March 2012 archive

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

The New York times: Crushing Homs

After a month of merciless bombardment, the forces of President Bashar al-Assad of Syria have taken Homs, the main rebel stronghold. Many of the brave residents have fled the city or been killed, adding to a death toll now estimated at more than 7,500 since the unrest began. [..]

The United States, Europe, the Arab League and Turkey need to make that case to China and Russia every chance they have. And they need to keep tightening their own sanctions. At some point, the Syrian military and business elites will decide that backing the dictator is a losing proposition. The United States and its allies also need to use all of their influence and coaching to help the opposition form a credible, multiethnic government, one that will respect all Syrians.

Robert Resich: Bye Bye American Pie: The Challenge of the Productivity Revolution

Here’s the good news. The economic pie is growing again. Growth in the 4th quarter last year hit 3 percent on an annualized rate. That’s respectable – although still way too slow to get us back on track given how far we plunged.

Here’s the bad news. The share of that growth going to American workers is at a record low.

That’s largely because far fewer Americans are working. Although the nation is now producing more goods and services than it did before the slump began in 2007, we’re doing it with six million fewer people.

Why? Credit technology. Computers, software applications, and the Internet are letting us produce more with fewer people.

I felt a special twinge the other day when I heard that Davy Jones had died of a heart attack at age 66. I thought, “Wow, he was 66? Where has time gone?” I wasn’t alone. The baby boomer generation is aging more rapidly than we care to admit and Davy’s death was a cruel reminder of the passage or our youthful idols.

Davy Jones was the British member a contrived American Rock and Roll group for a 1966 television series that was not so much a parody of the more famous Beatles but a mimic of the group that appealed to a slightly younger fan base. Not quites as popular as the British counterparts but The Monkees had their appeal and their hit songs, “Last Train to Clarksville”, “Daydream Believer” and “I’m a Believer” which became a hit once again when it was redone by Smashing Pumpkins for the movie “Shrek”. Off and on over the years thanks to MTV and the cable network, “Nickelodeon“, “Monkee Mania” was reignited and there were several reunions and tours.

The Monkees were the “cool” group that used to hang around with Frank Zappa, a very young Jack Nicholson, boxer Sonny Liston, famous stripper Carol Doda, Glenn Campbell and members of The Byrds. Many of their songs were written by . Neil Diamond, Gerry Goffin and Carole King, Harry Nilsson, Barry Mann, Cynthia Weil, and many other highly regarded writers. The musicians that accompanies the group were just as well known and accomplished, drummer “Fast” Eddie Hoh, Lowell George, Stephen Stills, Buddy Miles and Neil Young. The Monkees, too, were accomplished musicians and played their own instruments. From a contrived TV group, they proved to the world that they were a bona fide group.

In February 2011, Davy announced another reunion, An Evening with The Monkees: The 45th Anniversary Tour, which would be his last. Davy sadly passed away on February 29 and with him died part of the youth of many of his fans.

The Wheel Turns. Blessed Be

In two previous posts I’ve collected some of letsgetitdone’s reactions to Dylan Matthews’ Washington Post article on Modern Monetary Theory and the responses of other authors-

• Everything we thought we knew is wrong!
• Wrong Again!

In this final installment is some of his extensive treatment of Dean Baker’s critiques.

In his first reaction to Dean Baker, letsgetitdone outlines 7 areas of specific differences between Keynesian Deficit Doves and MMT and their policy implications-

1. Government deficit spending for recovery.
2. Government fiscal policy over the business cycle.
3. Long Term Deficit Reduction Planning.
4. Long Term Deficit Reduction Projections.
5. Funding Government spending.
6. Social Security Solvency.
7. Proposed progressive reform programs.

The end for MMT is achieving public purpose including full employment with price stability as one aspect of it. Since the MMT view is that fiscal policy is much more useful for doing this than monetary policy MMT focuses on how fiscal policy should be set.

Its general view is that alternative budgetary plans have to be assessed from the viewpoint of their anticipated outcomes, without regard to deficits or surpluses as outcomes valued in themselves. Of course, full employment is positively valued and unemployment negatively valued, but a whole range of valued outcomes is relevant for such assessments. Those are the ends, and fiscal policy is the means. Monetary policy and trade policy are also means, but are not nearly as important as fiscal policy in their effective short-term impact.

Baker wrote a second article which letsgetitdone also felt largely ignored the critical differences between MMT and Deficit Dove Keynesianism and this time responded with a 3 part piece-

In the first part he discusses these issues-

Like MMT Says: Monetary Policy Would Be Ineffective

I won’t go into the details here, but the bottom line seems to be that he thinks the Fed could add $20 Billion to aggregate demand mostly through mortgage refinancing arrangements.

My own bottom line is that what he outlines might work, but only proves the MMT point that monetary policy can do very little to help solve our present economic problems. We have about a 28 million person U6 employment problem, which could take as much as $1.2 Trillion in carefully formulated deficit spending. So, adding $20 Billion in aggregate demand to the economy makes very little contribution compared to the scale of the problem. It’s the proverbial drop in the bucket and justifies the lack of emphasis MMT places on this channel.

Expanding US Exports at the Expense of Decreasing Real Wealth?

The MMT argument is that as long as other nations are willing to send us more real wealth in return for dollars, than we send them, then that is a net benefit for American consumers. Certainly, our willingness to accommodate their desire to exchange exports for dollars has caused real damage to US industries, and the erosion of skills and capabilities among workers and has also cost the jobs of Americans.

…

In other words, the big negatives that are related to our positive current account balance with the rest of the world (colloquially known as our trade deficit) are costs that we don’t have to bear, according to MMT, to get the benefits of imports. We could employ Americans fully, our people could be developing new skills and experiences, our wealth in facilities and social conditions we all share could be vastly increased, if the Government used its capability to help us fulfill the opportunities the current account balances give us to turn to other things that badly need doing, rather than making televisions, toys, clothes, and all the other things we no longer make. MMT says that the Government’s deficit will equal private sector savings plus the current account balance. So, if both are high that makes room for large Government deficits, and, in fact, actually demands them, since if we try to reduce them the end result will be less real wealth coming from imports and less nominal wealth accumulated from savings.

letsgetitdone continues in the second part–

Expanding US Exports at the Expense of Decreasing Real Wealth? (continued)

(W)hy do economists like Dean and Paul Krugman insist on relying on far-fetched scenarios to try to argue against simple truths that may apply today? The current account balance will probably be around 4-5% of GDP this year. As the economy recovers it will probably rise to 6% of GDP again, which represents a very real benefit to the United States. But there’s no reason to expect that this growth would continue indefinitely or ever reach 50% of GDP. Why should it? What are the dynamics that would drive things this way, and make other nations value the dollar so much, that they will keep their own populations barefoot?

…

Dean then continues with other arguments about re-balancing trade and its effects which are largely correct. But his remarks on the devaluation strategy not being “a beggar thy neighbor” strategy are only correct if we assume that such a strategy would not lead to negative compositional effects at the higher level of the international economic system.

If US attempts to devalue were followed by other nations responding in kind, then a race-to-the-bottom could result which would harm workers in all the major nations of the world. In this context MMT would probably say, don’t devalue. Instead use fiscal policy to fully employ all of your working people, and then let other nations devalue your currency as they please. There will be far less danger of a race to the bottom in this scenario, since your attempt to employ all of your own people to domestic tasks producing valued outcomes, can hardly be viewed as an attack on the desires of other nations to continue to export to you.

Is Work Sharing a Separate Channel for Raising Aggregate Demand?

I find myself in complete agreement with the proposals in the past few paragraphs and the arguments for the benefits of work sharing. I have only one problem with it, and that is why Dean classifies this proposal as a separate channel from the Government deficit spending channel?

From my point of view, making the standard work week 35 hours and mandating the kinds of fringe benefits they have in Europe and compensating workers directly with Government subsidies for the reduction of 5 hours of work per week they receive, is definitely using the Government channel to raise aggregate demand, since the increased demand comes from the Government subsidy assumed by the proposal. It’s not a proposal the economists developing MMT have put forward. But I’ve put forward a similar proposal, and I see nothing in it that is in conflict with MMT.

In the third part letsgetitdone concludes with a discussion of Dean Baker’s contention that MMT relies “exclusively” on the fiscal channel-

Pitfalls of the Fiscal Policy Channel

MMT doesn’t advocate wasteful spending, or digging holes for the sake of the activity, or spending money on projects and programs that will waste real resources or people’s lives. There is a risk that any spending, private or public, will be wasteful or involve an excess of real costs over real benefits. But that’s no excuse for avoiding private sector spending, so why should it be one for avoiding public sector spending when that’s called for?

The events of the last ten years show that both Federal spending on Wars, and private spending on financial adventures can be disastrous, but it was wasteful investments on fantasy sand castles that crashed much of the world economy; not deficit spending in the United States intended to achieve public purpose. In fact, that kind of spending has been starved for the past 35 years at least. And right now, there is no record of wasteful public spending that remotely compares with the record of wasteful private spending over that same period.

…

MMT, itself, it favors spending that can be justified based on projections of its real benefits and costs, not projections of its nominal benefits and costs to a Federal Government that can never have any solvency problem. MMT is against crony capitalism, and for prosecutions of banksters and fraudsters. MMT proposals in the health care area would not only improve health care outcomes and reduce private sector expenditures on health care but would also produce millions of new jobs in the health care sector, while putting the health insurance barons out of business. MMT stimulus proposals for ending the recession, include Revenue Sharing grants to States on a per person basis, so that States could re-hire staff laid off in response to the recession’s impact on tax revenues. It’s very doubtful that hiring back Police, Firefighters, Teachers, and other State Civil Servants would be viewed as wasteful to most people.

Dean’s Conclusion and Mine

(M)y view is that Washington in its current state doesn’t care about logical inconsistency, or rationality, or arithmetic. At this point it is a closed “village” of opinion. As Dean implies, points of view that have no currency in the village don’t get discussed, or ridiculed when they are. The question however, is how does a closed system like this change, since it is fairly closed to changes in viewpoint that may be necessary to use to solve its problems?

I think the answer to that question is raw failure that destroys confidence in the governing world view which is neoliberalism. The highly visible failure of neoliberalism in 2008 wasn’t capitalized on by this Administration. It was loyal to the neoliberal point of vew and followed the prescriptions of neoliberals for fixing the problems it created.

However, the failures of neoliberalism continue. We see the disaster in Europe now taking shape, we see the extreme discontent among so many in American society, including most importantly the young who cannot see any acceptable future. The stresses grow with each passing year of injustice and maintenance of levels of real unemployment that haven’t been seen in this country since the 1930s.

…

The worst of the anger is yet to sweep this country. When it does, when the banking system falls either in Europe or here, when the big banks are taken into resolution and the serious investigations start under a new Attorney General, the changing of the guard in Washington will come; and the old regime, along with their neoliberal paradigm, will be swept away. And it is then that MMT will be accepted in Congress and the Executive Branch sufficiently, so that its policies will get a chance. If those policies succeed, then neoiberalism will be gone, hopefully for good.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

March 3 is the 62nd day of the year (63rd in leap years) in the Gregorian calendar. There are 303 days remaining until the end of the year.

On this day in 1887, Anne Sullivan begins teaching six-year-old Helen Keller, who lost her sight and hearing after a severe illness at the age of 19 months. Under Sullivan’s tutelage, including her pioneering “touch teaching” techniques, the previously uncontrollable Keller flourished, eventually graduating from college and becoming an international lecturer and activist. Sullivan, later dubbed “the miracle worker,” remained Keller’s interpreter and constant companion until the older woman’s death in 1936.

Sullivan, age 20, arrived at Ivy Green, the Keller family estate, in 1887 and began working to socialize her wild, stubborn student and teach her by spelling out words in Keller’s hand. Initially, the finger spelling meant nothing to Keller. However, a breakthrough occurred one day when Sullivan held one of Keller’s hands under water from a pump and spelled out “w-a-t-e-r” in Keller’s palm. Keller went on to learn how to read, write and speak. With Sullivan’s assistance, Keller attended Radcliffe College and graduated with honors in 1904.

Helen Keller became a public speaker and author; her first book, “The Story of My Life” was published in 1902. She was also a fundraiser for the American Foundation for the Blind and an advocate for racial and sexual equality, as well as socialism. From 1920 to 1924, Sullivan and Keller even formed a vaudeville act to educate the public and earn money. Helen Keller died on June 1, 1968, at her home in Westport, Connecticut, at age 87, leaving her mark on the world by helping to alter perceptions about the disabled.

I must first offer my apologies to Peter Townshend.  Pete, sorry, but I think that you would probably approve of this.  Please know that I mean no disrespect to the original song.  This is just political satire using one of your standards.

Normally I do not write highly political pieces, that function being done far better by others here, but tonight is an exception.  I hope that this gets my feelings about how the Republicans have taken what should be a foregone conclusion and twisted it to try to make their point, whatever that point is.  I have tried to be witty and not mean with it, but when talking ’bout Republicans sometimes it is difficult to keep from getting mean.

It’s nice to see that Daily Kos is focusing on important things like Rush Limbaugh….

…and not silly news stories like:

‘People keep falling sick’: How poor Indians are recruited for clinical drug trials

Volt production halted; 1,300 workers out of work

High health care costs: It’s all in the pricing

Red Cross says Syrian authorities blocked aid to Bab Amr; atrocities reported

High turnout reported in Iran for parliamentary elections

Miami valedictorian fighting deportation

Despite what you hear about the economic growth, that silver lining is lightening. The negative equity in residential housing increased in the last quarter of 2011. In other words, 22.8% of all homes in the US are worth less than than they were when purchased. As per Core Logic that is an increase of 10.7 million homes, an increase of 0.7% from the third quarter.

CoreLogic … today released negative equity data showing that 11.1 million, or 22.8 percent, of all residential properties with a mortgage were in negative equity at the end of the fourth quarter of 2011. This is up from 10.7 million properties, 22.1 percent, in the third quarter of 2011. An additional 2.5 million borrowers had less than five percent equity, referred to as near-negative equity, in the fourth quarter. Together, negative equity and near-negative equity mortgages accounted for 27.8 percent of all residential properties with a mortgage nationwide in the fourth quarter, up from 27.1 in the previous quarter. Nationally, the total mortgage debt outstanding on properties in negative equity increased from $2.7 trillion in the third quarter to $2.8 trillion in the fourth quarter.

“Due to the seasonal declines in home prices and slowing foreclosure pipeline which is depressing home prices, the negative equity share rose in late 2011. The negative equity share is back to the same level as Q3 2009, which is when we began reporting negative equity using this methodology. The high level of negative equity and the inability to pay is the ‘double trigger’ of default, and the reason we have such a significant foreclosure pipeline. While the economic recovery will reduce the propensity of the inability to pay trigger, negative equity will take an extended period of time to improve, and if there is a hiccup in the economic recovery, it could mean a rise in foreclosures.” said Mark Fleming, chief economist with CoreLogic.

h/t Calculated Risk

And there is no relief in site for the vast majority of these homeowners, not even from the Foreclosure Settlement, as the Brookings Institution points out:

First, the borrower must be underwater, meaning owing more in mortgage debt than the house is worth. According to CoreLogic, there are 11.1 million underwater borrowers. Second, loans backed by Fannie Mae or Freddie Mac are not eligible for the principal reduction. According to analysis by the Federal Reserve of data from LPS Applied Analytics and CoreLogic, as of December, 14.1 percent of Freddie Mae loans were underwater and 11.3 percent of Fannie Mae loans were underwater. Taking the midpoint, and assuming there are 26 million Fannie or Freddie loans (about half of the number of existing loans), then there are approximately 3.3 million Fannie and Freddie underwater loans, bringing us to 7.8 million remaining borrowers eligible for the principal reduction. Third, the borrower must be delinquent or facing imminent default to qualify for the principal reduction. According to the Federal Reserve (PDF), approximately 28 percent of underwater borrowers are not current on their payments, bringing us to 2.2 million remaining borrowers. Third, the agreement is with the five largest mortgage servicing banks. According to Inside Mortgage Finance, the five banks service 55 percent of all loans, bringing us to 1.2 million remaining borrowers. Fourth, only owner-occupied homes are eligible. According to CoreLogic, 82 percent of underwater borrowers are owner occupied, bringing us to 1 million remaining borrowers.

There is another complication, in that some of these loans are held on the banks’ balance sheets, and others are part of mortgage-backed securities owned by outside investors. For the latter, the banks are contractually obligated to minimize losses to the investors, meaning it is unlikely they can reduce principal on these loans without facing the ire (and possible lawsuits) from the investors. Department of Housing and Urban Development Secretary Donovan acknowledged this problem by suggesting that the banks will target the principal reductions to the loans that they hold on their balance sheets. According to CoreLogic, about 41 percent of underwater borrowers had home equity loans, which typically are held on banks balance sheets. So even if these borrowers’ first loans do not qualify for a principal reduction, their second loans – which represent the bulk of their negative equity – do. Also according to CoreLogic, about 9 percent of underwater borrowers had no second loan and had their first loan held on banks’ balance sheets. Applying this 50 percent leaves us an estimate of 500,000 loans eligible for the principal reduction.

That’s just half of the homes the settlement was supposed to help. Thanks, Barack

h/t David Dayen at FDL News Desk

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

Paul Krugman: Four Fiscal Phonies

Mitt Romney is very concerned about budget deficits. Or at least that’s what he says; he likes to warn that President Obama’s deficits are leading us toward a “Greece-style collapse.”

So why is Mr. Romney offering a budget proposal that would lead to much larger debt and deficits than the corresponding proposal from the Obama administration?

Of course, Mr. Romney isn’t alone in his hypocrisy. In fact, all four significant Republican presidential candidates still standing are fiscal phonies. They issue apocalyptic warnings about the dangers of government debt and, in the name of deficit reduction, demand savage cuts in programs that protect the middle class and the poor. But then they propose squandering all the money thereby saved – and much, much more – on tax cuts for the rich.

New York Times Editorial: A Bad Amendment Defeated

Only one Senate Republican – Olympia Snowe of Maine, who is retiring – voted against a truly horrible measure on Thursday that would have crippled the expansion of preventive health care in America. The amendment, which was attached to a highway bill, was defeated on a narrow 48-to-51 vote. But it showed once again how far from the mainstream Republicans have strayed in their relentless efforts to undermine the separation of church and state, deny women access to essential health services and tear apart President Obama’s health care reform law.

The amendment, which was enthusiastically endorsed by Mitt Romney and Rick Santorum, would have allowed any employer or insurance company to refuse coverage for any activity to which they claim a religious or moral objection.

That would have meant that any employer who objects to cervical-cancer vaccines could have refused to provide health insurance that covers them. The same goes for prenatal sonograms for unmarried mothers, or birth control, H.I.V. screening or mammograms.

Officials Rule No Payout on Greek Swaps

By PETER EAVIS, The New York Times

March 1, 2012, 8:24 am

During the financial crisis of 2008, derivatives contributed to the mess. Banks feared that their trading partners might not make good on their obligations, a situation that panicked the markets and nearly brought the financial systems to its knees.

As part of Greece’s restructuring, bondholders will be required to take a 70 percent loss on their holdings. When first announced, the deal was proposed as a voluntary exchange, which would not have activated the credit-default swaps.

But in recent weeks, Greece has prepared to require all private bondholders to accept the losses through legal means. This would make the exchange involuntary and almost certainly set off the swaps.

…

One question the process faces is whether committee members will vote according to their economic interest. Many of the banks on the committee have recently reported substantial exposure to swaps on Greek government bonds. For instance, Barclays, which voted against swaps activation on Thursday, had sold default protection on $5.92 billion of swaps on Greek debt, and bought $5.81 billion of protection, as of Sept. 30 last year, according to the European Banking Authority.

…

Even so, the ruling – and the prospect that Greece could default without activating the swaps – could reignite the debate about the usefulness of the financial instruments. If borrowers can structure defaults to circumvent swaps payouts, investors may see the swaps as unreliable.

“The market has been harmed by people playing games to avoid events that would be covered by the insurance,” said John Sprow, chief risk officer at Smith Breeden Associates, a fund management firm.

As Felix Salmon points out, this could very well destroy the Credit Default Swap Market-

Understanding Greece’s default

By Felix Salmon, Reuters

March 1, 2012

At the WSJ, for instance, the news story on today’s official ISDA determination (“Greek Deal Won’t Trigger CDS Payouts, Panel Says”) is bad; the blog post about it by Charles Forelle (“ISDA’s Greek Ruling Not the Last Word”) is very good.

And in Europe, the range of sophistication within policymaking circles is even greater. At the lowest, most basic level, one finds a feeling that it’s a Bad Thing if a European sovereign nation were ever to default, and so therefore it would be a good thing if the bond exchange was organized so that there was no official market determination of default. (Never mind that Greece is already in selective default on its bonds, according to S&P.)

At a slightly higher level of sophistication one finds the short-sellers-are-bad crowd, who don’t like CDS because they allow hedge funds to easily bet against countries. If the messy Greek CDS situation helps to reduce the amount of trust that the markets have in sovereign CDS generally, then so much the better, on this view.

And then, finally, there’s Peter Eavis’s conspiracy theory: if the Greek bond exchange goes really smoothly, and the sun rises in the morning and Italian bond yields stay below 5%, then maybe that’s the most worrying outcome of all. Because at that point Greece will have managed to wipe out, at a stroke, debt amounting to some 54% of GDP. You can see how Portugal and Ireland might be a little jealous. You don’t want to make sovereign default too easy – not least because it would do extremely nasty things to European banks’ balance sheets.

That said, Greece has now broken the sovereign-default taboo; many countries both inside and outside Europe have way too much debt; and now that debt relief is an option for politicians to seriously consider, it’s pretty much certain that at some point another European government will end up choosing that option.

How Greece’s default could kill the sovereign CDS market

By Felix Salmon, Reuters

February 29, 2012

In the best-case scenario for Greece and Europe and bondholders, every €1,000 of old Greek bonds will get converted to new bonds with a face value of just €315. Those bonds will probably trade at about 30% of face value, which means the new-Greek-bond component of the exchange will be worth about 10 cents for every dollar in face value of old Greek bonds that you might currently hold. Add in another 15 cents of EFSF bonds, and the total value of the exchange will be about 25 cents on the dollar, which is why people are talking about a 75% “present value haircut”.

…

The way that CDS auctions are meant to work is that once a borrower defaults on its debt, that defaulted debt continues to be traded in the market, and its value then determines the amount that credit default swaps need to pay out. But in this case, Greece’s defaulted debt might well not continue to be traded in the market. In which case, when traders need to find a cheapest-to-deliver bond to bid on in the CDS auction, they’re going to have to use one of the new bonds, rather than one of the old ones.

…

In other words, Greece’s CDS really aren’t protecting holders of Greek bonds at all – or if they do, it’s more a matter of luck than of law. When they get paid out on their CDS holdings, people owning protection against a Greek default won’t get paid according to how much money they lost on their old bonds. Instead, they’ll get paid according to the nominal price of the new bonds.

What this means is that the CDS architecture is broken, and can’t cope with collective action clauses. And as a result, according to the hedge fund manager who tipped me off to the whole problem, “this Greece CDS imbroglio might be the final blow for sovereign CDS as a product.”

…

The whole point about credit default swaps is that they’re meant to behave in a predictable manner in the event of default; one thing we know for sure about Greece is that the behavior of its CDS is going to be anything but predictable. We don’t even know for sure whether they’ll be triggered, let alone what they’ll be worth if and when they are.

Now there are a lot of people, among them European policymakers, who would actually be quite happy if the Greek default killed off the sovereign CDS market as a side effect. But I actually believe that sovereign CDS, when they work, are rather useful things. It’s just that Greece is having the effect of showing that they don’t necessarily work. And if you can’t be sure that they’ll work when triggered, there’s really no point in buying them at all.

Since a majority of CDSes are issued by banks and they collect substantial fees for them, they may have just killed off the goose that lays their golden eggs.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

March 2 is the 61st day of the year (62nd in leap years) in the Gregorian calendar. There are 304 days remaining until the end of the year.

On this day in 1836, the Republic of Texas declares its independence as in a nation from Mexico.

Formed as a break-away republic from Mexico by the Texas Revolution, the state claimed borders that encompassed an area that included all of the present U.S. state of Texas, as well as parts of present-day New Mexico, Oklahoma, Kansas, Colorado, and Wyoming based upon the Treaties of Velasco between the newly created Texas Republic and Mexico. The eastern boundary with the United States was defined by the Adams-Onís Treaty between the United States and Spain, in 1819. Its southern and western-most boundary with Mexico was under dispute throughout the existence of the Republic, with Texas claiming that the boundary was the Rio Grande, and Mexico claiming the Nueces River as the boundary. This dispute would later become a trigger for the Mexican-American War, after the annexation of Texas by the United States.

Establishment

The Republic of Texas was created from part of the Mexican state Coahuila y Tejas. Mexico was in turmoil as leaders attempted to determine an optimal form of government. In 1835, when President Antonio Lopez de Santa Anna abolished the Constitution of 1824, granting himself enormous powers over the government, wary colonists in Texas began forming Committees of Correspondence and Safety. A central committee in San Felipe de Austin coordinated their activities. In the Mexican interior, several states revolted against the new centralist policies. The Texas Revolution officially began on October 2, 1835, in the Battle of Gonzales. Although the Texians originally fought for the reinstatement of the Constitution of 1824, by 1836 the aim of the war had changed. The Convention of 1836 declared independence on March 2, 1836, and officially formed the Republic of Texas.