Mecpoc

Independent Conn. Senate Candidate Warren Mosler Signs Pledge to Vote Against Any Cuts in Social Security or Medicare

amulcahy — Thu, 24 Jun 2010 01:21:02 +0000

Middletown, Conn. (June, 2010) –Warren Mosler, a leading voice in the fight against the Congressional bipartisan move to slash Social Security and Medicare, has signed a University of Missouri Kansas City (UMKC) economics department pledge to never vote for any reductions in Social Security or Medicare benefits, or any delays in eligibility.

“There is no food shortage, no housing shortage, and no shortage of labor or anything else needed to sustain our seniors at a level that makes us proud to be Americans,” said Mosler. “It’s the ‘flat Earth’ economists who don’t understand monetary operations that are leading the charge to slash benefits and delay eligibility.”

Mosler’s first proposal to fix the U.S. economy is a full payroll (FICA) tax holiday, which would increase the take home pay of Americans earning $50,000/year by approximately $325 per month.

“We lost over eight million jobs mainly because sales fell off, and a full payroll tax holiday will restore the sales needed to get those jobs back, and more,” continued Mosler. “The unemployment lines tell us we are grossly over taxed even for the current too high level of government spending. The $500 billion in Medicare cuts claimed by the Democrats in the health care bill was a mistake, a disgrace, and an insult to our seniors, as well as our doctors, nurses, and other healthcare professionals.”

Mosler further notes that the new bipartisan ‘National Commission on Fiscal Responsibility and Reform’ is now tackling the so called Social Security ‘solvency problem,’ directly contradicting Federal Reserve Bank Chairmen Bernanke and Greenspan, as well as David Walker of the Peterson Foundation. All three have publicly testified that, operationally, the U.S. Government can always make all payments in a timely manner, and, therefore, there is no such thing as a solvency problem for US Government obligations of any kind.

Mosler, with 37 years of experience as a fund manager and ‘insider’ in monetary operations, is running as a matter of conscience to promote his agenda to fix the U.S. economy, restore America’s prosperity, and preserve Social Security and Medicare.

See www.moslerforsenate.com and for details on the new pledge, Mosler’s economic proposals, and his million dollar challenge.

Views on Unemployment

amulcahy — Tue, 30 Mar 2010 09:00:48 +0000

Mainstream economics claims that full employment brings inflation, and some unemployment (often called ‘natural’) is inevitable. During bad times, like today, unemployment rises significantly from its ‘natural’ level and bites even more harshly. We at Mecpoc believe that full employment should be the primary target of economic policy. As our chosen topic of exploration, we set out to ask Franklin students for their opinion on unemployment and the implications their major has taught them. Here include extracts of the responses from three Franklin College students: Caitlin Morris (Comparative Literature and Culture Studies major), William Turner (International Relations major), and James Jasper (History major).

QUESTION: Do you think unemployment is only a problem for the jobless, or do you think unemployment has other ramifications on society?
A: William: [Unemployment] does have a lot of implications for society as a whole. There is a
moral issue—yeah people have no income and no way to support themselves and their dependents; it’s obviously an important issued for society as a whole. There is a divide between the Anglo-Saxon model and the Continentals. There are Germany and France where they have a big social security net that helps you deal with being unemployed… whereas the Anglo-Saxon countries have much more liberal markets and its much less humanitarian almost where there is little regard to the effects of firing someone and its done and of course you have the whole argument about economics about whether its easier and you don’t want to end up like France where it is impossible to fire someone because they have such strict labor laws… it’s a question of balance between the two models especially in Europe.

QUESTION: From the perspective of your field of study, in what ways does unemployment harm people and society?
A: Caitlin: I think that a lot of people especially in my major are rushing off to grad school cause
that’s all that you can really do unless you are one of the very few talented people who can say I’m going to go be a writer. I think that there’s going to be a lot of issues because there are so many people with loans. There is going to be an entire generation that is going to be massively in debt.
A: James: For a present day example – Unemployment is difficult to describe in historical
context because we haven’t seen the full implications yet. We don’t know what is going to happen yet. But if what is going on today were to be written down in history books, it wouldn’t be written down as wholly economical. I think, at least in the US, you’ve seen a fundamental shift in the type of economy. I think we’re finally seeing a shift into a more service-based economy. And even a recession like this, which is a fairly bad recession, has had a massive effect on the manufacturing sector and unskilled workers. I think that’s the group that’s been hit the hardest – this kind of middle class of the United States. Historically, it’s going to be interesting to see the consequences of this. I think in the future we might have a higher rate of unemployment than we’ve had in the past. I think a lot of it is based on expectations of trade with China, which is really not that bad of a trade deficit at all, and perception among the public. Politically, I think it will end up with the Democrats in power, at least until things are fixed.

QUESTION: What do you think governments can do to reach full employment?
A: William: There should always be some room for unemployment. I don’t know to what extent
that is true but as long as it’s frictional and cyclical as long as it’s not the structural one you don’t want to end up like Europe where you have workers that have to change their skill set. There are social affects that’s what you really want to avoid but aside from that there is a [natural level of unemployment] and that is normal—that creates flexibility and people can go and change jobs and not just do one job forever so that’s a good thing.
A: James: As a history major, I think full employment is very difficult. The only time full
employment was achieved was when you had an agricultural or subsistence farm base
without skill specialization or you’ve had a communist type of economy. I was
recently reading a report in the NY Times that North Koreans who had crossed the border to South Korea had actually found the capitalist system “oppressive” because they couldn’t just go to their factory and work 8 hours a day, but now there were additional forces on them to achieve even more. I think that in the capitalist system, it’s something the government should strive for, but there will always be transitional unemployment that occurs and an inability to utilize people to their fullest capacity. And without a switch to a command type economy, it’s impossible to have complete full employment. Not to say that you can’t bring it low, but it’s impossible to get it down to 0%. The system works in such a way that since you’re not utilizing all a person’s time and effort and that they have individual free will and rights, it makes it impossible to achieve something along the lines of full employment in a capitalist system.

QUESTION: How will unemployment affect you, based on your field of study?
A: Caitlin: It’s going to be a challenge. I don’t want to do grad school right away. It’s cool
because there is a recession: what you are supposed to do is impossible so you have to ask
yourself what you really want to do and you get to be creative as far as how can [you] find something fun to do. It redefines what you do.
A: James: As a history major, I was expecting to be unemployed after I graduated. I feel
like graduate school is almost necessary for a history major to get more specialized. History majors often do well in business. Personally, I would really like to work at a museum which I think I could get because we are becoming more scarce and rare. But despite the fact that we are scarce, I think we will still be affected. Liberal arts tend to suffer, so I think I will be fairly unemployed after I graduate. In terms of the education industry, I think recession is actually not good for it. I feel like it may be a short-term boost, but at the same time the main factors of educational institutions that give it its capital funds are not there. I think we’re having a short term bubble in education and once the bubble pops, you will see a fall in the numbers of graduates. I don’t think we’re all pessimistic about graduating, I think we’re a little bit more opportunistic, especially because most of us are graduating at a time where the recession is not as deep. I think currently there is a, and I use this term loosely, fetishism with university education. You see students who aren’t necessarily interested or equipped in what they are studying. So, I think the universities are currently in the bubble and they will suffer when the bubble pops. I don’t know how much credit rides on university education, but it seems like a fair bit.

As one can see from the interview questions above, the term “unemployment” has different implications for those studying fields outside that of economics. While James answered with concrete facts of the past, Caitlin shared personal experiences with unemployment and William offered several common definitions for the term. With such a diverse population at Franklin, the variety of answers were expected and appreciated. This insight can help us understand unemployment and possibly find solutions for it. Mecpoc hopes to continue this survey of Franklin Students and their opinion of different economic theories, policies and practices. If you are interested in participating in an interview or writing your own article, please contact jpatriarca@mecpoc.org.

When is Government-Issued Debt Safe? If You Think This is Only True When Debt is Below Some Threshold You May be Dead Wrong

amulcahy — Tue, 23 Feb 2010 13:18:43 +0000

This story began in earnest back in the early 1990’s when Italian government bonds denominated in lira yielded about 2% more than the cost of borrowing the lira from the banks. One could buy Italian securities at about 14%, and borrow the lira to pay for them at about 12% for the term of the securities. This was a free lunch of 2% apart from one thing- the perceived risk of default by the Italian government. Professor Rudi Dornbusch, an influential academic economist, was insisting Italy was on the verge of default because of their debt to GDP ratio exceeded 110% and the lira interest rate was higher than the Italian growth rate. This situation caught my attention as there was easy money to be made if one knew for sure the Italian government wouldn’t default.

So I started brainstorming the issue with my partners. We knew no nation had ever defaulted in its own currency with a floating exchange rate policy, and defaults only came with gold standards, fixed exchange rates, external currency debt, and indexed domestic debt. But why? The answer given was ‘because they can always print the money.’ Fair enough, but no one ever did ‘print the money,’ so there must be a better reason.

A few days later when talking to our research analyst, Tom Shulke, it came to me. I said ‘Tom if we buy securities from the Fed or Treasury, functionally there is no difference. We send the funds to the same place (the Fed) and we own the same thing, so functionally it has to all be the same. Yet presumably the Treasury sells securities to fund expenditures, while when the Fed sells securities it’s a reserve drain to offset operating factors and manage the fed funds rate. Obviously in fact they are the same- it’s all just a glorified reserve drain!’

Not long after that Maurice Samuels, then a portfolio manager at Harvard Management, set up meetings in Rome with officials of the Italian government to discuss these issues. The pivotal meeting was with Professor Luigi Spaventa at the Italian Treasury. I opened with ‘Professor Spaventa, this is a rhetorical question, but why is Italy issuing Treasury securities? To get lira to spend or, rather, because if you don’t issue securities, the lira interbank will fall to 0 when your target rate is 12%?” Professor Spaventa at first looked puzzled, not prepared for that kind of question, then took a minute to think about it, and replied, “no, the interbank rate would only fall to ½% as we pay ½% interest on reserves.” Perfect answer for us- here was a Finance Minister who actually understood monetary operations and reserve accounting! A few seconds later he jumped up out of his seat proclaiming “Yes! And they (the IMF) are making us act pro cyclical! A 20-minute meeting went on for two hours as he called in his associates, and made cappuccino for us before we had to run to the next meeting. A week later an announcement came out of the Italian Ministry of Finance- ‘No extraordinary measures will be taken. All payments will be made on time.’

We and our clients were later told we were the largest holders of Italian lira denominate bonds outside of Italy, and managed a pretty good few years out of that position. Italy did not default, nor was there any solvency risk. Insolvency is never an issue with non convertible currency and floating exchange rates.

Author: Warren Mosler

The Fed is the Monopoly Supplier of Net Reserves to its Banking System; Therefore, has no Option But to Set at Least One Interest Rate

amulcahy — Mon, 22 Feb 2010 22:43:21 +0000

Explanation why: The reserves of the banking system exist in only one single form: deposits at the Fed. Banks ‘own money’ when they own a deposit at the Fed. Banks make payments by transferring their credits. New deposits at the Fed can only come into existence as a result of Fed or US Treasury actions, such as lending reserves, making payments to the private sector, paying interest to the private sector, cashing tax revenue.
The Fed is thus in a position to set an ask and a bid price on anything it wishes; since it has an unlimited power to credit banks, unless this power is self-constrained.
When it bids for, say, 1-week loans to banks, it sets the interest rate on weekly loans.

For other Economists’ support click here

In the Banking System, the Causation Runs From Loans to Deposits, That is: ‘Loans Create Deposits’.

amulcahy — Mon, 22 Feb 2010 22:37:57 +0000

Explanation why: When a bank agrees in making a new loan, it credits the agreed amount on a bank account. The only constraint for the bank is when the borrower spends the loaned amount; it will have to clear the payments using reserves at the Fed. Making more loans increases the need of reserves that the bank obtains either in the interbank market or directly from the central bank. Either way, the bank pays an interest that measures the cost of funding the loan.

For other Economists’ support click here

Operationally, Government Spending is Not Inherently Revenue Constrained. Any such Constraints Are Necessarily Self-Imposed

amulcahy — Mon, 22 Feb 2010 22:32:53 +0000

Explanation why: The government spends by writing checks on the US Treasury General Account at the Fed. When the check is deposited by the private recipient, the check is cleared directly with the Fed that debits the account of the US Treasury and credits the reserves of the bank that has cleared the check. These reserves are accepted because they are the only means of settlement that the government accepts for any residents’ liabilities to the Federal government or to States. The settlement of this payment by the Fed is based on the monopoly power (monetary sovereignty) of the nation and does not require the possession of any real or monetary resource, unless the Nation has voluntarily adopted a constraint. Examples of self-imposed constraints include a gold standard (when the money issued must not exceed some proportion of gold reserves), or a currency board (when the money issued must not exceed some proportion of foreign currency reserves). Another example of a self-imposed constraint is the payment is debited on a US Treasury account on condition this account shows a positive balance. One more self imposed constraint in the US- the debt ceiling Congress has to approve. Another example of a self-imposed constrain is that although the General Account can go in the red, payments should not lead to a situation of macroeconomic excess of aggregate demand on existing production capacity, as this may be inflationary.

For other Economists’ support click here

Government $ Deficit = Non Government $ Surplus (Net Financial Assets)

amulcahy — Mon, 22 Feb 2010 22:03:28 +0000

Explanation why: Taxes are liabilities that the state has the authority to impose on private sector’s balance sheets. It is a unilateral transaction driven by a hierarchy relation (not by contractual arrangements). At the moment a new tax is approved (and before it is paid), the net worth of the private sector is reduced.

Under current institutional arrangements, when a tax liability is due and private agents pay their tax, they write a check to the US Treasury. The commercial bank issuing the check debits the account of the taxpayer, and the check is cleared directly with the Fed. The Fed debits the bank’s reserve account and credits the General Account of the US Treasury at the Fed.

While the tax payment has no further effect on the net worth of the private sector (dollars are paid while a tax liability is written off), it cancels a government’s claim (thus reducing the ‘government deficit’ for the period), and simultaneously reduces the net financial assets owned by the private sector. If the government returned the tax paid (as it happens with a tax credit), the deficit will increase and the private sector net financial assets will increase dollar-by-dollar.

Therefore, for any change (increase or decrease) in the government deficit, there is an identical change in the net financial assets (or financial surplus) of the private sector. On the other hand, the US private sector may decide to make some purchases from foreigners. In this case, the US private sector’s financial surplus will fall, while foreigners’ financial surplus increases. Foreigners receive dollar payments in the form of bank account balances in the US system, so as long as they decide to store dollars they own an account in the US.

For other Economists’ support click here

Warren Mosler on CNBC

jpatriarca — Fri, 12 Feb 2010 20:18:30 +0000

Warren Mosler’s appearance on CNBC has started a controversial debate in the midst of the fiscal crisis of Greece.
It all boils down to understanding monetary operations:

An ECB distribution to European States entails no issuing of debt;

Taxing functions to regulate demand, it does not actually collect revenue;

When China buys US Treasury securities, it makes no specific resource available to the United States: just moving a credit entry from one account to another;

And if you think: “oh, this is ridiculous, it just can’t be so easy!” think again and seek some answers on this website.

Please click here to watch the video footage of Warren Mosler on CNBC on 11 February 2010.

How to Fix the US Economy in Less Than 500 Words

amulcahy — Mon, 08 Feb 2010 19:41:36 +0000

By: Warren Mosler

Aiming at public purpose while reducing government discretionary power, increasing spending power, fixing the banking system, restoring states’ budgets, keeping inflation in check, achieving full employment, easing tensions in the mortgage market, and ensuring sufficient liquidity at all times.

1. A full payroll tax holiday where the US Treasury makes all FICA payments for us. The restored spending power allows households to make their mortgage payments, which ‘fixes the banks’ from the ‘bottom up.’ It also helps keep prices down as competitive pressures will cause many businesses to lower prices due to the tax savings even as sales increase.

2. A $500 per capita Federal distribution to all the States to sustain employment in essential services, service debt, and reduce the need for State tax hikes. This can be repeated at perhaps 6 month intervals until GDP surpasses previous high levels at which point state revenues that depend on GDP are restored.

3. A Federally funded $8/hr job for anyone willing and able to work that includes healthcare. The economy will improve rapidly with my first two proposals and the private sector far more readily hires people already working vs people idle and unemployed. In 2001 Argentina, population 34 million, implemented this proposal, putting to work 2 million people who had never held a ‘real’ job. Within 2 years 750,000 were employed by the private sector.

4. Return banking to public purpose, by banning all banking activities that do not serve public purpose. Banks should no longer engage into secondary market transactions, proprietary trading, lending vs. financial assets, business activities beyond approved lending and providing banking accounts and related services, contracting in LIBOR (only fed funds), subsidiaries of any kind, offshore lending, contracting in credit default insurance.

5. Reorganize monetary policy by having the Fed lend in the fed funds market to all member banks to ensure permanent liquidity. Demanding collateral from banks is disruptive and redundant, as the FDIC already regulates and supervises all bank assets.

6. Remodel the Treasury securities market, by having the Treasury issue nothing longer than 3 month bills. Longer term securities serve to keep long term rates higher than otherwise.

7. Improve the FDIC by removing the $250,000 cap on deposit insurance (liquidity is no longer an issue when fed funds are available to solvent banks), and by not taxing the good banks for losses by bad banks (all that does is raise interest rates).

8. Adopt new practices in the mortgage market by having the Treasury directly funding the housing agencies to eliminate hedging needs and directly targeting mortgage rates at desired levels. Likewise, homeowners being foreclosed should have the option to stay in their homes at fair market rents with ownership going to the government at the lower of the mortgage balance or fair market value of the home.

9. Remove the ’self imposed constraints’ (relics from the Gold Standard) that are disruptive to operations and serve no public purpose by eliminating ceilings on US Treasury debt denominated in dollars, and by reinstating US Treasury ‘overdrafts’ at the Fed.

10. Increase Federal taxes only to cool down an overheating economy, and not to ‘pay for’ anything (as taxes function to regulate aggregate demand, not to raise revenue per se).

2010 Mecpoc Symposium

jpatriarca — Mon, 25 Jan 2010 22:10:35 +0000

Franklin College Switzerland is hosting the 3rd Mecpoc Symposium sponsored by the Mosler Economic Policy Center.

When: Tuesday April 20, 2010

Where: Franklin Auditorium

To view the program, click here.