Tag Archives: POLITICS

Comments on Senator Sanders article on the Fed

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Dear Senator Sanders,

Thank you for your attention to this matter!
My comments appear below:

The Veil of Secrecy at the Fed Has Been Lifted, Now It’s Time for Change

By Senator Bernie Sanders

November 2 (Huffington Post) — As a result of the greed, recklessness, and illegal behavior on Wall Street, the American people have experienced the worst economic crisis since the Great Depression.

Not to mention the institutional structure that rewarded said behavior, and, more important, the failure of government to respond in a timely manner with policy to ensure the financial crisis didn’t spill over to the real economy.

Millions of Americans, through no fault of their own, have lost their jobs, homes, life savings, and ability to send their kids to college. Small businesses have been unable to get the credit they need to expand their businesses, and credit is still extremely tight. Wages as a share of national income are now at the lowest level since the Great Depression, and the number of Americans living in poverty is at an all-time high.

Yes, it’s all a sad disgrace.

Meanwhile, when small-business owners were being turned down for loans at private banks and millions of Americans were being kicked out of their homes, the Federal Reserve provided the largest taxpayer-financed bailout in the history of the world to Wall Street and too-big-to-fail institutions, with virtually no strings attached.

Only partially true. For the most part the institutions did fail, as shareholder equity was largely lost. Failure means investors lose, and the assets of the failed institution sold or otherwise transferred to others.

But yes, some shareholders and bonds holders (and executives) who should have lost were protected.

Over two years ago, I asked Ben Bernanke, the chairman of the Federal Reserve, a few simple questions that I thought the American people had a right to know: Who got money through the Fed bailout? How much did they receive? What were the terms of this assistance?

Incredibly, the chairman of the Fed refused to answer these fundamental questions about how trillions of taxpayer dollars were being spent.

The American people are finally getting answers to these questions thanks to an amendment I included in the Dodd-Frank financial reform bill which required the Government Accountability Office (GAO) to audit and investigate conflicts of interest at the Fed. Those answers raise grave questions about the Federal Reserve and how it operates — and whose interests it serves.

As a result of these GAO reports, we learned that the Federal Reserve provided a jaw-dropping $16 trillion in total financial assistance to every major financial institution in the country as well as a number of corporations, wealthy individuals and central banks throughout the world.

Yes, however, while I haven’t seen the detail, that figure likely includes liquidity provision to FDIC insured banks which is an entirely separate matter and not rightly a ‘bailout’.

The US banking system (rightly) works to serve public purpose by insuring deposits and bank liquidity in general. And history continues to ‘prove’ banking in general can work no other way.

And once government has secured the banking system’s ability to fund itself, regulation and supervision is then applied to ensure banks are solvent as defined by the regulations put in place by Congress, and that all of their activities are in compliance with Congressional direction as well.

The regulators are further responsible to appropriately discipline banks that fail to comply with Congressional standards.

Therefore, the issue here is not with the liquidity provision by the Fed, but with the regulators and supervisors who oversee what the banks do with their insured, tax payer supported funding.

In other words, the liability side of banking is not the place for market discipline. Discipline comes from regulation and supervision of bank assets, capital, and management.

The GAO also revealed that many of the people who serve as directors of the 12 Federal Reserve Banks come from the exact same financial institutions that the Fed is in charge of regulating. Further, the GAO found that at least 18 current and former Fed board members were affiliated with banks and companies that received emergency loans from the Federal Reserve during the financial crisis. In other words, the people “regulating” the banks were the exact same people who were being “regulated.” Talk about the fox guarding the hen house!

Yes, this is a serious matter. On the one hand you want directors with direct banking experience, while on the other you strive to avoid conflicts of interest.

The emergency response from the Fed appears to have created two systems of government in America: one for Wall Street, and another for everyone else. While the rich and powerful were “too big to fail” and were given an endless supply of cheap credit, ordinary Americans, by the tens of millions, were allowed to fail.

The Fed necessarily sets the cost of funds for the economy through its designated agents, the nations Fed member banks. It was the Fed’s belief that, in general, a lower cost of funds for the banking system, presumably to be passed through to the economy, was in the best interest of ‘ordinary Americans.’ And note that the lower cost of funds from the Fed does not necessarily help bank earnings and profits, as it reduces the interest banks earn on their capital and on excess funds banks have that consumers keep in their checking accounts.

However, there was more that Congress could have done to keep homeowners from failing, beginning with making an appropriate fiscal adjustment in 2008 as the financial crisis intensified, and in passing regulations regarding foreclosure practices.

Additionally, it should also be recognized that the Fed is, functionally, an agent of Congress, subject to immediate Congressional command. That is, the Congress has the power to direct the Fed in real time and is thereby also responsible for failures of Fed policy.

They lost their homes. They lost their jobs. They lost their life savings. And, they lost their hope for the future. This is not what American democracy is supposed to look like. It is time for change at the Fed — real change.

I blame this almost entirely on the failure of Congress to make the immediate and appropriate fiscal adjustments in 2008 that would have sustained employment and output even as the financial crisis took its toll on the shareholder equity of the financial sector.

Congress also failed to act with regard to issues surrounding the foreclosure process that have worked against public purpose.

Among the GAO’s key findings is that the Fed lacks a comprehensive system to deal with conflicts of interest, despite the serious potential for abuse. In fact, according to the GAO, the Fed actually provided conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans.

The GAO has detailed instance after instance of top executives of corporations and financial institutions using their influence as Federal Reserve directors to financially benefit their firms, and, in at least one instance, themselves.

For example, the CEO of JP Morgan Chase served on the New York Fed’s board of directors at the same time that his bank received more than $390 billion in financial assistance from the Fed. Moreover, JP Morgan Chase served as one of the clearing banks for the Fed’s emergency lending programs.

This demands thorough investigation, and in any case the conflict of interest should have been publicly revealed at the time.

Getting this type of disclosure was not easy. Wall Street and the Federal Reserve fought it every step of the way. But, as difficult as it was to lift the veil of secrecy at the Fed, it will be even harder to reform the Fed so that it serves the needs of all Americans, and not just Wall Street. But, that is exactly what we have to do.

Yes, I have always supported full transparency.

To get this process started, I have asked some of the leading economists in this country to serve on an advisory committee to provide Congress with legislative options to reform the Federal Reserve.

Here are some of the questions that I have asked this advisory committee to explore:

1. How can we structurally reform the Fed to make our nation’s central bank a more democratic institution responsive to the needs of ordinary Americans, end conflicts of interest, and increase transparency? What are the best practices that central banks in other countries have developed that we can learn from? Compared with central banks in Europe, Canada, and Australia, the GAO found that the Federal Reserve does not do a good job in disclosing potential conflicts of interest and other essential elements of transparency.

Yes, full transparency in ‘real time’ would serve public purpose.

2. At a time when 16.5 percent of our people are unemployed or under-employed, how can we strengthen the Federal Reserve’s full-employment mandate and ensure that the Fed conducts monetary policy to achieve maximum employment? When Wall Street was on the verge of collapse, the Federal Reserve acted with a fierce sense of urgency to save the financial system. We need the Fed to act with the same boldness to combat the unemployment crisis.

Unfortunately employment and output is not a function of what’s called ‘monetary policy’ so what is needed from the Fed is full support of an active fiscal policy focused on employment and price stability.

3. The Federal Reserve has a responsibility to ensure the safety and soundness of financial institutions and to contain systemic risks in financial markets. Given that the top six financial institutions in the country now have assets equivalent to 65 percent of our GDP, more than $9 trillion, is there any reason why this extraordinary concentration of ownership should not be broken up? Should a bank that is “too big to fail” be allowed to exist?

Larger size should be permitted only to the extent that it results in lower fees for the consumer. The regulators can require institutions that wish to grow be allowed to do so only in return for lower banking fees.

4. The Federal Reserve has the responsibility to protect the credit rights of consumers. At a time when credit card issuers are charging millions of Americans interest rates between 25 percent or more, should policy options be established to ensure that the Federal Reserve and the Consumer Financial Protection Bureau protect consumers against predatory lending, usury, and exorbitant fees in the financial services industry?

Banks are public/private partnerships chartered by government for the further purpose of supporting a financial infrastructure that serves public purpose.

The banks are government agents and should be addressed accordingly, always keeping in mind the mission is to support public purpose.

In this case, because banks are government agents, the question is that of public purpose served by credit cards and related fees, and not the general ‘right’ of shareholders to make profits.

Once public purpose has been established, the effective use of private capital to price risk in the context of a profit motive should then be addressed.

5. At a time when the dream of homeownership has turned into the nightmare of foreclosure for too many Americans, what role should the Federal Reserve be playing in providing relief to homeowners who are underwater on their mortgages, combating the foreclosure crisis, and making housing more affordable?

Again, it begins with a discussion of public purpose, where Congress must decide what, with regard to housing, best serves public purpose. The will of Congress can then be expressed by the institutional structure of its Federal banking system.

Options available, for example, include the option of ordering that appraisals and income statements not be factors in refinancing loans originated by Federal institutions including banks and the Federal housing agencies. At the time of origination the lenders calculated their returns based on mortgages being refinanced as rates came down, assuming all borrowers would be eligible for refinancing. The financial crisis and subsequent failure of policy to sustain employment and output has given lenders an unexpected ‘bonus’ through a ‘technicality’ that allows them to refuse requests for refinancing at lower rates due to lower appraisals and lower incomes.

6. At a time when the United States has the most inequitable distribution of wealth and income of any major country, and the greatest gap between the very rich and everyone else since 1928, what policies can be established at the Federal Reserve which reduces income and wealth inequality in the U.S?

The root causes begin with Federal policy that has resulted in an unprecedented transfer of wealth to the financial sector at the expense of the real sectors. This can easily and immediately be reversed, which would serve to substantially reverse the trend income distribution.

Sincerely,

Warren Mosler

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News recap comments

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The news flow from last week was so voluminous it was nearly impossible to process. For good measure I want to start today’s commentary with a simple recap of what happened.

On the negative side –

· Greece called a referendum and threw bailout plans up in the air taking Greek 2yrs from 70% to 90% or +2000bps.
· Italian 10yr debt collapsed 40bps with spreads to Germany out 70bps. The moves were far larger in the 2yr sector.
· France 10y debt widened 25bps to Germany. At one point spreads were almost 40 wider.
· Italian PMI and Spanish employment data were miserable.
· German factory orders plunged 4.3 percent on the month.
· The planned EFSF bond for 3bio was pulled.
· Itraxx financials were +34 while subs were +45.
· Draghi predicted a recession for Europe along with disinflation.
· The G20 was flop – there was no agreement on IMF involvement in Europe.
· The US super committee deadline is 17 days away with no clear agreement.
· The 8th largest US bankruptcy in history took place.
· US 10yr and 30yr rallied 28bps, Spoos were -2.5%, the Dax was -6% and EURUSD was -3%.
· German CDS was up 16bps on the week.

On the positive side –

· The Fed showed its hand with tightening dissents now gone and an easing dissent in place.

Too bad what they call ‘easing’ at best has been shown to do nothing.

· The Fed’s significant downside risk language remained intact.

Downside risks sound like bad news to me.

· In the press conference Ben teed up QE3 in MBS space.

Which at best have been shown to do little or nothing for the macro economy.

· US payrolls, claims, vehicle sales and productivity came in better than expected.

And the real output gap if anything widened.

· S&P earnings are coming in at +18% y/y with implied corporate profits at +23 percent q/q a.r.

Reinforces the notion that it’s a good for stocks, bad for people economy.

· Mortgage speeds were much faster than expectations suggesting some easing refi pressures.

And savers holding those securities saw their incomes cut faster than expected.

· The ECB cut 25bps and indicated a dovish forward looking stance.

Which reduced euro interest income for the non govt sectors

· CME Margins were reduced.

Just means volatility was down some.

· There was a massive USDJPY intervention which may be a precursor to a Swiss style Japanese policy easing.

Which, for the US, means reduced costs of imports from Japan, which works against US exports, which should be a good thing for the US as it means for the size govt we have, taxes could be lowered to sustain demand, but becomes a bad thing as our leadership believes the US Federal deficit to be too large and so instead we get higher unemployment.

· The Swiss have indicated they want an even weaker CHF – possibly EURCHF 1.40.

When this makes a list of ‘positives’ you know the positives are pretty sorry

· The Aussies cut rates 25bps

Cutting net interest income for the economy.

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Noda Makes Consumption Tax Hike Pledge At G-20 Summit

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The world’s poster child for losing decades looks to stay a step ahead:

(Nikkei)–Prime Minister Yoshihiko Noda vowed Thursday to gradually raise the nation’s consumption tax to 10% by mid the 2010s during a summit meeting of the Group of 20 leading economies in Cannes, France.

The announcement at the summit has effectively made the tax hike an international pledge, and is expected to be included in an action program due out Friday.

Noda stressed the importance of rebuilding debt-ridden Japanese finances and told G-20 leaders that fiscal consolidation is a must “for Japan to be put back on a sound economic growth path, regardless of the debt crisis in the euro zone.”

He also spoke to reporters that a Diet dissolution should be carried out before implementing the tax hike. “If we go to the people in a general election (to seek a mandate on the consumption tax hike), we should do so after passing related bills but before implementing them,” he said.

As to Japan’s participation in the Trans-Pacific Partnership free trade pact, Noda told reporters he will accelerate efforts to iron out differences within the Democratic Party of Japan, which he leads. “We have to close ranks and shouldn’t be split,” he said.

Noda showed his flexibility in making concessions to a controversial redemption period of reconstruction bonds aimed at funding rebuilding efforts of the March 11 disaster, in hopes of enlisting support from the Liberal Democratic Party and New Komeito, the main opposition parties.

“Our policy chief said that we envisage a 15-year period (for the redemption of reconstruction bonds), but there’s room for concessions,” he said.

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The Euro Zone Race to the Bottom

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While the symptoms get continuous attention as they get threatening enough, the underlying cause-the austerity- does not.

The euro zone, like most of the world, is failing to meet its further economic objectives because of a lack of aggregate demand.

And in the euro zone, the fundamental problem is that the member nations, as credit sensitive ‘currency users’ are necessarily pro cyclical in a downturn, much like the US states, and therefore incapable of independently meeting their further economic objectives.

So even as the euro zone struggles to address it’s solvency crisis that threatens the union itself as well as at least part of what remains of the global financial architecture, the underlying shortage of euro net financial assets continues to undermine output and employment, with GDP growth now forecast to fall to 0 with a chance of going negative in the current quarter.

What this means is that without adopting an alternative to the current policy of applying enhanced austerity as the means of addressing the solvency issue, it all remains in a very ugly downward spiral with social collapse far less than impossible.

So yes, the solvency issue can continue to be managed by the ECB, the issuer of the euro, continuing to buy national government debt as needed. But that doesn’t add net euro financial assets to the economy. It merely shifts financial assets held by the economy from the debt of the national governments to deposits at the ECB. So it does nothing with regards to output, employment, inflation, etc. as recent history has shown.

In fact, nothing the world’s central banks do adds net financial assets to their economies. And much of what they do actually removes net financial assets from their economies, making things worse. Note that last year the Fed turned over some $79 billion in profits to the Treasury. Those profits came from the economy, having been removed from the economy by the Fed’s policy of quantitative easing, which the old text books rightly used to call a tax.

And meanwhile, the imposed austerity that accompanies the bond purchases does directly alter output and employment- for the worse.

Additionally, for all practical purposes, there is universal global support for austerity as the means supporting global output and employment.

So even if the euro zone gets the solvency issue right, with the ECB writing the check to remove all funding constraints, the ongoing austerity will continue to depress the real economies.

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Greek Vote Threatens Bailout

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The obvious hasn’t been making the headlines:

A no vote means a lot more immediate austerity than a yes vote.

A no vote means Greece can’t borrow at all, and therefore govt. checks will only clear if Greece immediately cuts back to where it is only spending tax revenue.

A yes vote means Greece can continue to spend quite a bit more than tax revenues, to the tune of the check from the benefactors.

And with no one in government at any level having any kind of a plan to leave the euro, and no idea how to manage a new currency in any case, that option continues to have no political support.

So the choices are:
Yes, we accept a relatively modest deficit cut as per the EU proposal.
No, we prefer to go cold turkey to a balanced budget and a seriously draconian cut.

Meanwhile, tick, tick, tick, the entire euro economy continues to slow, and continuously nudge up the entire region’s budget deficit, as they all work their way towards the same fate as Greece.

And, tick, tick, tick, the US deficit reduction process moves forward, with multi trillion dollar reductions already proposed by both parties.

Greek Vote Threatens Bailout

By Alkman Granitsas, Marcus Walker, and Costas Paris

November 1 (WSJ) — ATHENS—Greek Prime Minister George Papandreou stunned Europe by announcing a referendum on his country’s latest bailout—a high-stakes gamble that could undermine the international effort to preserve the euro.

A “yes” vote in the referendum could deflate the massive street protests and strikes that threaten to paralyze Greece as it tries to enact a brutal austerity program to earn rescue loans from the euro zone and the International Monetary Fund.

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WSJ- Boehner pulls out of debt talks….

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As previously discussed, the President is no longer involved, and if Congress does get a bill to his desk he’ll sign it.

Grand Bargain Talks Collapse

By Carol E Lee and Janet Hook

July 22 (WSJ) — A high-stakes effort by President Barack Obama and House Speaker John Boehner to hatch a landmark deficit reduction deal collapsed in anger Friday, sending Washington into a weekend of negotiations over how the world’s top financial power can make good on its debt obligations.

In a letter to his colleagues, Mr. Boehner said he called off talks with the president. He informed Mr. Obama Friday night he planned to start negotiations with the Senate to seek what would likely be a smaller deal.

“In the end we couldn’t connect. Not because of different personalities, but because of different visions for our country,” Mr. Boehner wrote in the letter. Later, at a press conference, Mr. Boehner accused the president of “moving the goal post.”

Mr. Obama, visibly frustrated in his own news conference before Mr. Boehner’s, was critical of the GOP. He summoned Congressional leaders back to the White House Saturday morning where “they have to explain to me how it is we are going to avoid default.”

The president also sounded less optimistic than he has in recent weeks that congressional leaders could strike a deal that would avoid a government default. He said he has consulted with Treasury Secretary Tim Geithner about the consequences of default.

Mr. Boehner said talks broke down because Mr. Obama came back at the last minute and asked for $400 billion in additional revenues on top of the $800 billion he thought they had agreed to. “Dealing with this White House is like dealing with a bowl of Jell-O,” Mr. Boehner said.

Senior White House officials said Mr. Obama called Mr. Boehner Thursday and sought more revenues, saying they were needed to win Democratic votes. They said the president was willing to negotiate the matter. Mr. Obama followed up with two more phone calls to the speaker, the White House said, and they weren’t returned until Friday evening when Mr. Boehner called to say the talks were off.

The demise of the grand bargain, the latest twist in Washington’s months-long search for an agreement to raise the debt ceiling, left the next steps uncertain. Congressional aides say the outlines of a deal must be clear by Monday if Congress is to approve a deal that would prevent the U.S. government from defaulting Aug. 2.

Treasury Department officials say that without more borrowing authority by that date, the government will run out of cash to pay all its bills, including Social Security benefits, military pensions and payments to contractors.

Several smaller options have been discussed that would cut the deficit between $1 trillion and $2.5 trillion. Changes to big government programs and the tax code won’t likely be tackled. That could solve the debt-ceiling problem, but create a new one if credit-rating firms think the agreement doesn’t justify their triple-A ratings on U.S. debt.

A debt downgrade, while not as serious as a default, could send interests rates higher and cause investors to panic. Mr. Obama raised that prospect Friday night in making the case for a larger deal.

“If we can’t come up with a serious plan for actual deficit and debt reduction, and all we’re doing is extending the debt ceiling for another six, seven, eight months, then the probabilities of downgrading U.S. credit are increased, and that will be an additional cloud over the economy and make it more difficult for us and more difficult for businesses to create jobs that the American people so desperately need,” Mr. Obama said.

Mr. Obama also said as leaders work through the weekend, they should keep in mind that the stock markets will be opening Monday.

The debt ceiling whiplash, with lawmakers lurching from one proposal to the next, has put financial markets on edge. Bond investors still appear to believe a deal will be inked, but others are bracing for volatile markets if the weekend’s negotiations don’t produce results.

“If I were, particularly, a foreign holder of U.S. debt, I’d be asking myself, ‘Who is running that country,'” said John Fath, managing partner for BTG Pactual, a Brazil-based investment bank. “This is like riding on a motorcycle and going right in front of an 18-wheeler. Are they out of their minds?”

Messrs. Obama and Boehner had incentives to push for more. They were thinking in part about their legacies, while many of their followers were focused on sticking to what they saw as their parties’ basic principles. Mr. Obama may have been willing to accept changes to programs such as Medicare, and Mr. Boehner may have countenanced tax-revenue increases.

Liberal groups Friday called Mr. Obama’s re-election campaign and Democratic congressional offices attacking the grand bargain. Justin Ruben, executive director of MoveOn.org, said it would “betray the core Democratic commitment to the middle class.”

Senior Republican aides said disagreements over taxes and changes to entitlement programs became too large to overcome.

Rep. Steve LaTourette (R., Ohio), a close friend of Mr. Boehner’s, said after an afternoon meeting of the GOP caucus: “The speaker was the most melancholy I’ve ever seen him. He’s always been a tremendous optimist. He feels he’s getting nowhere fast.”

Messrs. Obama and Boehner were discussing a deal that would set the stage for $2.7 trillion in spending cuts over 10 years and $800 billion in revenues generated through the tax code—a figure Mr. Obama suggested increasing to $1.2 billion, both sides agree. The plan would have included some of the spending cuts up front, while deferring other cuts and a tax overhaul until later.

Senior White House officials said the first part of the package, which would have immediately become law, also included an extension of unemployment insurance and the payroll tax break for employees.

A hurdle that emerged Thursday was the mechanism that would ensure Congress made good on its promise. Republicans wanted the so-called trigger to be elimination of the individual mandate in Mr. Obama’s health-care law, people familiar with the matter said. The White House refused to include that as a trigger, but said Mr. Obama would consider other options.

A smaller deal cut between congressional leaders would be a poor political outcome for both parties. The cuts likely wouldn’t be deep enough to satisfy conservatives, but would be big enough to irk liberals, and neither could claim credit for putting the U.S. on a path to long-term fiscal stability.

Senior Republican aides said they don’t know what shape a deal will ultimately take, but they said they need to present House members with an agreement by Monday to have time to pass legislation in both chambers by Aug. 2.

House Republicans will not back down from their demand for dollar–for–dollar spending cuts accompanying the debt limit increase. They have increasingly discussed a short-term debt increase, accompanied by the $1.5 trillion in spending cuts identified by budget negotiators. House Majority Leader Eric Cantor (R.,Va.) said the GOP would offer such a plan for avoiding default “in the coming days.”

“America will pay its bills and meet its obligations, and in coming days we will offer a path forward that meets the president’s request for a debt-limit increase, manages down the debt and achieves serious spending cuts,” Mr. Cantor said.

Getting a substantial deal matters as much for financial markets as the political fate of the nation’s leaders. Standard & Poor’s has said it could lower its AAA rating on U.S. government debt if it believes any deficit-reduction agreement is inadequate or the triggers put in place aren’t credible. A lower rating would boost borrowing costs for the government, businesses and households, possibly harming the recovery and roiling financial markets.

“What we mean by credible is something that we think people are actually going to do,” David T. Beers, managing director of sovereign and public finance ratings, said in a recent interview.

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Obama Responsible for Poor Jobs Picture: Bachmann

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Couldn’t agree more, but for different reasons.
(feel free to repost)

Comments below:

Obama Responsible for Poor Jobs Picture: Bachmann

By Jeff Cox

July 8 (CNBC) — The dismal state of employment offers more proof that President Obama’s economic plan isn’t working, Republican presidential candidate Michele Bachmann told CNBC.

Agreed!

Speaking just after the government said unemployment rose to 9.2 percent last month, the firebrand Minnesota congresswoman and Tea Party leader delivered a blistering critique of the White House’s handling of the jobs picture, focusing specifically on the $800 billion stimulus that has failed to drive down the unemployment rate.

“The president’s own policies have clearly failed the American people,” Bachmann said. “The answer is not to double-down and continue to do more of the same. The answer is to work on what went wrong, to reverse course and have a pro-growth job agenda.”

The $800 billion did what it did- it added $800 billion in income and nominal savings to the economy- to the penny. It’s an accounting identity. If it didn’t add exactly $800 billion the accountants at the CBO would have to stay late and find their arithmetic mistake.

In fact, all entire deficit spending adds that much nominal savings to the economy. That’s where all the increased savings has come from. You could change the label of those deficit clocks to ‘world dollar savings’ and leave the numbers alone.

And note that treasury securities are functionally nothing more than savings accounts at the Fed.

Defying consensus estimates that the economy had merely hit a soft patch and was on its road to recovery, the latest jobs news instead shows just 18,000 jobs created in June and the unemployment rate when taking into consideration those not looking for work at 16.2 percent.

Right, the problem is the deficit is too small. I’ve proposed a full FICA suspension, federal revenue distributions to the state govts of $500 per capita, and an $8/hr federally funded transition job to anyone willing and able to work to facilitate the transition from unemployment to private sector employment.

Bachmann’s campaign has caught fire as polls show her in a virtual dead heat in Iowa with presumptive front-runner Mitt Romney.

In her live interview, Bachmann focused on the voices she has heard while campaigning and the angst among business owners about how Washington policies have hindered business growth.

“I have talked to business owners all across the nation,” she said. “They’re really paralyzed with fear right now. This won’t help hearing (the unemployment news) because it shows that Washington doesn’t have the solution.”

Agreed!

She spoke as Congress and the White House are locked in debate over whether to raise the $14.3 trillion debt ceiling. Bachmann dodged a question over whether the failure to increase the borrowing limit while drastically cutting spending would raise unemployment, but she said more taxes certainly aren’t the answer, either.

“We need to fundamentally restructure how government does spending,” she said. “We’re still operating under the principles of FDR and LBJ. We need to move into the 21st century so we embrace pro-growth policies. Unfortunately they’re tone deaf here in Washington, D.C. They think government is the answer, and the American people know it’s not true.”

I watched her explain how if they just do spending cuts to balance the budget that will create jobs in the long term. What she fails to understand is that with all of our ‘demand leakages’ and tighter lending standards, spending cuts have to be at least matched by tax cuts to not add to unemployment, and tax cuts have to be substantially larger than spending cuts to add to demand and reduce unemployment.

It’s a shame, because with the tea party standing for ‘taxed enough already’ the tea party candidates continue to propose balanced budgets that continue to grossly over tax us.

It’s also a shame that no one in the media has the knowledge of actual monetary operations to expose the gaping flaws in her logic. In fact, the have the same fundamental misunderstanding and tend to agree with her, including the entirely inapplicable analogy that we are in danger of becoming the next Greece.

So current odds have to favor her for the presidential nomination.

And only MMT stands between her and the presidency.

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