Sunday, March 31, 2013

Randy Wray — Why We’re Screwed, Two: The Love Of Money

Radio interview.

Economonitor — Great Leap Forward
Why We’re Screwed, Two: The Love Of Money
L. Randall Wray |Professor of Economics, UMKC

Goldman on currency wars in charts

Maintaining a non-cooperative equilibrium is a challenging exercise. Not only will every individual partly have to constantly monitor what everyone else is doing, but in addition, there is a constant risk of escalation into protectionist policies. Trade disputes are already on the rise. The number of WTO dispute cases in 2012 was the highest in 10 years.
Zero Hedge
Currency Wars For Dummies
Goldman Sachs

Seeing faces in clouds?

Bill McBride — NY Times: Following Cyprus bank closings, Other Tax Havens step in

Particularly successful at luring Russians, Cyprus has built up a large infrastructure of lawyers, accountants and other professionals schooled in the arts of tax avoidance. Its corporate registry now has 320,000 registered companies, a staggering number for a country with only 860,000 people.
Calculated Risk
NY Times: Following Cyprus bank closings, Other Tax Havens step in
Bill McBride

Merijn Knibbe — The three mandates of the European Central Bank: the price level, employment and stability

Summary. According to the European treaties the ECB does have an employment mandate next to its inflation mandate. Looking at more prices than just consumer prices as well as at a historical output gap shows that there is ample scope and necessity for more aggressive monetary policies by the ECB.I received some comments on my post about Jeroen Dijsselbloem, also by email, to which I will answer in a couple of blogposts. The first of these will be about the mandates (plural) of the European Central Bank, the other(s) will be about recent developments.The ‘single’ price stability mandate is, at the moment, invoked again and again as an excuse for bad monetary policies. This is remarkable, as according to the treaties the ECB does not have a single mandate at all. It has, de jure, a clear double mandate. De facto it even has a triple mandate. Let’s first look at what ‘The consolidated version of the Treaty on the functioning of the European Union‘ has to say (article 127, part 1 and 2, emphasis added)):
Real-World Economics Review Blog

Barclays — The Seven Broken Taboos Of The Cyprus Deal

The euro’s core founding principles, based on the Maastricht Treaty’s “irrevocable” fixing of currency rates, and of the free movement of capital, have been violated. The euro will never be the same again; its preservation now depends urgently upon economic recovery. Without the delivery of economic growth, unemployment will rise to yet higher post-war record levels, and the widespread and growing disillusionment felt by EU citizens towards their economic regime will threaten to spill over into more explicit questioning of the euro’s suitability.
Zero Hedge
The Seven Broken Taboos Of The Cyprus Deal

Just a matter of time now for the euro? Will Cyprus turn out to be Creditanstalt redux? 

Zero Hedge — Cyprus Parliament President Says "No Future" Under Troika, Calls For "Iceland" Solution

Cyprus to leave EZ?
There is no other alternative but to free Cyprus from the bonds of the troika and the memorandum, House of Representatives President Yiannakis Omirou has said. Omirou also expressed his conviction that no Attorney General would dream of not following through with the results of an investigation led by an independent committee to apportion blame on those responsible for bringing the country’s economy and banking sector near collapse.
Zero Hedge
Cyprus Parliament President Says "No Future" Under Troika, Calls For "Iceland" Solution
Submitted by Tyler Durden

Zero Hedge — Thanks, World Reserve Currency, But No Thanks: Australia And China To Enable Direct Currency Convertibility

The Hedgies don't seem to get that a reserve currency is a currency that exporting nations choose to save in. Oz has made a decision to save in RMB instead of USD in exporting to China. Is that taking on exchange rate risk, or is RMB as safe a store of value as the USD now? One could argue that as long as the RMB is pegged to the USD, it doesn't matter too much and if it increases exports, no big deal.

Victoria Finkle — Iceland Indicts Bankers Over Financial Crisis

Public frustration has been mounting over the lack of high-profile criminal prosecutions in the wake of the financial crisis here in the U.S. But the same cannot be said abroad.
Several news outlets reported that Iceland's special prosecutor, hired in 2009 to investigate suspicious activities at several major banks, indicted fifteen bankers — including two chief executives — earlier this month over illegal activity tied to the meltdown of the country's banking system in the fall of 2008. The bankers are accused of stock-price manipulation and securities fraud.
American Banker
Iceland Indicts Bankers Over Financial Crisis
Victoria Finkle
(h/t Yves Smith at Naked Capitalism)

Yves Smith — Obama Plans to Sacrifice Ordinary Americans Yet Again in “Public/Private Partnership” Infrastructure Scam

Apparently Obama’s idea of a Holy Week sacrifice is to feed American citizens to rapacious bankers, this time through the device of “public/private partnerships” to support infrastructure spending. Some NC readers were correctly alarmed by a speech by Obama on Friday on using public/private partnerships to fund infrastructure spending. This is not a new idea; Obama first unveiled it in his Statue of the Union address. But it is a singularly bad idea, that is, if you are anyone other than a promoter of or investor in these deals.
As we’ve discussed at length earlier, these schemes are simply exercises in extraction. Investors in mature infrastructure deals expect 15% to 20% returns on their investment. And that also includes the payment of all the (considerable) fees and costs of putting these transactions together. The result is tantamount to selling the family china and then renting it back in order to eat. There is no way that adding unnecessary middlemen with high return expectations improves the results to the public. In fact, the evidence is overwhelmingly the reverse: investors jack up usage fees and skimp on maintenance. And their deals are full of sneaky features to guarantee their returns.
Naked Capitalism
Obama Plans to Sacrifice Ordinary Americans Yet Again in “Public/Private Partnership” Infrastructure Scam
Yves Smith

Piling on more rent instead of government funding "in order to advance democracy and the free market." Neoliberalism aka crony capitalism at work.

Mike Konczal — How an anti-rentier agenda might bring liberals, conservatives together

Rent-seeking is becoming the new "big issue." Left and right anti-establishment activists agree on the problem, but disagree over solutions. Mike Konczal is on it.

However, I would put it as "progressives" rather than "liberals." The traditional liberal wing of the Democratic party is allied with the establishment, while the progressive wing is focused on reform. I would also say "Libertarians" rather than "conservatives." It's the Tea Party Libertarians who are agitating for reform in the GOP and traditional conservatives who are allied with the establishment.

This looks like an Progressives and Libertarians agreeing that rentierism is a problem, and that government is a major factor in the generating artificial monopoly power. However, Progressives see this as a corrupt crony alliance between government and business, whereas Libertarians lay it all to the intervention of government in the private sector. Hence, the approaches to resolving the issues are entirely different.

I suspect that a lot of the debate over policy in future elections is going to be over these approaches, although the progressive wing in the Democratic Party and the Libertarian wing in the GOP are still in the minority in their caucuses. However, I expect to see them gaining ground since these idea have youth-appeal.


How an anti-rentier agenda might bring liberals, conservatives together
Mike Konczal | Fellow at the Roosevelt Institute
(h/t Mark Thoma at Economist's View)

Andrew Lainton schools Noah Smith on math and SFC

Without a proper modelling of state DGSE is simply mathematically flawed, and to dismiss mathematically correct approaches as ‘physics envy’ displays a basic error of understanding what is necessary to correctly model ANY dynamic system using the fundamental principles of applied mathematics.  Noah needs to get some Maths Envy.
If we correctly model state then we need correct modelling of all factor incomes and investments in future income streams that will yield factor incomes.  Only then will the model be both microeconomically and macroeconomically consistent.  But you have to do both together, at the same time, and only then will you be able to avoid the lucas critique.  The approach that macroeconomics must be microfounded is the wrong way to approach this, it makes the most basic error in all of the social sciences, trying to collapse structure into agency.

Decisions, Decisions, Decisions
@Noahopinion @Profstevekeen The Problem is ‘Maths Envy’ Not ‘Physics Envy’ in Supplanting DGSE
Andrew Lainton | Consultant (UK)

Saturday, March 30, 2013

Goldman via Zero Hedge — Visualizing 193 Years Of Currency Regimes & Crises

Zero Hedge
Visualizing 193 Years Of Currency Regimes & Crises
Goldman Sachs

Lord Keynes — Hayek on the “Use of Knowledge in Society”

Hayek's argument is really at the basis of market fundamentalism, so understanding its shortcomings is important. On the other hand, I would agree with Hayek's analysis wrt to a central bank setting interest rates to manage inflation or to balance employment and price stability, for instance. There seems to be ample empirical evidence to warrant concluding that central banks have failed in this regard at great cost to the economies under their influence.

Monetarism doesn't work. And it appears that it fails in being too loosely targeted. For example, monetary policy, which sets the cost of capital, often distorts asset prices since it looks chiefly at goods prices and in particular at the price of labor with a view to targeting inflation. In this it disregards asset appreciation and the wealth effect it communicates that is based on "fictitious capital," that is, unrealized, "paper gains, supported by credit.

And, as Lord Keynes observes, Hayek's position reflects more the neoclassical equilibrium view than the Austrian view of economic calculation.

Social Democracy For The 21St Century
Hayek on the “Use of Knowledge in Society”
Lord Keynes

Christopher Mims — The Internet Is Making Us Poor [Unequal]

This is an important article. It's a bit longish, so I've pulled out the essence. But I suggest you read the whole thing. This is about the transition to the Information Age and knowledge society from the Industrial Age and factory society, which in turn replaced the Agricultural Age and farm society. What's left for workers who are not knowledge workers in the Information Age is service work that cannot be profitably automated, computerized, or robotized.
One thing all our machines have accomplished, and especially the internet, is the ability to reproduce and distribute good work in record time. Barring market distortions like monopolies, the best software, media, business processes and, increasingly, hardware, can be copied and sold seemingly everywhere at once. This benefits “superstars”—the most skilled engineers or content creators. And it benefits the consumer, who can expect a higher average quality of goods.
But it can also exacerbate income inequality, says Brynjolfsson. This contributes to a phenomenon called “skill-biased technological [or technical] change.” “The idea is that technology in the past 30 years has tended to favor more skilled and educated workers versus less educated workers,” says Brynjolfsson. “It has been a complement for more skilled workers. It makes their labor more valuable. But for less skilled workers, it makes them less necessary—especially those who do routine, repetitive tasks.”
The result is that, with the aid of machines, productivity increases—the overall economic pie gets bigger—but that’s small consolation if all but a few workers are getting a smaller slice. “Certainly the labor market has never been better for very highly-educated workers in the United States, and when I say never, I mean never,” MIT labor economist David Autor told American Public Media’s Marketplace.
The other winners in this scenario are anyone who owns capital. Only about half of Americans own stock at all, and as more companies are taken private or never go public, more and more of that wealth is concentrated in the hands of fewer and fewer people. As Paul Krugman wrote, “This is an old concern in economics; it’s “capital-biased technological change”, which tends to shift the distribution of income away from workers to the owners of capital.”...
“The spread of computers and the Internet will put jobs in two categories,” said Andreessen. “People who tell computers what to do, and people who are told by computers what to do.” It’s a glib remark—but increasingly true....
History is littered with technological transitions. Many of them seemed at the time to threaten mass unemployment of one type of worker or another, whether it was buggy whip makers or, more recently, travel agents. But here’s what’s different about information-processing jobs: The takeover by technology is happening much faster.
From 2000 to 2007, in the years leading up to the great recession, GDP and productivity in the US grew faster than at any point since the 1960s, but job creation did not keep pace. Brynjolfsson thinks he knows why: More and more people were doing work aided by software. And during the great recession, employment growth didn’t just slow. As we saw above, in both manufacturing and information processing, the economy shed jobs, even as employment in the service sector and professional fields remained flat.
Especially in the past ten years, economists have seen a reversal of what they call “the great compression“—that period from the second world war through the 1970s when, in the US at least, more people were crowded into the ranks of the middle class than ever before. There are many reasons why the economy has reversed this “compression,” transforming into an “hourglass economy” with many fewer workers in the middle class and more at either the high or the low end of the income spectrum. But whatever those forces, they are clearly being exacerbated by technological change.
The hourglass represents an income distribution that has been more nearly the norm for most of the history of the US. That it’s coming back should worry anyone who believes that a healthy middle class is an inevitable outcome of economic progress, a mainstay of democracy and a healthy society, or a driver of further economic development.
Business Insider
The Internet Is Making Us Poor
Christopher Mims, Quartz
(h/t Yves Smith at Naked Capitalism)

Interview — Adam Posen Takes the Stage [at Peterson Insititute for International Economics]

Just back from his three-year stint on the Monetary Policy Committee of the Bank of England, the new president of the Peterson Institute for International Economics sat down with TIE founder and editor David Smick.
International Economy
Adam Posen Takes the Stage [at Peterson Insititute for International Economics]
(h/t INET)

Tara Lohan — The Coming Crash: Our Addiction to Endless Growth on a Finite Planet

Tara Lohan: How did this book project come about? I know it started out as a book about tar sands, but then it evolved into so much more.
Richard Heinberg: The economy is all about energy. Almost all of our environmental issues relate to energy in one way or another. Certainly, climate change does. War and peace, it's all about energy. Upping the energy literacy of the American people and thought leaders is a pretty high priority....
...over the course of the next few years, we're going to be making absolutely critical decisions about our energy future, our environmental future and our economic future. Unless we have these basic elements of energy literacy, unless more of us understand the criteria by which to evaluate these different sources of energy, we're going to get a lot of things wrong. We think energy literacy is really important. 
The Coming Crash: Our Addiction to Endless Growth on a Finite Planet [With Photo Slideshow]
Tara Lohan

Thom Hartmann — This Is What Happens When Congress Is for Sale

So now [subsequent to the passing of H.R 933], Monsanto is free to develop, plant, and sell all sorts of genetically modified foods, without fear of being sued or prosecuted if they fail to abide by the federal government’s health, safety and environmental standards.
But just how did this teeny tiny provision get into an appropriations bill in the first place?
That’s where Missouri Republican Senator Roy Blunt comes in.
According to the New York Daily News, Blunt helped to carefully craft the provision’s language with the direct help of Monsanto.
Why would he do that you might ask?
It could be because, according to the Center for Responsive Politics, Sen. Blunt received nearly $65,000 in campaign contributions from Monsanto between 2008 and 2012.
In fact, Blunt has been the largest Republican Party recipient of funding from Monsanto in recent memory.
The good news here is that this provision that protects Monsanto from judicial oversight expires after a year.
The bad news is that this little provision with a big impact is just a symptom of a much larger problem in America today.
Right now, any corporation with money to spend can team up with elected officials, and slowly but surely tear away at our governmental protections.
This Is What Happens When Congress Is for Sale
The Daily Take, The Thom Hartmann Show | Op-Ed

Thom Hartmann reports:
You need to know this. A little-known provision in the most recent budget appropriations, which passed through Congress last week, is a big deal for biotech giant Monsanto – and GMO opponents. The so-called "Monsanto Protection Act" shields the maker of genetically modified seeds from being sued by consumers who claim they've been harmed by their products. On Tuesday, President Obama signed the spending bill into law, which means the controversial GMO provision will remain in place for at least six months until the government needs a new bill to fund it's operations. Since it's passage a week ago, more than 250,000 people have signed a petition opposing the measure, and activists have gathered outside the White House to protest. Opponents are expressing anger not only about the "Monsanto Protection Act" content, but also about the secretive way the legislation made it's way into the final appropriations bill. Reports suggest that many members of Congress were not even aware the provision was slipped into the spending bill. The International Business Times reported on the story, noting, "The message it sends is that corporations can get around consumer safety protections if they get Congress on their side. Furthermore, it sets a precedent that suggests that court challenges are a privilege, not a right." It should be a right to know what is in our food. And it should be a right to hold companies liable when they poison consumers. We must ensure that the "Monsanto Protection Act" is overturned. Call Congress and tell them to repeal this provision now.

Theresa Riley — How Worker-Owned Companies Work

There is an alternative.
Economist Richard Wolff is a proponent of democracy at work: an alternative capitalism that thrives on workers directing their own workplaces. In the documentary film Shift Change, producers Mark Dworkin and Melissa Young tell the stories of successful cooperative businesses from Spain to San Francisco. We caught up with Dworkin and Young to find out what makes cooperative businesses work....
In the U.S. we learn from an early age to navigate hierarchical social structures, and we have lots of practice competing but little practice cooperating. So we have a lot to learn in order to make cooperatives a success. But many people are willing to make the effort. We have participatory instincts that are stifled in the dominant economy. One friend lit up when I told him that in worker cooperatives, people are encouraged to put forward their ideas about how to make the company better. That’s sure different, he said; everywhere I have ever worked you’re best off if you keep your head down and your mouth shut. So I wouldn’t say that workers are resistant to cooperation, but rather our cooperative instincts are suppressed and trained out of us. To help overcome this, all of the co-ops we visited place a high priority on initial training and ongoing leadership development of their members. And it works. 
How Worker-Owned Companies Work
Theresa Riley, Moyers & Company | Interview and Video

Ozgur Orhangazi — The Global Unemployment Crisis


The Global Unemployment Crisis
Ozgur Orhangazi | Associate Professor of Economics at Kadir Has University, Istanbul

Melanie Foley — Where Are the Country's Least Happy and Healthy Americans? New Studies Reveal America's "Sadness Belt"

Where Are the Country's Least Happy and Healthy Americans? New Studies Reveal America's "Sadness Belt"
Melanie Foley | Appalachian Voices

Warren Mosler, The Euro: past, present and future. The Crossroads Workshop 1 in Zurich - 25 March 2013

Warren Mosler, The Euro: past, present and future. The Crossroads Workshop 1 in Zurich - 25 March 2013
(h/t Ardrea Terzi at Mepoc)

Randy Wray — Back To The Future: Modern Money Conference In 1999

MMT history lesson.

New Economic Perspectives

Back To The Future: Modern Money Conference In 1999
L. Randall Wray | Professor of Economics, UMKC

Michael Hudson — Too Big To Jail?

Video and transcript of Paul Jay interviewing Michael.
The idea by the Progressive Era in the early 20th century was that instead of banking being predatory as it had been for thousands of years, instead lending against real estate or to governments for war loans – or for petty consumer usury, foreclosing and putting people in debtors’ prisons – for the first time in history banks were going to make loans to finance direct investment in new means of production. The aim was to mobilize banking and savings to expand industry, to build factories and equipment that weren’t already there.
This is how Germany rose rapidly to industrial power with the Reichsbank, along with the rest of central Europe. Leading up to World War I, German banks worked with the German government almost as semi public entities – along with the military-industrial complex, to be sure. But at least you had banking taking industrial form.
World War I changed everything. You had a reversion to the English-Dutch-American kind of banking that was called merchant banking. Banks would make loans to ship goods that are already produced, or they’d make loans against real estate. So today you have 80 percent of bank loans in America and England and Scandinavia are all loans for real estate. So, essentially the function of the financial sector has been simply to load down the economy with debt without helping the economy grow.
What you really want is for banks, instead of loading the economy down with debt, to be able to finance economic growth instead of just eating into growth as an overhead.
Michael Hudson
Too Big To Jail?

Ellen Brown — It Can Happen Here: The Confiscation Scheme Planned for US and UK Depositors

Think deposits in US banks are "safe"? Think again.

Web of Debt
It Can Happen Here: The Confiscation Scheme Planned for US and UK Depositors
Ellen Brown | Attorney

Katelyn Fossett — U.S. Eyes Pension Funds to Renew Crumbling Infrastructure

On Friday, President Obama outlined a new plan that, he said, would seek to attract private investment for public infrastructure, while also creating new bonds and offering more loans for similar projects. 
1.3 trillion dollars needed
A think-tank in Washington has one idea for leveraging private investment toward infrastructure: encourage the investment of labour union pension funds in infrastructure projects.
“Couple [our poor state of infrastructure] with pension funds, which are long-term, patient investors, with stable, risk-adjusted returns, and this fits well with our fiduciary duty,” Dan Pedrotty, managing director of benefits and pensions at the American Federation of Teachers, said Thursday at the release of a report on the topic at the Center for American Progress (CAP).
Pension funds present a viable alternative to traditional public financing because their large-scale assets and long-term nature give them the ability to put up a large amount of capital and see projects through to their payoff—obstacles typically thought to be too large for any investor except the federal government.
The report also suggests the time is ripe, both economically and politically, for this kind of change.
Inter Press Service
U.S. Eyes Pension Funds to Renew Crumbling Infrastructure
Katelyn Fossett

This is incoherent from the point of view of monetary economics given the existing monetary system. However, there is actually a rationale to it that works. In providing infrastructure bonds, the federal government is providing safe asset and an interest subsidy for future pensioners, similar to the Social Security trust fund.

While neither taxation nor borrowing are necessary operationally, they are apparently necessary politically in order to elicit the bipartisan support required to pass legislation. The difference is that the Social Security trust fund is "funded" by taxes, while the infrastructure improvements would be "funded by borrowing."

Whatever it takes, I guess, given the prevailing level of asininity in policy making. But it would be simpler to just cut to the chase and use the available policy space to deploy the available resources that are not being requisitioned by the private sector.

Friday, March 29, 2013

Charles Hugh-Smith — The Knowledge Economy's Two Classes of Workers

Setting aside that our economy is by and large organized to benefit a State-financial Elite and the technocrat Caste that serves them, let's consider the two classes of worker in what Peter Drucker labeled the Knowledge Economy in his 1993 book Post-Capitalist Society.
At the risk of simplifying Drucker's nuanced account, here is a precis:

The Marxist class division of labor vs. capitalist/management no longer adequately describes the new economy, as knowledge workers own "the means of production" which is first and foremost knowledge. Corporations and government offer an organization within which workers can apply their knowledge (i.e. the means of production in a knowledge economy).

Since the new economy is no longer characterized by capital vs. labor, it is a post-capitalist economy.
Knowledge workers are a minority of the workforce; the majority are service workers, either skilled or low-skilled.

Economist Robert B. Reich divides the workforce into similar categories: "symbolic analysts" (knowledge workers) and two classes of service workers: "routine producers" and "in-person servers."
Of Two Minds
The Knowledge Economy's Two Classes of Workers
Charles Hugh-Smith

Just as the Industrial Era replaced the Agricultural Era and was different from it, so too, the Digital Era is replacing the Industrial Era and bringing about another profound transformation of work and management.

Senexx — Have We Forgotten the Trilemma?

This is lifted from the Modern Money Primer blog by Randall Wray and is now available as a book from Amazon.
"According to the well-known trilemma,government can choose only two out of the following three: independent domestic policy (usually described as an interest rate peg), fixed exchange rate, and free capital flows. A country that floats its exchange rate can enjoy domestic policy independence and free capital flows. A country that pegs its exchange rate must choose to regulate capital flows or must abandon domestic policy independence. If a country wants to be able to use domestic policy to achieve full employment (through, for example, interest rate policy and by running budget deficits), and if this results in a current account deficit, then itmust either control capital flows or it must drop its exchange rate peg.

"Floating the exchange rate thus gives more policy space. Capital controls offer an alternative method of protecting an exchange rate while pursuing domestic policy independence.

"Obviously,such policies must be left up to the political process—but policy-makers should recognize accounting identities and trilemmas. Most countries will not be able to simultaneously pursue domestic full employment, a fixed exchange rate, and free capital flows. The exception is a country that maintains a sustained current account surplus—such as several Asian nations. Because they have a steady inflow of foreign currency reserves, they are able to maintain an exchange rate peg even while pursuing domestic policy independence and (if they desire) free capital flows.
Modern Money Mechanics — MMT simplified
Have We Forgotten the Trilemma?

The Inevitable Convergence of Credentialism, Creationism and all Pseudo-Logic

Commentary by Roger Erickson

In an article behind a paywall at the WSJ lies an interesting article - blatantly.

IMF Cites Hidden Price of Energy Subsidies  Wall Street Journal - Mar 28, 2013

In that article, one "David Meyer Wessel" ... a "well known economics journalist [and Economics Editor,] with The Wall Street Journal and a Pulitzer prize winner and author," adds the following, grossly errant presumptions.

"Problem one: Governments from the U.S. to Egypt to Japan are running big, unsustainable budget deficits. Problem two: Global governments are finding it tough to agree on an efficient, fair way to head off climate change."


So it's not just us! The whole world is, in fact, running out of fiat. Must we faithfully accept - like sycophants absorbing Creationist literature - what is quite obviously a logical fallacy? Must we accept illogic as nevertheless "true," simply because a Pulitzer Prize winning credentialist tells us it is?

Who ya gonna believe. Logic, or Credentialist Emperors devoid of even a stitch of logic?  How long do we wait before some kid accidentally blurts out that the Credentials have no logic?

Maybe all those logical fallicists at Lake Wobegone will be the ones to call the fiat debts, once we have nothing "left" in virtual banking reserves?

Weepin' Buddha on a Decline! We needn't bother even bringing in the Mad Hatter to advise on policy. The words used in policy pronouncements don't even have to mean precisely what lobbyists want them to mean. Why, they needn't represent any coherent meaning whatsoever!

The immediate "Problem One" here is that the Economics Editor of the WSJ seems to know exactly squat about the most basic fiat currency operations and banking operations.

This is amazing. You know your country is screwed when the most exalted experts fall into the lunacy of spewing data rendered meaningless by total lack of context.

In response, Econ Prof. Brad Lewis of Union College replied by email:
"The summary sentence, of course, should be, 'from New York to Cairo to Japan, governments are enabling their private sectors to save more with safe net financial assets, after a long period of over-leveraging.' Somehow my [1st year econ] students can understand that. Why can't journalists?"

Indeed, Brad. Indeed.  And why not economics editors too?

We may as well all get busy asking repeatedly. More informed journalists are apparently gonna' be a long time coming, so we need a growing chorus of people either asking those questions, or voting with their feet, and interacting proportionally more with the people in this world who already can and do understand basic fiat currency operations.

Carola Binder — Potential Costs of Asset Purchases

How insiders think.

Quantative Ease
Potential Costs of Asset Purchases
Carola Binder | graduate student at UCAL Berkeley

Timothy Taylor — Is "Intellectual Property" a Misnomer?

If "intellectual property" is not a misnomer, then it needs to be explained on what basis a property right is time-delimited, as are copyrights and patents but not other forms of property. Is this a property right or a subsidy granted by law, e.g., to foster innovation and creativity?

Conservable Economist
Is "Intellectual Property" a Misnomer?
Timothy Taylor

Jeff Spross — Bombshell IMF Study: United States Is World’s Number One Fossil Fuel Subsidizer

Between directly lowered prices, tax breaks, and the failure to properly price carbon, the world subsidized fossil fuel use by over $1.9 trillion in 2011 — or eight percent of global government revenues — according to a study released this week by the International Monetary Fund.
The biggest offender was by far the United States, clocking in at $502 billion. China came in second at $279 billion, and Russia was third at $116 billion. In fact, the problem is so significant in the U.S. that the IMF figures correcting it will require new fees, levies, or taxes totaling over $500 billion a year, or more than 3 percent of the economy.
Climate Progress
Bombshell IMF Study: United States Is World’s Number One Fossil Fuel Subsidizer
Jeff Spross

As Warren Mosler says, a subsidy is a negative tax. Now we learn that it is necessary not only to eliminate the subsidies but to increase taxes and regulation (which increases costs) in order to save the home planet.

But developing an inexpensive, renewable, clean source of transportable energy is of the highest priority to avoid severe culling of the species.

Les Leopold — Why Is Socialism Doing So Darn Well in Deep-Red North Dakota?

North Dakota is the very definition of a red state. It voted 58 percent to 39 percent for Romney over Obama, and its statehouse and senate have a total of 104 Republicans and only 47 Democrats. The Republican super-majority is so conservative it recently passed the nation's most severe anti-abortion resolution – a measure that declares a fertilized human egg has the same right to life as a fully formed person 

But North Dakota is also red in another sense: it fully supports its state-owned Bank of North Dakota (BND), a socialist relic that exists nowhere else in America. Why is financial socialism still alive in North Dakota? Why haven't the North Dakotan free-market crusaders slain it dead?
Because it works.
Why Is Socialism Doing So Darn Well in Deep-Red North Dakota?
Les Leopold

Good article in general, but with a few lapses, like "Banks are supposed to serve as intermediaries that turn our savings and checking deposits into productive loans to businesses and consumers." It also promotes the  Public Bank Institute at the end, and the folks at PBI don't still don't get monetary economics even though it has been explained to them in detail.

Bill Mitchell — Unemployment and Inflation – Part 11

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 during 2013 (to be ready in draft form for second semester teaching). 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.

This is the continuation of the Chapter on unemployment and inflation – the series so far is:
▪ Unemployment and inflation – Part 1
▪ Unemployment and inflation – Part 2
▪ Unemployment and inflation – Part 3
▪ Unemployment and inflation – Part 4
▪ Unemployment and inflation – Part 5
▪ Unemployment and Inflation – Part 6
▪ Unemployment and Inflation – Part 7
▪ Unemployment and Inflation – Part 8
▪ Unemployment and Inflation – Part 9
▪ Unemployment and Inflation – Part 10
I am now continuing the discussion of the Phillips Curve …
Chapter 12 – Unemployment and Inflation
12.X Underemployment and the Phillips curve
Bill Mitchell — billy blog
Unemployment and Inflation – Part 11
Bill Mitchell

Randy Wray — What Went Wrong in Cyprus: an MMT Perspective

Some readers have encouraged me to provide an MMT perspective on Cyprus. First a caveat: I have no special expertise on that country. However, as all of you know, MMTers have been warning about the fate of Euroland for almost two decades. As you watch one after another of those dominoes fall, you cannot help thinking about theWild Africa documentaries you watched on TV when you were a kid.
Remember when the pair of lions sneak up on a herd of wildebeest? The lions pounce on the weakest one. The others are startled, watch the lions munching on their brother for a minute or two, and then go right back to grazing. “Better him than me”, they appear to think. And so goes Iceland, Ireland, Spain, Portugal, Italy, Greece and Cyprus. The Dutch and French and Germans just keep grazing that grass.
Ok so what went wrong in Cyprus.
Economonitor — Great Leap Forward
What Went Wrong in Cyprus: an MMT Perspective
L. Randall Wray | Professor of Economics, UMKC

Lord Keynes — Warren Mosler to debate Robert Murphy?

What little details available are here. This sounds very interesting, but Murphy seems a rather strange choice as a champion of Austrian economics.
Why? The reason is that Murphy is something of a maverick who thinks that the interest rate is a monetary phenomenon, both in his PhD Unanticipated Intertemporal Change in Theories of Interest (2003) and in this [link] post. That is, he rejects the widespread Austrian theory of interest: pure time preference theory.
More seriously, in this interesting paper and in this post, Murphy admits that Sraffa demonstrated that outside of equilibrium there is no single Wicksellian natural rate of interest, and that Hayek never really addressed this problem for his trade cycle theory.
On the face of it, these admissions have devastating consequences for virtually all modern formulations of the Austrian business cycle theory (ABCT) using the unique natural rate, as admitted by Murphy himself:
Social Democracy For The 21St Century
Warren Mosler to debate Robert Murphy?
Lord Keynes

BILL3 — How Banking Actually Works In Fiat World, Part 2

Follow on to this post which was cited at MNE here. Clear description of how reserves function in the payments system.

I hope Robert Murphy reads these posts before the debate with Warren.

Daily Paul

How Banking Actually Works In Fiat World, Part 2

Thursday, March 28, 2013

Neil Wilson — UK borrowed foreign currency from IMF in 1976

What is amusing is that using fixed exchange rate thinking with floating rate currency areas is still the problem today.
UK borrowed foreign currency from IMF in 1976
Neil Wilson

David F. Ruccio and Peter Radford on US Inequality

Real-World Economics Review Blog
USA 1966 to 2011: One inch (for the bottom 90 percent) versus 4.9 miles
David F. Ruccio

USA Inequality Update
Peter Radford

Clearly something is amiss in the land of opportunity.
The game is rigged.
Is that a problem?
You bet it is.

Michael Stevens — How Much Fiscal Stimulus Do We Need?

How much fiscal stimulus would the government need to inject into the economy over the next two years in order to get the unemployment rate into the 5.5–5.9 percent range? In their newest strategic analysis, Dimitri Papadimitriou, Greg Hannsgen, and Michalis Nikiforos provide us with some harrowing answers.
Multiplier Effect
How Much Fiscal Stimulus Do We Need?
Michael Stevens

Joe Romm — Cruz Gets Senate To Censor Innocuous Mention Of ‘Changes In Climate’ In Resolution For International Women’s Day

Gail Collins has a terrific piece in how the GOP used to be concerned about the environment, but now, not so much.
The whole column, “Cooling on Warming,” is worth reading, but one thing in particular caught my eye:
… earlier this month, a deeply noncontroversial Senate resolution commemorating International Women’s Day had to be taken back and edited because someone objected to a paragraph — which had been in an almost identical version passed in the last Congress — stating that women in developing countries “are disproportionately affected by changes in climate because of their need to secure water, food and fuel for their livelihood.”
You may be wondering who the objecting senator was. Normally, these things are supposed to be kind of confidential, but in this case the lawmaker in question is proud to let you know that he is — yes! — Ted Cruz of Texas.
“A provision expressing the Senate’s views on such a controversial topic as ‘climate change’ has no place in a supposedly noncontroversial resolution requiring consent of all 100 U.S. senators,” a Cruz spokesman said.
Note that the offending statement doesn’t even spell out what caused these “changes in climate.” It merely states that when such changes occur, women in developing countries are disproportionately affected. Kind of a “duh” statement.
But not for the Senator from drought-stricken Texas.
Climate Progress
Cruz Gets Senate To Censor Innocuous Mention Of ‘Changes In Climate’ In Resolution For International Women’s Day
Joe Romm

John Celoc — Balanced Budget Advocates Seek Article V Constitutional Convention

Advocates for a balanced budget amendment to the U.S. Constitution have pinned their hopes on state legislatures calling for a new constitutional convention to get the amendment included.
The Balanced Budget Amendment Task Force, a Virginia-based group, has been pushing for states to use Article V of the Constitution, which allows Congress to call for a convention if petitioned by two-thirds of the states, or 34 states.Currently, 17 states have submitted petitions calling for a convention in order to add a balanced budget amendment.
"Our founders really, truly believed -- and if you read Hamilton and Madison in the Federalist Papers the intent was clear -- that if the central government went beyond its bounds, the states have the way to close the divide peacefully," David Biddulph, the co-founder of the Balanced Budget Amendment Task Force, told The Huffington Post.
An Article V convention has never been called, even though 49 states have submitted at least one petition calling for such a convention. Currently, at least three states are considering petitions: Georgia for the balanced budget amendment, Indiana to balance the power between the states and the federal government, and Kansas to move certain powers solely to the states.
The Huffington Post
Balanced Budget Advocates Seek Article V Constitutional Convention
John Celoc
(h/t Charles Hayden on FB)

I guess these folks want to cede the future to the BRICs.

Winterspeak — Marc Andreesson: Strangely self-serving?

The post argues three points:
1. The middle class is now missing out on hot-IPO action because all the value creation is happening in private markets, and post-IPO performance is disappointing as the company is already past its prime. Therefore, we should loosen the rules barring non-accredited investors from primary markets.
2. Kickstarter, and other crowd funding projects, actually expose these individuals to seed stage investments that are the most risky.
3. We need to roll-back decimalization, so there is a larger spread in trading small cap stocks, making it easier for financial firms to profit from their trading.
Marc Andreesson: Strangely self-serving?

My interview with Yale law professor, Jonathan R. Macey

My interview with Jonathan R. Macey from Yale Law School. His new book, "The Death of Corporate Reputation. How Integrity Has Been Destroyed on Wall Street".

Brad DeLong calls depression conclusion is that I should stop calling the current episode the Lesser Depression. Yes, its shape is different from that of the Great Depression; but, so far at least, there is no reason to rank it any lower in the hierarchy of macroeconomic disasters.
Project Syndicate
Let it Bleed?
J. Bradford DeLong | Professor of Economics, University of California at Berkeley and a research associate at the National Bureau for Economic Research

Nathan Tankus — The Terrifying Political Economy of Waiting

Since then many people, including the writers of this blog, have been watching events intensely. It is common among these critical observers to think (and to have thought) that the semblance of stability that was brought about by early 2009 couldn’t be sustained, either domestically or internationally. I think this reasoning is correct. However that thought in and of itself doesn’t tell us when things will fall apart.
Governments have a huge amount of power to keep the game moving, but they are constrained by the availability of real resources, like energy, and the actions of other governments, which in extremis, lead to war.

The game began to get unsustainable back in the 70's with the end of the era of guaranteed cheap oil. Petroleum remains the principal energy source of modern economies, and there is no obvious replacement on the horizon. With climate change forcing a re-think of carbon-based energy, this is the elephant in the room. Financial crises can be fixed, but the environment is something that governments do not control. The vise is tightening.

Naked Capitalism
The Terrifying Political Economy of Waiting
Nathan Tankus | student and research assistant, University of Ottawa

Matias Vernengo — Michael Pettis on the Chinese Growth Model

Matias looks at China somewhat differently than Pettis does.

Naked Keynesianism
Michael Pettis on the Chinese Growth Model
Matias Vernengo | Associate Professor of Economics, University of Utah

Ashwin Parameshwaran — House Prices, The Wealth Effect And Crony Capitalism

As I illustrated in a previous post, “a significant proportion of the balance sheet of wealthy Americans is made up of real assets – real estate, stock and business holdings”. Therefore “what wealthy Americans, businesses and banks share is a common interest in supporting asset prices (real and nominal), a lack of interest in seeking full employment unless it is a prerequisite for supporting asset prices, and an aversion to any policies that can trigger wage inflation”. The fact that our dominant macroeconomic policy doctrine depends upon the ‘wealth effect’ simply reflects the fact that our economy is driven by wealthy special interests. 
The real question again is why there isn’t more mass opposition to such a blatantly regressive policy regime. In previous posts(1, 2), I have argued that crony capitalism achieves broad-based support by piggybacking upon broad-based programs aimed at the middle class. But they also achieve this support due to the absence of a safety net that breeds middle-class insecurity. This carrot-and-stick approach ensures middle-class support for the same stabilising policies that transfer wealth to the one percent.
Got that? Read the rest to see how it is done.

Macroeconomic Resilience — towards a more resilient macroeconomy
House Prices, The Wealth Effect And Crony Capitalism
Ashwin Parameshwaran

Al Jazeera — N Korea orders rockets on standby for attac

The move by North Korea's leader comes after US flies two stealth bombers over South Korea in a rare show of force.
The moment of truth approaches for NK as the US decides to call the bluff.

Al Jazeera
N Korea orders rockets on standby for attacks

US says N Korea's threats 'taken seriously'
Defense secretary says his country is ready to "deal with any eventuality" hours after Pentagon deployed B-2 bombers.

Howard Fineman — Why Ashley Judd Flipped Against Run For Senate

How establishment politics works.

The Huffington Post
Why Ashley Judd Flipped Against Run For Senate
Howard Fineman

Andrew Lainton — Krugman/Keen Round 2 – IS/LM, Disequilbrium and Non-Performing Loans

For those following Keen/Krugman on IS-LM, here is something from Andrew Lainton.

Decisions, Decisions, Decisions
Krugman/Keen Round 2 – IS/LM, Disequilbrium and Non-Performing Loans
Andrew Lainton | UK Consultant

Timothy Taylor — Falling Labor Share of Income

Conversable Economist
Falling Labor Share of Income
Timothy Taylor | Managing Editor, Journal of Economic Perspectives
Given that the fall in labor share of income is larger in other countries than in the U.S. economy, the cause or causes should presumably be something that had a greater effect on many other countries than on the U.S. economy. Any narrowly U.S.-centered explanations are bound to fall short in explaining an  international phenomenon.

Gaius Publius — Barack Obama’s economic legacy: His four must-have items

I think the whole of Barack Obama’s two-term economic agenda is topped by these four items:
1. Health care “reform” — a privatized alternative to Medicare expansion
2. A “grand bargain” in which social insurance benefits are rolled back
3. Plentiful oil & gas and passage of the Keystone Sludgepipe (KXL pipeline)
4. Passage of the Trans-Pacific Partnership (TPP) trade agreement
America Blog
Barack Obama’s economic legacy: His four must-have items
Gaius Publius
(h/t Dan Lynch at FB)

All taylored to enrich the fat cats.

Robert Murphy and Warren Mosler to debate

Charles Hayden has informed me that both parties have accepted the invitation to debate, since it appears that Paul Krugman has decided not to accept Robert Murphy's challenge.

Details to be announced when the venue is settled. Stay tuned. It's on.

Is There Any Culture Left, Anywhere, That is Agile Enough to Prevent It's Own Failure?

Commentary by Roger Erickson

Not in Cyprus, not in the eurozone, and not here in the USA?

What could we possibly do differently? Everything? So why aren't we actually doing just that? 630 million right & left hands no longer know what one another need, let alone what 315 million people collectively need?

Not to mention one, supposedly organized nation.

Forget greater than. Are we actively making ourselves less than the sum of our parts?

We can't succeed trying to calculate everything individually. That's ridiculous, and mathematically impossible. Every organized system constantly employs uncountable numbers of credits and risky debits. We survive ONLY by ruthlessly prioritizing the top few gains, and continously writing off all the negligible & irrelevant debts.

The worst idiocy is to forgo unimaginable return-on-coordination, in order to chase irrelevant, static, supposed debts to self. For those of us with small, calculating minds, what part of "most data is irrelevant" don't you get?

Cultural OCD may be the death of our nation yet, if we don't keep it away from group policy channels.

Wednesday, March 27, 2013

John Carney — Bitcoin Bonanza: Cyprus Crisis Boosts Digital Dollars

They won't make a sound no matter how many of them you try to toss in a bucket, and you can't pitch them in a fountain and wish for good luck. But make no mistake, bitcoins are getting big.
Bitcoin Bonanza: Cyprus Crisis Boosts Digital Dollars
John Carney | Senior Editor

Is Bitcoin a "safe asset"?

Lord Keynes — Conservative Christianity and Libertarianism do not Mix

Matt Franko has been beating on this point for some time here.

There is sure to be some quibbling in the (shrinking) Big Tent over this issue — as Paul Ryan already found out.

Social Democracy for the 21st Century

Conservative Christianity and Libertarianism do not Mix
Lord Keynes

Al Jazeera — BRICS nations fail to launch new bank

Leaders from the so-called BRICS group of emerging nations have failed to launch a much-anticipated new development bank to rival Western-dominated institutions like the World Bank.
After holding talks in the South African port city of Durban on Wednesday, leaders from Brazil, Russia, India, China and host South Africa agreed in principle to create a joint infrastructure lender but said further talks were necessary to finalise the plan.
Al Jazeera
BRICS nations fail to launch new bank

Interesting headline. Talk about prejudicing the case. The first meeting is a "failure" when the parties agree in principle but details need to be hammered out, like where the institution will be based and what the contributions to capital will be? The institution doesn't even have a name yet.

Understanding the Mind Set of People Requesting Tax Deregulation

Commentry by Roger Erickson

Reference Material Useful for Understanding the Context of People Requesting Tax and Financial Deregulation

Picking a Banking Derby winner. Whose "horse" .. er .. Senator Are You Backing?

Commentary by Roger Erickson

Or are all 4 candidates just show horses for the same owner? Say, who DOES own Congress, or at least command their allegiance?

Johnson Senate Exit Puts Control, Bank Chairman in Play

Four Senators to watch in rivalry for Banking Committee chair

Senators Unleash Playful Rivalry at Banking Committee Hearing

The guessing game has already begun over the successor to Sen. Tim Johnson as chairman of the Banking Committee.

Sen. Jack Reed,
Sen. Charles Schumer,
Sen. Sherrod Brown
Sen. Bob Menendez

Why only four?  Why these four?  Who owns YOUR wallet? :(

Hmmm. Is there an app to summarize which lobbies have the swing vote for each guy's campaign funding? Who "owns" each of these guys?

Contrary to popular opinion, the de facto owner in each of these 4 cases is NOT the constituents who supposedly voted them into office. Disorganized voters are easily conditioned - by cartoons and glossy ads appealing to their base instincts - to pick a horse from the real owner's stable.

I repeat. Is there an app to summarize which lobbies have the swing vote for each guy's campaign funding?

Come to think of it. Is there an app to just help voters act like an owner? So they can actually own the politicians whom they currently own in name only? Many Democracy failures arise out of a basic ignorance regarding political operations. Ditto for lost freedoms.

Politics, thy name is fraud.

We need apps to cut through the Fog of Fraud, and then voters both savvy enough and active enough to use such apps.

Those individuals - and countries - with a bias to coordinated action typically can or do own the majority of static assets - whenever they want to.  That observation demonstrates yet again the superiority of dynamic value over static value. Army ants (and many other, mobile critters) eat snails at will, even though snails have an impressive housing stock [and mortgages? :) ], which army ants don't bother with (most of the time).

What's the similar class relationship between snails/Senators and army-ants/electorates? The former class covets the staid safety of static assets, such as the trappings of power.  The latter class - when active and organized - utilizes the former do what's needed, when and as necessary.  If not, well, a group mind is a terrible thing to waste.

Tuesday, March 26, 2013

Thoughts on a Version of Consequentialist Ethics

Ethics is the basis of social and political thought (or "philosophy") and social and political thought are rigorously expressed in testable fashion in sociology and political science. Social systems are normative since people exhibit values and disagree over values. This is a cognitive (subjective) condition that has behavioral expression.

Subjects act at least in part using values as norms and these norms functions as motivators and shapers of action. One aspect is the nature and function of norms in regulating behavior individually and socially, and another is the consequences of following different sets of norms. These two aspects engender many issues that have been debated for millennia.

In addition to consequentialist ethics there is another type of ethics called deontological ethics that asserts that certain norms are given as fundamental values, such as duty, or as God's will expressed in codes of conduct as divinely ordained instructions. This is also a consequentialist ethics of a sort also to the degree that supernatural reward and punishment are involved.

Thus virtually all norms involve the form, if you do such and such, then the consequences will be so and so. From this it follows that if you want so and so, do such and such, and if you don't want so and so, don't do such and such. Broadly speaking, this is the basis of an approach to ethics that presumes people act rationally and take consequences into account as the chief motivator of action. How this in fact works cognitively and behaviorally is a matter of scientific enquiry, and how it should work is matter of ethical (philosophic) enquiry.

Economics either presumes an approach such as utilitarianism, as does neoclassical economics with utility maximization,derived from Jeremy Bentham and John Stuart Mill, or constructs an approach on philosophical grounds, as did Ludwig von Mises in Human Action.

Keynes took a more romantic in addition to rational approach in positing the important of "animal spirits," that is the role of emotion, in determining behavior, and acknowledging the role of uncertainty in decision making.

"Romantic" is a technical term here, meaning feeling as opposed to reason. Reason is the cognitive influence on volition and feeling is the affective influence.

Rationalists hold that reason is the chief factor in motivation, and romantics that feeling is the chief motivator. Most hold that some combination of the two is operative and in different proportions in different personality types. But extreme rationalists hold that reason is completely dominant, and extreme romantics hold that feeling is completely completely dominant.

Abraham Maslow launched a more rigorous psychological approach that was not as rigid as Skinner's behaviorism, bringing in a range of motivators and their ordering in a "hierarchy of needs." Cognitive and behavioral economics are now investigating motivation using the methods of their fields. Cognitive and behavioral studies suggest that Keynes was on the right track with "animal spirits," but that he did not go far enough. These endeavors seek be rigorous in the scientific sense.

On the other hand, political economy is based on the application of values and norms to policy formulation. Here, specifically ethic (philosophic) issues arise that are related to ideology instead of science, that is, to "ought" and "should" instead of "is." Then the question become one of criteria and their justification. The fundamental question is whether there are universal criteria that provide an absolute standard for moral judgment morally.

As Lord Keynes says, "Ethics is never far from the surface of discussions of economics, especially practical economic polices."

Social Democracy for the 21st Century
Thoughts on a Version of Consequentialist Ethics
Lord Keynes

Consumer Confidence vs Net_Withdrawals_TGA

Lackluster Consumer Confidence report for March out today from the Conference Board. Story at MarketWatch here.
The consumer confidence index slumped to a reading of 59.7 in March from 68.0 in February. That’s well below the 66.5 expected in a MarketWatch-compiled consensus.
February’s reading also was downwardly revised from an initial 69.7 report. Most of the drop came from a decline in the expectations index, which slumped to 60.9 from 72.4, though the present situation index also fell, to 57.9 from 61.4. The index was the second large drop in three months. That said, retail sales growth has been solid the first two months of the year, posting monthly gains of 0.2% in January and 1.1% in February.
From the Conference Board statement:
“Consumer Confidence fell sharply in March, following February’s uptick. This month’s retreat was driven primarily by a sharp decline in expectations, although consumers were also more pessimistic in their assessment of current conditions. The loss of confidence, particularly expectations, mirrors the losses experienced this past December and January. The recent sequester has created uncertainty regarding the economic outlook and as a result, consumers are less confident.”
We can examine these confidence readings over the recent past months that are discussed in the article in light of the fiscal data over this same time period in the table below.

TGA Net Withdrawals (Trailing 6 months)
Month Total_Withdrawals_TGA Pub_Debt_Redemption Net_Withdrawals_TGA
oct 933 589 344
nov 1035 643 392
dec 947 651 296
jan 969 643 326
feb 992 549 443
mar (25th) 713 402 311

We can see that the extremely large Net Withdrawals from the TGA in February align perfectly with the anomalous higher confidence readings in this same month. And a precipitous drop-off in December followed up by a generally lackluster January align well with the lower confidence numbers in those months also.

Just a small window of time presented here granted, but this data seems to suggest that confidence increases as the government sector injects higher amounts of $NFA into the non-government so that we can make payments on our liabilities and perhaps even save a little  ... hmmmmmm, who would have thought?

Michael Stephens — Kregel and Galbraith on the Euro Crisis

Earlier this month the Athens Development and Governance Institute and the Levy Economics Institute held a forum on the eurozone crisis: “Exiting the Crisis: The Challenge of an Alternative Policy Roadmap.” Below are the remarks [on video] delivered by senior scholars Jan Kregel and James Galbraith.
Multiplier Effect
Kregel and Galbraith on the Euro Crisis
Michael Stephens

Gary Schilling — The Benefits of Chronic Deflation

There is an important distinction between good deflation caused by excess supply and bad deflation created by deficient demand.
Good deflation is the result of new technologies that power productivity and output as the economy grows rapidly and as supply outpaces demand. The bad kind stems from financial crises and deep recessions, which increase unemployment and depress demand below the level of supply.
The Benefits of Chronic Deflation
A. Gary Shilling | President, A. Gary Shilling & Co

Gary Schilling has made accurate forecasts in the past, but his understanding of monetary economics is primitive.

His point on good and back deflation is well taken, though. The most significant way to achieve good deflation going forward is to develop low cost alternative energy sources whose actual cost is not obscured by unacknowledged externalities. The cost associated with carbon-based energy is turning out to be exorbitant and the non-financial consequences unsustainable. This is a no-brainer that needs to be on the front burner.

Instead, Schilling wastes ink on "excess reserves."

Josh Barro — For 'Faster Growth,' Soak the Poor?

This weekend, the Wall Street Journal assembled a redoubtable list of conservative heavies in economics (George Schulz! Gary Becker! John Taylor!) to produce a completely insane account of what is wrong with America's economy and how to fix it. The upshot of the piece is that the U.S. economy is in the tank because the government gives too much money to poor people, and so it should stop.What's most amazing about this piece is what's not in it: any acknowledgement of the specific circumstances that led to the downturn of 2008 and the slow recovery from it. There's no discussion of the housing bubble and the financial crisis, of weak consumer demand as households struggle to deleverage, or of the vast number of job seekers for each available job.
Instead, the authors identify the country's pressing problems as "excessive spending and taxes, growing debt, interventionist monetary policy, and burdensome regulations that have slowed economic growth and job creation." Some of these conditions have indeed arisen from the 2008 crash: Recessions cause government spending and debt to rise relative to the economy. But the authors have the causation wrong: Slow growth has led to rising spending and debt, not the other way around.
So why focus on high spending and regulation rather than the actual cause of our economic woes? Conservatives have made these complaints for the past 30 years. The choice to ignore current economic conditions allows them to advance the same set of soak-the-poor policy solutions at any time and in any economic condition....
Bloomberg | The Ticker

For 'Faster Growth,' Soak the Poor?
Josh Barro | Lead Writer for The Ticker

Bravo Josh Barro

The first two comments at The Ticker:

Laura — They want an aristocracy and won't quit until we all be serfs, plain and simple. 

lemnyc — 

There is a very simple name for the approach favored by Schultz, Becker and Taylor: Class Warfare.


Link here at "The Dollar Vigilante" dot com:  'Freedom fighter against mankind’s two biggest enemies, the State and the Central Banks' ...  (I guess if you thought that the "bond vigilantes" weren't enough!)

Looks like a pitch for "your chance to get in on the ground floor" type of thing... this is BY NO MEANS an endorsement.  Provided FYI for academic purposes only.

Continuously Re-Building a "National Map of Vulnerable Processes"

Commentary by Roger Erickson

Is This possible? Start Continuously Re-Building a "National Map of Vulnerable Processes"

You better hope so. That's all that's kept us alive this long.

Bill McBride — Real House Prices, Price-to-Rent Ratio, City Prices relative to 2000


Calculated Risk
Real House Prices, Price-to-Rent Ratio, City Prices relative to 2000
Bill McBride

Lars P. Syll — Foundations of Paul Samuelson’s Revealed Preference Theory

Wonkish but important in taking down the foundations on which the neoclassical assumption of equilibrium based, positing a representational rational agent using utility maximization as the driver. The problem lies in defining "utility" in a way that provides a connection between the theory and the world it purports to explain through a general description. The problem with "utility" is that it is subjective, hence, non-descriptive. Samuelson tried to overcome this bias using revealed preference, which is behavioral, hence, can be described, e.g., through indifference curves. The post is why this approach is also deficient. Neoclassical economics presumes a downward sloping demand curve, and this cannot be shown convincingly using revealed preference as Paul Samuelson had attempted.

Lars P. Syll
Foundations of Paul Samuelson’s Revealed Preference Theory

The real new world order emerging — from the global south

Reports on the premature death of the BRICS (Brazil, Russia, India, China and South Africa) have been greatly exaggerated. Western corporate media is flooded with such nonsense, perpetrated in this particular case by the head of Morgan Stanley Investment Management. 

Reality spells otherwise. The BRICS meet in Durban, South Africa, this Tuesday to, among other steps, create their own credit rating agency, sidelining the dictatorship - or at least "biased agendas", in New Delhi's diplomatic take - of the Moody's/Standard & Poor's variety. They will also further advance the idea of the BRICS Development Bank, with a seed capital of US$50 billion (only structural details need to be finalized), helping infrastructure and sustainable development projects.
Crucially, the US and the European Union won't have stakes in this Bank of the South - a concrete alternative, pushed especially by India and Brazil, to the Western-dominated World Bank and the Bretton Woods system....

The huge political and economic differences among BRICS members are self-evident. But as they evolve as a group, the point is not whether they should be protecting the global economy from the now non-stop crisis of advanced casino capitalism.

The point is that, beyond measures to facilitate mutual trade, their actions are indeed becoming increasingly political - as the BRICS not only deploy their economic clout but also take concrete steps leading towards a multipolar world. Brazil is particularly active in this regard.
Inevitably, the usual Atlanticist, Washington consensus fanatics - myopically - can see nothing else besides the BRICS "demanding more recognition from Western powers"....

According to the report, "for the first time in 150 years, the combined output of the developing world's three leading economies - Brazil, China and India - is about equal to the combined GDP of the long-standing industrial powers of the North".
The obvious conclusion is that, "the rise of the South is radically reshaping the world of the 21st century, with developing nations driving economic growth, lifting hundreds of millions of people from poverty, and propelling billions more into a new global middle class."

And bang in the middle of this process, we find an Eurasian epic; the development of the Russia-China strategic relationship....

When Putin stressed that he does not see the BRICS as a "geopolitical competitor" to the West, it was the clincher; the official denial that confirms it's true....

It goes without saying that Western elites - even mired in stagnation and bankruptcy - won't let any of their privileges go without a fierce fight.
Asia Times Online
BRICS go over the wall
Pepe Escobar

Fiat Banking Fundamentals for Jane/Joe Sixpack

Commentary by Roger Erickson
(hat tip Scott Fullwiler, @stf18 )
Not perfect, but this really helps Jane/Joe Sixpack understand banking. Nicely worded.

Here's an avowed "gold bug" who actually understands banking operations post 1933. There's nothing incompatible with understanding fiat currency and investing in gold or other static assets. The two asset classes are NOT incompatible. Rather, they're inseparable. One's a static asset, the other's the dynamic unit of account that allows unlimited, on-demand liquidity between all asset classes. Can't have an agile, functioning system without both.

The issue is not whether we should have both. That faux argument just distracts us from the real issue of adequately regulating the crooks that creep into every avenue of human activity, especially banking.

How Banking Actually Works In Fiat World

Links: Surplus and Modeling

Came across two interesting posts in surfing the blogs (hat tip "everybody").

One is at NEP by Mitch Green on the Economic Surplus here.
Through the ages we have erected monuments in honor of our ability to generate an economic surplus. That we perennially produce more than we consume, which of course varies in degree and kind depending on the age and place, means that we simply do not live in a world of scarcity. The materials we use to shelter and feed ourselves, and even pay homage to our cultural heritage are themselves the product of human labor and ingenuity. That is to say, how we get our daily bread depends not so much upon gifts from Mother Nature, but in our ability to coordinate social labor. Homo sapiens is a clever species.
I think Mitch is on to something very important wrt pointing out "the surplus", and our current mis-management of the distribution of it.

But would add that yes although some human input is required, from a secular/pagan perspective, "Mother Nature" is involved to a greater extent than humans are in the deliverance of the current surplus.  For feedstocks from which we indeed obtain 'our daily bread', we may plant the seeds and perhaps water them a bit, but who among us can take it from there?

This writing is a bit vain in this regard especially when we are trying to make the case that our species is "clever" when at the same time our current crop of "leaders", our "elites" so-called, are all running around saying "We're out of money!" and that we are "Borrowing from the future!".

Spare me the accolades for the human at this particular moment, but Mitch's eyeballs are indeed focused on what should be getting much more attention, our great surpluses in real terms.

Another interesting link via Matias V. here to a recent paper of a Fair Model of the U.S. macro system, that includes some interesting perspectives on macro modeling generally.
A macroeconometric model like the US model is a set of equations designed to explain the economy or some part of the economy.  There are two types of equations: stochastic, or behavioral, and identities. Stochastic equations are estimated from the historical data. Identities are equations that hold by deļ¬nition; they are always true.  
There are two types of variables in macroeconometric models: endogenous and exogenous. Endogenous variables are explained by the equations, either the stochastic equations or the identities. Exogenous variables are not explained within the model. They are taken as given from the point of view of the model. For example, suppose you are trying to explain consumption of individuals in the United States. Consumption would be an endogenous variable-a variable you are trying to explain. One possible exogenous variable is the income tax rate. The income tax rate is set by the government, and if you are not interested in explaining government behavior, you would take the tax rate as exogenous.
Goes on from there and includes both government Monetary and Fiscal Policy inputs.  Looks very interesting.

To me, these two posts are related in that our economy should be "modeled" to deliver what we collectively determine via the authority of our government institutions,  a (at least minimally) just and guaranteed  distribution of the "surplus".

A "surplus" that, to stay in the pagan vernacular, is ultimately provided by "Mother Nature", not the human.