Tuesday, July 27, 2010

The brilliance of JFK!

Here's why JFK was a true statesman. Read his brilliant comments on debt, deficits and gov't spending from his commencement speech at Yale University in 1962. And they called Reagan the "Great Communicator?"

For the great enemy of truth is very often not the lie--deliberate, contrived and dishonest--but the myth--persistent, persuasive, and unrealistic. Too often we hold fast to the cliches of our forebears. We subject all facts to a prefabricated set of interpretations. We enjoy the comfort of opinion without the discomfort of thought.

Mythology distracts us everywhere--in government as in business, in politics as in economics, in foreign affairs as in domestic affairs. But today I want to particularly consider the myth and reality in our national economy. In recent months many have come to feel, as I do, that the dialog between the parties--between business and government, between the government and the public--is clogged by illusion and platitude and fails to reflect the true realities of contemporary American society.

I speak of these matters here at Yale because of the self-evident truth that a great university is always enlisted against the spread of illusion and on the side of reality. No one has said it more clearly than your President Griswold: "Liberal learning is both a safeguard against false ideas of freedom and a source of true ones." Your role as university men, whatever your calling, will be to increase each new generation's grasp of its duties.

There are three great areas of our domestic affairs in which, today, there is a danger that illusion may prevent effective action. They are, first, the question of the size and the shape of the government's responsibilities; second, the question of public fiscal policy; and third, the matter of confidence, business confidence or public confidence, or simply confidence in America. I want to talk about all three, and I want to talk about them carefully and dispassionately--and I emphasize that I am concerned here not with political debate but with finding ways to separate false problems from real ones.

If a contest in angry argument were forced upon it, no administration could shrink from response, and history does not suggest that American Presidents are totally without resources in an engagement forced upon them because of hostility in one sector of society. But in the wider national interest, we need not partisan wrangling but common concentration on common problems. I come here to this distinguished university to ask you to join in this great task.

Let us take first the question of the size and shape of government. The myth here is that government is big, and bad--and steadily getting bigger and worse. Obviously this myth has some excuse for existence. It is true that in recent history each new administration has spent much more money than its predecessor. Thus President Roosevelt outspent President Hoover, and with allowances for the special case of the Second World War, President Truman outspent President Roosevelt. Just to prove that this was not a partisan matter, President Eisenhower then outspent President Truman by the handsome figure of $182 billion. It is even possible, some think, that this trend will continue.

But does it follow from this that big government is growing relatively bigger? It does not--for the fact is for the last 15 years, the Federal Government--and also the Federal debt--and also the Federal bureaucracy--have grown less rapidly than the economy as a whole. If we leave defense and space expenditures aside, the Federal Government since the Second World War has expanded less than any other major sector of our national life--less than industry, less than commerce, less than agriculture, less than higher education, and very much less than the noise about big government.

The truth about big government is the truth about any other great activity--it is complex. Certainly it is true that size brings dangers- -but it is also true that size can bring benefits. Here at Yale which has contributed so much to our national progress in science and medicine, it may be proper for me to note one great and little noticed expansion of government which has brought strength to our whole society-- the new role of our Federal Government as the major patron of research in science and in medicine. Few people realize that in 1961, in support of all university research in science and medicine, three dollars out of every four came from the Federal Government. I need hardly point out that this has taken place without undue enlargement of Government control--that American scientists remain second to none in their independence and in their individualism.

I am not suggesting that Federal expenditures cannot bring some measure of control. The whole thrust of Federal expenditures in agriculture have been related by purpose and design to control, as a means of dealing with the problems created by our farmers and our growing productivity. Each sector, my point is, of activity must be approached on its own merits and on terms of specific national needs. Generalities in regard to Federal expenditures, therefore, can be misleading--each case, science, urban renewal, education, agriculture, natural resources, each case must be determined on its merits if we are to profit from our unrivaled ability to combine the strength of public and private purpose.

Next, let us turn to the problem of our fiscal policy. Here the myths are legion and the truth hard to find. But let me take as a prime example the problem of the Federal budget. We persist in measuring our Federal fiscal integrity today by the conventional or administrative budget--with results which would be considered absurd in any business firm--in any country of Europe--or in any careful assessment of the reality of our national finances. The administrative budget has sound administrative uses. But for wider purposes it is less helpful. It omits our special trust funds and the effect they have on our economy; it neglects changes in assets and inventories. It cannot tell a loan from a straight expenditure--and worst of all it cannot distinguish between operating expenditures and long term investments.

This budget, in relation to the great problems of Federal fiscal policy which are basic to our economy in 1962, is not simply irrelevant; it can be actively misleading. And yet there is a mythology that measures all of our national soundness or unsoundness on the single simple basis of this same annual administrative budget. If our Federal budget is to serve not the debate but the country, we must and will find ways of clarifying this area of discourse.

Still in the area of fiscal policy, let me say a word about deficits. The myth persists that Federal deficits create inflation and budget surpluses prevent it. Yet sizeable budget surpluses after the war did not prevent inflation, and persistent deficits for the last several years have not upset our basic price stability. Obviously deficits are sometimes dangerous--and so are surpluses. But honest assessment plainly requires a more sophisticated view than the old and automatic cliche that deficits automatically bring inflation.

There are myths also about our public debt. It is widely supposed that this debt is growing at a dangerously rapid rate. In fact, both the debt per person and the debt as a proportion of our national product have declined sharply since the Second World War. In absolute terms the national debt since the end of World War II has increased only 8 percent, while private debt was increasing 305 percent, and the debts of state and local governments--on whom people frequently suggest we should place additional burdens--the debts of state and local governments have increased 378 percent. Moreover, debts public and private, are neither good nor bad, in and of themselves. Borrowing can lead to over-extension and collapse--but it can also lead to expansion and strength. There is no single, simple slogan in this field that we can trust.

Obama needs to read this and memorize it!

Read entire speech here.

To say the stimulus didn't work is revisionism far greater than anything ever committed by a Communist state!

To say the stimulus didn't work is revisionism far greater than anything ever committed by a Communist state!

Here are some facts:

The $787 bln stimulus of last year produced these results:

1. The economy's output increased by $500 bln.
2. Household net worth (wealth) increased by $6 trillion
3. The stock market went up 80%.
4. Home prices stopped falling.
5. 1.6m jobs were created (when looking at both the household and establishment surveys).
6. Vehicle sales increased by 2 million.

All this occurred (and more) with a stimulus that was just 5% of GDP. Imagine if we had gone with the size that China did--15% of GDP.

Here's some more stuff...

Dirty little secrets that the Republicans will never admit to:

1. Deficits under Reagan were the highest in post WWII history. (Until now and we have a real crisis on our hands.)
2. Spending under Reagan was the highest in post WWII history.
3. The size of gov't under Reagan was the highest in post WWII history.
4. Debt service under Reagan was the highest in post WWII history and is still higher than debt service today!

Monday, July 26, 2010

Shrink the financial sector!

We need to have policies that shrink the financial sector down to a fraction of its current size. It adds nothing to the real economy. In fact, it acts like a tax for exactly the reason so exemplified by Mr. Kashkari's statements. There needs to be a revolt against the finance capitalists, speculators and other parasites who are sucking the blood of every hard-working American. They are the real leeches. Not the recipients of Social Security.

Neel Kashkari, TARP Guru, Supports Cutting Entitlements, Citing 'Me-First' Attitude Of Beneficiaries

Here's another scum Wall Street guy, who worked for Goldman Sachs and then Treasury (of course), who wants to cut Social Security, Medicare and Medicaid. This cretin--Mr. TARP, himself--is employed by money manager Pimco now. The whole money management industry should be gutted. WAY too much influence on policy with very little to show for it. Mainly losses. Social Security has paid out steadily for over 70 years yet these financial types, who lose billions, argue that they should be given the money to manage.

Creative Headline: 'New home sales up, but sales remain slow'

Yahoo!/AP has reported on today's housing data using this headline which I believe belies the underlying data. Excerpt:

New home sales rose nearly 24 percent in June from a month earlier to a seasonally adjusted annual sales pace of 330,000, the Commerce Department said Monday. May's number was revised downward to a rate of 267,000, the slowest pace on records dating back to 1963. Sales for April and March were also revised downward.

I track total US households via data from the US Census Dept. at about 110 million; just a 1% growth in US households would result in 1.1 million new housing starts, without counting the replacement of homes destroyed or units that are demolished due to obsolescence. This data implies that US citizens are using co-habitation to a great extent for their housing.

The revised May number of 267,000 is almost unbelievable for a modern, western nation. Based on 110M US households, this represents a 0.25% annual rate of growth. To compare this to the previous low of 1963 identified in the article, US population in 1963 was 190M , using today's population of approximately 300M, and scaling for households per population would indicate that even in 1963, this 267,000 number represented a 0.38% growth in housing per households. This has to be "depression level" housing data when adjusted for population.

We should all be outraged that our policymakers are not demanding better economic outcomes.

Friday, July 23, 2010

Another Obama misstep at OMB

"...Jacob “Jack” Lew may share an affection for market-driven reforms they say were too popular among Clinton’s staff and that he would support cuts to Social Security and Medicare."

Here he goes appointing a Clinton guy again. What's worse, this guy Lew worked with Robert Rubin and was in charge of Citigroup's "alternative asset" division up until 2006. That entire thing imploded. He's also on record as having firmly opposed derivatives regulation.

Terrible choice, terrible!

But this is what I've come to expect from Obama.

Review likely to show smaller deficit

Exactly what I have been saying in this blog for a while. The numbers were tracked on a daily basis in my Fiscal Trend Digest. The shrinking deficit is also why the economy has stalled and why stocks are now pulling back.

Thursday, July 22, 2010

Bernanke: "Cart goes before the horse"

US Federal Reserve head Bernanke was back up on "the Hill" this week in front of Congress. Here is a link to C-SPAN video page when they get the video linked up.

He's starting to take some more heat as we all know, unemployment is stuck at near 10%. Yahoo! has a story here, with an interesting excerpt:

Even with interest rates effectively at zero, Bernanke argued there is more the central bank can do if needed to spur growth.

One possibility would be to lower the rate it pays banks to park excess reserves at the Fed, currently 0.25 percent. Asked by a legislator why the Fed continues to pay banks to keep their money idle despite weak lending conditions, Bernanke said cutting the rate carries risks.

"If rates go to zero there will be no incentive for buying and selling federal funds, overnight money in the banking system and if that market shuts down ... it'll be more difficult to manage short-term interest rates," Bernanke said.

I conclude that Bernanke is effectively saying that The Fed's monetary policy now exists not to support US economic outcomes that achieve full employment with price stability, but to ensure a liquid Fed Funds market!

Ben, where are the rates going to go!?

Tuesday, July 20, 2010

Competing currency being accepted across Mid-Michigan

"They sound like real money and look like real money. But you can't take them to the bank because they're not made at a government mint. They're made at private mints.

"I sell three or four every single day and then I get one or two back a week," said Dave Gillie, owner of Gillies Coney Island Restaurant in Genesee Township.

Gillie also accepts silver, gold, copper and other precious metals to pay for food.

He says, if he wanted to, he could accept marbles..."

This is starting to happen because the Federal Gov't has abrogated its responsibility to coin money in quantities that would help support and sustain the general welfare of its citizens! We may be witnessing the birth of a new monetary system because of ignorance and monumental policy failure!

Read full article here.

Sign up for the Moslereconomics Deficit Terrorist counterinsurgency!

Warren Mosler is forming a "Deficit Terrorist Counterinsurgency" team to fight the Deficit Terrorists. Please go to his blog and sign up. Prizes will be awarded to the best counterinsurgency fighters, which will include and all expense paid trip to St. Croix in the Virgin Islands in November.

Sign up here: http://moslereconomics.com/2010/07/20/we-need-you/

My views on extending unemployment benefits on RT TV

RT is a VERY fair and balanced network!

Monday, July 19, 2010

Economic Crisis Forces Local Governments to Let Asphalt Roads Return to Gravel

"Paved roads, historical emblems of American achievement, are being torn up across rural America and replaced with gravel or other rough surfaces as counties struggle with tight budgets and dwindling state and federal revenue."

Poverty is spreading along with a lower standard of living all because of a destructive and misinformed belief system. This is the real legacy that will be passed along to our children and grandchildren. More spending could have created new roads, bridges, education, transportation systems, employment, income, etc. Instead we impoverish ourselves for no good reason because we are in the grips of a poisonous dogma.

Read full article here.

Thursday, July 15, 2010

Where's the Inflation Part II: Wholesale prices drop 0.5 percent in June

Wholesale prices seemed to have fallen substantially for June.
Excerpt: "Wholesale prices fell for a third consecutive month as another drop in energy costs and the biggest plunge in food costs in eight years banished inflation in June."

Story here.

Remember this chart:
It's hard to see any relationship between these excess reserve balance levels and "inflation". I can't see it. It will soon be two years that these balances have been elevated to these extreme, unprecedented levels.

Tuesday, July 13, 2010

CNBC Reports Jack Lew to be Named OMB Director

CNBC is reporting Jack Lew will be named the new OMB Director. Here is his Wikipedia page.

Apparently he was the OMB Director in the last few years of the Clinton Administration when there were tremendous fiscal surpluses. This is not a good sign, and may be an indication of a swing in Obama Administration policy towards austerity.

UPDATE: Uh-oh!

"As the budget director who left the next administration a $237 billion surplus
when he worked for President Clinton, I have no doubt that Jack has proven
himself equal to this extraordinary task," Obama said.

CNBC's Rick Santelli, total idiot, driving U.S. economic policy?

Look at this raving lunatic scream, "Stop spending, stop spending, stop spending."

Wednesday, July 7, 2010

Republican budget hawks boost Obama’s bipartisan deficit panel

These idiots are going to totally kill the American economy.

Rep. Paul Ryan (Wis.) and Sen. Judd Gregg (N.H.), the senior Republicans on the House and Senate Budget committees have praised a proposal by the fiscal panel’s Democratic co-chairman, Erskine Bowles, to limit government spending and revenue to 21 percent of gross domestic product.

“Get spending down and revenues up. … That would be very close to a stable situation,” Gregg told The Hill.


Cutting spending in this economy will be like dropping a bomb on it. You might as well just do that.

And their idea for "getting revenues up" is tax hikes. Another bomb.

Nowhere is anyone saying anything about growing your way to a lower deficit, like we did after WWII (when the deficit WAS THE LARGEST IN HISTORY!!!). Taxes were cut, but the spending boosted economic output and the deficit came down as a percent of GDP.

Judd Gregg is a total moron. And Erskine Boles is, too!

Where's the Inflation?

In case any of us forgot, below is a graph from the St. Louis Fed's FRED of excess bank reserve levels.

We are quickly approaching the 2 year anniversary of these levels going straight up by over $1T. Two years ago, the prospect of such a phenomenon would have sent shutters through many a monetarist inflationista...where are they now? Does 2 years a trend make? At this point is it safe to say that these balances are meaningless to price stability?

Recently, there have been some rumours that the Fed is considering a "QE2", that is a second round of Credit Easing if the economy stumbles; the Fed will utilize additional new reserve balances to purchase some other class of financial assets (Mike has suggested stocks/equities here, they have previously bought MBS) in an effort to support these asset prices and economic conditions in general.

What will be outrageous will be the stated opposition to this policy. Even in light of the factual outcomes dictated by the graph above, there will be those who will appear in the media to boldly proclaim that the Fed is "printing money" and risking inflation! This we will get from them while they are saying nothing about (or being completely ignorant of) the fact that the European CB is currently buying E20B per month or so of European Govt bonds "on the down low".

Tuesday, July 6, 2010

Awesome NYT Op-Ed by Rob Parenteau!

Few say it better than Rob!

"The reason for all this saving in the United States is that public companies have become obsessed with quarterly earnings. To show short-term profits, they avoid investing in future growth. To develop new products, buy new equipment or expand geographically, an enterprise has to spend money — on marketing research, product design, prototype development, legal expenses associated with patents, lining up contractors and so on."

Read the entire article here.

Debating the stimulus on Fox Biz

Some are catching on to my idea!

Back in June I said that rather than targeting interest rates, which are now at zero, the Fed should target stock prices and buy S&P futures. That would be a very direct transmission mechanism to the real economy as it would boost firm capital and it would have a positive wealth effect for households, which hold about as much stock as real estate. It would also fund underfunded pensions.

Well, some are catching on to my idea! Money manager, James Altucher said this:

The Fed should regularly buy S&P 500 futures before the open, at midday and near the close, when it'll get the most bang for its buck, Altucher says. "They've been spending a $1 trillion [plus] in the mortgage market," he notes. "Now I'm saying, spend 1% in the stock market. It's the same idea. Let's do it where it impacts people the most - where it impacts Main Street."

Gee, he must be reading this blog!

Friday, July 2, 2010

Deficit reduction: An unhealthy obsession

I am amazed that this appeared in the Wall Street Journal. I am starting to see some push back against the Pete Peterson Deficit Terrorism campaign.

"Once upon a time Mr. Peterson preached his gospel of thrift through books and essays; since the early 1990s, however, he has built up two foundations to help fight his war on entitlements, the Concord Coalition and the Peter G. Peterson Foundation, both of them dedicated to his obsessive vision of fiscal austerity."

Read article here.