Sunday, July 31, 2011

Happiness Economics: A Report

Happiness is, in the end, a much more complicated concept than is income. It is also a more ambitious and laudable policy objective. The fact that it is seriously on the table reflects what a parameter-shifting moment it is in economics and in policy debates more generally. Indeed, at a time when so many of our public and political debates are divided and contentious, exploring new parameters and metrics that provide tools for evaluating the wellbeing of our citizens rather than emphasising the roots of their divide is a welcome change. For those of us studying the topic, this change provides great impetus to get the nascent science right.

This is a good short summary of the state of the field and the principle issues. I suspect that this is going to be a burdgeoning field of research in the future and one in which economists will work cooperatively with other social scientist and social philosophers.

Another Coin Hoard Found in U.K.

21 more silver denarii found at a site in northern U.K. this month. Picture of the find below. Expanded story here.

This is in addition to some other recent much larger finds that I did posts on here and here.

This hoard (in MMT-speak: Savings) was again found buried in the ground in a shallow depth. Here is an excerpt from the article:

The archaeological context suggests that the hoard may well have been deliberately buried, rather than lost, and was probably the savings of an individual who was unable to recover his money. Twenty-one denarii in the late second century represented a substantial sum being roughly one tenth of a ranking auxiliary’s gross annual salary...

Based on the small number of coins (21) I have to think that this was an individuals personal savings, a bit over 1 month's pay. The small number of denarii would not be enough for a payroll of Roman soldiers at a wage of 1 denarius per day. So this person had put away a bit over one months salary.

I recently read some history that in the Roman Empire historians estimate that 1/3 of the population were in the Roman military/govt, 1/3 were 'free', and 1/3 were slaves. Some "advanced" society. You can look at these 21 denarii and perhaps assume that many other soldiers and free persons would have the same savings desires as the person who apparently lost possession of these 21 denarii.

Just as in the operations we witness by the Treasuries of our Western governments today, Roman Treasury/Finance officials in Britannia most certainly did not plan for the additional circulation of denarius to accomodate these savings desires; just spending enough denarii into circulation in Britannia to adequately provision the Roman military and government. So again like our situation today in the U.S., savings desires or "hoarding" led to a general shortage of denarii to be able to pay the Roman poll tax and/or to settle private transactions. Individuals who were not in position to obtain the denarius to pay the poll tax and/or provide for their means of subsistence would quickly be selling themselves into slavery or face conscription or prison labor camps, etc... depraved results. Though of course not exactly the same, one can see many parallels with the results in our current economies in the west.

Although we have made much social progress in 2,000 years, we in the west still have quite a long way to go to first reach a general accurate understanding of how our monetary systems operate, and then harness these systems to deliver the most righteous economy the west has ever experienced.

Economics and Energy

MMT recognizes that the only real constraints involve availability of real resources. But MMT does not say much about this since it is not a matter of economics but other disciplines.

The chief real constraint is energy. Professionals outside of economics are thinking about the economic consequences of energy resources on growth, and therefore on the current credit-based economic system, which presupposes constant growth, as Michael Hudson has demonstrated in his work. The following links question this presumption on physical grounds.

Gail the Actuary is an expert on energy and her work is often posted at the the Oil Drum. She blogs at Our Finite World. Tom Murphy is an associate professor of physics at the University of California, San Diego. His articles were reposted at the Oil Drum.

Prof. Tom Murphy: Galactic-scale energy: Part 1: [Appreciating the genuine limits to indefinite growth]

Saturday, July 30, 2011

Brad DeLong goes negative on US propects

It is becoming increasingly clear, however, that the problem is one not only for the US, but for the rest of the world as well. Since December 7, 1941, the world has in large part been able to rely on global governance by a somewhat-competent hyperpower. That America may be gone for good. If it is, the world needs to develop other institutions for global management – and quickly.
Read the whole post at Project Syndicate: America’s Locust Years by J. Bradford DeLong

CMI: "Great Recession Far Worse Than We Were Previously Told"

The Real Problem

The greatest problems in the report, however, were the massive revisions to past history -- including the very recent past. For both the first quarter of 2011 and the worst quarters of the "Great Recession" those revisions were substantial enough to raise questions about the reliability of any of the recently reported BEA data:

-- Data published as recently as 35 days prior had growth rates slashed by over 80%.

-- The worst quarter of the "Great Recession" was revised downward by over 2%, with the annualized "growth" rate now reported to be a horrific -8.9%. And the "peak" to "trough" decline in real GDP for the "Great Recession" is now recognized to be over 5%, halfway to the clinical definition of a full depression.

We have been concerned for some time about the timeliness of the BEA's data, particularly given how much the nature and dynamics of the economy have changed since Wesley Mitchell initially developed the data collection methodologies in 1937. These past revisions, however, lead us to believe that the problems run far deeper -- as demonstrated by a quarter that is now over 2 years old being just now revised downward by an additional 2%. This begs two simple questions:

-- At what point in time can we trust any of the data contained in these reports?

-- How can any of the current data be used to create meaningful Federal monetary or fiscal decisions?

We wonder what Mr. Bernanke thought when told that 80% of his "relatively slow recovery" during the first quarter had just vaporized ...


Edward Harrison at Credit Writedowns: Disastrous GDP numbers make double dip scare real

Iceland citizens write a new constitution through online collaboration

REYKJAVIK — A group of 25 ordinary citizens on Friday presented to Iceland's parliamentary speaker a new constitution draft, which they compiled with the help of hundreds of others who chipped in online.

The group had been working on the draft since April and posted its work on the Internet, allowing hundreds of other citizens to give their feedback on the project via the committee's website and on social networks such as Facebook.

"The reaction from the public was very important. And many of the members were incredibly active in responding to the comment that came through," Salvor Nordal, the head of the elected committee of citizens from all walks of life, told reporters.

Marxian David Ruccio goes MMT?

In other words, with fiat money, there is not intrinsic incapacity to finance growing fiscal deficits. The kinds of debt-to-GDP ratios that are thrown around in the United States and Europe—40 percent, 60 percent, 100 percent—are just that, numbers. They’re arbitrary numbers.

The issue is not what levels of debt are sustainable but how does the state intervene to support (or not) social expenditures and to determine the nature and level course of private business activity.

h/t Stephen Ewald

Friday, July 29, 2011

Lament for Greece: From a Greek Friend


…And the Final bid is 30 pieces of “Euros”… “Agreed”, shouted the Judas. The gavel came crashing down-- Greece, sold for 30 pieces of “Euros” to the European Union…

When a free nation is birthed into the world, she is endowed with a special mark signifying her arrival - a birthright. This invaluable birth right is known as her national sovereignty, cloaking and shielding her from the nakedness of her former shame of servitude and subjugation. It is the very essence of her freedom; enabling her to stand with dignity and pride before the entire world. She belongs to no one but God and her People.

It is this very sovereignty, which bestows upon a nation the right of self determination. And in so doing, empowers her with the credibility to move about the world stage as a recognized, respected and, above all, equal member of the international community. Remove this lynchpin, toss it, as a bargaining chip, into the hands of another State, and in so doing, all the blood bought rights and privileges of nationhood will vanish. Thus, the sovereign nation, once again, falls back into the pit of servitude, subjugation and shame. The hope-driven struggle toward the light of self determination is doused.

Thursday, July 21, 2011 the Leadership of Greece committed this very crime against their Country. Bargaining away her birthright and, in turn, selling her People for a bag, tied closed with European purse strings, containing a mere 30 pieces of “Euros”.

Such an ancient, noble Land; such a strong, honorable People; if only they had had noble and honorable Leaders.

Thom Hartmann & Neil Howe: Are we in the Fourth Turning?

Joe Firestone: What If a Debt Limit Extension is Voted Down?

What If a Debt Limit Extension is Voted Down?
by Joe Firestone (Reposted)

(Thanks to DailyKos commenter 2laneIA for suggesting this post and the title)

It's only a few days now until August 2nd. Perhaps a compromise on lifting the debt ceiling will be reached before then. Perhaps none will be reached. Perhaps the President will veto a compromise if it doesn't extend the ceiling sufficiently to support deficit spending until after the 2012 elections. If a debt ceiling extension is voted down, or if the President vetos an unacceptably small extension, then what is to be done? I've now run into six primary options the President can select among to avoid default. The six are:

-- Challenging the debt ceiling based on the 14th Amendment Section 4
-- Selective default
-- Proof Platinum Coin Seigniorage (PPCS)
-- Running an overdraft at the Fed
-- The Fed burning its Treasury Bonds
-- The “exploding option” plan

Let's look at them in more detail.

1. The 14th Amendment option

This option is the most well-known one right now, having been discussed on the web at least since last Fall.

The 14th Amendment to the Constitution says in part:

“Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. . . . ”

People, including myself, have claimed that the debt ceiling is in conflict with the 14th Amendment and is therefore unconstitutional, and have called for the President to go ahead and issue more debt and wait for a legal challenge. That challenge may never come, because the House of Representatives alone will lack standing in the Supreme Court. In an article appearing today, at CNN, Jack Balkin offers an argument interweaving legal and political considerations, points out that the President would first have prioritize repayment of debt to conform to the Amendment, which might cause an inability to make Social Security payments fully and on time, creating great political pressure on Congress to pass a clean extension of the debt ceiling.

I'm not sure this analysis is entirely correct, since it may be possible for the Social Security Trustees to go to the Treasury with its Bonds, demanding payment for them so that Social Security payments can be made. Since the bonds are debt, and actually count against the debt ceiling, the President may not be able to hold up the payments. In any event, Professor Balkin continue his argument with:

Assume, however, that even a prolonged government shutdown does not move Congress to act. Eventually paying only interest and vested obligations will prove unsustainable -- first because tax revenues will decrease as the economy sours, and second, because holders of government debt will conclude that a government that cannot act in a crisis is not trustworthy.

If the President reasonably believes that the public debt will be put in question for either reason, Section 4 comes into play once again. His predicament is caused by the combination of statutes that authorize and limit what he can do: He must pay appropriated monies, but he may not print new currency and he may not float new debt. If this combination of contradictory commands would cause him to violate Section 4, then he has a constitutional duty to treat at least one of the laws as unconstitutional as applied to the current circumstances.

This would be like a statute that ordered the president to hire 50 new employees provided that none of them is a woman. The second requirement violates the Constitution, so the president can hire the 50 employees and ignore the discriminatory provision.

Here the president would argue that existing appropriations plus the debt ceiling create an unconstitutional combination of commands. Therefore he chooses to obey the appropriations bill -- which was passed later in time anyway -- and ignores the debt ceiling. He orders the secretary of the Treasury to issue new debt sufficient to pay the government's bills as they come due.

I'm not at all sure that the President will have to wait for a prolonged Government shutdown, to invoke the 14th Amendment: but whether he waits or invokes it on August 3rd, I think Balkin's argument is too narrow in focusing only on the possibility that the President may invoke the 14th against the debt ceiling. Perhaps, for example, as my friend Beowulf suggests (in e-mail corrspondence), he could make "a flanking attack" on the Congressional limitation of $300,000,000 on Treasury printing US Notes? This limitation is older than either the debt ceiling legislation, or the current appropriations bill, and if he did challenge it successfully, then the Treasury would have its unrestricted power to create currency restored, a very powerful hedge against debt ceiling legislation, and an enabler for ceasing to issue debt at all.

2. Selective Default

The second option, is the Treasury declaring a selective default only on Federal Reserve-owned debt instruments in order to wipe these off the books, and create headroom relative to the debt ceiling. This is clearly an extra-legal procedure. The Federal Reserve Board of Governors is a Government agency; but those bonds are owned by the Fed Regional Banks, which in our system, are not Government agencies, but rather privately owned "Federal instrumentalities." Here's wikipedia:

"The Federal Reserve Banks have an intermediate legal status, with some features of private corporations and some features of public federal agencies. The United States has an interest in the Federal Reserve Banks as tax-exempt federally-created instrumentalities whose profits belong to the federal government, but this interest is not proprietary.[74] In Lewis v. United States,[75] the United States Court of Appeals for the Ninth Circuit stated that: "The Reserve Banks are not federal instrumentalities for purposes of the FTCA [the Federal Tort Claims Act], but are independent, privately owned and locally controlled corporations." The opinion went on to say, however, that: "The Reserve Banks have properly been held to be federal instrumentalities for some purposes." Another relevant decision is Scott v. Federal Reserve Bank of Kansas City,[74] in which the distinction is made between Federal Reserve Banks, which are federally-created instrumentalities, and the Board of Governors, which is a federal agency."

Since the Bonds held by the Fed are held by the regional banks, this second option would involve a major hit to the assets of these banks and also an operating loss. It would involve not just questioning, but also denying a debt of the United States, and would therefore violate the 14th Amendment.

3. Proof Platinum Coin Seigniorage

Congress provided the authority, in legislation passed in October 1996, for the US Mint to create platinum bullion or proof platinum coins with arbitrary fiat face value having no relationship to the value of the platinum used in these coins. These coins are legal tender. So, when the Mint deposits them in its Public Enterprise Fund account at the Fed, the Fed must credit that account with the face value of these coins. This difference between the Mint's costs in producing the coins and the credit provided by the Fed is the US Mint's profit. The US code also provides for the Treasury to periodically “sweep” the Mint's account at the Federal Reserve Bank for profits earned from these coins. Coin seigniorage is just the profits from these coins, which are then booked as miscellaneous receipts (revenue) to the Treasury and go into the Treasury General Account (TGA), narrowing the revenue gap between spending and tax revenues. Platinum coins with huge face values, $1, $1.6, $2, $3, $6.2, $15, and $30 Trillion coins have been mentioned, could close the revenue gap entirely, and, if used often enough, technically end deficit spending, while still retaining the gap between tax revenues and spending.

4. Running an Overdraft at the Fed

This option suddenly got some press this week as people begin to cast about for a solution. John Carney at CNBC says that overdrafts are more like “gifts” from the Fed than they are the kind of debt instruments the Fed is prohibited from buying from the Treasury, and that's the gist of his argument. The problem with this argument, also quickly echoed by Felix Salmon is outlined by my friend Marshall Auerback in correspondence this way:

In the past, Treasury had access to both a cash and securities draw authority (hat tip, Cullen Roche of "Pragmatic Capitalism”). Intermittently between 1942 and 1981, Treasury was able to directly sell (and purchase) certain short-term obligations to (and from) the Federal Reserve in exchange for cash. Congress first granted this cash draw authority temporarily in 1942:

1. allowed it to lapse several times, and extended it 22 times until 1979, when it modified some of the terms and added controls.

2. In 1979, Congress also authorized a securities draw authority, which permitted Treasury to borrow securities from the Federal Reserve, sell them, and then repurchase the securities in the open market and return the securities to the Federal Reserve within a specified period.

3. The securities draw authority was never used. After Congress authorized Treasury to earn interest on its Treasury Tax & Loan (TT&L) account balances in 1977,

That Congress allowed them to lapse would imply that it's no longer operative . . .

In short, in 1981, Congress ended the Treasury's drawing authority by allowing it to expire.

5. The Fed “Burning” its Treasury Bonds to Get Them off the Books

Ron Paul suggested this one. If the Fed agreed to the proposal, it would create at lead $1.6 Trillion in headroom between debt subject to the limit, and the debt limit. The proposal hasn't been met with notable enthusiasm. In fact, I don't think the Chairman has even dignified it with a reply. However, the objection to it is similar to the objection to Treasury declaring a default on its Fed-owned debt. The result would be a big whole in the Assets of the Fed Banks owning the debt instruments. They're unlikely to support this proposal.

6. The “Exploding Option”

Jack Balkin presents the “exploding option” idea this way:

The government can also raise money through sales: For example, it could sell the Federal Reserve an option to purchase government property for $2 trillion. The Fed would then credit the proceeds to the government's checking account. Once Congress lifts the debt ceiling, the president could buy back the option for a dollar, or the option could simply expire in 90 days. And there are probably other ways that the Fed could achieve a similar result, by analogy to its actions during the 2008 financial crisis, when it made huge loans and purchases to bail out the financial sector.

As near as I can make out, the idea here is for the Fed to pay for an option on the property, that it would not then exercise by some date certain. When the option expires, the Government, having an increase in the debt ceiling by then, would pay back the Fed, give it a small profit, and keep the property.

Presumably, this could be done indefinitely, if Congress has still failed to raise the debt ceiling by the end of the option period, or the option period could be made long enough that it is very improbable that the debt ceiling would not be raised. The “exploding option” idea is undoubtedly ingenious; but:

-- I wonder whether the option isn't functionally a debt instrument, and also whether
-- the option isn't being “monetized” by the Fed in complete analogy to the monetization of debt instruments that is expressly prohibited by Congress?

Comparison of the Options

From my point of view, selective default and the fed burning its bonds are both far out options. I just don't think the accounting rules governing the Fed would allow it to approve procedures that resulted in huge losses for the Fed regional banks. The Fed would never agree to such alternatives.

The overdraft and “exploding option” alternatives are likely to be much more acceptable to the Fed than options that destroy the financial assets of regional banks. However, both of these options are a bit legally questionable. As I said above, the overdraft procedure appears to have been ended by Congress in 1981, when it had every opportunity to renew the Fed's drawing authority.

Felix Salmon is taken with the Fed allowing overdrafts. He thinks this solution is a realy elegant one because it would allow Treasury to keep on spending until it could arrive at a new debt ceiling. He also thinks that the Fed would have to honor Treasury checks by allowing an overdraft because if it didn't do so, that would “trigger a massive recession” and violate the Fed's full employment mandate.

I find this unconvincing because the Fed has been violating its full employment mandate since passage of the Humphrey-Hawkins during the 1970s. It has always taken its price stabilization mandate much more seriously than its full employment mandate. So, I think that the Fed may not honor Government overdrafts, because Government special drawing authority was ended in 1981.

The “exploding option” alternative is certainly inventive. However, if I understand it correctly, it's a transparent artifice for allowing monetization of the functional equivalent of federal debt instruments. So, I think it's legality is questionable, and that the President should be careful before he resorts to it.

In fact, the first four options being compared all propose procedures of questionable legality. All might turn out to be politically feasible, because the House Republicans may not be able to get standing to challenge the President. Nevertheless, if many representatives feel that the President's solution to the debt ceiling problem is of questionable legality, and they also find themselves unable to get standing in Court, they may well feel justified in pursuing impeachment. They won't get far, because the Senate will never sustain them; but nevertheless another impeachment circus is likely to be very costly for an Administration that wants somehow to improve the jobless rate before the elections of 2012.

This brings us to the Constitutional option. This is a legally fascinating option especially since the President might challenge the debt ceiling or other legislation such as the limits on Treasury printing money, or the legislation withdrawing the Treasury's overdraft authority; It's also a politically attractive option, because it makes the President look strong, relative to the House Republicans. It's also interesting because if he issues a constitutional challenge and goes on issuing debt, it's very doubtful that the House Republicans will have a practical legal route to contest what he's done. On the other hand, as with some of the other options, their very inability to get redress from the law may goad them into attempting to impeach the President, and I suspect that the Administration would want to avoid that outcome, with all its distractions.

Coin seigniorage isn't some crazy or radical idea, even though some who want to be considered Very Serious People (VSP) have had that kind of reaction to the idea. Instead, it is a legal instrument that the President may, depending on how things work out, have to use in a bit more than two weeks to comply with his oath of office. It may be the only way for him to avoid breaching one of the laws which he is supposed to enforce. As such, it has to be taken seriously, and treated with more than just a few dismissive conclusions, accompanied by a lack of explanation.

Many writers on the current debt ceiling crisis have been taking the view that the 14th Amendment constitutional challenge route is the best thing for the President to do if there is no agreement on the debt ceiling. But, a constitutional challenge requires violating the debt ceiling, or some other legislation, claiming that the chosen law is unconstitutional, and relying heavily on the House's inability to have standing to take the President to Court in order to sustain the President's action. The President may get away with this, but it is radical in the sense that it claims the Executive's right to make a unilateral judgment of constitutionality in opposition to clearly written legislation, without getting a by your leave from the Supreme Court. Surely we can all see how dangerously radical this kind of practice is for the rule of law in the United States?

In other posts, I've made the case that the debt ceiling isn't in violation of the 14th Amendment as long as PPCS is an option for the President. Also in an e-mail communication, beowulf, the blogger who wrote the seminal blog on coin seigniorage, offered the following opinion on why a 14th amendment-based challenge will not work, given the existence of PPCS.

. . . No federal judge -- Supreme Court justices included -- will take the extraordinary step of enjoining an Act of Congress if the President who asks them to had an opportunity to sidestep the constitutional issue lawfully but neglected to do so. . . . .

. . . The moral of the story is if the Court thinks there is no alternative to breaching the debt ceiling, it probably would find it unconstitutional (or rather, it would decline to hear the case on Standing grounds, leaving the President's decision to ignore the debt ceiling in place). On the other hand, if the Court thinks the President had a lawful alternative-- like coin seigniorage-- but neglected to use it, they're not going to bail him out.

This argument is compelling to me given the history of the Court. The Court defers to the legislature if it possibly can, and prefers the President to avoid constitutional challenges if he has a means of doing so. In this case, he does, and the means is proof platinum coin seigniorage.

(Cross-posted from

14th Amendment, beowulf, coin seigniorage, congress, Debt Ceiling, debt limit, deficit, deficit spending, MMT, Modern Monetary Theory, national debt, proof platinum coin seigniorage, PPCS, Scott Fullwiler, wigwam

Thursday, July 28, 2011

The meme that will not die!

Platinum coin seigniorage is picking up momentum.

Update: Brad DeLong on the coin seigniorage option:
"That seems to me the only way that he can faithfully execute all the laws. Otherwise, he has to break some--or have the Treasury Secretary violate his fiduciary duty as trustee of various trust funds.

Minting high-denomination platinum coins, by contrast, creates no such problems. And is completely legal".

CNN Video Report on The Coin Option

Video that reports on The Coin Option from CNN:

Plenty of commentary from a Yale Law Professor, and former Treasury Dept. Official from the Bush 41 Administration.  Who both as is typical from what we've seen on this issue, prematurely dismiss this approach via opinion disguised as objective analysis.

Link here to a definitive analysis on this definitive solution.

Salutes to beowulf & Joe Firestone, et. al. for pushing this into the mainstream.  H/T Anon on the video link.

Jack Balkin backs coin seigniorage, exploding options and the 14th Amendment

Knight Professor of Constitutional Law at Yale Law School Jack M. Balkin has an op/ed at CNN analyzing the effect of potenial default, the president's constitutional obligations, and three options for avoiding default, using coin seigniorage or exploding options, or invoking the 14th Amendment.

Congratulations Beowulf and Joe Firestone. This has now broken into the mainstream.

(h/t commentator TomatoBasil)

World Economics Association Progress Report

I previously posted an invitation to join the World Economics Association, which was launched on May 16, 2011. Here is a progress report.

Dear Member of the World Economics Association,
The WEA is now two months old. So I thought I should give you a brief report on how things stand.
Membership is now over 6,000. Donations total nearly £13,000.
The Journals
Seven of the ten co-editorships of the WEA ’s two new journals have been filled. These are as follows.
Economic Thought
John Latsis , UK, Reading Univeristy
Annalisa Rosselli , Italy , Rome La Sapienza
Alejandro Nadal , Mexico , El Colegio de Mexico 

World Economics Journal
Zhu Andong , China , Tsinghua University , Beijing
Jayati Ghosh , India , Jawaharial Nehru University
Norbert Häring , Germany , Handelsblatt
Michael Hudson , USA , University of Missouri at Kansas City

We have chosen and are in the process of purchasing an online journal software system for the WEA ’s three journals. It should be up and running by late August. When it is, you will be notified so that you can submit papers. We will also at that time be looking for volunteers to perform various tasks involved in the production of the journals. Meanwhile the editors of the World Economic Journal have already begun work at putting together the first issue. My WEA work commitments have delayed the publication of issue no. 57 of the real-world economics review, but it should be out soon.
Editorial Boards have been formed for the three journals and are listed here for the WEJ, here for ET, and here for the RWER.
Online Conferences: Volunteers needed
This link to our Guidelines for Conferences explains the anticipated conference setup. The Guidelines are open to amendment. We are currently investigating online conference software. It is likely that we will opt for a system that is a module of our journal software. In any case we need:
- 3 or 4 people to serve on the Conference Organisation Committee as described in the Guidelines,.
- Conference Leaders as also described in the Guidelines. This role especially concerns people who have a topic or set of topics that they would like to make the focus of a conference.
- one or more people with a bit of IT knowledge may also be needed.
Executive Committee
Progress with establishing the World Economics Association reached the point where it needed a top layer of formal structure in addition to its legal status as a Community Interest Company (CIC) under UK law. A formal constitution with procedures for electing officers and Executive Committee members is being prepared, but things are not yet far enough advanced for its adoption and enactment. Therefore we have recruited an interim Executive Committee. Its members are currently as follows.
Juan Carlos Moreno Brid , Mexico , UN Economic Com. for Latin America and the Caribbean
C. P. Chandrasekhar , India , Jawaharlal Nehru University
Ping Chen , China , Peking University and Fudan University
Edward Fullbrook , UK , Real-World Economics Review
James K. Galbraith , USA , University of Texas at Austin
Grazia Ietto-Gillies , Italy / UK , London South Bank University
Steve Keen , Australia , University of Western Sydney
Tony Lawson , UK , Cambridge University
Peter Radford , USA , Radford Free Press
Dani Rodrik , USA , Harvard University
Your ideas for the development of the WEA are welcome.
I and my co-organizers Peter Radford, Norbert Häring , Grazia Ietto-Gillies,Vicki Harris and Valerie Radford, who have worked hard for many months, thank you for your support. We hope that you will continue to spread the word among your colleagues and encourage them to join the World Economics Association. Six thousand members is an excellent beginning.
Edward Fullbrook

Wednesday, July 27, 2011

Michael Hudson exposes Obama

Mr. Obama’s scare tactics to get Democrats to vote for his Republican Wall Street plan

The Wall Street bailout melodrama should be viewed as a dress rehearsal for today’s debt-ceiling non-crisis.

You know that the debt kerfuffle is as melodramatically staged as a World Wrestling Federation exhibition when Mr. Obama makes the blatantly empty threat that if Congress does not “tackle the tough challenges of entitlement and tax reform,” there won’t be money to pay Social Security checks next month. In his debt speech last night (July 25), he threatened that if “we default, we would not have enough money to pay all of our bills – bills that include monthly Social Security checks, veterans’ benefits, and the government contracts we’ve signed with thousands of businesses.”

This is not remotely true. But it has become the scare theme for over a week now, ever since the President used almost the same words in his interview with CBS Evening News anchor Scott Pelley.

Of course the government will have enough money to pay the monthly Social Security checks. The Social Security administration has its own savings – in Treasury bills. I realize that lawyers (such as Mr. Obama and indeed most American presidents) rarely understand economics. But this is a legal issue. Mr. Obama certainly must know that Social Security is solvent, with liquid securities to pay for many decades to come. Yet Mr. Obama has put Social Security at the very top of his hit list!

The most reasonable explanation for his empty threat is that he is trying to panic the elderly into hoping that somehow the budget deal he seems to have up his sleeve can save them. The reality, of course, is that they are being led to economic slaughter. (And not a word of correction reminding the President of financial reality from Rubinomics Treasury Secretary Geithner, neoliberal Fed Chairman Bernanke or anyone else in the Wall Street Democrat administration, formerly known as the Democratic Leadership Council.)

It is a con.

Shock Doctrine-style coup d'etat?

From an email:
"You might view the entire crisis as a Shock Doctrine-style coup d'etat by the rentier class."
I would not say "might" here. This is a solidification of a creeping coup that began some time ago. The ground work was laid in the Nixon administration, the foundation constructed in the Reagan-Bush 43 years, after Carter had begun deregulation, the superstructure begun under Clinton-Rubin, and largely finished under Bush 44, especially with the conservative business-friendly supreme court that came with Alito and Roberts, which was the de facto coup d'état (as I wrote about at Daily Kos at the time as the real issue rather than Roe v. Wade). The Obama administration is simply putting on some finishing touches.

I would not say that this is anything new. It was the case prior to the New Deal, which only came into being due to elite overreach. The New Deal can be viewed as a hiatus rather than a reversal, since the right, dominated by industrial and finance capital, began working immediately to reverse the ND through political allies. It's just taken awhile for them to implement the plan.

I won't go into the blow-by-blow here since I think that everyone here [email addressees] knows what the scenario has been. The point I am making is that this is all a part of a piece. This is clearly a manufactured crisis. There can be no doubt that it is being used to impose political and economic change that polls show the overwhelming majority opposes.

This is not going to change until the US gets the money out of politics and closes the revolving door. Money talks and politicians walk. The media is compromised, first because of ownership, and secondly, because reporter have to tred lightly to maintain access. The system is thoroughly corrupt to the core.

This is nothing new. The US has been a plutocratic oligarchy since the victory of Hamilton, representing Northern capital, over populists, Pennsylvania democrats, and Southern agriculturalists. In this scenario, it is not at all accidental that Hamilton was the first Treasury secretary.

As a matter of strategy, it seems to me to be necessary to show a significant number of people that MMT and allies provide the knowledge necessary for reversing this pernicious trend before overreach leads to GDII. I think this means being more frank in telling it like it is politically in addition to focusing on the economics — although I think that a global depression is very likely already baked in, and the best we can do is provide a plan that can be picked up when the smoke settles after Reagan-Thatcherism has finally run its course. But the last mile is closing fast, so there may yet be time.

Yves Smith on the Real News talks about the debt ceiling and Obama's push for cuts in the safety net

Great interview with Yves Smith, founder of the Naked Capitalism blog. She talks about the debt ceiling crisis and Obama's unabashed push for cuts in the Social Security and the rest of the social safety net.

Unfortunately you have to go through about a minute of Peter Schiff's idiocy before you get to Yves Smith's interview. It starts around 1:09. Do yourself a favor and skip to that point.

Tuesday, July 26, 2011

The myth of U.S. debt

Excellent article by Chris Cook in the Asia Times, which explodes the myth of U.S. debt. Yes, that's right, the MYTH. It's what I've written about here many times.

A very secret agent
By Chris Cook

There is a charade playing out in Washington at the moment in respect of the completely meaningless "debt ceiling" which the US maintains as a relic from the days of the gold standard.

We are told that at the US Treasury's account at the Federal Reserve Bank there will soon be no more taxpayers' dollars, and therefore the Fed will soon be unable to make any more payments or issue any more cheques on behalf of the Treasury. The money has run out.

This is nonsense. It is a myth, and moreover it is a myth that Federal Reserve chairman Ben Bernanke exploded in his recent testimony to a US congressional committee. Read more.

Monday, July 25, 2011

Dr. Housing Bubble — "The worst may still be ahead for housing"

Over 2 million loans are currently in the foreclosure process. To envision 5 million more foreclosures in the next two years isn’t hard to imagine since nearly half of those homes are already in the process and only waiting to be finalized. It should be obvious to most of you that the banking bailouts were merely programs to protect financial institutions from facing reality.

That was it. It was one giant bread and circus spectacle to fool the public into believing that somehow these bailouts were necessary in keeping home values inflated (instead they inflated the pocketbooks of bankers). Now the government is talking about renting out REOs as some kind of solution. We have gone back to square one except we have already spent most of the money on propping up the financial institutions that caused this mess.

People are losing faith in the system especially with the insanity now going on with the debt ceiling. Apparently we have no problem dolling out trillions of dollars to banks so they don’t have to practice normal accounting procedures but when it comes to paying our bills we now have to tighten our fiscal belts? What an odd universe we live in at the moment.

Dr. Housing Bubble has been saying for some time that housing prices are ultimately a multiple of income, and workers' incomes have been stagnant and unable to support inflated housing values. The only way that housing prices were able to advance was lax lending and laxer ethics. This extravagance has now come home to roost. The US is experiencing a classic debt-deflation that still has a considerable distance to run before the market clears.

Now the problem that country faces is dysfunctional politics, ideological rigidity, and economic fantasy. If stimulus is not continued will the US is still in a balance-sheet recession, let alone the deficit cut, the consequences will be swift in coming and fierce in impact as the housing market unwinds on the second leg down.

The government has done all it has in its power to avoid a debt-deflation, yet the US is still tapped on one. Should the government fiscal position retrench, then expect the unexpected. Apparently, practically no one sees this coming.

Sunday, July 24, 2011

Randy Wray on crises, this one and the next

I just happend in an interview that Randy Wray gave for the Mosler Economic Policy Center at Franklin College Switzerland in May. It is one the best short summaries I have seen.

Randy doesn't make as much of the role of fraud as I would have in light of the work of Bill Black in enumerating the list of factors resulting in the crisis. However, Randy is a colleague of Black and has co-authored with him, so I don't think he would disagree that this factor needs to be emphasized, too.

Saturday, July 23, 2011

Make way for plutocracy!

The king of Very Serious Persons(VSP),Tom Friedman, is fed up with the political gridlock. He has embraced a third party movement called Americans Elect:

"Here is how it will work, explains Elliot Ackerman, an Iraq war veteran with a Silver Star, who serves as the chief operating officer of Americans Elect, and whose father, Peter, a successful investor, has been a prime engine behind the group. First, anyone interested in becoming a delegate goes to the Americans Elect Web site and registers. As part of that process, you will be asked to fill in a questionnaire about your political priorities: education, foreign policy, the economy, etc. This enables Americans Elect to put you in contact with others who share your views so you can discuss them and organize together. Then you will be invited to draft a candidate or support one who has already been drafted and to contribute to the list of questions that anyone running on the Americans Elect platform will have to answer on the site".

Sounds great, right? A third party empowered by the internet and driven by citizen choice. What's not to like? How about the fact that Peter Ackerman(see the bold text above) ,a "prime engine" for this new movement, once sat on the board at CATO Institute and was "a project advisor to the Cato Institute’s “Project on Social Security Choice,” an effort to privatize Social Security and turn management of Social Security funds over to Wall Street investment firm managers"(source). Gee, I wonder if any of those Americans Elect web site questions will be biased towards privatization of Social Security? I smell astroturf.

Friday, July 22, 2011

Alternet article about coin seigniorage

Joshua Holland of Alternet has written an article about coin seignorage and the debt ceiling charade.

from the article: "The escape hatch nobody at the Washington Post or the New York Times is talking about is called coin seignorage. It's based on Title 31 of the U.S. code, which authorizes Treasury Secretary Tim Geithner to “mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

Let us hope the idea gains traction. Also, a prayer to the patron saint of lost causes may not hurt!

May the Sacred Heart of Jesus be adored, glorified, loved and preserved now and forever. Sacred Heart of Jesus have mercy on us, Saint Jude worker of Miracles, pray for us, Saint Jude helper and keeper of the hopeless, pray for us,

Thank you Saint Jude

Thursday, July 21, 2011

The definitive solution to the debt crisis

Blogger, "Letsgetitdone," was kind enough to allow me to cross post this excellent piece that he wrote. It is the definitive solution to the debt crisis. He even prepares the speech the president would use to explain it to the public. (Too bad Obama won't use it, however.)

Congress provided the authority, in legislation passed in 1996, for the US Mint to create platinum bullion or proof platinum coins with arbitrary fiat face value having no relationship to the value of the platinum used in these coins. These coins are legal tender. So, when the Mint deposits them in its Public Enterprise Fund account at the Fed, the Fed must credit that account with the face value of these coins. This difference between the Mint's costs in producing the coins and the credit provided by the Fed is the US Mint's profit. The US code also provides for the Treasury to periodically “sweep” the Mint's account at the Federal Reserve Bank for profits earned from these coins. Coin seigniorage is just the profits from these coins, which are then booked as miscellaneous receipts (revenue) to the Treasury and go into the Treasury General Account (TGA), narrowing the revenue gap between spending and tax revenues. Platinum coins with huge face values, $1, $2, and $3 Trillion coins have been mentioned, could close the revenue gap entirely, and, if used often enough, technically end deficit spending, while still retaining the gap between tax revenues and spending.

Coin seigniorage is now being mentioned increasingly on popular blogs as a possible solution to the debt ceiling crisis. It is the only solution currently being suggested that requires no agreement in Congress and also no challenge to the debt ceiling law itself. If Congress fails to increase the debt ceiling by August 2nd, it may even become the constitutional duty of the President to use coin seigniorage to avoid default.

But the proof platinum coin seigniorage alternative comes in more than one flavor. It's actually a class of alternatives. Here are some different con seigniorage proposals.

First, mint a $1.6 Trillion coin and have Treasury use the profits from it to buy all the outstanding debt instruments held by the Fed. This would retire a substantial part of the national debt and immediately create $1.6 T in “headroom” relative to the debt ceiling. This alternative involves the least amount of change in current procedures. The coin, once deposited at the Fed, would remain in a Fed vault, and would not go into circulation. The Government would then go right back to issuing debt in order to meet its debt obligations and spend previous Congressional appropriations. With this alternative it is hard for critics to raise the inflation issue, since the new credits created by the coin are never spent into the economy, but are only used to reduce buy back the debt held by the Fed because that debt counts against the debt ceiling.

One objection made to coin seigniorage proposals is that the high face values of the coins would drive up the market price of platinum. However, the Mint is already scheduled to produce 15,000 platinum coins having relatively small arbitrary face value. There would be no conceivable need for more than enough material for 100 very high face value proof platinum coins. So there really is no supply issue.

Having said that, every time the Mint creates a high value coin for deposit at the Fed, it would have to create a duplicate coin, so that it had the means to swap with the Fed if it ever decided to redeem the coin for currency of equal value. This is not a likely event; but it is possible. So, it would be necessary to create duplicate coins and place them in a vault at the Mint.

A second proposal is to mint a $6.2 T coin to pay back all debt held by the Fed, and all Intra-governmental debt, including that owed to Social Security, Medicare, and a host of other other agencies. That would create $6.2 T in headroom, more than enough to carry us through the 2014 elections. Again, this wouldn't result in any “money” immediately going into circulation, but over time SS and Medicare payments would be adding to bank reserves without any reserves being withdrawn from the system due to debt issuance. Some might think this would be inflationary, because they believe that net reserves added to the private sector are more inflationary than debt instruments added would have been. However, there's evidence that debt instruments provide much higher leverage than added reserves, and, in addition, they lead to greater interest payments than reserves do, even if the Fed decides it wants to pay interest on reserves, which it doesn't always do.

A third proposal for applying coin seigniorage is to mint a coin with face value large enough to cover the $6.2 T intra-governmental and Fed debt repayment, plus all private debt coming to maturity, and all Congressional Appropriations expected to require deficit spending. I'll estimate, roughly, that a $15 T coin is enough for that, including about $4.5 T to close the expected gap between tax revenues and Government spending through the 2014 elections, and the rest for paying down the national debt further. Issuing a coin that large, using the profits from seigniorage, and assuming that Congressional appropriations continue the pattern of the past year or so, that would result in a remaining public debt outstanding of roughly $4.6 T, which would please the bond markets except for the fact that the Us wasn't issuing any more debt instruments.

Again would this coin seigniorage proposal be inflationary? Well, the intra-governmental and Fed debt repayments won't be, for reasons already stated. Also, there's no reason to believe that the repayment of further debt will be, unless one believes, again, that reserves swapped for bonds, and not swapped again for more bonds, is inflationary. But, other than the interest payments which certainly add to private sector assets somewhat, payback of debt instruments is just an asset swap, followed by destruction of securities. There's no addition of net financial assets to the private sector.

How about the profits of $4.5 T set aside for closing the gap between tax revenues and spending? Will that be inflationary? Actually, I don't know if Congress will appropriate a $4.5 T spending/tax revenue gap over three years, but if such a gap is needed, and if it does, then the coin will cover it without new Federal borrowing. And as long as Congress doesn't do the right kind of spending and creates a large enough gap to add sufficiently to private sector assets to support full employment, their appropriations, backed by coin seigniorage won't be inflationary.

If, on the other hand, they do the right kind of spending to bring full employment inside a year, then tax revenues will come back as they did during the Clinton Administration, and then there'll be no need for the profits from the proof platinum coin to be used completely between now and 2014. In fact, if the right jobs creating program is immediately enacted, as much as $3T could be left before the President might want the Mint to strike another proof platinum coin.

So far, I've discussed three alternative coin seigniorage proposals ranging in scale from a minimal proposal to handle the current crisis to one that would provide enough funds to both pay down debt, and support a gap between spending and taxes that might be sufficient to enable full employment. Now here's a fourth, enough to handle Congressional appropriations for a decade.

Why not mint a $30 T coin and then another one in case the Fed gets obstreperous sometime down the road and presents the 30T coin, that was deposited in the Mint PEF account, for redemption?

I favor this fourth alternative above all, because it institutionalizes the idea that there is a distinction between appropriations, the mandate to spend particular amounts on particular goods and services, and the capability to spend the mandated accounts. In a fiat currency system, the capability always exists if the legislature provides for it under the Constitution. But the value of the 30T coin, and the profits derived from it, is that it is a concrete reminder of the Government's continuing ability to buy whatever it needs to meet public purposes. It demonstrates very concretely that the Government cannot run out of money and that the claim that it can is not a valid reason for rejecting spending that is in accordance with the Public purpose.

So, in reading what follows, please keep in mind the distinction between the capability to spend more than government collects in taxes, and the appropriations that mandate such spending. The capability is what's in the public purse, and it is unlimited as long as the Government doesn't constrain itself from creating currency. With coin seigniorage its capability could be and should be publicly demonstrated by minting the $30 T coin, and getting the profits from depositing it at the Fed.

On the other hand, Congressional appropriations, not the size or contents of the purse, but whether the purse strings are open or not, determines what will be spent and what will simply sit in the purse for use at a later time. So there is a very important distinction between the purse and the purse strings. The President can legally use coin seigniorage to fill the purse, but only Congress can open the purse strings through its appropriations.

If the President decided to rise above the debt ceiling controversy, safeguard the social safety net, and do something really, really important from the perspective of history by using $30 T coin seigniorage, then he could explain the deposit of the first $30T coin to the public in a high profile TV address, this way (the second coin just stays at the Mint for safekeeping. Its existence to be kept secret):

My Fellow Americans:

1) Until now we’ve been borrowing the money the Government created back from the private sector, in order to cover our deficit spending, so the national debt has been steadily growing.

2) That’s silly! According to the Constitution, this Government, of the people, by the people, and for the people, is the ultimate source of all US money. So why should we ever borrow US money back and pay interest on it, since we can create it any time by the authority of the Constitution and Congress?

3) Congress has also imposed a debt ceiling, which, as you know, we've now reached, so we can’t borrow back our own money, anyway.

4) So, on my order, and in accordance with legislation passed by Congress in 1996, and with the US Code, the US Mint has issued $30 Trillion in a single platinum coin, and deposited it at the NY Fed. It’s legal tender, so the Fed credited the PEF with about $30 Trillion in USD credits using its unlimited authority from Congress to create US Dollars.

5) This is not inflationary because the Fed will put our coin into its vault, and keep it there permanently out of circulation, and we will use the $30 T in USD credits only to pay back debt and to spend what Congress has already approved, which is only a fraction of these credits and far from the amount needed to cause inflation.

6) My action ends the debt ceiling crisis, because we have no further need to borrow our own money back in the markets, so we don’t need the tea party or other Republicans, or even my fellow Democrats to agree to raise the debt ceiling.

7) Now the Treasury, has plenty of money, much more than we need, in fact, to pay for all appropriations Congress has already approved for 2011, and, again, we won’t have to borrow our own money back.

8) So we will pay all Government debts which will come due in 2011. Treasury securities and all other debts included. We will also pay back all debts held by other agencies of Government and the Federal Reserve. When we do this we will lower the national debt by about $7.5 T, reducing the “debt burden” by about half this year, and creating an actual Social Security trust fund with 2.6 T in cash reserves in it; and again, to do this we don’t have to borrow our own money back, and we will also reduce our interest costs on the outstanding national debt.

9) None of the $30 T in new credits created by our actions is “money” in the economy until the Treasury spends it. For now it is just capability to spend awaiting the appropriations of Congress to mandate deficit spending, should it need to compensate for the reduction in demand, probably close to 10% of GDP right now, caused by your own desire to save (which we want to do our best to facilitate), and your desire to import goods from foreign nations.

10) We have created $30 Trillion in new credits even though we needed only a fraction of that to cover anticipated deficit spending and debt repayment until 2021. The reason for this, is that I wanted to have enough capability created in the Treasury account, so that the national debt could be completely paid off (except for a small amount in very long-term Treasury debt still not mature by 2021), and all projected Federal deficits covered over the next 10 years.

11) Of course we can always make new coins if our projections turn out to be wrong; but I thought it would be best to ensure that all $14.3 T of the “debt burden” can be completely eliminated from our political concerns; and also to provide enough funds in our spending account at the Fed so that it would be very clear to Congress and all newly elected Representatives and Senators, that even though they, according to the Constitution, continue to control the purse strings, the national purse is very, very full, and that we will be able to afford whatever deficit spending for the public purpose, including for full employment and Medicare for All, that Congress, in its wisdom, chooses to appropriate now and before the election of 2012.

Good night, my fellow Americans and Sweet dreams! Rest well knowing that our beloved country won't be defaulting on any of its debts, and that I've prevented this without going over the legal debt ceiling, by providing money for spending mandated appropriations, in compliance with the laws authorizing coin seigniorage, while supporting the Constitution's prohibition against our Government ever defaulting on its debts. I hope that in the future everyone will obey the 14th Amendment's prohibition against questioning the validity of Federal Government debts, and think twice before they indulge themselves in such loose talk. America will always pay its debts in US Dollars according to the terms of the contracts it has concluded, and in line with the pension payments and other obligations that it owes. Neither you nor the rest of the world need ever doubt that again!

Eye opening glimpse of the media and why we never get the truth

Cenk Uygur out at MSNBC and his explanation of why it happened is quite eye opening. Possibly explains why my attempts to get on board at MSNBC went nowhere. They surely knew me and my views and style. Watch video and you'll see what I mean.

Wednesday, July 20, 2011

China tells U.S. to get debt under control

Oh really?! Story here.

If we had government leadership that knew what they were doing, they would simply tell "China" that if they didn't like our Treasury Bonds, they could just stop exporting to us at any time and that would take care of that "problem" for them right away.

Instead we have failed leadership that actually takes heed of these statements from the "country" that runs the largest external deficit with the U.S. and has been building up external debt at a pretty good clip themselves.

Leadership that currently is probably influenced and motivated by these types of statements coming out of China, and is right now in Washington DC negotiating fiscal austerity measures among themselves to see which political party can be seen as the most "fiscally responsible" to among other things appease China.

Tuesday, July 19, 2011

Gang of Six plan sends debt ceiling crisis in new direction

We were close to having a resolution of the debt ceiling crisis with the McConnell-Reid plan, then the Gang of Six unexpectedly showed up and now everything is up in the air once again. The president, as is his habit, is snatching defeat out of the jaws of victory by praising the Gang's plan. There's not too much info on it, but I found this on the Firedoglake website. CNBC is praising the news as a "breakthrough" and "possible deal." (They know nothing.)

Set aside whether or not there will be the required 60 votes in the Senate to pass this (although some Republican senators are saying it will "easily" pass), or enough support in the House, let's just assume it passes.

Here are some of the early details of the plan:

Immediately implement aggressive deficit reduction down payment of $500 bln. (Not sure if all of this happens right away.)

Strictly tighten the government’s budget processes
Impose spending caps that can only be exceeded by a 2/3 majority vote
Restrict the use of emergency designations that circumvent caps

There's a lot more, but it basically looks like a gold standard in sheep's clothing. It's a recipe for economic depression or at best, long-term high unemployment and stagnation.

It's the jobs, stupid. (Not the debt or deficit)

In Washington, talks center around whether and under what conditions lawmakers should raise the nation's debt ceiling. Elsewhere, though, Americans find themselves more preoccupied with the state of the broader economy and, more specifically, jobs.

According to a late-June poll by CBS/New York Times, 53 percent of those surveyed said that the economy or jobs was the most important problem facing America today. Only 7 percent said the budget deficit.

The results reinforce sentiments shared elsewhere, specifically that Americans consider jobs a more immediate priority when compared to deficit reduction. Take another recent poll by Bloomberg that found 42 percent of Americans said they are most worried about job creation. Just 13 percent of respondents said federal deficit.

The focus on deficit reduction was a brilliantly conceived and executed plan by the GOP to distract the president from doing what is necessary to create jobs and get the country out of recession. The president walked right into the trap by trying to triangulate through the appointment of a "bipartisa" deficit commission composed of Very Serious People, most of whom know nothing about macroeconomics and are mistaken about what they think they know as well.

As also Edward Harrison of Credit Writedown's throught-provoking post, Is the deficit ceiling debate a Smoot-Hawley moment?

Ed concludes:
So, if the US defaults, who gets the blame? Recent polls show 71% shun GOP handling of the debt crisis. Default will be blamed on Republicans. No default and a weak economy will be blamed on Obama and the Democrats. Either way, the risk of a serous fall in output from overly large cuts is there. If I had to make parallels, I still say this is Hoover’s time, not Roosevelt’s and certainly not Clinton’s.

Financial Obligations End 1Q 2011

Below is the most recent data from the Fed on household financial obligations. This is somewhat related to some recent posts from Mike and Tom on debt and bank credit.

The data goes back 30 years and seems to correspond/correlate with "bull markets" or periods of strong economic activity and put in an all time (30 yr) high at the top of 2008 just before the GFC. Over this same 30 year period, other reports and analysis have indicated an "upward shift" in income distribution or a 'shift to the top' in incomes. Income disparity has increased and perhaps correspondingly, the average household's ability to service debt obligations has decreased accordingly. Unless incomes are re-established broadly across all income brackets, this de-leveraging may continue and the line on the graph may plummet to all time low levels before we may witness a true bottom in economic activity.

This data has a delay and the most recent data is as of the end of the 1Q. As of the end of 1Q it looks like households continue to de-leverage. Mike has identified that Loans & Leases in Bank Credit has increased but only over the last month or so. Checking the H.8 report in the link indicates that the increase in Bank Credit is mostly under Line Item 19 on Page 2 of the H.8: "Fed Funds and Reverse RPs with non-banks".

If this blip up in Bank Credit is an indication that households are able/willing to dip back into credit, it should eventually show up here in the Household Obligations report.

Monday, July 18, 2011

Coin Seignorage Breaks into Mainstream

The Importance of Coin Seigniorage to the President

I’ll end this post by showing how important it is through an examination of our present situation with respect to the debt ceiling and the potential obligation of the President to use coin seigniorage to cope with it.

1. Congress has appropriated Federal spending for FY 2011 which the Executive is mandated to spend.

2. These appropriations exceed the tax revenue the Government is collecting. This was expected at the time the appropriations were passed. So Congress appropriated deficit spending.

3. Congress has mandated that whenever the Government plans to deficit spend, it must first issue and sell debt instruments in an amount a least equal to the planned deficit spending. In this connection, the Treasury is prohibited from having an overdraft in its TGA at the Federal Reserve Bank.

4. Congress has mandated a debt limit such that the Administration must stop issuing debt when that limit is reached. (The limit was reached in early May). Given the Congressional requirement that deficit spending must be accompanied by debt issuance, the debt limit, in the absence of other countervailing factors puts a stop to deficit spending, until the limit is increased. There is a very important countervailing factor. But it is not recognized or used. So, for the moment, at least, the debt limit has stopped any further deficit spending.

5. The 14th Amendment, section 4, requires that the validity of the “debts” (broadly construed) of the United States never be questioned,and since the President has sworn an oath to uphold the Constitution, he is obligated to do all he can to see to it that these “debts” are paid. In fact, he’s obligated to see to it that these debts aren’t even “questioned.” His suggestion that Social Security and other key payments won’t be made on August 3, isn’t living up to his obligations. Of course, he’s not alone in this, since many law makers have been warning about the likelihood of a default for many months now.

6. If used routinely to close the revenue gap, such coin seigniorage would eventually reduce the national debt to zero, and remove it as an issue in US politics. In addition, the existence of platinum coin seigniorage as an option, removes the tension between the mandated debt ceiling and the 14th Amendment. It is the countervailing factor I mentioned earlier, because it provides a way to spend Congressional appropriations without issuing further debt.

7. The President has sworn to uphold both the Constitution, which prohibits a default, and also the laws of the United States including the mandates just mentioned.

8. These mandates, along with the platinum proof coin seigniorage authority, make using seigniorage, or another option like it that allows the Treasury to create revenue without either taxing or borrowing, the only viable options to: continue spending appropriations without violating the debt limit; fulfill all the other mandates, both legal and constitutional; and still be able to spend the money Congress has appropriated.

9. So, if no action by Congress raising the debt limit is forthcoming, it will be the President’s sworn DUTY AND OBLIGATION to either use platinum coin seigniorage, or some other revenue creating tool legislated by Congress in past years, to make the money necessary to avoid default, since his failure to use an available way of creating revenue for continuing to spend appropriations, which he is mandated to do, would be a violation of his oath of office.

So, coin seigniorage isn’t some crazy idea. Instead, it is a legal instrument that the President may, depending on how things work out,have to use in a bit more than two weeks to comply with his oath of office. It may be the only way for him to avoid breaching one of the laws which he is supposed to enforce. As such, it has to be taken seriously, and treated with more than just a few dismissive conclusions, accompanied by a lack of explanation.
Many writers on the current debt ceiling crisis have been taking the view that the 14th Amendment constitutional challenge route is the best thing for the President to do if there is no agreement on the debt ceiling. In e-mail communication yesterday, beowulf offered the following opinion on why this will not work, given the existence of coin seigniorage.

. . . No federal judge — Supreme Court justices included — will take the extraordinary step of enjoining an Act of Congress if the President who asks them to had an opportunity to sidestep the constitutional issue lawfully but neglected to do so. . . . .

. . . The moral of the story is if the Court thinks there is no alternative to breaching the debt ceiling, it probably would find it unconstitutional (or rather, it would decline to hear the case on Standing grounds, leaving the President’s decision to ignore the debt ceiling in place). On the other hand, if the Court thinks the President had a lawful alternative– like coin seigniorage– but neglected to use it, they’re not going to bail him out.

This argument is compelling to me given the history of the Court. The Court defers to the legislature if it possibly can, and prefers the President to avoid constitutional challenges if he has a means of doing so. In this case, he does, and the means is platinum coin seigniorage.

Good news...lending is picking up!

Total Loans and Leases at commercial banks

Total loans and leases at commercial banks almost positive on the year now. Loans have increased by $64 bln since March. JP Morgan recently reported an expanding loan book.

This could really help the economy in the second half; maybe even save it from the deflationary effects of gov't spending cuts. (Barring any serious external shock, of course).

Euro debt crisis migrating to the core

German and French credit default swaps starting to blow out now.

Germany 5yr sovereign CDS

France 5yr sovereign CDS

Sunday, July 17, 2011

The Neuroscience of the Debt Debate

Eleventh-hour negotiations aren't uncommon in Washington, D.C., but the most recent duel over the debt limit seems especially tense. Unless its debt ceiling is raised from its current $14.3 trillion, or its budget is miraculously balanced, the U.S. will default on its financial obligations on August 2, leading to a credit downgrade, delayed government payments and other serious economic troubles.Debt default is an outcome that's almost unanimously opposed, so the failure of decision-making feels especially frustrating. With such complex political gamesmanship at play, neuroscience and game theory may offer some insight into the stalemate, suggesting that a sense of moral superiority could be disrupting a natural tendency to cooperate.

From an immediate political perspective, the primary cause of the standoff is that Republicans won't raise the debt ceiling without major spending cuts, and they're unwilling to accept any tax increases as part of a deal. Needless to say, this position is a nonstarter for negotiation with the Democrats, many of whom want to increase tax revenues to ease the degree of the draconian cuts. At some point, a mutual decision will be made, leading both parties either to claim at least partial victory or to pass the responsibility to someone else.

Viewed with scientific detachment, whatever compromise eventually emerges will be a remarkable product of the complex neuronal calculus that goes into collectivedecision-making. Each brain in the House and Senate is trying to master an intricate game of strategy. Risk is being measured against payoff, stakes are being continually reassessed, and all of these calculations are updated fluidly as new information becomes available. Moreover, each congressional brain has to run a simulation of other brains to determine whether cooperation is likely—a feat with its own host of computational complexities.

Links — Two short summaries of MMT principles

James Juniper lectures in Economics at the University of Newcastle. He is an Associate of the Centre of Full Employment and Equity, whose director is Bill Mitchell, one the developers of MMT.

Neil Wilson is the publisher of 3Spoken, which provides economic analysis from an MMT perspective. He is a frequent contributor to MMT blogs. Neil is based in the UK.


[Reposted from The Center of the Universe]

Comments welcome, and feel free to repost:


Yes, it’s called the national debt, but US Treasury securities are nothing more than savings accounts at the Federal Reserve Bank.

The Federal debt IS the world’s dollars savings- to the penny!

The US deficit clock is also the world dollar savings clock- to the penny!
And therefore, deficit reduction takes away our savings.



There is NO SUCH THING as a long term Federal deficit problem.

The US Government CAN’T run out of dollars.

US Government spending is NOT dependent on foreign lenders.
The US Government can’t EVER have a funding crisis like Greece-
there is no such thing for ANY issuer of its own currency.

US Government interest rates are under the control of our Federal Reserve Bank, and not market forces.

The risk of too much spending when we get to full employment
is higher prices, and NOT insolvency or a funding crisis.

Therefore, given our sky high unemployment, and depressed economy,
An informed Congress would be in heated debate over whether to increase federal spending, or decrease taxes.

Saturday, July 16, 2011

Financial Cycles

Three members of the Research Department of the International Monetary Fund have posted
at They cite useful data about credit, house price, and equity price and trace correlations among cycles. May not be not Minsky, but it's a step in the right direction.

What are the main lessons and policy implications?

Our study takes a first step in exploring financial cycles and documents two major features of these episodes:
Financial cycles can be long and deep, especially those in housing and equity markets.
Financial cycles accentuate each other and become magnified, especially during coincident cyclical episodes in credit and housing markets.

Our analysis suggests that it is important to account for the interactions among cycles in different financial market segments when designing regulatory policies aimed at ensuring the overall health of the financial system, especially in terms of the design of macroprudential rules. For example, our results indicate that, as cycles in credit and housing markets tend to enhance each other, if both credit and house prices are growing rapidly, then it might be necessary to employ stricter rules and standards for mortgage lending as well as larger countercyclical buffers to moderate fluctuations in banks’ capital positions.

Friday, July 15, 2011

Dr. Housing Bubble — "The impending slow motion doom for housing"

The real estate market is destined for a slow and painful adjustment for the upcoming decade. The demographic shift and also the reality that the current generation will be poorer than the baby boomers will make it difficult to sustain home values even at current levels. Our economy is largely driven by the financial sector and their asset of choice is real estate.

Yet we are running out of options when it comes to keeping real estate values inflated. We’ve tried artificially low interest rates with the Federal Reserve buying up mortgage backed securities with no natural market demand. We’ve tried tax credits. We’ve even tried ignoring homeowners who miss mortgage payments as a method of artificially keeping supply low. Yet home prices continue to move lower in tandem with lower household incomes. Home prices in the U.S. are now back to 2003 levels painfully retracing a decade long boom. But as we are now realizing, no amount of financial engineering can come up with a free lunch....