This blog had it right all along. Matt Franko and I had been focusing on what mattered--gross, topline government spending. We never wavered from our bullish forecasts.
The people who have been looking at the shrinking deficit for the past two years just don't get it. It's not about the deficit. All the deficit is, is what's left over after all spending and taxpaying is done, i.e. financial savings.
It's all about how much is being spent and not even that important as to who is doing it, so long as some entity is spending.
We are light years ahead of the other forecasters here. They're stuck.
-Mike Norman
Tuesday, December 23, 2014
Deep Resource — Moscow Confirms “Turkish Stream”
Yesterday we expressed our fear that Europe could have missed the boat with South Stream and indeed, Gazprom Deputy Chief Executive Officer Alexander Medvedev confirmed that South Stream is history and that instead “the Turkish Stream” is going to be build, even if the EU showed signs of being prepared to make a U-turn. And we believe Russia is credible. The European loss of face is enormous.…Not only loss of face, as the post goes on to say.
Deep Resource
Moscow Confirms “Turkish Stream”
Robert Parry — The Liberal Idiocy on Russia/Ukraine
Robert Parry rightly bashes Paul Krugman, Thomas Friedman, and E. J Dionne as dangerous morons.
Not only are the likes of Paul Krugman, Thomas L. Friedman and E.J. Dionne Jr. spreading dangerous propaganda, they are setting the stage for a new Cold War and possibly even a nuclear confrontation.Consortium News
The Liberal Idiocy on Russia/Ukraine
Robert Parry
Monday, December 22, 2014
Oleg Konyukhov — Press Digest: Is West trying to hurt Russia by driving Ukraine to default?
“It cannot be ruled out that the IMF is trying to force Russia to aid Ukraine under the threat of a default,” says deputy head of the CIS Institute Vladimir Zharikhin. “In that case, we may be left without the recovery of gas debts and the $3-billion loan issued late last year. In addition, as a result of a social upheaval, there may be a mass influx of Ukrainian immigrants into Russia.”
According to Mikhail Delyagin, head of Russia’s Institute of Globalization Problems, leading Ukraine into bankruptcy is a deliberate policy by the West. “A default will make it possible to obtain Ukraine’s assets at minimal prices or maybe even free of charge: the energy system, the gas transportation system, ports, mineral deposits. Russia will surely write off Ukraine’s huge debts, while the West will do no such thing,” says Delyagin.Like Michael Hudson has been saying.
The other scenario is that in the face of being forced into default the leaders of the Ukraine will seek to draw Russia into a hot war eastern Ukraine in order to draw in NATO. This is the scenario that some Russian analysts forsee as a potential move.
Russia Beyond the Headlines
Press Digest: Is West trying to hurt Russia by driving Ukraine to default?
Oleg Konyukhov
INET — The Future of Financial Reform: Conceiving the Financial System of the 21st Century
Mark Carney, Governor of the Bank of England (BoE) and Chairman of the Financial Stability Board (FSB), may well be the man of the hour. When he gives a speech entitled “The Future of Financial Reform” as he recently did at the Monetary Authority in Singapore, people listen.…INET
The Future of Financial Reform: Conceiving the Financial System of the 21st Century
Jay Pocklington
Peter Koenig — US Embassy in Havana – The Cuba Caper
Imagine – a US Embassy in Havana – it would open the floodgates for US NED (National Endowment for Democracy) funded ‘NGOs’, for Washington’s spies and anti-Castro propaganda machine; it would have free hand to destabilize the country. And what would Cuba gain? – Zilch, zero, nothing. Not even a gradual lifting of the embargo had been announced. To the contrary, it would open Cuba’s borders to the vultures of Florida Cubans, eventually to theirs and other foreign investments, subjugating the country’s huge social gains over the last half a century – universal free education and health services, by far the best social system of the Americas – to the sledgehammer of neoliberal privatization.…
The Vineyard of the Saker
US Embassy in Havana – The Cuba Caper
Peter Koenig, former World Bank economist
Vineyard of the Saker White Paper: the China-Russia Double Helix
Today I sharing with you a document which I personally consider as absolutely crucial: an in-depth analysis of the China-Russia Strategic Alliance (RCSA) written by somebody who looks at it from the "Chinese side".The Vineyard of the Saker
Vineyard of the Saker White Paper: the China-Russia Double Helix
Vineyardsaker
Lord Keynes — Who Knew!? Banks Create Money out of Nothing
Social Democracy For The 21St Century: A Post Keynesian Perspective
Who Knew!? Banks Create Money out of Nothing
Lord Keynes
FT Lex: Russia is a Creditor to the World - Default Risk Non-existent
FT: Russia is solvent and fully able to pay its debts. The threat of default - sovereign, public, and private - does not exist.
Russia Insider
FT Lex: Russia is a Creditor to the World - Default Risk Non-existent
Financial Times (Lex Column)
Financial Times (Lex Column)
Sergey Aleksashenko — Russian Central Bank Has Right Strategy - But Lousy Tactics
- Former Russian Central Banker says overall strategy of floating and devaluing the ruble is sound
- Identifies errors by the Central Bank as the primary cause of the ruble crash
Russia Insider
Russian Central Bank Has Right Strategy - But Lousy Tactics
Sergey Aleksashenko | Financial Times
Sergey Aleksashenko | Financial Times
Via WSJ- Is the Fed finally getting smarter at lending control?
Some good news coming from Pedro da Costa at the WSJ today. Apparently the Fed is now saying publicly that they prefer using their regulatory and supervisory tools to control bank lending than the traditional interest rate/monetary policy tools.
This is something that WM/MMT has been advocating for a while, since monetary policy can wreak enormous collateral damage on the economy. Capital regulation and supervision on the other hand, are much more precise tools that central banks can use to control lending, so its good to see the Fed moving in this direction.
From the article:
“Efforts to promote financial stability through adjustments in interest rates would increase the volatility of inflation and employment,” Fed Chairwoman Janet Yellen said in a July speech. “As a result, I believe a macroprudential approach to supervision and regulation needs to play the primary role.”
If I'm reading this correctly, this statement could hint at a paradigm shift at the Federal Reserve Board. For the past several decades we've been stuck in the Miltie Freidman QTM world where interest rate management is a panacea. I've always thought that trying to control bank lending via interest rates is like trying to weed your lawn with a machine gun. So hearing the Fed chair describe supervision and regulation as a new "primary" tool is a welcome sign that the QTM era may be finally coming to an end in the US.
The article also revealed the cluelessness of the BIS. According to their Chief Economist (and Princeton econ prof):
"Monetary policy works by either bringing spending forward, deferring spending—and you can bring spending forward by taking on more credit. So expansive monetary policy is pretty much synonymous” with looser financial conditions."
Its good to see that our central bank is at least marginally more intelligent than the BIS!
This is something that WM/MMT has been advocating for a while, since monetary policy can wreak enormous collateral damage on the economy. Capital regulation and supervision on the other hand, are much more precise tools that central banks can use to control lending, so its good to see the Fed moving in this direction.
From the article:
“Efforts to promote financial stability through adjustments in interest rates would increase the volatility of inflation and employment,” Fed Chairwoman Janet Yellen said in a July speech. “As a result, I believe a macroprudential approach to supervision and regulation needs to play the primary role.”
If I'm reading this correctly, this statement could hint at a paradigm shift at the Federal Reserve Board. For the past several decades we've been stuck in the Miltie Freidman QTM world where interest rate management is a panacea. I've always thought that trying to control bank lending via interest rates is like trying to weed your lawn with a machine gun. So hearing the Fed chair describe supervision and regulation as a new "primary" tool is a welcome sign that the QTM era may be finally coming to an end in the US.
The article also revealed the cluelessness of the BIS. According to their Chief Economist (and Princeton econ prof):
"Monetary policy works by either bringing spending forward, deferring spending—and you can bring spending forward by taking on more credit. So expansive monetary policy is pretty much synonymous” with looser financial conditions."
Its good to see that our central bank is at least marginally more intelligent than the BIS!
Randy Wray — BOOM BUST BOOM: MINSKY AT THE MOVIES
I highly recommend a movie to be released next year (that is, the year that begins next week). Terry Jones, of Monty Python fame, is one of the key developers of the film. It is on the Global Financial Crisis, but also provides a quick history of bubbles and crashes. It is highly entertaining and as good as any that I’ve seen on the crisis.
The movie features Hyman P. Minsky as well as J.K. Galbraith, who appear as life-sized puppets. One of Terry’s crew told me they brought Minsky over from England on a plane as a fare-paying customer. I would have loved to have seen the look on the faces of the flight attendants. I hope they bought him a beer.
Originally they were to film Minsky in his office at the Levy Institute, but when they saw pictures of it they said that there’s no way such a big and important economist could have had such an inauspicious office (albeit in beautiful Blithewood overlooking the Hudson). So they used a nice library down in Manhattan.
As Terry puts it, ”I wanted to be part of this project as soon as I discovered economics students are taught crashes just don’t happen.”…Economonitor — Great Leap Forward
BOOM BUST BOOM: MINSKY AT THE MOVIES
L. Randall Wray | Professor of Economics, University of Missouri at Kansas City
Russian MPs Issue 1T Rouble Bank Recapitalization Bill
This is not hitting the headlines but as reported here in The Guardian, apparently the Russian government representatives have appropriated up to 1T rouble for bank recapitalizations if needed.
Last Friday, Russian MPs rushed through a bill authorising a 1tn-rouble recapitalisation of the country’s banks, which have suffered big losses as a result the currency crisis.I'd take issue with the assertion here that this appropriation was necessary as a result of the so-called "currency crisis", I'd rather assert it had more to do with the collapse in oil prices in USDs but this story is revealing in any regard.
I think this is a good move they are making here.
I'd hate to see what our government representatives would do in response to a similar crisis here in the U.S. these days. In 2008 Hank Paulson had to literally get on his knees to beg Democrat House Speaker Pelosi to pass a similar bill (TARP), and ever since then there has been nothing but complaining about this so-called "bailout" everywhere you look.
This is a good move that they are making and coupled with the 17% policy rate which will get another form of fiscal support going (2% GDP) through the interest income channel, should surely help to get things turned around there domestically.
This move towards more fiscal support by Russian government personnel may stand in contrast to how the U.S. government personnel will conduct themselves when we are up against the U.S. so-called "debt ceiling" in March.
Sunday, December 21, 2014
Richard A. Werner — Can banks individually create money out of nothing? — The theories and the empirical evidence
AbstractInternational Review of Financial Analysis — December 2014
This paper presents the first empirical evidence in the history of banking on the question of whether banks can create money out of nothing. The banking crisis has revived interest in this issue, but it had remained unsettled. Three hypotheses are recognised in the literature. According to the financial intermediation theory of banking, banks are merely intermediaries like other non-bank financial institutions, collecting deposits that are then lent out. According to the fractional reserve theory of banking, individual banks are mere financial intermediaries that cannot create money, but collectively they end up creating money through systemic interaction. A third theory maintains that each individual bank has the power to create money ‘out of nothing’ and does so when it extends credit (the credit creation theory of banking). The question which of the theories is correct has far-reaching implications for research and policy. Surprisingly, despite the longstanding controversy, until now no empirical study has tested the theories. This is the contribution of the present paper. An empirical test is conducted, whereby money is borrowed from a cooperating bank, while its internal records are being monitored, to establish whether in the process of making the loan available to the borrower, the bank transfers these funds from other accounts within or outside the bank, or whether they are newly created. This study establishes for the first time empirically that banks individually create money out of nothing. The money supply is created as ‘fairy dust’ produced by the banks individually, "out of thin air".
Can banks individually create money out of nothing? — The theories and the empirical evidence
Richard A. Werner
TASS — Russia will be able to overcome economic problems - Chinese Foreign Minister
"If the Russian side needs it, we shall offer all possible support we may have,” the foreign minister said.It's official. A lower level official floated this last week. Now the FM confirms.
It's in China's national interest not to have NATO any closer to its western border.
TASS
Russia will be able to overcome economic problems - Chinese Foreign Minister
Miles Kimball — The Swiss are now at a negative interest rate due to the Russian ruble collapse
Unintended consequences in an interconnected global economy.
Quartz
The Swiss are now at a negative interest rate due to the Russian ruble collapse
Miles Kimball | Professor of Economics, University of Michigan
h/t Lambert Strether at Naked Capitalism
Lord Keynes — Are all Facts Theory-Laden?
Kant had suggested and cognitive science further suggests that humans project what they sense in addition to receiving it as data through the subliminal process of data organization of which the subject is unaware. This often accounts for why there are often disputes of fact even among experts. Individuals and groups organize the world differently, based on subjectivity and the process of social construction, including the logic of the language they employ in mentation and communication.
Lord Keynes presents a particular view of this in opposition to Mises apriorism. I am in general agreement with this criticism in that this is the dominant paradigm in the scientific community at present and it is based on the way the majority of people construct reality.
But I am more agnostic from the philosophical point of view.
The worldview that LK outlines is a relative worldview that characterizes a way of seeing the world at a particular historical moment for a particular vantage which falls under the general category of "realism" in philosophy. The way it is stated is known as "naïve realism" in that it assumes that "what you see is what you get" without epistemological explanation.
There is a considerable controversy over epistemological explanation and simply asserting realism is considered to be an expression of the "commonsense" viewpoint that is socially dominant at this historical moment in this geographical location. The point of rigorous inquiry is that common sense has often proved wrong. It is a reason that science was developed along with the issues associated with supposedly self-evident principles of philosophy.
Social Democracy For The 21St Century: A Post Keynesian Perspective
Are all Facts Theory-Laden?
Lord Keynes
Social Democracy For The 21St Century: A Post Keynesian Perspective
Are all Facts Theory-Laden?
Lord Keynes
Dean Baker — China and the United States: Who Is Number One?
India, too.
This promises to be the Asian Century if global development proceeds apace. Of course, as countries develop the quick pace levels off. But still, the end point is two economies four times the size of the US, and twice the size of the now developed world.
Assuming unlimited resources and no negative externalities, no major conflicts that destroy large quantities of capital, and that China and India have the organizing power.
Beat the Press
China and the United States: Who Is Number One?
Dean Baker | Co-director of the Center for Economic and Policy Research in Washington, D.C
Beat the Press
China and the United States: Who Is Number One?
Dean Baker | Co-director of the Center for Economic and Policy Research in Washington, D.C
Zero Hedge — China Tests Nuclear ICBMs, US Analyst Warns "Arms Control Is Failing To Increase American Security"
Zero Hedge
China Tests Nuclear ICBMs, US Analyst Warns "Arms Control Is Failing To Increase American Security"
Tyler Durden
Saturday, December 20, 2014
Dadan Upadhyay — US “troubled” over slew of deals during Putin-Modi summit
RT — Russia’s military doctrine remains ‘solely defensive’ – Putin
Russia is hardening its defenses and extending them, and beefing up its nuclear deterrent.
RT
Russia’s military doctrine remains ‘solely defensive’ – Putin
Paul McHale — Key to defeating ISIS is ideas, not arms
There is a military term of art that has deep significance in our fight against ISIS. It captures the idea that there is an identifiable source of enemy power that, if successfully attacked, will lead to our enemy's strategic defeat. That enemy strength (and potential vulnerability) is called their "center of gravity."
This is called "winning the hearts and minds of the people." It's why the US was ignominiously defeated in Vietnam by North Vietnamese Viet Cong General Vo Nguyen Giap, who first defeated the French at Dien Bien Phu in 1954, driving France from Indochina and resulting in communist North and "free" South Vietnam. I was an officer in the US Naval Reserve on active duty 1964-1967 at which time I read the work of French journalist Bernard Fall describing what had happened. After reading Fall, I realized that the US would fall into the same trap and it did, although it took a decade more to unfold with untold destruction on both sides.
However, "winning the hearts and minds of the people" is not just a strategy. The people actually have to be convinced that they matter, and, of course, they didn't. They were just pawns in the great game that really didn't have that much to do with the Vietnamese people at all.
In my judgment, ISIS can be contained and then destroyed, but that goal will not be achieved by brute military power. ISIS' center of gravity exists far beyond the battlefield. It exists in the hearts, minds and aspirations of the young men and women who are drawn to the cause of violent Islamic extremism. Killing ISIS fighters at the front end of the combatant pipeline has value - but closing the pipeline of ISIS recruiting is the real center of gravity.
Right. ISIS is even a greater threat than Al Qaeda since it has declared the Caliphate as a rallying point for the reestablishment of a Sunni state in MENA under Islamic law. This has the potential for going viral among radicalized Sunni youth in the Islamic countries, as well as other countries. This is an extremely powerful idea and countering with another idea that more powerful is much easier said that done.
Throughout U.S. history, our men and women in uniform have fought and died for a noble cause: the unwavering defense of individual freedom. They understood - often when our politicians did not - that there was something at stake that transcended self-interest. Yes, to be effective, military forces need to be well-trained and equipped. And they need to be well-led. But most important, they need to believe that they are fighting for something worthy of their blood and sacrifice.…This is the mindset I had when I entered the US military. I was disabused of it while in the military and came to realize that I was being betrayed by this line of propaganda to motivate the troops. The idea that the US was fighting for individual liberty in a far away place like Vietnam, which had little to do with the national interest was simply not believable on reflection, and on inspection it became obvious that this was not about freedom, ours or theirs, but about empire and those who control it.
McClatchyDC
Key to defeating ISIS is ideas, not arms
Paul McHale, The Philadelphia Inquirer, December 15, 2014
Paul McHale is a former member of Congress (1993-99), assistant secretary of defense (2003-09) and a retired Marine colonel with 33 years of active and reserve service.Unfortunately, he is also clueless. He is taking about convincing Islamic youth to adopt American values, when these value are clearly against everything in which they believe. It's like trying to convince Christian fundamentalists to accept liberal values like abortion on demand and same sex marriage because indivdual freedom.
Alex Lantier — Imperialism and the Ruble Crisis. “Economic Warfare”
The plunge of the Russian currency this week is the drastic outcome of policies implemented by the major imperialist powers to force Russia to submit to American and European imperialism’s neo-colonial restructuring of Eurasia. Punishing the Putin regime’s interference with their plans for regime change in countries such as Ukraine and Syria, the NATO powers are financially strangling Russia.
If this were to succeed and the Putin administration be replace by Western-friendly neoliberal oligarchs, the alarm to go to general quarters would sound in China, since NATO would soon be on its wester border, with the Seventh Fleet on its eastern border. They would it interpret it as the US making its move before China gets so strong as to be impervious to attack.
Then the clandestine war with China would begin to effect regime change to China by fomenting a color revolution there, which could also involve economic warfare to isolate China from the global economy. Dispensing with Russia and China as adversaries would then open the way to closing the trap of neoliberal globalization under Western transnational economic interests that control Western governments through oligarchy "democracy."
This is the US geopolitical and geostrategic dream. What could go wrong?
Imperialism and the Ruble Crisis. “Economic Warfare”
Alex Lantier
Noah Smith — Should theories be testable?
I don't see why we should insist that any theory be testable. After all, most of the things people are doing in math departments aren't testable, and no one complains about those, do they? I don't see why it should matter if people are doing math in a math department, a physics department, or an econ department.
I think testability starts to matter when you start thinking about applying theories to the real world. This is why I get annoyed when people ignore the evidence in business cycle theory, but not when they do it in pure theory.
Suppose you're studying the properties of repeated games. Who cares if those games represent anything that really exists today?…
But when you start making models that claim to be about some specific real thing (e.g. monetary policy), you're implying that you think those models should be applied. And then, it seems important to me to have some connection to real data, to tell if the theory is a good one to use, or a crappy one to use. That's testability.Exactly.
Anyway, this sort of seems very college-freshman-dorm-discussion-level when I write it out like this, but I think there are a surprising number of people who don't seem to agree with it...
Science is not a thing but an activity. It's what scientists do. There are three major areas in doing science: 1) theoretical science (aka pure science) focusing chiefly on formalization, 2) experimental science, heavily involving design of experiments, and 3) applied science, e.g., engineering and technology, medicine, policy science, which apply general principles to specific conditions. These are separate fields, notably physics, where theoretical physics is advanced math, and experimental and applied physics are about not only formal knowledge but also practical skill. The three fields require development and use of different knowledge and skills. All are essential the scientific enterprise that results not only in expansion of the knowledge base but also in technological innovation.
What is so difficult to understand about this?
Noahpinion
Should theories be testable?
Noah Smith | Assistant Professor of Finance, Stony Brook University
Cory Hoffman — The Collapse of the Russian Ruble Does Not Undermine the Central Premise of Modern Chartalism (MMT)
The collapse of the demand for the Ruble in the face of falling oil prices concretely confirms the central premise of modern monetary theory; that the real constraint on a state’s ability to move real resources are its productive capacity and its ability to put its resources into motion.
That is to say that the basic equation is that, in both the short run and “the long run”, public expenditure is constrained by the real resources and real productive capacity of a given macroeconomy.…Overlapping Consensus
The Collapse of the Russian Ruble Does Not Undermine the Central Premise of Modern Chartalism (MMT)
Cory Hoffman
The Saker — Oh how much they hate and fear Russia and Putin
A person like [Strobe] Talbott is very much "plugging in" the US deep state and if he says that next year there will be an insurgency in Chechnia, we can be darn sure that the US will try to create one.The Vineyard of the Saker
Oh how much they hate and fear Russia and Putin
Vineyardsaker
Lord Keynes — Huerta de Soto gets it Wrong on the Gold Standard
In short, the idea that under the gold standard the industrial nations “generated the greatest increase in prosperity in history” at any time before or since is untrue, and is nothing but a libertarian myth.Social Democracy For The 21St Century: A Post Keynesian Perspective
Huerta de Soto gets it Wrong on the Gold Standard
Lord Keynes
Brian Romanchuk — Monetary Impotence And The Triumph Of The Fiscal Theory Of The Price Level
There has been an ongoing debate about how monetary policy interacts with the zero bound on interest rates. Paul Krugman has recently posted an article,"The Simple Analytics of Monetary Impotence (Wonkish)", in which he gives a simplified Dynamic Stochastic General Equilibrium (DSGE) model which he says demonstrates something about monetary policy when at the zero bound. When I look at the model, it appears that there are internal contradictions to his suggested solution. Instead, it appears that the model solution is determined by the Fiscal Theory of the Price Level (FTPL). When it comes to DSGE models, it appears that all roads lead to the FTPL….Bond Economics
Monetary Impotence And The Triumph Of The Fiscal Theory Of The Price Level [wonkish]
Brian Romanchuk
See also, JKH, John Cochrane’s “Monetary Policy with Interest on Reserves”, at Monetary Realism
Keiser Report: Ruble’s Baptism by Fire
Published on Dec 20, 2014
Max Keiser and Stacy Herbert are joined by Liam Halligan of BNE.eu. They talk rubles, sanctions and diversifying the economy with some technology investments. In the second half, Max interviews Konstantin Gurdgiev about the ruble, the Russian budget and David Cameron’s take on the causes and consequences of the crisis and sanctions. They also discuss the ruble’s ‘baptism by fire’ as it only just joined the five trillion dollar per day forex markets.
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