We only thought trolls lived under bridges...

Ever notice the seemingly endless hordes of commenting trolls who clutter comment sections? It turns out they might not even be people per se, just a multitude of virtual personas controlled by humans. Talk about nefarious. Need support for one's particular political or economic cause (for example:a return to the gold standard) but know that you don't have a large number of supporters? Simple solution: buy an army of cyber trolls.

MSNBC anchor Cenk Uygur rips Obama on his failure to stand up for Wisconsin unions

Brutal truth, awesome commentary by MSNBC anchor Cenk Uygur!

Goldman's recent forecast regarding spending is same as my 2011 Outlook that I sent out in Jan

I sent out my 2011 yearly outlook back in January and discussed the impact of spending cuts on the economy this year. Goldman is out with theirs and it pretty much corroborates what I said over a month ago.

If you want a copy of my report, email me, it's free.

"Pro-business" Republicans elected and businesses savagely cut spending

The Republican gains in last year's midterm elections were the largest seen in 80 years. Remember, they were the pro-business party. Prior to the elections you heard all kinds of stories about how the economy wasn't doing well.

We were told that businesses were scared to make a move because they had an unfriendly White House and Congress. They warned us that the expiration of Bush tax cuts were what was keeping entrepreneurs and CEOs from making spending decisions.

These admonishments came despite the fact that from time that Obama and the Democrats took power, business investment increased by over $400 billion in real terms. All in just a year and a half!

Yet sadly, the White House and the Democrats were so inept at communicating their successes that the public ended up getting brainwashed by the the Republicans' line of tripe. They bought it hook, line and sinker.

And what did the Republicans get as a result of their successful, yet totally twisted propaganda campaign? Huge electoral gains.

The "pro-business" party was elected by a landslide in November 2010. In December we got the extension of the Bush tax cuts and other tax cuts that the Republicans said were necessary to get business investment flowing again.

So what happened? Did all this open the flood gates to massive amounts of new business investment?

No. On the contrary...business investment collapsed in the fourth quarter of last year. Companies cut their spending by over $100 billion. Taht's right...they reversed more than a quarter of their investment spending that occurred over the prior 18 months in a mere three.

It didn't end there. Now the states under these remarkably economically savvy Republicans are cutting budgets in order to grow. But, ooops!...those cuts are resulting in shrinking economic activity.

Where is the president? If I were him I'd be all over this. I'd be shouting it from the rooftops! The pro-business Republcians take over and what does business do? It cuts their spending and investment. You got that...CUT!

More of this madness is yet to come as Congress gets set to unleash their own "Wisconsin" on the entire nation. With the evidence piling up all around that this austerity is a disaster, you mean to tell me that there is not one person out there capable of explaining the folly of all this? I mean, God, there's certainly enough evidence to make the case.

State spending cuts slow US economic growth in Q4

"Deeper spending cuts by state and local governments weighed down U.S. economic growth in the final three months of last year. The government's new estimate for the October-December quarter illustrates how growing state budget crises could hold back the economic recovery..."

What happened to "cut and grow?" That's the House Republican leadership's slogan.

Seems that things are not working out quite the way they planned. States "only" cut about $9 billion in spending in the fourth quarter, but cuts this year are likely to be much deeper.

The sad part about all this is that the folly of their economics, which should be so obvious to everyone right now, will probably be ignored because very powerful people want to see this happen so it's going to happen. And the president is sufficiently misguided as to aid this along. As far as the electorate is concerned, they've been propagandized so effectively that spending cuts are like religion. No one can change their beliefs about that now.

Stock selloff starting to reflect reality of spending cuts

Look at the stock charts of General Motors and Ford, two companies that are very closely tied to personal consumption. These stocks peaked in early January when the new Congress was sworn in. GOP members of the House have been pushing deep spending cuts since then and look at what has happened to these automakers: GM has lost 15% of its value and Ford has lost 20%!

The action in these stocks suggests to me that the market is starting to appreciate--and fear--the spending cuts. This is a clear signal that overall demand in the economy could contract sharply.

Marriner S. Eccles: A man of great courage and vision during the Depression

"Without going into any detail or figures, it is recognized by everyone that our most urgent and acute problem today is to immediately provide adequate relief to the millions of our people who are destitute and unemployed in every corner of our nation. It is a national disgrace that such sufferinng should be permitted in this, the wealthiest country in the world. The present condition is not the fault of the unemployed, but that of our business, financial and political leadership. It is incomprehensible that the people of this country should very much longer stupidly continue to suffer the wastes, the bread lines, the suicides, and the despair and be forced to die, steal, or accept a miserable pittance in the form of charity which they resent, and properly resent. We shall either adopt a plan which will meet this situation under capitalism, or a plan will be adopted for us which will operate without capitalism." -Marriner S. Eccles 1933

Sad that we don't have courageous people like this today.

CNBC commentator Rick Santelli compares Wisconsin protests to 9/11!

"If the country is ever attacked as it was on 9/11, we all respond with a sense of urgency," Santelli said in a roundtable discussion on NBC's "Meet the Press" about the Wisconsin labor protests. "What’s going on on balance sheets throughout the country is the same type of attack.” -Rick Santelli

He goes on...

"This is an issue that needs to be put out into the air," Santelli said. "Many other states ultimately — they might not have the same balance sheet as Wisconsin — but collective bargaining from the federal level these are big issues, and these costs need to be put under control."

In other words, he suggests that collective bargaining--the right of workers to negotiate with employers for pay and benefits--is equivalent in some way to this nation being attacked on 9/11!

I'm starting a campaign to get this guy off the air once and for all. He's an idiot. Santelli has crossed the line on this one. Over 3000 people were murdered by terrorists on 9/11 in a premeditated attack. To compare union workers to the terrorists who commited this is disgusting. I urge everyone to contact CNBC and let them know that Santelli's comments are repulsive.

It's bad enough when he spouts his misinformed garbage on the bond market and fiscal policy, but this is too much.

The real truth is, when it comes to the government there is no debt.

All we hear about is the debt, the mountain of debt. Debt, debt, debt...it never ends. My question is, what debt? What's the debt that everyone is talking about?

Okay, the so-called, "debt" is $14 trillion or thereabouts. That's the amount that the non-government holds in Treasuries. That's what's considered to be the debt.

So let me ask you this: what if the government had just sent out $14 trillion worth of checks to everone or better yet, $14 trillion dollar bills and just spread it around?

It would break down like this:

$9.5 trillion in checks or cash to the public, with about half of that going to foreigners like the Chinese, Japanese, Opec, etc.

$4.6 trillion in checks or cash that the government gives to agencies of the government.

In other words, the public would have gotten $9.5 trillion in checks or cash and agencies of the government would be holding $4.6 trillion of the same, checks and/or cash.

Would that be considered a debt? Would the government be considered in debt to these entities? Better yet, would these entities be considered as having a liability?

Anyone with half a brain would see that the recipients of the checks or cash would be the recipients of a windfall of new assets.

And this is exactly what has happened. The $14.1 trillion that people see as a debt of the government is really a distribution of $14.1 trillion in assets to the non-government.

And if the government sent it out as cash (Federal Reserve Notes) or checks, no one would be saying the government was in debt.

So why do we continue to hear this?

We hear it because that's the amount the non-government holds in Treasuries and people believe Treasuries to be a debt obligation, when in fact there's very little difference between a Treasury note or bond and a dollar bill. They're both accounted for the same way--as liabilities of the Federal Government--however, one has no duration (cash) and the other has some duration and pays interest.

How hard, then, is it for the government to pay that interest?

Not any harder than it is to send you a check or distribute dollar bills to you. In other words, pretty much effortless.

So why all the hysteria about the debt?

One reason: ignorance.

It's the ignorance that is killing us. The Treasuries held by the non-government is exactly the same thing as if the non-government had received checks or cash from the government, with one exception: they get paid interest. And the ability of the government to pay that interest is as easy as its ability to send you a check or some cash. There is never any problem.

So now when you hear that the Republicans or the president or Tea Party people want to "pay down the debt" you should understand that to mean they want the government to take back that check or cash that they distributed to you. That's the only way to pay it back. The government must take back those assets. And for what reason? Does it need to collect what it has already distributed and what it can freely distribute in order to function?

Think about it.

The whole thing is absurd.

Spending cuts are the fiscal equivalent of tax increases

When discussing fiscal matters it's all about revenue and spending.

Most people are against tax increases. Why? Simple, because tax increases take money away from you.

Spending cuts, on the other hand, are generally viewed in a more constructive light. Yet the funny thing is, spending cuts do exactly the same thing as tax increases: they take money away from people. So why do people love spending cuts? The same people who are opposed to taxes increases cry out for spending cuts even though both things are fiscally equivalent.

Here'a another thing that's the fiscal equivalent of a tax hike: taking away someone's benefits. When you take away someone's benefits (Social Security, Medicare, Medicaid, tuition subsidies, collective bargaining rights, annual wage increases, etc.), it's the exact same thing as levying a tax on them. It's a tax increase, pure and simple.

That's why it's so disturbing to watch the protests going on in Wisconsin and see the reaction to them. The public employees (teachers, firemen, police, etc) in Wisconsin are simply protesting against a tax increase that is about to be levied on them. This tax increase comes even as the wealthy in that state got another tax cut!

And while these protests are occurring you have this bizarre sight of private sector workers disparaging public sector workers and screaming about how they are ripping off the states and taxpayers, when in fact all workers are being hit with tax increases in thinly disguised form while the wealthy get tax cuts!

This is playing out throughout the land at both the state and Federal level. We see policies being implemented to reduce pay, benefits and services (which is the equivalent of a tax increase) while the wealthy get more money funneled their way! Even Obama's so-called tax compromise back in December did just that--it cut taxes for the wealthy while imposing a wage freeze (otherwise known as a tax hike) on Federal workers.

The really frightenting thing about this is how this whole argument is being framed in such a clever and deceptive way as to make ordinary workers look like the fat, lazy, greedy, bad guys.

This argument needs to be re-framed. People all across America need to realize that what we're seeing now on pretty much a wholesale level is that middle class workers are being taxed while the rich continue to get more and more tax breaks. All happening under a presidnet who was purportedly for the workers.

Taxation without representation!

Our forefathers started a revolution over this.

My not so small influence on policy :)

Last night I was talking to Democratic strategist, Bob Beckel. Beckel is an adviser to Joe Biden. (It's funny, 'cause I was sitting there and Biden called Beckel on his cell phone.)

I have been talking to Beckel for a while now about all this MMT stuff, government spending, debts, deficits, etc and have won him over to our side to the point that he's become a very good communicator of these concepts.

Well, we were discussing the president's State of the Union speech and I mentioned to him that I thought it was interesting that the president put the issue of the deficit way back near the end of the speech almost as if to de-emphasize it. Then Beckel said to me, "Mike you don't realize how much of an influence you had on that."

I was shocked.

He told me that he had been explaining all this stuff to Biden and Biden was a key player in the White House in terms of framing the State of the Union speech. He said Biden argued strongly for de-emphasizing the deficit, while another group of fiscal hawks at the WH wanted to make it a priority. The hawks lost the debate and according to Beckel, that was due in no small way to me!

Chances of a government shutdown rising

I was talking to Democratic strategist Bob Beckel at Fox yesterday on the subject of the president's budget and likelihood of a government shutdown. Until recently Beckel had been pretty sanguine about the latter, feeling that is was all bluster by the Republicans and nothing more. Yesterday, however, he indicated to me that it now looks pretty certain--CERTAIN--that the Republicans would force a shutdown.

I do not know what directional impact this will have on the markets, but I do know this: a shutdown and the discourse leading up to such an eventuality will create a lot of volatility.

I will be on "Cavuto" tonight on Fox Business at 6pm ET

Exact hit times are 6:24pm and 6:48pm.

All money emanates from gov't spending...ALL MONEY!

Try this one on a friend or colleague next time you get into some kind of money discussion.

All money emanates from gov't spending...ALL MONEY!

I mean, where do you think money comes from, anyway? Do you print it up in your basement? Does your neighbor print his up?

When you pay cash, where did those bills come from?

Even bank money--i.e. credit--comes from gov't money.

Yes, when a bank makes a loan it is merely an accounting entry, so the bank did create its own money out of thin air. And the bank's credit is usually good for the purchase of goods and services.

However, bank money can only be issued with the simultaneous creation of RESERVES and only the government (via the Fed) can create those reserves. Without reserves, no credit under the current structure.

And like I said, bank money can pay for most things, but it can't pay your taxes. Only reserves--the government's own money--can settle your bill with the IRS.

All money comes from government spending...ALL MONEY!

House Republicans hand down their first wave of cuts, many programs hit

Here's the first wave of House GOP cuts, a total of $43 bln. Some of these programs that are being cut are great programs that have helped many and contributed to a cleaner environment.

Cuts to:

Environmental Protection Agency, Corporation for Public Broadcasting, family planning assistance, Pell Grants and other education grants and programs and possibly furloughs of federal workers.

A stripping away of services and income by a gang of blind ideologues, in the name of their "religion," which is fiscal conservatism. Blame a totally misguided and propagandized public who threw their support behind these fanatics.

No we can all look forward to a return of Love Canal, tumbling educational levels and more unopposed, poisonous right wing media.

Bernanke is part of the problem

An exchange between Bernanke and House Budget Committee Chair, Paul Ryan (R-WI). It shows how Bernanke has become part of the problem.

Ryan: “Just to summarize, you do believe that one of the best things we can do for short-term economic growth is to put out a plan that actually stabilizes our fiscal picture, that actually gets our liabilities under control, and shows, with confidence, that we have the right trajectory because we’ve addressed the programs — which are spending programs — that are getting us out of control. Is that the case?”

Bernanke: “That’s correct.”

House Majority Leader, Eric Cantor, in our office on Monday

Eric Cantor, the House Majority Leader, will be in the offices of John Thomas Financial on Monday. I will ask him about the debt ceiling and spending cuts.

YTD Fiscal Snapshot

Following is some data in regards to the posture of fiscal policy FYTD, through the end of January, 4 months into the FY, and a YoY comparison. (data from the US Treasury's DTS)

FY 2010 as of Jan 30:

Total Treasury Account Withdrawals: 3678
Minus Treasury Redemptions: 2314
Equals Net Treasury Withdrawals: 1364

Total Treasury Account Deposits: 3494
Minus Treasuries Issued: 2514
Equals Net Treasury Account Deposits: 980

FY 2010 YTD (Jan 30) Deficit: 384B

FY 2011 as of Jan 30:

Total Treasury Account Withdrawals: 3707
Minus Treasury Redemptions: 2357
Equals Net Treasury Account Withdrawals: 1350

Total Treasury Account Deposits: 3746
Minus Treasuries Issued: 2808
Equals Net Treasury Account Deposits: 938

FY 2011 YTD (Jan 30) Deficit: 412B

So you can see from this data that it looks like YoY ‘Tax receipts’ or net Treasury account deposits are down from 980B to 938B. The fiscal deficit has increased by 412-384=28B, or approximately $100 per capita, $25 per month per capita. Net Withdrawals have decreased by 1350-1364=-$14B or -$40 per capita, -$10 per month per capita. This means that now YoY, the government is "spending less", that is, the government has had less 'real' withdrawals from it's account at the Fed at this point in the fiscal year versus last fiscal year.

On the non-govt side, Bank credit (via the Fed's H.8) is flat to down (it is probably down 100's of $B) YoY if you factor in the $300B+ add to Total Loans & Leases in Bank Credit due to CIT Financial bankruptcy on-balance sheet adjustment last April. Crude is up, net imports are up.

This is not a lot of support for the economy or growth; and the worse news is that the government policymakers believe that they are spending too much.

Throughout this fiscal year the country has been operating on a "continuing resolution" instead of actually passing a FY 2011 budget. The CR seeks to mimic the discretionary spending levels of the previous year so perhaps it should not be surprising that these YoY comparisons do not indicate much change in expenditures. This could change going forward if a budget is passed, with perhaps some YoY increase in expenditure rates, but the new Congress keeps insisting on YoY discretionary spending CUTS so this seems less likely.

MMT for a "Tall Blonde

This is a re-posting of a comment by Tom Hickey, that explains the MMT very well I think (Probably not good for dinner conversation but good for a blog ;)

Tom Hickey Reply:

April 3rd, 2010 at 12:38 am

The key here is the MMT concept of vertical and horizontal in relation to money creation. This is sometimes called exogenous (outside) and endogenous (inside).

When the government “spends,” the Treasury disburses the funds by crediting bank accounts. Settlement involves transferring reserves from the Treasury’s account at the Fed to the recipient’s bank. The resulting increase in the recipient’s deposit account has no corresponding liability in the banking system. This creation is called “vertical,” or exogenous to the banking system. Since there is no corresponding liability in the banking system, this results in an increase of nongovernment net financial assets.

When banks create money by extending credit (loans create deposits), this occurs completely within the banking system and results in a liability for the bank (the deposit) and a corresponding asset (the loan). The customer has an asset (the deposit) and a corresponding liability (the loan). This nets to zero.

Thus vertical money created by the government affects net financial assets and horizontal money created by banks does not, although its use in the economy as productive capital can increase real assets.

The mistake that is usually made is comparing what happens in the horizontal system with what happens at the level of government accounting. At the horizontal level, debt is the basis for horizontal money creation. Therefore, it is often assumed that debt must be the basis for the creation of money by government currency issuance. This is not the case.

Reserve accounting uses the standard accounting identities, but the meaning of “liability” is not “debt.” The husband-wife analogy for CB-Treasury accounting relationships is apt. Since a husband and wife are responsible for each others debts, neither can be indebted to the other. That is to say, reserve accounting is a fiction that does not represent real relationships, such as exist between a creditor and debtor in the horizontal system.

Moreover, government debt is not true debt either. At the macro level, the reserves that are transferred to banks through government disbursement are used to buy Tsy’s. That is, when a Tsy is bought, this involves a transfer of reserves from the buyer’s bank’s reserve account at the Fed to the government’s account (consolidating CB and Treasury as “government”).

When the Tsy’s are sold or redeemed, the reserves that were “stored” at interest are simply switched back, creating a deposit again. It’s pretty much the same as buying and redeeming a CD. It’s just a switch from demand to time back to demand in a bank account, and a switch between reserves and securities at the government level. That is to say, the government doesn’t have to draw on revenue, borrow, or sell assets to cover its “debt,” as households and firms do. It’s just a matter of crediting and debiting accounts on the (consolidated) government books, even though it may appear that there is a financial relationship occurring between the CB and Treasury due to the accounting. However, it’s just a fiction.

Therefore, the key to understanding MMT is this vertical-horizontal relationship. When one understands this, then Abba Lerner’s principles of functional finance become obvious. (1) Currency issuance through government disbursement is used to increase nongovernment net financial assets, and taxation withdraws net financial assets from nongovernment. (2) Debt issuance by the Treasury is a monetary operation for draining reserves to permit the CB to hit its target rate.

These principles are then applied to Y+C+I+G+NX to balance nominal aggregate demand with real output capacity in order to achieve full capacity utilization, hence, full employment, along with price stability. This is based not on theory requiring assumptions but on operational reality that can be represented using data, standard accounting identities, and stock-flow consistent macro models.

All of this and much more is explained in considerable detail at Bill Mitchell’s blog.

This is classic! I bury Stuart Varney!!

Just had to post this again!!

Caution: MMT can be hazardous to your love life!

On Saturday night I went out on a date. I was going to have dinner with a girl whom I had just recently started dating. We agreed to meet at one of my favorite restaurants--a nice Italian place with cozy atmosphere in the Flatiron District of Manhattan. Everything was superb. We were seated at an intimate little semi-circular booth near the back, which had a nice view of all the goings on. I knew the owner of the joint so we were treated like celebrities. The evening started off wonderfully, the wine flowed and so did the conversation.

Most people know that there are two things you never talk about early on in a relationship: politics and religion. I know this and I'm always careful to steer clear of these subjects unless I am certain that the person I’m with shares my views. On the other hand economics is not that sensitive a subject, at least I thought.

You guessed it, before long the conversation started to gravitate into economics. I'm not quite sure why; maybe she started asking me more about my profession or maybe I started making my usual observations about the economy generally and how upsetting it was to see so many people out of work and struggling.

For the record my date was self-employed in a field obliquely associated with the entertainment industry. She spoke about how tough her business had become, but added that she still felt that if she worked very, very, hard she could eke out a modest living, but it was no cakewalk by any means. I said that I thought it was a shame that so much sweat was required to make just a bare subsistence and that it didn't have to be that way.

She looked puzzled and asked me to elaborate. That's when it all began. Like a fool, I started with the MMT stuff and from that moment on the whole evening started to go downhill. I "explained" to her how there could be plenty of productive work and income for everyone if the government simply made the investments that our country needed on a scale that we needed them. Stuff like infrastructure, health care, basic R&D, transportation, alternative energy, etc.

Then she asked me how we would “pay” for those things? I responded with my best MMT explanation, that the government merely “pushes a button” and bank accounts are credited and Voila! It’s all paid for just like that. Moreover, I said that there was no limit to how much it could spend and that it needed to spend to distribute enough money into the economy to get it moving again. She looked at me like I was nuts. She said, "You mean just print money?” “Sorry," she said, "But that's just going to create inflation and destroy the value of our currency.”

At this point I could see the debate coming, but I didn't panic because I had been here before. (Though never with a tall, gorgeous, blonde who I really wanted to sleep with!) I responded by saying that as long as the spending resulted in the greater production of goods and services—which it would--then there needn't be any inflation. "You are creating more wealth by definition," I said. "That’s not inflationary."

I could see the smile evaporate from her face and her eyes start to glaze over. She went on and on about the money printing and going into debt and the burden on future generations. She was obviously not buying anything that I was selling. In fact, rather than convince her I could see her moving farther away from my views. She was becoming irritated. To make matters worse, the more I tried to explain it, the more my explanation seemed to become desperate.

Suddenly the conversation went dead. Both of us sat there in silence, staring out into the restaurant when just minutes before we were gazing longingly into each others' eyes. I'm sure she was thinking the same thing that I was thinking: that all she wanted was to be someplace else.

After another seemingly endless moment of silence she turns to me and hits me with this: "If you're so sure about this why isn't there anyone else in economics or in policy or in the media who says anything like this?" To which I responded with this beauty of a refrain: "A lot of people didn't believe Christopher Columbus either when he said the world was not flat!"

The look on her face went to sheer pity. A few more awkward comments were exchanged, but at that moment we both knew the evening had come to an end. I ordered a double grappa. She left. In a strange way I felt relieved, like a fighter who had just taken pounding, but the fight was at least over.

In the end I realized that the next time I am on a first date, I will never discuss religion, politics and MMT!

Social Unrest in N. Africa Expands

A story from Reuters here. As governments in the west continue to implement the fiscal policies of austerity, the violence and nationalism will continue to increase also, both inside and now outside the west.

These North African states posses sizable petroleum resources for export to the west. Even though the price of petroleum has been strong, apparently it is not high enough to provide an external surplus to result in satisfactory economic outcomes for this region of the world and the disaffected are lashing out.

UK fourth quarter GDP down 0.5 percent, shocking market expectations for continued recovery

No shock here. Welcome to a UK government austerity budget environment. My short perusal of some of the coverage of this 4Q result indicates that many of the surprised forecasters are resorting to the "do you believe those numbers?!" type of response. Classic denial.

Even in the face of this "double dip", I saw former UK PM Gordon Brown interviewed on CNBC this am warning that the UK still had to have a credible deficit reduction plan...will they never learn?

Hey Gordo, GDP= C + I + G + (X -I), where "G" is government spending!

Story here.

House GOP group proposes deep spending cuts

Washington Post out today with some new information on the magnitude of Federal spending cuts the new "Tea Party" backed members of the GOP led House of Representatives are proposing.

Some key excerpts:

"Members of the conservative Republican Study Committee said the GOP must keep its campaign pledge to immediately slice at least $100 billion from non-defense programs, "

The Tea Party people have put out a $100B number. But then we have:

"House Budget Committee Chairman Paul Ryan (R-Wis.), who is empowered by new House rules to unilaterally set a limit on spending, has said he plans to direct appropriators to slice only about $60 billion from this year's budget. The House Appropriations Committee is identifying cuts at that level."

So the mainstream GOP House leadership is only looking at $60B immediately. But overall the GOP House leadership is committed to further cuts:

"Our immediate goal is to cut spending to pre-bailout, pre-stimulus levels. That's what we pledged, and that's what we'll fight for," said Boehner spokesman Michael Steel. "But that will be the beginning, not the end, of our efforts to cut spending and create jobs (Ed: Huh?) - and we appreciate every member's input."

Top level, it looks like the GOP House would like to roll back the 2008 "stimulus" levels of Federal expenditures, which are probably running off anyway without reauthorization. The $100B cuts that the Tea Party people desire (worst case scenario), would represent about one months worth of Federal deficit levels the US economy has been enjoying over the last two years, the pace of these cuts will probably be more important than the magnitude.

Looking at this FY, through 1Q FY 2011, net spending (gross Treasury account withdrawals minus Treasury Security redemptions) was $1.012T, a projected annual rate of over $4T in net Federal spending. The Tea Party $100B cuts would represent about 2.5% of this projected 2011 Federal spending on an annual basis, and less than 1% of current US GDP. Consensus GDP growth forecasts seem to be running just above 2% for this year. It is not clear to me whether those consensus forecast models take into account these types of fiscal issues.

Don't mess with my dogma! My conversation with KT Mcfarland

KT Mcfarland was deputy assistant secretary of defense for public affairs at the Pentagon from 1982 to 1985 under President Ronald and a key member of Henry Kissinger's National Security Council staff. Not a bad resume.

I ran into her at Fox yesterday and I asked her what she was going to talk about.

She said, "China." Then she offered that, "We're really in a pickle with China."

I asked her why and she said because our options are very limited.

Then I said, "That's because we give them the leverage over us."

To which she responded, "Well, we have no choice, they are our banker."

I asked her what she meant by that and she repeated, "They are our banker," then added, "They own $3 trillion of Treasuries and we need them to buy a lot more."

At this point I couldn't sit still. You know me.

"They're our banker?" I asked incredulously. "What are they lending us? Dollars?"

She actually responded by saying, "Yes."

Then I asked her why any nation would need to borrow its own currency?

I didn't get a response, but I did get a cold stare, like the look that a child would get from an adult for being insubordinate. As if to say, "Watch it, or you'll be in even bigger trouble next time.

I continued...

"China sells us stuff and they get dollars. Then they put those dollars into Treasuries, which are just like a savings account."

Another cold stare.

Then I said, "It's like buying a bank CD. Are you financing the bank when you buy a CD? No. If anything the bank is making money off of you."

Silence. She turned to finish reading the Wall Street Journal.

That's it. Another example of policymaking elites totally undesirous of the truth if it conflicts with their dogma.

Aint this fun!

Fed official explains monetary operations and how the Fed creates money

Official states it as Bernanke stated it on 60 Minutes one time.

"Fed looks at a screen, presses a button and banks have more money."

Listen to the broadcast here. The conversation occurs around minute 35.

House GOP readies push for balanced budget amendment

Here it comes...the Doomsday Amendment!

They tried this in 1995 and it missed by a single vote. This time it's likely to go through because of the rampant, deficit reduction dogma that has gripped the electorate. A lot of newly-elected, deficit hating "true believers" now reside in Congress and my guess is, they're gonna make this happen.

This amendment will cause an explosion in poverty in the United States like nothing we've ever seen before. With the quantity of money essentially fixed (same concept as a gold standard), growth will stagnate for good and the gap between rich and poor will surge. The streets will become a dangerous place.

The lawmakers who are pushing this, along with most of the electorate, are deeply ignorant when it comes to this subject. But that's not stopping them...they're moving forward with a zeal that looks shockingly similar to some type of religious fanaticism. Fundamental extremism, like Muslim terrorists. Only, they are the Deficit Terrorists.

Fed pays US Treasury record $78.4B last year

The Fed has returned a record amount of balances to the US Treasury in the past reporting year. Story over at Yahoo!

Excerpt:"Critics in Congress have expressed concerns that the Fed's
purchases could put taxpayers at risk by reducing the amount turned over to
Treasury. The Fed is funded from interest earned on its portfolio of
securities. It is not funded by Congress. After covering its expenses, the Fed
gives what is left over to the Treasury Department."

Congress is apparently concerned that 'the taxpayer is on the hook' for balances that Congress themselves have temporarily placed with the Fed (via payment of interest on US Treasury securites, interest on US Agency bonds, interest on US GSE MBS, etc....that the Fed holds) until the end of the year when the Fed has to just give it back, minus a few $billion for the expenses of the Fed staff and operations (nice!).

Apparently no one here stops to think about where the taxpayers would get the funds to 'get the Treasury off the hook', as if they ever would have to.

We may be at an all-time high as far as Fed remittances, but sadly at an all-time low as far as economic leadership in western civilization.

Here We Go Again: Hedge Funds Almost Double Bullish Gas Bets on Cold Snap

Story at Yahoo!.

Excerpt: "The funds and other large speculators raised their net-long positions, or wagers on rising prices, in four gas contracts by 94 percent in the seven days ended Jan. 4, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report."

Bullish bets on gas when these gas shale formations (Haynesville, Marcellus, Bakken, etc.) seem to depict the entire subterranean US as one large underground storage facility.

2011 Battle Over Debt Ceiling Begins

Here is a CBS video segment from their Sunday morning show that focuses on what portends to be the major fiscal issue this year: The politics of increasing the US "debt" ceiling.




On the GOP side, Rep. Bachmann looks like she will be in a leadership position on this issue, here in this video, her bottom line to the Congress is: "Stop spending money you don't have", think about the absurdity of that statement!. She is also running an online petition on her PAC website for citizens to sign urging Congress NOT to raise the "debt" ceiling.

On the Democrat side, Rep. Weiner, who takes what at best can be called a "deficit dove" position that only advocates raising the "debt" limit in order to protect the "faith and credit" rating of the US Treasury, looks like he will be representing this position from that side.

The leadership in the Congress on both sides looks like they are not aware of the true fiscal and monetary authorities vested in the government; a government that they play a major role in.

At this point, it looks like the best we can hope for is some sort of compromise where the GOP agrees to an increase in the "debt" ceiling, in exchange for some sort of future nebulous commitment to cut future expenditures that (hopefully!) may never materialize. This (at best) could result in a continuation of current fiscal policy that on average is providing approximately $110B per month of NFAs to the non-government sector with sub-par output growth and zero employment growth. Some sort of "balanced budget" initiative, with tax increases and spending cuts, which would be the disaster scenario, seems like an outlier at this point, but you never know how politics may twist events.

This issue will play out over the next 3-4 months as that is when Treasury will run out of this self-imposed government limit on it's authority to net issue new securities.