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.

Fed reopens forex swap lines with Europe...AGAIN!!!

For a third time in two years the Fed is opening up its forex swap lines with the ECB to offer dollar liquidity to European banks and institutions that are caught in a dollar squeeze. If this did not happen the dollar could potentially soar as these institutions--and perhaps the ECB itself--would have to enter the Forex markets and buy dollars.

A strong dollar would be good for American consumers, right? It would be good for the Administration, which could point to a rebounding greenback and take political credit for that, right? But no! They're totally clueless as they sit by and allow this to happen without even taking notice.

What are these forex swaps anyway? Very simple: the Fed gives dollars to the ECB in exchange for euros--an unsecured transaction that leaves the Fed with potentially huge forex losses.

The real question is, where is Ron Paul? Peter Schiff? Jim Rogers? And all the other Fed critics? Here's a situation where they really have something to sink their teeth into (the U.S. government is bailing out European financial institutions while Americans go jobless and hungry) and they say nothing. It's really outrageous!!!

First Chevy Volt PHEV Delivered to Retail Customer

This past week marked what may turn out to be an historic event. The video below documents the delivery of the first GM Volt to a dealership customer. This I believe is the first retail delivery of a production Plug-in Hybrid Electric Vehicle (HEV) in the US.

The Plug-in HEV is different from previously sold HEVs (Toyota/Ford/GM/Honda models) in that it presents the opportunity to drive a car virtually without using any petroleum at all for short range trips (GM says <40 miles), and also allows a fall-back to the use of petroleum gasoline if your trip exceeds this limited range for that day. I see this platform as ideal for an urban commuter who commutes to work each day (20 miles each way), and then perhaps may take a weekend trip that would exceed the 40 mile range of the electric mode. This vehicle can fill both roles.

Toyota has near term plans to deliver Plug-in versions of their current HEVs soon.

The mainstream media of course can't say it on their television channels so I'll say it for them here: UP YOURS OPEC!

Is the Fed's QE2 Leading Bond Prices Down?

Mike made an interesting comment to his previous post on the Fed's implementation of QE2 that may detail the trading relationships between the Fed's bond purchases in QE2 and trading in the bond markets:

The Fed is buying "scale down" and in effect, causing the selloff. They're doing this because they're fixated on quantity ($600 bln) as opposed to price (interest rate). I remember when I was a floor trader. I had clients in the oil business--big firms--who would sometimes want to protect a certain price. They'd give me an order that would be, "Buy 100 (crude), 'worst.'" That meant buy it up...aggressively. When Japan used to actively intervene in FX markets, they wouldn't scale down their dollar buying (or sell yen scale up), they'd buy dollars aggressively to put the USD/JPY exchange rate to a certain level. The Fed is not doing this. By signaling to the market that they will buy scale down, they are actually creating this selloff as nervous longs look to sell before the largest buyer lowers its bid again and as speculative shorts compete for a better price.

If this is not an accurate depiction of the Fed's operations here in QE2 since November 12th, I would request that they then detail what the heck they are really doing. How are they arriving at the price at which to buy the bonds? These would be some good questions for Rep. Ron Paul to ask if he ever gets his "audit the Fed" train rolling. I hope Rep. Paul has the sense to call Mike before any hearings!

Ireland passes bailout package despite opposition

Story at Yahoo!. It seems the Ireland national government has gone against popular opinion and approved the "bailout" deal struck between the Ireland government/banking system and the ECB. Now things should really start to heat up in Ireland. Excerpt:

Finance Minister Brian Lenihan pushed through the 85 billion euros package with the support of independent MPs and told the center-right Fine Gael party that its proposals to lean on senior bondholders would fail because of opposition from the European Central Bank. "Those who think we can unilaterally renege on senior bondholders against the wishes of the ECB are living in fantasy land", he said.

Well it looks like the political opposition at least has a handle on the nature of this screwdeal:

"You have the obscene situation now where the poorest of the poor in Ireland, through their taxes and welfare cuts, are being asked to guarantee the speculation of investors in hedge funds," Michael Noonan, Fine Gael's finance spokesman, and a possible future finance minister, said.

It is interesting that the political "right" in Ireland is in opposition to this unjust policy that strictly favors the banking sector and it's patrons. So at least this opposition party may get to reverse this decision but it not until another government can be established. It looks like this is far from a settled matter.

Fed's poor leadership leaves bond market open to speculative attack!

Back in November when the Fed announced its intention to unleash QE2, they said they would purchase an additional $600 bln of longer term securities. There was no mention of why or how they came up with that number. It almost seems completely arbitrary.

In reading the minutes of that meeting you could surmise that they had two reasons for the move. First, they thought they needed to take action to "promote a stronger pace of economic growth." But where were the guarantees that said buying an additional $600 bln in longer term maturities promoted stronger growth?

There were none.

The second reason given was that they wanted to keep the face value of the securities in their portfolio constant. Apparently they were worried that principal payments on existing agency and MBS securities would lower the overall amount of securities on their balance sheet. So what? Did they believe that would cause interest rates to rise? If they did, there was no explicit mention of that.

Nowhere in the minutes of that meeting was there any discussion of wanting to target a desired interest on longer-term maturities. NOWHERE! It never came up. Instead, the committee members just pulled some seemingly arbitrary number out of a hat--$600 bln--and assumed that's all they needed to do. Pardon my generalization, but it had all the look and feel of throwing something up on a wall and hoping that sticks.

Truth be told, if the FOMC had simply said that it wanted 10-year Treasury yields to be at 2% and that the Fed was going to buy those maturities until it reached that desired interest target, then that's what they would have gotten, with probably far less than $600 billion.

However, by focusing on quantity ($600 bln) instead of price (say, 2%), they left the bond market wide open to speculation. That's what's going on now, speculation. Thnk about it...10-yr Treasury note futures trade a notional amount of about $80 bln per day! Multiply that times 30 days in a month and that's $2.4T notional! That's 30 times more than the $75 bln per month the Fed said it was going to buy. Speculators can easily push bond prices down and yields up in response to the Fed's tepid and ill-thought-out buying program. That's exactly what they are doing.

It's an astonishing thing to say, but the people on the Board of Governors totally lack an understanding of the one thing that the Fed has absolute control over--interest rates. This is truly mindboggling. The members of the FOMC have left the bond market open to speculative attack as a result of their ignorance. And to make matters worse, there will be plenty of negative fallout from this because the commentary that will swirl about--people will be saying that inflation is surging, that the Chinese are selling our debt, that the national debt is skyrocketing, that the dollar is the cause, etc--will completely distort the truth and make policy more ineffective than ever. That means the outcomes will be even more disruptive. The FOMC has 12 members. None of them understood this???? Sadly, that's a correct statement.

The outrageous and misguided views that people buy into

Certain commentators are running around saying things like, “The US economy (GDP) is a ‘phony’ economy because all we really measure is what we consume.”

That’s right; GDP measures what we consume; but everything that is consumed is also produced. Therefore, consumption and production are one in the same, just as is income and consumption or, income and product.

However, if you said that to those commentators they’d say, “Yes but, the United States doesm't produce anything.”

Another completely ridiculous statement.

When GDP is calculated imports are SUBTRACTED OUT OF THE TOTAL because we are measuring gross DOMESTIC product! And even with imports subtracted the number that is left is $14.8 Trillion! That’s not only a very big number, it's also everything that is consumed (AND PRODUCED) domestically, as in Gross DOMESTIC Product or.

The people who make these crazy statements are people who aren’t interested in the truth. They are people who don’t want YOU to know the truth either. They only want to continue spewing their misguided ideology and dogma.

My comments on RT America

Obama Unveils Broad Accord To Extend All Bush Tax Cuts

UPDATE: False alarm, it looks like status quo for fiscal policy, see comments.

CNBC reports this evening; this could be close to what many here have been looking for, excerpt:

"President Obama announced a broad "framework" agreement with Republicans that would extend all Bush-era tax cuts for two years, keep the dividend and capital gains tax at 15 percent and temporarily cut payroll and Social Security taxes."

New to this package is the cuts in payroll and Social Security taxes, and this could be significant. Not much detail provided so far. If anyone sees any details on the package with respect to these two items please post a comment.

Wall Street's the reason why there's no job creation!

Yesterday I decided to do some Christmas shopping so I went to Macy’s Herald Square on 34th Street here in NYC. The place was mobbed as you can imagine. I mean, I could barely get through the front door and once inside just moving around was a feat unto itself. I wanted to buy some clothes for my kids.

After walking around and sifting through piles of clothes unorganized racks (I couldn’t find anyone to help me) I ended up with a few items. When I went to pay I was confronted with a huge checkout line where there was only one person manning the register. There had to be at least six cash registers, but only one person on the job. After standing in line for 25 minutes I got fed up and threw everything down and walked out.

Then I went across the street to Old Navy where I found a bunch of other stuff, similarly selected from chaotic piles and racks and guess what happened when I went to pay? Same thing! This time, however, there were three people working a bank of 10 registers.

Then it dawned on me why we’re having a jobs crisis in this country. Companies are being forced to become miserly when it comes to their work staff so they can keep labor costs down and report bigger and bigger profits every quarter to please Wall Street analysts and fickle investors. If not, the Street will punish their stock and their executives will be out of a job. The result of this maniacal drive for profits is a horrible shopping experience for consumers, many of whom can’t find work, but could be gainfully employed were it not for the fact that we let Wall Street dictate everything we do!

Ireland’s rescue package: Disaster for Ireland, bad omen for the Eurozone

Interesting article on the structure of the loan arranged last week by the international community to the current government of Ireland, written by a former IMF economist now in academia. Hat tip Tom Hickey.

Excerpt:

"This is not politically sustainable, as anyone who remembers Germany’s own experience with World War I reparations should know. A populist backlash is inevitable. The Commission, the ECB, and the German Government have set the stage for a situation where Ireland’s new government, once formed early next year, rejects the budget negotiated by its predecessor."

This may hit at about the same time as the US Tea Party Congress is shutting down the US government due to the national debt limit being hit. 2011 looks like it will be an "interesting" year.

The key here may be whether the citizens of Ireland will really understand what they have been committed to pay, and then whether they will vote, via a new government, to reject it, consequences be damned. I don't know much about the economic understanding of the citizens of Ireland, but here in the USA, I believe the politicians could easily dupe the voters into accepting this type of thing by claiming we "all have to sacrifice", or "we can't leave this to our grandchildren", or some type of similar nonsense theme.

I read another report that had this loan package at fully 50% of Ireland GDP. When Iceland obtained a referendum vote on a similar package for their government due to their bust banks, they rejected it with 93% of voters voting "no", and that package for them was a bit less than 50% of their Iceland GDP. But of course Iceland is not part of the European Monetary System.

The Back of the Rack: Norman on the "Free Market"

Here's an MP3 of Mike from back in February of 2009.  Here, in audio format, he addresses some of the issues related to our "belief" in the "free markets" and whether these beliefs are true, and if they are in fact preventing us from achieving better economic outcomes.

If this is capitalism, who needs it!

Capitalism is best? For whom?

In this country we hear the constant cheering for capitalism, even by people who, amazingly, have lost their jobs or are struggling. Yet, if some of them just simply took a break from all that cheering and focused in on what has really been going on I wonder if they'd be so enthusiastic about picking up the pom poms.

Here's a snapshot of capitalistic America without the blinders of ideological rhetoric.

After tax corporate profits are currently at an all-time record high above $1.4T. In the past two years alone, profis have zoomed up by $800 bln.

Yet the nation's economy is limping along at barely 2.0% growth--well below our capabilies--and unemployment is at 9.6%, up from 5.0% just two years ago even though profits have grown by the better part of $1 trillion.

The stock market is 14% below its 2008 peak and 20% below its all-time high so stock investors have not been rewarded by this capitalist explosion.
Dividends are down by $150 billion in that time, meaning that yet again, investors have not been rewarded.

Real earnings of workers are lower now than they were in 2008 and still below the level they were in 1968 on an inflation adjusted basis!

In the past 10 years corporate profits have increased by 174% and the unemployment rate has INCREASED by 144%

So, where's all the money going? To salaries and bonuses for a small percentage of people at the top.

That's capitalism. Nice system, huh?

Video: British politician slams EU bosses over European crisis

This video basically speaks for itself. The only comment I'll provide is that you just can't beat a well trained British orator.

Citing deficit, Obama freezing federal worker pay

Story this AM from Yahoo! Here comes a small dose of austerity for the US now.

Last fiscal year, total 'Federal Salaries' were $176B, so a small +2% pay adjustment here would have resulted in about a $3.5B additional transfer to the non-govt sector. It looks like this will now not happen.

Even though 'every little bit of fiscal helps', this small foregone fiscal adjustment may not warrant any growth forecasts for next year to be adjusted downward significantly.

John Stossel: Privatization created Thanksgiving...Oh Brother!

First, Happy Thanksgiving to all!

John Stossel is out there (I heard him on Fox yesterday) with a story about the experiences of the Puritan colonists who established the basis for our Thanksgiving Holiday here in the US. I think I've heard Rush Limbaugh provide a similar account some years ago on his radio show. This is an excerpt from a recent column Stossel wrote at the link above that parrots the Limbaugh thing.

"So as it well appeared that famine must still ensue the next year also, if not some way prevented," wrote Gov. William Bradford in his diary. The colonists, he said, "began to think how they might raise as much corn as they could, and obtain a better crop than they had done, that they might not still thus languish in misery. At length after much debate of things, (I) (with the advice of the chiefest among them) gave way that they should set corn every man for his own particular, and in that regard trust to themselves. And so assigned to every family a parcel of land."

Then Stossel jumps to the conclusion:

In other words, the people of Plymouth moved from socialism to private farming. The results were dramatic.

I do not agree with his characterization of the apparent re-organization of the small agricultural micro-economy of that time, and certainly not for the reasons he cites. If you read the words of Bradford, he said:

1. "it well appeared that famine must still ensue the next year",
2. (they) "began to think how they might raise as much corn as they could"

This could otherwise be interpreted that something happened to cause a tremendous collapse in agricultural output, and then the colonists wisely came together as a community to put together a game plan to get through this potentially lethal environment.

Systems of integrated agriculture normally involve the growing of feedstocks and husbandry of livestocks and perhaps this system had failed. This could have easily been due to non-organizational or non-distributional reasons such as disease or drought or both. It would be at that point that a rational community would come together and quickly change over to a subsistence type of agriculture when faced with the real possibility of death by starvation. That is, the normal more complicated approach would have to quickly be abandoned in favor of everybody growing a simple crop that would ensure subsistence for the community, here they apparently chose corn as the crop that could provide that sustenance with the highest probability.

Bradford continues: "they should set corn every man for his own particular", "And so assigned to every family a parcel of land". Read these words; this is a very directive course of action, the fathers of the community organized and directed a course of action to ensure survival (oh no! big government!). Additional seed corn was distributed ("they set corn for every man") and tracts of land were assigned for the families to work. There is no disclosure of any assignment of rights to private property, or any distributional issues or the political things that Stossel forces into this.

It seems to me that they were faced with the real prospect of death by famine in some months, and knew that they had to go back to a subsistence type of farming that would lead to the most amount of food in the shortest amount of time with the least risk, and the 'government' of the time directed this. End of story.

Let's continue with the historic account: "This had very good success," Bradford wrote, "for it made all hands very industrious, so as much more corn was planted than otherwise would have been. By this time harvest was come, and instead of famine, now God gave them plenty, and the face of things was changed, to the rejoicing of the hearts of many."

Yes "it", that is, execution of the plan to combat the prospect of death by starvation would probably have "made all hands very industrious". It would me anyway!

Think about it, to believe the Stossel and Limbaugh account, you have to believe that the Puritans only wanted to eat 'corn on the cob', this is absurd and non-insightful, and their political observations are deceptive.

Again, Happy Thanksgiving to all and let's all be thankful for the daily gifts He truly provides!

Tea Party Senator Mike Lee on Raising the Debt Ceiling: "No Way"

Here's a link to ABC news video of a short interview with so-called "Tea Party" Senator Mike Lee (R-UT) on his views on the US national debt.

In it the ABC News reporter challenges the Senator with the prospect of cutting the over $1T annual flow of balances that currently make up the deficit, and the Senator indicates that he is ready to vote to seek those types of spending cuts "for our future grandchildren"; and literally falls prey to the deception of inter-generational accounting. (Hey Senator, can I use your time machine some weekend! LOL!)

This "Tea Party" Senator is either a moron or just grossly misinformed about economics to the point of what should be criminal negligence. (Probably the latter.)

If these people succeed in their current goals to destroy another 10% or so of our economy by implementing these levels of cuts when we reach the limit of the current authorized debt ceiling, it may be that we have another 4 months or so to enjoy the American way of life.

Quantitative easing revisted

A new video, this time, with the correct explanation of QE. (I wonder if Warren Mosler did this one!!)

Taxpayers about to be hooked, thanks to "taxpayers on the hook!"

When the government was bailing out GM there were cries everywhere of "taxpayers on the hook." The reality, however, was exactly the opposite: the government injected cash into the economy, saved GM and many workers' jobs and sustained a vital portion of our industrial capacity, which we use every day to produce the goods that Americans and others consume.

This was in no way "hooking" taxpayers.

Now, GM will go public once again and the U.S. government will sell $13 billion worth of the stock that it holds in the company. (See Matt Franko's previous post.)

Ostensibly, this sale of $13 bln worth of stock represents a "payback" to taxpayers (if you go by their "taxpayer on the hook" logic).

But is it?

The government sells its stock to taxpayers, who fork over the dough and that money goes to Treasury...taken out of the economy for good. That's a payback???

The moral of the story is, when you act like you're putting taxpayers on the hook when you're not, you really DO put taxpayers on the hook!!

GM IPO: Fiscal Drag?

GM is going to do an IPO tomorrow to raise some capital. Yahoo! has a story here. Excerpt:

"The Obama administration now will sell 412 million of its 912 million shares, raising around $13.6 billion that will help the government get back some of the $50 billion it loaned GM to save the company from ruin last year."

If this 13.6B is just returned to the Treasury, it may provide fiscal drag this month, as the average monthly flow of fiscal (which is probably all that is holding everything together) is around $110B/month. This $13.6B would represent a bit above a 10% hit to this flow this month, and may be significant.

Quantitative Easing Explained (badly)

There’s a little video making the rounds on the Internet called, “Quantitative Easing Explained.” It’s cute, but don’t be fooled by the cuteness because it’s got pretty much everything all wrong. The video has two robot-like cartoon characters talking about quantitative easing and it starts off by saying that quantitative easing is nothing more than the Fed “printing a ton of money.” That’s the first dose of misinformation. Quantitative easing is NOT about printing money; but it IS about adding new reserves to the banking system. Moreover, reserves are not even part of the money supply and when they’re in the banking system they generally just tend to sit there earning some pittance of interest. There’s no “printing of money” going on; this is a huge misstatement.

Then the characters try to purport that deflation is good because it gives people more purchasing power, i.e. it lowers the cost of things and that allows consumers to buy more. Hell, if you listen to these characters you’d get the idea that all policy—monetary and fiscal—should be focused solely on creating massive deflation because everyone would somehow benefit. This is so wrong it’s ridiculous. What the robots ignore is that in a deflation wages are falling, too, so the real cost of goods and services actually rises. Debt becomes harder to service and asset prices fall (in the current reality home prices are falling, which are most household’s largest asset), so wealth falls. Less wealth means less ability to consume. You get poorer!

The characters try to refute the Fed’s claim that things are deflating by pointing out that prices for such things as food, gas, health care, tuition, taxes, subways, stocks and bonds are all rising. They’re trying to make the case that what we are really experiencing now is inflation, not deflation. Yes, some of those things are rising in price, but there are other items on the Consumer Price Index that are still falling, like housing, apparel and recreation. All told, inflation as measured by the CPI is up 1.1% versus last year. That’s not exactly some out of control hyperinflation.

The video then gets into an area where the full ignorance of its creators goes on display, when it starts talking about monetary operations. Monetary operations are mechanism by which the Fed sets rates or conducts quantitative easing. The characters say that the Fed executes QE by “printing money then buying the Treasuries.” In reality, it’s the total reverse: the Fed buys Treasuries by crediting reserve accounts, simple as that. In other words, reserves are a byproduct of asset purchases, in this case, Treasury purchases. There is no creating money and then buying of bonds.


Their confusion doesn’t end there. They say that the Fed could buy the bonds directly from the Treasury, but doesn’t. Instead, they go on to say, it buys from Goldman Sachs. (Goldman is used throughout the video as a metaphor for greedy Wall Street.)

The fact is, if the Fed bought from the Treasury it would have zero effect on reserve balances because the money would go into the Treasury’s account at the Fed rather than into the banking system, where the Fed wants the reserves to go. Therefore, in order for the Fed’s operations to have any chance of success it MUST buy bonds from the public and not the Treasury because it wants reserve credits to go into the banking system. You or I can buy bonds from the Treasury, but that’s a whole different thing. WE are not trying to affect monetary policy, the Fed is.

The video then makes the totally false claim that the Fed pays Goldman Sachs the worst price for the bonds. This is wrong, wrong, wrong. The way the Fed conducts monetary operations is that it will indicate its intentions and it will buy from dealers at the best price/lowest yield offered. What these guys say is all made up. They’re clearly on a propaganda mission here.

Toward the end they say that the Fed’s first quantitative easing program (QE1),conducted last year, was a failure because it didn’t create jobs or stop the housing market crisis. There’s probably some truth to that, however, it did stabilize the commercial paper market and other vital sectors of the capital markets and it probably helped boost stocks, which have climbed 80% since last year. Housing prices have stopped declining pretty much and the private sector has added about 1 million jobs. Much of this was due to the stimulus and automatic stabilizers, but to flat out state that QE1 was a failure, is just wrong.

The Internet is great, there’s a lot of good information out there, however, you have to be careful because it’s loaded with stuff like this: a lot of bad and misleading information that may be cynically designed to promote an agenda or advance someone's personal ideology. This clearly is an example.