Monday, August 31, 2015

Phil Butler — The Impossible Truth About MH17

The plot thickens. Is there no information forthcoming from the US and Russian intelligence services since that would reveal capabilities and weaknesses to adversaries?

New Eastern Outlook
The Impossible Truth About MH17
Phil Butler

Seve141 on "Overseas Profits"

MNE commentator Seve141 dispensed a keeper earlier today:

I believe the author's choice of words are somewhat misleading. 
"stash $2.1 trillion in profits in overseas banks" 
The $2.1 trillion is net of taxes already paid from taxable income in foreign (non-US) jurisdictions. Generally speaking, these are foreign subsidiaries of a US parent company domiciled in the US for tax purposes. 
The bank accounts that hold this money are legally owned by the foreign subsidiaries of US parent companies and may well be at BoA in Manhattan or not. The physical location of the actual bank account isn't important. 
Also, the $2.1 trillion is an aggregate translation of all the local currencies to US dollars, It is not physical US dollars or US dollar bank balances.
The US parent company (domiciled in the US for tax purposes) would very much like to dividend the cash from the subs to the parent and then use that $2.1 trillion for shareholder dividends, share repurchases, bonuses, investments etc. However, if they do so, the US tax code will tax them on that cash dividend from the subsidiary to the parent -- hence the phrase "allowing them to stash $2.1 trillion in profits in overseas banks to avoid paying taxes" 
The US multinational corporations are lobbying and playing a waiting game hoping for another tax holiday ( such as in 2004) allowing them to repatriate foreign profits to the United States without tax consequences.
The phrase stash $2.1 trillion in profits in overseas banks is a loaded one.
Aces Seve.

Jason Smith — Is human agency Noah's big unchallenged assumption?

More on foundations.

Information Transfer Economics
Is human agency Noah's big unchallenged assumption?
Jason Smith

Michael Stephens — Folbre on the Consequences of Ignoring Unpaid Work

Nancy Folbre, who recently joined the Levy Institute roster as senior scholar, was interviewed by Dollars & Sense on the topic of how conventional economics and policymaking deal with (or rather, fail to deal with) household and caring labor….
Multiplier Effect
Folbre on the Consequences of Ignoring Unpaid Work
Michael Stephens

Eric Schliesser — Smith, Design, Hume/Kant, and Transcendental Illusions

Adam Smith versus David Hume on foundations. Smith and Hume, who were contemporaries, were correspondents.

Smith, Design, Hume/Kant, and Transcendental Illusions
Eric Schliesser | Professor of Political Science, University of Amsterdam’s (UvA) Faculty of Social and Behavioural Sciences

Dirk Ehnts — Zhi: A Critique of Modern Money Theory and the Disequilibrium Dynamics of Banking and Government Finance

Such is the title of Tianhao Zhi’s recent paper. Zhi sums up MMT like this:
MMT is getting around.

econoblog 101
Zhi: A Critique of Modern Money Theory and the Disequilibrium Dynamics of Banking and Government Finance
Dirk Ehnts | Lecturer at Bard College Berlin

Jesse Livermore — Fiscal Inflation Targeting and the Cost of Large Government Debt Accumulation

The insight that fiscal policy can be used to manage inflation, in the way that monetary policy is currently used, is not new, but is attributable to the founders of functional finance, who were the first to realize that inflation, and not the budget, is what constrains the spending of a sovereign government. Advocates of modern monetary theory (MMT), the modern offshoot of functional finance, notably Scott Fulwiller [sic] of Wartburg College, have offered policy ideas for how to implement a fiscally-oriented approach. 
My view, which I elaborated on in a 2013 piece, is that the successful implementation of any such approach will need to involve the transfer of control over a portion of fiscal policy from the legislature and the treasury to the central bank. Otherwise, the implementation will become mired in politics, which will prevent the government’s fiscal stance from appropriately responding to changing macroeconomic conditions. 
There are concerns that such a policy would be unconstitutional in the United States, since only the legislature has the constitutional authority to levy taxes. But there is no reason why the legislature could not delegate some of that authority to the Federal Reserve in law, in the same way that it delegates its constitutional authority to create money. In the cleanest possible version of the proposal, the legislature would pass a law that creates a special broad-based tax, and that identifies a range of acceptable values for it, to include negative values–say, +10% to -10% of earned income below some cutoff. The law would then instruct the Federal Reserve to choose the rate in that range that will best keep inflation on target, given what is happening elsewhere in the economy and elsewhere in the policy arena.
Ultimately, the chief obstacle to the acceptance and implementation of fiscal inflation targeting is the fear that it would lead to the accumulation of large amounts of government debt. And it would, particularly in economies that face structural weakness in aggregate demand and that require recurrent injections of fiscal stimulus to operate at their potentials. But for those economies, having large government debt wouldn’t be a bad thing. To the contrary, it would be a good thing, a condition that would help offset the weakness.
The costs of large government debt accumulation are not well understood–by lay people or by economists. In this piece, I’m going to try to rigorously work out those costs, with a specific emphasis on how and in what circumstances they play out. It turns out that there is currently substantial room, in essentially all developed economies that have sovereign control over credible currencies, to use expansive fiscal policy to combat structural declines in inflation, without significant costs coming into play.

The reader is forewarned that this piece is long. It has to be, in order to make the mechanisms fully clear. For those that want a quick version, here’s a bulleted summary of the key points:
Philosophical Economics
Fiscal Inflation Targeting and the Cost of Large Government Debt AccumulationJesse Livermore
ht Phillipe in the comments

Chris Hedges — The Great Unraveling

The ideological and physical hold of American imperial power, buttressed by the utopian ideology of neoliberalism and global capitalism, is unraveling. Most, including many of those at the heart of the American empire, recognize that every promise made by the proponents of neoliberalism is a lie. Global wealth, rather than being spread equitably, as neoliberal proponents promised, has been funneled upward into the hands of a rapacious, oligarchic elite, creating vast economic inequality. The working poor, whose unions and rights have been taken from them and whose wages have stagnated or declined over the past 40 years, have been thrust into chronic poverty and underemployment, making their lives one long, stress-ridden emergency. The middle class is evaporating. Cities that once manufactured products and offered factory jobs are boarded up-wastelands. Prisons are overflowing. Corporations have orchestrated the destruction of trade barriers, allowing them to stash $2.1 trillion in profits in overseas banks to avoid paying taxes. And the neoliberal order, despite its promise to build and spread democracy, has hollowed out democratic systems to turn them into corporate leviathans.

Democracy, especially in the United States, is a farce, vomiting up right-wing demagogues such as Donald Trump, who has a chance to become the Republican presidential nominee and perhaps even president, or slick, dishonest corporate stooges such as Hillary Clinton, Barack Obama and, if he follows through on his promise to support the Democratic nominee, even Bernie Sanders. The labels “liberal” and “conservative” are meaningless in the neoliberal order. Political elites, Democrat or Republican, serve the demands of corporations and empire. They are facilitators, along with most of the media and most of academia, of what the political philosopher Sheldon Wolin calls our system of “inverted totalitarianism.”
How could I not post a link to an article with a lede like that?

The Great Unraveling
Chris Hedges
ht Don Quijones at Naked Bull-Shit

Izabella Kaminska — Scaling and why it matters

Not enough attention is paid to scale. Scaling is the basis of civilization. As Roger Erickson has pointed out, it is also the basis of evolution. Dizzy calls our attention to it with respect to the push for decentralization and sharing. Descaling won't work, especially in a capitalistic system in which there are economies of scale.

Scaling and why it matters
Izabella Kaminska

David F. Ruccio — The idea that we shouldn’t be concerned about inequality is bullshit

I think that "inequality" is the wrong term and concept here. The opposite inequality and none of the parties to the debate is arguing for equality of income or wealth. The problem is not resolved just by giving the poor more since the issues are broader and deeper. The problem is not "inequality," but asymmetry and disparity.

Asymmetry and disparity affect not only individual but also systemic functioning. This is both immoral and uneconomic and the two should be kept distinct since one is chiefly a normative issue and the other a factual one.

Better to emphasis basic rights along with systemic asymmetries and social disparity that results in privilege at the top and exclusion from the system at the bottom, both unmerited for the most part. The result is social, political and economic dysfunction.

In addition, there needs to be a distinction drawn between needs and wants. Basic needs that are vital are matters of right instead of merit in situations in which they can be met. Disparity in satisfying wants is not itself crucial. The issues resulting from disparity of wealth and income relate more to the resultant social, political and economic asymmetries that lead to systemic dysfunction.

Occasional Links & Commentary
The idea that we shouldn’t be concerned about inequality is bullshit
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

See also

Capitalism—a love story

Lars P. Syll — Brad DeLong is wrong on realism and inference to the best explanation

Lars follows up on Brad's post on David Little.

I think that debate could be clarified logically by a discussion of criteria. There seem to be a lot of implicit assumptions about this. Best to make them explicit.

This gets back to the philosophical debate over ontological reality and epistemic knowledge of reality. The history of philosophy is a large measure an enquiry about three fundamental questions:
  1. What is there? (Ontology and Metaphysics)
  2. What can be know about what there is? (Epistemology and Theory of Knowledge)
  3. What can we express about what is? (Philosophical logic, Analytic Philosophy, and Semiotics)
Realism holds that humans have immediate knowledge of what is. Idealism holds that knowledge is mediated by the mind, process of experience, or confined to the mind, so that "reality" for humans is consciousness-based and determined by human consciousness. Some idealists hold that while knowledge is confined to experience, human believe that there is something independent of experience responsible for it, but that humans have no way of going beyond experience, which is phenomenal, that is, appearance.

The philosophical issue is about reality versus appearance.

Naïve realism aka the commonsense view of the world holds that we know what is directly as a matter of self-evidence. This is the view that is generally held. This is disputed in the history of philosophy from ancient time. Now the debate has extended to cognitive science and psychology.

Critical realism holds that we know reality directly and attempts to explain how.

Idealism hold that knowledge is of the mind rather than external reality. Positivism and empiricism are subjective idealists, holding that knowledge is model-based and sense-based. Subjective idealism as phenomenalism because widespread among those who appreciated science after the discovery of how perception functions through the senses being receptive to light and sound waves from the environment. From this point of view it seemed as if realism must wrong since all humans know about what is comes by way of experience, which is phenomenal.

Pragmatists attempt to avoid the issue by holding that knowledge is about experience. But human experience is phenomenal unless one assumes that experience is reality, in which case idealism follows from the assumption unless an explanation based on solid criteria is forthcoming about how experience is not mentally based.

Idealistic views involve a denial of intellectual intuition that bridges the knowledge gap between experience as appearance and reality existing prior to and independently of experience.

Why is this significant? It relates, for example, to the issue of certainty versus uncertainty, true knowledge versus opinion. It also relates to causality. Is so-called causality over constant conjunction of observables, as Hume asserted, or it causality the structure and functioning of real things that exist ontologically independently of observation.

Hume held that knowledge is limited to sense data and logical operations, and universals are mental abstractions. Aristotle held that in addition to sense intuition by which objects are known, human also use intellectual intuition to know the essences of objects as universals.

In between these two positions there is a lot of waffling. (Just kidding.)

Wittgenstein says to look to how language works as a symbolic system, and especially, examine the criteria. In my view, this is a prerequisite to debate. Much of the debate is misplaced, since the participants don't appreciate the issues and don't formulate them in a sound form that makes assumptions explicit. So parties end up at loggerheads over implicit assumptions.

While these questions may seem to some to be trivial, exotic, or even a waste of time, everyone makes assumptions about them that determine one's ideological framework that shapes one's worldview. This influences thought and action, and so the consequences are far-reaching, for example, in macroeconomics and political economy with respect to policy formulation.

Lars P. Syll’s Blog
Brad DeLong is wrong on realism and inference to the best explanation
Lars P. Syll | Professor, Malmo University

Cheap oil always boosts economic growth - UK economist

If you remember back when it was going up, everybody thought it would cause a collapse, now with it going down, everybody thinks it will cause a collapse.

Sunday, August 30, 2015

Brad DeLong — Live from Yellowstone Lake Lodge: WTF!? Daniel Little: The Case for Realism in the Social Realm

Brad gets critical about critical realism. Regardless of who is correct (how can we know?), it is good to see economists dealing with fundamental ontological and epistemological questions.

Grasping Reality
Live from Yellowstone Lake Lodge: WTF!? Daniel Little: The Case for Realism in the Social RealmBrad DeLong | Professor of Economics, UCAL Berkeley

Bill Mitchell — Monetary liquidity operations and fiscal policy interventions

Today, is the official launch of my new book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – in Maastricht, which is an appropriate geographic location given the book proposes to dismantle the Eurozone. It just happens to be the place (Maastricht University), where we established CofFEE-Europe (a sister centre to my research centre in Australia). There are two excellent guest speakers (see below) and I am very grateful that they agreed to accept the invitations. The upshot is that I haven’t all that much time today. Over the next few days I will address some points that were raised in question time or at the reception (aka cup of tea and cakes) after the event in London last Thursday evening. There is still work to be done if the progressive side of politics is to fully understand Modern Monetary Theory (MMT) and the implications of it for policy development and choice.
Hopefully, the book will have a broad and deep readership, and make a difference.

Bill Mitchell – billy blog
Monetary liquidity operations and fiscal policy interventions
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Saturday, August 29, 2015

Conn M. Hallinan — Europe’s New Barbarians

On one level, the recent financial agreement between the European Union (EU) and Greece makes no sense: not a single major economist thinks the $96 billion loan will allow Athens to repay its debts, or to get the economy moving anywhere but downwards. It is what former Greek Economic Minister Yanis Varoufakis called a “suicide” pact, with a strong emphasis on humiliating the leftwing Syriza government. 
Why construct a pact that everyone knows will fail?
Dispatches from the Edge
Europe’s New Barbarians
Conn M. Hallinan is a columnist for Foreign Policy In Focus, “A Think Tank Without Walls, and an independent journalist. He holds a PhD in Anthropology from the University of California, Berkeley. He oversaw the journalism program at the University of California at Santa Cruz for 23 years, and won the UCSC Alumni Association’s Distinguished Teaching Award, as well as UCSC’s Innovations in Teaching Award, and Excellence in Teaching Award. He was also a college provost at UCSC, and retired in 2004. He is a winner of a Project Censored “Real News Award,” and lives in Berkeley, California.
ht Clonal

Friday, August 28, 2015

Sputnik International — Weak Ruble Drives Russian Car Production Boom

Volkswagen and Hyundai representatives have announced unprecedented plans to increase the production of their cars in Russian factories, for eastern export markets
Russian manufacturers gearing up too.

Russia Insider
Weak Ruble Drives Russian Car Production Boom
Sputnik International

Alexrpt — Forbes Fail! Western media outlet publishes fake Russian troop casualty article, and its zombie readers actually believe it

Funny. Especially since the butt of the joke is Paul R. Gregory, a noted Russophobe "expert," who got punked, along with a few others.

Paul R. Gregory is a Research Fellow, Hoover Institution, Cullen Professor of Economics, University of Houston, research professor at the German Institute for Economic Research in Berlin, chair of the International Advisory Board of the Kiev School of Economics, and co-editor of the Yale-Hoover Series on Stalin, Stalinism, and Cold War. He has co-edited archival publications, such as the seven volume History of Stalin’s Gulag (2004) and the three-volume Stenograms of Meetings of the Politburo (2008). Gregory is the organizer of the Hoover Sino-Soviet Archives Workshop that takes place in the summer at the Hoover Institution. His recent publications include Lenin’s Brain and Other Tales from the Secret Soviet Archives (Hoover 2004) and Terror by Quota (Yale, 2009).

Red Pill Times
Forbes Fail! Western media outlet publishes fake Russian troop casualty article, and its zombie readers actually believe it

SYRIZA is slipping. New poll shows only a 3.5 point lead over rival pro-EU party New Democracy

Forget the Greek elections. Ex-finance minister Varoufakis is launching Pan-Εuropean network to fight austerity

F. William Engdahl — China Rails Linking Eurasia

China has become the world’s leading makers of modern railroads and equipment. It has done so as part of a long-term strategy to weld a new economic space, build entirely new markets where none before existed. They studied the European rail-makers, studied the German ICE high-speed railways, engaged Siemens and a German consortium to build the world’s first magnetically levitated (maglev) train to link Shanghai’s international convention center to its new international airport at speeds between 300-400 km per hour. Now they are working on an entire new concept of fast rail as well as negotiating with some 28 countries to build high-speed conventional rail lines. China has become the address when it comes to rails and it is changing the world as we know it.….
New Eastern Outlook
China Rails Linking Eurasia
F. William Engdahl

Susie Cagie — Best way to solve homelessness? Give people homes.

Homelessness has always been more a crisis of empathy and imagination than one of sheer economics. Governments spend millions each year on shelters, health care and other forms of triage for the homeless, but simply giving people homes turns out to be far cheaper, according to research from the University of Washington in 2009. Preventing a fire always requires less water than extinguishing it once it’s burning.

By all accounts, Housing First is an unusually good policy. It is economical and achievable. The only real innovation lies in how to inspire the necessary compassion and foresight to spur governments into building those needed homes.

But Housing First is not very popular. It runs directly counter to the US meritocratic mythology, where one is presumed to fail or succeed by one’s own hand. The homeless are presumed to have earned their place on the street.

Complement to the Job Guarantee. Food, shelter, health care and a job guarantee are vital needs that should be recognized as human rights in developed societies. The opportunity cost is low when compared with the alternative — a dysfunctional society that perpetuates itself. 

The argument against it seems to be that this would destroy incentive and undermine a capitalistic economy, where capital is prioritized over people and the environment. Societies with socialistic economies get this, however, since they prioritize people and the environment over capital.

Moreover, the argument might have made sense when people had access to resources for obtaining food and shelter by their own initiative, but since primitive accumulation and the proliferation of private property that no longer applies, especially in modern urban life.

It is societal institutions that produced this change and therefore it is up to society to address the consequences adequately so that the social fabric is maintained and no one suffers needlessly where there are adequate resources.

Aeon Magazine
Best way to solve homelessness? Give people homes
Susie Cagie

Toyota Lowering Prices

Toyota lowering the price of Prius liftbacks in USD terms (at least temporarily):

Matias Vernengo — Thirlwall à la Godley

Arguably Godley had a version of Thirlwall's Law in his model too. As noted by Zezza: "the ideas underlying the ‘New Cambridge Hypothesis,’ which assumed... that the private sector would adjust rather quickly to a shock, to restore its desired income/assets ratio." In this sense, in the long run in a steady state Godley assumed that the net acquisition of financial assets would be zero. This would be a stock version of the flow equilibrium between investment and savings, the private balance.
Naked Keynesianism
Thirlwall à la Godley
Matias Vernengo | Associate Professor of Economics, Bucknell University

Yannis Palaiologos — Parallel currency would have led to Grexit, says Jeffrey Sachs

Jeffrey Sachs confirms Yanis Varoufakis's side of the story.

Parallel currency would have led to Grexit, says Jeffrey Sachs
Yannis Palaiologos
ht Clonal

Tropical Update

Notice how our qualified and competent meteorologists have included the time domain in their analysis and resultant predictive path for the current tropical storm Erika:

Thursday, August 27, 2015

Nadia Prupis — At Washington’s Insistence, WTO Rules Against India’s Push for Clean Energy

The World Trade Organization (WTO) on Wednesday ruled against India over its national solar energy program in a case brought by the U.S. government, sparking outrage from labor and environmental advocates.

As power demands grow in India, the country’s government put forth a plan to create 100,000 megawatts of energy from solar cells and modules, and included incentives to domestic manufacturers to use locally-developed equipment. 

According to Indian news outlets, the WTO ruled that India had discriminated against American manufacturers by providing such incentives, which violates global trade rules, and struck down those policies—siding with the U.S. government in a case that the Sierra Club said demonstrates the environmentally and economically destructive power of pro-corporate deals like the Trans-Pacific Partnership (TPP).…

I'm waiting for when US meat exporters sue India for prohibiting the exportation of beef. Oh, and when dope is legalized in the US, the US dope industry, which will no doubt be Big Pharm, will be suing countries that ban it. The US porn industry will also have a field day suing for damages from market exclusion. Big bucks there.

Raging Bull-Shit
At Washington’s Insistence, WTO Rules Against India’s Push for Clean Energy
Nadia Prupis, Common Dreams

Zhang Xuan — Over 4.7 million youths apply to the army: MND

The annual salary of a new soldier could reach up to 88,000 yuan ($13,745), higher than the starting salary of many other professions, Zheng said.…
When they are discharged after two years of service, some enjoy benefits like funding for further education, while others can choose to continue military service as officers, according to Song.
Reports said 3,075 university students who served as soldiers were promoted and 1,573 of the best soldiers were recommended for postgraduate studies in 2013.
Well, that's one way of dealing with youth employment and funding education. The Chinese leadership doesn't seem to think that China is running out of money.

I see the Dow trading back to the low, 17,000s, but not doing much after that

The U.S. stock market is in "recovery" after the irrational plunge of late last week/early this week. It's coming back as I said it would, however, I don't see the Dow going much above the low, 17,000s for now.

We're really going to have to wait until the new fiscal year and what Congress decides with respect to the debt ceiling. Failure to raise the debt ceiling will have very damaging consequences so this bounce back in the stock market could be the rally to sell if you are into shorting stocks (which I am not).

If they raise the debt ceiling and continue on the spending path that is forecast by the CBO (spending increases by $250b) then we should have another very decent year for the market.

Don't look at the deficit. It might even be a surplus in 2016. Then what are people going to say?

The Saker — Europe in free fall

Europe is in free fall. Nobody can doubt that any more. In fact, the is EU simultaneous suffering from several crucial problems and any one of them could potentially become catastrophic. Let’s look at them one by one.…
The Vineyard of the Saker
Europe in free fall
The Saker

Victor Veritov — The Collapsing World Order is Russia's New Challenge

Politics is a huge and complex world of relations between people and states. We watch the news on television and we read articles which tell us about various problems, conflicts, and state figures. Being in a giant whirlpool of information, it is difficult to fit everything into some kind of overall picture. It’s even more difficult to understand where and towards what the whole world, led by these or those political forces, is going.
Challenges are frightening. The fact of the existence of weapons of mass destruction has not been abolished, and this means that there is a chance that they will be used. Everyone understands that a nuclear war will destroy everyone, and it keeps the world from starting a new conflict. But the generation of those who remember the horrors of the world wars is almost gone. And history, unfortunately, teaches us that no one learns and nothing is learned. Everything is always repeated again by the same scenarios and patterns.…
Fort Russ
The Collapsing World Order is Russia's New Challenge
Victor Veritov, PolitRussia
Fort Russ translation by J. Arnoldski -

Frances Coppola — Europe's Shame

Shame, or just showing true (neoliberal) colors? Same in the USA, especially the broad reception for Trump's neo-fascist view of immigration.

Coppola Comment
Europe's Shame
Frances Coppola

Stratfor — How China's Currency Policies Will Change the World

There were several reasons behind China's decision, but it nevertheless came as a surprise to many. In search of stability, China has tied its currency to the U.S. dollar since 1994, usually at a low value relative to the dollar. During the 2000s, the connection helped China keep its exports competitive, with the developed world consuming its output. The West's economic collapse in 2008 meant that this model could no longer function, and China began trying to grow consumption levels so that the domestic consumer might come to fill the hole left by the faded international market. 
Changing China

Transforming from an export-led economic model to a consumption-led one could be described as changing from being like Germany to being like the United States, and China has tried to reproduce some of the advantages that the United States has created for itself in the same role. One of those advantages is the dominant position of the U.S. dollar in world trade, which means U.S. consumers can go deeply into debt and global demand for dollars will delay the moment at which this comes to a head by those debts being catastrophically called in. Thus China sought to grow international usage of the yuan, making strides in its attempts to do so. The next step would be for the yuan to be accepted into the International Monetary Fund's "currency," the Special Drawing Right. However, the IMF has said that China would need to liberalize its currency before such a step could take place. The IMF makes the decision every five years, with one originally set for November this year, but the institution recently pushed it back to October 2016.….
Neoliberal-think. All about interest rates, exchange rates, and central banking.

How China's Currency Policies Will Change the World

Sputnik International — No Clear View of How Eurozone Will Weather Crisis [Wray interview]

Sputnik's interview with Randy Wray published today.

Sputnik International
No Clear View of How Eurozone Will Weather Crisis

Pepe Escobar — Brave (Miserable) New Normal World

  • For China this is a necessary stock market correction - not an economic implosion
  • It's not a harbinger of a new global crisis - just a sign we never really got out of the last one
  • The outlook for everyone is bleaker than many thought - but probably less so for China than Europe and even the US
Russia Insider
Brave (Miserable) New Normal World
Pepe Escobar

Gonna short USDJPY pretty soon

The dollar is experiencing a bounce along with stocks after getting crushed over the past week. I don't know about the euro, which may very well head lower as it's doing now, however, I think the dollar's break all the way down to 116 yen on Monday signals a change in trend.

I have been looking for the yen to rally based on a couple of factors, one being the steep drop in oil prices and the other, the fact that after four years Japan has begun restarting their nuclear reactors.

Right now I am looking for a level  to short USDJPY and I think I may enter this trade around 121.28 if we get up there.

Deficit too small? Then how'd we get a 3.7% GDP growth rate?

Second quarter GDP just came out with a 3.7% growth rate. Not too shabby. But the deficit is supposedly too small,  so how did we achieve such a strong growth rate?

As Matt and I have been saying here, for the last two years: when top line government spending is over $4 trillion annually, that's a leading flow. That drives everything. The deficit is what it is. Looking at the deficit will send you astray and you will lose money. We're the only ones getting this correct.

It's not about the size of the deficit.

Venezuela Food Shortages

Here we go...

Bill Mitchell — US Federal Reserve should not increase interest rates

Greetings from London in the early morning! If we went back a few years and dug out all the predictions and scare campaigns that were being issued by mainstream economists and their conservative ‘think tank’ conduits about the impending disaster that would accompany the near zero interest rate regimes that the US Federal Reserve Bank had implemented it would make a great comedy sketch. There should be no surprise with the massive predictive failures of the mainstream economists in this regard. They clearly did not understand the underlying dynamics that govern the way the central bank interacts with the commercial banks. The problem is that these conservative forces are so dumb they don’t have adaptive learning mechanisms and so even in the fact of evidence contrary to their Groupthink they keep pumping out the same nonsense. The other problem is that they tend to be well funded by the right-wing establishment that they exhibit disproportionate influence on the public policy debate. That influence has turned to demands that the US Federal Reserve Bank (the central bank) increase interest rates and reverse its quantitative easing – apparently because hyperinflation is just around the corner. Nothing could be further from the truth. At present the US economy is some way into a very slow and relatively tepid recovery. But it has still some way to go and while interest rate changes have a relatively weak impact on overall growth any anti-growth noise is undesirable. It is also not justifiable given the central bank’s own logic.…

Bill Mitchell – billy blog
US Federal Reserve should not increase interest rates
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Wednesday, August 26, 2015

Steve Keen — Why China Had To Crash Part 1

Steve is on a roll — at Forbes no less.

Peter Radford — Mea Culpa: Storytelling Part Two

Another must read from Peter Radford about the foundations of economics. As he observes, these involve life and death issues because economics is not only descriptive but also performative, especially when it is policy-oriented and the wrong story can lead to disaster.

The Radford Free Press
Mea Culpa: Storytelling Part Two
Peter Radford

Steve Roth — Real Household Net Worth: Look Out Below?

Bearish signal developing?

Trump just said something really, really, stupid

Trum, cut the fat

I've been really liking Trump, but now he comes out and says something really stupid. (In my view.)

He says he would fight to not raise the debt ceiling. Fight to NOT RAISE THE DEBT CEILING.

Not raising the debt ceiling is the same as fixing the quantity of money (dollars). We might as well go back on the gold standard.

Trump says he would do this by "cutting lots of fat" in the budget. He says there's lots of fat.

He's wrong. About 60% of the $4 trillion the gov't spends annually comes from five items: Social Security, Medicare, Medicaid, defense and interest on the debt.

He said he not going to cut Social Security. He said that everyone will get health care. He said that he is going to really "beef up" our military. So where does he see all this "fat?" Education? Highways? Fire all gov't employees?

Trump needs to realize that there is no fat. Whatever he cuts will only kill the middle class even more and he says he's all about helping middle class.

Ramanan — The Kaldor-Verdoorn Effect

Anyway, to conclude, cheering for productivity is not going to help the world economy. The solution is to increase production: productivity will rise when production rises. The standard story as told in Mankiw’s textbook is erroneous.
Mankiw has the causality reversed.

The Case of Concerted Action
The Kaldor-Verdoorn Effect

Smoke and Mirrors — Sharmini Peries interviews Michael Hudson

Video and transcript.

Michael Hudson
Smoke and Mirrors
Sharmini Peries interviews Michael Hudson

China’s Stock Market Tumble And The Outlook For The Global Economy — Dasha Chernyshova interviews L. Randall Wray

The US is the pivot point, not China.

Probably the most interesting aspect of the post is that Sputnik chose to interview Randy. Maybe the Russians are figuring things out.

New Economic Perspectives
China’s Stock Market Tumble And The Outlook For The Global EconomyDasha Chernyshova, Moscow reporter for the Sputnik News Agency, interviews L. Randall Wray, Professor of Economics, University of Missouri at Kansas City

In typical clueless Bloomberg reporting style, company says U.S. has no options to avoid downturn

Looks like Bloomberg has a new "Caroline Baum." Remember her? She was the cinema major who regularly opined on economic matters and each time it was a shock and awe display of economic and monetary ignorance.

But Baum left earlier this year so the new girl over there is some chick named Kasia Klimasinska. Today she writes that the U.S. had, like, zero options to deal with a downturn.

 Bloomberg LLP is clueless

The headline caught my attention (stupid fodder) so I checked it out. I wanted to see if she said anything about fiscal policy or, if was all going to be about the Fed not having any "bullets."

And guess what? I did find this pearl on fiscal policy:

U.S. debt stands at 74 percent of gross domestic product, compared with 35 percent in 2007, based on a Congressional Budget Office report released Tuesday. That burden is expected to grow further in coming years, limiting government options for additional fiscal stimulus in the form of spending or lower taxes.
While the U.S. could follow in the footsteps of Japan, Ireland, Italy or Greece, which have racked up   even higher debt-to-GDP levels, heftier deficits would be a hard political sell. After all, Congress has been loathe to borrow, curbing spending through "sequester" limits and pushing the nation to the brink of default in 2011 amid disputes over a debt-limit extension.

Yes, you did see that..."follow in the footsteps of Greece." If it came out of Bloomberg you KNEW that had to be there.

When she says that the debt level of 74% of GDP "limits government options" I'm left wondering, according to who? Her?

To her credit she says it would be a hard political sell. She's right on that score, but that's only because we have an inept leader named Barack Obama who believes that "we're out of money."

Then she says this:

Partly for that reason, the Bank for International Settlements has warned that still-low rates around the world pose a looming economic risk. 

So according to Kasia it looks like the United States of America is taking marching orders from the Bank for International Settlements now.

And Mike Bloomberg built a $40 billion fortune on this crap? I'm REALLY in the wrong business.

Rig Count

700 rigs still drilling in the U.S. (glass half full...)

If you read Michael Hudson in the post below he says,
"in the aftermath of when the bubble burst in 2008, that all of the growth in the economy has only been in the financial sector,"

Well last year you can see from the chart that rig count was over 1,500 and in 2008 (if you look it up) there were less than 400 oil rigs in operation.

Since 2008 the U.S. domestic production of crude has increased by 4 million bbls per day or so (again, if you look it up.)

Last time I checked, the petroleum sector was not in the financial sector.

What planet is the ideological boob Hudson living on?

Hudson's comments here are very disrespectful to all of the hard work our fellow citizens have been doing in and around the oil patch to war against what had become a very high monopoly rent the OPEC nations had been able to impose on us in the 2008 era, when crude went to the $150 range.

All of these of our fellow citizens hard work  for the last 7 years has contributed the most to our nation's being able to now achieve much improved real terms of trade that is reflected in the current strong USD.

The USD is stronger today because a bunch of our fellow citizens went to back breaking knuckle busting work against the oil cartel and made it so; not because USDs have become harder to get or any other nonsense QTM theories.

We owe these of our fellow citizens our gratitude not our ignorance.

Democracy Now — China stocks over consumption – Amy Goodman interviews Michael Hudson

Video and transcript.

Michael Hudson
Democracy Now: China stocks over consumption
Amy Goodman interviews Michael Hudson for Democracy Now!

Tuesday, August 25, 2015

Peter Radford — Libertarian Economics

Must, must read. Peter Radford absolutely nails it.

It's really about economic liberalism in general rather than what goes by the name Libertarian today.

Economic liberalism in whatever form is utopian, anachronistic, and anti-democratic. It is ideological rather than scientific, based on selective assumptions rather than on discovery of "natural laws," as represented.

This is easier to see in the case of Austrian economics and Libertarianism, but it is concealed beneath only a thin veneer in Classical and Neoclassical economics. Keynes saw through it, as Marx, Veblen and other had previously.

The Radford Free Press
Libertarian Economics
Peter Radford

Paul Buchheit — Capitalism Just Isn’t Working – The Evidence Keeps Pouring In

The myth of trickle down exposed.

Bill Totten's Web Log
Capitalism Just Isn’t Working – The Evidence Keeps Pouring In
Paul Buchheit
Originally posted at Common Dreams (August 24 2015)

Jeremy Corbyn's opposition to austerity is actually mainstream economics — Open Statement

His opposition to austerity is actually mainstream economics, even backed by the conservative IMF. He aims to boost growth and prosperity.…
Despite the barrage of media coverage to the contrary, it is the current government’s policy and its objectives which are extreme.…
We the undersigned are not all supporters of Jeremy Corbyn. But we hope to clarify just where the “extremism” lies in the current economic debate.
The Guradian
Jeremy Corbyn's opposition to austerity is actually mainstream economics
David Blanchflower
Bruce V Rauner professor of economics, Dartmouth and Stirling, ex-member of the MPC

Mariana Mazzucato
Professor, Sussex

Grazia Ietto-Gillies
Emeritus professor, London South Bank University

Malcolm Walker
Emeritus professor, Leeds

Robert Wade
Professor, LSE

Michael Burke

Steve Keen
Professor, Kingston University London

Victoria Chick
Emeritus professor, UCL

Anna Coote
NEF personal capacity

Ozlem Onaran
Professor, Greenwich

Andrew Cumbers
Professor, Glasgow

Tina Roberts

Dr Suzanne J Konzelmann

Tanweer Ali
Lecturer, New York

John Weeks
Professor, SOAS

Marco Veronese Passarella
Lecturer, University of Leeds

Dr Judith Heyer
Emeritus Fellow, Somerville College, Oxford

Dr Jerome De-Henau
Senior lecturer, Open University

Stefano Lucarelli
Professor, University of Bergamo

Paul Hudson
Formerly Universität Wissemburg-Halle

Mario Seccareccia
Professor, Ottawa

Dr Pritam Singh
Professor, Oxford Brookes

Arturo Hermann
Senior research fellow at Istat, Rome

Dr John Roberts

Cyrus Bina
Professor, Minnesota

Alan Freeman
Retired former economist

George Irvin
Professor, SOAS

Susan Pashkoff

Radhika Desai
Professor, University of Manitoba

Diego Sánchez-Ancochea
Associate professor, University of Oxford

Guglielmo Forges Davanzati
Associate professor, University of Salento

Jeanette Findlay
Senior lecturer, Glasgow

Raphael Kaplinsky
Emeritus professor, Open University

John Ross
Socialist Economic Bulletin

Steven Hail
Adjunct lecturer, University of Adelaide

Louis-Philippe Rochon
Associate professor, Laurentian

Hilary Wainwright
Editor, Red Pepper

Arturo Hermann
Senior researcher, ISAE, Rome

Joshua Ryan-Collins
NEF personal capacity

James Medway
Lecturer, City University

Alberto Paloni
Professor, Glasgow

Dr Mary Roberton

EW News Desk Team — Despite Sharp Slowdown in Chinese Economy, IMF Says Not Recession, Just "Necessary Adjustment"

According to Carlo Coattarelli, an IMF Executive Director, "Monetary policies have been very expansive in recent years and an adjustment is necessary…It's totally premature to speak of a crisis in China.
Coattarelli reiterated the IMF's prior forecast of a 6.8 percent expansion of the Chinese economy for 2015. While this rate of growth is quite respectable, it is less than 2014's growth of 7.4 percent. To put that figure into perspective, IMF predicts global growth at 3.3 percent for 2015, and US economic growth a mere 2.5 percent. That makes China's economic growth still quite admirable and well ahead of most other major economies.
According to the IMF, the slowing of the Chinese economy is natural. Although it created a shock to the global financial markets, the IMF believes this was merely reactionary and not indicative of long-term institutional weakness. The IMF sees the slowdown as the natural consequence of years of rapid growth with little breaking, even as the rest of the world suffered a slowdown.
Markets (over)reacting to "bad news," or just looking for an excuse to correct?

Jon Perr — Economists Warn of GOP Threat to U.S. Economy

Add to all this that a weak economy likely benefits the GOP in 2016.

Winterspeak — Krugman out of paradigm

Warren Mosler versus Paul Krugman. in which Mosler wins.
A lifetime ago, Krugman wrote that mathematical models were useful because they took implicit, inconsistent assumptions and make them both explicit and consistent. This was an aid to clear thinking.
His current thinking on monetary operations has a number of implicit assumptions, which is why he believes a fiat state has the same constraints and responsibilities as a household, and why his thinking fundamentally comes from the "sound finance" school of thought and not the "functional finance" school of thought proposed by Abba Lerner back in 1951.
Warren defines nongovernment net financial assets in aggregate:
Mosler: …  the US public debt, for example, is nothing more than the dollars [as tax credits] spent by the govt that haven’t yet been used to pay taxes. Those dollars constitute the net financial dollar assets of the global economy (net nominal savings), as actual cash, or dollar balances in bank accounts at the Federal Reserve Bank called reserve accounts and securities accounts. Functionally, it is not wrong to call these dollars the ‘monetary base’.
Currency as tax credits are liabilities held by nongovernment as financial assets. In aggregate, these assets are net of nongovernment creation of the unit of account through lending (loans create deposits). Borrowing and lending in nongovernment in a unit of account must net to zero as an accounting identity. Any net financial assets can only come from the currency issuer as a liability of the issuer that is correspondingly the asset of currency users. 

This is why payment of taxes with tax credits cancels the liability of the currency issuer and "destroys" that amount of the unit of account, that is, reduces the "monetary base" in Mosler terms, which includes government securities, as the total amount of liabilities of the currency issuer held by currency users in aggregate in the currency zone.
Krugman out of paradigm

Brian Romanchuk — MMT And Net Financial Assets

Here we go again on net financial assets held by nongovernment in aggregate (currency issuer liability-currency user asset) and the role the concept plays in the MMT model based on government finance, nongovernment finance, and national accounting.

Brian cites Steve Roth's post and comments on the issues raised in terms of MMT.

Ramanan is up with a post on Steve's post here, too.

Bond Economics
MMT And Net Financial Assets
Brian Romanchuk

Bill Mitchell — The roots of MMT do not lie in Keynes

I am currently working on an introductory chapter to a collection I have prepared for my publisher (Edward Elgar) which describes the evolution of Modern Monetary Theory (MMT). The task might appear to be straightforward but in fact is rather vexed. There is considerable dispute as to where the roots lie. A specific debate is the importance of the work of John Maynard Keynes. Many Post Keynesians, almost by definition, believe that Keynes was a central figure in the development of what we now call Post Keynesian economics, although that ‘school of thought’ evades precise identification and is certainly anything but homogenous. There are MMT proponents, who while sympathetic which much of Post Keynesian theory, disagree on key propositions – specifically relating to debt and deficits (as an example). But then they also point to Keynes’ work as seminal in the development of MMT. My own view is that many of the important insights in Keynes were already sketched out in some detail in Marx. Further, the work of the Polish economist Michał Kalecki was much deeper in insight than the work of his contemporary, Keynes. But for me the real sticking point against Keynes was his view that fiscal deficits should be balanced over the business cycle and that would allow governments to pay back debt incurred in the deficit years. That view has crippled progressive thought ever since and is antithetical to MMT. The debate also has resonance with the current leadership struggle within the British Labour Party about fiscal deficits and the claims by the ‘socialist’ candidate, Jeremy Corbyn that he will “balance the budget” when unemployment is low so as to avoid inflation. This view derives from the adoption by progressives of Keynes’ views, whether they know that or not. It is a mistaken view and retards progressive policy development.…
Bill Mitchell – billy blog
The roots of MMT do not lie in Keynes
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Sign my petition to shut down CNBC

Please sign my petition to shut down CNBC. Let's try to get this atrocity off the air.

Get CNBC off the air

Go here and sign it!

Oil seller's sales down, gadget seller's sales up

Incomes are sustained by constant leading govt spending of over $4T+/yr so sales shift to other sectors when one major sector experiences a significant downward price adjustment.

Stock market share prices can become volatile as investors buy and sell shares of various firms in response to these product price and sales rate and composition changes.

CNBC should be held liable for their terrible "analysis" and their reporters should be required to have malpractice insurance!

Clueless reporters, Girlie men.

Imagine if doctors practiced medicine this way? Clueless.

That's how the morons at CNBC practice economics and investing.

Yesterday in the midst of all the panic, CNBC resident "girlie man," David Faber, was utterly speechless on air, even exuded a sense of panic when the market opened sharply lower.

Rather than be a calming force and telling people to stay cool (it's not like we haven't seen violent market corrections before), he looked like a deer in the headlights while cryptically uttering, "I...I...uh...I gotta make some calls."

Meanwhile, I was on another network, calmly telling viewers to stay calm and use the selling as a buying opportunity.

CNBC should be held liable and their reporters should be required to have malpractice insurance for the terrible, misleading and ignorant commentary and "analysis" (Ha!) they give to people.

Monday, August 24, 2015

David F. Ruccio — Does capitalism cause poverty? Let us count the ways

Clearly, Pope Francis’s criticisms of capitalism (as I have discussed here and here) have touched a nerve. They certainly have in the case of Harvard’s Ricardo Hausmann, who attempts to argue both that capitalism is not responsible for causing poverty and that more capitalism will eventually eliminate poverty.
Hausmann’s story is a very familiar one. What it comes down to is the idea that the majority of people before capitalism arrived one the scene were poor and as capitalism develops and more and more people became wage-laborers with rising real wages. But areas of the world still remain outside of capitalism and those people will remain poor unless and until capitalism is allowed to fully develop.
It’s a story that is as old as Adam Smith’s Wealth of Nations, and it’s been told and retold by generations of classical and neoclassical economists ever since.
Their story is certainly right about one thing: capitalism does create the promise of ending poverty.
The problem is, their story conveniently overlooks important aspects of the development of capitalism—all the ways capitalism has over the course of its history created more, not less, poverty. I’m thinking of four instances in particular.…
Occasional Links & Commentary
Does capitalism cause poverty? Let us count the ways
David F. Ruccio | Professor of Economics University of Notre Dame Notre Dame

Alexy Lossan — Russia's GDP shrinks only 0.5 percent due to sanctions, experts say

The introduction of anti-Russian sanctions in relation to the Ukraine crisis resulted in the decline of Russia's economy only by 0.5-0.6 percent. Russian experts believe that first and foremost the economy is affected by oil prices, not the sanctions.
This seems to be the consensus view. 

What the sanctions have done is provide space and cover for Russia to diversify its economy, rebuild manufacturing, and substitute domestic production for imports without imposing protectionism. The Russian economy will emerge much stronger, more independent, and better positioned. Vladimir Putin has publicly thanked the West for this opportunity, which otherwise would have been difficult politically for Russia to undertake. But under the circumstances Russians are quite willing to undergo the rigors of restructuring.

Dr. Housing Bubble Blog — When housing becomes unaffordable for the young: The crushing burden of rents and student debt on future home buying.

Young Americans are priced out of buying homes and many are priced out from even renting. And somehow this is the group that is going to buy all the crap shack turnover once baby boomers decide to downsize either by choice or by nature.
Dr. Housing Bubble Blog

Xinhua — First 400 Chinese-made taxis arrive in Venezuela

A fleet of 400 made-in-China taxi cabs arrived in Venezuela on Sunday, the first shipment of an agreement to supply the country with 20,000 Chery cars, said a senior Venezuelan official. 
"In 2015, we will bring 10,000 taxis and the remaining 10,000 in 2016," the country's transport minister Haiman El Troudi said, adding that the financing will be via state banks.… 
No USD involved.

First 400 Chinese-made taxis arrive in Venezuela

Eric Lonergan — How Labour should respond to Corbyn

Jeremy Corbyn’s rise to prominence is revealing. It shows a Labour party bereft of intellectual leadership. Politics is crying out for inspiring policies – ambitious, radical policies, which positively address economic challenges. It seems that the best Labour can come up with is “back to the 1980s”. To this extent, Yvette Cooper is spot on:
“the truth is that Jeremy [Corbyn] is offering old solutions to old problems, not new answers to the problems of today. We have to look the 21st century in the eye, face up to the future. That’s where we will find the new radicalism, the answers in the modern fight for social justice, equality and solidarity. Not the old answers of the past.
… And I want to show today that there is an alternative that is both radical and credible, true to our values, but serious enough to win.”

The problem is, she has no “radical and credible” ideas. Corbyn is radical and wrong, Cooper wants to be radical and has … “sure start” and “clean coal”. Both are good ideas, but neither are radical nor inspiring.

What’s most damning is the fact that radical, innovative and credible policies are available – Labour’s leadership needs to get out more. Here are four examples:…
Sample of One
How Labour should respond to Corbyn
Eric Lonergan

Oleg Komlik — China’s Minsky moment: stability leads to instability

Hyman Minsky (1919–1996) was a distinguished American scholar and prominent post-Keynesian economist. In the wake of the 2008-2009 crisis Minsky’s invaluable scientific contribution has widely spread, but soon he has unfortunately disappeared from public and economic discussions. 
While most of the mainstream economists are of the view that economic busts are the outcome of various external shocks, Minsky held that the capitalist system itself generates shocks through its own internal dynamics and financial capitalism is inherently unstable. A key mechanism that pushes an economy towards an inevitable crisis is the rampant speculation and the accumulation of debt by the private sector (investors, banks, companies). Minsky claimed that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, actors take on more risk and a speculative euphoria develops. Soon thereafter debts exceed what borrowers can pay off from their incoming revenues (especially during the period of monetary tightening) which in turn produces a financial crisis. This slow movement of the financial system from stability to fragility followed by sudden major collapse is famously known as “Minsky moment”.…
Economic Sociology and Political Economy
China’s Minsky moment: stability leads to instability
Oleg Komlik | founder and editor-in-chief of the ES/PE, Chairman of the Junior Sociologists Network at the International Sociological Association, a PhD Candidate in Economic Sociology in the Department of Sociology and Anthropology at Ben-Gurion University, and a Lecturer in the School of Behavioral Sciences at the College of Management Academic Studies

Peter Radford — Plutocracy?

The 2012 Page, Bartels, and Seawright paper makes interesting reading. I came across it via the Krugman blog and recommend it to you all.
The key is that this is a first small attempt to quantify the difference in perspective between the ‘wealthy’ and the ‘general public’. The paper is thus an important step along the way towards understanding why it is that so much of our political discourse seems totally blind to the reality as experienced by the vast majority of our citizens.
If, like me, you have come to believe that our policy makers have a narrow focus and that their focus overlaps more with that of the wealthy and/or big business than it does with ordinary folk, then this paper is a start to getting empirical support for that feeling.
The paper’s concluding paragraph is worth quoting in full:

“Even without being able to gauge the actual political power of wealthy citizens, we can confidently reject the view that extensive political power by the wealthy would be of little practical importance anyway because their political preferences are much the same as everyone else’s. On many important issues the preferences of the wealthy appear to differ markedly from those of the general public. Thus, if policy makers do weigh citizens’ policy preferences differentially based on their income or wealth, the result will not only significantly violate democratic ideals of political equality, but will also affect the substantive contours of American public policy.”
This is the point: the ability of wealth to affect policy, substantially increased by recent trends and legal decisions, is subverting the very foundation of America’s self-image and self-justification. It is no longer a democracy, or is nearly so, and is rapidly declining into plutocracy.….
The Radford Free Press
Plutocracy?Peter Radford

Also Market Truths Or Obscured Views?

Roger Farmer — The Next Great Depression

What can we do? What should we do?

First: Give the Fed the power to buy a value weighted Exchange Traded Fund that contains every publicly traded stock. Commit to support the ETF by buying stocks. Pay for the shares by borrowing, or by trading Social Security Trust Fund.

Second: Raise the money interest rate to bring us back to normality and restore normal functioning of monetary policy.

When? Now!

If we do not act, and act soon, we are headed for another Great Depression.
Roger Farmer's Economic Window
Roger Farmer | Distinguished Professor of Economics at UCLA

JW Mason — Mixed Messages from The Fed and the Bond Markets

The policy rate and the yield curve. What is means for future Fed monetary policy.

J. W. Mason's Blog
Mixed Messages from The Fed and the Bond Markets
JW Mason | Assistant Professor of Economics, John Jay College, City University of New York

Eric Schliesser — Bad News for some Libertarians and Conservatives on Precautionary Principles

The precautionary principle can be understood as follows: "if an action or policy has a suspected risk of causing harm to the public or to the environment, in the absence of scientific consensus that the action or policy is not harmful, the burden of proof that it is not harmful falls on those taking an action." Prior to reading De Goede's book I had two general reflections on the nature of precautionary principles (PP); first, the application of a PP is a means of pausing action, that is, as a moral tool that (a) could be used by Libertarians and Conservatives to slow down the machinery of government decision-making and (b) could be used by Progressives and Environmentalists to call attention to harmful, social consequences of policies on folk (or non-folk) that lack lobbying power. For, the precautionary principle is a natural accompaniment of uncertainty: if you don't know the wide consequences of an action on bystanders, you should be careful about advocating/pursuing it. It is a way to shift the burden of proof.…
This is not just speculative moral philosophy. In today's climate it affects everyone.
But rather than debating the merits of the precautionary principle, here I call attention to the key point in De Goede's book: in (urgent) contexts that focus on precaution (e.g., security), "the appeal to uncertainty replaces the demonstration of evidence as grounds for taking action" (174; see also p. 199). If this merely upends familiar habits of thought (and threatens cherished conservative principles), this would not be very disconcerting. But as De Goede notes, once such ideas get widespread bureaucratic uptake (not just in context of terrorism), a state of emergency is normalized and legally recognized. That's not just bad news for Libertarians and Conservatives.
It's short, easily understood and worth thinking about.

Bad News for some Libertarians and Conservatives on Precautionary Principles
Eric Schliesser | Professor of Political Science, University of Amsterdam’s (UvA) Faculty of Social and Behavioural Sciences

Diane Coyle — Phoolish economists

On a day of equity market plunges around the world, it seems timely to recommend the new book from George Akerlof and Bob Shiller, Phishing for Phools: The Economics of Manipulation and Deception. Princeton University Press have put the introduction online for free.…
The Enlightened Economist
Phoolish economists
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Steve Keen — China Crash: You Can’t Keep Accelerating Forever

As I noted in last week’s post “Is This The Great Crash Of China?”, the previous crash of China’s stock market in 2007 lacked the two essential pre-requisites for a genuine crisis: private debt was only about 100% of GDP, and it had been relatively constant for the previous decade. This bust however is the real deal, because unlike the 2007-08 crash, the essential ingredients of excessive private debt and excessive growth in that debt are well and truly in place.
China’s resilience against credit crises came to an end in 2009, when in a response to government directives, Chinese banks began lending to anyone with a pulse. As Figure 3 in last week’s post showed (reproduced below as Figure 3 below), the growth in private debt rocketed from 17% per year at the beginning of 2009 (versus nominal GDP growth of 8% at the same time) to 37% per year by the beginning of 2010 (nominal GDP growth peaked six months later at 20% per year). By the beginning of this year, private debt had hit 180% of GDP and had grown by over 80% of GDP in the previous seven years.
This was the fastest growth in credit in any country, EVER. It dwarfs both Japan’s Bubble Economy and the USA’s combination of the DotCom and Subprime Bubbles. China’s bubble drove private debt up by as much in 5 years as Japan managed in over 17 years, and more than the USA’s debt rose in the entire Clinton-Bush debt bubble from 1993 until 2010….
China Crash: You Can’t Keep Accelerating Forever
Steve Keen

I was the lone voice of calm and reason today in the media. Here was my inteview on Fox 5, at 7:10am ET, telling people to BUY!!!

Brad DeLong — **Must-Read: What did Alan Greenspan do in 1987 when the stock market suddenly dropped by 25%? He reduced short-term safe nominal interest rates by 200 basis points.

The problem is that the global economy is on the cusp of the second leg down in the GFC. Central banks have already shot off their bazookas and it hasn't resulted in the expected recovery other than a very tepid one in the US, assisted by fiscal policy.

By and large neoliberal conservative forces are in power in most of the economies that count, which either means a preference for austerity or a bridle on stimulative fiscal policies. Conservatives now argue that austerity has not really been tried effectively and central banks need to tighten, fiscal policy needs to be more austere to become expansionary by forcing greater wage flexibility to get investment going — and everyone needs to export, export, export, even though that is impossible in a closed global economy. 

So we are standing on the brink of 1937, and while history doesn't repeat, we all know what happened after that. Let's hope history doesn't rhyme in this case.

Think fiscal, fiscal, fiscal. "It's the demand, stupid."

This is serious. If it is not handled correctly in a prompt way, a global debt deflationary spiral is in the cards and things begin to unravel. Which will be just fine with the liquidationists.

Grasping Reality
**Must-Read: What did Alan Greenspan do in 1987 when the stock market suddenly dropped by 25%? He reduced short-term safe nominal interest rates by 200 basis points.
Brad DeLong | Professor of Economics, UCAL Berkeley

If the effects of the crash cannot be reversed with monetary policy, that leaves fiscal policy — that old, neglected, unpopular tool — to fight any breakouts of deflation or mass unemployment.
Or it leaves central banks to try really radical policies that emulate the directness of fiscal policy, like literally throwing money out of helicopters or OMFG. [Overt Money Financing]
Correction or Crisis?
John Aziz

Andrew Lainton — How a Chinese Equity Black Monday Transmits to a Global Money Supply Collapse

Stock market bubbles are fulled on speculation – on what Guzman and Stiglitz (2015) call tellingly ‘pseudo wealth’. It is the collapse in that pseudo wealth that causes aggregate demand collapse in the wider economy.
Karl Marx called it "fictitious capital," which is the term that Michael Hudson uses for it now.

Lainton's analysis is based on Hyman Minsky's approach to banking and its relation to the economy.

Decisions, Decisions, Decisions
How a Chinese Equity Black Monday Transmits to a Global Money Supply Collapse
Andrew Lainton

Alex Little — That joke isn’t funny anymore: from #Tories4Corbyn to a Very British Coup

The joke is on the Tories as the people come to their senses.

That joke isn’t funny anymore: from #Tories4Corbyn to a Very British Coup
Alex Little

Brian Romanchuk — Mosler On Krugman On Debt

Warren Mosler offers a good analysis of Paul Krugman's article "Debt is Good." I try to avoid writing "Paul Krugman does not get it" articles, as that is already a crowded field. However, since the article caught a lot of attention, and is right up my alley, I feel I should comment on it.
One could summarise Mosler's article as that Krugman is directionally correct, but he is still not thinking about things properly. His idea (which he attributes to Ricardo Caballero of M.I.T.) that government debt is "good" because it provides a "safe asset" to investors is hardly novel. It was discussed in depth decades ago by Hyman Minsky, and probably many other economists that I am less familiar with. This offended some fiscal conservatives, but this is because many of them refuse to accept that a central government liability is an asset to the non-central government sector. (We could say "private sector," but that may seem like a strange label for entities like the Chinese reserve managers. It is actually reasonable, since those Chinese reserves are being accumulated to advance Chinese business interests.) Although they want to reduce government debt, they do not offer any mechanism to reduce private sector financial assets.
In Understanding Government Finance, one of the key themes is the central role of central government liabilities for liquidity management. The only way to avoid the use of government bonds in liquidity management is to create bank reserves, which are just a form of government liabilities that have particular restrictions on which entities can (and must) hold them. Although I am allergic to the term, reserves are a form of "financial repression" on the banking system.….
Bond Economics
Mosler On Krugman On Debt
Brian Romanchuk

Insane market selloff

This is an insane market selloff. Good companies are getting decimated. Apple has lost $200 BILLION in market capitalization over nothing.

Still have $4.3 trillion of Federal spending this year. That is up over $100 billion from last year. Yes, the deficit has shrunk, but the flows are sufficient to sustain growth around 2.5% or,  where we've been.

China is going to be fine in the long run. It's economy is still growing at 7.5%.

Insane selloff. Unbelievable bargains. I am buying. My only regret is that I wish I had more money to buy more.

Sunday, August 23, 2015

Steve McGiffen — The European project is not about fostering peace – it’s about fostering capitalism

Capitalism gives only what we can extract from it.
The term "capitalism" means that capital is prioritized over people (labor) and the environment (land) as a factor of production. Because favoring capital in necessary for growth (read increased wealth) and a rising tide lifts all boats. In other words, trickle down.

In other words, the bias of capitalism is toward capital formation (preservation and expansion). Therefore, the people at large (labor) and the environment (land) are left to pursue their interests independently. This is the value of democracy in a society with a capitalistic economy.

Labor and environmentalists must advocate for them own interests against the those advocating for the interests of capital. The former are at a disadvantage owing to the influence of class and power structure being based on wealth in a capitalistic society, which tends toward plutonomy.

Morning Star (Socialist)
The European project is not about fostering peace – it’s about fostering capitalism
Steve McGiffen
ht Clonal

Bill Mitchell — Greece – now the conservatives are denying there was austerity

The Project Syndicate recently (August 6, 2015) published an Op Ed by conservative Edmund Phelps – What Greece Needs to Prosper. The article was widely syndicated by the conservative media and represents part of the conservative narrative to conveniently revise history when the facts violate the conservative ideological agenda. It is an appalling article. We are now in a phase of “Austerity denial”, where conservatives attempt to massage history to avoid the unpalatable conclusion that the massive austerity that has been imposed on certain countries by the IMF and its partners in crime (in Greece’s case the European Commission and the ECB) has caused huge declines in GDP (levels and growth rates) and deliberately led to millions of people becoming jobless with associated rises in poverty rates. That causality is undeniable.
This is the great thing about the "science" of economics. Those who practice it can get it to say anything they want by either fiddling with the assumptions or torturing the data. It's not science, but pseudoscience — storytelling.

Bill Mitchell – billy blog
Greece – now the conservatives are denying there was austerity
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Saturday, August 22, 2015

Simon Wilson — What is QE for the people?

Presents both side on the issue about as well as can be expected in this kind of venue.
In his campaign presentation on the economy a few weeks ago, Corbyn suggested giving the BoE “a new mandate to upgrade our economy to invest in new large-scale housing, energy, transport and digital projects: QE for people instead of banks”. The plan is based on proposals from Corbyn’s main economic adviser, tax campaigner Richard Murphy.…
Murphy suggests that this form of QE is only now being considered because “money has only recently been properly
understood for the first time”. He seems to believe that advances made in the subfield of economics known as “modern monetary theory” (MMT) make people’s QE feasible. (Crudely, adherents of MMT hold that governments with the power to issue their own currencies will always be solvent, and that inflation is caused primarily by resource constraints, rather than monetary growth.)
Here's the contra:
By contrast, most other economists, commentators and politicians – Labour and Conservative – view people’s QE as having obviously dangerous inflationary consequences.
Why is that?
It would fatally compromise the BoE’s standing on global credit markets. As Robert Peston put it in his BBC blog,m“the lore of central banks – which, rightly or wrongly is almost universally accepted by investors – says that central banks should only look at whether there is too much or too little money in the economy… and not at narrowerquestions, such as whether there are enough roads or houses being built in Britain”. 
If markets believe the BoE is no longer exercising judicious restraint in its creation of new money, and is instead the de-facto vehicle for funding politically popular projects, sterling would weaken and inflation rise.
By how much? That’s impossible to say. But even if we are not talking about Weimar Germany, there is little doubt that investors would conclude that the risk of investing in sterling and the UK had grown.
In other words, because "expectations." 

Money Week
What is QE for the people?
Simon Wilson

Noah Smith — A great critique of Rational Expectations

So why does everyone and their dog use Rational Expectations? Manski says that, basically, it's because A) it's easy, and B) there's no obviously better alternative:
Another part of the reason must be the data used in empirical research. As illustrated in Section 2, choice data do not necessarily enable one to infer the expectations that decision makers hold. Hence, researchers who are uncomfortable with rational expectations assumptions can do no better than invoke some other unsubstantiated assumption. Rather than speculate on how expectations actually are formed, they follow convention and assume rational expectations.
I'd add a third, more cynical reason: Rational Expectations can't be challenged on data grounds. If you measure expectations with surveys, people can poke holes not just in your theoretical model, but in the expectations data that you gathered and the econometric methods that you used to extract a signal from it. But if you assume Rational Expectations, they can only poke holes in the model itself. Basically, substituting theoretical assumptions for empirical results makes a model a more hardened target. If it makes the model less able to fit the data at the end of the day, well..."all models are wrong", right?

Anyway, everyone should go read Manzi's entire paper. Very interesting stuff, even if a decade old.
Why do economists so often assume that they and the decision makers they study share rational expectations? Part of the reason may be the elegant manner in which these assumptions close an economic model. A researcher specifies his own vision of how the economy works, and he assumes that the persons who populate the economy share this vision. This is tidy and self-gratifying.
A great critique of Rational Expectations
Noah Smith | Assistant Professor of Finance, Stony Brook University

Greg Fisher — Global Incoherence

I was recently asked to take part in a roundtable co-organised by Nik Gowing and CIMA (the Chartered Institute for Management Accountants). The roundtable was designed to feed in to the Churchill 2015 conference in November, and was on the subject of ‘thinking the unthinkable’ with regard to global leadership. The premise, which I agree with, is that the world is changing rapidly, such that those in positions of authority who are meant to lead us through such problems are being overwhelmed by multiple wicked problems.

These wicked problems include: climate change; ISIS; the Arab Spring (which I see as a generally good thing); the financial crisis of 2008 and the ensuing global recession; and rising tensions between the West and Russia.
I thought I would share my thoughts, some of which I shared at the roundtable, on this (hugely complicated) subject via a blog article.
Ultimately, I see these wicked problems arising from a tension between two broad points: the world looks more like a closed system that is now hitting capacity constraints; and we are employing a ‘simple systems’ mind-set to what are complex system problems.
The World as a Single, Closed System
The first point is that the world is now behaving more like a single, closed system than at any point in human history. It isn’t actually a closed system because it is open to the sun’s energy but, if I were to put it bluntly, there is no longer any ‘outside’ from which we can import solutions and export problems. At the same time, feedback effects have become more pronounced, and the earth’s capacity constraints have begun to be tested by the simultaneous growth of the human population and its average per capita consumption.
These features appear to have arisen from the stunning advances in transportation technology over the past hundred years or so and, more recently, by the advancement of information and communication technology. All of this has cultivated a much more integrated, interacting world.
Prior to this, for several hundred years, the world was organised, both in a real and a legal sense, in to nation states, which operated – broadly speaking – like small open systems. In such a world, you can generally ignore the impact you have on the wider host system. You can also export some types of problem (sending convicts to other shores, for example) and import solutions to other types of problem (invading resource-rich countries, importing slaves etc.).
And, generally speaking, the more powerful countries were more able to seek solutions from their outside than the less powerful, and they could do this without any expectation of a significant detrimental response / feedback. Hence, empires were built.
We have moved away from this world for the reasons cited above: transportation technology, ICT, and increases in population and per capita consumption. Of course, the resulting wicked problems are not only important at the global level for national politicians and diplomats: they are also challenging the senior executives of organisations of varying sizes and types. The environment for many directors has changed, and continues to change, rapidly.
The ‘Simple Systems’ Mind-Set
The second point is that the dominant way of thinking in the world is reductionist, linear and static. Reductionism is the idea that we can break a whole system in to parts to understand it; linearity is the notion that cause is proportional to effect (i.e. small causes create small effects and vice versa); and by static I mean that dynamical effects are either ignored or under-emphasised.
In my opinion, this ‘simple systems’ thinking is demonstrated most clearly in orthodox Western economics. But economics is not merely an exemplar here, it is also important because it has widespread effects on corporations and governments all over the world. It frames decision making concerned with trillions of dollars of resources.
Now, an important point to note here is that the simple systems mind-set is a reasonable approximation for decision-making in the old world of multiple small open systems. Indeed, the relationship between the two is brought in to focus if we make the inverse point: we can imagine this simpler mind-set emerging in this old world as a reasonable approximation of how it works. Our pattern-recognition capabilities are, after all, concerned with reasonably approximate hypotheses.

In my opinion, and this is the core point of this article, the global wicked problems listed above have arisen because we are living in a world for which the simple systems mind-set is no longer a sufficient approximation. Among other things, the world in which we now live has no outsides, it is prone to cascading effects (like global financial crises) and acute feedback effects.
Global Incoherence
Greg Fisher