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

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

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

Happy New Year to everyone from Mike Norman Economics!

Wishing everyone a happy and healthy 2013. From everyone here at MNE!

Cartoon Government Urgently Discusses FIAT CLIFF

commentary by Roger Erickson

Does watching grownups in Congress tie themselves in knots over a FIAT CLIFF remind you of someone?

Like Friar Tuck & Robin Hood (aka, Porky Pig & Daffy Duck) ?

Senate negotiators yet to reach 'fiscal cliff' deal as clock winds down
Vice President Joseph Biden and Sen. Mitch McConnell were locked in urgent talks late Sunday over the “fiscal cliff” after Democrats offered several significant concessions on taxes, including a proposal to raise rates only on earnings over $450,000 a year.

I mean, really! Don't they know the electorate is watching?

You have to wonder what Biden & McConnell were discussing so urgently. Maybe a "buck & a quarter" staff? :(

Maybe they're actually trying to raise the Unenjoyment Rate? And failing, because our government has become a joke?  Daft Lame Duck & the Fiat Cliff?  Have their agent call Warner Bros.  And add a clause about raising the Minimum Rage while they're at it.

Scott Fulwiller — Functional Finance and the Debt Ratio—Part I

This five part series will explore at length (warning!) and in detail (another warning—wonk alert!) the MMT perspective on the debt ratio and fiscal sustainability. While the approach suggests a macroeconomic policy mix and strategies for both fiscal and monetary policies that most neoclassical economists currently believe are unsustainable, ultimately the MMT preference for a significant role for fiscal policy in macroeconomic stabilization is shown to be consistent with traditional neoclassical views on fiscal sustainability.

This first part defines the correct measure of the national debt and then looks at the mathematics of debt service and the debt ratio.

New Economic Perspectives
Functional Finance and the Debt Ratio—Part I
Scott Fulwiller | James A. Leach Chair in Banking and Monetary Economics and an Associate Professor of Economics at Wartburg College

"Fiscal Cliff" Update at WaPo

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

Vince Font — A Look Back at Solar Energy in 2012

2012 was a big year for solar, both domestically and globally, with some unlikely players throwing their hats into the ring and upping the ante on achievable power generating capacity. Here's a wrap-up of some of the year's most impactful events in the solar industry, with a little added perspective from some experts in the field.

Renewable Energy
A Look Back at Solar Energy in 2012
Vince Font
(h/t Climate Progress)

Some good news. It's happening in spite of some bankruptcies and industry consolidation.

“Falling pricing is a double edged sword. It’s great for deployment, it’s great for the consumer, and it’s caused greater amounts of solar installation. On the other hand, falling prices have yielded smaller margins for manufacturers, making it tougher to survive in a very competitive climate.”...

In the United States, 2012 showed evidence that growth in the solar industry occurred at a much faster rate than other industries. According to The Solar Foundation’s National Solar Jobs Census report, U.S. employment in the solar industry grew at a rate of 13.2 percent and the sector added 13,872 jobs in 2012, while Bureau of Labor statistics indicated that solar accounted for 1 out of every 230 jobs created.

This information may seem to fly in the face of the numerous solar company bankruptcies and consolidations that have taken place globally in the last year, but according to Kimbis, that’s par for the course in an emerging industry

“It’s just like any other industry,” Kimbis said. “Competition is extreme. This is something that the industry has known about for awhile; companies have been bracing for global competition for the last several years. It’s a story which has repeated itself through everything from personal computing, to telecom, to the automobile industry.”

Chris Dillow — The Costs Of Hierarchy

Experimental evidence shows that hierarchical organization is more inefficient than generally realized.

Ernst Fehr and colleagues got subjects to play an authority-delegation game, in which subjects were divided into principals and agents, and then asked to work on selecting projects with varying payoffs. They made two important discoveries.

First, subordinates put in less effort than you'd expect rational income maximizers to; depending on the treatment, up to half put in no effort at all, even though this was almost never the income-maximizing option....

Secondly, Fehr and colleagues say:
We find a strong behavioral bias among principals to retain authority against their pecuniary interests and often to the disadvantage of both the principal and the agent.

Stumbling and Mumbling
The Costs Of Hierarchy
Chris Dillow | Investors Chronicle

These findings are actually surprising to some "experts"?

Yves Smith — Banks Deeply Involved in FBI-Coordinated Suppression of “Terrorist” Occupy Wall Street

The peculiar part of this overreaction is it says that banks and government officials see peaceful protests as a threat to their hold on power. It’s odd that they see their position as precarious, unless they have convinced themselves of their vulnerability as an excuse for clamping down even harder on the rest of us.

Naked Capitalism
Banks Deeply Involved in FBI-Coordinated Suppression of “Terrorist” Occupy Wall Street
Yves Smith

The same can be said of the hugely disproportional reaction of the US Establishment to 9/11, which continues into the present, depriving US citizens of civil liberties and constitutionally guaranteed rights in the name of an amorphous and ill-defined "Global War on Terror."

This also brings up the disproportional reaction to possession and trafficking of illegal drugs under the rubric, "War on Drugs" that has resulted in a disproportional swelling of the US prison population and the expansion of a privately owned and operated prison industry at government expense.

This is exactly what the Founding Fathers drafted the US Constitution and Bill of Rights to prevent being repeated in America.

And no, I don't buy the Rothbardian-Libertarian argument that this is all the predictable result of "Keynesianism" and that all we need to do to fix this morass is privatize the monetary system and get government out of the way.

Meanwhile, the TBTF (to big to fail) bankers are now found to be TBTJ (to big to jail).

This is a constitutional crisis rocking the very foundations of the nation and threatening the Great Experiment with failure. The nation needs the leadership of a constitutional lawyer. Oh, wait!

Noam Chomsky on How He Found His Calling — Michael Kasenbacher interviews Noam Chomsky

Noam Chomsky talks about work and leisure, creativity, education, and social institutions. Short and very much tro the point on matters discussed here at MNE recently. In fact, Chomsky's live is an advertisement for adoption of a saner individual, social, cultural, and institutional approach to life. The digital revolution is making this increasingly possible for all.

AlterNet
Noam Chomsky on How He Found His Calling
Michael Kasenbacher interviews Noam Chomsky

Zen and the Art of Moronic Cycle Maintenance

commentary by Roger Erickson

St. Louis Fed ‏@stlouisfed
In our archives, read about the Bretton Woods Agreement, which set up the IMF and World Bank

I've always wondered WHY on Earth the other allies all lobbied the US to return to an inter-gov gold std - while still in the midst of the biggest run-up in world aggregate demand ever witnessed, all fueled by the switch to fully fiat accounting methods.  Why did all those countries who had themselves abandoned the gold std, well before the war, now want to try to repeat the very past they'd abandoned for a very good reason?

And WHY on earth would the USA, of all countries, at the same time allow colonial powers to re-occupy former colonies?

Talk about snatching current AND future defeats from the jaws of total victory!

WHAT on Earth were those people at Bretton Woods thinking? And what on Earth were citizens of "democracies" thinking sending their banking lobbies to try to dictate rules for reverting future world commerce back to what electorates had just fought to be free from? Is that like sending crooks to a democracy convention? 'Bout as dumb as taking a knife to a gunfight? Or Luddites to a conference on the future?

There's only one thing worse than losing a war? Not knowing what to do with victory! This is beginning to sound strangely familiar. Didn't we go through the SAME experience before, once just after 1776, and then again after the Civil War?

Biggest scam of all time? Or just total stupidity? Both? Always? By default?

Fool us 3 times? A foolish electorate and it's options are soon parted - and deserves whatever it gets after repeatedly throwing away total victories.

How many reincarnations does it take to figure out that the cruel joke is on US?

Has even the word "reinCarneyation" been stolen, and sent to the Bank of England?  When do we attain currency-operations self-realization?  Do only Chinese Communists now understand the Zen of Currency Operations?

ps: Wasn't there a book with a similar title?  "Zen and the Art of Moronic Cycle Maintenance?" If it comes in serial installments, who are the authors? Can we just OpenSource the ongoing story, instead of leaving it to too few authors?  The current authors write like a bunch of Luddites.  Ludditezen and the art of Moronic Cycle Maintenance?

Getting Away Koch Free: New Term Enters the Criminology Lexicon

commentary by Roger Erickson

Koch Brothers [ignored] for corrupting hiring practices at FSU and other Colleges

That's been some time back, and nothing's changed. When was the last time we saw that? The 1890s, when any professor still supporting Abe Lincoln's fiat "Greenback Dollar" could be fired from any faculty by - you guessed it - the banking lobby.

Criminals haven't gotten away Koch free with nationwide treason since ... well, since the last time this happened.  It's not a class war until the victims start fighting back.  Until then, it's only voluntary penitance.  Hint to citizens, it's the crooks who are supposed to be in penitentiaries.

What Could YOU Accomplish With 30 Million Available Staff?

commentary by Roger Erickson

UK employment set to reach record high of 30 million by 2015

Damn! With a workforce like that, you could start a country from scratch! They could even completely feed & provision themselves, as a self-sufficient economy. There weren't even that many humans on the whole planet 100K years ago.  Talk about potential.

Since there's no unclaimed geography available, it means some virtual economies can be organized?

And in the USA? Ha! We're still #1! Whoo hoo!!! We have ~82 million people available for work right now.

Nevermind the aristocratic rankings. Holy Freakin' Fiat, FinanceMan! Our country is looking at this entirely the wrong way.

[Can't imagine what they're thinking over there in BoffinCity, UK. Their stiff-upper-class aristocrats are still arguing over whether to take care of their own by honoring sports heros or crooks with a Knighthood (whatever that is). Knighthood is a bone occasionally thrown to the lower class dogs? Rather like letting one of 'em win the lottery once in a while?]

Meanwhile, China is running up it's own fiat tab with itself, with ambitious abandon. They're actually working on employing their available co-citizens? Wotta concept! How come we never thought of that? :(

Paul Krugman — A Double Shot of Misunderstanding

Paul Krugman puts on his white hat and attacks the debt and deficit posse.

The New York Times | The Conscience of a Liberal
A Double Shot of Misunderstanding
Paul Krugman | Professor of Economics, Princeton University

See also Krugman's companion post, On the Economics and Politics of Deficits

Grand Bargain or Great Scam?

Evan Soltas, mentioned therein, amplifies in Follow-Up: Deficit Cyclicality

Miles Kimball — Steven Pinker on How the Free Market Makes Us Uneasy

As far as I can see, this takes Market Pricing out of the realm of human nature, and there seem to be no naturally developing thoughts or emotions tailored to it.

Confessions of a Supply-Side Liberal
Steven Pinker on How the Free Market Makes Us Uneasy
Miles Kimball | Professor of Economics and Survey Research at the University of Michigan

People inherently know that there is a difference between price and value, although most economists presume that they are the same. Price discovery in markets is based on the assumption that price is identical with value. 

If that were true, Consumer Reports would not exist, for example. Markets are not equipped to discover actual value, only perceived value, and as all successful sellers realize, perception can be manipulated. In fact, that is what the field of advertising & marketing is essentially about — cognitive bias.

Joshua Wojnilower — The Role of Money in Mainstream Macro

Based on my initial exposure to advanced macroeconomics, it appears true that “money would be at most a unit of account, but never a store of value.”

Bubbles & Busts
The Role of Money in Mainstream Macro
Joshua Wojnilower

The functions of money are 1) unit of account, 2) medium of exchange, 3) store of value, and 4) method of deferred payment. That is, 1) nominal price and record, 2) settlement of transactions in a payments system, 3) saving vehicle, and 4) credit. Mainstream macro does what?

Les Leopold — The Ten Most Outrageous Economic Calamities of 2012

From blatant robbery to money laundering, here are the biggest scandals of 2012 banking history.

It was another year of Wall Street treachery. Those who took down our economy still have not been held accountable. Instead, Wall Street successfully lured the political establishment into a phony fiscal cliff/austerity debate. So instead of creating programs to put millions of Americans back to work, Washington is debating how much more to take away from the poor and the middleclass. Let's take a closer look at the most disastrous economic events from 2012.

AlterNet
The Ten Most Outrageous Economic Calamities of 2012
Les Leopold, author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009

Debt Ceiling: Quo Vadis?

Report out 2 days ago at WaPo where Geithner is claiming we will hit the ceiling Monday.

Another report out yesterday afternoon at the Daily Caller that depicts the GOP digging in on the 'ceiling' issue and Obama admin taking a previous demand for a large multi-year ceiling increase off the table for now.

Obama is meeting with the four top congressional leaders mid-afternoon Friday to talk about the fiscal cliff, and if he doesn’t insist on his debt ceiling demand, he will remove one of the main obstacles that he added to a bipartisan deal.

So far, the statement from the Obama official is unconfirmed, and comes only two days after Obama’s Treasury secretary suddenly escalated the debt ceiling fight by declaring the government is going to hit its debt ceiling by the end of February. Treasury Secretary Timothy Geithner announced the day after Christmas that the formal debt limit will be reached Dec. 31, but that temporary “extraordinary measures” can keep federal spending on track for two months.

These "temporary extraordinary measures” that "can keep federal spending on track for two months" are otherwise known as FISCAL DRAG around here.

So on the "ceiling", it seems like Treasury is claiming we will hit it on Monday (latest DTS still shows we are about $95B below ceiling), the GOP is digging in, and the Obama administration claims it has a fiscal siege plan where they can operate in a fiscally constrained mode for at least 2 months if necessary.

Seems it is highly likely that we will be operating at ceiling mode for at least some time at the beginning of the year.

This is a dangerous and unstable mode of operation for a country that is supposed to be operating a monetary economy as no net "money" is being issued yet tax payments and fees are still being demanded by the government... scary!  Where is the bottom if this mode of operation is allowed to continue?

At ceiling, the country is left without the ability to issue the additional $NFA which domestic entities require in order to pay taxes and fund domestic and external savings of $NFA; at this point, the math dictates that certain domestic entities have no choice but to liquidate assets or arrange short term loans (or the sad beg/borrow/steal/prostitute, etc... methods) in order to acquire $NFA required to pay taxes and fund the domestic and external $NFA savings of others.

Now tribute collectors also came to be baptized, and they said to him, "Teacher, what should we be doing?"    Now he said to them, "Impose nothing more than has been prescribed to you."  Luke 3:12-13

"Woe to you, blind guides!... Stupid and blind!.... STUPID AND BLIND! "  Mat 23

Stay tuned!  Looks like the disgraced blind morons in charge today stand ready to again crank up the 10 dogs after 8 bones game in earnest after Monday.

William Black: Neo-Liberals are Cruel and Progressives are Morons

Nice post by Prof. William Black at NEP that distills down what he sees as the main differences between neo-liberal economists and mainstream political progressives.

Students are taught that national budgets are really just like household budgets. These dogmas are not simply false, they are self-destructive and cruel. Neo-liberal economics is so bad and has gone downhill at such a rapid rate that it now worships the economic analog to bleeding patients – austerity – as a response to a Great Recession. Millions of people are indoctrinated annually into believing this long-falsified nonsense, and that includes people who consider themselves progressives.

And he "names names", calling out the morons Howard Dean, Andrew Stern, Simpson, Bowles and top-moron Pete Peterson.

Throw the book at 'em Attorney Black!

Dave Lindorff — FBI Ignored Deadly Threat to Occupiers

Commenting on this peculiar lack of action by the FBI and other national anti-terrorist organizations, Partnership for Civil Justice executive director Maya Verheyden-Hilliard says, “The documents we’ve obtained show that the FBI was acting as a private intelligence and protective agency for Wall Street and the banks against people who are engaged in First Amendment-protected free speech activities. Yet here you had a real terrorist threat, which, if the FBI were serious about combating and preventing terrorism it would have acted upon, and it did nothing!”.... 

In reality, the only violence at the hundreds of Occupy movement actions during late 2011 and early 2012 across the US, from New York to Boston to Los Angeles to Seattle, was perpetrated by heavily armed police. Occupy activists were the victims, not the perpetrators of this violence and criminal behavior.

Now it turns out that when some as yet unidentified group or organization — possibly even one affiliated with banking interests for all we know — actually plotted to assassinate Occupy activists and leaders, those same intelligence and national, state and local police agencies, instead of protecting the public, turned their backs and did nothing about it.

Perhaps the very “loose coalition” nature of the Occupy Movement, which has consciously avoided having or following leaders, in the end saved it from attack, as the plotters with their sniper rifles never were able to ascertain who their targets should be.

Counterpunch
FBI Ignored Deadly Threat to Occupiers
Dave Lindorff
(h/t Kevin Fathi via email)

5 Reasons Why Kyle Bass is Wrong About Japan

Wonkblog — Wonk of the year: Grover Norquist

The Washington Post | Wonkblog
Wonk of the year: Grover Norquist
Ezra Klein and team

The ironic thing this that Grover Norquist is right — taxes are higher than they need to be, as evidenced by the long unemployment lines.

But he is correct for the wrong reason.

The debate is framed as if taxes were needed to fund government. Which is not the case for a currency sovereign like the US.

The dual purpose of taxation is 1) to withdraw down consolidated nongovernment aggregate net financial assets in order to control inflation at full employment, when effective demand threatens to exceed the capacity of the economy to meet it, and 2) to discourage socially undesirable behaviors.

The issue then become deciding the size of the government relative to the economy based on public purpose. This is a political decision based on balancing personal responsibility and social welfare.

The issue is providing the appropriate amount of funding to generate effective demand resulting in optimal use of national resources, taking externalities into account.

Izabella Kaminska — The Tech Debate Blasts Off (A Linkfest)

Links, links, links, and some good commentary, too.

Toward a Leisure Society
The Tech Debate Blasts Off (A Linkfest)
Izabella Kaminska

Bill Mitchell — Keynes and the Classics – Part 1

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text by the end of this year. Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.



Chapter 11

11.1 Introduction and Aims

In Chapter 10, we discussed issues relating to labour market measurement. In this Chapter we will focus on theoretical concepts that underpin the measurement of economic activity in the labour market and the broader economy.

The Chapter has five main aims:

• To explain why mass unemployment arises and how it can be resolved.
• To develop the concept of full employment.
•  To consider the relationship between unemployment and inflation – the so-called Phillips Curve.
• To develop a buffer stock framework for macroeconomic management (full employment and price stability) and compare and contrast the use of unemployment and employment as buffer stocks in this context.
• To more fully explore the concept of a Job Guarantee (employment buffer stock) approach to macroeconomic management.

[THIS JUST REPEATS THE INTRODUCTION FROM LAST WEEK TO SET THE CHAPTER MAP OUT - TODAY WE MOVE ON TO DISCUSS THE CONCEPT OF FULL EMPLOYMENT - LIKE ALL BOOK DRAFTING EXERCISES THE ORDER OF ARGUMENT EVOLVES AS ONE SETS ABOUT MAKING IT. IN THIS CASE, WE ALSO HAVE TO WORRY ABOUT PEDAGOGY AND THAT ADDS ANOTHER DIMENSION - SO THINGS MIGHT BE A LITTLE DIFFERENT ONCE THE FINAL DRAFT IS SET]

11.5 Involuntary unemployment

Bill Mitchell — billy blog
Keynes and the Classics – Part 1
Bill Mitchell

Clint Ballinger — Modern Monetary Theory & Full Reserve Banking: Connected by Fiat

The fourth of a series of posts on MMT, ‘The Chicago Plan Revisited’, and related issues...

There are actually two concerns most advocates of Full Reserves have:

1. Solvency – there are few solvency issues with full reserves; not surprisingly a major concern in the 1930s for Simons, Fisher, The Chicago Plan etc.

2. (Endogenous) money creation

The second is much the more important, but the two are often confusingly conflated.
Partly this is because the significance of the fact that the loanable funds model is wrong and there is no money multiplier is not always fully appreciated by Full Reservers.
Banks do not make loans based on reserves or loanable funds but based on demand, perceived profitability, and the capital they hold. The government covers reserve requirements later. Raising reserve requirements can raise costs but does not stop money creation. Even the focus on sight deposits (i.e., PositiveMoney) misses the point – not only do reserve requirements not stop money creation, neither does stopping lending based on sight deposits. Banks loans pull money from the central bank, with the limit being the ratio of capital to risk-weighted assets.

So, unless Full Reservers are only worried about bank solvency, which is doubtful, they are really addressing concerns that have their root in endogenous money.

Clint Ballinger
Modern Monetary Theory & Full Reserve Banking: Connected by Fiat

Household debt down to levels not seen since the 1980s!

(h/t to Matt Franko on this)

It looks like household balance sheets are really starting to become quite healthy. Check out the chart of the Fed’s “Financial Obligations Ratio.” It’s a measure of the total amount of monthly debt service (mortgage, rent, car payments, insurance, credit cards, etc) for an average household, as a percentage of its income. The lower the ratio, the less of a burden monthly debt service is. As you can see, the burden is quite low. In fact, this chart shows and amazing improvement. Total debt service as a percentage of income is now down to the levels not seen since the 1980s. This means if we can get through all this fiscal cliff and debt ceiling bullshit, we really could have a big expansion in the economy and a stock market boom.

Zero Hedge — The Real Crisis: "People Have Lost Trust In The Government And The Market"

The death of the 'cult of equities' was a popular topic this year among both fringe blogs and the best-known institutional asset managers and sell-side strategists. As AP discusses in this excellent article, ordinary Americans - defying decades of investment history - are selling stocks for a fifth year in a row. It's the first time ordinary folks have sold during a sustained bull market since relevant records were first kept during World War II. The answer is both complex and simple but summed up best by a former stock analyst's comment that in order to buy stocks "You have to trust your government. You have to trust other governments. You have to trust Wall Street, and I don't trust any of these."

Zero Hedge
The Real Crisis: "People Have Lost Trust In The Government And The Market"
Tyler Durden

Zero Hedge — The Farce Is Complete: In The Case Of Countrywide, Congress Finds Itself Innocent Of Being "Friends Of Angelo"

Just when you thought the seemingly endless rabbit hole of Wall Street-Washington corruption, cronyism, co-option, crime and kickbacks may have finally come to an end, here comes the House Ethic Committee to pronounce that no ethics breaches were found among House members in its investigation involving the scandal surrounding Countrywide "VIP loans" and the "Friends of Angelo." And in just doing so, the House effectively cleared itself of any wrongdoing and that's it, case closed - move along... Move along.

For those who may have forgotten, it was only back in July that yet another House Committee, that for Oversight and Government Reform, found "Countrywide used its VIP Program to aid its lobbying efforts as well as to strengthen its relationship with taxpayer backed Fannie Mae....

Further, as part of its work, this other Committee found that:

• A log of all loans processed by Countrywide’s VIP unit showed 17,979 loans between January 1996 and June 2008. Borrowers included Members and employees of Congress, the White House, Fannie Mae, Freddie Mac, federal agencies, and other government entities. The log listed hundreds of duplicate loans – the actual number of VIP borrowers was considerably less than 17,979. Lawyers for Bank of America acknowledged that the log may not contain the full roster of VIP borrowers.

• Countrywide established the VIP unit in 1991 to process loans for senior Countrywide officials and their friends. Referred to internally as Branch 850, the unit had 13 full-time employees trained to provide enhanced customer service. According to VIP Loan Unit operating procedures, the suite of benefits available to VIP borrowers included program/underwriting and pricing exceptions.

• [Former Countrywide lobbyist] Jimmie Williams referred Members of Congress and congressional staff to the company’s VIP desk in California to create a favorable impression of the company on Capitol Hill. To better position himself to lobby Members and staff, Williams made sure they received enhanced customer service.

• In approximately 2000, Jimmie Williams began routing Members of Congress and congressional staff who he lobbied to a referral desk in California. Williams understood that the referral desk could handle loans for high-profile clients because the staff there frequently handled loans for celebrities. The referral desk was in fact the VIP unit.

Well, as it turns out, all these findings are now moot because, as the AP, reports, the first Committee, that which allegedly represent Ethics at the House (trying typing that with a straight face), has no power to actually do anything for one simple reason: all the allegations of favored treatment involved loans that were granted so long ago that they fell outside the panel's jurisdiction. I.e., the statute of limitation has expired.

Zero Hedge
The Farce Is Complete: In The Case Of Countrywide, Congress Finds Itself Innocent Of Being "Friends Of Angelo"
Tyler Durden

Graeme Maxton — Occupy is not dead, just resting

Over the last five days, in a sleepy part of Switzerland, we brought together members of the Occupy Movement, the Pirate Party and some of the biggest political NGOs for the first time, ever. We also invited some edgy film makers, alternative-thinking academics, popular online journalists and controversial bloggers to sit in. The odd banker was asked to take part too. And also a radical feminist from Ukraine, famous for grabbing the headlines topless.

All those who came to the meeting had two things in common. There were all in their 20s or 30s. And they were all passionate about wanting to change the world....

We had representatives from more than 40 countries – not only the mainstream countries of America, Germany and Japan but also from Namibia, Iran and Bolivia, countries less used to being given an equal voice when it comes to driving the international agenda. We had green party politicians from Australia, environmental lobbyists from China and animators with something radical to say from Venezuela.

We started by inviting Holocaust survivors, climate change scientists, economists, politicians, writers and religious thinkers to give us their perspectives on the world and its future.

Cassandra's Legacy
Occupy is not dead, just resting
Graeme Maxton

Marshall Auerback — Let’s Cut the Crap About Japan’s ‘Lost Decade’

While economic growth may help to improve standards of living and to meet the needs arising from population growth, it is not clear that there is a direct relationship between improved welfare and economic growth, especially for developed economies. The case of Japan shows us that we need, alternative measures to the Gross Domestic Product, such as the Genuine Progress Indicator, (which incidentally show no significant improvement in U.S. economic welfare since the mid-1970s – so who has really experienced ‘lost decades”?). Rising socio-economic and environmental problems have outweighed the gains from increased final output. It’s time to move away from the simple caricature of Japan and consider whether we need a better way to measure economic progress.

Global Economic Intersection
Let’s Cut the Crap About Japan’s ‘Lost Decade’
Marshall Auerback

Warren Mosler — quick look ahead for the euro zone

In general, I don’t see anything good coming out of the current global political leadership.

Please let me know if I’m missing anything!

The Center of the Universe
quick look ahead for the euro zone
Warren Mosler

Lars Syll — How to re-establish economics as a realist and relevant social science

Lars schools the mainstream on the obvious. Why does this even need to be said.

Lars P. Syll's Blog
How to re-establish economics as a realist and relevant social science
Lars P. Syll | Professor, Malmo University

Bill Mitchell — Fiscal insanity – cutting the deficit only to get a larger one

US centric and social-political in addition to economic. Much of this post is devoted to exposing the Koch brothers.

Bill Mitchell — billy blog
Fiscal insanity – cutting the deficit only to get a larger one
Bill Mitchell

As Swing Districts Dwindle, Can a Divided House Stand? By NATE SILVER

In 1992, there were 103 members of the House of Representatives elected from what might be called swing districts: those in which the margin in the presidential race was within five percentage points of the national result. But based on an analysis of this year’s presidential returns, I estimate that there are only 35 such Congressional districts remaining, barely a third of the total 20 years ago.

Instead, the number of landslide districts — those in which the presidential vote margin deviated by at least 20 percentage points from the national result — has roughly doubled. In 1992, there were 123 such districts (65 of them strongly Democratic and 58 strongly Republican). Today, there are 242 of them (of these, 117 favor Democrats and 125 Republicans).

So why is compromise so hard in the House? Some commentators, especially liberals, attribute it to what they say is the irrationality of Republican members of Congress.

But the answer could be this instead: individual members of Congress are responding fairly rationally to their incentives.Most members of the House now come from hyperpartisan districts where they face essentially no threat of losing their seat to the other party. Instead, primary challenges, especially for Republicans, may be the more serious risk.

The New York Times | Five Thirty Eight
As Swing Districts Dwindle, Can a Divided House Stand?
Nate Silver

Dr Housing Bubble — The echo housing bubble across the United States – Rising home prices in the face of stagnant household incomes. How the Fed is manipulating the monthly payment to keep home prices inflated.

The Case Shiller data is showing a steady increase in home prices across the United States. The headline figures are clear but rarely make the connection that much of this gain is coming on the back of unprecedented Federal Reserveintervention. Data is clear that household income is not making any significant gains. These gains are coming largely from added leverage produced by lower mortgage rates. We’ll go into the details on this but you will see how a tiny drop in mortgage rates can supercharge home prices especially in a market where inventory is tightly managed as the year comes to a close. The Case Shiller is a better measure of home prices because it looks at repeat home sales. Yet even here we are seeing signs of bubble like activity in a handful of markets. An echo housing bubble is a possibility in many markets.

Dr Housing Bubble
The echo housing bubble across the United States – Rising home prices in the face of stagnant household incomes. How the Fed is manipulating the monthly payment to keep home prices inflated.

Ben Dyson,Tony Greenham, Josh Ryan Collins and RichardA.Werner —

Executive Summary

This submission outlines a proposal for banking reform that addresses most of the concerns of the Commission. The proposal has some similarities with 'narrow banking' and 'Limited Purpose Banking' but avoids some of its main drawbacks such as the need for retail deposits to be backed by government bonds), and offers additional advantages over and above narrow banking.

We believe that the banking sector would be more stable and robust under a full reserve banking model, where the transactional function of banking the payments system) is separated from the lending function, than under the current business model, which is open labeled 'fractional reserve banking'.

We also believe this reform would create greater competition within the banking sector, by hugely reducing the barriers to entry in the retail sector. In particular, we would hope to see it made much easier for new, 'Transaction Account'-only banks to enter the market to increase competition in the provision of this core payments system service. We also believe this reform would support the development of a more diverse financial services sector, placing institutions such as credit unions and traditional building societies on a level playing field with banks.

The key feature of fractional reserve banking is that the lending activity of banks effectively creates new money, in the form of new bank deposits. As the Bank of England's 2007 Q3 Quarterly Bulletin states: "When banks make loans, they create additional [bank] deposits for those that have borrowed the money". Put another way, the money supply of the real economy depends entirely on the lending decisions of the banking sector. Mervyn King, the Governor of the Bank of England recently identified these changes in the money supply as being central to the financial crisis:

"At the heart of this crisis was the expansion and subsequent contraction of the balance sheet of the banking system."

In contrast, in a full reserve banking system, the effective money supply is unaffected by the lending activities of banks. An economy running on a foundation of full reserve banking will be less prone to prof cyclical tendencies and less inflationary than an economy based on fractional reserve banking. The view that separation of the activities of lending money and creating money would lead to better stability in the financial sector is also supported by Governor King:

"Eliminating fractional reserve banking explicitly recognises that the pretence that risk free deposits can be supported by risky assets is alchemy. If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not coexist with risky assets."

Our proposal for full reserve banking ensures that risk-free deposits in the payments system 'do not coexist with risky assets'. The proposal to achieve this is simple: we recommend to require banks to keep safe the money which customers wish to keep safe, and invest only the money that customers wish to be invested.

After a few minor changes to the reserve account systems used by the Bank of England, the economy would have a stable money supply, regardless of the economic climate and the willingness of the banks to lend. These changes would also give customers a truly risk-free method of holding money, regardless of the amount held, and remove the need for taxpayer funded deposit insurance.

Our proposal is similar in spirit to and modernizes those put forward by the leading monetary economists of the twentieth century, namely Irving Fisher (1936), Milton Friedman (1960), and James Tobin (1987). It follows Huber and Robertson (published by nef in 2000) in recognizing the digital nature of modern money, and is designed to cause the minimum amount of disruption to the financial system's computer networks and IT infrastructure in the transition period.

This proposal deserves serious consideration. It is easy and inexpensive to implement – certainly much cheaper than a new bailout, and less disruptive to the City than broader regulation, such as a new 'Glass-Steagal'-type Act. It merely makes banks operate in the way people (including many economists) assume they operate already – as true intermediaries between savers and borrowers. By doing so, it removes one of the primary sources of economic instability.

Towards a Twenty First Century Banking and Monetary System: Submission to the Independent Commission on Banking
Ben Dyson,Tony Greenham, Josh Ryan Collins and Richard A.Werner
Joint Submission by the Centre for Banking, Finance and Sustainable Development — University of Southampton, School of Management (Professor!Richard A. Werner, nef (the new economics foundation) (Tony Greenham and Josh Ryan Collins) and Positive Money (Ben Dyson)

Minimum Utility

From the wiki on "Teleology":

The broad spectrum of consequentialist ethics, of which utilitarianism is likely the most well-known, focuses on the end result or consequences, with such maxims as utilitarian philosopher John Stuart Mill’s “the greatest good for the greatest number”, or the maximum utility. Hence they are teleological in nature.

To assert that those who remain out of paradigm are committing some sort of "fraud" to benefit the "1%", to me, is  teleological.

To do so, you are ascribing a “purpose” for their actions of which at the same time you believe they are not aware of.

You can't say that they are unaware of the truth (idiots/morons) and at the same time committing fraud. “Fraud” requires foreknowledge of wrong-doing which they do not ever exhibit.  I'll point out as an example, the J6P in the post Roger put up below, where the guy is going all around making personal contributions to reduce the national "debt"... what a moron!

You CANNOT assert that this poor disgraced fellow is part of some purposeful "conspiracy" to benefit the 1%.

This assertion relies on a sort of “reverse maximum utility”; or perhaps “minimum utility” ie “utility for the 1%".

If this concept of "max utility" is unscientific/false in the one direction then it has to be false in the other direction too.  I don't believe in a teleological “Invisible Hand” as a "force" for "good" or "bad".

Magic thinking is magic thinking.

What we are witnessing, ie this broad-based ignorance, can only be explained scientifically via cognitive science, and we know from cognitive research that people possess differing amounts of mathematical cognitive abilities.

They do not possess the necessary cognitive ability (certain math abilities) to discern truth in this matter; ie they are "stupid".  I'm sorry for them but I have nothing to do with their disgrace, all I can do is point this out to others to the best of my feeble ability. 

My views here I assert are scientifically skeptical.

Japan PM "stimulus" plan: "Hey, BoJ, do more QE"

So Shinzo Abe is back in power, carried to victory on the promise of massive stimulus designed to bring the Japanese economy roarding back to life and end years of deflation.

Speculators jump all over the yen, selling it down to levels not seen in nearly two years.

And what's the big stimulus plan?

More Quantitative Easing. (Can somebody tell Abe and the specs that that hasn't worked for the past 10 years?)

The Bank of Japan should buy more long-dated government bonds and a wider variety of risk asset types, including foreign bonds, to achieve 2 to 3 percent inflation, Koichi Hamada, a special economic adviser to Prime Minister Shinzo Abe, said on Thursday. Read full story here.

If this is their plan, it's crazy. Just more of the same. I am long the yen. Wait 'til they restart the nukes and the country's trade deficit goes back into surplus.

Kate Connolly — Germany ‘exporting’ elderly to foreign retirement homes

Growing numbers of elderly and sick Germans are being sent overseas for long-term care in retirement and rehabilitation centres because of rising costs and falling standards in Germany....

But with increasing numbers of Germans unable to afford the growing costs of retirement homes, and an ageing and shrinking population, the number expected to be sent abroad in the next few years is only likely to rise. Experts describe it as a “time bomb”.
Germany’s chronic care crisis – the care industry suffers from lack of workers and soaring costs – has for years been mitigated by eastern Europeans migrating to Germany in growing numbers to care for the country’s elderly.

But the transfer of old people to eastern Europe is being seen as a new and desperate departure, indicating that even with imported, cheaper workers, the system is unworkable.

The Raw Story
Germany ‘exporting’ elderly to foreign retirement homes
Kate Connolly | The Guardian

"Innovation."

One Man’s Misguided Quest to Reduce the "National Debt"

commentary by Roger Erickson

Read it and Weep For Your Country

This is about enough to make one scream in frustration - and then weep over the misguided injustice.

And Tim Geithner isn't human enough to tell these people that we don't need to get their fiat currency back?

Are there no morals whatsoever left in this country?

What's left? Self-flagellation and penance - but only by the poorest of the poor? Ritual blood-letting?

Me against Jeffrey Gundlach

I gotta confess, I'm long the yen. I know I'm crazy, but I'm long the yen.

You may have seen this: Jeffrey Gundlach is killing it being short yen.

So why am I going against this guy who's one of the world's best known money managers and who's currently, "killing it" being short the yen?

Here's why...

I'll start by saying that besides Gundlach, there are several other "well known" people who are short yen or who have been advising people to short the yen. They are people like Peter Schiff, Axel Merk and Kyle Bass. I'm sorry, but when those three stooges get together on a theme, wild horses can't keep me from betting against them. All I need now is for John Paulson to say he's going short the yen and I will mortgage everything I have to add to this position. By the way, they're all short because of...you guessed it...fears of BoJ "money printing" and insolvency.

And the three stooges have a lot of company. Open interest and short positions by speculators (including small specs, who are considered the dumb money) is just off record levels. Commericals are long.

Since the election the yen has sold off something like 500 basis points against the dollar, or about 6%. That's all been due to aggressive yen shorting.

The new government believes it is "out of money," so an outright fiscal expansion underpinned by printing yen, is out of the question.

Prime minister Abe has been pressuring the BoJ and the BoJ has responded by saying it will "buy more assets." Great...more QE, that is just an asset swap and does nothing to weaken the yen.

The new government is also very close to the corporate sector and it is believed that it will soon give the ok to restart the nuclear reactors, which have been shut down since the quake. If so, this will go far to reverse Japan's current trade deficit, which came about solely as a result of massive oil imports to meet energy needs.

The markets believe this to be true and imminent, as shares in Japanese power companies have been surging.

So...Japan and the BoJ are doing nothing to create net new yen financial assets. The nukes will be restarted soon and the dumb money is shorting the yen like crazy.

If that's not a prescription for a yen rally, a big, big, BIG, one, I don't know what is.

How Deficit Reduction Really Works

commentary by Roger Erickson

RM Mitchell: Here is how deficit reduction really works

Good point. Very blunt. For some, it's possible to go even further, and say:

"The Issuer of Fiat Currency isn't issuing as much liquidity units as the nation needs for ongoing commerce. Therefore, the issuer's advisors want all lower class citizens to give back even more of what little amount of liquidity units they've managed to privately save."

Are they daft? How do we grow commerce by draining liquidity? It's entirely misguided, and reflects personal tactics, not sane national strategy.

Bruce Bartlett — A Conservative Case for the Welfare State

..there are sound reasons why a conservative would support a welfare state. Historically, it has been conservatives like the 19th century chancellor of Germany, Otto von Bismarck, who established the welfare state in Europe. They did so because masses of poor people create social instability and become breeding grounds for radical movements.

In postwar Europe, conservative parties were the principal supporters of welfare-state policies in order to counter efforts by socialists and communists to abolish capitalism altogether. The welfare state was devised to shave off the rough edges of capitalism and make it sustainable. Indeed, the conservative icon Winston Churchill was among the founders of the British welfare state.... 

American conservatives routinely assert that the people of Europe live in virtual destitution because of their swollen welfare states. But according to a commonly accepted index of life satisfaction, many heavily taxed European countries rank well above the United States....

The New York Times | Economix
A Conservative Case for the Welfare State
Bruce Bartlett
(h/t Mark Thoma at Economist's View)

Historically, the conservative bugaboo, "Keynesianism.," was designed as the capitalist backstop against the rising tide of socialism and communism. Get rid of "the welfare state" and reap the whirlwind.

Joshua Wojnilower — Economic History Matters

History is not on the side of neoclassical and New Keynesian economics.

Regardless of one’s side on the matter, the above posts highlight the benefits of learning and studying economic history (or history of economic thought). The current push to eliminate these courses at most colleges and universities is a huge disservice to the future of economics as a social science (which it inherently is). Hopefully the trend can be reversed, in part, so that I may one day have the opportunity to teach courses in this field.

Amen.

Bubbles and Busts
Economic History Matters
Joshua Wojnilower

Jonathan Kaiman — Beijing spends a billion to get China’s music industry rocking

A ‘Music Valley’ is among plans to boost the music industry. But will piracy and tight state control hold back progress?
From the top of a hillside in Pinggu village, an hour’s drive from central Beijing, the future of China’s music industry doesn’t look like much – just a vista of Mao-era farmhouses and parched cabbage fields.

Yet Beijing officials have announced plans to spend more than 10 years and £1.4bn turning the area into the “China Music Valley”, a sprawling compound that will be home to recording studios, instrument makers, music schools, five-star hotels and an arena in the shape of a peach....

China’s central government, concerned that progress in the country’s film, music and drama sectors lag behind its economic development, has designated culture a top national priority and promised billions of pounds in subsidies for the arts. “Culture is the lifeblood of a nation,” President Hu Jintao said at the start of the country’s once-in-a-decade leadership transition in November....

Despite the odds, some artists have forged their own path. Yan Haisong, the lead singer of the veteran Beijing rock band P.K.14, said his band made a decent living performing at festivals and producing records for up-and-coming artists. Yan added that no one in his professional circle had much interest in projects such as the China Music Valley. 

“Combining music and politics is really strange, because the music you get out of it just won’t be any good,” he said. “If they really want to improve this culture, they need to open up a bit.”

The Raw Story
Beijing spends a billion to get China’s music industry rocking
Jonathan Kaiman | The Guardian

Warren Mosler — yen tailspin?

With Fukushima down, Japan needs to import more oil, putting pressure on the yen.

The Center of the Universe
yen tailspin?
Warren Mosler

Peter Cooper — Inviting Visions of a Better World

Peter Cooper invites all to contribute their thoughts on creating a better world. Certainly a worth endeavor as we begin a new year.

Here's an opportunity to join a vision quest based on thinking out of the box.

Heteconomist

Inviting Visions of a Better World
peterc

Andrew Jackson on Positive Money v. the Chicago Plan Revisited and Full Reserve Banking

More on monetary systems. This post compares and contrasts the Chicago Plan Revised full reserve proposal with Positive Money's credit plan, which is based, I believe, on Richard Werner's credit theory.

Clint Balinger
Can Full Reserve Banking actually even stop credit-money creation? The Chicago Plan v. Positive Money
Andrew Jackson | Positive Money

Friedrich A. Hayek — A Free-Market Monetary System

Seems that everyone is discussing monetary systems now. Here is a short presentation of Hayek's view.

Ludwig von Mises Institute
A Free-Market Monetary System
Friedrich A. Hayek

As Hayek admits, there is no legal obstacle in most jurisdictions preventing some enterprising firms from putting his proposal to the test. So far, no takers. What does that say about the idea? 

Well, in fairness to Hayek he don't think that it would actually happen absent getting the govt out of money creation, because bankers can do very well under the present system and have no incentive to innovate. My response would be whether ending govt money creation and going to a private standard that would only emerge later after testing in marketplace could be managed with smooth transition. And even if it could, it there any actual evidence that it would work?

Michel Bauwens — Towards a Global Commons of Truth

Privately funded new organization are funded by advertisers and influenced by them. Publicly funded news organizations are government controlled and subject to political pressure. News organizations funded by the public report to the public without influence.

P2P Foundation
Towards a Global Commons of Truth
Michel Bauwens

Chris Cook — Reality-based Economics

Message from Chris Cook to Gang8 on where he sees the monetary system headed.

Yahoo Groups | Gang8 - devoted to Creditary Economics
Reality-based Economics
cjenscook

Cass R. Sunstein on loss aversion as a cognitive bias

The answer lies in one of the central findings of behavioral economics, which goes by the unlovely name of “loss aversion.” In short, the prospect of a loss focuses the human mind. Even if people don’t care a whole lot about gains, they will work hard, and possibly fight, to avoid comparable losses.
Bloomberg | Opinion
People Hate Losses and That Affects U.S. Budget Talks
Cass R. Sunstein

Loss aversion is recognized as one of the major cognitive biases affecting traders. It's also at the basis of the sunk cost fallacy aka "throwing good money after bad."

Obvious application in the fiscal cliff kerfuffle is middle class loss aversion when faced with benefit cuts. People hate benefit cuts even more than tax increases. If the president doesn't use this to his advantage and accedes to benefit cuts, he will have proved (again) that he is GOP lite. Of course, the Bloomberg piece sees it differently.

Zero Hedge — Demand For Gold "CombiBars" Soaring

Looking for a last minute gift? :)

...Swiss refiner Valcambi which has created a CombiBar, a credit-card sized, 50 gram block of 99.9 gold, which is precut, and which can easily be broken into one gram pieces....

Zero Hedge
Demand For Gold "CombiBars" Soaring
Tyler Durden

"Innovation," I guess.

Ron Paul on the security state

Ron Paul joins the voices being raised against the security state and the use of fear to justify suppression of rights in the name of "safety."

...School shootings, no matter how horrific, do not justify creating an Orwellian surveillance state in America.

Do we really believe government can provide total security? Do we want to involuntarily commit every disaffected, disturbed, or alienated person who fantasizes about violence? Or can we accept that liberty is more important than the illusion of state-provided security? Government cannot create a world without risks, nor would we really wish to live in such a fictional place. Only a totalitarian society would even claim absolute safety as a worthy ideal, because it would require total state control over its citizens’ lives. We shouldn’t settle for substituting one type of violence for another. Government role is to protect liberty, not to pursue unobtainable safety.

Rep. Ron Paul, 14th District of Texas
Government Security is Just Another Kind of Violence
Ron Paul
(h/t Zero Hedge)

Credit where credit it due.

However, there is a jump in logic in the argument:

Furthermore, do we really want to live in a world of police checkpoints, surveillance cameras, metal detectors, X-ray scanners, and warrantless physical searches?  We see this culture in our airports: witness the shabby spectacle of once proud, happy Americans shuffling through long lines while uniformed TSA agents bark orders.  This is the world of government provided "security," a world far too many Americans now seem to accept or even endorse.  School shootings, no matter how horrific, do not justify creating an Orwellian surveillance state in America.

Here's were the reasoning goes off the rails. The rationale for the security state and the surveillance state is combatting terrorism by waging a "global war on terror," not preventing school shootings or domestic crime, even the "war on drugs."

OK, Dr. Paul is objecting to the NRA plan to increase security here, but we already have a massive intrusion of government into civil liberties based on "terrorists." Then we learn that domestic security was monitoring Occupy protests closely to identify potential terrorists. This is the outrage that lovers of liberty need to be raising out voices in unison over.

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

Randy Wray and Michael Hudson of UMKC cited.

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

Robert Waldmann — On DeLong V Krugman

Monetary authorities using tight money to punish elected officials for violating Austerian doctrine strikes me as totally obviously what regularly happens (note your discussion of episodes of alleged expansionary austerity, in any case deficit reduction followed by high growth and speculate as to why Alesina claims that spending cuts work better than tax increases).

Basically the story that we have to do what Greenspan says or he will make US workers suffer makes a whole lot of sense to me.

Angry Bear
On DeLong V Krugman
Robert Waldmann

Stephen Gordon — Imports are a benefit, exports are a cost. Is it clear now?

Warren Mosler links to a post by Stephen Gordon that reiterates the MMT position on terms of trade.

...trade policy would be much more sensible if our governments stopped confusing what the costs and benefits of international trade really are.

The Globe and Mail (Canada)
Imports are a benefit, exports are a cost. Is it clear now?
Stephen Gordon | Professor of Economics at Laval University, Quebec City, and a fellow of the Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE)

Clint Balligner — Modern Monetary Theory & International Trade

Warren Mosler said in reply to Prof. Cesaratto here at MNE.

in a monetary union like the US or EU, for purposes of this analysis the only kind of regional problem you can have is an unemployment problem. In other words, if there happens to be full employment in all regions there's no problem, regardless of what the inter regional trade numbers happen to be. If there is unemployment, it's a problem whether related to trade or not, and subject to the same adjustments regardless of source. 

When some regions are at full employment it can be problematic to simply increase aggregate demand at the macro level to sustain full employment in all regions. Should that be the case the 'answer' becomes 'fiscal transfers' where the central govt. directs public spending to the areas of high unemployment. While this works well to sustain full employment throughout the region, it's unfortunately misunderstood as a transfer of wealth to the areas of high unemployment from the taxpayers of the low unemployment regions. 

In fact, while it's an addition of nominal wealth to the high unemployment regions, the production and exportation of public goods and services to other members of the union is in fact a reduction of real terms of trade for the high unemployment regions doing the production relative to the low unemployment regions doing the consumption, as exports are real costs and imports real benefits.

So while fiscal transfers for the production of public goods and services that serve the entire union are commonly presumed to be benefits to the high unemployment regions and costs to the low unemployment regions, in real terms the reverse is almost always the case. 
October 12, 2012 4:52 PM

But this may be moot at this point. Here is Prof. Cesratto at MNE:

NEW: Things have changed in the meanwhile. Stephanie Kelton has showed great understanding for us, and I believe that her feeling is shared also by other MMTs. We are thinking about having an event together in Rome during her visit to Italy (with Auerbach and Mosler). Even if we shall not be able to organize it, the very fact that we tried is very encouraging.

I have not heard the outcome of this, but the MMT economists are doing their best to iron out differences with other PKE economists over issues like this so that they can present a concerted front against neoclassicism and the "Keynesian" neoclassical synthesis. However, there are at present still some disagreements as far as I can see.

Those who economists or otherwise up on the material can come to their own conclusions.

Clint Balligner
Modern Monetary Theory & International Trade
clintballinger

Paul Krugman — Must -Read

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

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

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

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

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

One statement taht may need clarification is:

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

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

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

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

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

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

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

Paul Krugman — SMACKDOWN

The key thing we need to understand, however, is that the prophets of fiscal disaster, no matter how respectable they may seem, are at this point effectively members of a doomsday cult. They are emotionally and professionally committed to the belief that fiscal crisis lurks just around the corner, and they will hold to their belief no matter how many corners we turn without encountering that crisis.

The New York Times | Opinion
When Prophecy Fails
Paul Krugman | Professor of Economics, Princeton University

Panayotis Economopoulos — On Austerity Impact and the Debt Deflation Process

Panayotis Economopoulos Facebook Page
On Austerity Impact and the Debt Deflation Process
by Panayotis Economopoulos

A fiscal consolidation program that reduces spending and raises taxes has 2 stage effects.

1. A the first stage, its impact is to bring a substantial disposalbe income reduction and an effective demand and total economic activity shortfall and this effect is well analyzed.

2. At the second stage, its impact is to bring a debt deflation process that can result in a contractionary feedback loop with an economic and financial crisis.

a. The spending cuts reduces disposable income and the ability of private economic units to repay their debt and tax obligations.

b. The rise in tax rates increases the tax obligations that become overdue leading to sale and confiscation of assets causing a drop of asset prices.

c. Price deflation from effective demand and total economic activity shortfall raises the value of debt and tax obligations.

d. Disposalbe income reduction causes debt obligations to become overdue leading to sale of assets and a drop of asset prices.

e. The drop of asset prices and the rising value of debt and tax obligations cause wealth value of private portfolios to contract significantly turning private units to insolvency.

f. The combination of these effects raises the value of non-performing debt and financial institutions suffer a drop in capital adequacy causing them to reduce credit extension while their credit rating with the central bank and interbank money markets is downgraded causing them face a liquidity crunch.

g. The result of all these effects is to force abank bail out by the fiscal authority, otherwise banks willfail and cause a bank panic.

h. The state fiscal authority whose austerity measures initiated the process ends with a rising public debt as a percent of GDP that becomes unsustainable for financial markets.

The outcome of all these relations, induces by the initial fiscal consolidation program, is to initiate a series of negative feedback effects, a spiral that leads to an economic implosion and financial crisis!

David Rosen — The Spy State Tightens its Grip

Ever hear of Presidential Policy Directive (PPD) 20? Bet not. The more you’ve never heard of something, the more worried you should be....

The ostensible rationale for the tightening of the digital security grip is to track potential foreign cyber-threats. It is, however, evident that federal agencies are increasingly surveilling the electronic lives of ordinary Americans.

AlterNet | Civil Liberties
The Spy State Tightens its Grip
David Rosen

There was no crime in the USSR and satellites under the thumb of the KGB, Stazi, and other Soviet-style intelligence agencies and "ministries of the interior." Is this where the US is headed justified by the global war on terror?

The internet is a threat to human civilization: Julian Assange’s A Call to Cryptographic Arms

The following is excerpted from Cypherpunks: Freedom and the Future of the Internet, by Julian Assange with Jacob Appelbaum, Andy Müller-Maguhn and Jérémie Zimmermann. OR Books, New York, 2012, Pages 1-7.

INTRODUCTION: A CALL TO CRYPTOGRAPHIC ARMS
– Julian Assange, London, October 2012:

P2P Foundation
The internet is a threat to human civilization: Julian Assange’s A Call to Cryptographic Arms
Posted by Michael Bauwens

Rodger Mitchell — Why MMT frustrates the hell out of me

Well, I guess Mike Norman would agree with you, Rodger. Time to take the gloves off.

But it seem to me that at least some the MMT economists are pretty edgy for academics, and I don't know how much farther Randy Wray, Bill Mitchell, and Stephanie Kelton can go. UMKC profs Bill Black and Michael Hudson are also at the front line. Jamie Galbraith, too. They are prolific enough, and I don't detect a lack of passion for the cause. They are just not getting media coverage yet, although it is growing.

My own feeling is that concerted action by as many economists and financial professionals as possible, from whatever school of thought, is needed, instead of arguing with each other over finer points, while the neoliberal establishment is burning down the house.

It should be possible to some simple framing on the big issues like the damaging effect of deficit hysteria and public debt reduction, while calling for a demand-based solution instead of supply-side.

Monetary Sovereignty
Why MMT frustrates the hell out of me
Rodger Malcolm Mitchell

The Economist — Claudio Borio on the financial cycle

Summary and positive assessment of “The financial cycle and macroeconomics: What have we learnt?”

The Economist | Free Exchange
Claudio Borio on the financial cycle
M.C.K.

James Livingston: Corporations Don't Need Our Savings: Interview

According to historian James Livingston, Say's law aka "Hayek's theorem" has no historical support in the last 80 years. "Keynes's law" — It's the demand, stupid — is corroborated by history. Check off another myth debunked by facts.

PBS Newshour
James Livingston: Corporations Don't Need Our Savings
James Livingston, Professor History at Rutgers, is interviewed by Paul Solmon
(h/t Charles Hayden posted in MMT Deficit Owl USA Committee on FB)

Brad DeLong — Back When I Feared The Bond-Market Vigilantes

Brad DeLong backs off the Bond Vigilantes — sort of.

Grasping Reality with Both Invisible Hands
Back When I Feared The Bond-Market Vigilantes
Brad DeLong | Professor of Economics, UCAL Berkeley

Boston Review: The Next Left — An Interview with Bhaskar Sunkara Jake Blumgart

Interesting, but makes me think that we need an Abby Hoffman (remember Revolution for the Hell of It?) for this generation. This is getting just to serious.

Boston Review
The Next Left — An Interview with Bhaskar Sunkara
Jake Blumgart
(h/t Kevin Fathi via email)

beowulf — Fighting the Bond Vigilantes with Security Theater

The ever-resourceful beowulf comes up with another gem.It's very insightful and also quite funny sardonically.

Monetary Realism

Fighting the Bond Vigilantes with Security Theater
beowulf

David Ronfeldt on Tribes, Institutions, Markets, Networks

TIMN (Tribes, Institutions, Markets, Networks) in relation to P2P (peer to peer approach to the commons). Thoughts on emergent society.

Link to David Ronfeldt's paper, "Tribes, Institutions, Markets, Networks: A Framework about Social Evolution" (Rand Corp, 1996). Free download for personal use.

P2P
Is p2p/commons theory to economistic?
Guest post by David Ronfeldt

Here is a list of David Ronfeldt's publications at Rand Corp.

See also:

Global Guerillas
Societal Evolution And Ronfeldt's TIMN
John Robb | former USAF pilot in special operations and author of Brave New War

Fabius Maximus — News from the front lines of the battle to create a New America

Summary: One of the biggest stories of our time is the evolution of the America-that-once-was into The New America. It’s so slow to be easily missed, especially since it’s a melody the news media cannot hear. And those they look to for advice, the courtiers of the Versailles-on-the-Potomac, will not hear it. Here are the some of the latest reports on this grand theme. These were all reported on our twitter feed, @FabiusMaximus01. Subscribe to give yourself a front seat on this battle (it will become a battle if we decide to fight back).

News from the front lines of the battle to create a New America.
Fabius Maximus

Gunnar Tomasson — Mainstream monetary economics and a Fool's Errand

Interesting message to gang8 from Gunnar Tomasson, Mainstream monetary economics and a Fool's Errand, on Claudio Borio's recent BIS paper.

In correspondence with Samuelson, beginning in 1977, I made the point that it was LOGICALLY impossible to integrate what Tobin referred to as the "income" and "asset" sides of the economy.

Samuelson did not challenge the point, noting only that he was "confident" that "any who were expert [in such matters] would not agree that [I] had isolated a contradiction in [his] Foundations."

Later, when I put the very same point to Tobin, he did NOT address its merits but advised that he had "now" - after a quarter century of doing otherwise - come to "like the stock-flow-stock" approach to the subject matter.

That is to say, he had given up on PROVING what Samuelson had ASSUMED/HYPOTHESIZED.

Tobin did not explain WHY he had given up on his long-time quest, but referred me to his Nobel lecture delivered in 1981.

As noted by Claudio Borio, the models of mainstream economists do NOT include money - and there is a very good, but unspoken, reason why that is so:

INCOME FLOWS, measured in money, cannot in principle be placed in a unitary conceptual framework/model with ASSETS, measured in money.

Economists who seek to graft money onto their macroeconomic models are attempting the impossible - both Samuelson and Tobin KNEW that there was a problem with that.

One assumed the problem away - the other tackled it valiantly for a quarter century but changed tack without ever acknowledging (to the best of my knowledge) that it was a fool's errand.

There is also a link at the bottom to an interesting post in The Economist.

Michael Husdon announces new book: Finance Capitalism and its Discontents

NEW BOOK: This collection contains the most important interviews and speeches that Professor Michael Hudson, Distinguished Professor of Economics at the University of Missouri (Kansas City), and president of the Institute for the Study of Long-term Economic Trends (ISLET) has given over the past decade (2003-2012). They span the political spectrum from COUNTERPUNCH.COM and KPFK radio’s GUNS AND BUTTER to iTULIP.COM and SANKT GEORGE in Berlin. It also includes his now-famous Rlmini, Italy, speeches that were given at a packed sports arena in early 2012 on the topic of how finance capitalism is pushing the world, starting with Europe, into austerity and neo-feudalism.

Michael Hudson
Finance Capitalism and its Discontents

Meet Kalle Lasn, the man that launched Occupy Wall Street

One of Mr. Lasn's favorite words is "meme," as in: "Adbusters floated the meme of occupying the iconic heart of global capitalism." The biologist Richard Dawkins coined the term: a meme is a unit of cultural information spread among people like a gene. Spreading radically subversive memes is Mr. Lasn's avowed mission.

He has written a new Adbusters book, "Meme Wars: The Creative Destruction of Neoclassical Economics" (Seven Stories Press). It is a lavishly illustrated collection, with photographs, drawings and essays that exhort university students to become "meme warriors" and revolutionize the field of economics. Like the magazine, the book elaborates on an old theme: his belief that core economic values must shift from profit-making and expansion of the gross domestic product toward improvement of human health and protection of the planet.

Accomplishing that requires overturning economic orthodoxy and capitalism as we know it, he says. "We have to do this," he says. "With climate change, and the exhaustion of the planet's resources. I believe the alternative is apocalypse."

The New York Times | Business Day
Adbusters' War Against Too Much of Everything
Jeff Sommer
(h/t Kevin Fathi via email)

Partnership for Civil Justice Fund — FBI Documents Reveal Secret Nationwide Occupy Monitoring

FBI documents just obtained by the Partnership for Civil Justice Fund (PCJF) pursuant to the PCJF’s Freedom of Information Act demands reveal that from its inception, the FBI treated the Occupy movement as a potential criminal and terrorist threat even though the agency acknowledges in documents that organizers explicitly called for peaceful protest and did “not condone the use of violence” at occupy protests.

The PCJF has obtained heavily redacted documents showing that FBI offices and agents around the country were in high gear conducting surveillance against the movement even as early as August 2011, a month prior to the establishment of the OWS encampment in Zuccotti Park and other Occupy actions around the country.

“This production, which we believe is just the tip of the iceberg, is a window into the nationwide scope of the FBI’s surveillance, monitoring, and reporting on peaceful protestors organizing with the Occupy movement,” stated Mara Verheyden-Hilliard, Executive Director of the Partnership for Civil Justice Fund (PCJF). “These documents show that the FBI and the Department of Homeland Security are treating protests against the corporate and banking structure of America as potential criminal and terrorist activity. These documents also show these federal agencies functioning as a de facto intelligence arm of Wall Street and Corporate America.”

Partnership for Civil Justice Fund
FBI Documents Reveal Secret Nationwide Occupy Monitoring
Reported in The Occupy Wall Street Press, December 22, 2012
by Alyssa

Washington's Blog — The Lie that Prosecuting Bank Fraud Will Destabilize the Economy Is What Is REALLY Destroying the Economy

Good summary linking to principal critics like Joe Stiglitz, Jamie Galbraith, George Akerlof, Robert Shiller, and Bill Black.

What is often not mentioned and passed over in silence is that a double standard of justice, one for the privileged and another for "the little people" lowers the moral tone of the society and results in increased disregard for law and authority as being illegitimate. This is destabilizing for society.

Washington's Blog
The Lie that Prosecuting Bank Fraud Will Destabilize the Economy Is What Is REALLY Destroying the Economy

Rationality and Ideology

Entering the economic debate as a philosopher, what appears obvious to me is the erroneous presumption (hidden assumption) that this appraoch to rationality entails. The assumption that there is a representative (universal) rational agent further assumes that there is only one universe of discourse operative and that all share the same worldview (in Wittgenstein's sense) that it describes and delimits through its norms. This worldview is a logical construct of "reality."

That is patently not the case as wide ideological disagreement shows. People, including economists who are supposedly "scientists," disagree not only over norms but also what the facts may be, because "facts" don't exist independently as "things" but rather are structured in terms of the manner of approach. Difference in worldview result in different ways of structuring facts in that the difference of worldviews are observable in terms of different rules and their application, for instance, criteria.

Although I think this is the beginning of the matter, I don't think that this is the end of the matter, in that there are a lot of other issues with "rationality," too. But this is one that I seldom see even brought up, even though it should be obvious that economics can be viewed as a struggle among competing ideologies and the worldviews they entail. If this were not the case, then a "scientific" resolution would be possible and there would be a Kuhnian normal paradigm in economics. But that is not the case as far as I can see as an observer.

Orthodox attempts to sustain the claim that it's paradigm is normal and everything else is "heterodox," but I don't see that case being made successfully at all, especially when heterodox economists predicted the crisis and orthodox economists not only did not but claim that it is not possible, failing to add, in the "normal' paradigm. That should call the "normal" paradigm into question, but they will not admit that. This is an indication of adherence to ideological norms over feedback for experience.

Note: I posted this a comment at Lars Syll's blog here, but it stands alone, too.

Lars responds:

I can’t but agree, Tom. Neoclassical economics has been tremendously successful in usurping words like “rational” and “effective”, loaded them with very special meanings and relying on people not wanting to be considered as “irrational” or “inefifcient” thinking the economics-meaning of the terms are he same as the common sense meaning. Amartya Sen has done a tremendous job on this.

Yes, a further criticism is that the economics debate in general presupposes capitalism and the assumptions of capitalism about what is "natural." This is taken as self-evident, other than in Marxism, Marxian economics, PROUT, and other non-capitalistic or post-capitalistic schools.

Interestingly, "Christian Economics" is a label that is also used by Religious-Right Libertarians. See Gary North, An Introduction to Christian Economics

Paul Krugman — Guess Who Still Believes in Invisible Vigilantes

Is Barack Obama a moron?

The New York Times | The Conscience of a Liberal
Guess Who Still Believes in Invisible Vigilantes
Paul Krugman | Professor of Economics, Princeton University

Unlearning Economics — Are Libertarians Just Lazy Marxists?

One of the features libertarianism (propertarianism) shares with neoclassical economics is that it tends to take the existing economic system as a given, and proceeds to analyse from there. The result is that much of what follows could be labelled as question begging: incidence of market failure do not merely beg the question ‘how can we fix this?’ but also ‘why are there so many of these?’ Questions over ‘human nature’ become questions of ‘how humans behave under capitalism.’ 

Neoclassicism’s failure to address any questions about capitalism as a whole is a major flaw, and libertarianism – sharing, as it does, many intellectual similarities with neoclassicism – carries over this flaw. The result is that libertarian analysis, even when cogent, fails to ask truly difficult questions.

Unlearning Economics — Musings on the Current State of Economics
Are Libertarians Just Lazy Marxists?

We've hashed and rehashed many of these arguments here in the comments, but UL summarizes it nicely.