Tuesday, August 31, 2010

No.......

Don't pay off your house. Instead wait until you are desperate and then lose your house. After all this is what got millions of people in trouble in the near past. Jesus where do these idiots come from? I wonder how many people are sitting on the curb wondering what it would be like not to have a house payment?

Hey, it feels awesome!


Use savings in CDs to pay off house?
Dear Debt Adviser,
My question is whether or not to pay off my house. It would wipe out my CDs. I have an emergency fund of $2,000. Is this a good idea? I live fine on my Social Security income.
-- Sharon

AnswerDear Sharon,
My take is that if your Social Security income allows you to live comfortably while making your mortgage payment, my answer to your question is, no, don't pay off your house. You don't say why you want to, but I would recommend keeping your savings in certificates of deposit, or CDs, intact rather than using them to pay off your mortgage early. I have found that life has a way of sending us the unexpected -- some good and some bad -- as we get older. Using all your CDs would leave you vulnerable if your $2,000 emergency fund were all you had to fall back on. The money you have saved may help you better manage any unanticipated expenses or opportunities that might be headed your way.


Monday, August 30, 2010

Make out my check to cash....

I like it when I find people agreeing with me. Of course, I just like the idea of getting something for nothing. But i think this would work better than trying to lend broke dicks money and getting them in trouble.

But what do I know.

oftwominds: What If We Ditched Quantitative Easing and Just Printed (and Distributed) Cash?
Just as a thought experiment: what if the Federal Reserve and the U.S. Treasury ditched the failed policy of Quantitative Easing (QE) and instead printed cash and "helicopter dropped" it into households' accounts?


Many people think QE is a "helicopter drop" of cash; it is not. It is simply a way of expanding credit and encouraging more borrowing.


What if the Federal Reserve and U.S. Treasury stopped trying to stimulate the economy by encouraging more borrowing with "quantitative easing" and instead "dropped money from helicopters" into households' accounts?


The core of quantitative easing is this: by expanding bank credit and lowering interest rates, a central bank (in the U.S., the Federal Reserve) stimulates more borrowing and thus more spending by businesses and households.


The problem with this policy is that none of the funds goes directly into consumers' accounts. If consumers are tapped out or wary of taking on more debt, then bank credit can be expanded to the moon and households will not borrow more money.


So while the Fed, Treasury and the FDIC have shoveled about $4 trillion dollars into the nation's banking sector in various bailouts and guarantees, these actions have not actually distributed any cash to consumers or businesses. The Fed's operations in the recent crisis have been loans to banks and other financial institutions and purchases of financial assets, not helicopter drops of cash into households' accounts.



Here's Oba mama's answer for business....

The government will give you tax breaks. Of course you need to sell something to earn income so you will get a tax break. So.....

When your income hits "0" your on your own.

Here's my plan: send me a big check and I'll spend every dime. Business will get all of it. I promise. LOL

Sunday, August 29, 2010

We need time......

Too soon to be in recovery but happy talk makes politicians look good. And get reelected. Broke dicks need time to pay down debts and reestablish credit. Still remains to be seen if we climb out of this mess and reignite the boom.

But that's been the history so far. Expect the printing presses to crank up another round and start the merry go around again. Until the next crash makes this one look like a popcorn fart, lol.


What Bernanke doesn’t understand about deflation | Steve Keen's Debtwatch
Bernanke’s recent Jackson Hole speech didn’t contain one reference to the key force driving the American economy right now: private sector deleveraging. The reason the US economy is not recovering from this crisis is because all sectors of American society took on too much debt during the false boom of the last two decades, and they are now busily getting themselves out of debt any way they can.

Debt reduction is now the real story of the American economy, just as real story behind the apparent free lunch of the last two decades was rising debt. The secret that has completely eluded Bernanke is that aggregate demand is the sum of GDP plus the change in debt. So when debt is rising demand exceeds what it could be on the basis of earned incomes alone, and when debt is falling the opposite happens.


Saturday, August 28, 2010

Fool me once.....

Ok. let's throw the bums out and replace them with the bums we threw out before.

What a waste. Might better find another thing to do with your time than vote for "change."


Hot Air » Laura Ingraham grills Cantor: You guys are going to try to repeal ObamaCare, right?
A fun interview, partly because Cantor is caught off-guard at being pressed during what he thought would be a friendly chat and partly because it perfectly captures the anxiety felt by grassroots conservatives about the Beltway GOP reverting to their old ways. (Note the exchange at the very end.) Here’s the bit in his recent interview with Politico that she’s talking about:

He seems to take a more modest — or at least realistic — approach to explaining what Republicans could do with a House majority.

Cantor said it’s unlikely that health care overhaul legislation will be repealed with Obama in the White House. But it’s more realistic to simply refuse to appropriate money to fund health care reform.

“If you deny agencies monies they need to promulgate [regulations] and do all of that, you certainly can slow a lot of things down and make the case to the public,” he told the group.

Ingraham’s response: Why not push a repeal bill immediately? Even if Obama vetoes it, that’s good politics for the GOP since a majority of the public supports repeal.


Friday, August 27, 2010

You only need credit cards for one thing........

Fico scores.

In order to borrow you need big Fico scores. The Fico mathematical scheme used to determine your credit worthiness is dominated by credit card usage. Responsible and timely use predicts future behavior for lenders. You also need a mixture, such as mortgage, car loan, personal loans, to top your score off.

But the most important is credit cards. And the longer you use them and pay them off the higher your scores. however,  the total amount of usage has to be less than 20 % or so to get and keep those higher scores which lenders use to grant more and higher loans. For instance:

You borrow 10000 on a car, 120000 on a house, Lets say 5000 on 2 or 3 cards and  make every payment on time for over 5 years then you end up bumping 800 FICO. Notice no mention of income. Credit card companies usually take your word for it.

But this only one way. For me, I simply had one card with a 1300 limit, borrowed 1000 cash, and refinanced an old car paying them all off in 3 years. There doesn't seem to be any rhyme or reason to explain why borrowing less than 10 grand, paying it back on time for less than 3 years during a credit crash would generate such a positive result but this is how it works.

Now my oldest card which I use for my Verizon internet service and pay off every month  has an interest rate at 29%. (This was Wamu bought by Chase). My rewards card from my credit union charges 15% I use this for everyday expenses and pay it off every month and get 1% back. My third card and last for ever, is from Simmons and charges 7.2%. (Guess which card I will use for emergencies?)

Now that I've established great credit, I really no longer need credit cards. Now I can use personal loans secured at 5%, unsecured at 9%, by putting the cash into my checking account and using a debit card everywhere visa is excepted.

Why pay these guys anymore than you have to?


Credit Card Rates Push the Envelope
However this disaster-in-the-making plays out, it’s obvious that 14.7 percent interest rates are not going to stimulate retail purchases, even though that has always been the ostensible point of credit cards. The inflationists will probably say that loan-shark rates on plastic represent just one more cost that is going up. But because no one – even Las Vegas casinos -- can actually afford to borrow at such rates for more than short stretches of time, we would argue the opposite – that credit cards designed to stimulate spending are fast becoming a deflationary pressure point, burdening shoppers with real rates of interest that are more than triple what the average hedge fund is returning these days. Under the circumstances, Joe Sixpack will be biting off more than he can chew if he opts to make only minimum payments for perhaps three or four months.



Thursday, August 26, 2010

Aah......You think?

Probably think so because his father was a Muslim. And his passport in Indonesia said he was a Muslim. He lived with Muslims.

Oh yea, the media hiding his poor attendance at  church might be a clue.


Poll shows more Americans think Obama is a Muslim
The number of Americans who believe -- wrongly -- that President Obama is a Muslim has increased significantly since his inauguration and now accounts for nearly 20 percent of the nation's population.


Wednesday, August 25, 2010

Typical leftwing babble.......

Evil Walmart.

They come to your neighborhood and set up shop against everybody's will. Force themselves to buy huge pieces of property that no one else has any use for. Hires 300 -500 people no one else will hire providing careers that no one else can offer. Provide insurance that no one else will provide including left-wing dogooders. Pay millions in local, state and Fed taxes that no one else can pay. Force lower prices for your food and Chinese trinkets you can't live without anymore and letting you pay  less money for it.

Evil Walmart enslaving people to work and shop with them. Forcing governments to take their millions of taxes.

Why not outlaw them so we can draw unemployment benefits, work and shop for other companies for less wages, have no insurance, and pay more for necessities.

Sound like a plan?


oftwominds: Wal-Mart and the Plantation Economy
A Wal-Mart store quickly bulldozes the complex economic ecology of local businesses. Small business is both the engine of job creation and a highly employment-rich ecology. Wal-Mart crushes this ecology and replaces it with a low-job, low-pay, highly efficient plantation economy in which the townpeople's only choice is to work for Wal-Mart or scrape out a living feeding the Wal-Mart workers, doing their laundry, etc.--exactly as on a classic plantation.


On a classic plantation, the wages are low and the "company store" offers easy credit, binding the workers to the corporation not just for wages but for credit and goods.


Those few who manage to save up enough capital to start small service businesses-- laundry, cafes, etc.--must do so in the shadow of the Company, which can always drive them out of business should they irritate their corporate overlords.


A once-diverse landscape is reduced to a monoculture wasteland dependent on subsidies, either implicit or explicit. Wal-Mart's low wages leave many of its workers' families on state aid or food stamps to survive, and so it prospers on the backs of taxpayers who subsidize its low wages.


A relative handful of local workers run the plantation, while the economy the plantation bulldozed offered more jobs and a wider range of jobs.


Here is an example from real life. We shop for groceries in Chinatown or "Mexican" markets (in quotes because we do not know the national origins of the workers or owners) because we find the produce to be fresher and cheaper than supermarket chain stores.


A typical full-service market in Chinatown (not the tourist Chinatown, the real one) is small by U.S. standards--perhaps 4,000 square feet compared to 40,000 square feet for an old supermarket and 120,000 square feet for a "superstore."

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Tuesday, August 24, 2010

Are Oba mama's lips moving?........

Must be. Hold on while I buy a bridge or two from this guy.


We're Pulling Out Of Iraq - Orwell is Alive and Well
On the surface it looks like President Obama is delivering on his pledge to withdraw troops from Iraq. With U.S. troops finally drawing down, many families here at home can finally sleep better at night knowing that their loved ones are out of harms way. There is also hope that the scaling down of U.S. forces will lead to a safer, less violent Iraq, as suggested in an editorial at the Seattle Times by Diane Shaughnessy of Auburn, CA:

This week, the last combat convoy left Iraq. By the end of the month, the remaining combat forces will also leave the country. This puts the Obama administration on track to reduce the U.S. troop level to 50,000 by Aug. 31.

This is an important step, but does not by itself end the occupation of Iraq. The administration vowed to completely withdraw from Iraq by Dec. 31, 2011. That is a deadline we must meet.


Monday, August 23, 2010

What makes me think the boom is near?......

Keep your eye on what the big guys are doing. Banks will raise fees on credit card users. They only get away with it if they believe the economy  has stabilized and the bust has bottomed.

But the big indicator is mergers and acquisitions. Soon the big get bigger and retrench to increase their market share and begin letting contracts to smaller companies increasing employment. Increasing employment leads to more sales, leading to more employment.

It's still early in the cycle but inevitable. The  multinational companies have all the money. They rule. They never give up growing. If that means shipping most of our jobs overseas and killing our paychecks then that's what they'll do because that's what they do. It also means taking our tax dollars and grabbing up competitors, then that's the plan.

At the bottom of a crash the sharks grab everything they can to prepare for the next boom. It's starting now. Check out the United-Continental merger for an idea of what's to come.

Saturday, August 21, 2010

Huh!!...

Maybe we should just pay for prostitutes for union workers also.


Hard Lessons - Daily Brickbats : Reason Magazine
The Milwaukee school system is facing a huge budget deficit and has laid off hundreds of teachers. At the same time, the Milwaukee Teachers Education Association has taken the school board to court to force it to cover Viagra and other erectile dysfunction drugs in its health insurance plans. The school board says the benefit would cost it about $786,000 a year.


Huh!!...

Maybe we should just pay for prostitutes for union workers also.


Hard Lessons - Daily Brickbats : Reason Magazine
The Milwaukee school system is facing a huge budget deficit and has laid off hundreds of teachers. At the same time, the Milwaukee Teachers Education Association has taken the school board to court to force it to cover Viagra and other erectile dysfunction drugs in its health insurance plans. The school board says the benefit would cost it about $786,000 a year.


Friday, August 20, 2010

Poor bankers......

Some of these guys would have to find honest jobs. Until then, best thing to do is join a credit union and quit doing business with them. Credit unions have everything banks have except criminals in charge.

I know my loan officer personally and he can't wait to lend me more money at 4 percent or so. As for the big banking gangsters they don't get much from me now and less in the future.

Fuck em. Fuck em good.


Daily Digest 8/18 - Texas Seeking Food Stamp Workers, Fed Buys Treasuries, Oil Droplets Still Speckle Gulf Floor - Blogs at Chris Martenson
The Obama administration invited banking executives Tuesday to offer advice on changing the government's role in backing the mortgage market. While they disagreed on the exact level of support needed, the group overwhelmingly advocated the government should maintain a large role in the $11 trillion market.

If the government pulled out, executives said, millions of Americans wouldn't be able to convince banks to take the risk of giving them home loans. Ending government support could lead to a spike in mortgage rates. That could deter many from buying homes, and banks, mortgage lenders and Realtors would lose money over time.


Thursday, August 19, 2010

Today we just call it "the government".....

But  you knew that. How do we get through this? Prepare yourself.

You can't go wrong by stocking up on food, your best investment. next pay off old money. If the boom hits in the next year or so as I expect, you'll be in great shape as paying off old debts and setting up new lines of credit will put you in line to buy what ever you need. With rates this low they're going to be giving money away. Same way with government handouts.

Might as well get in line. It's the only growth industry!


The 14 Characteristics of Fascism, by Lawrence Britt, Spring 2003
Political scientist Dr. Lawrence Britt recently wrote an article about fascism ("Fascism Anyone?," Free Inquiry, Spring 2003, page 20). Studying the fascist regimes of Hitler (Germany), Mussolini (Italy), Franco (Spain), Suharto (Indonesia), and Pinochet (Chile), Dr. Britt found they all had 14 elements in common. He calls these the identifying characteristics of fascism. The excerpt is in accordance with the magazine's policy.

The 14 characteristics are:

1. Powerful and Continuing Nationalism
Fascist regimes tend to make constant use of patriotic mottos, slogans, symbols, songs, and other paraphernalia. Flags are seen everywhere, as are flag symbols on clothing and in public displays.

2. Disdain for the Recognition of Human Rights
Because of fear of enemies and the need for security, the people in fascist regimes are persuaded that human rights can be ignored in certain cases because of "need." The people tend to look the other way or even approve of torture, summary executions, assassinations, long incarcerations of prisoners, etc.

3. Identification of Enemies/Scapegoats as a Unifying Cause
The people are rallied into a unifying patriotic frenzy over the need to eliminate a perceived common threat or foe: racial , ethnic or religious minorities; liberals; communists; socialists, terrorists, etc.

4. Supremacy of the Military
Even when there are widespread domestic problems, the military is given a disproportionate amount of government funding, and the domestic agenda is neglected. Soldiers and military service are glamorized.

5. Rampant Sexism
The governments of fascist nations tend to be almost exclusively male-dominated. Under fascist regimes, traditional gender roles are made more rigid. Opposition to abortion is high, as is homophobia and anti-gay legislation and national policy.

6. Controlled Mass Media
Sometimes to media is directly controlled by the government, but in other cases, the media is indirectly controlled by government regulation, or sympathetic media spokespeople and executives. Censorship, especially in war time, is very common.

7. Obsession with National Security
Fear is used as a motivational tool by the government over the masses.

8. Religion and Government are Intertwined
Governments in fascist nations tend to use the most common religion in the nation as a tool to manipulate public opinion. Religious rhetoric and terminology is common from government leaders, even when the major tenets of the religion are diametrically opposed to the government's policies or actions.

9. Corporate Power is Protected
The industrial and business aristocracy of a fascist nation often are the ones who put the government leaders into power, creating a mutually beneficial business/government relationship and power elite.

10. Labor Power is Suppressed
Because the organizing power of labor is the only real threat to a fascist government, labor unions are either eliminated entirely, or are severely suppressed .

11. Disdain for Intellectuals and the Arts
Fascist nations tend to promote and tolerate open hostility to higher education, and academia. It is not uncommon for professors and other academics to be censored or even arrested. Free expression in the arts is openly attacked, and governments often refuse to fund the arts.

12. Obsession with Crime and Punishment
Under fascist regimes, the police are given almost limitless power to enforce laws. The people are often willing to overlook police abuses and even forego civil liberties in the name of patriotism. There is often a national police force with virtually unlimited power in fascist nations.

13. Rampant Cronyism and Corruption
Fascist regimes almost always are governed by groups of friends and associates who appoint each other to government positions and use governmental power and authority to protect their friends from accountability. It is not uncommon in fascist regimes for national resources and even treasures to be appropriated or even outright stolen by government leaders.

14. Fraudulent Elections
Sometimes elections in fascist nations are a complete sham. Other times elections are manipulated by smear campaigns against or even assassination of opposition candidates, use of legislation to control voting numbers or political district boundaries, and manipulation of the media. Fascist nations also typically use their judiciaries to manipulate or control elections.




Copyright © 2003 Free Inquiry magazine
Reprinted for Fair Use Only.


Tuesday, August 17, 2010

This guy Shrum must be a closet Republican......

Not that it matters. They all seem to be in cahoots. Republicans and Democrats argue over piddly things while shipping our jobs over seas. Then they make war on everybody who can't fight back so they line their pockets with blood money. Nothing substantive ever gets done other than food fights over social issues which is none of the government's business. Both take money from foreigners to stay  in office and make  special laws for  their cronys. And don't forget special "favors" for relatives ( Dashel, Waters and Feinstein the most famous).

Why should we vote? The governments in this country no longer deserve our support. Other than to get in on the take, of course.

Do we have a choice?


Obama's midterm roadmap - The Week
First, the president signed a $26 billion bill to save the jobs of teachers, police, and firefighters across the country. Typically, he got the result he wanted, but little of the credit he needs. Both this latest success and his rather sparse comments about it, which were buried inside the newspapers and in the rundown on television news, swiftly faded for a nation now numbed to legislative landmarks and impatient for economic recovery.


Monday, August 16, 2010

And the beat goes on.....

Get out of the way for the union label!


Congress Takes Food from Poor People to Win Teachers Union Votes - Hit & Run : Reason Magazine
The House of Representatives bravely dragged themselves back to Capitol Hill from their traditional six weeks of stateside work-cation to lock down teachers union votes for November's elections today. The Senate had already passed a version of the $26 billion jobs bill, which includes $10 billion in grants to districts to keep up to 130,000 education jobs on life support. Where are they coming up with the money? At some point in the future, they're going to pay for part of it by cutting food stamps. (Which makes my ridiculous headline really kind of true.)

We've written lots about the ongoing threats of Teacherpocalypse 2010 and the crappy legislative results already here at Reason, so read all about it.

The prospect of starting school a few teachers down can be unnerving in any district, but funding an increasing portion of teachers' salaries from federal coffers isn't doing anyone any favors in the long run. This additional infusion of cash from Washington—teachers were also some of the biggest beneficiaries of stimulus spending—undermines state control of education and staves off much-needed reforms (and firings) at the state, district, and school level.


Sunday, August 15, 2010

My point exactly......

It takes time for people to recover from a debt implosion. You need to pay down, off or offset debt. The way our system works is that in order to make most loans banks look at our FICO Scores , incomes and assets and make a decision to lend.  After this crash too many people lost their income and  couldn't maintain their payments.No income leads to their scores and the value of their loan collateral going  down.

This creates a domino effect which hasn't stopped yet. Only the government buying these bad loans has slowed the bust. But government can only do so much. Giving broke dicks home loans, student loans, business loans, and God knows what else only adds a bigger burden on people who couldn't afford the loans in the first place.

However, in a couple of years, these bad loans become less important and we start qualifying again for credit cards and houses starting the whole process over again.

Why shouldn't this time be any different?

Simple, so far the gangsters in charge can't leave us alone. They'd fuck with it until it goes back the way it was or destroy the world trying.

Here's the deal! The government exists on bribes! Take my money and give it to bums, criminals, nitwits, The Pelosis Watermans, Rangles, union crime syndicates, government contractors, the Pentagon who can't beat people living in caves, welfare bums, Mexican con artists and on and on.

Want to accomplish something for us? Send me a check. At least 50 thousand. I'll pay off the rest of my debts, blow every penny and borrow like a bastard. Honest!

Until then,it ain't over until it's over!


The Real Reason Banks Aren’t Lending | Credit Writedowns
In the U. S., when a bank makes a loan, this loan creates a deposit for the borrower. If the bank then ends up with a reserve requirement that it cannot meet by borrowing from other banks, it receives an overdraft at the Fed automatically (at the Fed’s stated penalty rate), which the bank then clears by borrowing from other banks or by posting collateral for an overnight loan from the Fed. Similarly, if the borrower withdraws the deposit to make a purchase and the bank does not have sufficient reserve balances to cover the withdrawal, the Fed provides an overdraft automatically, which again the bank then clears either by borrowing from other banks or by posting collateral for an overnight loan from the Fed.

The point of all this is that the bank clearly does not have to be holding prior reserve balances before it creates a loan. In fact, the bank’s ability to create a new loan and along with it a new deposit has NOTHING to do with how many or how few reserve balances it is holding.

What is required to drive lending is a creditworthy borrower on the other side of the bank lending officer’s desk, which means an employed borrower, whose income allows him to sustain regular repayments. Absent that, there will be no lending activity. It is pointless to blame the evil bankers for this of state affairs, since they don’t control fiscal policy, which is the remit of the Treasury.

For all the talk from policy makers about not repeating the mistakes of Great Depression, we seem to be perilously close to doing precisely that. This is largely based on a poor understanding of the economic dynamics of that period, even by that noted scholar of the Great Depression, Ben Bernanke.

Most people believe the economy crashed between 1929 and 1932 and then remained depressed until the Second World War, which finally mobilized the economy’s idle resources and brought about a full recovery. That’s complete bunk if you calculate the unemployment data correctly (see here for an explanation) . Even leaving aside the unemployment calculations, it is abundantly clear that, once the Great Depression hit bottom in early 1933, the US economy embarked on four years of expansion that constituted the biggest cyclical boom in U.S. economic history. For four years, real GDP grew at a 12% rate and nominal GDP grew at a 14% rate. There was another shorter and shallower depression in 1937 largely caused by renewed fiscal tightening (and higher Federal Reserve margin requirements). This second depression has led to the misconception that the central bank was pushing on a string throughout all of the 1930s, until the giant fiscal stimulus of the wartime effort finally brought the economy out of depression.

That’s incorrect. The financial dynamics of the huge economic recovery between 1933 and 1937 are extremely striking. Despite their insistence that changes in the stock of money were behind all the cyclical ups and downs in U.S. economic history, even economists Milton Freidman and Anna J. Schwartz in their “Monetary History of the United States” conceded that the money aggregates did not lead the U.S. economy out of the depression in 1932-1933.

More striking, private credit growth seemingly had nothing to do with the takeoff of the economy. Industrial production, off the 1932 low, doubled by 1935. By contrast, bank credit to the private sector fell until the middle of 1935. Because of the collapse in nominal income during the depression, the U.S. private sector was more indebted than ever in the Depression lows. Yet somehow it took off and sustained its takeoff with no growth in private credit whatsoever. The 14% average annual increase in nominal GDP from early 1932 to 1935 resulted in huge private deleveraging, largely as a consequence of aggressive fiscal stimulus.

Tim Geithner should be aware of this, but like his old colleagues at the Fed, his main obsession remains deficit reduction, which is why he is now expending considerable political capital on allowing the Bush tax cuts for the wealthy to expire. Ironically, one of the more amusing aspects of this particular issue is the sight of Republicans such as Mike Pence and Eric Cantor arguing that job creation is more important to Americans than deficit reduction (hence, we should extend the Bush tax cuts for the wealthy, even as their party fought vociferously against extending unemployment insurance benefits for the past several months).

The reasoning of Cantor and Pence is perverse, but on balance — however disingenuous and politically insincere — we support the GOP’s born again support for job creation over deficit reduction. We just wish they would refocus on something that would really help reduce unemployment, such as a Job Guarantee Program. A disproportionate amount of the stimulus program has been enjoyed by those who least need it. We would like to see the Obama Administration at least begin to make the case that fiscal stimulus, whether via tax cuts or direct public investment, is still required to generate more demand and employment. They should not concede anything in this area to the politically insincere GOP, which never met a tax break for the top 2% of the population that they didn’t like.

There might well be very good reasons, on grounds of social equity, to minimize the income gap between the rich and the poor, but Geithner and Obama are not making the case for the elimination of the tax breaks on these grounds. Rather, they continue to do so on the basis that this is the “fiscally responsible” thing to do. This is also consistent with the President’s odd championing of a “bipartisan commission” to study entitlement “reform”, where the focus appears to be on cutting Medicare and Social Security — in effect gutting the Democrats most substantial social legacy of 20th century.

The only concern about government deficit spending should be a whether it generates inflation, in which case it should of course be slowed down. None of those critique the ongoing fixation on fiscal sustainability, or “pork”, or “entitlement reform”, do so on the basis that there are “no limits” on government deficit spending, as has been alleged. What we do argue is that deficit cutting per se, devoid of any economic context, is not a legitimate goal of public policy for a sovereign nation. Deficits are (mostly) endogenously determined by the performance of the economy. They add to private sector income and to net financial wealth. They will come down as a matter of course when the economy begins to recover and as the automatic stabilizers work in reverse (i.e. tax receipts rise and social welfare expenditure comes down). When our policy makers begin to understand this, we can stop with the counsel of despair and actually do something that reduces unemployment today, not years from now — when it will be far too late.

Cross-posted from New Deal 2.0.
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Scott [Moderator] 1 week ago
Hi Marshall:

I really like this argument much more than the "deficit terrorist" argument. It raises questions in a reasonable manner. First, as much as I hate it, I interpret your argument as one of advocating stabilizers more than deficit spending in and of itself. That is a tempered argument and one I think that is understood by constituencies. I'm opposed to deficits because I feel like we will run deficits until we cannot run deficits no longer. That's what the political climate demonstrates to me. However, if you have an economy with 100 people and all people are guaranteed 1 unit of income at all times and the rest agree to pay a percentage of their income to ensure that then when income falls, there is an automatic stabilizer where we borrow against future income to pay that 1 when we otherwise could not, it makes sense. MMT is irrelevant then because we don't need a theory, only borrowing capacity and all parties are agreed. The rules are in place, no one screams, and we all get some security. Simple Keynesian counter-cyclical prescriptions. We just need these rules in place now, not only when s hits the fan. The system is set up now to spend and borrow it all like we're off to the races and then worry about the bad times when we get there and this puts you in a position to defend why that is not a problem. Minsky proposed a 20% government share to provide this service. This was 1986, but now we're up higher than that and the inflation barrier is slowly increasing as more and more boomers become tied to inflation linked incomes. I think the various "5 year plan" arguments are consistent with my view. Say we're not going to fix this now because the immediate pain is not something we want, but the credible plan will be presented, and everyone will know what the rules are as we impose them. This is very different than our current crisis management regime. I have personal opinions on how likely this outcome is which keeps me leaning towards deficit hawk stance.

I read your thesis as fiscal stimulus will lead this economy out of the dumps, as proven by the fiscal stimulus during the great depression along with other points you have made in the past. I won't counter this because I would like more explanation as to why increasing aggregate demand is the panacea you propose it to be. I read Keynesianism in two different lights. The first, is that if the cash flows do not validate the debt payments, then the loans go bad and business bust due to lack of cash flow and not necessarily lack of demand. That's probably a Minsky view but it is based on past business decisions. Second, if I do not spend, then that's income denied to someone else, the Paradox of Thrift. I just want your opinion on the quality of aggregate demand if you ever decide to comment on this in future posts. Should past business decisions be validated at all costs in the name of the paradox of thrift. Here is why I'm concerned.

1.No one is demanding product because the product sucks
2.No one is demanding product because they don't need it
3.If you maintain funding to those producing sucky products, the products still suck
4.If those producing products are producing them based on fiscally stimulated demand, as soon as the fiscal stimulus runs out, we all realize again the product sucks
5.Every dollar spent on sucky products is a dollar wasted
6.If the maker of a road is the first to get the stimulus and builds a road, then that is a dollar going to a road which very well could be a sucky product

I think you get my point this far, but my real point is that if we continue all this suckyness and suckyness builds jobs and offices on sucky products, how do we ever get out of this hole without adjusting our economy to an economy that produces what people want? I'm assuming that the reason why sales are down is because consumers are no longer buying what they don't need, hence suckiness.

In conclusion, we're in an economic, political, and consumer pickle here. I prefer the latter to lead the way, but let us know why I'm wrong.

In time, if you can go that direction it would be helpful.
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Marshall Auerback [Moderator] 1 week ago in reply to Scott
MMT is not a theory; it's an operational depiction of how things actually
work in a post-gold standard world. Similarly, the manner in which I
describe bank lending is an actual depiction of how it works if you are actually
on the bank lending desk, not the highly stylised variant one sees in the
economic textbooks. These are facts, not polemics.

I recognize that the term "deficit terrorist" offends some people, and I
have stopped using it to a large degree, but I do think the impact of the
policies being advocated by the brigade which says that all government
deficits are bad can engender harm of a magnitude not unlike that of an act of
terrorism. Yes, the sin may be one of ignorance, rather than direct
commission and in that regard, the term is probably inappropriate. But I also find
that much of the discussion of government deficit spending takes on an
almost theological hue with many people, who allow their ideological biases
about government to misrepresent or ignore the impact of the consequences of
what they advocate. A major problem for the US government now is that the
stimulus at the federal level is being increasingly undermined by the cuts
occurring in public spending at the state and local government levels. The
US federal system is working against itself. Further while private investment
has been growing modestly, private consumption has tapered off again. Pain
IS being experienced by around 90% or more of most Americans. I really
don't understand how much more you want, but my point is always the same: 15%
underemployment is de facto evidence that we have a lack of aggregate
demand and if you can explain to me how that can be filled in the absence of
government spending (or tax cuts) I'd be interested in understanding how
you'd do it. By increasing private debt? That got us into this mess. By
increasing exports? Depends really on other nations, such as China and
Germany and in any case, is it really optimal to be exporting our economic
output, rather than consuming it at home?

I've suggested some concrete policies (as have others), such as the Job
Guarantee program. I don't agree with your characterization of American
products all being "sucky" (you think the Chinese toys we import are that
great?), so I really don't understand what your point is or what you would
propose.




In a message dated 8/4/2010 22:04:54 Mountain Daylight Time,
writes:
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JB McMunn [Moderator] 1 week ago in reply to Marshall Auerback
"MMT is not a theory;""

What does the "T" stand for, and when did this gather enough concrete evidence to support it graduating from a theory to fact?

It's a theoretical construct, not to be confused with reality.
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Marshall Auerback [Moderator] 1 week ago in reply to JB McMunn
MMT is a term which has developed, and obscures as much as it elucidates
for precisely the reasons you suggest. But it does describe an operational
reality.Love it or hate it, our sovereign government spends by crediting
bank accounts. Over the past 20 years, MMT has investigated, analyzed, and
documented the sordid operational details. Frankly, I prefer Abba Lerner's
term, "functional finance" to describe what we outline, but MMT has gravitated
into the lexicon so we'll use it, even though it incorporates that
dreadful word, "theory". But you can't use that to dispute the main point. We
can lecture for hours on the balance sheet manipulations involving the
Treasury, the Fed, the primary security dealers, the special depositories, and
the regular private banks every time the Treasury buys a notepad from
OfficeMax. As Randy Wray has said,
"We did the work, so you do not have to do it. And believe me, you do not
want to do it. You can skip directly to the conclusion: “Yes, government
spends by crediting bank accounts, taxes by debiting them, and sells bonds to
provide an interest-earning substitute to low-earning reserves. Q.E.D.”


A few libertarians and Austrians now get this, although instead of
thanking us for a job well done, they immediately attack us for explaining how
things work. Now, why would they do that? Because they fear that if we tell
policymakers and the general public how things work, democratic processes
will inevitably blow up the government’s budget as everyone demands that wine
flow freely through the nation’s drinking fountains whilst workers retire
from government jobs at age 28 on generous pensions provided at the public
trough. And off we go to Zimbabwe land, with hyperinflation that destroys
the currency and sucks the precious body fluids from our economy."



In a message dated 8/5/2010 11:55:17 Mountain Daylight Time,
writes:

JB McMunn (unregistered) wrote, in response to Marshall Auerback:

"MMT is not a theory;""

What does the "T" stand for, and when did this gather enough concrete
evidence to support it graduating from a theory to fact?

It's a theoretical construct, not to be confused with reality.



Link to comment: http://disq.us/jk1g0
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Scott [Moderator] 1 week ago in reply to Marshall Auerback
Thanks for the response. I'm learning and speaking as I go so I'm by no means an expert on anything, but I'm doing the dual tract between Keynsian and Austrian economics. I think your point below on Austrians is correct. They begin with the Fed and monetary science so they are probably more apt to understand modern monetary theory, as technically, there's really no difference. It works how it works. I'll continue my trade cycle studies and that is where I'm stuck. I just see some holes between aggregate demand and the capital structure of the economy. I don't think you can fix capital invested in things that are now worthless (e.g. surplus housing inventory) by increasing aggregate demand. Hopefully, and you are an optimist on this point, softening the blow helps. I get that, I just don't necessarily see how we cannot take some stripes and let time heal as well as capital and labor naturally adjusts to the demands of consumers going forward.
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Marshall Auerback [Moderator] 1 week ago in reply to Scott
Depends what happens as "time heals". Long term unemployment leaves longstanding problems if left unaddressed. And the sad part is that there are some creative solutions out there. I would urge you to read Randy Wray's "Understanding Modern Money". Even a card-carrying Austrian like our esteemed Ed Harrison has read it and found some useful insights (and lived to tell the tale)! :)
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Scott [Moderator] 1 week ago in reply to Scott
Marshall, I have and I understand deadweight loss and I respect your concern. It's very optimistic of you to try and help those that do not know they are being killed not be killed. I'm stuck in a dead end job, but it's a job. It's really stagnant though. My earning years are wasting away too, but we got to move into the unknown, forward, and the only guiding principle we have at this point is to provide what people want. If that's Ipads, then that is what it is, but I don't see Apple getting any stimulus. Let's stop the trying to maintain spending on the dionsaurs and let it flow to whatever the new apple is. If the new apple doesn't show it's face, I agree we're all f'd, but we don't know until then. What we do know is humans like to grow and consume and they like to choose, so that's our only hope. I appreciate your responses and you definitely have society as your first concern so I respect that.
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Marshall Auerback [Moderator] 1 week ago in reply to Scott
Avoiding spending money on the dinosaurs is a political point, and it is
one in which I would agree.
. Much of the infrastructure we built to take care of the baby boom is
still with us, and will be with us for years to come, including houses,
hospitals, schools, dams, highways, and public buildings. As the baby boomers
age, we may have to convert schools to senior citizen centers and hospitals to
aged care facilities. However, we took care of the baby boomers with
relatively few workers in 1960, and common sense implies that we ought to be
able to take care of them when they are elderly.
The mainstream debate chooses to focus on the “financial” aspects of
these projected changes arguing that they will imply rising budget deficits
which they define as being unsustainable. The “budget costs or outlays” are
financial not real constructs. Public policy cannot prepare for a retiring
baby boom bulge through “advance funding”—that is, by accumulating a
large trust fund? A social security trust fund (such as that existing in the
United States) provides no “financial wherewithal” to pay for a possible
future revenue shortfall. To put it simply, the trust fund is simply a case
of the government owing itself, an internal accounting procedure. In, say,
2050 when payroll tax revenues fall short of benefit payments, the trust
fund will redeem treasury debt. To convert those securities into cash would
require the Treasury to either issue new debt or generate tax revenue in
excess of what will be required for other government spending in order to make
the cash payment to the trust fund without increasing general budget
deficits. This is exactly what would be required even if the Trust Fund had no
"financial holdings". Government cannot financially provision in advance for
future benefit payments. Indeed, attempts to do so via the encouragement of
deficit cuts today will simply exacerbate the “dependency” problem
implied by ageing demographics. Maximizing employment and output in each period
is a necessary condition for long-term growth. The emphasis in mainstream
intergeneration debate and adverse demographics suggests that we have to
lift labor force participation by older workers. Perhaps, but this is contrary
to current government policies which reduces job opportunities for older
male workers by refusing to deal with the rising unemployment.


In a message dated 8/5/2010 9:59:02 P.M. Mountain Daylight Time,
writes:

Scott wrote, in response to Scott:

Marshall, I have and I understand deadweight loss and I respect your
concern. It's very optimistic of you to try and help those that do not know
they are being killed not be killed. I'm stuck in a dead end job, but it's a
job. It's really stagnant though. My earning years are wasting away too,
but we got to move into the unknown, forward, and the only guiding
principle we have at this point is to provide what people want. If that's Ipads,
then that is what it is, but I don't see Apple getting any stimulus. Let's
stop the trying to maintain spending on the dionsaurs and let it flow to
whatever the new apple is. If the new apple doesn't show it's face, I agree
we're all f'd, but we don't know until then. What we do know is humans
like to grow and consume and they like to choose, so that's our only hope. I
appreciate your responses and you definitely have society as your first
concern so I respect that.

Link to comment: http://disq.us/jlslq
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Scott [Moderator] 1 week ago in reply to Scott
final comment on this post ever. I read Wray's article the first time I ever read it. I found not problems with it, presented it to "Scary Gary" (I'm a hack on that level, I'm about as secular as they get, but he does know his theory) and I got no response from him. I've been trying to find the hole in it since and the only hole is value. Who pays and how much. The answer I was looking for as found in Minskey's comment on the inflation barrier can be lowered to a point where aggregate demand does not matter because unions or others can demand higher prices despite low capacity utilization. I'm running with this one. I think boomers will replace unions in this respect to the point where we get punishing inflation because their salaries will demand more and more out of the productive sector which shrinks over time. I also don't see how capacity utilization factors in utility to produce current goods. An old machine that is underutilized cannot become quickly utilized to all of the sudden fill aggregate demand with not production costs involved. Even though we're not war torn, we're misallocated which makes our capital stock worth less than is presented by stats. I'll take a six month hiatus with you Marshall. I think I covered my questions, I only got selective answers, but the last few sentences are my concern. Invictus' post on Ritholtz in the last day raises similar concerns. Let's change the way we look at the "R" word and instead start looking at your "creative" solutions that will never happen in America. Finally, I've been reading "American Lion" and that is a very good book to present Europe's current delimma on centralization. 1830 and Jackson not only hated the bank, but he was out to preserve the Union. Not so different from the EU today minus the slavery and libertarian Americans.
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Marshall Auerback [Moderator] 1 week ago in reply to Scott
Only problem with Jackson is that he eliminated our national debt and then
continued to run budget surpluses and threw the country into a huge
depression by 1837.


In a message dated 8/5/2010 23:59:55 Mountain Daylight Time,
writes:

Scott wrote, in response to Scott:

final comment on this post ever. I read Wray's article the first time I
ever read it. I found not problems with it, presented it to "Scary Gary"
(I'm a hack on that level, I'm about as secular as they get, but he does know
his theory) and I got no response from him. I've been trying to find the
hole in it since and the only hole is value. Who pays and how much. The
answer I was looking for as found in Minskey's comment on the inflation
barrier can be lowered to a point where aggregate demand does not matter
because unions or others can demand higher prices despite low capacity
utilization. I'm running with this one. I think boomers will replace unions in this
respect to the point where we get punishing inflation because their
salaries will demand more and more out of the productive sector which shrinks
over time. I also don't see how capacity utilization factors in utility to
produce current goods. An old machine that is underutilized cannot become
quickly utilized to all of the sudden fill aggregate demand with not
production costs involved. Even though we're not war torn, we're misallocated
which makes our capital stock worth less than is presented by stats. I'll take
a six month hiatus with you Marshall. I think I covered my questions, I
only got selective answers, but the last few sentences are my concern.
Invictus' post on Ritholtz in the last day raises similar concerns. Let's
change the way we look at the "R" word and instead start looking at your
"creative" solutions that will never happen in America. Finally, I've been
reading "American Lion" and that is a very good book to present Europe's
current delimma on centralization. 1830 and Jackson not only hated the bank, but
he was out to preserve the Union. Not so different from the EU today
minus the slavery and libertarian Americans.

Link to comment: http://disq.us/jm0x9
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Scott [Moderator] 6 days ago in reply to Scott
You:
"Government cannot financially provision in advance for
future benefit payments."

This is a key MMT statement. If I understand MMT correctly as crediting and debiting accounts then this means that the government will never be able to save. Other than selling a Treasury bond or taxing and then buying a real asset with the proceeds is this the correct interpretation? It's very interesting, as is MMT.

My comments are defintely convoluted, but you took pains to deal with them. Thanks for that. After Keynes and Mises, it's now time to go study Fisher and Friedman and see why debt deflation is so bad and take some looks at QTM. If it all comes down to sticky wages I'm going to be disappointed.

The End.
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Marshall Auerback [Moderator] 6 days ago in reply to Scott
Yes, the government can't "save" because it doesn't have "dollars in a lockbox". As my friend Warren Misler likes to say, the government is the scorekeeper. Asking the government to "save" is as silly as asking a scoreboard at a football stadium to "save" points.
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JB McMunn [Moderator] 1 week ago in reply to Scott
Usually when interest rates are this low it chases money into the stock market, but what we see instead is massive unloading of equity mutual funds in the retail sector and flight to the bond funds. The stock market is perceived as a rigged game and we don't want to play any more. We've been hosed twice in the past 10 years and we're tired of it.

I carry no debt, have significant savings, and enjoy a substantial income. I am not spending right now. It has nothing to do with the quality of products. It is the simple fact that I am holding cash for the deflationary scenario and gold for the inflationary scenario. I don't know what's going to happen in terms of deflation or inflation because there are too many wild cards, but I do know that there is no way out of this problem except to go through it, which will be a very painful process. It's called deleveraging.

When people have lost faith you can flood the country with money, you can fire half the government workers, you can raise taxes or lower taxes - it doesn't matter. Until I feel like I can come out of hibernation I'm not spending one nickel more than I have to.

Perhaps I flatter myself that I represent a lot of people, but I don't think so. I think this feeling is prevalent and its impact is underestimated. When people have no faith in Congress (20% approval rating) or the President (under 50%) where is the hope and optimism that will make them feel safe spending money? You can see this in the steadily declining Consumer Confidence Index. Pessimism rules and it's getting worse.

There is no economic formula for fixing malaise.
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Marshall Auerback [Moderator] 1 week ago in reply to JB McMunn
Yes, there is. You need the government to spend precisely to "ratify"
this ex ante predisposition to save on the part of people such as yourself.

No criticism at all in terms of your actions, but as I said before, all
things being equal, if everybody does what you do and there is no
countervailing action by the government, then you get the paradox of thrift.
Any individual can increase her saving by reducing her spending—on
consumption goods. So long as her decision does not affect her income—and there is
no reason to assume that it would—she ends up with less consumption and
more saving.
Consider the example of John who usually eats a hamburger at Macdonald’s
every day. He decides to forego one hamburger per week, to accumulate
savings. Of course, so long as he sticks to her plan, he will add to her savings
(and financial wealth) every week, just as you are doing in your actions.
The question is this: what if everyone did the same thing as John—would
the reduction of the consumption of hamburgers raise aggregate (national)
saving (and financial wealth)?
The answer is that it will not. Why not? Because Macdonald’s will not sell
as many hamburgers, it will begin to lay-off workers and reduce its orders
for bread, meat, catsup, pickles, and so on.
All those workers who lose their jobs will have lower incomes, and will
have to reduce their own saving. You can use the notion of the multiplier to
show that this process comes to a stop when the lower saving by all those
who lost their jobs equals the higher saving of all those who cut their
hamburger consumption. At the aggregate level, there is no accumulation of
savings (financial wealth).


In a message dated 8/5/2010 11:50:48 Mountain Daylight Time,
writes:

There is no economic formula for fixing malaise.
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JB McMunn [Moderator] 1 week ago in reply to Marshall Auerback
I'm sorry Marshall but Wray's "trust me, I'm an economist" doesn't work. Equations and models are conceptual reference points, not laws of thermodynamics. I'd have an easier time swallowing it whole if there weren't other people with a different set of equations making the same claims of validity and drawing different conclusions.

You and I are in agreement that if everyone does what I'm doing then we get the paradox of thrift. Absolutely. No question. And that is transpiring right now and snowballing every day. Where we differ is that you claim you can get people to spend by appropriate levels of fiscal manipulation, and what I'm saying is that you can't make people spend who aren't comfortable spending.

Spending requires confidence that the money spent can be replaced. When people have low confidence that they will be able to replace their money they hoard it. When they have absolutely no faith in the government (vide supra) or the financial system (ibid) that's a very hard sell. You can manipulate the system all you like but until the perception changes the money sits under the mattress.

That's where I am right now. It doesn't matter what anyone does because I don't think this is fixable and if by some miracle it is fixable I have no faith that the people in charge will do it right.

Quite honestly, I wish they'd leave everything alone. Every bright idea that is tried induces a new disequilibrium that the whole system has to spend time and energy adjusting to - or as the saying goes, the solution to a problem creates a new problem.

We have already thrown vast amounts of money this and nothing happened. As Mark twain said, history doesn't repeat itself but it often rhymes and Henry Morgenthau pretty much wrote the first stanza:

“We have tried spending money. We are spending more than we have ever spent before and it does not work.…I say after eight years of this administration we have just as much unemployment as when we started…And an enormous debt to boot!”

I really don't want to read the rest of the poem.
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Marshall Auerback [Moderator] 1 week ago in reply to JB McMunn
I think you are mischaracterising Randy's work. I don't recall him every
saying "trust me, I'm an economist". Please give him a little credit and
read what he has to say. I would suggest you start with his book,
"Understanding Modern Money" and you'll see that he deals with reality, not "models"
or "conceptual reference points".
I'm sure you would be happy to leave everything alone. That's what
happened, as I recall, around 1930 and that turned out really well, didn't it?
As for the notion that the spending achieved nothing, I think there is ample
evidence to contradict that claim. You have to consider what might have
happened had the money not been spent. And consider this report from the CBO:


On May 25, 2010, the _US Congressional Budget Office_
(http://www.cbo.gov/) released a detailed study – Estimated Impact of the American Recovery
and Reinvestment Act on Employment and Economic Output from January 2010
Through March 2010 – _PDF document_
(http://www.cbo.gov/ftpdocs/115xx/doc11525/05-25...) .
The CBO present information that recipients of the stimulus funds under
ARRA have provided estimating the “the number of jobs they created or retained
with ARRA funding”. This information suggests that “nearly 700,000 FTE
jobs during the first quarter of 2010″ were created by the fiscal stimulus.
However, they note that there are several problems encountered when using
this data which bias the impact. First, the jobs might have already been
created without the stimulus (therefore overestimate impact).
Second, the reports don’t consider jobs created by “lower-level
subcontractors” (therefore underestimate impact).
Third, “reports do not attempt to measure the number of jobs that may have
been created or retained indirectly as greater income for recipients and
their employees boosted demand for products and services” – the multiplier
effects (therefore underestimate impact).
Fourth, reports only cover a fraction of the stimulus capacity (therefore
underestimate impact).
The alternative method was to use their modelling capacity and historical
evidence. They conclude that the impact of ARRA for the first quarter of
2010 were:
* Raised the level of real (inflation-adjusted) gross domestic
product (GDP) by between 1.7 percent and 4.2 percent.
* Lowered the unemployment rate by between 0.7 percentage points and
1.5 percentage points.
* Increased the number of people employed by between 1.2 million and
2.8 million.
* Increased the number of full-time-equivalent (FTE) jobs by 1.8
million to 4.1 million compared with what those amounts would have been
otherwise. (Increases in FTE jobs include shifts from part-time to full-time work
or overtime and are thus generally larger than increases in the number of
employed workers).
They also said that these impacts “on output and employment are expected to
increase further during calendar year 2010 but then diminish in 2011 and
fade away by the end of 2012″.
You have every right to disagree with someone, but you don't have a right
to confuse fact with fiction.



In a message dated 8/5/2010 15:48:05 Mountain Daylight Time,
writes:

JB McMunn (unregistered) wrote, in response to Marshall Auerback:

I'm sorry Marshall but Wray's "trust me, I'm an economist" doesn't work.
Equations and models are conceptual reference points, not laws of
thermodynamics. I'd have an easier time swallowing it whole if there weren't other
people with a different set of equations making the same claims of validity
and drawing different conclusions.

You and I are in agreement that if everyone does what I'm doing then we
get the paradox of thrift. Absolutely. No question. And that is transpiring
right now and snowballing every day. Where we differ is that you claim you
can get people to spend by appropriate levels of fiscal manipulation, and
what I'm saying is that you can't make people spend who aren't comfortable
spending.

Spending requires confidence that the money spent can be replaced. When
people have low confidence that they will be able to replace their money they
hoard it. When they have absolutely no faith in the government (vide
supra) or the financial system (ibid) that's a very hard sell. You can
manipulate the system all you like but until the perception changes the money sits
under the mattress.

That's where I am right now. It doesn't matter what anyone does because I
don't think this is fixable and if by some miracle it is fixable I have no
faith that the people in charge will do it right.

Quite honestly, I wish they'd leave everything alone. Every bright idea
that is tried induces a new disequilibrium that the whole system has to spend
time and energy adjusting to - or as the saying goes, the solution to a
problem creates a new problem.

We have already thrown vast amounts of money this and nothing happened. As
Mark twain said, history doesn't repeat itself but it often rhymes and
Henry Morgenthau pretty much wrote the first stanza:

“We have tried spending money. We are spending more than we have ever
spent before and it does not work.…I say after eight years of this
administration we have just as much unemployment as when we started…And an enormous
debt to boot!”

I really don't want to read the rest of the poem.

Link to comment: http://disq.us/jktvt
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Marshall Auerback [Moderator] 1 week ago in reply to JB McMunn
PS Henry Morgenthau said exactly what you said and FDR duly introduced a
balanced budget in 1937. Result? Huge secondary relapse in activity and a
massive increase in unemployment. Please read some history of the period.
Morgenthau was comprehensively WRONG.


In a message dated 8/5/2010 15:48:05 Mountain Daylight Time,
writes:

JB McMunn (unregistered) wrote, in response to Marshall Auerback:

I'm sorry Marshall but Wray's "trust me, I'm an economist" doesn't work.
Equations and models are conceptual reference points, not laws of
thermodynamics. I'd have an easier time swallowing it whole if there weren't other
people with a different set of equations making the same claims of validity
and drawing different conclusions.

You and I are in agreement that if everyone does what I'm doing then we
get the paradox of thrift. Absolutely. No question. And that is transpiring
right now and snowballing every day. Where we differ is that you claim you
can get people to spend by appropriate levels of fiscal manipulation, and
what I'm saying is that you can't make people spend who aren't comfortable
spending.

Spending requires confidence that the money spent can be replaced. When
people have low confidence that they will be able to replace their money they
hoard it. When they have absolutely no faith in the government (vide
supra) or the financial system (ibid) that's a very hard sell. You can
manipulate the system all you like but until the perception changes the money sits
under the mattress.

That's where I am right now. It doesn't matter what anyone does because I
don't think this is fixable and if by some miracle it is fixable I have no
faith that the people in charge will do it right.

Quite honestly, I wish they'd leave everything alone. Every bright idea
that is tried induces a new disequilibrium that the whole system has to spend
time and energy adjusting to - or as the saying goes, the solution to a
problem creates a new problem.

We have already thrown vast amounts of money this and nothing happened. As
Mark twain said, history doesn't repeat itself but it often rhymes and
Henry Morgenthau pretty much wrote the first stanza:

“We have tried spending money. We are spending more than we have ever
spent before and it does not work.…I say after eight years of this
administration we have just as much unemployment as when we started…And an enormous
debt to boot!”

I really don't want to read the rest of the poem.

Link to comment: http://disq.us/jktvt
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B_capp [Moderator] 1 week ago
RyanClarke here ...

The real reason banks aren't lending is BECAUSE THEY DON'T HAVE ANY MONEY TO LEND.

When a bank gets a 'NEW' MILLION DOLLARS IN DEPOSITS ... the bank may choose to LEND ON THE ORDER OF TEN MILLION DOLLARS to whomever the bank decides to lend ... that's with a 10% reserve requirement. Now assuming the Fed doesn't tinker with reserve requirements ... because they did in 1987 ... and placing reserve requirements to the side ...

the problem is the two words 'NEW' and 'DEPOSITS.'

There are simply no 'new deposits' being introduced into the banking system by private citizens and corporations who have accounts with the U.S. banking system ... as indicated by the 'velocity of money slowing to a crawl' over the past two years.

You see, for every 'private citizens or corporations' sitting on a 'ton of money' ... there are twenty 'private citizens or corporations' KNEE DEEP IN DEBT ... and the banks don't want to lend to this 95% of the 'lending population' for the obvious reason ...

The 5% of the 'lending population' the banks would like to lend to ... don't need a loan ... and the banks know the other 95% of the 'lending population' would only use borrowed money ... at the very best ... to service existing levels of outstanding debt.

Thus, the 'money log jam.'
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Marshall Auerback [Moderator] 1 week ago in reply to B_capp
Well, you are basing your representation on the so-called fractional
reserve system, and I'm afraid it just doesn't work the way you indicate.
Banks DO NOT use reserve balances to create loans. They create loans and
deposits simultaneously out of thin air. They use reserve balances to settle
payments or meet reserve requirements ONLY. If a bank is short reserve
balances for either of these purposes, the Fed provides an overdraft
AUTOMATICALLY at a stated penalty rate, which the bank then clears via the money
markets or the cheapest alternative. Whether banks in the aggregate hold $1 or
$1 trillion in reserve balances, there operational ability to create loans
is the same: it is infinite (Though the creation of even 1 loan requires a
willing, creditworthy borrow in the first place, of course.) Thus, neither
the Fed, nor any other central bank actually provides reserve balances
that banks can "lend or use" to purchase assets, but instead setting a cap on
the cost of bank liabilities at different maturities when they do make
loans or purchase assets. That is how loan creation works in post-gold standard
world, in economies where there are freely floating non-convertible
exchange rates. The belief that banks need reserve balances in order to lend is
only applicable in a gold standard-type of monetary system. The correct
conclusion is that the banks are fully capable of “getting money to struggling
businesses” but are unwilling to do so under present circumstances because
(a) aggregate demand is so weak that they cannot find credit-worthy
customers worthy of extending loans to (relating to his earlier point); and (b)
the budget deficit is currently not sufficient to engender any confidence
among borrowers that the things they might produce by expanding production
(with working capital borrowed from the banks) will be sold. Improving “
creditworthiness” and credit will follow.


In a message dated 8/5/2010 01:03:57 Mountain Daylight Time,
writes:
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JB McMunn [Moderator] 1 week ago in reply to Marshall Auerback
I agree with the final conclusion except that (b) is not a bank decision it's a borrower decision. I also doubt that these small businessmen are thinking in terms of waiting until the budget deficit is bigger before they borrow. Go to the local Rotary Club breakfast or Chamber of Commerce meeting and explain that what this country needs is a big ol' budget deficit so they can all feel more confident about borrowing some money. I'll bet their pancakes get cold during the stunned silence.
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Marshall Auerback [Moderator] 1 week ago in reply to JB McMunn
Exactly! The government is the only entity that is capable of leveraging
up and spending in this kind of environment..


In a message dated 8/5/2010 12:31:18 Mountain Daylight Time,
writes:

JB McMunn (unregistered) wrote, in response to Marshall Auerback:

I agree with the final conclusion except that (b) is not a bank decision
it's a borrower decision. I also doubt that these small businessmen are
thinking in terms of waiting until the budget deficit is bigger before they
borrow. Go to the local Rotary Club breakfast or Chamber of Commerce meeting
and explain that what this country needs is a big ol' budget deficit so they
can all feel more confident about borrowing some money. I'll bet their
pancakes get cold during the stunned silence.


Link to comment: http://disq.us/jk608
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Marshall Auerback [Moderator] 6 days ago in reply to JB McMunn
No, it's both. The borrower can't get a loan if the bank officer won't
extend it to him. A loan is a two-way contract between borrower and lender.


In a message dated 8/6/2010 14:14:14 Mountain Daylight Time,
writes:

I agree with the final conclusion except that (b) is not a bank decision
it's a borrower decision. I
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JB McMunn [Moderator] 1 week ago in reply to Marshall Auerback
"Exactly! The government is the only entity that is capable of leveraging
up and spending in this kind of environment.."

Counterfeiting and writing bad checks usually ends badly, even when done by a sovereign nation. If this were a true Keynesian scenario where we had been running surpluses or break-evens during the good times and we had to deficit spend to dig ourselves out I'd be ok with it. However, we have been deficit spending like crazy for decades and I have a hard time believing that more debt - even when taken on by an entity that cannot be insolvent - is the answer.

I'm willing to spend to keep people from starving and to keep a roof over their heads but that's where I draw the line.
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Marshall Auerback [Moderator] 1 week ago in reply to JB McMunn
Yes, but that's not what the US government does. You're letting your
ideological biases get in the way of an honest assessment here.


In a message dated 8/5/2010 16:00:20 Mountain Daylight Time,
writes:

Counterfeiting and writing bad checks usually ends badly, even when done
by a sovereign nation
Flag
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Ronald Pires [Moderator] 1 week ago
Marshall ~
The Austrians' sentiment that the public might misuse MMT as an economic fountain of youth is not entirely without merit. But that is better, I suppose, than leaving the fountain unattended with only the banksters to "guard" it.
Flag
Like
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Marshall Auerback [Moderator] 1 week ago in reply to Ronald Pires
I think that is an excellent point and indeed, Ed has made it many times
itself. I think it is the most legitimate critique one can make of MMT.
Unfortunately, people like Ed aside, the attacks usually are not so well
reasoned, but are predicated on ill-informed prejudice. But, even having due
regard to that risk, what's the alternative? 1930s style liquidation? I
suppose that is a choice, but it's not mine. Your fountain analogy is a very
good one.


In a message dated 8/6/2010 1:22:35 A.M. Mountain Daylight Time,
writes:
Flag
Like
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JB McMunn [Moderator] 6 days ago in reply to Marshall Auerback
"I think you are mischaracterising Randy's work. I don't recall him every saying "trust me, I'm an economist"."

Here's what you said:

"As Randy Wray has said, "We did the work, so you do not have to do it. And believe me, you do not want to do it. You can skip directly to the conclusion"

Trust me, I'm an economist.
Flag
Like
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Marshall Auerback [Moderator] 6 days ago in reply to JB McMunn
Why don't you read the work, if you're so untrusting?. You obviously lack a sense of humour or irony.
Flag
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steve_from_virginia [Moderator] 5 days ago
What was the question? Is the economy 'bad'?

Why aren't banks lending? Why should they? Any loan they make is instantly underwater unless it is for a perpetual motion machine or 'fusion in a bottle'. I feel sorry for the economists, they just don't get it. Without cheap fuel there is no 'modern' anything including a modern, manufacturing economy. 'Modern' that is running on empty is an obsolete style, like disco or Nehru jackets.

The Fed can print money, what good does it do? It flows into the pockets of gangsters who sock it away as a future substitute for petroleum. It's good to know what the elites' priorities are; we can see from the Eurozone, which has stifled money creation so as to pump up the value of the euro. More- valuable euros mean a lower fuel bill and an escape from an inevitable energy crisis; better to sacrifice the working people and pensioners to the banks NOW in the name of 'currency stability' so that Europe's wonderful automobiles have full petrol tanks.

What happens here? The Eurofed has out- austeritied the USA which is fixated on cycling more credit into a system that is saturated with it. How is it all going to work? I personally agree with James Galbraith (and Michael Hudson and Marshall Auerback) that the US' borrowing capacity is unlimited. Unortunately, recycling credit does not create value (output) and without value there is nothing to exchange for the fuel we require; the credit creates fuel demand that iraces ahead of the ability of producers to satisfy it. We really don't HAVE an aggregate demand problem but a supply- of- value problem.

At the same time, the fuel constraint makes inflation of any kind impossible as a wage- price spiral ends (always) with an oil price spike- then- crash/demand destruction/increased business failures and rising unemployment/excess (industrial) capacity. We repeat our mistakes (over and over and over and over) until we learn not to. Unfortunately, not repeating means abandoning our wonderful automobiles that we cannot conceive of living without.

Each repeat of the same mistake at the largest (inflationary) scale knocks 20- 30% off of our productive economy. The current repetition of small inflationary attempts results in the current erosion of jobs and small businesses. How many repeats do we need, again?

Until the establishment and its wise men (economists) recognize the centrality of energy in the money/finance dynamic - and act appropriately - any and all attempts to escape our rush to the New Feudalism will fail. Don't believe me just sit back and watch.
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Marshall Auerback

Marshall Auerback has 27 years of experience in the investment management business, serving as a global portfolio strategist for RAB Capital Plc, a UK-based fund management group with $2 billion under management, since 2003. He is also co-manager of the RAB Gold Fund. He serves as an economic consultant to PIMCO, the world’s largest bond fund management group, and as a fellow of the Economists for Peace and Security.
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