Not that it matters, of course, but all’s that’s needed is for the Fed to guarantee that all US obligations mature at 100. The Fed is fully authorized to buy US tsy securities and can certainly buy them at maturity value on their maturity date, simply by crediting the appropriate accounts. And the ratings agencies fully recognize that authority.

46 Responses

  1. Warren Mosler: I want to praise you and Mike Norman. Both of you have said over the past few months that the US is on a slow path to recovery thanks to the budget deficit. Both of you have been in the minority, but I suspect that today’s jobs numbers say it all. Great work.

    1. @GLH,

      MMT analyses of the macro economy here are money in the bank.
      I know it from personal experience.

      MMT is very powerful $$-making tool. I truly believe that an MMT-based hedge fund or another vehicle would easily support MMT financially, so that the new paradigm can enter the political life and secure spot on public debate table.

      I would gladly invest in fund operated by Warren. Yes, I meant Mosler, not the other one. 🙂

      1. @Ed Rombach,

        Another thought along these lines is that a lot of the participants at this blog site are financial market types who are always receptive to hearing about profitable trading ideas, and nothing spreads as fast as profitable trading ideas. I think a special section devoted to trading strategies that grow out of MMT insights could get some traction and a lot more eyeballs looking at these pages.

    2. @GLH,

      The budget deficit has recently started to shrink. The implication is that the economic recovery, tepid as it is, is nonetheless generating more tax revenue on the margin than the government is spending. It strikes me that this development is a sign that the recovery of the private sector is becoming self sustaining.

      1. @Matt Franko,

        That’s the household survey – the only one worth paying attention to in my opinion.

        I don’t understand GLH’s optimism. Seems like just another crappy jobs report to me. The stock market may be responding to the Goldilocks nature of it (although to news from Europe as well): not too hot to make the Fed raise interest rates before 2015, but not too cold to mean we’re heading into another recession.

      2. @ESM, ESM, Are you aware of what is going on in the mortgage market wrt this HARP 2.0 or HAMP 2.0 or whatever this new govt refi program is?

        I have been getting a lot of solicitations in the mail and am looking into it for my mortgage… seems like it is a good deal and many folks will be able to take advantage of it… and it could substantially lower payments to FRE and FNMA for many borrowers…do you see any macro effects from this program????

        Rsp,

      3. @ESM,

        @Matt:

        It’s HARP. I think it has helped modestly to shift income from agency mortgage bond investors to homeowners. It’s not really taking money from FRE and FNMA, since most of the mortages are in securities owned by investors (which are insurance wrapped by FRE/FNMA of course).

        If you are in a position to take advantage of it, I would do it quickly. They’re going to raise guarantee fees on new mortages soon, and FHFA made noises about doing so in a way that “reduce(s) cross-subsidization of relatively risky loans.” So they might increase guarantee fees substantially on HARP loans which are way over 80% LTV. Obviously this would undermine HARP a bit, but most HARP-ers would be saving 250bps on their interest rate anyway by refinancing, so an extra 10-50bps in guarantee fees wouldn’t change the calculus much.

  2. Warren – Not to flatter you or anything, but this idea is brilliant in it’s simplicity. Couldn’t the ECB offer to make the guarantee for EU sovereign debt? However, won’t some critics say the risk is that the Fed and/or ECB might have to run the printing presses at warp speed to make good on that promise?

    1. still the possibility of voluntary default, what with all the crazies running around congress, foamiing at the mouth.

      1. @Unforgiven,

        I think I see your point. Treasury securities are already guaranteed to be redeemed at par (100.00). Therefore any guarantee by the Fed is a bit redundant? Although, in the event of a political decision by Congress to default, a Fed backstop to buy at 100.00 at maturity may have a bolstering effect psychologically.

      2. @Ed Rombach,

        Actually, I wasn’t making an argument, I just didn’t know what the terminology meant. You just made it clear to me, so thanks!

  3. Totally OT, but I was at an open house for Tableau Software last night and thought some of you folks might want to take a look. If you have a use for data visualization, biz intelligence, graphing, etc., these guys make some really easy to use software. There’s a free version, with the downside being that the data that you used will be visible to all:

    http://www.tableausoftware.com/public/

    So if you’re tired of trying to do this sort of thing with Excel and the like, give it a spin.

  4. Erickson, HOLY JEZUS! Here is Rickards new propoganda Movie just released at Sundance, Currency Wars, Rickards goes on the record talking about our CIA and Military!! Talk about out of Paradigm! His fear alone should be enough to CAUSE world war 3! Warren, you debated this warmonger, your failure to fix him back then may now lead him to taking the wrong CIA types to lead us into the end of the world! EPIC FAIL warren mosler! You better call up all these CIA and Cyber command people warren and get this straightened out, Rickards is winning! Don’t let him win through his fear mongering and take our world into certain doom, this rests SQUARELY on your shoulders! Rickards is getting the right propoganda to the right people, step up Warren!

    http://w3.newsmax.com/newsletters/fbta/video.cfm?promo_code=F98A-1

    1. @Save America,

      I got half way through this. I’ll watch it later. I live in a section of the country where this kind of film is manna from heaven.

      Actually, I think your idea that Warren should rebut is a good one, but you don’t go far enough. Number one, though, Mr. Mosler isn’t to blame for this. The real undercurrent in this piece of dreck is to get Americans softened up for a war with Iran because the other arguments aren’t working. You do realize that, don’t you? If not, listen to it again, but this time shut your eyes and really listen. This is a war with Iran propaganda film.

      That said, this is a BRILLIANT opportunity for Warren, Bill Mitchell, Stephanie Kelton, Randall Wray, Bill Black, and all the others to do what in the biz are called ‘minute-30-quick-and-dirty’ clips refuting key clips from Currency Wars. It doesn’t have to be pretty. Warren could refute from his cell phone camera on his boat. Bill from the dark room he writes in. Stephanie from her new office as head of the dept.

      Warren, you listening? Put this refutation up on YouTube and get the word out. Production costs are de minimus. Value is priceless. Opening 1:30 minutes is each one of you from your own perches–20 seconds each–saying that you decided to put it this video together because you were fed up with the American people being duped.

      You could actually have fun doing this and its power would be immense.

      1. @MRW, Yes you are absolutely right, it is pure propoganda. The first half is the good propoganda, the last half is a sales pitch to join thier “alliance” LOL! Don’t bother watching the second half. http://twitter.com/JamesGRickards/ But rickards passionately believes his own propoganda, and is effective in influencing key people to his ideas. People I know in the cyber warfare community put weight on his words (unfortunately).

        I think it would be a waste for Warren to rebuke Rickards with a webcam video, they already had a debate and Warren totally failed in changing Rickards mindset. Warren has been here for years at the blog rebuking all the sillyness, its not working from what I can tell. He posts that at least since 1996 this has been a popular topic to the people that matter, he has had enough time. I am hoping we all can think of new strategies to effect change since the current course is ineffectual.

        The point I was trying to make is that rickards has access to all these people in washington, he is in washington a lot influencing them. That is what warren needs to do, if he can. He needs to be at these strategy sessions, talking to these same people that Rickards is influencing. He should find every single person and organization the rickards retarded, and take the time to set each one of them straight face to face in person as Rickards has done. What has rickards done that has so many of these people wanting to invite him into policy discussions, and warren has failed to do? Was rickards being physically located in the middle east enough to get him the access?

        http://nation.time.com/2012/05/15/money-as-a-weapon-system-afghanistan-maaws-a/

        The military clearly can use debt and fiat as a weapon system when it suits thier middle east needs (as this PDF for military commanders in the middle east shows), but when it is to save our own civilians here in the USA, they forget this knowledge and debts suddenly get treated as unsustainable.

        Rickards is a dangerous guy, the more people he can influence to his fearmongering, the closer we get to war and death, warren better step it up, the evil people out there he claims he is trying to fight seem to be winning the mind war to me. Maybe he could contact some of these same groups and say, rickards showed you one way to fight a financial cyber war, let me show you another, using my ideas, how you could really defeat china and iran. Admirals and Generals are usually receptive to people that can show them how to defeat an enemy in war.

      2. @MRW, Ok MRW, the goal is to get warren off the fishing pole and into inner circles in DC. War and security, cyber security especially, top policy priority of many DC types right now, he can use the IRAN chaos right now to leverage himself into places and people he needs access to.

        Remember warren talking about the time he went to Italy, because everywhere he was going, some academic had written a paper that was coming up in all warren’s meetings, it seemed like everyone was referencing that same paper. His attack against that one paper and its fallicies seemed to aid him.

        That is one potential “in” for him, I already provided one paper many military commanders are referencing, MAAWS-A. That, some of rickards papers that have been used in war simulations planning, perhaps a few others, warren can take those, rebuke or add to them as he sees fit, and distribute, using the same fearmongering to get into these circles that Rickards and others has used. The end justifies the means, he will be retooling his work for military warfare and national security, but it will gain him access to people he doesn’t currently have.

        Can warren put down the fishing pole long enough to go get these financial/cyber warfare papers and criticize and redistribute to policy makers? Probably not. He is old and tired after all MRW, so why don’t you and the rest here do something along those lines, crowdsource an MMT cyber warfare simulation and strategies paper that can be distributed to policy makers.

      3. @MRW,

        Agreed. Regardless whether President Obama is reelected or Romney is the new commander in chief, within 6 months the U.S. will be at war with Iran. In fact we are already waging war with Iran in the form of economic sanctions. Just a matter of time before it heats up into outright military conflict.

      4. @Ed Rombach,

        MRW – You’re preaching to the choir. A preemptive attack on Iran to prevent them from obtaining nuclear weapons runs the risk of quickly escalating into WWIII, not to mention that terrorism will come out of the woodwork. Russia, China and Pakistan will line up behind Iran and India would probably align with the U.S. The war drums seem to be pounding harder and harder with each passing day. Maybe there will be an October surprise before the November election.

    2. @Save America,

      I laughed when Rickards brought up the spectre of German hyperinflation. @Save America, keep this post of mine to show your worried friends. Better yet download the whole book.

      The quote below was written in 1939 by Richard L Owen, Former Chairman, Committee on Banking and Currency, United States Senate. It was presented to Congress in late January 1939, then sent out for printing at the Government Printing Office.

      ‘Natch, since this showed up a few months before WWII, who read it?

      Get a load of the title:
      National Economy and the Banking System of the United States — An Exposition of the Principles of Modern Monetary Science in Their Relation to the National Economy and the Banking System of the United States
      76th Congress, 1st Session, Senate Document 23
      http://archive.org/details/NationalEconomyAndTheBankingSystemOfTheUnitedStates

      _______________________________

      Chapter XVI, The Inflation Bogey, pg.65
      _______________________________

      The old system is vigorously defended. Its advocates and defenders fill the American press with articles dealing with the question of our economic life in which they attribute the evils arising under the existing system to many other causes than the real fundamental cause. Modern monetary science exposes the real cause beyond the possibility of doubt or successful contradiction. But the advocates of the old order, minimize or denounce monetary causes as being responsible for our national distress. The purport of these various articles seems to be to warn the Members of the Senate and House of Representatives and the people against “tinkering with the currency,” against “fiat” money, against “printing press money,” and against the dangers of “inflation.” The experience of Germany following the World War is pointed out as a terrifying example, in which inflation resulted in the destruction of the value of bank deposits, bonds, insurance policies, mortgages, and other evidences of debt, by reducing the German mark to zero value through the inflation of the German mark billions of times.

      The term “inflation” has thus been built up as a bogey warning the people against any necessary expansion by using the term as equivalent to a defensible and necessary expansion of the money supply.

      These advocates of the old system (which has continuously reproduced one depression after another) seem to rely upon the lack of an informed public opinion. They frighten the people by the bogey of “inflation” as if the advocates of modern monetary science proposed “inflation.” Modern monetary science vigorously opposes “inflation.” It vigorously opposes the “inflation” which has been employed by the sagacious few to profit and to acquire the wealth of the ignorant many.

      Modern monetary science proposes an adequate plan by which to prevent inflation for all time.

      Add this to Roml’s 1946 “Taxes as Revenues are Obsolete” and I think you can blame WWII and people’s concerns with it as the reason why no one paid attention to what theses gents were trying to explain to Congress.

      1. @MRW, Yes it all looks good, but from what I see, Rickards has access to people, and I don’t see warren having that same kind of access. Rickards gets to explain things personally to congress and others, warren posts stuff on a blog that doesnt influence anyone in congress, see the problem here?

        Rickards is getting face to face time with key cia, military people, government people, and leveraging that up to influence more people in the masses. I think warren should find a way to personally meet with these same people, give them the same face time rickards has, so they can have a broader outlook. Since some of them only care about threats and war, he must frame his ideas into ones they can digest. These same financial cyber warfare scenarios but instead of a gold backed underpinning as rickards influences, he can use his MMT ideas. I think that would go a lot further to influencing decision makers and policy people than what he has done here.

        He has the PERFECT lead in, Rickards already has access to these people, and he was already in a major debate with Rickards taking the other side, so the cyber command people should seek him out just to get good counter points to rickards views on cyberwar in a different paradigm. He could leverage his past history with Rickards to get into Rickards circles, if he is clever.

      2. @Save America,

        Yes it all looks good, but from what I see, Rickards has access to [certain political] people, and I don’t see warren having that same kind of access.

        Doesn’t matter. Go to the people. Educate the public in ways they can understand. That’s how you crush politicians. Take it to the bank that when Americans wake up to how the economy works there are going to be some irate folk in the land. That’s why explainers should have the 1939 Owen doc and the 1946 Ruml doc printed out and available. I read portions of both the 1939 and 1946 docs to my bartender the other night, late after everyone went home, and because it was written long ago, he realized that what I’d been yammering to him about MMT for months isn’t nonsense. A light went on. I said, look we went off the gold standard domestically in 1934, these two guys were trying to explain to congress what that meant, WWII intervened, and no one paid attention. (Then, of course, in my style, I added that Reagan was a dickwad who only understood how a state worked.)

        Look at the effect Bill Black has had explaining control fraud to average Americans. He’s great at it. He uses economic gobbledygook terms then says, here’s the English. Warren does it too, but Warren is so unfailingly polite and gracious–I mean, it’s just his nature–that I want to put a firecracker under his ass sometimes so that he will express the consequence of not understanding this stuff.

        People like Rickards won’t have jobs unless they’re peddling fear. Stay as far away from their melodrama as possible. Imagine what they say is a big balloon of hot air. Then load your needle with what will pop it. Just stay out of their arena.

      3. @MRW, MRW, as much as I view rickards as dangerous and bringing war, I fully support his amazement in how much access we have given asia to our supposed soveriegn financial system, he is one of the few people talking about this not being vetted properly.

      4. @Save America,

        Steve Keen says in an INET interview that he was in China 30 years ago when they SAID they planned to take our industrial base away and move it to China. They just had to figure out the financial part. It’s in Part 6 of his interview on youtube.

        As for access, they have a bank account at the Fed. Big whoop.

      5. @Save America . . . more

        Every bank loan creates a deposit, and the repayment of that loan destroys the deposit. Every bank purchase of securities creates a deposit, and the sale of securities destroys the deposit.-(Reginald McKenna, chairman of the board, London City Midland.) Sometime in the 1930s.

        People often talk of money going abroad or of foreign money coming here, but as a fact when gold is not in use money is incapable of migration. The title to the money may change * * * but the change of ownership does not remove the money, which necessarily remains and can only be expended where it was created. No exchange transaction, no purchase or sale of securities, no import of foreign goods or export of our own can take money out of the country or bring it here. Bank loans and their repayment, bank purchases and sales are in substance the sole cause of variation in the amount of our money.- (Rt. Hon. Reginald McKenna.) Sometime in the 1930s.

  5. Re:A preemptive attack on Iran to prevent them from obtaining nuclear weapons runs the risk of quickly escalating into WWIII…
    ——————-
    That idea is itself precisely the result of propaganda. It is amply clear that there is no such threat from Iran. They are not developing nuclear weapons. US gov’t agencies have affirmed this.

    The threat is rather to Iran, not to the US. It is really very simple, and again, it is far from being a big secret. The US wants to control the Near East and its gas and oil resources. It needs to fence out China and Russia. It needs to destabilize the regimes that don’t play ball with us, and put in new regimes that do. It’s Syria’s turn right now as prelude to Iran. This also fits in nicely with the perennial and amply avowed Zionist aims to realize Eretz Ysrael–Israel from the Sinai to the Euphrates. They want to control the NE and are using us to the extent possible. Notice who comprised the authors of the PNAC. Notice the power and aims of AIPAC. Notice the merging of the foreign policies of Israel and the US. Notice the obsequiousness and supine subservience to Israel on the part of Romney and the Congress. Notice how Israel is the taboo subject in the US. Etc., etc., etc.

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