An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
If the treasury does have to go into balanced budget mode as you alluded to in your video, the Fed could impose negative interest rates. I'm not saying it's a good idea. I'm just saying. The whole things is crazy anyway.
relative to your above statement on raising the debt limit; Not at all necessary if congress would get rid of the "fed" printing activity once and for all. No private bank should be able to "print/generate" money period...in effect counterfeiting it, like you or I could do in our basement with a printing press. The government should be the sovereign entity to do so, as per the Constitution, art. 1, sec. 8, par. 5 (coining), but esp. par. 6 (counterfeiting)...why is this ignored so ? I have a system in mind that would be fair to all Americans in that way. My previous post tells of some of it, that the Heritage bunch on FB disdains, but sobeit (Dr. Rich). There should not only never be a "deficit" with a sovereign currency, but we should not allow our "debt to be sold", except in small retirement denominations like social security or larger public benefit projects or wars to save the country...Corporations and wealthy individuals would be made to instead invest in business per usual and take their chances with the rest of us, instead of having the American public guarantee an ROI...AND, we would never run out of money or approach a "cliff"...then quickly onto the most remedial thing congress could do at this point just as our economic "Pearl Harbor" is about to strike...go after the over $ 40 trillion that is off-shored in various places which should be retroactively taxed with extradition regardless of immunities implied or treatied IMO.
Fed Vendors and Medicare service providers could also take their signed invoices/receivables "to the bank" at interest for USD balances in advance of being paid by the Fed govt... they can use the receivables as collateral...
but to Mike's point this is a "stop gap" measure and the "slow pay" / "no pay" will still probably cause some non-zero amount of liquidations of assets by those entities within the net-liability sub-sector of the domestic non-govt sector...
Matt, a lot of smallish business get hurt by slo-pay. Some of these are already on 180 days. I'm thinking of some businesses that supply the military PX's, for instance. These are large contracts for them and they have to finance them. They bid on expectations, and when those expectations don't materialize they take a hit that some find difficult to absorb.
for my bank here in the DC area this is their biggest growth area of their business they charge like 6% APR on these lines ... but like you say payments still have to be made... and they have sub-vendors too that cant wait and they are only going to draw the minimal amount they absolutely need as there are significant interest charges and their businesses might not have much (single digit) margins in them in the first place....
If we hit the ceiling, liquidation will start at some level immediately imo...
negative interest rates is a horrible foolish idea, infact, any interest rate setting is a horrible idea. interest rates a best determined by the market through savings. you forget that interest rates are price signals, and when central planners set them higher or lower than where the economy would naturally set them on its own it always distorts the market, and the result is a missallocation of resources and wealth during the build up of the bubble, and ultimately the distruction of that false wealth when the bubble pops.
nearly every economist, regardless of their school of thought, agreed that greenspan's setting of interest rates too low was one of the key factors that led to the housing bubble.
16,328 out of 16,394 ceiling so that leaves 66B ...
Plus they have 43B in the Fed account which they probably have to leave there to have some balances to roll over OTR USTs ($25B/day +/-)
So 66B more to go at $6B/day run rate which has been customary, so looks like (including today) 10 more days till we start to circle the toilet bowl...
Yes, of course it's a horrible idea, and so is a debt ceiling. I was merely pointing out one way the Fed could help Treasury get around this nonsense. In addition, it would really upset any recipient of "welfare for the rich." It also might help to open people's eyes as to how our monetary system actually works much like the trillion dollar platinum coin people keep talking about.
Daniel Jones nearly every economist, regardless of their school of thought, agreed that greenspan's setting of interest rates too low was one of the key factors that led to the housing bubble
A problem with that argument is that virtually all mainstream economists are either neoclassical or accept the neoclassical synthesis and think that rates are set by the market.
Another problem with it is that Post Keynesians have observed that low rates were a relatively minor contributing factor rather than a chief cause.
"low rates were a relatively minor contributing factor rather than a chief cause."
Exactly. Banks had all of this cheap money but pretty much everyone in America that could afford a home already had one.
No problem, banks lent money to people that couldn't afford one, then took the profits and ran.
Banks betrayed their fiduciary responsibility, which was the conditional requirement for them to get a franchise to create loans in US dollars in the first place.
everything you just said was wrong, the government should not have the power to create money at will, this has historically always proven to end in economic disaster. We agree that the FED, or in my opinion any central bank, shouldnt have the power to create money out of thin air and that this is counterfeiting, but how is it any different for the treasury to do the same thing?
you argue that this would lead to a debtless/deficitless government, why then do you suggest that the government should run after the currency overseas? why should there be any taxation of any kind at all? if the government could create its own money as needed there would be no reason for it to collect 'revenue' to pay its bills.
i argue though, that the government should neither have the power to print money (by either the treasury or the central bank) or to tax directly the people. just think of the economic disaster that would come from the government giving itself the power to print money endlessly, not even just the inflation that it would lead to, but the missallocation of resources and the destruction of real wealth that comes with it. This would create an enormous bubble economy with the congress handing out money to every political entrepenuer and special interest group that sought it, of course this would lead to a predictable bust and all of that phony wealth would dissappear along with all the scarse resources that were missallocated and destroyed in the process. this would devastate the people, the middle class would eventually be completely wiped out from the inflation alone. Only the market can effectively determine the best economic uses of resources and capital, government cant do this and its never been proven successful when attempted, not once in the history of the world, not once.
government can only manipulate markets, it would be an economic disaster if the government could print its own money at will, the damage they have already done to the economy even without this power should be evidence enough.
you are right when you state that the constitution gives congress the power to coin money, i believe this to be one of the many flaws of the constitution, but the constitution does not prohibit the people from always coining and creating currencies. government eventually did outlaw competing currencies and give monopoly power to itself and the central banks it creates to coin money. perhaps competing currencies would be a good thing for the economy? monopolies certainly never are, and the only way a monopoly can exist is through government legislation (no monopoly has ever existed on the free market), so with that said both monopolies and government are bad for the economy.
virtually all mainstream economists do not think that rates are set by the markets, this is the view of austrian theory economist, none of which could be considered mainstream.
keynesians and post keynesians both believe the opposite, infact, Paul Krugman himself stated that the FED should lower interest rates specifically to create a housing bubble...
he was right that the government can manipulate the market through interest rate price setting, but he, along with the rest of the keynesians and monetarists were wrong to think this was a good thing for the economy.
the housing bubble could not have been created without the government. it was a problem the government created, not the 'free market'...
Bill Black argues convincingly to me that it was a combo of control fraud and a criminogenic environment, aided and abetted by complicit mortgage brokers, appraisers, ratings agencies and regulators.
My eyes are going to explode if I run into any more of this idiotic stuff about banks "counterfeiting" dollars. Where does this nonsense come from? Who is it's source?
The dollars that banks create are bank liabilities. They are liabilities for US government dollars. They are legally redeemable into US government dollars. To say this amounts to counterfeiting dollars is like saying that if I give you an IOU for a cow, then I have counterfeited a cow. If I give you a signed promise of the form "I owe you one cow, redeemable on demand" and you accept that promise in exchange for something you give me, then what is the issue? Where is the counterfeiting?
There is no "debt crisis". Why are you folks being lead down hysteria lane by this nonsense?
We agree that the FED, or in my opinion any central bank, shouldn't have the power to create money out of thin air and that this is counterfeiting ...
This is a ridiculous claim. Now even central bank money issuance - issuance by a branch of the US government - is counterfeiting? What in the world do you Austrian fruitcakes think is not counterfeiting? What do you think money is? Where do you think it comes from? Do you think God Almighty has to shit a solid gold coin out of heaven, with his bearded face on it, to get some kind of money that is not counterfeit? You think like children.
I think it's worth noting that the Fed "borrows" it's own money as a mechanism to keep interest rates above zero. Deficit spending creates excess reserves and only until recently did the Fed pay interest on reserves. So "borrowing" will drain reserves and affect a higher rate of interest. QE is the opposite and supports the interest rate at near zero- it's natural rate if there were no "borrowing". I know Mike has mentioned this before, but if you only watch this one video, the "anachronism" of borrowing would be misleading.
"the government should not have the power to create money at will, this has historically always proven to end in economic disaster"
Wrong. Where do you get this stuff from?
"We agree that the FED, or in my opinion any central bank, shouldnt have the power to create money out of thin air and that this is counterfeiting"
Why is it counterfeiting? Please explain carefully why you believe it is counterfeiting. You will see that your argument makes no sense whatsoever.
"why then do you suggest that the government should run after the currency overseas?"
No one suggests that.
"why should there be any taxation of any kind at all?"
Think of it like this: when the government spends, it creates money. When it taxes, it destroys money. Obviously, taxation is a very important tool for regulating the money system.
"the government should neither have the power to print money or to tax directly the people"
Why, because you say so?
"think of the economic disaster that would come from the government giving itself the power to print money endlessly"
It has that power already. No one here suggests "endless money printing", which suggests "reckless abandon". We are talking about ensuring an appropriate level of demand in the economy to maintain full employment, with price stability.
"the inflation that it would lead to"
I'm guessing you're an austrian, in which case you are deeply confused and clueless about inflation. Read some more MMT on the subject.
"the missallocation of resources and the destruction of real wealth that comes with it"
Government spending on the things it should spend on: such as social security, infrastructure, education, etc, doesn't "misallocate resources".
You can increase the government budget deficit by either increasing spending or reducing taxes (whilst keeping spending unchanged).
"this would devastate the people, the middle class would eventually be completely wiped out from the inflation alone"
It sounds like you're just repeating some paranoid scare-mongering ignorant rant by Mr Schiff.
"Only the market can effectively determine the best economic uses of resources and capital"
Doesn't that sound a bit like dogmatic ideology to you? It sounds like that to me. It almost sounds like some sort of blind religious belief, in fact.
We're not talking about the government taking over from the market in the allocation of resources. The government should provide certain services, transfers and investments, and the market can do the rest.
A budget deficit means the government is spending more than it is taking in taxes, so the private sector has more dollars with which to save, spend and invest as it chooses.
The appropriate size of the deficit is not a moral question, it is a mathematical question - how many dollars does the economy need to maintain maximum employment without inflation or excessive private debt?
"government cant do this and its never been proven successful when attempted, not once in the history of the world, not once"
Where do you get your strange and misinformed ideas from?
As I said, we're not talking about a centrally-planned communist economy here. We're talking about a capitalist economy. But that economy needs money to function, and money is created by the government. Banks also create a type of money (credit), but only by creating a larger amount of private debt. We need the government to provide the economy with enough "debt free" money so it can function properly.
"it would be an economic disaster if the government could print its own money at will"
It can and does do this already.
"the damage they have already done to the economy"
Bad government policy is always a problem. We are proposing good and simple government policy.
"i believe this to be one of the many flaws of the constitution"
Being the great and knowledgeable scholar of economics and politics that you are of course. What arrogance.
"perhaps competing currencies would be a good thing for the economy?"
I don't see how that would work. It's something which superficially sounds like it makes sense, but doesn't actually.
However "complementary currencies" do exist at present, on a relatively small scale.
"monopolies certainly never are (good)"
The monopoly on currency issuance is more like the monopoly on the power to make laws. Presumably you don't think it's bad that the government monopolises that power do you?
"no monopoly has ever existed on the free market"
Money isn't a product of the free market, it's a creation of the law. Has been for thousands of years at the very least.
"with that said both monopolies and government are bad for the economy."
"he was right that the government can manipulate the market through interest rate price setting, but he, along with the rest of the keynesians and monetarists were wrong to think this was a good thing for the economy"
Austrian business cycle theory is basically wrong.
"the housing bubble could not have been created without the government"
If you knew much about history you'd know that there were repeated financial bubbles and crashes throughout the "laissez faire" period of the 19th century.
28 comments:
If the treasury does have to go into balanced budget mode as you alluded to in your video, the Fed could impose negative interest rates. I'm not saying it's a good idea. I'm just saying. The whole things is crazy anyway.
relative to your above statement on raising the debt limit; Not at all necessary if congress would get rid of the "fed" printing activity once and for all. No private bank should be able to "print/generate" money period...in effect counterfeiting it, like you or I could do in our basement with a printing press. The government should be the sovereign entity to do so, as per the Constitution, art. 1, sec. 8, par. 5 (coining), but esp. par. 6 (counterfeiting)...why is this ignored so ? I have a system in mind that would be fair to all
Americans in that way. My previous post tells of some of it, that the Heritage bunch on FB disdains, but sobeit (Dr. Rich). There should not only never be a "deficit" with a sovereign currency, but we should not allow our "debt to be sold", except in small retirement denominations like social security or larger public benefit projects or wars to save the country...Corporations and wealthy individuals would be made to instead invest in business per usual and take their chances with the rest of us, instead of having the American public guarantee an ROI...AND, we would never run out of money or approach a "cliff"...then quickly onto the most remedial thing congress could do at this point just as our economic "Pearl Harbor" is about to strike...go after the over $ 40 trillion that is off-shored in various places which should be retroactively taxed with extradition regardless of immunities implied or treatied IMO.
Fed Vendors and Medicare service providers could also take their signed invoices/receivables "to the bank" at interest for USD balances in advance of being paid by the Fed govt... they can use the receivables as collateral...
but to Mike's point this is a "stop gap" measure and the "slow pay" / "no pay" will still probably cause some non-zero amount of liquidations of assets by those entities within the net-liability sub-sector of the domestic non-govt sector...
rsp
Matt, a lot of smallish business get hurt by slo-pay. Some of these are already on 180 days. I'm thinking of some businesses that supply the military PX's, for instance. These are large contracts for them and they have to finance them. They bid on expectations, and when those expectations don't materialize they take a hit that some find difficult to absorb.
right Tom,
for my bank here in the DC area this is their biggest growth area of their business they charge like 6% APR on these lines ... but like you say payments still have to be made... and they have sub-vendors too that cant wait and they are only going to draw the minimal amount they absolutely need as there are significant interest charges and their businesses might not have much (single digit) margins in them in the first place....
If we hit the ceiling, liquidation will start at some level immediately imo...
rsp,
"If we hit the ceiling, liquidation will start at some level immediately imo…"
We have be sure to blame the right morons…
negative interest rates is a horrible foolish idea, infact, any interest rate setting is a horrible idea. interest rates a best determined by the market through savings. you forget that interest rates are price signals, and when central planners set them higher or lower than where the economy would naturally set them on its own it always distorts the market, and the result is a missallocation of resources and wealth during the build up of the bubble, and ultimately the distruction of that false wealth when the bubble pops.
nearly every economist, regardless of their school of thought, agreed that greenspan's setting of interest rates too low was one of the key factors that led to the housing bubble.
Here's the latest as of yesterday:
https://www.fms.treas.gov/fmsweb/viewDTSFiles?dir=w&fname=12120600.pdf
16,328 out of 16,394 ceiling so that leaves 66B ...
Plus they have 43B in the Fed account which they probably have to leave there to have some balances to roll over OTR USTs ($25B/day +/-)
So 66B more to go at $6B/day run rate which has been customary, so looks like (including today) 10 more days till we start to circle the toilet bowl...
rsp,
To Daniel Jones:
Yes, of course it's a horrible idea, and so is a debt ceiling. I was merely pointing out one way the Fed could help Treasury get around this nonsense. In addition, it would really upset any recipient of "welfare for the rich." It also might help to open people's eyes as to how our monetary system actually works much like the trillion dollar platinum coin people keep talking about.
Daniel Jones nearly every economist, regardless of their school of thought, agreed that greenspan's setting of interest rates too low was one of the key factors that led to the housing bubble
A problem with that argument is that virtually all mainstream economists are either neoclassical or accept the neoclassical synthesis and think that rates are set by the market.
Another problem with it is that Post Keynesians have observed that low rates were a relatively minor contributing factor rather than a chief cause.
"low rates were a relatively minor contributing factor rather than a chief cause."
Exactly. Banks had all of this cheap money but pretty much everyone in America that could afford a home already had one.
No problem, banks lent money to people that couldn't afford one, then took the profits and ran.
Banks betrayed their fiduciary responsibility, which was the conditional requirement for them to get a franchise to create loans in US dollars in the first place.
everything you just said was wrong, the government should not have the power to create money at will, this has historically always proven to end in economic disaster. We agree that the FED, or in my opinion any central bank, shouldnt have the power to create money out of thin air and that this is counterfeiting, but how is it any different for the treasury to do the same thing?
you argue that this would lead to a debtless/deficitless government, why then do you suggest that the government should run after the currency overseas? why should there be any taxation of any kind at all? if the government could create its own money as needed there would be no reason for it to collect 'revenue' to pay its bills.
i argue though, that the government should neither have the power to print money (by either the treasury or the central bank) or to tax directly the people. just think of the economic disaster that would come from the government giving itself the power to print money endlessly, not even just the inflation that it would lead to, but the missallocation of resources and the destruction of real wealth that comes with it. This would create an enormous bubble economy with the congress handing out money to every political entrepenuer and special interest group that sought it, of course this would lead to a predictable bust and all of that phony wealth would dissappear along with all the scarse resources that were missallocated and destroyed in the process. this would devastate the people, the middle class would eventually be completely wiped out from the inflation alone. Only the market can effectively determine the best economic uses of resources and capital, government cant do this and its never been proven successful when attempted, not once in the history of the world, not once.
government can only manipulate markets, it would be an economic disaster if the government could print its own money at will, the damage they have already done to the economy even without this power should be evidence enough.
you are right when you state that the constitution gives congress the power to coin money, i believe this to be one of the many flaws of the constitution, but the constitution does not prohibit the people from always coining and creating currencies. government eventually did outlaw competing currencies and give monopoly power to itself and the central banks it creates to coin money. perhaps competing currencies would be a good thing for the economy? monopolies certainly never are, and the only way a monopoly can exist is through government legislation (no monopoly has ever existed on the free market), so with that said both monopolies and government are bad for the economy.
rant over.
@ Daniel Jones
Your understanding is about 180 degrees out of what's happening here. If you are interested in participating, please read Warren Mosler, The Seven Deadly Innocent Frauds of Economic Policy, and then "Soft Currency Economics." Then you might want to go on to Randy Wray's MMT Primer.
virtually all mainstream economists do not think that rates are set by the markets, this is the view of austrian theory economist, none of which could be considered mainstream.
keynesians and post keynesians both believe the opposite, infact, Paul Krugman himself stated that the FED should lower interest rates specifically to create a housing bubble...
he was right that the government can manipulate the market through interest rate price setting, but he, along with the rest of the keynesians and monetarists were wrong to think this was a good thing for the economy.
the housing bubble could not have been created without the government. it was a problem the government created, not the 'free market'...
@ Daniel Jones
Thanks for your Austrian perspective. Let's just agree to disagree.
"the housing bubble could not have been created without the government. it was a problem the government created, not the 'free market'..."
I basically agree with Daniel here...
But the solution as I see it is to demand better people to occupy the positions of authority in govt not anarchy/chaos...
rsp,
I basically agree with Daniel here...
Bill Mitchell, Monetary policy was not to blame
Bill Black argues convincingly to me that it was a combo of control fraud and a criminogenic environment, aided and abetted by complicit mortgage brokers, appraisers, ratings agencies and regulators.
Interest rates were a blip on the screen.
@Daniel Jones
We've heard this same old boilerplate Austrian B.S. so many times now it's just tiresome rubbish.
At least get creative with your presentation.
Be warned though, you're wasting your time.
My eyes are going to explode if I run into any more of this idiotic stuff about banks "counterfeiting" dollars. Where does this nonsense come from? Who is it's source?
The dollars that banks create are bank liabilities. They are liabilities for US government dollars. They are legally redeemable into US government dollars. To say this amounts to counterfeiting dollars is like saying that if I give you an IOU for a cow, then I have counterfeited a cow. If I give you a signed promise of the form "I owe you one cow, redeemable on demand" and you accept that promise in exchange for something you give me, then what is the issue? Where is the counterfeiting?
There is no "debt crisis". Why are you folks being lead down hysteria lane by this nonsense?
We agree that the FED, or in my opinion any central bank, shouldn't have the power to create money out of thin air and that this is counterfeiting ...
This is a ridiculous claim. Now even central bank money issuance - issuance by a branch of the US government - is counterfeiting? What in the world do you Austrian fruitcakes think is not counterfeiting? What do you think money is? Where do you think it comes from? Do you think God Almighty has to shit a solid gold coin out of heaven, with his bearded face on it, to get some kind of money that is not counterfeit? You think like children.
"the housing bubble could not have been created without the government. it was a problem the government created, not the 'free market'..."
There's at least a mile between "created" and "enabled" or "allowed" to happen.
Aren't Austrians opposed to government intervention?
I think it's worth noting that the Fed "borrows" it's own money as a mechanism to keep interest rates above zero. Deficit spending creates excess reserves and only until recently did the Fed pay interest on reserves.
So "borrowing" will drain reserves and affect a higher rate of interest. QE is the opposite and supports the interest rate at near zero- it's natural rate if there were no "borrowing".
I know Mike has mentioned this before, but if you only watch this one video, the "anachronism" of borrowing would be misleading.
Daniel Jones,
"the government should not have the power to create money at will, this has historically always proven to end in economic disaster"
Wrong. Where do you get this stuff from?
"We agree that the FED, or in my opinion any central bank, shouldnt have the power to create money out of thin air and that this is counterfeiting"
Why is it counterfeiting? Please explain carefully why you believe it is counterfeiting. You will see that your argument makes no sense whatsoever.
"why then do you suggest that the government should run after the currency overseas?"
No one suggests that.
"why should there be any taxation of any kind at all?"
Think of it like this: when the government spends, it creates money. When it taxes, it destroys money. Obviously, taxation is a very important tool for regulating the money system.
"the government should neither have the power to print money or to tax directly the people"
Why, because you say so?
"think of the economic disaster that would come from the government giving itself the power to print money endlessly"
It has that power already. No one here suggests "endless money printing", which suggests "reckless abandon". We are talking about ensuring an appropriate level of demand in the economy to maintain full employment, with price stability.
"the inflation that it would lead to"
I'm guessing you're an austrian, in which case you are deeply confused and clueless about inflation. Read some more MMT on the subject.
"the missallocation of resources and the destruction of real wealth that comes with it"
Government spending on the things it should spend on: such as social security, infrastructure, education, etc, doesn't "misallocate resources".
You can increase the government budget deficit by either increasing spending or reducing taxes (whilst keeping spending unchanged).
"this would devastate the people, the middle class would eventually be completely wiped out from the inflation alone"
It sounds like you're just repeating some paranoid scare-mongering ignorant rant by Mr Schiff.
"Only the market can effectively determine the best economic uses of resources and capital"
Doesn't that sound a bit like dogmatic ideology to you? It sounds like that to me. It almost sounds like some sort of blind religious belief, in fact.
We're not talking about the government taking over from the market in the allocation of resources. The government should provide certain services, transfers and investments, and the market can do the rest.
A budget deficit means the government is spending more than it is taking in taxes, so the private sector has more dollars with which to save, spend and invest as it chooses.
The appropriate size of the deficit is not a moral question, it is a mathematical question - how many dollars does the economy need to maintain maximum employment without inflation or excessive private debt?
"government cant do this and its never been proven successful when attempted, not once in the history of the world, not once"
Where do you get your strange and misinformed ideas from?
As I said, we're not talking about a centrally-planned communist economy here. We're talking about a capitalist economy. But that economy needs money to function, and money is created by the government. Banks also create a type of money (credit), but only by creating a larger amount of private debt. We need the government to provide the economy with enough "debt free" money so it can function properly.
"it would be an economic disaster if the government could print its own money at will"
It can and does do this already.
"the damage they have already done to the economy"
Bad government policy is always a problem. We are proposing good and simple government policy.
"i believe this to be one of the many flaws of the constitution"
Being the great and knowledgeable scholar of economics and politics that you are of course. What arrogance.
"perhaps competing currencies would be a good thing for the economy?"
I don't see how that would work. It's something which superficially sounds like it makes sense, but doesn't actually.
However "complementary currencies" do exist at present, on a relatively small scale.
"monopolies certainly never are (good)"
The monopoly on currency issuance is more like the monopoly on the power to make laws. Presumably you don't think it's bad that the government monopolises that power do you?
"no monopoly has ever existed on the free market"
Money isn't a product of the free market, it's a creation of the law. Has been for thousands of years at the very least.
"with that said both monopolies and government are bad for the economy."
You haven't proven anything with your rant, just regurgitated some clichéd austrian talking points.
"he was right that the government can manipulate the market through interest rate price setting, but he, along with the rest of the keynesians and monetarists were wrong to think this was a good thing for the economy"
Austrian business cycle theory is basically wrong.
"the housing bubble could not have been created without the government"
If you knew much about history you'd know that there were repeated financial bubbles and crashes throughout the "laissez faire" period of the 19th century.
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