlook is a growing threat to our well-being. Further stalemate and inaction would be irresponsible.

Do any of them see the current budget leading to an irreversible excess of aggregate demand? If they do they never mention it. In fact, I’ve yet to see a long term inflation forecast from anyone that shows an excess of aggregate demand looming.

We know the measures to deal with the long-run deficit are politically difficult. The only way to accomplish them is for members of both parties to accept the political risks together. That is what the Republicans and Democrats on the commission who voted for the bipartisan proposal did.

Because they are afraid we could become the next Greece they are trying to turn us into the next Jonestown.

Feel free to repost and distribute, thanks.

We urge Congress and the president to do the same.

I urge them to recognize taxes function to regulate aggregate demand, and not to raise revenue per se.

Martin N. Baily

Martin S. Feldstein

R. Glenn Hubbard

Edward P. Lazear

N. Gregory Mankiw

Christina D. Romer

Harvey S. Rosen

Charles L. Schultze

Laura D. Tyson

Murray L. Weidenbaum

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Harvard’s Mankiw- a disgrace to the economics profession

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CAUTION: BE SEATED WHEN READING

COMMENTS BELOW:

It’s 2026, and the Debt Is Due

By N. Gregory Mankiw

March 26 (NYT)

The following is a presidential address to the nation — to be delivered in March 2026.

My fellow Americans, I come to you today with a heavy heart. We have a crisis on our hands. It is one of our own making. And it is one that leaves us with no good choices.

For many years, our nation’s government has lived beyond its means.

A rookie, first year student mistake. Our real means are everything we can produce at full employment domestically plus whatever the rest of the world wants to net send us. The currency is the means for achieving this. Dollars are purely nominal and not the real resources.

We have promised ourselves both low taxes and a generous social safety net. But we have not faced the hard reality of budget arithmetic.

The hard reality is that for a given size government, there is a ‘right level’ of taxes that corresponds with full domestic employment, with the size of any federal deficit a reflection of net world dollar savings desires.

The seeds of this crisis were planted long ago, by previous generations. Our parents and grandparents had noble aims. They saw poverty among the elderly and created Social Security.

Yes, they decided they would like our elderly to be able to enjoy at least a minimum level of consumption of goods and services that made us all proud to be Americans.

They saw sickness and created Medicare and Medicaid. They saw Americans struggle to afford health insurance and embracedhealth care reform with subsidies for middle-class families.

Yes, they elected to make sure everyone had at least a minimum level of actual health care services.

But this expansion in government did not come cheap. Government spending has taken up an increasing share of our national income.

The real cost of this ‘expansion’ (which was more of a reorganization than an expansion of actual real resources consumed by the elderly and consumed by actual healthcare needs) may have consumed an increasing share of real GDP, but with continued productivity this would have been at most a trivial amount at current rates of expansion.

Today, most of the large baby-boom generation is retired. They are no longer working and paying taxes, but they are eligible for the many government benefits we offer the elderly.

Yes, they are consuming real goods and services produced by others. The important consideration here is the % of the population working and overall productivity which he doesn’t even begin to address.

Our efforts to control health care costs have failed. We must now acknowledge that rising costs are driven largely by technological advances in saving lives. These advances are welcome, but they are expensive nonetheless.

Still no indication of what % of real GDP he envisions going to health care and real consumption by the elderly.

If we had chosen to tax ourselves to pay for this spending, our current problems could have been avoided. But no one likes paying taxes. Taxes not only take money out of our pockets, but they also distort incentives and reduce economic growth. So, instead, we borrowed increasing amounts to pay for these programs.

At least he gives real economic growth a passing mention. However, what he seems to continuously miss is that real output is THE issue. Right now, with potential employment perhaps 20% higher than it currently is, the lost real output, which compounds continuously, plus the real costs of unemployment- deterioration of human capital, broken families and communities, deterioration of real property, foregone investment, etc. etc. etc.- are far higher than the real resources consumed by the elderly and actual health care delivery. Nor does he understand what is meant by the term Federal borrowing- that it’s nothing more than the shift of dollar balances from reserve accounts at the Fed to securities accounts at the Fed. And that repayment is nothing more than shifting dollar balances from securities accounts at the Fed to reserve accounts at the Fed. No grandchildren involved!!!

Yet debt does not avoid hard choices. It only delays them. After last week’s events in the bond market, it is clear that further delay is no longer possible. The day of reckoning is here.

This morning, the Treasury Department released a detailed report about the nature of the problem. To put it most simply, the bond market no longer trusts us.

For years, the United States government borrowed on good terms. Investors both at home and abroad were confident that we would honor our debts. They were sure that when the time came, we would do the right thing and bring spending and taxes into line.

But over the last several years, as the ratio of our debt to gross domestic product reached ever-higher levels, investors started getting nervous. They demanded higher interest rates to compensate for the perceived risk.

This is all entirely inapplicable. It applies only to fixed exchange rate regimes, such as a gold standard, and not to non convertible currency/floating exchange rate regimes. This is nothing more than another rookie blunder.

Higher interest rates increased the cost of servicing our debt, adding to the upward pressure on spending. We found ourselves in a vicious circle of rising budget deficits and falling investor confidence.

With our non convertible dollar and a floating exchange rate, the Fed currently sets short term interest rates by voice vote, and the term structure of interest rates for the most part anticipates the Fed’s reaction function and future Fed votes. Nor is there any operational imperative for the US Government to offer longer term liabilities, such as 5 year, 7 year, 10 year, and 30 year US Treasury securities for sale, which serve to drive up long rates at levels higher than otherwise. That too is a practice left over from gold standard days that’s no longer applicable.

As economists often remind us, crises take longer to arrive than you think, but then they happen much faster than you could have imagined. Last week, when the Treasury tried to auction its most recent issue of government bonds, almost no one was buying. The private market will lend us no more. Our national credit card has been rejected.

As above, the US Government is under no operational imperative to issue Treasury securities. US Government spending is not, operationally, constrained by revenues. At the point of all US govt spending, all that happens is the Fed, which is controlled by Congress, credits a member bank reserve account on its own books. All US Government spending is simply a matter of data entry on the US Governments own books. Any restrictions on the US government’s ability to make timely payment of dollars are necessarily self imposed, and in no case external.

So where do we go from here?

WE DON’T GET ‘HERE’- THERE IS NO SUCH PLACE!!!

Yesterday, I returned from a meeting at the International Monetary Fund in its new headquarters in Beijing. I am pleased to report some good news. I have managed to secure from the I.M.F. a temporary line of credit to help us through this crisis.

This loan comes with some conditions. As your president, I have to be frank: I don’t like them, and neither will you. But, under the circumstances, accepting these conditions is our only choice.

Mankiw’s display of ignorance and absurdities continues to compound geometrically.

We have to cut Social Security immediately, especially for higher-income beneficiaries. Social Security will still keep the elderly out of poverty, but just barely.

We have to limit Medicare and Medicaid. These programs will still provide basic health care, but they will no longer cover many expensive treatments. Individuals will have to pay for these treatments on their own or, sadly, do without.

We have to cut health insurance subsidies to middle-income families. Health insurance will be less a right of citizenship and more a personal responsibility.

We have to eliminate inessential government functions, like subsidies for farming, ethanol production, public broadcasting, energy conservation and trade promotion.

The only reason we would ever be ‘forced’ to make those cuts would be real resource constraints- actual shortages of land, housing, food, drugs, labor, clothing, energy, etc. etc. And yes, that could indeed happen. Those are the real issues facing us. But Mankiw is so lost in his errant understanding of actual monetary operations he doesn’t even begin to get to where he should have started.

We will raise taxes on all but the poorest Americans. We will do this primarily by broadening the tax base, eliminating deductions for mortgage interest and state and local taxes. Employer-provided health insurance will hereafter be taxable compensation.

He fails to recognize that federal taxes function to regulate aggregate demand, and not to raise revenue per se, again showing a complete lack of understanding of current monetary arrangements.

We will increase the gasoline tax by $2 a gallon. This will not only increase revenue, but will also address various social ills, from global climate change to local traffic congestion.

Ok, finally, apart from the revenue error, he’s got the rest of it sort of right, except he left out the part about that tax being highly regressive.

As I have said, these changes are repellant to me. When you elected me, I promised to preserve the social safety net. I assured you that the budget deficit could be fixed by eliminating waste, fraud and abuse, and by increasing taxes on only the richest Americans. But now we have little choice in the matter.

Due entirely to ignorance of actual monetary operations.

If only we had faced up to this problem a generation ago. The choices then would not have been easy, but they would have been less draconian than the sudden, nonnegotiable demands we now face. Americans would have come to rely less on government and more on themselves, and so would be better prepared today.

What I wouldn’t give for a chance to go back and change the past. But what is done is done. Americans have faced hardship and adversity before, and we have triumphed. Working together, we can make the sacrifices it takes so our children and grandchildren will enjoy a more prosperous future.

N. Gregory Mankiw is a professor of economics at Harvard.

And no small part of the real problem we face as a nation!

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Haley Barbour’s ‘innanity’

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Barbour slams Obama on taxes, economy

By Jillian Harding

March 26 (CNN) — Mississippi Republican Gov. Haley Barbour on Saturday criticized President Obama’s economic policies and urged fiscal discipline in Washington.

Speaking in Des Moines, Iowa, to a crowd of conservative activists, the potential 2012 GOP presidential contender said, “When the government sucks all the money out of the economy, how is the private sector supposed to create jobs?”

Spending $1.5t more than taxing ADDS that much income and $financial assets to the economy

Barbour slammed the Obama administration’s tax policies for placing an extra burden on taxpayers and inhibiting job growth.

“The president from the beginning has been calling for the largest tax increase in American history,” Barbour said, adding “the policies of this administration in every case have made it harder to create jobs.”

What tax increases? Just talking about them?

Barbour also struck out at taxes placed on the oil industry, saying they would be passed on to consumers.

“Who’s he think is going to pay that? Exxon?” Barbour said, “That’s going to be paid by the people who are pumping gas and diesel fuel into their cars & trucks.”

Citing the need to jumpstart the economy, Barbour told the crowd that reducing spending would be key.

“I urge you to remember the most important thing, cutting spending is the means to an end, the end is to continue to grow our economy,” he said.

What sense does that make???

He’s a menace.

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US Approaching Insolvency, Fix To Be ‘Painful’: Fisher

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I waited a couple of days before doing this thinking there might be some retractions.
Or some serious mainstream push back.
But apparently not.
Apparently this high ranking Fed official, as well as the mainstream financial press,
actually believes the US Government could lose it’s ability to make payments,
demonstrating they all have no grasp of actual Fed monetary operations.

This is further confirmed when he goes on to discuss
‘tightening’ where he indicates that in addition to rate hikes,
‘tightening’ can be done by reducing reserves per se.
He doesn’t seem to realize that this went out with the gold standard.

Highlights below:

US Approaching Insolvency, Fix To Be ‘Painful’: Fisher

March 22 (Reuters) — The United States is on a fiscal path towards insolvency and policymakers are at a “tipping point,” a Federal Reserve official said on Tuesday.

“If we continue down on the path on which the fiscal authorities put us, we will become insolvent, the question is when,” Dallas Federal Reserve Bank President Richard Fisher said in a question and answer session after delivering a speech at the University of Frankfurt. “The short-term negotiations are very important, I look at this as a tipping point.”

But he added he was confident in the Americans’ ability to take the right decisions and said the country would avoid insolvency.

“I think we are at the beginning of the process and it’s going to be very painful,” he added.

Fisher earlier said the US economic recovery is gathering momentum, adding that he personally was extremely vigilant on inflation pressures.

“We are all mindful of this phenomenon. Speaking personally, I am concerned and I am going to be extremely vigilant on that front,” Fisher said in an interview with CNBC.

Fisher also said that the U.S. Federal Reserve had ways to tighten its monetary policy other than interest rates, including by selling Treasurys, changing reserves levels and using time deposits.

He added that he does not support the Fed embarking on an additional round of quantitative easing.

“Barring some extraordinary circumstance I cannot forsee…I would vote against a QE3,” Fisher told CNBC. “I don’t think it’s necessary. Again, we have a self-sustaining recovery.”

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