Tag Archives: Mosler

Mosler named director

Posted on by


[Skip to the end]

Magna Entertainment Corp. announces appointments of Interim Chief Executive Officer and Independent Director

April 7 (Magna Enterntainment Group) — Magna Entertainment Corp. (“MEC” or the “Company”) (NASDAQ: MECA – News; TSX: MEC.A – News) today announced that it has appointed Greg Rayburn as Interim Chief Executive Officer of the Company, subject to the approval of the United States Bankruptcy Court for the District of Delaware. MEC and certain of its subsidiaries are currently subject to bankruptcy proceedings in the United States under Chapter 11 of the United States Bankruptcy Court for the District of Delaware. If approved, Mr. Rayburn will assume the customary responsibilities of the Chief Executive Officer including leading MEC’s Chapter 11 restructuring activities and overseeing the sale of MEC’s assets. He will report directly to MEC’s Board of Directors. The decision to appoint Mr. Rayburn followed an extensive executive search process led by MEC’s lead director, William Menear. Mr. Rayburn is currently a senior managing director and the practice leader of FTI Palladium Partners. He has more than 26 years of experience advising companies and boards of directors in several in-court and out-of-court restructurings and has previously served as CEO or CRO of other troubled companies, including WorldCom, aaiPharma and Muzak Holdings LLC. Frank Stronach, who has resigned his office as Chief Executive Officer of the Company effective immediately, will retain his position as Chairman of the Board of Directors.

In addition, the Board of Directors also appointed Warren Mosler to serve as an independent member of the Board of Directors. Mr. Mosler is the founder and principal of AVM, L.P., a broker/dealer that provides advanced financial services to large institutional accounts. Mr. Mosler is the President and founder of Mosler Automotive which manufactures the MT900 sports car in Riviera Beach, Florida. MEC’s Board of Directors is in the ongoing process of searching for additional, qualified independent directors to strengthen MEC’s Board.


[top]

Share

Mosler to Obama- be careful what you wish for!

Posted on by


[Skip to the end]

The last thing we need to do is encourage policies that empower billions of foreign consumers to compete with us for scarce real resources and diminish our real terms of trade.

But that’s what happens with an administration that does not understand the monetary system.

Obama seeks ‘Sustained’ Fiscal Stimulus in G-20 Summit Appeal

by Tony Czuczka

Mar 24 (Bloomberg) — President Barack Obama urged fellow Group of 20 leaders to provide a “robust and sustained” fiscal stimulus, saying that “much more” action is needed to fight the global recession.

In an article published today in newspapers including Germany’s Die Welt and the Paris-based International Herald Tribune, Obama also urged increased funding for international lenders and a “common framework” of steps to restore the world economy’s flow of credit.

“Our efforts must begin with swift action to stimulate growth,” Obama said in the article laying out U.S. goals for the G-20 summit in London on April 2. “Other members of the G- 20 have pursued fiscal stimulus as well, and these efforts should be robust and sustained until demand is restored.”


[top]

Share

Galbraith/Wray/Mosler submission for February 25

Posted on by


[Skip to the end]

This is the paper being presented next week in DC.

Please distribute.

Comments welcome!

This is how it begins:

Comments on the FASB Exposure Drafts relating to “Comprehensive Long-term Projections for the U.S. Government (ED 1)” and to “Accounting for Social Insurance. (ED 2)”



Testimony Submitted by:

James K. Galbraith, Lloyd M. Bentsen, Jr., Chair in Government/Business Relations, Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin, Austin
TX 78712 and Senior Scholar, Levy Economics Institute.

L. Randall Wray, Professor of Economics, the University of Missouri-Kansas City, and Senior Scholar, Levy Economics Institute.

Warren Mosler, Senior Associate Fellow, Cambridge Center for Economic and
Public Policy, Department of Land Economy, University of Cambridge, and Valance Co., St Croix, USVI.

Date: February 25, 2009

In this testimony we supplement our earlier letter, which responded to specific questions on the first exposure draft. Here we set out general principles of federal budget accounting, and then we offer specific comments on the proposed reporting procedures in both of the exposure drafts.

General Principles of Federal Budget Accounting

Even though some principles of accounting are universal, federal budget accounting has never followed and should not follow the exact procedures adopted by households or business firms. There are several reasons why this is true.

First, the government’s interest is the public interest. The government is there to provide for the general welfare, and there is no correlation between this interest and a position of surplus or deficit, nor of indebtedness, in the government’s books.

Second, the government is sovereign. This fact gives to government authority that households and firms do not have. In particular, government has the power to tax and to issue money. The power to tax means that government does not need to sell products, and the power to issue currency means that it can make purchases by emitting IOUs. No private firm can require that markets buy its products or its debt. Indeed taxation creates a demand for public spending, in order to make available the currency required to pay the taxes. No private firm can generate demand for its output in this way. Neither of these statements is controversial; both are matters of fact. Nor should they be construed to imply that government should raise taxes or spend without limit. However, they do imply that federal budgeting is different from private budgeting, and should be considered in its proper, public context.

While it is common to regard government tax revenue as income, this income is not comparable to that of firms or households. Government can choose to exact greater tax revenues by imposing new taxes or raising tax rates. No firm can do this; even firms with market power know that consumers will find substitutes if prices are raised too much. Moreover firms, households, and even state and local governments require income or borrowings in order to spend. The federal government’s spending is not constrained by revenues or borrowing. This is, again, a fact, completely non-controversial, but very poorly understood.

The federal government spends by cutting checks – or, what is functionally the same thing, by directly crediting private bank accounts. This is a matter of typing numbers into a machine. That is all federal spending is. Unlike private firms, the federal government maintains no stock of cash-on-hand and no credit balance at the bank. It doesn’t need to do so. There are surely limits of wisdom and prudence on federal spending, as well as numerous checks, balances, and self-imposed constraints, but there is no operational limit. The federal government can, and does, spend what it wants.

Tax receipts debit bank accounts. So does borrowing from the public. These are operationally distinct from spending. There is no operational procedure through which federal government “uses” tax receipts or borrowings for its spending. If, perchance, one chooses to pay taxes in cash, the Treasury simply issues a receipt and shreds the cash. It has no need for the income in order to spend. This is why it is a mistake to look at federal tax receipts as an equivalent concept to income of households or firms.

As we discuss below, federal government spending has exceeded tax revenues, with only brief exceptions, since the founding. There is no evidence, nor any economic theory, behind the proposition that federal government spending ever needs to match federal government tax receipts—over any period, short or long. The deficit per unit time is the difference between taxing and spending over that time. To repeat, the taxing on the one hand and the spending on the other are operationally independent. Any reasonable observer should conclude that federal government spending is not, and need not be, dependent on, constrained by (or even related to) tax revenues in the way that the spending of households or firms is related to their incomes.

The difference between microeconomic and macroeconomic accounting is also pertinent. An individual household or firm has a balance sheet that consists of its assets and liabilities. The spending of that household or firm is constrained, in a fairly concrete sense, by its income and by its balance sheet— by its ability to sell assets or to borrow against them. It is meaningful to say that its ability to deficit-spend is constrained: a household must get the approval of a bank before spending can exceed income, and therefore its borrowing is subject to banking norms. But if we take households or firms as a whole, the situation is different. The private sector’s ability to deficit-spend, to spend more than its income, depends on the willingness of another sector to spend less than its income. For one sector to run a deficit, another must run a surplus. This surplus is called saving – claims against the deficit sector. In principle, there is no reason why one sector cannot run perpetual deficits, so long as at least one other sector wants to run surpluses.


[top]

Share

Fed’s best move

Posted on by

From the Fed’s theoretical framework, their best move is:

♦ Cut the discount rate to 4.5

♦  Leave fed funds at 4.5

♦ Remove the stigma from the window

♦ Allow term window borrowing over the turn

♦ Accept any ‘legal’ bank assets as collateral from member banks in good standing

♦ Allow member banks to fully fund their own siv’s

♦ Do not allow banks to do any new sivs or add to existing siv assets, and let the existing assets run off over time.

This would:

♦ Close the FF/LIBOR spread stress for member banks

♦ Support market functioning

♦ Support portfolio shifts to the $

♦ Temper inflation pressures

♦ Restore confidence in the economy

♦ Regain Fed credibility

♥

Share

Where the fed is vulnerable to the press

Posted on by

While Fed gov Fisher was correct in stating the Fed isn’t held hostage to market pricing of fed funds when it makes its decision, the Fed is vulnerable to manipulation when it comes to inflation expectations.

Under mainstream theory, the ultimate cause of inflation is entirely attributed to the elevation of inflation expectations. The theory explains that price increases remain ‘relative value stories’ until inflation expectations elevate and turn the relative value story into an inflation story.

So far the Fed sees the price increases of recent years as relative value stories, as headline CPI has not been seen to leak into core. However, with capacity utilization high and unemployment low, the risk of inflation expectations elevating is heightened.

The Fed also knows that if the financial press starts harping on how high inflation is going, starts to intensely question Fed credibility, and calls the Fed soft on inflation, etc. etc. this process per se is capable of raising inflation expectations and potentially triggering accelerating inflation.

Therefore, I anticipate extended discussion at the meeting regarding ‘managing inflation expectations.’

And if they do cut the ff rate it will mean they continue to blinded by ‘market functioning’ risk and not willing to take the risk of not meeting market expectations of the cut.

Note the rhetoric of the financial press continues to turn in front of the meeting. First strong economy stories, then inflation stories, note this:

Bernanke May Risk `Fool in the Shower’ Label to Avert Recession

 

By Rich Miller

 

Dec. 10 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke may have to risk becoming the proverbial “fool in the shower” to keep the U.S. economy out of recession.

 

Renewed turbulence in financial markets puts Bernanke, 53, under pressure to open the monetary spigots wider to pump up the economy. Traders in federal funds futures are betting it’s a certainty the Fed will cut its benchmark interest rate from 4.5 percent tomorrow, and they see a better-than-even chance the rate will be 3.75 percent or below by April.

 

“The Fed has to assure the markets that it’s ready to ride to the rescue and cut rates by as much as necessary,” says Lyle Gramley, a former Fed governor who’s now a senior economic adviser in Washington for the Stanford Group Co., a wealth- management firm.

 

The danger of such a strategy is that Bernanke may become like the bather, in an analogy attributed to the late Nobel- Prize-winning economist Milton Friedman, who gets scalded after turning the hot water all the way up in a chilly shower. The monetary-policy equivalent would be faster inflation or another asset bubble in the wake of aggressive Fed action to tackle the slowdown in the economy.

♥

Share

Strong $ AND strong yuan?

Posted on by

Reminds me of the guy who loves money and wants to abolish taxes.

I do think the push is now for a stronger $, however, and we’ll see tomorrow if the Fed is on board.

As a friend of mine pointed out, a firming $ will likely trigger domestic and international portfolio reallocations back towards US equities.

Paulson Push for Stronger Yuan Weakened by Global M&A (Update3)

By Aaron Pan and Belinda CaoDec. 10 (Bloomberg)

As U.S. Treasury Secretary Henry Paulson visits China this week to push for faster appreciation of the yuan, the bigger issue may be what China is doing to strengthen the dollar.

Paulson’s fifth trip to the nation as Treasury Secretary has taken on added urgency as the U.S. grows more dependent on the dollar’s decline to lift exports and keep the economy out of recession. While the pace of the yuan’s gains tripled in the past 15 months, Chinese officials now plan to increase investments in America that may boost the U.S. currency instead.

“China at this stage needs to be looking to opportunities provided by the weakening U.S. dollar,” Ha Jiming, chief economist in Beijing at China International Capital Corp., the nation’s largest investment bank, said in an interview last week. “Very recently the government is becoming more interested in channeling money out of the country.”

♥

Share

UBS to sell stakes after $10 billion in subprime losses

Posted on by

Another example of a chunk of the losses being contained on Wall Street, and not leaking to Main Street this will now have zero effect on aggregate demand and there seems to be no business interruption.

So as long as the losses stay spread out enough to not impair business operations and subdue aggregate demand in general the real economy is untouched.

On an anecdotal level, my Citibank account executive emailed me last week out of the blue asking if I still had financing with Calyon, as they were interested in competing for the business.

UBS to Sell Stakes After $10 Billion in Subprime Writedowns

2007-12-10 01:08 (New York)
By Elena Logutenkova

Dec. 10 (Bloomberg) — UBS AG, Europe’s largest bank by assets, said it will write down U.S. subprime investments by $10 billion and raise 13 billion francs ($11.5 billion) by selling stakes to investors in Singapore and the Middle East.

UBS expects a loss in the fourth quarter, and may have a loss for 2007, the Zurich-based company said in an e-mailed statement today.

Securities firms and banks had announced about $66 billion of losses and markdowns linked to the collapse of the U.S. subprime mortgage market this year. UBS reported its first loss in almost five years in the third quarter after the subprime contagion led to about $4.66 billion in markdowns on fixed-income securities and leveraged loans.

Editor: Frank Connelly

♥

Share

Balance of risks revisited

Posted on by

“I don’t think that’s fair because I don’t — again, I think I’ve been pretty clear in saying we have an economy in the US that is fundamentally healthy. I think the jobs numbers today showed an economy that is fundamentally healthy. We’ve got very strong demand outside of the US. We’ve got exports growing, employment strong, inflation is contained. There are some risks, and I’m focused on those risks. That’s my job, and the biggest risk we have is housing and housing is a big drag on our economy and still, we’re going through a turbulent time in the capital markets. That’s a risk so we’re focused on the risks, but let’s not forget that we have a healthy economy.”
-Paulson

Two days before the Fed meeting Paulson is making the case that the economy is strong and he says the risks are *his job* and not the Fed’s job. Also, he said we have a strong $ policy after being silent on that for several months or more. No cut in the fed funds rate Tuesday would support his statements.
This article is the consensus view that’s pricing in a 25 cut on Tuesday.

US Fed seems poised to lower interest rates again at its meeting Tuesday

By JEANNINE AVERSA updated 6:46 a.m. ET, Sun., Dec. 9, 2007 WASHINGTON

A lot has changed since the U.S. Federal Reserve hinted two months ago that it might be finished cutting interest rates for a while. Credit has become harder to obtain,

Not true per se. Some spreads have widened, but absolute levels for mortgages, for example, are lower, and good credits are getting LIBOR minus funding in the bond markets. Yes, funding is more difficult and more expensive for ‘Wall Street’, but ‘Main Street’ borrowing needs are being met at reasonable terms.

Wall Street has convulsed again,

Stocks are generally up recently, and up for the year.

and the housing slump has intensified.

Maybe modestly, with some indicators flat to higher. Prices down for the quarter but YoY prices still higher as reported by the two broader measures.

As a result, policymakers at the central bank now appear to have changed their minds about the need to drop interest rates again.

Yes, that’s the appearance as seen by the financial press. (I haven’t read it that way.)

The Fed had cut rates twice this year and officials suggested in October that might be enough to help the economy survive the credit and housing stress.

And immediately afterward in several speeches as fed officials attempted unsuccessfully to take the cut out of Jan FF futures.

Then the problems snowballed,

There were no ‘snowballing problems’ only some spread widening even as absolute rates were generally lower and LIBOR rates going up over the next ‘turn’ at year end.

leading Fed Chairman Ben Bernanke to signal that one more cut might be needed.

Again, that’s how the financial press heard him. They never even reported firm the firm talk on inflation risks becoming elevated. The attitude is anything the fed says about inflation is just talk they have to say and that they don’t mean and not worth reporting.

Analysts expect the Fed to trim its key rate, now at 4.5 percent, by one-quarter of a percentage point at the meeting Tuesday. Some even speculate about the possibility of a half-point cut.

Yes, that’s the consensus.

Banks, financial companies and other investors who made loans to people with spotty credit

and fraudulent applications

or put money into securities backed by those subprime mortgages have lost billions of dollars (euros). Investors in the U.S. and abroad have grown more wary of buying new debt, thereby aggravating the credit crunch.

Yes. But again, ‘Main Street’ still remains well funded at reasonable terms.

All this has added to the turmoil on Wall Street, and Bernanke and other Fed officials say they must take it into account when deciding their next move.

Yes. And the economic numbers have come in strong enough for markets to take up to 35 bp out of the Eurodollars and nearly eliminate pricing in a 50 cut in the last few trading days.

But does lowering rates mean the Fed essentially is bailing out investors or encouraging more sloppy decision-making? In other words, what exactly is the Fed’s job?

Bernanke and other Fed officials say it is to make policy that keeps the economy growing and inflation low, a stable climate that benefits individuals, businesses and investors. The Fed also has a responsibility to ensure the banking system is sound and financial markets run smoothly.

Yes, exactly.

“There is a link between Wall Street and Main Street. The Fed is taking the right actions, but they should be careful,” said Victor Li, an economics professor at the Villanova School of Business.

That implies the question is whether the ‘market functioning’ risk is higher than the inflation risk, which is what the fed was addressing with the last two cuts.

This time ‘market functioning’ risk rhetoric has taken a back seat to ‘economic weakness’ risk rhetoric.
One more story of note:

Fed’s Inflation Measure Says Rates Can’t Fall as Traders Expect

By Liz Capo McCormick and Sandra Hernandez

Dec. 10 (Bloomberg) — The key to whether the Federal Reserve continues to cut interest rates after this week may hang on the wall behind economist Brian Sack’s desk in Washington.

Sack, head of monetary and financial market analysis at the Fed in 2003 and 2004, uses a chart that plots forward rates measuring investor expectations for inflation in five years. The gauge is so accurate that Sack and his colleagues persuaded the central bank to use it to help set policy. The chart is autographed by former Fed Chairman Alan Greenspan.

Right now, it shows current Fed Chairman Ben S. Bernanke may have less room to lower borrowing costs than investors in Treasuries anticipate, potentially setting bondholders up for a fall. The expected inflation rate, which Sack says replicates what Fed officials use, reached 2.91 percent last week, the highest since 2004, when the central bank began the first of an unprecedented 17 rate increases. The measure was at 2.79 percent on Nov. 1.

“One of the defining features of the Bernanke Fed to date is its emphasis on measures of longer-term inflation expectations,” said Sack, whose partners at Macroeconomic Advisors include former Fed Governor Laurence Meyer. “The Fed is willing to tolerate short-run movements in inflation, but only as long as those movements don’t appear to be dislodging long-run inflation expectations.”

Any evidence that accelerating inflation is becoming entrenched may heighten the Fed’s debate as policy makers consider cutting rates to keep the worst housing market in 16 years and mounting losses in securities related to subprime mortgages from tipping the economy into recession.

`Inflationary Pressures’

The gauge used by Sack, dubbed the five-year five-year forward breakeven inflation rate, suggests bets on lower Fed funds rates may be too bold.

Sack and other analysts derive the measure of inflation expectations from yields on five- and 10-year Treasury Inflation Protected Securities and Treasuries.

Five-year TIPS yield 2.15 percentage points less than five- year notes. This so-called breakeven rate is the average inflation rate investors expect over the next five years. The forward rate projects what the breakeven will be in five years, smoothing blips in inflation expectations from swings in oil prices or other events.

The five-year TIPS’ breakeven rate rose to a six-month high of 2.47 percent Nov. 27, the week after oil climbed to a record $99.29 a barrel, from about 1.9 percent on Aug. 31. As crude fell to a six-week low on Dec. 6, the breakeven rate declined and Sack’s measure dropped to 2.85 percent.

Bernanke mentioned the forward rate in a 2004 speech. Simon Kwan, a vice president at the San Francisco Fed, singled out the measure in a 2005 report, saying it “captures the market’s assessment of how well the Federal Reserve promotes price stability in the long run.”

Gaining Steam

Most analysts expect the economy to gain steam through 2008. Growth will slow to 1.5 percent this quarter from a 4.9 percent annual rate last quarter, and rise to 2.6 percent by 2009, according to the median forecast in a Bloomberg survey from Nov. 1 to Nov. 8.

The dollar, which is poised to depreciate against the euro for a second straight year, is also fueling inflation concerns. The currency’s drop and oil’s climb pushed import prices up 1.8 percent in October, the most in 17 months.

The government may say this week that consumer prices, which set TIPS rates, increased 4.1 percent last month from this year’s low of 2 percent in August and the biggest rise since July 2006, according to the median estimate of 19 economists. Food, imports and energy prices may raise inflation expectations, Bernanke said in a Nov. 30 speech in Charlotte, North Carolina.

To contact the reporter on this story:
Liz Capo McCormick in New York at Emccormick7@bloomberg.net ;
Sandra Hernandez in New York at shernandez4@bloomberg.net .

Last Updated: December 9, 2007 10:58 EST

‘The numbers’ could be used to support most anything the fed might do.The inflation numbers are both more than strong enough to support a hike, with CPI due to be reported north of 4.1 on December 14, and core moving up out of ‘comfort zones’ as well, not to mention ‘prices paid’ surveys higher and higher import and export with the weak $. Add to that the recent strong economic data – employment, CEO survey, and even car sales up a tad, etc. etc.

Inflation can also be dismissed as ‘only food and energy’ and due to fall based on (misreading) future prices as predictors of where prices will be, leaving the door open to cuts due to both ‘market functioning’ as justified by FF/LIBOR spreads at year end and the possibility of Wall Street spilling over to Main Street by ‘forward looking models’.

I can see the fed meeting going around in circles and it will come down to whether they care about inflation or not. Most of the financial community thinks they don’t, and they may be correct.

I think they do care, and care a lot, but that fear of ‘market functioning’ was severe enough to temporarily overcome their perceived imperative to sustain and environment of low inflation. And at the October meeting, the fear of some members has subsided enough to report a dissenting vote, along with half the regional banks voting against a cut.

I do think that if the fed cuts 25 it will be because they are afraid of what happens if they don’t as markets are already pricing in a 25 cut, even though this is what happened October 31, and Fisher said they wouldn’t price in a cut for that reason.

The Balance of Risks

So what would they anticipate if they don’t cut FF? The $ up, commodities down, stocks down, and credit spreads widening.

Is that risk less acceptable than the risk of promoting inflation and risking the elevation of inflation expectations if they do cut 25?

Then, there is the ‘compromise’ of cutting the discount rate and removing the stigma to address year end liquidity and ‘market functioning’ in general, with and/or without cutting the fed funds rate. The anticipated results would be a muted stock market reaction as FF/LIBOR spreads narrow, and hopefully, other credit spreads also narrow.

And if they cut the discount rate and don’t cut the FF rate, the $ will still be expected to go up and commodities down. And, with liquidity improved, stocks may be expected to do better as well.

But even though Kohn discussed this in his speech and others touched on the ‘liquidity versus the macro economy’ as well, there is no way to know how much consideration it may be given.

♥

Share

Paulson on the dollar

Posted on by

Maybe he knows the fed won’t cut the fed funds rate….

Paulson says economy healthy

updated 10:33 p.m. ET, Fri., Dec. 7,2007
SOURCE: Reuters

Treasury Secretary Henry Paulson said on Friday Washington was following a strong dollar policy and indicated he expected it to rebound, emphasizing the U.S. economy’s long-term strength should help the currency.

But Paulson warned in a radio interview in Cape Town that some aspects of the U.S. subprime mortgage crisis would become worse before getting better.

Paulson is in South Africa partly for a weekend meeting of finance chiefs from the Group of 20 economies, some of whom have expressed concern that the dollar’s falling value is putting strain on their ability to export.

“We have very much a strong dollar policy … that’s in our nation’s interest. Our economy, like any other, goes through its ups and downs but I believe the U.S. economy will continue to grow and its long-term strength will be reflected in our currency markets,” Paulson told 567 Cape Talk radio.

♥

Share