Thursday, June 30, 2011
An excerpt: "It may even be the case that we ought to return to the much more tightly regulated financial system of the first post-World War II generation. That system served the industrial core well, at least as far as we can tell from the macroeconomic aggregates. We know for certain that our more recent system has not".
It is amazing that the word 'may' is included in the above excerpt and not the word "should'.
Treasury Secretary Timothy F. Geithner has signaled to White House officials that he’s considering leaving the administration after PresidentBarack Obama reaches an agreement with Congress to raise the national debt limit, according to three people familiar with the matter.Geithner hasn’t made a final decision and won’t do so until the debt ceiling issue has been resolved, according to one of the people. All spoke on condition of anonymity to talk about private discussions.
Good news, gold bugs. In an effort to promote hard money as an alternative to paper dollars, three tea party senators—Jim DeMint (R-SC), Mike Lee (R-Utah), and Rand Paul (R-Ky.)—introduced legislation this week to exempt gold and silver coins from taxation....
...states that are looking to go back to gold face a few obstacles—namely, that there's no infrastructure to actually handle an infusion of gold currency. Carrying around a pouch of gold coins would be a burden (and vaguely Medieval), and so boosters tend to agree that for it really to take off, you'd need a centralized storage facility and then a debit-card-like transaction system, neither of which currently exist. And then there's the cost: gold and silver coins from the US Mint are the only coins that could be used as legal tender, and there's a significant markup on those in addition to the taxes. The Lee-Demint-Paul bill is attempting to tackle just one piece of the problem by making it less cost-prohibitive....
I'm sick of hearing all this B.S. dogma about keeping tax rates low to incentivize production. From 1945 - 1980, when top tax rates ranged from 91% to 71%, industrial production grew 225% in America.
Since Reagan through today, when top tax rates were brought down dramatically, industrial production grew 77%.
This thing about taxes is just a bunch of bull.
I am not for higher taxes; that's not what the economy needs right now, but seriously, it's just a B.S. argument.
When you think about how tiny $14 billion is compared to the $3.8 trillion Federal budget and the $14.5 trillion U.S. economy, it makes you want to weep; how cheaply we have sold our government, and how much we suffer under the whip of those who bought it for a pittance.
Today is the last day for the Fed's open market operations known as "QE2", so Gross apparently took this opportunity to re-emphasize his current position that no one will buy Treasury bonds once the Fed stops.
Here's a link to his "tweet" and I quote: "Who will buy them now?" (Ed.: Unbelievable!)
Wednesday, June 29, 2011
Here's the article.
The Fed is at it again. This is like the fourth or fifth time in the past three years that the Fed has come to the rescue of foreign banking institutions and corporations. By instituting dollar swap lines the Fed provides dollar based liquidity to foreigners who are short dollars and need to make good on their dollar denominated obligations. In return the Fed assumes unlimited risk on this position.
The Fed doesn't have to do this. Central banks of these respective countries and trade zones could provide dollars buy selling their domestic currencies and buying dollars in the foreign exchange markets. But, heaven forbid, that would mean weakening their currencies and making the dollar stronger! So instead of doing that the Fed REMOVES that potentially huge dollar bid. And this comes from Bernanke, who recently talked about wanting a strong dollar??? Unbelievable.
Most shocking, however, is the fact that there is no outcry from Congress or any policymaker that has been complaining about the weakness of the buck. None whatsoever. Where are they?
One of the many consequences of boomer demographics is the longer the US opus of reform of Medicare, and Social Security, the more difficult it will become because of voting demographics.
Now turn to the yet more debated question of fiscal policy. The question I have is this: does the BIS know that every sector cannot run financial surpluses at the same time?Few doubt there is excessive private sector debt in a number of high-income countries. But how is it to be reduced? The BIS notes four answers: repayment; default; higher real incomes; and inflation. Let us rule out the last and focus on the first. Repayment means spending less than one’s income. That is what is happening in the US private sector (see chart). Households ran a financial deficit (an excess of spending over income) of 3.5 per cent of gross domestic product in the third quarter of 2005. This had shifted to a surplus of 3.3 per cent in the first quarter of 2011. The business sector is also running a modest surplus. Since the US has a current account deficit, the rest of the world is also, by definition, spending less than its income. Who is taking the opposite side? The answer is: the government. This is what a controlled depression means: every sector, other than the government, is seeking to strengthen its balance sheet at the same time.The BIS insists this is not good enough: highly leveraged countries are running structural fiscal deficits, which must be eliminated as soon as possible. Fair enough, but where are the offsetting adjustments to occur?
Tuesday, June 28, 2011
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed.
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
Monday, June 27, 2011
We went from normal finance in housing (that is paying for the mortgage with current income), to speculative finance (where paying for the mortgage was based on cheap financing tools and projected incomes), to Ponzi financing where current income was unable to pay for even the servicing of debt.
The Ponzi financing era is over yet banks want to pretend that it will come back soon. For this reason we have an enormous pipeline of shadow inventory properties....
Housing in the U.S. has reached a debt spiral. No longer can people use Ponzi financing to service their debts....
The only factor I see causing home values to rise is higher household incomes. Do we see that? Here in California the underemployment rate is close to 23 percent....
Both parties currently stand to protect the wealthy financial class. Yet Americans are largely catching on to this fine tuned orchestra of financial swindling. This is why the “housing bailouts” have done very little in actually boosting home prices. They have boosted banking profits however....
The only answer is to clear the inventory and move on without protecting the “too big to fail” and their scare tactics....
The fear of course is of doom but ironically flooding the market with cheaper homes will actually bring in new buyers that actually can afford the properties with the new lower range of American incomes. This will also free up more disposable income to spend on other goods that keep the market moving. The ‘doom’ scenario is merely for the banks. We agree that banks are a necessity but more so like a utility, strictly regulated (for checks, savings, and regular retail banking). Investment banking can do what it likes but failures will fall completely on the shoulders of their banking enterprise. The commingling of these two functions, retail and investment banking has been disastrous for the typical hardworking family....
No matter how you slice it, the era of Ponzi finance is over.
Relative to national economic trends, states that increased spending enjoyed on average:• 0.2 percentage point decrease in the unemployment rate• 1.4 percent increase in private employment• 0.5 percent real economic growth since the start of the recessionIn contrast, states that cut spending saw on average:• 1 percentage point increase in the unemployment rate• 2.1 percent loss of private employment• 2.9 percent real economic contraction relative to the national economic trend
How ironic! Most people who bought gold did so while at the same time saying that U.S. Treasury bonds were a bubble! (BTW...you didn't hear that on this blog!)
Look who's laughing now!!!
Treasuries are outperforming gold.
The chart below is spot gold divided by the 30-year Treasury price. Gold is tanking!
Sunday, June 26, 2011
GDP is only one of five factors. The others are industrial production, employment, retail sales and personal income....
So when we get the GDP report next Friday, we might could (as my grandmother would say) see positive numbers for the change in GDP. Some people will be dancing in the street, proclaiming the recession is over. Hold the phone on that one though, because you’ll know that it doesn’t really mean anything until it is confirmed by the other four metrics that we should be watching.
Soros reiterated his view in a panel discussion in Vienna that the euro had a basic flaw from the start in that the currency was not backed by political union or a joint treasury."The euro had no provision for correction. There was no arrangement for any country leaving the euro, which in the current circumstances is probably inevitable," he said.While he called survival of the European Union a "vital interest to all," he said the EU needed structural changes to halt a process of disintegration.
Saturday, June 25, 2011
Total Treasury Account Withdrawals: $2,858
Minus Treasury Redemptions: $1,693
Equals Net Treasury Withdrawals: $1,165
Total Treasury Account Deposits: $3,038
Minus Treasuries Issued: $2,240
Equals Net Treasury Account Deposits: $798
M/A/M 2010 Deficit: $367B for the quarter
Total Treasury Account Withdrawals: $2,954
Minus Treasury Redemptions: $1,812
Equals Net Treasury Account Withdrawals: $1,142
Total Treasury Account Deposits: $2,883
Minus Treasuries Issued: $2,005
Equals Net Treasury Account Deposits: $878
M/A/M 2011 Deficit: $264B for the quarter
So YoY for the 3 months ended May, the fiscal deficit has decreased by $103B (367B to 264B), due to a increase in deposits (either tax receipts, or perhaps the Fed refunding it's outsized "profits" due to QE to Treasury this year), as net withdrawals (spending) are actually down, nominal, by $22B, YoY for these same 3 months.
Friday, June 24, 2011
The Bureau of Economic Analysis (BEA) revised their estimate of the annualized growth rate of the first quarter 2011 U.S. Gross Domestic Product (GDP) up slightly to 1.92%. This is their third and final regularly scheduled estimate of the first quarter's growth rate, although sweeping revisions of prior estimates can occur at the end of each July.
Notably, the one creditor that was paid back in full — in 2006 — was the International Monetary Fund, to which Argentina owed $9.8 billion dating to the 1990s.A lesson for Greece is “whereas the commercial creditors are expected to take a haircut, the official creditors like the I.M.F. are not willing to,” said Robert S. Koenigsberger, chief investment officer with Gramercy, an emerging markets investment manager.“That is how commercial creditors get subordinated and bear the brunt of these failed bailouts,” Mr. Koenigsberger said.Since paying off the International Monetary Fund, Argentina has not borrowed from the fund. That has enabled the Kirchner governments to avoid the agency’s typical prescription of cutting state spending.[emphasis added]
For one thing, a decade later, Argentina has still not been able to re-enter the global credit market.“A default is not free,” said Jaime Abut, a business consultant in Rosario, a city north of Buenos Aires. “You have to pay the consequences, and for a long time. Argentina is no longer considered a serious country.[emphasis added]
I was really struck by the person who said that Argentina is no longer considered a serious country; shouldn’t that be a Serious country? And in Argentina, as elsewhere, being Serious was a disaster.
To reiterate, none of this discussion applies to truly sovereign nations who never face any solvency risk.I think the best thing a non-sovereign government can do in terms of advancing the interests of its people is to move towards sovereignty as soon as possible. That might involve jettisoning a currency arrangement (such as in Latvia, for example).It might require exiting a monetary union that has taken the currency-issuing monopoly away (such as the EMU nations). In this instance, that might necessitate a formal default on all debt that was incurred in the currency that the nation is exiting (such as Greece at present).The reality is that a sovereign government holds all the cards in this situation. Please read my blog – Why pander to financial markets– for more discussion on this point.There would be short-term costs but by re-establishing the currency sovereignty the nation will always be able to advance the best interests of its domestic economy.This doesn’t mean that a nation that is short of real resources etc will be able to establish a high material standard of living by moving to sovereignty. The real standard of living is always determined by the access a nation has to real resources. Fiscal policy does not create these resources but can ensure they are more fully utilised and thus more effectively deployed. A poor nation will not become rich just because it is sovereign.
Thursday, June 23, 2011
The ITAs apply a double-entry system of accounting in recording transactions: for any entry there must be counterpart entry. Exports of goods and services, income receipts, unilateral transfers to the United States, capital account receipts, decreases in U.S. assets abroad, and increases in foreign-owned liabilities in the United States are shown as credits (with a positive sign). Imports of goods and services, income payments, unilateral transfers from the United States, capital account payments, increases in U.S. assets abroad, and decreases in foreign owned liabilities in the United States are shown as debits (with a negative sign). For each credit entry there must be an equal and offsetting debit entry, and vice versa. For example, if a foreign resident purchased a U.S. good with a check drawn against its U.S. bank account, the offset to the credit entry for U.S. goods exports would be a debit entry for foreign-owned bank-reported liabilities, reflecting the reduction in foreign-owned assets in the United States
“We are being asked by the Obama Administration to approve a debt limit increase. While President Obama inherited a bad economy, his overspending and failure to enact pro-growth policies have made it worse and now our national debt is currently more than $14 trillion. House Republicans have made clear that we will not agree to raise the debt limit without real spending cuts and binding budget process reforms to ensure that we don’t continue to max out the credit card. One option to ensure that we begin to get our fiscal house in order is a balanced budget amendment to the Constitution, and I expect to schedule such a measure for the House to consider during the week of July 25th. I have no doubt that my Republican colleagues will overwhelmingly support this common sense measure and I urge Democrats to as well in order to get our fiscal house in order."
Well-known physicist Michio Kaku just confirmed all of the above in a CNN interview:In the last two weeks, everything we knew about that accident has been turned upside down. We were told three partial melt downs, don’t worry about it. Now we know it was 100 percent core melt in all three reactors. Radiation minimal that was released. Now we know it was comparable to radiation at Chernobyl.***We knew it was much more severe than they were saying, because radiation was coming out left and right. So in other words, they lied to us.***In New York City, you can actually see it in the milk. You can actually see it has iodine, 131, actually spiked a little bit in our milk in New York City, but it is very small.
Wednesday, June 22, 2011
"The US data go back to 1952, so I was able to check the last time the real, per capita value of US housing equity was at its current level. Even after looking at all of these graphs, the answer astonished me: 1978. Nineteen seventy-freaking-eight."And it isn't over yet.
Tuesday, June 21, 2011
"I have never been more desperate to explain and more hopeful for your understanding of any single fact than this: The protests in Greece concern all of you directly."What is going on in Athens at the moment is resistance against an invasion; an invasion as brutal as that against Poland in 1939. The invading army wears suits instead of uniforms and holds laptops instead of guns, but make no mistake – the attack on our sovereignty is as violent and thorough. Private wealth interests are dictating policy to a sovereign nation, which is expressly and directly against its national interest. Ignore it at your peril. Say to yourselves, if you wish, that perhaps it will stop there. That perhaps the bailiffs will not go after the Portugal and Ireland next. And then Spain and the UK. But it is already beginning to happen. This is why you cannot afford to ignore these events."
"Nassim Nicholas Taleb is the Lebanese-American philosopher who formulated the theory of “Black Swan Events” – unpredictable, unforeseen events which have a huge impact and can only be explained afterwards. Last week, on Newsnight, he was asked by Jeremy Paxman whether the people taking to the streets in Athens was a Black Swan Event. He replied: “No. The real Black Swan Event is that people are not rioting against the banks in London and New York."(h/t Yves Smith of Naked Capitalism)
“As already noted, for Keynes, the principal goal of fiscal policy was to secure true full employment and the principle measure for adjudicating among different policy responses was their employment-creation effects (Kregel 2008). Unfortunately, what is considered to be Keynesian policy today is largely a misinterpretation of the Keynesian prescriptions, which largely stems from a fundamental misidentification of Keynes’s theory of effective demand with the theory of aggregate demand (Tcherneva 2011). In the General Theory, Keynes carefully articulated that employment determination depended not on the volume of aggregate demand but on the point of effective demand which was very hard to stabilize and fix at full employment.”(emphasis added)
Money is a commodity, invented to help people by facilitating transactions. It is not wealth in itself. Wealth is natural resources, water, food, land, education, skill, spirit, ingenuity, art. In those terms, the people of Greece are no poorer than they were two years ago. Neither are the people of Spain or Ireland or the UK. And yet, we are all being put through various levels of suffering, in order for numbers (representing money which never existed) to be transferred from one column of a spreadsheet to another.
Right on Alex! This guy gets it, let's hope his wisdom is contagious.
Monday, June 20, 2011
Libertarianism and the Tamerlane Principle.
"This is why modern American libertarianism is so very, very flawed. The ideology professes to value liberty above all else, but it ignores the dynamic aspect. There is liberty today, and there is liberty tomorrow. Sometimes violations of liberty today (such as an income tax) are necessary to protect the body politic from far, far, far more heinous violations of liberty tomorrow".
"Most libertarians recognize this, and freely admit that defense is an exception to the "small government" rule. But an army is not going to be a very effective Tamerlane repellant without a large GDP and advanced technology to back it up. And what modern American libertarians either fail to understand, or refuse to accept, is that public goods are essential for a high GDP."
"First of all, the system described by MMT, while real, is obviously utterly unconstitutional. Second, (as the MMTers admit), the supply of money in the private sector remains critically important as inflation is the monster that must not be unleashed (and the Austrians know all about that). Third, everyone other than the government still use fiat money in creating the economic dynamics of the nation in a way that the Austrians best understand. And fourth, and perhaps most importantly, government cannot merely spend money into the private sector without choosing where and how to spend it. And any such choice removes spending power from private citizens and redistributes it just as surely as in the days when the likes of Hayek and von Mises, two of the greatest thinkers in Austrian economics, were doing their best work. Put simply, while MMT offers extraordinary insights into aggregates, no economic decision ever affects only an aggregate".
Friday, June 17, 2011
Thursday, June 16, 2011
Wednesday, June 15, 2011
Obama promised to help working people. Instead, he has presided over the greatest wealth transfer to the top of any president in history. Look at what has happened to workers's share of national income since he took office.
I was talking to Warren Mosler yesterday and he came up with a good way (I thought) of countering the "printing money" line that we often hear.
"All government spending is printing money. And all taxation and spending reductions are 'un-printing' money."
Quick, concise, clever.
Feel free to use it.