The Chairman seems to be well aware of the upturn in housing, which he mentioned twice. But he was careful to not reveal an upbeat attitude that he knows would cause rates to spike in expectation of the Fed ‘normalizing’ policy with ‘neutral’ being a Fed funds rate maybe 1% over the inflation rate, or something like that.

In other words, he wants longer term rates, and mtg rates in particular, to stay down for now, which causes him to guard any optimism he may have, and then some.

It falls under ‘managing expectations’ and my best guess is he’s waiting for unemployment to fall below 8% before he publicly becomes more optimistic.

“Key sectors such as manufacturing, housing, and international trade have strengthened, firms’ investment in equipment and software has rebounded, and conditions in financial and credit markets have improved.”

“Rather than attributing the slow recovery to longer-term structural factors, I see growth being held back currently by a number of headwinds. First, although the housing sector has shown signs of improvement, housing activity remains at low levels and is contributing much less to the recovery than would normally be expected at this stage of the cycle.”

22 Responses

  1. Thanks for your common sense appraisal of the situation. Too bad we can’t get anything that good from CNBC. All the talking heads on TV talk about is how we need to balance the budget. I have almost quit watching it.

    1. @GLH,
      I say you go ahead and quit watching. It will be good for you. (Unless it’s after 5 and you can enjoy a little scotch while watching to keep you calm.)

    2. @GLH,

      Love the quote from Warren about Bush

      “It was shortly after that meeting that Bush was asked about the deficit and said he doesn’t look at numbers on pieces of paper, he looks at jobs, and did all he could to make the deficit as large as possible.”

      Where is Duba when we need him?

      1. @Sidchem,

        Here is Former Secretary of Labor Robert Reich talking about Bush’s absence from the GOP convention, this shocked me. It is the FIRST time eva that a former republican president was not invited to speak. According to Former Secretary of Labor Robert Reich, this shows how FUNDAMENTALLY romney/ryan and the rest of the republicans want to detach from anything relating to deficits or debt, as they view bush as one of the biggest spenders ever.

        So I guess you can personally thank warren mosler and his influencing of bush for the current impetus in the republican party to be so ANTI-DEBT they totally shunned thier former star race horse. Who knew warren was so powerful to influence public policy like this to completely change the entire GOP covention and options today?

        What was it Ron Paul said, BLOWBACK? Mosler/Bush 2003 Blowback is awesome.

      2. @Sidchem, Sidchem, in a road to hell paved with good intentions armageddon nightmare, I think it can be honestly said that Mosler’s influencing andy card and bush so effectively, making them go so crazy with the deficit spending, that the blowback not only destroyed the republican party, but destroyed the current thinking on policy options of our whole nation and this will eventually lead to ww3. I thought openheimmer was the “destroyer of worlds”, but Warren Mosler was the real anti-christ. The greatest trick the devil ever pulled was convincing the world he didn’t exist. Talk about being TOO successful.

        I guess he didn’t think, wait, what if they are so successful, that the disequilibrium I introduce into the political mindset will eventually lead to a total aversion to debt and deficits. You have to be careful when you throw rocks into lakes and consider the butterfly effect of the oscillations of those waves in the future.

      3. @Security Guard Class 4,

        Per Schumpeter, creative destruction of political parties is also good? The sooner the better.

        Bankruptcy is required in politics as well. Let the electorate declare the GOP dead, so some faction can consider picking up the pieces, while the rest either start a new party or decide to return to George Washington’s roots & go party-less.


    election don’t permit Bernanke to launch now QE3 (so only some hint)

    2013 spring fiscal cliff => recession => QE3 counter cicle policy

  3. Warren,

    Have you ever explicitly said the Fed is our real problem and should be shut down or subsumed under the Treasury, since it forces us to pay interst on our own money?

    I’ve read your book and marvel at your insights wishing that you would also, just tell the world that we’d be a much more prosperous nation if we didn’t have to use a middle man to issue our currency.

    The perception and accounting reality is that doing so is a cost. That must be reduced by revenue generation from taxes or borrowing or both.

    The requirement to meet debt service payments feeds the deficit terrorists, confuses the economic illiterates on Capitol Hill and in the White House.

    I suspect their are serious personal consequences to “calling for the Fed’s removal” or even supporting those who have already stated their opposition to its continued roll in America’s Monetary policy.

    It would be easier to accept at face value your recommendations on fixing the mortgage problem if the lead institution was Treasury and not the Fed.

    1. The problem is not ‘being forced to pay interest on our own money’

      Please go through the ‘mandatory readings’ on this website.


      The interest the govt. pays on its net spending functions to support its desired term structure of rates, and not to fund expenditures per se.

      And the Fed is an agent of Congress, just like the Treasury, and not a ‘middleman’

      Also, I have proposed a 0 rate policy for a long time which would mean no more govt interest payments

      1. @WARREN MOSLER,

        Yes, would that Congress understood that accounting reality. Because it doesn’t, it and most Americans will continue to believe that “we’re forced to pay interest on our own money.” While the Fed is a creature of the Fed Act of 1913, it defies Congressional intrusion into its secretive distribution of dollars. That would not obtain if Treasury issued the currency.

        No more Fed gov interest payments still leaves sub-political jurisdictions prey to the crucible of corruption called the municipal bond market.

        You once told me that “there is no operational constraint on the Treasury funding State and local governments with debt free currency.” But you didn’t elaborate, would you do so now?

        I still need your views on getting rid of the Fed.

      2. a permanent 0 rate policy can be extended to the states by Congress guaranteeing their debt.
        but that raises the moral hazard/race to the bottom issue where ‘the state that deficit spends the most wins’
        which would have to be dealt with, maybe with the federal gov limiting state deficit spending somehow.

        As for the Fed, some entity has to clear the residual checks/make the debits and credits, and regulate the banks, so it might as well be called ‘the fed’? With my narrow banking proposals that’s about all there’s left for it to do.

      3. the point is the public’s understanding of “public debt” means that mmt policies will never be implemented. It’s a psychological barrier that has to be broken. the treasury nees to stop issuing bonds

  4. Housing construction is not going to rebound for quite a while because much of what was built during the bubble went to second homes and to reduce the occupancy densities even more. While 51% of American adults are now single, living alone is losing its appeal, in addition to being inefficient. Single family zoning restrictions are going to have to be lifted, if only because the definition of family is increasingly spurious. Builders are going into setting up communal housing where the salient feature seems to be that each resident have a bath of one’s own and all other other facilities are shared by four to seven or more people, whose single occupancy is going to be hard to enforce. Elderly couples are starting to purchase houses together. Which means the space is going to be more fully utilized. And young people are abandoning the suburbs and moving into the cities.
    Condos in Jacksonville, Florida can now be classified as “affordable housing.” Of course, they were never worth what was being asked and paid. A fellow down the street from me paid $650,000 for a lot next to a sewer lift station. All of the McMansions in the area cost about $150,000 to build and were selling for a million. Some of the locals did cash in on some of their acreage.

  5. Ok, you don’t see the Fed as a moral hazard when it can use Section 13 (3) for just about anything the BOG approves and they approve 90% of the requests to access funding that never sees an audit.

    Then there’s the public Bank of N. Dakota which serves as the clearing house for all banks in that state. Nothing constrains the Treasury from serving the same purpose nationally. Because the Fed claims independence and they’ve purchased allegiance from Academia, Congress and the White House there are no serious attempts to treat them like an arm of the government. Otherwise, regular and thorough audits would have been conducted without question.

    On debt free fiat currency funding for all of America’s political jurisdictions we could rely on the CAFR (Consolidated Annual Financial Report) which could be one tool with which to constrain every political jurisdiction in America from “racing to the bottom.” Applying a moving average or a for five-ten year trend for major components of state and local budgets is one of many ways to control funding.

    But the question remains, what public purpose is served by an institution that will not, immediately, alleviate unemployment’s ravages, and instead focuses on inflation which is not now a problem.

    What is the moral hazard connected to that train of policy preferences? Section 13 (3) could be used as a funding source for state, county and city corporations empowered to create employment through public service and public works. Yet, there are no mainline economists pressing this as a solution. You and other MMTers are the only ones I’m aware of who urge immediate suspension of FICA, which would likely obviate the need for massive government spending, platinum coins, etc. However, no one appears to be listening having been terrorized by WingNuts over deficits rather than focusing on fiscal sustainability and broad economic growth.

    1. the funding is all for liquidity and not for equity, and all the banks are fully eligible for fdic insured deposits in amounts limited only by their capital ratios. they only go for ‘wholesale funding’ when it’s cheaper than ‘retail funding’.
      And with a functioning interbank market and/or a fed that understands that in the US today the liability side of banking isn’t the place for market discipline as govt. provides fdic insured funding in any case, and that the fed lending to a bank isn’t functionally any different than any other deposit the bank might attract, the fed may as well lend unsecured in unlimited quantities to banks as a simple point of logic. see my proposals for the banking system, etc.

      The Fed does the clearing and the Tsy does the (deficit) spending. What’s wrong with that?
      It’s got to be at least two different people anyway? And functionally the tsy isn’t any more revenue constrained than the fed,
      appearances to some not withstanding.

      So under today’s institutional arrangements Congress and its tsy and fed can readily get everything done you want.

      Agreed no one in govt appears to get it.

  6. Warren,

    What’s your take on the campaigns for narrow (full reserve) banking being currently conducted through sites such as in Britain?

    Are you supportive?

    It seems to me that said “single-issue” campaigns that transcend the old right-left division might pose a real threat to the power of the financial sector in the developed world – so I’d very much like to know your opinion on this subject.

      1. @WARREN MOSLER,

        The proponents claim it would diminish the power of banks by preventing them from creating money at the stroke of a pen and would also lead to a more equity- based, rather than debt-based economy.

        They also claim that people like Fischer, Keynes, Milton Friedman and Minsky supported the concept of narrow banking in the past.

        How could such a radical set of reforms of the way banks work be of no consequence?

      2. It would not be any kind of an obstacle to a bank making a loan that creates a bank deposit.
        100% reserve requirement is not a ‘reform’ but an accounting adjustment that alters the price of taking risk

  7. Dear Warren:

    Would you mind sharing with your followers WHERE you find information on the macro figures (Quarterly European and American GDP figures, Govt. deficit spending figures, manufacturing activities, etc.), as well as what recent discussion by key policy makers (Draghi, Trichet, Fed members, the ECB itself, the ESM, Fed, etc.).

    For example, when you once made a nice connection between the deficit spending figures and the GDP; and also when you mentioned that Trichet proposed granting EFSM banking license.

    Many thanks!

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