Michael Hudson— The Coming Savings Meltdown

Debts that can’t be paid, won’t be. That point inevitably arrives on the liabilities side of the economy’s balance sheet.

But what of the asset side? One person’s debt is a creditor’s claim for payment. This is defined as “savings,” even though banks simply create credit endogenously on their own computers without needing any prior savings. When debts can’t be paid and debtors default, what happens to these creditors? 

Michael Hudson — On Finance, Real Estate And The Powers Of Neoliberalism
The Coming Savings Meltdown
Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and Guest Professor at Peking University

McCarthy withdraws name...the crazies are about to take over. Default is coming!!!!

McCarthy just withdrew his name in the contest for Speaker of the House. Now it's the crazies that are about to take over full force: Ryan? Webster? Chaffetz?????

Default is coming!!!

You better be ready.

Here's my Forex course. Get in if you're not already in. You need to save yourself from a meltdown.

Default is coming. Here's why you must take action and if you do, you can win!

Default is coming!

One month from today the U.S. government will run out of cash and default on its debts. This is according to Treasury Secretary Jack Lew. We are hurtling towards disaster. Don't think it can't happen. We've gotten very close several times now and the politics are even more dysfunctional and bitter.

Once again we face this debt ceiling issue. There are many in Congress--Republican and Democrat--who would love nothing more than to martyr the economy for the cause of imposing their crazy idea of fiscal "discipline."

Of course we know that this is pure bullshit--the U.S. cannot run out of dollars--and we can argue this day and night 'till we turn blue, but where will that get us?' It's time to take friggin' action and by action I mean put this knowledge to use and make some money. Lots of money.

Dollar will get destroyed

Let's face it...a default by the U.S. government will mean the dollar will most likely get crushed. Absolutely, soundly obliterated. And what will you be doing when this happens? Complaining like all the other "theorists" that this needn't happen? That our monetary system doesn't work like this? That we're currency issuers and not users?

Meanwhile there will still be austerity, negative interest rates will still be considered "stimulus" by those in top policy circles and everyone in the mainstream of economics will still be waiting for banks to lend their reserves and cause hyperinflation.

Inaction is your enemy

Forget it. Inaction and complaining will get you nowhere. Now it's time for action. It's time to make money for yourself. Not jut money...make a killing! Fortunes have been made on single trades. If you bought Treasuries with leverage when those idiots at S&P lowered America's credit rating back in 2011 you would have made a fortune.

Same thing now. This could be a once in a lifetime trade. It could dwarf the credit rating downgrade. But the question is, can you trade? Do you trade? Do you have the skills to trade? Do you even know how to set up an account for yourself? These are the questions you should be asking yourself, not "When is Bernie Sanders going to save us or, why isn't MMT more broadly acknowledged and accepted?"

Beat the elites at their own game

You absolutely must train yourself in how to trade and here's why...because whether you like it or not the markets are the domain of the elites and  you are not going to change their views on economics. I can assure you. Moreover, if you're waiting around for some populist "revolution" to happen, good luck with that. I hope you live a very long life.

On the other hand you you CAN beat the elites at their own game. You just gotta  know how. Knowledge and skills are the key.

TAKE ACTION!

Bernie Sanders is not going to save you. Hillary Clinton is not going to save you. Barack Obama is certainly not going to save you, nor is MMT theorizing going to save you. YOU can only save you. And you do this by playing the elites' game...actually...taking money away from the elites, that's how you're going to do it.

Many months since my last Forex course

It has been many months since I have given a live Forex trading course, but I have decided to give one now because of this ugly debt ceiling showdown that we are facing. I believe that this could be, the "Big One."

If you have not taken my course then this is your chance. If you are skeptical then read some of the testimonials. I have taken pure novices and turned them into successful traders. There are no gimmicks in my methodology. It's 35 years of trading experience, on four exchanges, and on the trading desks of major banks. It's years and years and years of trial and error and mistakes that have forged a bullet proof "mental game."

Forged in the crucible of the "pits"

In my "boot camp" I am your instructor. You're about to become the Navy Seals of the trading world. I train you with everything that I know; everything that I have learned. Believe me, no one can surpass the knowledge of someone who has stood and fought in the pits. I have. There is no training crucible that forges a trader like that...anywhere. You can't even get this experience anymore. The pits are gone.

Only you can make it happen

The bottom line is, it's up to you. All that is needed is action on your part. Nothing about theory or economics or "educating" people on what's in paradigm and what's not is going to help you. Only action will.

So that's all I have to say. My course is now open. Yes, it's $1500, but I guarantee it will be the best $1500 you ever spent. If not, I will give you back your money. Furthermore, once you take the course feel free to sit in on any Forex trading course that I give in the future...for  free. Amortize that!

That is my offer to you. Now, it's up to you to give this gift to yourself.

Sign me up for Mike Norman's October 19-23 online Forex trading boot camp!

 

Alexander Mercouris — Ukraine Prepares to Default on Its Russian Loan

What about those "rules"? 

This is potentially a big very deal going forward.

Russia Insider
Ukraine Prepares to Default on Its Russian Loan

Alexander Mercouris

Jean-Claude Junker hurls insults at Greece

Jack Rasmus — Greek Default?

All of which leads one to suspect the Troika has shifted to a Plan B. That Plan B is most likely to force a default crisis, to push Greece to the edge of default, or perhaps into default itself. So why might the Troika prefer Plan B is the key question?

Counterpunch
Greek Default?
Jack Rasmus

ht Neil Wilson

Bodo Ellmers — Why it would be good for the IMF if Greece stopped repaying the IMF loans

Good argument for a Greek default on its loans from the IMF. Good for Greece, good for the IMF, and good for the global economy. It would not be good for neoliberalism.

Actually, the IMF’s own rules of the game forbade such stupidity.... 

The IMF is all about making creditors whole and transferring the unpayable debt to the IMF, which can then demand neoliberal political changes anti-democratically. The IMF is the enforcer for TPTB that control the global economy based on neoliberal dogma. Like Michael Hudson has been saying for years.

Triple Crisis

Why it would be good for the IMF if Greece stopped repaying the IMF loans

Bodo Ellmers, Guest Blogger

Bodo Ellmers is the Policy and Advocacy Manager at the European Network on Debt and Development (Eurodad).

Brian Romanchuk — Questions Raised By The “Inflation Is The Same As Default” Theory

I quite often see variants of the following statement: “The government will be forced to default because of its debt load, or else pursue inflationary policies, which is another form of default.” In my view, this is a soundbite, not serious analysis, and it is very difficult to reason with soundbites. This article is a series of questions that are raised by this concept.

Bond Economics
Questions Raised By The “Inflation Is The Same As Default” Theory
Brian Romanchuk

Alexander Mercouris — So did Syriza win a victory?

In my opinion the only realistic way forward is for Syriza to use whatever grace period it has got (and it may turn out to be a lot less than 4 months) to prepare the Greek economy and the Greek people for a default and (since the European authorities in their great unwisdom have decided that a default is incompatible with membership of the Eurozone) for a Grexit. 

I hope and pray that Syriza realise this since it seems to me the only way forward. The information I am getting from people in Greece (including my parents) is unrelievedly grim, with people now running out of money to pay for even basic necessities and with the economy essentially at a standstill. Support for Syriza remains exceptionally strong but this cannot continue for much longer.

The Vineyard of the Saker
So did Syriza win a victory?

Alexander Mercouris

Jesse — The Great Fallacy at the Heart of Modern Monetary Theory

But here is the matter of disputation, emphasis in caps theirs, in italics mine. "The sovereign government cannot become insolvent in its own currency; it can always make all payments as they come due in its own currency because it is the ISSUER of the currency, not simply the USER."

Do you see what is missing here, and more importantly, what is implied?

What is missing is the acknowledgement that the users of a currency, call them 'the market,' can and will and have quite often throughout history questioned the valuation of a currency, and often to the point of practical worthlessness, if certain actions are taken by the sovereign in creating their currency.
This speaks to a principle that I spelled out some time ago, that the practical limit on a sovereign government in printing money is the willingness of the market toaccept it at a certain value. And this applies to any sovereign, more readily perhaps if they are smaller and weaker, but always given time nonetheless.

If Russia, for example, were to merely start printing more rubles and set a target valuation for them, they could enforce this internally. And in fact, many sovereigns have done so throughout history. I remember visiting Moscow shortly after the fall of the Soviet Union, and marveling at the disconnect between the official stated valuations and the actions of the ordinary people in seeking alternatives like the US Dollar, gold, diamonds, and even Western style toilet paper, a more useful sort of paper than the ruble…

Jesse mistakes insolvency for currency depreciation. They are not the same. Conflating them is a common error. Insolvency can result in currency depreciaton as savers shun the currency, but insolvency is not the only cause of depreciation. Instability is also a chief cause. This might be political instability, inflation, or falling fx rate as foreigners  reduce saving desire in the currency. for whatever reason.

A currency sovereign is not constrained operationally by insolvency although a currency sovereign may chose voluntarily to default, as Russia did in 1998. But this is a political choice, just as would defaulting on the US public debt owing to the voluntary political imposition of a debt ceiling.

Currency depreciation can occur for many reasons, some that are potentially under the government's control or ability to influence, and some not, such as capital destruction in wartime that reduces the potential of the economy, or the changing condition of the world economy that has led to the depreciation of the currencies of countries lacking broad and deep economies that are significantlly dependent on oil exports.

Insolvency is defined as the inability to meet financial obligations as they come due. The government of a nation that is sovereign in its currency and does not borrow in a a currency that it does not control cannot become insolvency. Balance of payments issues may arise but they affect domestic firms and the government itself unless it is liable for the debts of domestic firms. Clearly, a country that issues it own currency and floats the exchange rate cannot become insolvent in this sense, although the fx rate can plunge or inflation can ensue from imprudent policy thereby debasing the currency to the degree that there is currency flight. This, however, is not insolvency.

MMT economists claim that insolvency is not an operational constraint on a currency sovereign but both the foreign exchange rate and domestic price level are operational constraints that governments must take into consideration. For example, petroleum exporters Russia and Venezuela are both adversely affected by steeply falling oil price to the degree that their fx rates are plunging and inflation rate rising, provoking currency flight as holders of the currency no longer wish to save in these currencies. This is entirely consistent with MMT analysis. MMT also observes that a falling fx rate is self-correcting to the degree that the balance of trade shift toward exports.

However, this would not greatly aid emerging countries without broad and deep economies that dependent on exporting a commodity whole value is falling. For example, Venezuela would likely be affected by a collapsing oil price than Russia, whose economy is much broader and deeper than Venezuela's. Indeed, as President Putin has observed, the fall in oil prices is a blessing in disguise since Russia has known for a decade at least that the economy is to tilted toward export of natural resources and needs to be broadened and deepened further by recapturing lost industrial potential and expanding its domestic consumer economy.

MMT also shows how a country can use currency sovereignty to address such issues. For example, Russia was pegging its currency to the USD, threatening a run on its foreign exchange reserves, so it correctly chose to drop the peg and float the ruble. This gives the central bank some leeway in curbing speculation by intervening on occasion to drive up the cost of speculation by squeezing the shorts. The ruble also gained strength at tax time when Russian exporters had to purchase rubles to pay Russian taxes that are only payable in rubles. The firms therefore sold foreign currency obtained through trade in order to meet their tax obligation. As MMT says, taxes drive a currency by creating demand for it.

Furthermore, as Warren Mosler has pointed out, governments control the own rate in setting the policy rate and controlling the yield curve if they choose by setting price and purchasing the quantity necessary to set those yields. Government also influence the price level through the prices they pay in markets, using their currency to transfer resources owned by nongovernment for the public purpose. And as the Great Depression and the aftermath of the recent crisis has shown, government has powerful tools that can be used to address emergencies through both the central bank and fiscal policy.

Then Jesse reveals his ideological concern.

Technically Russia could not become insolvent in rubles, because they could always print more of them to pay all their debts, make purchases, and salary payments. The great caveat in this is that Russia had to maintain a measure of control and enforcement to make that principle 'stick.'

And this is what probably makes MMT inadvertently statist, and dangerous. That is because this belief only works within a domain in which the state exercises complete control over valuation.

So is the "fatal flaw" in MMT that is is too "Keynesian" and not Austrian enough?  :)

I suppose that there are many other things in MMT that are correct, as it seems to be quite the usual thing in many ways, but there is an important exception in the assertion that the state has no limit to its power to set value, because that is exactly what is implied in the canard that a sovereign cannot default in its own currency. Technically it cannot because it can always print more than enough pay off debts and make more purchases. But it can create money in such a way as to break the confidence of the market, and call its valuation into question. And this is a de facto default.

De facto default in the typical Austrian rejoinder to what Austrians see as too much government control and currency profligacy. The error of this is pointed out above. MMT readily admits that there are operational constraints on a currency sovereign but insolvency and forced default are not among them. They are rather the availability of real resources and currency stability, which involves both the price level and fx rate.

Moreover, not all currency instability is the result of "debasement," as some seem to think. The West, President Obama and Prime Minister Cameron, for instance, have stated or strongly implied that the sanctions directed at Russia are design to destabilize the economy and as a consequence the political situation in Russia, with a few to regime change, just as in Cuba and Iran and now Venezuela also. This is intentional application of force majeure that is sufficient legal reason not to honor debts.

Jesse's Café Américain
The Great Fallacy at the Heart of Modern Monetary Theory

Jesse

Neil Wilson — Don't bind your hands Argentina

Drop the peg and never, ever borrow in a foreign currency.

3spoken
Don't bind your hands Argentina

Neil Wilson

Ambrose Evans-Pritchard — IMF paper warns of 'savings tax' and mass write-offs as West's debt hits 200-year high

Rogoff and Reinhart back with the fear mongering over excessive public debt. Again, they do not distinguish among different monetary regimes. Evans-Pritchard falls for it.

The weaker eurozone states are particularly vulnerable to default because they no longer have their own sovereign currencies, putting them in the same position as emerging countries that borrowed in dollars in the 1980s and 1990s. Even so, nations have defaulted through history even when they do borrow in their own currency.

Right, on the gold standard or if they peg to another currency, there are political factors such as war involved, or the leadership is too incompetent to know what to do — or are poorly advised.

The clear implication of the IMF paper is that Germany and the creditor core would do better to bite the bullet on big write-offs immediately rather than buying time with creeping debt mutualisation.

Morons or Peterson flakes?

The Telegraph
IMF paper warns of 'savings tax' and mass write-offs as West's debt hits 200-year high

Ambrose Evans-Pritchard

David Corn — Economist Mark Zandi on Default: "We Will Be Dooming Our Economy and the Entire Global Economy" For Years

McCain//Palin economic advisor Mark Zandi: "The point is that with each passing day the debt limit is not increased the more damage it will do to our economy. If lawmakers don’t raise the debt limit by November 1, the economy will fall back into recession. If they can't raise it by the end of November, we will be dooming our economy and the entire global economy to a wrenching economic downturn with implications for years if not decades to come."

Mother Jones
Economist Mark Zandi on Default: "We Will Be Dooming Our Economy and the Entire Global Economy" For Years
David Corn

Steve Randy Waldman lays out default scenario

Interesting take. Put the banks in cahoots with Treasury, taking care of the financial and corporate elites and taking out of the hides of everyone else. Pretty much what we have been seeing for the past four years: a planned confiscation of the 99%'s wealth. (Whatever remains of it, anyway.)

A delayed payments regime would amount to a regressive tax issued at two levels: first by the Federal government, and then by the financial industry. By delaying payments, the Federal government would tax recipients of government disbursements by forcing them to finance loans to the Treasury for free. Like all taxes, the actual incidence would be more complicated than the direct hit. Payees with bargaining power — say vendors of bespoke military systems or well-connected contractors — would find ways to add the finance cost to their bills, and largely escape the tax. Payees without bargaining power — your average social security recipient, for example — would have to simply accept the delayed payment and eat the interest cost that the government should be paying. A second regressive “tax” would be imposed by financial service providers. They would, as usual, compete to offer cost-efficient products to wealthier and more astute customers, while charging smaller, weaker, more desperate customers large fees. In the end, the Federal deficit would be reduced and bank profits would swell, primarily on the backs of the least-savvy, lowest-bargaining-power government payees.

Read the rest of his post here.

Dean Baker — If China Moves Away from Holding Dollars Then It Will be Doing What Bush-Obama Requested

This change could go far toward reducing the U.S. trade deficit, especially if other developing countries follow China's lead as they have in the past. The result would be millions of new jobs and also an important boost to wages. In other words, if China follows through on the path suggested in this article it would be good news for most of the country. Importers like Walmart and companies that have established production facilities in China, like General Electric, might be less pleased.

CEPR
If China Moves Away from Holding Dollars Then It Will be Doing What Bush-Obama RequestedDean Baker

Would also mean higher prices on formerly imported goods now being made in the US unless US corporations could find other low-wage, low benefit, low worker protection countries to export to the US and save in USD. Indonesia?

John Carney — Is Washington crying wolf over a default?

John, this is not just Washington. Did you catch Jeff Cox's piece today on the doomsday scenarios outlined by financial professionals, you know, from Wall Street, which is in New York not Washington, DC. It's up on CNBC NetNet, and  I linked to it here. :)

Of course markets are not pricing in a default because they don't believe it will happen, and as many financial professionals are saying, as I am sure you are aware, there is no hedge anyway.

Actually, an extended shutdown, which some of the Tea Party is planning as a strategy to defund the AFA, is a real threat. Along with the sequester that is kicking in, it will reduce government spending significantly, and if carried on long enough, will become a serious economic damper. Talk to Warren about it.

CNBC
Is Washington crying wolf over a default?

John Carney | Senior Editor

Joseph Cotterill — Breaking the full faith and credit, vs breaking the buck

...we are told not to fuss about those T-bills. Really? If money market funds aren’t treating T-bills as fungible with cash right now, that might not say anything particularly shocking about default risk. Though what are T-bills for but cash?

The Financial Times — FT Alphaville (Free registration required)
Breaking the full faith and credit, vs breaking the buck
Joseph Cotterill

David Lightman — Debt Limit? Why Should I Care?

People generally don't understand what it's all about, and a lot don't fear the economic fallout, according to a new United Technologies/National Journal Congressional Connection poll.

Sixty-two percent thought a higher debt limit means allowing more borrowing "for future expenditures," while 28 percent think it's to pay off debts already accumulated--the correct answer.

"With less than 10  days until the nation hits its borrowing limit, the poll found that the misunderstanding was rampant. It was shared by the young and the elderly, the rich and the poor, the college educated and those with only high schools educations," according to a poll analysis.

McclatchyDC
Debt Limit? Why Should I Care?
David Lightman — McClatchy Washington Bureau

Steve Randy Waldman — Why Scott Sumner should love the debt ceiling

I think Scott Sumner is the Svengali behind all of Ted Cruz’s antics. He must be. It’s the only sensible explanation.

Interfuidity

Why Scott Sumner should love the debt ceiling

Steve Randy Waldman

See also evilsax, Scott Sumner on the GOP's Cunning Plan

First, Scott Sumner is an ideological economist that doesn't have a clue about business, finance, money and banking, central bank and Treasury operations, or how the world actually works. Like all Austrian-based ideologues including Paul Ryan and ted Cruz Scott Sumner lives in his own fantasy world. That anyone takes him seriously is a joke and shows the low level of collective consciousness. Read Mike Sax's post on this.

I am also surprised that SRW plays along with Sumner's proposal and comes up with a (remote possibility) of how a default could work. To some extent Peter Radford does too.

People don't seem to understand that there aren't thousands of gnome that write Treasury and the Fed by hand and can be directed how to prioritize payments. The payments system is automated and reconfiguring it would take time. In that time, some government obligations — interest payments, invoices that are due, and transfer payments — would not be made on time. That is a technical default. The bankers have already explained this. 

This is fooling around with the USD, the world's preferred reserve currency. Sixty-two percent of trade uses the USD. This has global implications that are not lost on US competitors. I was just listening to a Chinese newscaster on NPR yesterday explain how China is a very competitive nation and to them winning means that the opponent must fail. It's zero-sum as far as their way of thinking goes. Another article I read was about how the GOP is accomplishing what Osama bin Laden set out to do but could not.

Even the kerfuffle so far, after the same drill i 2011, is undermining confidence in the leadership of role of the United States and the US government as a functioning institution. There is already widespread sentiment in the world that the US is a rogue nation. Now the perception is rising that the US is also going crazy. US soft power is crumbling, which means that to reassert itself in the world, the US is likely to resort to hard power to prove a point. That will just prove the point that the US is rogue nation whose leadership is crazy.

Reuters — Top U.S. bankers warn against prioritizing interest payments: WSJ

Top U.S. bankers have warned the Obama administration and Republican lawmakers that any move to pay interest on debt before obligations such as Social Security and payments to veterans would pose severe risks to financial markets and the economy, the Wall Street Journal reported.

Reuters
Top U.S. bankers warn against prioritizing interest payments: WSJ

So much for that argument.