Warren B. Mosler

Why the U.S. Dollar Chart Tells a Drastically Different Story than Financial Pundits

quantitative easing is nothing but a bank tax that removes interest income from the private sectors (and also modestly reduces some long term rates).

the idea that it's in any sense expansionary or inflationary is true under a gold standard or other fixed fx regime, but entirely inapplicable with our non convertible currency.

all the fed's $2 trillion portfolio means is they are now 'earning' the 60 billion a year in interest income that used to be earned by the non govt sectors.

See 'quantitative easing for dummies' at:

moslereconomics.com
mosler2012.com

You Can Spend Your Way Out of a Recession

we need an immediate full payroll tax holiday to stop govt taking away a full 15% of our paychecks every week. This will restore incomes to levels where mortgage delinquincies can fall and consumption and investment restored.

We also need an immediate revenue sharing distribution to the states of 150 billion on a per capita basis to see them through.

These measures will begin immediately to restore aggregate demand.

There Are No Good Choices for the Fed

The 'money' that the Fed is 'printing' is not the stuff of quantity theory and therefore of no further economic or monetary consequence. It used to be when we were on the gold standard, but the concept is inapplicable with today's non convertible currency, where lending is in no case reserve constrained. Lending is constrained by capital from time to time, and regulation, but not reserves at the Fed.

With the entire mainstream 'out of paradigm' on this issue there very well could be a substantial buying of gold for that inapplicable reason.

If so, this is the stuff of bubbles, and gold could be the next bubble.

moslereconomics.com

Assessing the Fed Under Bernanke

My proposal is to ban the use of LIBOR for US member banks.
US banks are functionally public/private partnerships established and supported to serve further public purpose.

The setting of LIBOR by the BBA is subjective in several ways that have had adverse consequences for US public purpose. Nor is there any public purpose served by allowing US member banks to contract in LIBOR.

The BBA decides which banks are allowed in the basket and the methodology of for setting the rates that includes decisions on how to toss out the highest and lowest reported rates, average the rest, etc.

Both during the Japanese crisis and more recently during the dollar crisis the BBA was fully in its rights to allow banks to continue in the basket even though there rates were substantially higher than rates available from the Fed domestically. This caused the borrowing costs of US banks to rise above the Fed's policy rate, and it also caused rates charged to borrowers by US member banks to rise as well, also counter to Fed desires.

As LIBOR continued to climb, the Fed resorted to unlimited and unsecured dollar lending at its target rates to foreign central banks who subsequently loaned those dollars to their member banks at those lower rates in a high risk effort to bring down the elevated LIBOR settings by lending to those troubled banks driving up the rate.

In my humble opinion, by banning the use of LIBOR indexing by itsmember banks, and limiting its member banks to indexing to the Fed funds rate, control of the Fed's policy rate would be restored, and borrowers would be better served as well.

What's Plausible for the Fiscal Outlook?

Too bad no one seems to understand that the govt deficit = (to the penny) 'non govt' accumulation of net of financial assets (aka 'nominal savings')

This is an accounting identity, not a theory.

And the federal govt. neither 'has' or 'doesn't have' 'money.' It spends by changing numbers in bank accounts upward (as Bernanke stated in May), and it taxes by changing numbers downward.

The Federal govt doesn't 'get anything' when it taxes or 'lose anything' when it spends.

And if you pay your taxes in cash to the govt it gives you a receipt for payment and then tosses the cash in a shredder.

Spending and taxing is a tool to adjust the outcomes of the real economy.

A tsy security is nothing more than a 'savings account' at the fed.

when china sells us t shirts, the fed transfers funds from someone else's account at the fed to china's account at the fed for payment.

then china decides to spend those funds or save them, usually buying a tsy sec, which means the fed transfers their balances from china's transaction account at the fed (called a reserve account) to its savings account at the fed (called tsy secs).

And when the tsy secs mature china's securities account is debited and china's transaction account is credited.

That's all. For the federal govt there is no dependence on funding
in dollars from anyone. they just move balances on their own spread sheet. any constraints are necessarily self imposed.

and interest rates are set by the fed which has full control over the entire term structure of rates whether it knows it or not.

so keep you eye on the real economy, excess capacity, unemployment, the output gap, inflation, etc. etc. and let the deficit fall where it may. it's a residual that doesn't even need to be published for purposes of fiscal and monetary policy.

Dollar Update: Inflation Forces Are Brewing

Banking is in no case 'reserve constrained' with the Fed always setting price and lending limited by creditworthiness, capital ratios, risk appetites, etc. but not reserves. QE accomplishes nothing through the 'reserve channel' as has been repeatedly demonstrated.

I suspect the buyers of gold have been motivated by false notions of inflation via 'monetary policy.' That could make gold the next bubble to burst as the world continues to suffer through a massive shortage of aggregate demand that's all about fiscal policy that's overly tight for current levels of excess capacity.

Inflation vs. Deflation: A Matter of Money Supply and Demand

The 'monetary aggregate' Art is using is not the one that applies to prices in a causal manner.

With non convertible currency and a floating fx policy the operative notion is 'spending power' which remains severely lacking.

Fortunately, however, spending power is easy to create via the likes of tax cuts (how about a full payroll tax holiday?) and federal spending increases (how about $500 of per capita federal 'revenue sharing' with the States?)

Unfortunately, policy makers are hesitant to use fiscal adjustments due to deficit myths.

See 'The 7 Deadly Innocent Frauds of the Financial Markets' at moslereconomics.com

Inflation: Monetary or Economic Phenomenon?

the currency is a (simple) public monopoly

the funds to pay taxes come only from govt spending/lending

Tax liabilities constitute the notional demand

The supply to fill the demand to pay taxes and net save comes from govt spending

The monopolist is always 'price setter'


the price level is necessarily a function of prices paid by govt when it spends (and/or collateral demanded when it lends)

see 'soft currency economics' at
mosler.org
moslereconomics.com
mosler2012.com

Mid-Year Macroeconomic Review: History Repeating Itself

my first proposal for the financial crisis back in July/August was a full payroll tax holiday where the tsy makes all the soc sec and med payments for us.

once incomes are restored to the extent borrowers can afford their payments the toxic asset issues fades rapidly.

And car sales pick up as well, etc.

Mid-Year Macroeconomic Review: History Repeating Itself

The funds to pay taxes come (only) from govt spending and or govt lending

If the govt doesn't spend enough to cover the tax bill and any residual savings desires for financial assets the evidence is excess capacity/unemployment.

see 'Soft Currency Economics' at
moslereconomic.com

and mosler2012.com


On May 10 05:05 PM Market Sniper wrote:

> Same argument. That you can borrow your way to wealth and print your
> way to prosperity. These are recipes for disaster and will accomplish
> neither. Read some history. Old road, well traveled, ending in a
> bad place.

Mid-Year Macroeconomic Review: History Repeating Itself

The funds to pay taxes come (only) from govt spending and/or govt lending with a non convertible currency.

If govt doesn't spend enough to cover the tax liability and any residual 'savings desires' the evidence is excess capacity/unemployment.

see 'Soft Currency Economics' at
moslereconomics.com


On May 10 05:05 PM Market Sniper wrote:

> Same argument. That you can borrow your way to wealth and print your
> way to prosperity. These are recipes for disaster and will accomplish
> neither. Read some history. Old road, well traveled, ending in a
> bad place.

Mid-Year Macroeconomic Review: History Repeating Itself

On May 10 03:48 PM Cetin Hakimoglu wrote:

> Buying toxic financial assets improves investor & business confidence.
> The banking system was seizing, and the efforts of Bernanke, Geithner,
> Palson, Geroge W. bush, and Obama fixed it by bailing out the too
> big to fail.

They didn't fix it by doing that, as in any case the FDIC was there to support continued operations.

The performed an alternative 'fix' to the normal FDIC channel which could have done what functionally would have been nearly identical.

Now the stock market is surging and the economy is turning
> around. It seems the bailouts and stimulus accomplished their intended
> goals.

As per my article, the turn came after the deficit poked through 5% of gdp and got large enough to support income and 'savings' of financial assets.

>
> --------------------
> Rather than something like my 'bottom up' approach to restoring aggregate
> demand and restoring the ability to make mortgage and car payments,
> our government instead took a 'top down' approach, with both the
> Treasury and the Fed buying only financial assets - a policy that
> does nothing for aggregate demand, and only prolongs the agony of
> waiting for the automatic stabilizers work to restore aggregate demand
> through the most ugly process of rising unemployment and falling
> tax revenues.

TARP Won't Cut It: Immediate 'Payroll Tax Holiday' Needed

Cutting tax to 0 certainly puts the US at risk of default
NO, THERE IS NEVER ANY SOLVENCY RISK WITH NON CONV. CURRENCY/FLOATING FX POLICY

and consequently if i was a foreign bond holder I'd demand either higher interest rates or just won't buy your bonds.

WON'T MATTER. WHAT MATTERS IS IF YOU CHOSE OR NOT CHOSE TO HOLD $US FINANCIAL ASSETS, AND THAT ONLY MATTERS FOR INFLATION AND REAL TERMS OF TRADE, NOT SOLVENCY

TARP Won't Cut It: Immediate 'Payroll Tax Holiday' Needed

whid: yes, the tax cut 'inflationary' but the issue now is to halt the 'deflation' and support agg demand. and the payroll tax cut is a weekly event, that can be readily reversed if congress so desires

constu: there is no solvency risk for the US govt or any other govt with a non convertible currency/floating fx policy. all sov. defaults are due to fixed fx policies gone bad and/or debt in external currencies. the risk is inflation, which is going the other way. at the moment!

smart: it 'savings desires' were 100% you could do that. but they are not. japan's currency has been more than stable with deficits of 8% of gdp. we currently probably need something like that as well.

see 'soft currency economics' at moslereconomics.com under 'mandatory readings'

M2 Growth Suggests That 1970s Inflation Won't Return

'money growth' such as M2 follows 'inflation' and is further supported by the higher interest rates the Fed ordinarily uses to 'fight inflation.'