Everything is fine

So I’ve been away for an age. Sorry about that. Filming is now over and I am catching up with domestic duties. The children look reasonably tidy and washed and meals are abundant if sometimes a little surprising.

So let’s see….

Greece is heading for a blow out with its bond holders. Greece wants/has to have it’s private bond holders accept at least a 50% ‘haircut’ on what they are owed. The bond holders have said ‘No!’ to accepting their share of the losses. The ECB has come clean that it will not accept a loss on the Greek bonds it now holds either. If it did so it would put a large dent in its ability to claim all is fine with the ECB and it can keep lending and printing on any scale for any length of time.

Portugal is now openly muttering about how it needs another 30B or so bail out. Ireland is looking to run out of its own cash in about 6 weeks at which point it will have to once again tap in to its credit line from the ECB and IMF.

Which brings up the ECB and its now fairly clear plans to issue/print another 650B to 1T in new Euro debt in what it calls its LTRO (Longer Term Refinancing Operations). More on this later.

And not to be out-done in competitive printing and currency manipulation Mr Bernanke just announced that the Fed would be buying up more bonds again in what the markets are already calling QE 3

From Bloomberg quoting a response to Bernanke’s statement.

“It was an unambiguous, aggressive statement,” said Julia Coronado, chief economist for North America at BNP Paribas in New York. “My expectation is that we are going to get quantitative easing three in April,” she said, referring to a third round of bond buying.

Meanwhile Japan has posted its first trade deficit since 1980. From Reuters,

Japan’s first annual trade deficit in more than 30 years calls into question how much longer the country can rely on exports to help finance a huge public debt without having to turn to fickle foreign investors.

As the article goes on to say this doesn’t mean Japan will have an over all trade deficit because it still get lots of foreign currency income from its huge investments. But it does mean the over all flow of foreign currencies flowing in to Japan is lower and income from companies exporting to the rest of the world is lower. Which is rather important for Japan. Because it is the foreign cash flowing in to Japan’s exporting companies which is then deposited in to Japan’s moribund banks who can then leverage that money by 10-20 times and that larger amount of ‘new’ money is what is used to buy up Japan’s massive (now over 200% of its total GDP) debt. Without that flow of new cash, Japan’s banks, pensions and state funds will no longer be able to buy up the vast and still growing debt issuance which is the ONLY thing keeping Japan ticking over. Stop that flow of new debt being issued and Japan will melt down in much the same manner its nuclear industry already has.

And yet…according to our leaders and their loyal press corps all is going according to plan and even, in a certain carefully controlled light, going well.

From Bloomberg again,

Employers added 200,000 jobs in December, twice the previous month’s pace, and the unemployment rate dropped to 8.5 percent from 8.7 percent the month before. Household wealth has also gotten a boost from rising stock prices, with the Standard & Poor’s 500 Index of stocks climbing 5.4 percent this year through yesterday.

And this from the January 6th 2012 US Bureau of Labor Statistics report,

Both the number of unemployed persons (13.1 million) and the unemployment rate (8.5 percent) continued to trend down in December. The unemployment rate has declined by 0.6 percentage point since August.

So really, I ask you, what are people like me going on and on about?

Well let’s look again at the quote from Bloombergs ‘Pangloss Times’ piece. Jobs are up, unemployment down. Hurrah! But wait…from the latest Economic Newsletter  for the New Millennium, comes this chart based on some of the detail obscured beneath the happy headlines in the report from the BLS

 Just to explain, the Labour Force Participation rate, which this chart shows declining, is the percentage of the whole work force  (those of working age not in prison or the armed forces) who are ‘participating’ in the labour force.  And ‘participating’ in the labour force DOESN’T mean being in work. It includes both those working and those LOOKING for work. So this chart says that the total of employed and unemployed is going down. Odd!

Odder by far is that this is happening while the actual over all population is going up.

Between beginning 2009 and end 2011 the civilian US workforce went down by 298 000. While over the same period the population went up by 5 845 000.

More people, smaller work force. And remember the work force is those of  working age only. It excludes those who have reached retirement age.

These figures do two things. First as the New Millennium Newsletter points out the official figures indicate that the same official figures have been under-reporting the number of unemployed by a whopping 7 million. Which drops a bunker buster bomb on top of Mr Obama’s and Bloomberg’s Happyville fantasy. Adjust the official figures just so they agree with each other internally and US unemployment goes from 13 million unemployed to 20 Million! Or from 13% to 20%.  This is what is called the U3 figure.

The wider measure of unemployment misery called U6 which includes those who are employed but only in part time work which does not cover their living costs and which they would like to exchange for a proper job – that measure – gets raised from 15% to 19.9%.

None of this is news. Many have written about this for years. But it shows how those who govern/manage us continue to intentionally mislead us and lie to us year after year.

I would like to add one more fairly obvious point. These figures unambiguously show that people of working age are simply dropping out of the workforce. They are not dying. Deaths are accounted for elsewhere in the figures. They are not joining the army nor going to prison. Those too are counted elsewhere. They are simply no longer trying to find work. And yet they still need to eat. So what is happening to them?

It is bad enough that rather than ask that question the government is simply happy to let those people quietly disappear and use their absence as a way of pretending unemployment is better than it actually is. But far worse it ignores completely what they are actually doing. America has millions of people who are either utterly destitute or they are making their living in the undeclared or criminal economy. As many as 7 million people. People who the government would like to simply flush away and pretend they never existed. Now it’s easy to say they are all drug pushers and pimps. And some are. But many were and still are, decent Americans who had jobs, children, homes and hopes and now have none of these things.

But the bankers. politicians and media don’t want to talk of them. The disappeared are just that – disappeared. And even those who have got one of the new jobs – what are we told of them? They have a job, they are not one of the unemployed. Hurray. They are probably hugely grateful. But do we hear of their lower salary? Or of their ‘flexible’ hours, meaning work whenever, no matter what havoc that plays with any attempt to be a good parent? Or of short contracts and zero benefits in a McJob which probably provides very little prospect of saving or a career pathway to something better.

So yes they are employed and that is good. But is the new economy and its ‘recovery’ made as it is of such jobs, the foundation for a fairer, more equal society, where the majority have the power and energy to hold the powerful to account and to exercise democratic power over those who buy and sell their futures? No it helps ensure a frightened, cowed, just above the poverty line workforce who will not feel they can complain about anything or anyone.

Which brings me to the second sentence in the Bloomberg quote,

Household wealth has also gotten a boost from rising stock prices, with the Standard & Poor’s 500 Index of stocks climbing 5.4 percent this year through yesterday

Ah household wealth. One of the modern world’s many anaesthetic phrases. Utter it and already troublesome doubts and thoughts are soothed away.

Whose household? How many households own or get their income from stocks and shares. And if they do own some, how many? We know from yet other government figures that 10% of America’s households holds 90% of the wealth in any form. 1% of American households holds 50% of that wealth. Even if you count insurance schemes and pension schemes – the vast bulk of American households own negligible amounts of any of these things. How much benefit do you think the 45 million Americans on Food Stamps are going to get from the rise in stocks and bonds versus how much will the world’s bankers make from the same stock market ‘boost’?

Bloomberg and our politicians, when they tell us how much better ‘the economy’ is doing, are in fact telling us how much better they and people like them are doing.

The fact of the matter is that when our leaders are telling us, through crocodile tears, that there have to be cuts in what the government spends on health, welfare, education and all other services, they are somehow able, at the exact same moment, to miraculously find hundreds of billions in the public purse  to buy billions of bonds and failing loans in order to ‘help’ the banks. Does our media question this? No they do not. Banks we can afford to fund. Schools, no.

One is pubilc debt and is therefore to be abhored and cut. The other is ‘necessary investment’.  And on top of it all arses like Jamie Dimon,the CEO of JPMorgan, spend millions on hobnobing with our Uriah Heap leaders at Davos, so he can regally condescend to accept both their fawning compliments and their bail-out billions for his bank ($28Billion) and then take the oportunity to complain to the simpering media that anti-banker sentiment is a form of discrimination and should be stoppped.

I can think of many things which should be stoped. Anti banker sentiment is not one of them.

34 thoughts on “Everything is fine”

  1. Welcome back David. What are you filming?

    What do you read into Geithner not going to be part of Obama’s second term?

    Who will blink on the 50% haircut?

    How long more will the “Uriah Heaps” be able to paper over the growing chasm?

    That’s enough for now I guess.

    1. Hello Pat,

      I was filming a documentary with the working title “Of Hearts and Minds’. It’s about the relation between the heart and the mind, between the rational and the emotional and the centuries long battle between the two, to lay claim to being what really defines the best of who and what we are.

      Geithner – strange one that. But as long as Bernanke is seen as having the ear of Obama then I think Wall Street will see Obama as being their prefered candidate. I think they would rther him than let’s say Gingerich.

      Maybe Geithner is seeing himself as the scape goat. And he might be right about that. Obama needs to throw someone to the crowd so he can distance himself from the accusation that Obama carried on exactly where Bush left off as far as doing what Wall Street wants. I think the accusation is entirely true. SO Obama will need someone he can say – Oh that was because of him. Now we’ll have some of that change I was telling you about. Just vote me in again. Then there’ll be a bit of Potomac All Pro-Wrestling. You know the stuff, “You grunt, I’ll Groan”. And then it will be back to diong what Wall Street wants.

      I’ve said it before and I’ll say it again. Obama was teh first President to be voted into office by racists. Well intentioned racists I grant you. But nevertheless by people who judged him by the colour of his skin. They said, he’s black, he must be on the side of the poor and disadvantged. Neglecting to notice he was also wealthy. I couldn’t care less what the hell colour his skin is.

      If Clinton said “Change” no one believed her. Because she is white and wealthy. They were ready to believe Obama because he is black. That’s stupid and its racism albeit well intentioned racism

      The colour of his skin meant and means nothing. His actions are what count. And they were to keep all the same financial advisors and neo-cons that built this catastrophe. He surrounded himself with them and let them screw the poor to profit the banks and the wealthy.

      Anyway that’s my tuppence worth.

      Who will blink? Not Germany. EVeryone else will blink and wink and sort out something that bleeds teh Greeks for as much as inhumanly possible.

      I do think the knives are out in Bond world though. I suspect that bond holders are going to find they are not all equal. Some are going to get carved up. But not to benefit the Greek people or the Portugese or anyone else. They’ll get carved up to benefit bond holders who are going to set themselves up as ‘senior’ to the rest. Guess who they’ll be.

      The Urian Heaps will not stop. They will have to be stopped. By us. By one means or another. It’s just a matter of when teh misery galvanizes enough of the shuffling afraid.

      Thanks for the questions. Hope my opinions make some sort of sense.

      1. Thanks David. Good luck with your movie. The rational vs. the emotional. I live that fight every day. Perhaps we need both to survive.

      2. I look forward to seeing the film, I saw Terence Malik’s ” Tree of life ” last week, maybe based on a similar idea, the way of nature & the way of grace, a wonderful film in my opinion.

        There was some talk about Corzine replacing Geithner , & I have seen some articles talking about Jamie Dimon as a prospect, I think Satan is too busy at the moment.

  2. I think the Bond holders have London, New York and Berlin over a barrel.

    From the bond holders perspective, why should they take a 50% cut. If the Greeks default it will almost certainly trigger a CDS avalanche which will cause major banks to crash. That is not going to happen. London, Berlin and New York will not under any circumstances allow the Greeks to default – they will take the food from babies mouths and let their own sick die in the streets before they allow that and the bond holders know this.

    They might take a smaller cut – maybe 10-15%, or they may agree to swap their greek bonds for say German ones, but no way will they accept a 50% cut, not even close to that. They simply have no need to accept any cut at all if they don’t want.

    1. Hello Andy WIlliams,

      I think the bond holders have convinced our leaders they have us over a barrel. I think our leaders are helping them make it so.

      I think you’re right that SOME bond holders do not have to take any cut at all. Those whose bonds are covered by UK Law. But those whose bonds were drawn up under local laws might well find the laws do not prevent a unilateral imposition of a loss. They may have to take a loss. This is where the vulture funds and the Law firms will begin to circle. They will attempt to buy up those bonds they think will allow them to sue the issuing nation in the event of default.

      Then it becomes a matter of what law takes precedence, contract or sovereign. And THAT in my opinion is what this year will be about.

      1. What’s your view of Greek CDS in the event of a ruling of default? I mean, I take it for granted that it would cause turmoil whether or not CDS pay out (for different reasons in the two cases). But do you think that, in the case of Greece, the CDS could actually be paid out without bankrupting big players? Sorry if this is something you’ve written about in previous posts, in which case I’d be grateful for a link rather than you having to rehash it.

        And thank you for your various posts, and especially the ones about MF Global and AIG.

        1. Hello YesMaybe,

          And welcome to our community. I haven’t written specifically in detail about what will happen in the event of a Greek default.

          What is clear is that the bulk of Greek Bonds were written under Greek law not UK law as many other country’s bonds are. The difference is significant.In Greek Law Bonds do not have clauses which prevent the debtor (Greece) from unilaterally defaulting and/or altering the repayments. UK law bonds do have such clauses.

          This might sound very odd but the Greek Law bonds simply assume the absolute sovereignty of the nation. IE a nation can do what it likes. Lend to them at your own risk. The country has resources such that they probably won’t default but as a nation of sovereign people they will not be tied to laws which are seen as secondary to the people’s absolute right to decide what is in their best interests.

          UK law has gone very much further in elevating corporate law above ideas of absolute sovereignty. In UK law even a sovereign nation nad its people are subject to, subservient to, the law. And in particular corporate law.

          Which to corporations and their lawyers sounds well and good. But seen from a different ang;le it is saying democratic choice is second to obeying private corporate law. I think this is wrong and dangerous. But that’s me.

          Back to your question – The Greek bonds can default and it seems unlikely anyone would be able to sue under Greek law which means in a Greek court. UNLESS the corporate place men of Greek politics decide to complete the job of making Greek democracy a hollow vessel.

          So first blush says if Greece defaults a whole lot of bonds simply become worth what Greece says they are worth – very little. This should trigger a crediot event and the CDS market.

          I think the french banks will get hurt by a default. As will the German. I think at least one US bank will get hurt by the credit even of CDS payouts. I think some insurance companies will get hurt too.

          The ECB and the Fed are already preparing. The Fed with QE 3 teh ECB with the propsed rahter HUGE LTRO. I see the LTRO as teh device meant to stabilize after a Greek default by offering longer term ‘stability’.

          If Greece gets an agreement on a lower coupon on new bonds to exchange for the old – then the problem is NOT solved but succesfully postponed for another while longer.

          I could go on but people may start to lose the will to live.

          1. Didn’t we learn from the Lehman’s debacle that AIG’s CDS weren’t worth the paper they were written on – hence the bailout (by Goldman Sachs alumnus Hank Paulson) of AIG to forestall a CDS run triggered by Goldman Sachs?

            ‘Insurers’ aren’t obliged to cover their CDS positions in the same way as traditional insurance entities – Alan Greenspan’s view was that counter-party risk would be sufficient to keep the market honest – which is why the market exploded. As currently constituted they are, essentially, a fiction aimed at airbrushing risk out of the market. In reality, they submerge debt below yet another layer of obfuscation. lending a false sense of security to untenable exposures.

            The bigger picture is that we are entering the end-game of 40 years of deregulation and growing inequality (not a mere coincidence), whereby stagnating income going to labour has been offset by debt (alongside the switch from the single-income to double-income household – see Elizabeth Warren on this), which has papered over the cracks. The capitalist/rentier classes were in a win-win scenario: downward pressure on wages which produced higher profits that could be recycled back to workers in the form of loans – on which they paid interest!

            But commentators from Richard Wolff (http://youtu.be/TZU3wfjtIJY?t=7m8s) to Nouriel Roubini (http://goo.gl/D3ZIG) have pointed out that this transfusion of wealth away from wages to profits leads to crisis as aggregate demand falls.

            The current predicament is the result of a process (via securitization, the development of ever more esoteric OTC derivatives and the descent into sub-prime) designed to forestall the inevitable – which is the realisation that the debts cannot be repaid.

            At some point that issue will have to be resolved through some kind of debt ‘adjustment’ – by writing off or inflating it away – but until then creditors will continue to seek their pound of flesh.

            Nobody knows how long that will take but, as Chris Hedges recounts: “he was sitting one night, in Leipzig, with a group of leaders of the East German opposition. They told him they thought the division of Germany would end within the next year or two. Well, that was the night of November 9, 1989, and just two hours later, jubilant Berliners were tearing down the Berlin Wall.”
            http://goo.gl/N7ixO

  3. I am new to your site. This is spot on and it is hard to actually speak to friends and others about this. All you get is go to hell looks or the are you crazy looks. I am so frustrated that people believe the crap they are fed daily.

    Take a look at Yahoo today, They have an article about 2011 being the worst home sales in history of them keeping records, yet the SOTU speech they were talking about how rosy it is. I am just flabbergasted that people cannot put 2+2 together and everything is kum by ah!

    I look forward to reading your site. Funny and sad at the same time we have a handful of sites with the truth and one is in the UK. Keep up the good work.

    Whats so frustrating to me is even when I reference facts and links to go check my facts your called a troublemaker or worse. I served my country thru two wars and I am the bad one please.

    1. Hello CGT,

      And welcome. I think almost everyone here shares your experience. Of feeling oneself to be cast out as a heretic from ones own home and circle of people we thought we knew.

      But we are not wrong just because the crowd bray that we are.

      The most radical moment is when you step outside of the circle of allowed and accepted truths and ask a question. The second step is to find others who have done the same and begin to make a new community. That new community is what all governments, all governing elites fear more than armies and bombs.

      Welcome. Glad to meet you.

  4. Andy Williams,

    You think Merkel will cave in then? It can’t be done without her.

    You are of course right: they can’t get blood out of a stone. Greece can’t pay. But neither will the German voters pay. And I doubt Angela will resign. She has come too far and she knows exactly what she can and cannot do. Somebody has to blink and I don’t think it will be her or Berlin.

    I think that ultimately it will be up to Washington and that is what Merkel is gambling on. She is the new Iron Lady. I suspect Wall Street has taken her measure and has already told the Fed to ready the printing presses because, you are right, somebody has to pony up. But the markets are playing with a weak hand, they don’t want to trigger their homemade improvised explosive device in their own pocket, the CDS nightmare.

    That’s what America gets for being the world’s reserve currency. Has George Sorros shorted the dollar yet? The greenback will inevitably go down the same via dolorosa as the pound. Ask George Sorros. The only problem is what do you short the dollar with? Gold? Geithner kinda reminds me of the Concordia cruise ship captain. The only difference is we are all on deck cheering him on! What a merry old catastrophy this will be.

  5. Welcome back!

    It takes time to stuff pension and superannuation funds into great, safe investments like sovereign funds …… once all has been set up, then the bond holders can be shafted!!!!

  6. I Golem,

    I hope I’m wrong about this, but I think 2012 will be a year of revelation. We will discover exactly what lengths the bond holders will go to, to protect their wealth. We will discover exactly what human suffering they will tolerate and we will hear not a peep of protest from our democratically elected politicians.

    Our circle is small but growing. People without previous interest in economics are starting to ask questions that our elites dont, and can’t answer. Riots in the UK are a cast iron certainty iunless there is some cunning plan I am unaware of.

    I was amused to hear Davros described as a sanatorium. It’s certainly where the lunatics are currently contained, is there anyway we can lock them in permanently?

  7. Morning Bill40,

    I share mnuch of your conern. If I had to say what this year is going to be about it is what I put in a comment above in reply to one by Andy WIlliams.

    I thnk htis year, the first half at least is going to be about which takes precendence; corporate law or sovereign law and democracy? Are nations bound by corporate law as if they too were corporations UK Plc etc. Or does the sovereigh right of a people to decide trump coropporste law.

    We have become accustomed to think of the law as paramount. I think we do this because it is so long since we had to break the law in order to get democracy in the first place.

    We must protect the right of a people to decide what is best for them evenif that means defaulting on an agreement with creditors. To do otherwise is to reduce democracy and sovereignty to empty costumes.

    Nations must not allow themselves to be sued in court by vulture funds and vulture law firms.

    I think this battle between corporate law on the one hand and soveriegnty and democracy on the other is what this year is going to be about.

  8. Welcome back David. Your film sounds very interesting, I’ll be looking out for it. The concept reminds me somewhat of the Kaballah ‘tree of life’ structure, sort of a conceptual model of conciousness. Roughly, the goal being to get things working in harmony & ‘up’ starting from the lower ‘physical’ levels, & the more that is achieved, the greater becomes one’s awareness of higher levels & purposes. I’ve long thought it works on (& is possibly derived from) a basis of human psycholgy without neccesarily buying into any ‘doctrine’ of a particular religeon.

    Anyhow, the number of US ‘disappeared’ is really quite shocking eh, presumably all those languishing in tent cities, squats & ghettoes. And, of course, none will likely have a vote either. Not that voting does much, tho’, +potentially+, it could.

    What I find extraordinary about all the economy killing austerity is not just the appalling social injustice, but the fact that an easy solution is readily available. The ECB (& Fed & BoE etc. likewise for their jurisdictions) could simply finance, debt-free, an MMT Job Guarantee throughout the Eurozone & quickly restore private sector growth via the restored aggregate demand of JG spending. Three years or so & I think we’d be done? That leaves rather a large private sector/consumer debt mountain, but we might even cope with much of that too with a functioning real economy. Either way, it’ll be easier to tackle. Of course, 90% of what the financial sector does needs to be banned, but restoring employment, public finances & growth would give us time to sort that properly. This is my personally favoured approach using MMT principles. Really, it’s a no brainer when one realises that this would be no more inflationary than any other means of financing the hiring of all those made unemployed in the mess, at least in the short/medium term. It would be prudent in the meantime to put in place mechanisms (with the empirically correct operating principles of MMT) to later extinguish excess money, as, if & where required. Hardly rocket science.

    Meanwhile, notable for us here in the Global Banksters Benefit Society, formally known as Ireland, was Prime Groveller (Minister) Enda Kenny’s speech at Davos. Placing the entire blame for Ireland’s mess on the “mad” borrowing of ordinary citizens, flatly contradicting in fact what he said for the domestic audience not two months ago. Regardless of what he actually thinks (if he thinks?), it’s rather obvious what neo liberal narrative is deemed ‘required’ in Davos. What a snivelling, treasonous performance. How anybody gives credence to his charade of asking for a bank bailout refund on the Anglo promissary notes (€30B) etc. escapes me.

    My take on Greece is that they are on the brink of letting it go, but if they can milk it a while longer, & significantly, get hold of public assets at firesale prices, then they will. So might last up to another 12mths in the Eurozone. As you say, I think LTRO is very much about back stopping the fallout from the possiblity of a Greek exit & ‘full’ default (plus a few month’s can kicking re other countries’ debt rollovers). Just like the Arab Spring (ongoing) the whole developed world needs a revolution. I’m hoping Greece will kick it off this year.

    1. “What I find extraordinary about all the economy killing austerity is not just the appalling social injustice, but the fact that an easy solution is readily available. The ECB (& Fed & BoE etc. likewise for their jurisdictions) could simply finance, debt-free, an MMT Job Guarantee throughout the Eurozone & quickly restore private sector growth via the restored aggregate demand of JG spending.”

      Hi Golem. Welcome back. I am out of my depth on this one. Can you decipher what you said above into an easier digestible form?

      Cheers

      1. Michael,

        what you quote was actually written by one of our resident MMT specialists. But I agree it is a bit dense. Essentially what Mike is saying is based on the central tenet of MMT which is that as long as there is actual unused capacity in the economy – ‘capacity’ meaning the raw materials to produce goods, the workforce to do teh jobs and the demand for those goods all lying around unused – as long as all these are waiting around, then a nation can print the money which will allow the factories to pay wages, the factories to buy raw materials and the consumer to buy the results.

        MMT says such a situation will not create inflation nor hyperinflation because the demand and production will match up in an unrigged market and so there won’t be the classic too much money chasing too few goods.

        MMT disagrees with standard neo-con economics in that it is not afraid of printing money when cash is short.

        And it has to be said – the mainstream who denounce MMT, are more than happy to print as long as it is given to the banks they happen to own and just call it ‘injecting liquidity’. So the mainstream objections are somewhat self serving.

        MMT is to over-simplify Keyens revamped. Keyens has been tarred recently because it is argued teh bank bail outs were Keynesian and they failed. However teh bank bail outs were never Keynesian at all. Keyenes said pump money in to production for jobs. WHidch is what MMT says. Pumping money into banks was never about production and supporting employment and thus spending. It was only ever about off-stting the implosion in value of paper assets held by the banks. As the value of those assets evaporated and with it any cash flow, our cash was printed up to provide both cash flow and capital holdings for the otherwise utterly ruined banks.

        Sorry I digress. Mike is simply saying we needn’t save money thorugh austerity as a precursor to spdning on investment in gorwth. We could print and ignite growth. AS LONG AS teh new cahs is used for things taht wil infd a buyer (because there is unused ‘capacity) AND teh extra cash is withdrawn as growth reurns.

        There is much more to the MMT argument but that, in terms as bald as Kojak’s nut, is what Mike said.

        Over to you Mike.

    2. Thanks David (Golem)

      That’s a pretty good explanation.

      Strictly speaking, MMT does not say inflation is not possible, but is no more likely than when any other mechanisms create growth in jobs & output. For example, the increased money supply could just as easily be drawn from bank lending, which is money ‘created’ on banks’ keyboards & is +not+ extinguished in the real economy until some years later when the loan is repaid. Even then, much commercial lending is simply rolled over. In the future, the economics circumstances may be different & must be dealt with at that time, as required. Which may well mean money needs to be extinguisehd to cool inflation. An easy matter.

      As Golem says, the inflation issue arises at the point of spending. The key being, are there enough real resources to be purchased? Most markets in the real economy are sufficiently competitive, such that when more money is available, more demand for a ‘good’, then suppliers will (& do) increase output, rather than simply put prices up. Individual firms will aim to increase market share & increase profits that way. They know if they try to raise prices, they will lose business to competitors. Only if their is some fundamental bottleneck, applying to all suppliers equally, will prices be forced up if demand rises.

      My post was written with our present circumstances in mind. We +know+ very few, if any such bottlenecks in resources exist, for the simple fact that millions of workers were engaged in productive activity who are unemployed now. That is, we know we have the capacity to produce goods because we’ve already been there. So there’s not much rationale to expect prices to rise rather than output.

      The Job Guarantee (JG) jobs are not intended to be permanent & must be designed such that they don’t substitute for ‘normal’ activity in public or private sectors. The proposal is that JG jobs are offered to any unemployed who want them – at minimum wage, so that there is clear incentive to move to the new permanent jobs created by the expansion of aggregate demand as JG workers spend into the economy. It is this spending that is key, not what they do, or ‘produce’. But there’s no doubt that a useful social dividend can be provided also. There exist all manner NGO, Charitable & Community works & projects which can’t be ‘commercially’ achieved in normal circumstances, that become possible with a free, albeit temporary workforce.

      The authorities in Europe & elsewhere are beginning grudgingly to aknowledge that the real problem (besides the large private sector debt overhang) is lack of growth – a return to prior levels of activity, GDP. With the double effect of high unemployment – loss of production – and loss of tax revenues that ensue. Austerity policies are failing in precisely the way that MMT (& some others) predicted they would. Failing that is, if we assume that the ass***s running things could actually give a damn about the wellbeing of the majority of citizens. (Very far from a reasonable assumption imo.)

      However, whilst all these authorities pretend concern for ‘growth’, they have not one single policy to produce it, & fail to recognise that the austerity they still advocate is the exact opposite of a growth policy. Enraptured, as they are, in their fantasy world of neo liberal economics, and the myriad empirically false assumptions underlying it.

      As many of us do, I have great concern for the ecological & material resource constraints humanity is rapidly approaching. There is a huge job of transformation to be done.

      The present crisis is being used as an excuse to curtail even the meagre efforts in that direction thus far. ‘We can’t afford it’, they say meaning there isn’t the ‘money’. And the public at large are suffering with there own priorities in the midst of all this economic vandalism being inflicted on them. If we don’t act, this situation will languish on for decades.

      The important insight that MMT provides here is twofold.

      First, jobs and growth can be restored quickly, so we can all get back to focussing (hopefully more so) on the really important issues of the coming decades.

      Second, ‘money’ is +not+ the constraining issue in moving to a sustainable society. Rather, the question is do we have, or can we allocate, sufficient +real+ resources to solve these problems. If they are available to be purchased, the government (appropriately consolidated with the central bank) can +always+ buy them, with little or no inflation risk.

      Probably the best resources for further reading on MMT are the blogs of those credited as the founders, Prof Bill Mitchell, Prof Randall Wray & Warren Mosler (tho’ there are many other advocates with blogs too).

      Mitchell is likely the most prolific:

      http://bilbo.economicoutlook.net/blog/

      Wray blogs with others at the University of Missouri Kansas City

      http://neweconomicperspectives.blogspot.com/

        1. Yes, and graphically exposes the lie, repeated ad nauseam by Tories, that government ‘profligacy’ prior to the crisis is responsible for the present public ‘debt’.

          MMT of course correctly states that the total stock of public debt is not a useful policy target. In fact the opposite is true. Obsessing over debt that historically virtually never gets paid down (or needs to be), when in its own sovereign fiat currency, is a very damaging approach. But useful, of course, if your intention is to enable the ever greater share of wealth to the top few percent.

  9. Welcome back ! Been lurking here for months and don’t know to laugh or cry sometimes. Myself and my 15 year old daughter saw you in Edinburgh recently and found great inspiration from hearing you speak. Thank you. Forward the revolution.

  10. I’m out of my depth as far as providing an intelligent comment is concerned but feel that following this blog and the links provided is expanding my understanding of how the world works.

    This article in the Guardian more or less sums up what I understand to be the position to be at the moment.

    http://www.guardian.co.uk/commentisfree/2012/jan/27/capitalism-debate-anaemic?utm

    I would really welcome a touch of critique by any of you more knowledgeable contributors.

    1. Not really much detail in there, but as far as it goes, framing the question as ‘what kind of capitalism’ is something I think many here would agree with, & useful. The general operation of capitalism in the +real+ economy is acceptable to most I would think. Provided it is appropriately & democratically regulated. IMO a workable balance between the opposing interests, at it’s most basic, capital on the one hand vs labour on the other is possible. But we need far better structures and vigilance to ensure the ever present attacks of corruption are kept at bay.

      Some kind of control over the economy is going to be centralised somewhere, & I would include in that the hugely important question of control of money supply. The latter is not mentioned in the article and generally nowhere. Those who presently control money, the private banks together with their placemen in central banks & other supposedly ‘regulatory’ bodies, very much like it that way. I see the present crisis being used as a means by which bankers can usurp even more control from democracy, such as it is.

      Probably the best writer for me on this topic of ‘political economy’ is Michael Hudson. Anything he writes is worth reading imo. He has a recent piece here:

      http://neweconomicperspectives.blogspot.com/2012/01/banks-werent-meant-to-be-like-this-what.html

  11. “Essentially what Mike is saying is based on the central tenet of MMT which is that as long as there is actual unused capacity in the economy – ‘capacity’ meaning the raw materials to produce goods, the workforce to do teh jobs and the demand for those goods all lying around unused – as long as all these are waiting around, then a nation can print the money which will allow the factories to pay wages, the factories to buy raw materials and the consumer to buy the results.”

    Am I wrong in comparing MMT to the Social Crediters who believed: “Systems were made for men, and not men for systems” and “Whatever is physically possible and desirable should, by that very fact, be made financially possible.”?

    1. Kenny

      That’s pretty much it. (Tho’ of course the full details are important.)

      I would add that when it comes to the question of money ‘printing’, we should realise that a very fundamental power struggle is being played out.

      Since all major currencies became true ‘fiat’, ‘pegged’ to nothing, decades ago, private banks have enjoyed quite a monopoly on money creation. This facility, gifted them free gratis by own governments was a very important factor in enabling their reckless behaviour of the last decade particularly. Reckless for us of course, not themselves.

      We see that private banks & their representatives, the psuedo ‘independent’ central banks, have no difficulty in printing billions when it favours their exclusive interests.

      Bankers have risen to the very top of the real power structures in society & this control over the creation of money, from which all non democratic power flows, is what got them there & keeps them there.

      It’s high time that economics & money functioned for the majority of citizens, not the privileged & powerful few alone.

      From a historical perspective, one can see that without the immense data collection & processing capability of the present day, managing fiat currencies to their full potential would be difficult. I see some good reasons why such rigid & inflexible control provided by a ‘gold standard’ or similar approaches to money would be useful, even essential otherwise. This is profoundly not true today.

      Arguably, meaningful democracy can never exist without democratic control of the monetary system. Previously the means to achieve that may not have existed in practical terms. Today it does. If we do not demand it soon, there will be even less ‘democracy’ than the sham we have allowed to develop thus far.

  12. shhhh, he’s back.

    I like the way Mike took over then. You were like two reporters on the Onion.

    Hello CGT!

    I remember coming in from the badlands saying there be dragons and getting a warm welcome from folk around the fireplace. Awesome feeling, Make yourself at home bro and don’t worry about writing anything or making a fool out of yourself, I never have.

    What you talk of is the veil. Just think about it. If that dude married to Debbie Magee could fool us with card tricks, what hope have folk when they are blinded by centuries of “watch the pea, where’s the pea, keep watching the pea, where the pea go, watch the pea. Ok which shell is it under?

    You sure?”

    They have books on this, bound with the skin of the innocent.

    It’s 2012 though, the year the people http://www.youtube.com/watch?v=LK8sxngSWaU

  13. I am a bit puzzled by what you say about japan. Surely if MMT is correct then they don’t actually need to “sell” govt bonds at all (i.e. issue debt). They could recapitalise the banks by “printing” the money. If their export sales are falling this suggests the economy is below capacity which means that inflation won’t result from vast QE. Interest rates are already near zero, so it seems unlikely that an even larger deficit would make much difference there.

    Japan has consistently had an export surplus, but its economy has veared from booming to stagnant, which suggests that the importance of balance of trade is greatly exagerrated. Mosler says as much in his pamphlet 7 deadly innocent frauds.

    Clearly japan would do well to kill off the zombie banks, but as long as they have an undercapacity and their own currency the deficit is not a problem. Or so my understanding of MMT suggests.

  14. Good to see you back in time for more ” interesting ‘ news Golem because everything is fine of course…

    Reggie thinks Ireland and Portugal are on the way to default. For his take on the Irish situation

    “As any who have been following me know, I believe that several European countries are bound to default, ie. restructure their debt. Ireland is in that camp. What makes me so sure about this? Well, its simple math. While I have calculated probable restructuring and haircut scenarios, I am not at liberty to put it out in the public domain just yet, but I can illustrate incontrovertible evidence that shows that Ireland is on an unsustainable path – a path made even more unsustainable by the recent bailout”

    http://boombustblog.com/index.php?option=com_k2&Itemid=200079&id=4075&lang=en&view=item.

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