Category Archives: Uncategorized

just when you thought it couldn’t get any more inane

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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.

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ECB decides on measures to address severe tensions in financial markets

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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.

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looks like IMF will be using their Stand-By arrangement

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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.

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IMF fact sheet on SDRs

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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.

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fed-interview with randall wray

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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

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Valance Weekly Economic Chart Book

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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

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Poll Finds Tea Party Backers Wealthier and More Educated

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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.”

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