Nikkei story

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>   
>   For those who think that Japan will pull out all the stops and throw a lot of money at the
>   recovery effort:
>   

Thanks,

Also, the highest numbers I’ve seen are maybe 5% of GDP spread out over maybe 5 years.

Y2.5tln In Pension Funding May Go To Recovery Effort

March 22 (Nikkei)— The government is entertaining a proposal to divert money supposed to cover its underfunded contributions to the basic national pension into a supplementary budget for recovering from the disaster in eastern Japan.

The draft fiscal 2011 budget contains about 2.5 trillion yen for maintaining the government’s 50% share of the pension program’s cost. This money is to be drawn from the special-account funds that have become known as the buried treasure of Kasumigaseki, the seat of Japan’s bureaucracy.

This buried treasure is under consideration in the government as a solution to the problem of paying for the recovery efforts. Cutbacks to a monthly child care subsidy and other banner policies of the ruling Democratic Party of Japan appear unlikely to free up the necessary funding, which some put at 10 trillion yen.

The proportion of the government’s annual pension contributions that can be paid out of tax revenues has risen incrementally and now stands at 36.5%. Buried treasure has been used to make up the difference since fiscal 2009.

The fiscal 2011 spending plan follows this pattern with a roughly 2.5 trillion yen top-up. About 1.2 trillion yen will come from surplus funds held by the Japan Railway Construction, Transport and Technology Agency and another 1.1 trillion yen or so from the surplus in the fiscal investment and loan program special account.

The deficit bond authorization legislation needed to use the buried treasure faces an uncertain future in the Diet. Opposition to diverting money supposed to go to the pension program is strong within the ruling coalition.

The government will consider tapping into pension fund assets to cover its fiscal 2011 contribution — something that, in the absence of a clear direction for tax reform, could weaken the program’s fiscal base.

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Warren Mosler of Mosler Automotive Seeks Managing Partner

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Warren Mosler of Mosler Automotive Seeks Managing Partner

Warren Mosler, founder and owner of Mosler Automotive, manufacturer of the Mosler MT900 road and race cars, has announced that he is seeking to sell a majority interest in Mosler Automotive to a managing partner. “I’m 61 years old, about to start collecting social security, and living too far away here in the US Virgin Islands to properly manage the company on a day to day basis. It’s time for me to find an enthusiast interested being on the Florida site full time and taking the reins as majority owner,” said Warren Mosler, who founded the company in 1985, “With the latest Mosler Photon road car, (winner of the Car and Driver Lightning Lap), and increased production capacity coming online, job One for the new owner/manager will be implementing a global marketing effort.”

Mosler Automotive is based in Riviera Beach in Florida, and includes Mosler Europe in Cambridgeshire in the UK, where Martin Short leads Mosler’s immensely successful international racing efforts. With over 20 teams world wide racing Moslers on circuits all over the world.

“In GT3 racing the Mosler remains very competitive around a race track compared to the latest and greatest entries from competing manufacturers including Ferrari, Porsche, and Lamborghini, despite hundreds of pounds of ballast and other restrictions to slow it down. It looks spectacular and will surely remain competitive for a very long time to come. This last weekend saw a pole and double Mosler GT3 win in Australia where 5 Moslers compete in the Australian GT Series.” said Martin Short, “In other European series, the Moslers are allowed to compete without severe restrictions, and the result is lap times many seconds a lap quicker than GT3 cars and over-all victories for the series. We are as far afield as Japan in the Super GT series.”.

Warren is willing to sell a majority interest in his company to the right buyer for a fraction of the value of the real estate and the inventory. “I want a partner who has the right stuff to keep this company on top” said Mosler.

Links:

Mosler Auto

Mosler UK

Mosler Challenge

Klark Quinn wins again in the Aussie GT series March 2011.

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IMF’s Lipsky Says Advanced-Nation Debt Risks Future Crisis as Yields Set to Rise

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If any of you can forward this to John please do, thanks.
We went through all this from way back in his Salomon Bros. days- he should know better.

Comments below.

Lipsky Says Advanced-Nation Debt Risks Future Crisis as Yields Set to Rise

By Kevin Hamlin

March 20 (Bloomberg) — The mounting debt burden of the world’s most developed nations, set for a post-World War II record this year, is unsustainable and risks a future fiscal crisis, the International Monetary Fund’s John Lipsky said.

The average public debt ratio of advanced countries will exceed 100 percent of their gross domestic product this year for the first time since the war, Lipsky, the IMF’s first deputy managing director, said in a speech at a forum in Beijing today.

“The fiscal fallout of the recent crisis must be addressed before it begins to impede the recovery and create new risks,” said Lipsky. “The central challenge is to avert a potential future fiscal crisis, while at the same time creating jobs and supporting social cohesion.”

John, there is no potential future fiscal crisis for nations that issue their own non convertible/floating fx currencies.

Lipsky’s view clashes with Nobel laureate Joseph Stiglitz, who told the same forum yesterday that further fiscal stimulus is needed to aid growth, and that European nations focused on austerity have a “fairly pessimistic” outlook. At stake is sustaining the developed world’s rebound without a deepening in the debt crisis that’s engulfed nations from Greece to Ireland.

Long-term bond yields could climb 100 to 150 basis points, driven by the 25 percentage point rise in sovereign debt ratios since the global financial crisis and projected increases in borrowing in coming years, according to Lipsky.

So? You know there is no solvency issue. So do you forecast increased aggregate demand, a too small output gap and too low unemployment because of that? What sense does that make???

A basis point is 0.01 percentage point. Yields on benchmark 10-year Treasury notes closed at 3.27 percent last week, with comparable-maturity German debt at 3.19 percent and Japanese bonds at 1.21 percent.

‘Unsustainably Low’

Bank of England Governor Mervyn King reiterated his view at a conference four days ago in Beijing that “long-term real interest rates are unsustainably low” in the aftermath of policy makers’ unprecedented monetary stimulus during the 2008 financial crisis.

And Professor Geoffrey Harcourt’s star pupil, of all people. Shame shame shame. What’s his problem- unemployment might get too low???

Total U.S. public debt was more than $14 trillion at the end of 2010, a 72 percent increase during five years, while Japan’s debt is about double the size of its $5 trillion economy. The European turmoil has forced policy makers to create rescue packages for Ireland and Greece.

This is slipped in now for the second time by Kevin Hamlin, the author of this article, in a way that suggests its associated with Lipsky, King, etc. though he obviously didn’t get any direct quotes from them, or he would have used them. In any case, its an inexcusable error to push the analogy that Ireland and Greece, users of the euro and not the issuer (the ECB is the issuer) are analogous to currency issuers like the US, Japan, and the UK.

While interest payments on debt have remained stable at about 2.75 percentage points of GDP over the last three years, “higher deficits and debts together with normalizing economic growth sooner or later will lead to higher interest rates,” Lipsky said. The IMF estimates fiscal deficits for developed nations will average about 7 percent of GDP this year.

The cost of repaying debt would increase by 1.5 percentage points of GDP by 2014 even if interest rates rise only about 100 basis points, Lipsky said.

And so what then? Create excess aggregate demand that would overly shrink the output gap? If so, I don’t see it in any IMF forecast?

IMF studies show that each 10-percentage-point increase in the debt ratio slows annual real economic growth by around 0.15 percentage point because of the adverse effect on investment and lower productivity growth, according to Lipsky, a former chief economist at JPMorgan Chase & Co.

He should know those studies are not applicable to what he’s talking about.

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Mosler win 2 events in Australia

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Klark Quinn sweeps the Vodka O Australian GT round at Clipsal 500

KLARK QUINN powered to a second win on the streets of Adelaide in his VIP Petfoods motorsport Mosler today at the Clipsal 500 to take an early lead in the 2011 Vodka O Australian GT Championship.

After tasting success by way of a dramatic victory in the one-hour Murray Walker GT Tourist Trophy race on Friday night, Quinn again led from start-to-finish in today’s 12-lap sprint race to record his second of two wins this weekend.

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Guest on Reuters Insider

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>   
>   (email exchange)
>   
>   Hi Warren – No, its not live. It’s going to be taped in two separate segments, and probably put
>   up on the platform on Monday. FYI, its not cable TV, but internet. We also do live shows, infact
>   most of them are live. We did a live FOMC show this week on Tuesday which included former
>   Fed governor Mark Olsen and and Bill Ford from the Atlanta Fed. We wanted to have you
>   appear on that occasion but the timing didn’t work.
>   

Link will be posted when available.

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Japan’s NODA SAYS COORDINATED INTERVENTION TOOK PLACE 9 A.M.*G7 INT

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In case you thought any one of these nations understood its monetary systems:

*NODA SAYS COORDINATED INTERVENTION TOOK PLACE 9 A.M.
*G7 INTERVENTION TO START TODAY, NODA SAYS
*TREASURIES FALL; JAPAN SAYS G-7 TO COORDINATE ON INTERVENTION
*NODA: U.S., U.K., ECB, CANADA PARTICIPATING IN INTERVENTION
*EACH COUNTRY TO INTERVENE WHEN THEIR MARKET OPENS: NODA

>   
>   (email exchange)
>   
>   Other nations only executing on behalf of Boj ie it all goes on Boj bal sheet
>   

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Japan- G-7 Statement on Currencies, ‘Concerted Intervention’

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In the context of this ‘everyone’s out of paradigm’ world, it makes sense for Japan’s MOF (Ministry of Finance) to buy dollars vs yen.

But it makes no sense to do this as a coordinated effort with other nations also buying dollars vs yen.

It does make sense for the MOF to ask the G7 for permission to buy dollars, as the ‘out of paradigm’ world considers that kind of thing ‘currency manipulation,’ and brands those nations that do buy fx as currency manipulators and outlaws. And they consider this kind of ‘competitive devaluation’ as a ‘beggar thy neighbor’ policy that robs others of aggregate demand. The last thing they all want to happen is a trade war, where each nation buys the other’s currency trying to weaken his own.

So it’s interesting that the rest of world has agreed to allow Japan to conduct this kind of ’emergency measure.’ It probably means it will be short term and limited.

However the strong yen itself may have only been an initial, temporary phenomena as Japan’s domestic households and businesses move to hoard yen liquidity in anticipation of looming yen expenses. That includes reduced borrowing for the likes of cars and homes as well as widely discussed converting of dollar and other fx deposits to yen deposits. This all works to make the yen ‘harder to get’ and keep it firmly bid.

What follows the initial flight to yen liquidity, however, is the spending of the yen, which makes yen ‘easier to get’. And with that comes more spending on imports, which means those yen spent on net imports are likely to get sold for dollars and other fx by the exporters selling to Japan, to meet their own ongoing liquidity needs.

Additionally, Japan”s budget deficit will rise, which makes yen easier to get by adding yen income and net financial assets to the economy, all of which contributes to a weaker yen. The deficit can rise either proactively, as may be happening with the (relatively modest, but a good start)10 trillion yen govt. rebuilding initiative just now announced, or reactively via increased transfer payments and falling tax revenues due to the fall off in economic activity.

And if they try to contain their deficit spending by implementing the consumption tax hike recently discussed, that will only make things worse, and further increase the reactive deficit spending.

Also, weaker exports and a smaller trade surplus due to supply issues likewise weaken the yen.

As for the BOJ, nothing they do with regards to ‘liquidity injections’ will matter, apart from keeping rates about where they are.

And not to forget that what’s happening in the Middle East, where that pot is still boiling as well.

In my humble opinion this remains a good time to be on the sidelines.

G-7 Statement on Currencies, ‘Concerted Intervention’

March 18 (Bloomberg) — The following is a joint statement
released today by officials from the Group of Seven industrial
nations. The G-7 includes the U.S., Japan, Germany, France, the
U.K., Italy and Canada.

“We, the G-7 Finance Ministers and Central Bank Governors,
discussed the recent dramatic events in Japan and were briefed
by our Japanese colleagues on the current situation and the
economic and financial response put in place by the authorities.


“We express our solidarity with the Japanese people in
these difficult times, our readiness to provide any needed
cooperation and our confidence in the resilience of the Japanese
economy and financial sector.

“In response to recent movements in the exchange rate of
the yen associated with the tragic events in Japan, and at the
request of the Japanese authorities, the authorities of the
United States, the United Kingdom, Canada, and the European
Central Bank will join with Japan, on March 18, 2011, in
concerted intervention in exchange markets. As we have long
stated, excess volatility and disorderly movements in exchange
rates have adverse implications for economic and financial
stability. We will monitor exchange markets closely and will
cooperate as appropriate.”

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UBS Says Faces LIBOR Manipulation Probe

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As previously discussed, the US should outlaw the use of libor by its banking system.
It makes no sense to allow US dollar rate setting for our banks to be set overseas by the BBA.
Setting our banking system’s dollar rates is the Fed’s responsibility.

And, to further make the point, note the word ‘expect’ in this part from below:

“LIBOR is calculated daily by asking contributing banks the rate at which they expect term funding to be offered between prime banks at 11:00 am London time.”

See more of my proposals here.

UBS Says Faces LIBOR Manipulation Probe

March 16 (Reuters) — Swiss bank UBS said it had received subpoenas from U.S. and Japanese regulators regarding whether it made “improper attempts” to manipulate LIBOR rates, the benchmark price for interbank borrowing costs.

“UBS understands that the investigations focus on whether there were improper attempts by UBS, either acting on its own or together with others, to manipulate LIBOR rates at certain times,” the bank said in its annual report on Tuesday.

The Financial Times in its Wednesday edition said regulators, including Britain’s Financial Services Authority, are probing all 16 banks that help the British Bankers’ Association (BBA) set LIBOR rates.

In particular, they are investigating how LIBOR was set for U.S. dollars during 2006-2008, just before and after the financial crisis, the newspaper said, citing sources familiar with the probes.

UBS said it had received subpoenas from the U.S. SEC, Commodity Futures Trading Commission and Department of Justice regarding its submissions to the BBA. It has also been ordered to provide information to the Japan Financial Supervisory Agency concerning similar matters.

UBS said it was conducting an internal review and is cooperating with the investigations. It declined to provide any further details.

The SEC declined to comment.

BBA said LIBOR has a straightforward and transparent calculation method which excludes any rates that are significant outliers.

“We observe rigorous standards in our scrutiny and governance of the LIBOR mechanism, and work with the industry to ensure their continued full confidence in one of its most accurate and reliable benchmarks,” it said in a statement.

LIBOR is calculated daily by asking contributing banks the rate at which they expect term funding to be offered between prime banks at 11:00 am London time. A set number of the highest and lowest contributions are discarded and the remaining rates averaged.

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Welcome to the 7th US depression, Mr. bond market

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Looks to me like the lack of noises out of Japan means there won’t be a sufficient fiscal response to restore demand.

If anything, the talk is about how to pay for the rebuilding, with a consumption tax at the top of the list.

That means they aren’t going to inflate.
More likely they are going to further deflate.
Yes, the yen will go down by what looks like a lot, maybe even helped by the MOF, but I doubt it will be enough to inflate.

In fact, all the evidence indicates that Japan doesn’t don’t know how to inflate, nor does anyone else.

Worse, what they all think inflates, more likely actually deflates.

0 rate policies mean deficits can be that much higher without causing ‘inflation’ due to income channels and supply side effects.
There is no such thing as a debt trap springing to life.
Debt monetization is a meaningless expression with non convertible currency and floating fx.
QE mainly serves to further remove precious income from an already income starved economy.

Only excess deficit spending can directly support prices, output, and employment from the demand side, as it directly adds to incomes, spending, and net savings of financial assets.

The international fear mongering surrounding deficits and debt issues is entirely a chicken little story that’s keeping us in this depression (unemployment over 10% the way it was measured when the term was defined) that’s now taking a turn for the worse.

The euro zone is methodically weakening it’s ‘engines of growth’- its own (weaker) members being subjected to austerity measures that are reducing their deficit spending that paid for their imports from Germany. And now China, Japan, the US and others will be cutting imports as well.

UK fiscal austerity measures are accelerating on schedule.

The US is also working to tighten fiscal policy, particularly now that both sides agree that deficit reduction is in order, beaming as they make progress towards agreeing on the cuts.

The US had 6 depressions while on the gold standard, which followed the only 6 periods of budget surpluses.
And now, even with a floating fx policy and non convertible currency that allows for immediate and unlimited fiscal adjustments,
we have allowed the deflationary forces unleashed by the Clinton budget surpluses to result in this 7th depression.

We were muddling through with modest real growth and a far too high output gap and may have continued to do so all else equal.

But all else isn’t equal.

Collective, self inflicted proactive austerity has been working against growth, including China’s ‘fight against inflation.’

And now Japan’s massive disaster will be deflationary shock that, in the absence of a proactive fiscal adjustment, is highly likely to further reduce world demand.

Hopefully, the Saudis capitulate and follow the price of crude lower, easing the burden somewhat on the world’s struggling populations.
If so, watch for a strong dollar as well.

And watch for a lot more global civil unrest as no answers emerge to the mass unemployment that will likely get even worse. Not to mention food prices that may come down some, but will remain very high at the consumer level as we continue to burn up our food supply for motor fuel.

And it’s all only likely to get worse until the world figures out how its monetary system actually works.

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