My new podcast episode is out.

Randy Wray — The Fiscal Cliff (Video)

Links to the video of Randy's talk at Lewis and Clark last week and the slide presentation.

Economonitor
The Fiscal Cliff (Video)
L. Randall Wray | Professor of Economics, UMKC

Randy Wray — Presentation: Fiscal Cliffs, Debt Limits, and Unsustainable Deficits: Can the US Really Run Out of Dollars?

Slide presentation.

Fiscal Cliffs, Debt Limits, and  Unsustainable Deficits: Can the US Really Run Out of Dollars?
L. Randall Wray | Professor of Economics, ,UMKC

Economic Surprise Index plummets

And no wonder...fiscal cliff, debt ceiling, payroll tax increase, upcoming sequester. There's a lot that's weighing on economy now.

John Carney — Why Debt Ceiling Is Far Scarier Than the 'Fiscal Cliff'

John redeems CNBC again. Rick Santelli doesn't seem to mind seeing the economy sink into an abyss of the extremists own making "for a good cause."

CNBC NetNet
Why Debt Ceiling Is Far Scarier Than the 'Fiscal Cliff'
John Carney | Senior Editor

Joshua Holland — 7 Theories Why Obama Keeps Getting Burned (Or Doesn't!) Negotiating with Republicans

You decide. Or maybe there is an eighth, ninth....?

AlterNet

7 Theories Why Obama Keeps Getting Burned (Or Doesn't!) Negotiating with Republicans
Joshua Holland

Does the negotiator in chief suck? Probably.

The GOP's plan to force Medicare and Social Security cuts under threat of a debt default could prove wildly unpopular with the right White House framing, and Obama has proved himself pretty capable in this department.

The problem is what happens when, having crafted a favorable backdrop to the negotiation, it comes time for him to close the deal. And this is where the just-completed "cliff" episode is still disconcerting. Because it turns out Obama made a critical if underappreciated mistake in the final hours of the back and forth: sending Joe Biden to haggle with Senate Republican leader Mitch McConnell once McConnell's talks with his Democratic counterpart, Harry Reid, had broken down.

From my after-the-fact discussions with Democratic aides in the House and Senate leadership, it’s clear that Reid had a plan for resolving the cliff and considered the breakdown of his talks with McConnell very much a part of it. By involving Biden, Obama undercut Reid and signaled that he wanted a deal so badly he was unwilling to leave anything to chance, even when the odds overwhelmingly favored him. It suggested that even if Obama plays his cards exceedingly well in the run-up to the debt-limit showdown, he could still come away with a worse deal than he deserves because of his willingness to make concessions in the closing moments. [emphasis added]

The New Republic
The Inside Story of How Obama Could Have Gotten a Better Tax Deal
Noam Scheiber

Jerry Khachoyan — Worrying About The Deficit is Silly

Good charts and commentary.

The Armo Trader
Worrying About The Deficit is Silly
Jerry Khachoyan is currently an undergraduate student at UCLA pursuing a degree in Political Science.

Randy Wray — Let’s Leap the Fiscal Cliff: Who’s Afraid of Deficits, Anyhow?

OK, did you leap last night? Aren’t you glad that the President and Congress bargained last night to increase your payroll taxes in order to take away 2% of your income for all of 2013? I guess that at least our “progressive” deficit doves are now happy that with higher payroll taxes, Social Security is on “firmer” ground. Yes, right. Just you wait–more bargains are coming. Spending will be cut next.

Oh, and what did we get in return for the bargain? Some breathing space? Wrong again. We’ve reached the debt limit so the Congress gets to start all over from square one. Remember–the Cliff was created by Congress in order to move foward on the debt limit. And here we are with deja vu all over again.

Anyway, lets take a deeper look in the next few posts at the issue of the US “running out of money”.

Economonitor |Great Leap Forward
Let’s Leap the Fiscal Cliff: Who’s Afraid of Deficits, Anyhow?
L. Randall Wray | Professor of Economics, UMKC

John T. Harvey — Happy New Year? Not if the President and Congress can Help It

For those who have followed my blog, there is absolutely nothing new here today. Instead of reading it, you can get ready for your New Year’s party or learn about yet another Dallas Cowboys late-season collapse. But in case my story is new to you, let me say it once more:the economy is not in good shape and, fiscal cliff or not, it’s about to get worse.

Forbes | Pragmatic Economics
Happy New Year? Not if the President and Congress can Help It
John T. Harvey | Professor of Economics, Texas Christian University

"Fiscal Cliff" Update at WaPo

Link to a story from late today at the WaPo.  Negotiations continue.  Nothing yet.  They convene again tomorrow morning.

Washington's Blog — It’s Not a “Fiscal Cliff” … It’s the Descent Into Lawlessness

Randy Wray and Michael Hudson of UMKC cited.

Washington's Blog
It’s Not a “Fiscal Cliff” … It’s the Descent Into Lawlessness
WashingtonsBlog

Paul Krugman — Must -Read

This is a must-read. The big three are short term domestic securities, long term government securities, and foreign assets. The response to a change in the interest rate by the Fed is chained, and the analysis is in terms of likely effects under different scenarios.

Individual investors can shuffle their portfolios among these three assets; however, asset prices will rise or fall to match supply and demand for each asset. What are these asset prices? Well, there are three prices that might do the job: short-term interest rates, long-term interest rates, and the exchange rate. At any given time, however, one of these is fixed, leaving it up to the other two to do the adjusting. Which two? That depends on the monetary regime, as I’ll now explain.

The United States has independent monetary policy and a floating exchange rate. The Fed uses its independence to set the short-term interest rate, basically at zero these days. So long-term rates and the exchange rate do the adjusting.

Now that Krugman and DeLong are debating it, the bond vigilante issue is on the table. Needless to say — important!
It would be better for distribution if this weren't Christmas Eve, but with the fiscal cliff looming, time is of the essence. This is a message to the president.

The New York Times | The Conscience of a Liberal
Bond Vigilantes and the Power of Three
Paul Krugman | Professor of Economics

One statement taht may need clarification is:

"But that can’t happen in the United States, where the Fed retains control over the money supply and of short-term interest rates."

Here "money supply" seems to mean "monetary base." But the amount of base money is irrelevant when the Fed is paying IOR, as it is now. It is true that the Fed adjusts the available reserves to hit its target rate using open market operations.

Brad DeLong — Department Of "Oh Dear!": Basic Macro Briefing Weblogging

Good one from Brad DeLong debunking the president's false belief in bond vigilantes under the bed. Nice jab at Tim Geithner, too.

Grasping Reality with Both Invisible Hands
Department Of "Oh Dear!": Basic Macro Briefing Weblogging

Brad DeLong | Professor of Economics, UCAL Berkeley
(h/t Mark Thoma at Economist's View)

I would put it rather, "Department of OMG." It's the false religion of Moronism worshipping at the idol of the Bogeyman.

Stephanie Kelton — Forget the 'fiscal cliff'

We don't need across-the-board tax increases or spending cuts. We need policies that will create more jobs.

Los Angeles Times | Opinion
Forget the 'fiscal cliff'
Stephanie Kelton | Associate Professor of Economics, UMKC
(h/t Dan Lynch via FB)

John Harvey — Our Christmas Gift from Washington: Recession and Unemployment

At this very moment, our government is carefully selecting our present (although, strictly speaking, we won’t be receiving it until 2013). They haven’t decided on the size yet, but they know exactly what they’re getting us: recession and unemployment.

The deficit reduction talks, with or without a fiscal cliff, will absolutely lead to a decline in the level of demand for American goods and services. About this there is no controversy whatsoever. Even under the most optimistic of scenarios, wherein the President and Congress agree on some compromise level of deficit reduction, we will see a one to two percentage point reduction in real GDP growth and an increase of around one million unemployed. If we fall off the fiscal cliff, costs will be roughly double those. This is the kind of gift we need to return as soon as possible.

Forbes | Pragmatic Economist
Our Christmas Gift from Washington: Recession and Unemployment
John T. Harvey | Professor of Economics, Texas Christian University

This is about as clear and simple as one can make it. Good work, John.

Steven Rosenfeld — Front Group for Military-Industrial Complex Pushes Hard to Slash Social Programs and Avoid Pentagon Cuts

As the so-called fiscal cliff negotiations drag on in Washington with the media covering Repubican House Speaker John Boehner’slatest temper tantrums, a bipartisancoalition of former government officials with deep ties to the defense industry and Wall Street are ratcheting up the pressure to cut retirement programs while sparing military contractors.

“Fix the Debt – a corporate-backed lobbying group advocating debt reduction with a $60 million budget – has failed to embrace defense spending cuts as a viable deficit reduction option, despite the fact that defense spending makes up over half of discretionary spending,” begins anew report by the Public Accountablity Initiative, a non-profit watchdog group, which focuses on the financial interests of who is behind cutting retirement security programs and other needed safety nets.

“The group’s 'core principles' focus on Social Security, Medicare, and Medicaid reforms and 'pro-growth' tax reform, and fail to even mention defense spending,” PAI’s report continues. “Fix the Debt’s eagerness to point the finger at social safety net spending while virtually ignoring defense spending makes more sense in light of its corporate backing. A review of the group’s corporate ties shows that many Fix the Debt leaders have lucrative connections to companies with billions of dollars in defense contracts.”

It’s often said that Washington insiders love ideas more than people—which is why some ideological obsessions, such as dismantling social safety nets, take precedence over more everyday concerns on Americans’ minds, such as jobs. But lurking below the superficial pronouncements in Washington’s policy wars there's often a profit-making agenda—and that is the case in the fiscal cliff crisis and negotiations, PAI reports, as it follows the money.

AlterNet
Front Group for Military-Industrial Complex Pushes Hard to Slash Social Programs and Avoid Pentagon Cuts
Steven Rosenfeld

Of course, you knew this already.

Zero Hedge — Goldman's Fiscal Flow Chart

Zero Hedge
A Fiscal Flowchart For Dummies: Here Is What Happens Next

Submitted by Tyler Durden

Dan Crawford — Social security cuts offered...why? Irresistible to Obama

There is no crisis with Social Security. Social Security is not going broke. Social Security adds NOTHING to the deficit. Social Security is not welfare. 

Update: Pelosi says she can live with it

Angry Bear
Social security cuts offered...why? Irresistible to Obama.
Dan Crawford

The simple answer is that President Obama is channeling Reagan, just as President Clinton did with his welfare reform "that only a Democrat can do." President Obama wants his legacy to read that he got universal health care passed (by giving it to private insurance companies), just like President Bush got Medicare D passed by giving it to Big Pharma. Now he want to be remembered in his second term as the president that "reformed entitlements."

I said when Obama was running for the nomination against HRC that he was a "snake in the grass." Turned out to be correct.

Obama caves again to the wealthy. Raises taxes on middle class and poor!

WASHINGTON -- President Barack Obama, with his latest fiscal cliff offer, proposes extending the Bush tax cuts for everyone earning less than $400,000 a year, and paying for it by increasing taxes on the middle class and cutting Social Security and Medicare. Obama's offer would allow the payroll tax holiday to expire, meaning middle class workers will see smaller paychecks in 2013. Economists have warned that the recovery is too fragile to risk a broad tax hike on workers. It would also gradually reduce Social Security, pension and Medicare benefits seniors are due to receive, taking a small bite up front, but building up to much larger cuts over time.

He does it again! Raises taxes on the middle class and poor and caves to the wealthy. Boehner and the GOP had NO CARDS and Obama still manages to lose this one! Unreal!!!