Wednesday, June 30, 2010

Brilliant and scathing criticism of the Deficit Commission by economist James K. Galbraith. A must read!!!!



Everyone must read this!

Galbraith's testimony before Congress on the Deficit Commission.


Tuesday, June 29, 2010

The deficit hysteria: "money we don't have"



Excellent piece from Symmetry Capital that I found in Seeking Alpha:

"And policymakers -- not to mention most members of the electorate, including analysts and the media -- continue to commit two fundamental errors regarding fiscal policy:

1. They believe that all deficit spending must be financed with interest bearing debt, thus competing with the private sector for scarce financial resources. However, judging by current Treasury rates, there's still plenty of room for expanded federal borrowing. And there's a symbiosis between federal deficits and repair of balance sheets in the financial sector, as evidenced by the perfect quarters turned in by several major investment banks recently. Politically, that relationship is almost nauseating, as it's doing very little to relieve distressed households -- but it nevertheless makes apparent the dynamic between public sector fiscal deficits and private sector balance sheet relief.

2. They also believe implicitly that the US is on a gold or similar standard, where fiscal and monetary policies are constrained by the supply of some exogenous factor, and governments can thus literally "run out of money." Governments can't run out of money, as it is 'created' by nothing more than digital ledger entries. In other words, government (today, via operations of the quasi-private Fed) is the sole creator and supplier of high powered money. Thus, the only constraint on money creation is inflation and a loss of confidence in the currency, and at the moment, those forces are emphatically not in play. This too is symptomatic of Japanese Disease..."


"The fears of incumbent politicians like Cooper are certainly understandable, but they're borne of either ignorance about how these things work, or self-preservation. Either way, it smacks of lousy political leadership.

Given that Republicans are likely to benefit in November, we'd expect the trend towards fiscal conservatism to intensify."

Read the entire article here.

Obama and Bernanke are clueless!!



I just read this off the wires:

WASHINGTON -- The U.S. economy is strengthening but there's still much to be done to put Americans back to work, President Barack Obama said Tuesday after meeting Federal Reserve Chairman Ben Bernanke at the White House. Obama said he and Bernanke agreed the U.S. is "into recovery" and that there are headwinds and skittishness in the markets now to work through. Obama also stressed aid to the unemployed and made a pitch for the financial-reform bill.

Obama and Bernanke are clueless and the markets are going to smack them silly until they realize what’s going on. It’ll be ugly!!


Two great quotes...



A Facebook friend of mine posted these and I thought they were excellent!

"Working people don't rise to the task because they have been propagandized into believing that "fiscal austerity" is something that needs to be done in order to save their children from an even worse fate. What actually needs to happen in a deflationary collapse is to spend more money into the system, not pull it back out by paying off the federal debt; but the money needs to go into the real economy - into factories, farms, businesses, housing, transportation, sustainable energy systems, health care, education. Instead, the stimulus money has been hijacked, diverted into cleaning up the toxic balance sheets of the financial gamblers who propelled the economy into its perilous dive."
- Ellen Brown

"Creating capital for business has to be less than 1pct of the volume on Wall Street in any given period. . . . My 2 cents is that it is important for this country to push Wall Street back to the business of creating capital for business. Whether it's through a use of taxes on trades, or changing the capital gains tax structure so that there is no capital gains tax on any shares of stock (private or public company) held for 5 years or more, and no tax on dividends paid to shareholders who have held stock in the company for more than 5 years. However we need to do it, we need to get the smart money on Wall Street back to thinking about ways to use their capital to help start and grow companies. That is what will create jobs. That is where we will find the next big thing that will accelerate the world economy. It won't come from traders trying to hack the financial system for a few pennies per trade." - Mark Cuban

And I don't usually agree with Mark Cuban, but I think he's right on this one!

Monday, June 28, 2010

Flip...Flop...Flip...Flop...?

Now President Obama is back to to talking about fiscal austerity again.

At the G-20 meeting this weekend I guess he held a press conference. RealClearPolitics has some video here. (Hat tip Drudge)

He is taking a deficit hawkish stance here again, and is implying his current plans for next year's budget will include either painful cuts or higher taxes (he doesn't give any details really). He seems to be calling out Republicans who have been demogogues against his administration overseeing the large fiscal deficits we've seen over his first two years in office.

Mike has reported here that the current OMB Director Orszag will be leaving in July, I think we may be able to tell which way the Administration will go with respect to fiscal policy by who is named as the new Director of OMB...stayed tuned.

Thursday, June 24, 2010

We should now see a huge surge in job creation, right???



According to the sick Republican "logic" the end of unemployment benefits for millions should now result in a jobs boom. That's becaues Republicans have been saying that people living on a few hundred dollars a week would rather do that than get real jobs. They say that this is the ONLY reason for the lack of job creation. So...let's see what happens next. A jobs boom? Hardly. How about a massive spike in crime as people become desitute and desperate.

Jobs bill fails in the Senate



Dems give up in the face of a Republican fillibuster. God help this economy! Repubs taking us down the road to all out austerity!

Wednesday, June 23, 2010

A bullish shift in policy?



The economic news that came out today was nothing short of grim. New home sales plunged 32.7% last month to the lowest level on record, casting doubt on the broader outlook for growth. More and more of the data is starting to show the same: retail sales, manufacturing, existing home sales, weekly jobless claims, all indicating weakness.

But what the data is telling us now the stock market already told us a month ago when it slid over 1000 points. Most people viewed that downturn as a “correction,” believing that it was only a breather and that the economy was still in good shape. Now, however, those same folks are starting to realize that the economy is not as good as they thought. This new “revelation” is what’s causing stocks to sell off.

In spite of the mounting gloom, there may be reason for hope. It comes in the form of a what appears to be a shift in the Administration’s priorities. For much of this year Obama has been talking about “fiscal responsibility” and reigning in the deficit. This was bearish talk for the markets because it’s clearly not the time for spending cuts and deficit reduction when so many millions of people are out of work and when industry is running far below capacity.

However, the grim numbers may be causing things to change. Obama and his economic team seem to have have embraced a new tone. The focus may be wisely returning to growth, rather than deficits. In an Op-Ed in today’s Wall Street Journal, Obama’s chief economic adviser, Larry Summers, and Treasury Secretary Timothy Geithner, warned about reducing deficits at the expense of growth. “Without growth now, deficits will rise further and undermine future growth,” they wrote.

This may not seem like a lot, however, it is an important shift. It also comes at a time when a growing number of influential economic commentators, like Nobel Economist Paul Krugman of the New York Times, and Martin Wolf of the Financial Times, also talk about the dangers of austerity and cutting spending prematurely.
If policy gets focused back on growth this would be very bullish for stocks.

In the next few days and weeks the economic data is likely to look terrible, however, that would provide even more impetus for the Administration to make growth a priority.

If the Administration’s rhetoric marks a shift in policy then any further selloff in the stock market would be a blessing in disguise. It would provide an opportunity to get in cheap, while the crowd is bailing out.

Tuesday, June 22, 2010

State Governments Soon Likely to Shut Down!



Illinois has now passed California as the state most likely to default, at least that's how the Credit Default Swap (CDS) market sees it. Buying $1 million worth of protection against default on Illinois now costs $30,000. In contrast, the same amount of protection on California costs $29,700 and $24,500 for New York. ($1 million of protection against the United States will cost you $4,000.)

Let's not kid around: the states are in trouble and the worst part is there is no will in Congress right now for any help because of the Deficit Terrorists. Witness the recent scuttling of the "extender" bill in the Senate. This bill sought to extend unemployment benefits, but it also contained about $24 billion in aid to the states.

A couple of weeks ago the state of New York had to almost shut down. Thankfully this was averted because the state legislature passed an emergency spending bill, but the fix was only temporary because cash flow problems are only getting worse.
Everywhere you look the situation is becoming more and more grave with the threat of entire state governments shutting down as Congress and the president sit frozen by the cries of the Deficit Terrorists.

It is beginning to look unavoidable...there will be some government shutdowns as states run out of cash and make no mistake about it...the effects will be devastating. There is the real prospect of total anarchy as police, firemen, prison guards and other vital state employees walk off their jobs because they're not going to be paid.

We've already seen how ineffective Obama is in a crisis situation. His mishandling of the oil spill has been monumental. Now, as states begin to fall apart and devolve into chaos he will do as he's done before: freeze and seek to cast blame on others as the situation spirals out of control.

We need a tax cut, like, right away!!!



The work I do in my daily, Fiscal Trend Digest, now shows that Total Federal Tax Deposits (taxes collected by the Treasury) so far this fiscal year, equal $1.504 trillion. This compares to Total Federal Tax Deposits of $1.494 trillion at the same time last year.

Tax deposits this year only recently exceeded last year's levels, however, with 9.7% unemployment and housing again starting to slip, THIS IS BAD!! It constitutes RISING FISCAL DRAG, which is not the kind of environment for strong and sustained economic growth.

Why government is good



Intersting video and concepts about money.





White House budget director Orszag leaving in July



This is good news. Orszag is a deficit hawk. Hopefully Obama will replace him with someone who is not. Will be watching this come July.

Monday, June 21, 2010

The checks don't bounce!!!



From Paul Krugman's "Conscience of a Liberal" blog:

"And bear in mind what happens when payroll receipts fall short of benefits: NOTHING. No new action is required; the checks just keep going out."

He was commenting on the current state of Social Security. THE CHECKS DON'T BOUNCE!!! But they're gonna dismantle Social Security anyway.

Read article here.


China close to catching U.S. in manufacturing



This is for those people who run around saying that we "don't make anything anymore" and that we have to be like China when it comes to manufacturing.

Well, the fact is, China is still trying to overtake the U.S. when it comes to manufacturing.

Read report here.

Japanese Prime Minister calls for massive new tax increase!



Another leader who believes that cutbacks produce prosperity. Japan was one of the few bright spots that I mentioned in my 2010 Outlook. It's not anymore.

Prime Minister Naoto Kan renewed his call on Monday for tax reform including a possible doubling of the sales tax to rein in Japan's huge debt, as ratings agency Fitch warned the country needed a credible fiscal reform plan.

And he's kowtowing to a rating agency!! Ugh!!!!

Effects of China's decision to let the yuan float



China caved in to Western pressure over the weekend in its decision to abandon the dollar peg and let the yuan float.

This will have two major consequences:

1. It will create new instability for the Chinese currency and global financial markets as the yuan peg was a great source of stability. That's going to be gone now.

2. It will hurt China's exports and, therefore, it's growth. Unless China now takes major steps to boost domestic spending and investment, China's growth rate will be on a steady track down. Bad for the world economy.

I'm not so bullish on China anymore.


Saturday, June 19, 2010

View of BP Oil Well Location From Above


This is a Google Earth picture I clipped showing the location of the BP oil well that is leaking oil into the Gulf of Mexico. Google has the location indicated by the red flame icon .

If this location is accurate, you can see how they chose a deepwater location that was just past the edge of the shelf, at the bottom of a canyon wall, at a reported 5000 ft depth. One wonders if they could have drilled in shallower water near where I have drawn the red 'x', and angled the shaft out towards the current location if necessary...but I guess that drilling through water is a lot easier than the sea bed.

I'm no expert on these things, but I have to think that the wellhead pressure would have to be alot less at a point that was 5000 ft. higher like where I have drawn the 'x'. In a catastrophic type situation like they have experienced, that may result in less oil that would escape into the environment. Also at this higher elevation at maybe a wellhead depth of several hundred feet, it would seem it would be easier to work there and cap the well if necessary.

By the way, if you have youngsters in your life studying geography or earth sciences, the free version of Google Earth that you can install is a great way for them to see the earth and all of its features including as I have shown here, the underwater topography of the earths oceans and seas.

Friday, June 18, 2010

Greenspan Says U.S. May Soon Reach Borrowing Limit



In comments by Alan Greenspan in today's Wall Street Journal.

“Our policy focus must therefore err significantly on the side of restraint.”

“The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms,” Greenspan said. The “very severity of the pending crisis and growing analogies to Greece set the stage for a serious response.”

Greenspan is "off the charts" out of paradigm. He must really think we're on a gold standard. This will solidify aggressive efforts to rein in spending and debt. Depression coming!

Thursday, June 17, 2010

My interview with RT TV





Once again we must ask: ‘Who governs?’




"...Keynes argued that demand can fall short of supply, and that when this happened, government vice turned into virtue. In a slump, governments should increase, not reduce, their deficits to make up for the deficit in private spending. Any attempt by government to increase its saving (in other words, to balance its budget) would only worsen the slump. This was his “paradox of thrift”. The current stampede to thrift shows that the re-conversion to Keynes in the wake of the financial collapse of 2008 was only skin-deep: the first story remains deeply lodged in the minds of economists and politicians."

"But this story alone does not explain the conversion to austerity. Politicians clamouring for cuts in public spending do not cite Chicago University economists. They talk about the need to restore “confidence in the markets”. The argument here is that deficits do positive harm by destroying business confidence. This collapse of confidence may come in several forms – fear of higher taxes, fear of default, fear of inflation. Deficits thus delay the natural (and rapid) recovery of the economy. If markets have come to the view that deficits are harmful, they must be appeased, even if they are wrong. What market participants believe to be the case becomes the case, not because their beliefs are true, but because they act on their beliefs, true or false."

Perception is reality. Belief is not truth, but can be acted upon as if it were. That's the paradigm we are in and why our economic outlook can only worsen.

Read entire article here.

Wednesday, June 16, 2010

Sell stocks aggressively!!!

Spending cuts are now starting to bite. For the first time in years, we have a fiscal situation where the Federal Gov't is taking in more than it is spending. This is MAJOR FISCAL DRAG!!

In my daily analysis of the Treasury Statement, you can see that the Treasury's cash balance is positive year-over-year. This is a RARITY!!! It has only happened several times in the past and when it has...the market and economy have plunged!! (March 2000 and May 2007!)


Treasury now taking in more money that it is recycling back into economy.
MAJOR FISCAL DRAG!!!



Tax receipts are now above the level of last year! MAJOR FISCAL DRAG!!!

Do yourself a favor...RAISE CASH, GO SHORT, SELL FUTURES, BUY PUTS...WHATEVER YOU CAN DO to position your self for a big market and economic downturn.

Most people believe that cutting spending is the answer. Most people will look at spending reductions and cheer them. However, don't be fooled...when private credit is contracting (as it is) and government does not replace the money lost from the collapse in credit, then a FULL BLOWN DEPRESSION WILL RESULT!!!

This is the beginning of a major collapse. Protect yourself! Go short; raise cash, but whatever you do, prepare for a big market downturn.

(You can short the Euro like crazy and clean up on this!!!) Buy my Euro Crash Alert for $39.95 and get 10 ways to profit from a Euro crash!!

Tuesday, June 15, 2010

The Buzz: Why China keeps on buying U.S. debt



Here's how the media and most of the economic mainstream perceive foreign buying of U.S. Treasuries...

"China added to its big position in U.S. debt during the month of April, according to the latest figures from the Treasury Department.

So did Japan. And the U.K. And the big bloc of oil exporting nations that includes Venezuela, Iraq, Iran and Saudi Arabia. All told, foreigners increased their net holdings in Treasury bonds and notes by more than $76 billion.

What did you expect them to buy? Euros?"

Check out that last line: "What did you expect them to buy? Euros?"

The author is so confounded by the foreign buying of Treasuries (after all, the U.S. has HUGE debts and is about to receive a credit downgrade any day, at least that's how most of these guys think), that he's practically at a loss to explain the reason for all this buying. In the end he basically throws his hands up in the air and says it's because it's just worse everywhere else.

Pathetic reasoning.

There's one reason and one reason alone that China, Japan, Saudi Arabia and other countries buy Treasuries and that reason is, when the U.S. runs fiscal deficits those deficits add to the savings of the non-governmental sector (domestic and rest of the world) to the penny.

In other words, if the U.S. government rusns a $1.3 trillion deficit, then the non-government (domestic and rest of the world) took in $1.3 trillion in new money. That's how it works as a matter of accounting. Think about it, the government spent $1.3 trillion more than it took in. Where did that money go? Into the pockets of people here in the U.S. and around the world.

Foreigners as well as many Americans keep that money in Treasuries because it earns them a return. Operationaly, the way it works is that the dolars are simply switched from a checking account at the Fed (where they're held) to a savings account at the Fed, which is called, a Treasury. That's it!

So it's not because the U.S. is the best house in the worst neighborhood that the Chinese, Japanese, Saudis, Venezuelans and others buy Treauries, but rather, because fiscal deficits of the U.S. are equal but opposite to the surpluses of the private sector here and in the rest of the world. Government balances and private sector balances must sum to zero.

And they do.

THAT's the explanation.

Household Financial Assets vs Income

The Fed recently released the Z.1 for 1st Qtr 2010. Following are some observations on Income and Assets of the Household Sector.

Here is a snip from the L.100, Household Financial Assets. The 'high water mark' for household financial assets was back in 2007, prior the the 'Great Financial Crisis'. At that time, total financial assets $50.7T minus liabilities of $14.4T nets to $36.3T net financial assets for the household sector.

Fast forward to last quarter, using the same procedure results in a NFA position of $31.5T, so, even though some progress has been made by households in rebuilding their position from the immediate drop during the GFC, households are still about $5T below their high level of holdings of 3 years ago. There has been the equity market recovery but also, much de-leveraging is happening, as well as an apparent accumulation of Treasury Securities.




Now to look at incomes, below is a snip from the F.7 table. It shows that, in actuality, National Income has been battling back from the previous lows following the GFC, and (for now) is holding a level just below the all time highs.
This may be evidence of continued household 'retrenchment', as although national income seems to have recovered (probably in an inequitable fashion), our output is still well below potential, as households continue to pay down debt and save, perhaps seeking their previous higher levels of holdings of NFAs. It looks like they have about $5T to go.

Monday, June 14, 2010

Social Security cash flow suddenly negative


"Here’s something I didn’t know, from financial blogger Bruce Krasting (via John Ellis): Social Security tax receipts for the first half of 2010: $346.9 billion; Social Security benefits payments for the same period: $347.3 billion. Before this year, projections have always been that Social Security wouldn’t cross that line into negative cash flow for five years or so. Now it’s a reality. Congress has been spending Social Security’s positive cash flow for years. Now there’s no positive cash flow to spend." -Michael Barone, The Washington Examiner

Michael Barone is a political commentator who has recently taken to giving his opinion on economic matters, of which he knows little. (Certainly not versed in MMT!)

What is remarkable about this piece is that none of the deficit terrorists like Barone had anything to say about why these SS checks, written on "insufficient funds" never bounce.

But I'm sure I know what they WOULD say...they'd tell you that the money was borrowed.

Then you ask them, "What, exactly was borrowed?"

You mean, dollars were borrowed? Well, let's see...the Federal Gov't of the U.S. is the monopoly issuer of the dollar.

The Chinese don't issue dollars, the Japanese don't issue dollars, the Saudis don't issue dollars, nor does Germany, France, England, you, me or anyone else, which begs the question...where did those dollars come from that were "borrowed" by the U.S. government?

The answer is, they had to be spent into existence in the first place for anyone to have them to "lend" to us. The truth of the matter is, sir, that you don't need to borrow what you can create without limit. There's really no borrowing going and that's why there's never any default or solvency risk and why, the checks for SS will never bounce!

France Wows Skeptics With A 100 Billion Euro Austerity Plan

Some information on how France is going to implement fiscal austerity is out today. Link to Yahoo! article here. Excerpt:
"While France's credit rating so far has remained under relatively light criticism, as compared to many other Eurozone nations, the nation's budget deficit this year isn't pretty at 8% of GDP.

The government appeared slow to introduce austerity measures aimed at correcting France's long-term unsustainable spending path.

Now they've taken a large step in proving the skeptics wrong, announcing a three-year budget plan aimed at bringing France's budget deficit down to 3% of GDP by 2013."
Then it goes on to say:

Fillon said the government would cut the public deficit by 100 billion euros, with half coming from slashing spending and half from increasing revenues.

The prime minister broadly outlined where the savings would come from, including 45 billion euros in spending cuts and five billion euros from closing tax loopholes.

The centre-right premier is also counting on a rebound in the economy to bring in an additional 35 billion euros.

"As and when growth returns, revenues will grow once again," said Fillon."
It's hard to see how growth could return when the French government is implementing a E45B cut in spending.

Wednesday, June 9, 2010

Bernanke Appears Before House Budget Committee

Link to the video of Chairman Bernanke's appearance at the House Budget Committee is here at C-SPAN..

His prepared statement appears here at the Fed's site. There are some interesting Q&As that start at the 20:00 mark.

If it were not so tragic an issue, this hearing of the Committee of 'Keystone Kops' would be almost as funny as the recent remarks by the Congressman who thought the island of Guam could capsize, these budgeteers have an equivalent knowledge about the real macroeconomics of the US as this poor fellow does about earth science.

All participants here exhibit not a clue as to how we as a nation can move forward with job creation and a return to full employment and utilization. It seems that many of the Congressional representatives are searching for some sort of enlightenment or magic solution from the Fed Chairman, while he, who is only in charge of Monetary Policy, cannot provide what they are looking for. We are left with leadership that seems content to let it all up to chance.

Congress itself has all of the authority that is needed to turn the economy in the right direction through the Fiscal Policy they themselves control. Until they realize this, and the true fiscal options available to them, we cannot prosper as a nation. I wish Bernanke had the sense to tell that to them straight up.

Are unions bad for the economy?



It's odd when you see income groups in the U.S. that have been historically helped by unions speak out so strongly against them.

I looked at the data to see what effect, if any, unions had on the economy and earnings.

Here are the facts:

In the period from 1950 to 1980, which saw the most union membership, GDP grew at a compounded annual rate of 3.53%.

From 1980 to 2009, which saw a dramatic decline in union membership, GDP grew at a compounded annual rate of 2.7%

From 1950 to 1980, which saw the most union membership, corporate profits rose at a compounded annual rate of 8.0%.

From 1980 to 2010, the period where union membership declined dramatically, corporate profits rose at a compounded annual rate of 7%.

Furthermore...Real average weekly earnings of workers today are below where they were in 1968.CEO compensation has gone from about 40 times a workers salary to over 400 times a workers salary.

Therefore...the decline of unions has led to more income inequality, less output and lower corporate profit growth.

To say that unions are bad for the economy is revisionism far greater than anything ever attempted by a Communist state.

***All data from the BLS and Commerce Department.

Contraction in China's loan growth may be over. Add to China positions



China's loan contraction appears to be abating. Add to long China positions now!


Source: Bloomberg

The Federal Gov't is not "out of money!"



The Constitution of the United States grants Congress the power to create money. It does not say that at $13 trillion it has run out.

President Obama was totally irresponsible to make a statement like that.

If private credit is contracting the government MUST create money or there will be economic contraction and a broadening of poverty. This would be an abrogation of the government's responsibility as dictated by the Constitution ("provide for the common defense, promote the general welfare...")

There is an ongoing campaign of distortion, disinformation and outright lies being conducted in America by the media and people with their own cynical agendas. The result is that 15 million people are without work, 1 in 5 children live in poverty and the wealth producing capabilities are left to wither.

A revolt against this propaganda must be organized or the United States will suffer an irrecoverable decline in its standard of living.

Comments like, "the government is out of money" or, "the government can't create wealth" and, "printing money creates inflation," must be forecfully resisted and challenged.

It may already be too late. The campaign of disinformation has gripped the vast majority of the electorate and is pervasive on television and in the media. It is this campaign, which is not based upon any fact or operational reality, that deserves blame for the worsening economic conditions and the spreading of poverty.


Monday, June 7, 2010

Bernanke sees recovery gaining traction



Stock market is totally collapsing. He's going to miss another economic meltdown, just like he missed the first one. This guy is useless.

European governments vow major fiscal tightening for 2011



Budgets will remain “neutral” in 2010, becoming “clearly
restrictive as of 2011 when recovery is expected to gain
momentum,” Luxembourg Prime Minister Jean-Claude Juncker told
reporters today after chairing a meeting of euro-region finance
ministers in Luxembourg.

As if that's not enough the Bush tax cuts will expire on Jan 1, 2011 and a spending freeze goes into effect this October.

If you thought the last time down was ugly, that's gonna look like a picnic compared to what's coming.

Sunday, June 6, 2010

If I were Fed Chairman, here's what I'd do...



Even though Congress holds the key to economic prosperity, it is content to sit by idly, frozen by irrational deficit fears as millions of people remain out of work and as our economic product withers.

The Fed has tried to counter deflationary forces by putting interest rates down to zero, but this has done little.

There is, however, something very powerful the Fed can do to create prosperity again and if I were Fed Chairman this is what I'd do: The Fed should support the stock market by aggressively buying stocks. This is something the Fed can absolutely do as stipulated in Article 13 paragraph 3 of the Federal Reserve Act.

Buying stocks would act as a funding mechanism to businesses that are struggling because banks are not lending. It would also provide a "wealth effect" to households, which hold about as much stock as real estate. That wealth effect would translate into higher consumption and higher GDP and, eventually, the increased economic activity would cause the banks to lend again and the Fed could step out.

The problem is, the Fed will NEVER do this as it is considered too unorthodox (as if buying Bear Stearns' assets was not unorthodox) and if it did do it, I'm sure it would create some global outcry about how it is sowing the seeds of hyperinflation. (The line thrown out every time gov't or the central bank tries to sustain output and employment.)

However, if the Fed bought stocks it would be an easy way to circumvent Congress's intractable position on deficits and the subject of further stimulus spending. It would not add to the deficit and it would provide money directly to the private sector to invest and spend as it sees fit, without government direction. (A point that bothers lots of people.)

Furthermore, it would be much more effective than keeping interest rates at zero, which is doing absolutely nothing.

If I were Fed Chairman, that's what I'd do.

G20 drops support for fiscal stimulus



The communiquĂ© of the meeting made clear the G20 no longer thought expansionary fiscal policy was sustainable or effective in fostering recovery because investors were no longer confident about some countries’ public finances.

“Those countries with serious fiscal challenges need to accelerate the pace of consolidation,” it said. “We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions.”

As I have been predicting for months, with fiscal support now totally abandoned as a means to sustain output, global economic activity is going to collapse. We WILL see the lows of 2009 revisted and unemployment in the U.S. may climb to 15% or more! Be prepared, it's going to get VERY ugly.

Wednesday, June 2, 2010

Warren Mosler's $1 million challenge!



The JOBS candidate Warren Mosler announces his
Million Dollar Challenge to Senate CANDIDATES

Middletown, Conn. (June 2, 2010) – Warren Mosler, Independent candidate for US Senate, knows for a fact that, operationally, there is no such thing as the US government running out of dollars, being dependent on foreign borrowing, or potentially facing a solvency crisis like Greece, and he has pledged $1 million of his own money to any of his Senate opponents on the ballot who can prove him wrong.

“Those concerns are due to pure fear mongering from supposed experts. They have no factual basis, and they have become the true obstacles to the return of full employment and prosperity” said Mosler, who added “and there is absolutely no financial reason to cut Social Security or Medicare benefits.”

Many have also argued that the nation’s growing debt rules out further tax reductions, but Mosler says those assertions are blatantly untrue, proposing a full payroll tax (FICA) holiday for employees and employers that will add over $300/mo to the take home pay of someone earning $50,000 a year. This plan and similar initiatives will reintroduce the capital the economy needs to prosper and grow.

“We lost over 8 million private sector jobs primarily for one reason- sales collapsed,” said Mosler. “My full payroll tax (FICA) holiday for employees and employers boosts take home pay and helps lower prices to quickly restore those lost sales which brings back the lost jobs, fixing the economy the right way, the American way, from the bottom up.”

In the midst of our and social economic calamity, with the Republican and Democratic candidates offering no viable plans to restore full employment, Mosler, an expert in monetary operations, is uniquely qualified to quickly move America back to full employment and prosperity. He knows the American economy works best when people working for a living have enough take home pay to buy the goods and services they produce, with business competing for those consumer dollars.

Mosler congratulated candidates McMahon and Blumenthal on their convention victories, and looks forward to public debate on the urgent economic issues facing our nation and the world.

“We have seen Republicans and Democrats overseeing the devastatingly tragic loss of over 8 million jobs. And while lower income people working for a living struggle to survive, elites who contributed to our problems rake in billions from bailouts,” said Mosler. “It’s time the government focuses on getting its hand out of the pocket of the hard working Americans who make this country great.”

See www.moslerforsenate.com for details of Mosler’s ‘Right on the Money’ proposals and his $1 Million Challenge.

Sell into this stock rally!



Fiscal data that I track shows the government taking in money faster than it can spend it. This constitutes rising fiscal drag and means the economy is going to slow. The stock market is a sale at these levels. The Dow will soon be back below 10,000.

European Unemployment Hits 12-year High

This is not unexpected for readers of this blog. Fiscal austerity is setting in and manifesting itself already in the short term data in Europe.

Link to article here. The unemployment rates in the so-called 'PIGS' countries are unfathomable. This may be a 'long, hot summer' for Europe in 2010.

Tuesday, June 1, 2010

Very important Fox broadcast tonight...please watch!



I will be on Cavuto on Fox Business tonight at 6pm EDT. We will be discussing government spending and the segment will purport that while other countries are cutting back (Europe, China) the U.S. is spending like crazy.

I am going to present the facts, direct from the Daily Treasury Statement, which show that spending year-over-year is actually slowing down significantly.

My hope is that these facts are accepted for what they are--facts--and a different tack or argument is taken. I REALLY hope that the participants do not attempt to ignore the facts or say that they are made up. That would be disappointing.