Author's posts

Aug 08 2011

2.48%

Monday Business Edition

That, dear readers, is the interest rate the United States is paying on it’s 10 year Treasuries today after the downgrade.  This is LESS than we were paying on Friday.

Frankly it could and should be 0%.  Far from being a neoliberal, I fall on the modern monetarist side of the fence and can find no rational explanation that we issue debt at all except outdated emotional attachments to a Gold Standard that hasn’t existed for almost 40 years and a conscious, if unspoken, government policy of subsidizing the extremely wealthy.

Our Masters of the Universe aren’t particularly bright.  I find their constant caterwauling about “uncertainty” particularly revealing.  Far from being brave risk takers, they’re cowardly morons miserably longing for the days of the “carry trade” when you could get Yen at 0% interest, convert it, and park it in Treasuries at 5% with zero risk.

They only like fixed games and the natural and desired state of capitalism is government sanctioned mercantilist monopolies using the military and police power of the nation to eliminate competition.

East India Company anyone?  There’s your real Tea Party.

What the market is telling us today is that there is in fact NO risk that the United States will not pay off its debts in dollars, the currency in which they’re incurred.  The market is also telling us that the almighty Dollar has NO SUBSTITUTE as the International Reserve Currency.  It is the only one that exists in sufficient quantity to do the job and we are the only nation that is willing to accept the penalty in terms of a permanent trade deficit.  Last week both China (incidentally lower rated than the U.S.) and Switzerland explicitly acted to limit the use of their currency for this purpose, because they aren’t willing to cede control of it to the market.

In fact what was the strongest candidate to replace the Dollar, the Euro, is taking a pummeling today despite the European Central Bank finally deciding to use their market power to limit the allowable decline in value (and consequent rise in interest) of Spanish and Italian bonds.

Yup, they’ve decided to “print” their way out and despite immediate negative impact there is no doubt that over the short and medium term the bond vigilantes, particularly those who have taken leveraged short positions, are going to get a buzz cut if not a shaving.  In other words a thoroughgoing asskicking.

Marshall Auerbeck–

Even with our existing legal constraints (predicated on a now non-existent gold standard system in which we are forced to sell bonds before Treasury spends), Treasury/Fed have other tools to counteract the alleged effect of this downgrade.  Mr. Bernanke can simply call up the NY Fed and gives Mr. Dudley instructions to buy all the 10-year UST on offer to keep the US 10 year at, say 2.5%. It is an open market operation, which the Fed performs all the time. And the banks cannot lend out these reserves, so it’s not inflationary (see here for more explanation). Then, as Rob Parenteau and I have noted before, every time some so-called “bond market vigilante” tries to push it above 2.5% by shorting Treasuries, the Fed can slam their face into the concrete by having the open market desk buy the hell out of UST until the 10 year yield is back to 2.5%. Burn Fido enough times, yank his chain enough times, and like the Dog Whisperer, he gets it and stops.

Credibility, Chutzpah And Debt

By PAUL KRUGMAN, The New York Times

Published: August 7, 2011

(T)he rating agencies have never given us any reason to take their judgments about national solvency seriously. It’s true that defaulting nations were generally downgraded before the event. But in such cases the rating agencies were just following the markets, which had already turned on these problem debtors.

And in those rare cases where rating agencies have downgraded countries that, like America now, still had the confidence of investors, they have consistently been wrong. Consider, in particular, the case of Japan, which S.& P. downgraded back in 2002. Well, nine years later Japan is still able to borrow freely and cheaply. As of Friday, in fact, the interest rate on Japanese 10-year bonds was just 1 percent.

…

These problems have very little to do with short-term or even medium-term budget arithmetic. The U.S. government is having no trouble borrowing to cover its current deficit. It’s true that we’re building up debt, on which we’ll eventually have to pay interest. But if you actually do the math, instead of intoning big numbers in your best Dr. Evil voice, you discover that even very large deficits over the next few years will have remarkably little impact on U.S. fiscal sustainability.

…

The truth is that as far as the straight economics goes, America’s long-run fiscal problems shouldn’t be all that hard to fix. It’s true that an aging population and rising health care costs will, under current policies, push spending up faster than tax receipts. But the United States has far higher health costs than any other advanced country, and very low taxes by international standards. If we could move even part way toward international norms on both these fronts, our budget problems would be solved.

What the market is also telling us is that our economy sucks.  That these huge corporate earnings are largely illusionary in the absence of demand and that Washington’s austerity policy, endorsed by Barack Obama and the Democratic Party, is a flat, abject failure.

Why do you think stocks are going down and (downgraded) bonds are going up?  It’s because they are less attractive investments than the 2.48% Treasuries in a continuing Depression.

Aug 08 2011

DocuDharma Digest

Regular Features-

Featured Essays for August 7, 2011-

DocuDharma

Aug 08 2011

Evening Edition

Evening Edition is an Open Thread

From Yahoo News Top Stories

1 World leaders search for response to US-Euro debt crisis

AFP

1 hr 2 mins ago

World leaders searched Sunday for answers to a global debt crisis, hoping to head off a massacre on markets spooked by an unprecedented US rating downgrade and Europe’s swelling malaise.

France and Germany called for full implementation of measures agreed at a eurozone summit in July to safeguard the single currency as markets braced for fresh turmoil this week.

“President (Nicolas) Sarkozy and Chancellor (Angela) Merkel reiterate their commitment to fully implement the decisions taken by the heads of state and government of the euro area and the EU institutions on July 21,” a joint statement said.

Aug 07 2011

DocuDharma Digest

Regular Features-

Featured Essays for August 6, 2011-

DocuDharma

Aug 07 2011

Evening Edition

Evening Edition is an Open Thread

From Yahoo News Top Stories

1 30 US troops dead as Afghan Taliban down chopper

By Sabawoon Amarkhail, AFP

18 mins ago

Thirty US troops and seven Afghan special forces died when the Taliban shot down their helicopter, said officials, the biggest single loss for foreign troops in the decade-long war.

All were killed during an anti-Taliban operation late Friday when a rocket fired by the insurgents struck their Chinook aircraft as it began to take off shortly after a firefight in Wardak province, southwest of the capital Kabul.

A statement from Afghan President Hamid Karzai’s office said the US victims were special forces, and that 31 of them had been killed.

Aug 06 2011

August 6, 2001

An Annual Reminder.

Echo… echo… echo… Pinch hitting for Pedro Borbon… Manny Mota… Mota… Mota…

You may remember my brother the activist.  I keep trying to get him to post, but he’s shy and busy.  He sent me this yesterday and I thought I’d share it with you.

I need to add that he’s a great admirer of James Carville’s political savvy (though not his policies) and one story he likes to tell is how during the height of Monica-gate Carville was on one of the Talking Head shows and made a point about how important it is to stay on message.  Carville then proceeded to demonstrate his gift by working the phrase “Cigarette Lawyer Ken Starr” 27 times into the next 30 seconds.- ek

The date – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 – August 6, 2001 needs to be as well known to Joe and Jane American as September 11, 2001.

Presidential Daily Briefing of August 6, 2001 PDB

Declassified and Approved for Release, 10 April 2004

Presidential Daily Briefing: August 6, 2001 – Bin Laden Determined to Strike in U.S.

Clandestine, foreign government, and media reports indicate Bin Ladin since 1997 has wanted to conduct foreign terrorist attacks on the U.S. Bin Ladin implied in U.S. television interviews in 1997 and 1998 that his followers would follow the example of World Trade Center bomber Ramzi Yousef and “bring the fighting to America.”

Presidential Daily Briefing: August 6, 2001 – Bin Laden Determined to Strike in U.S.

After U.S. missile strikes on his base in Afghanistan in 1998, Bin Ladin told followers he wanted to retaliate in Washington, according to a [deleted] service.

Presidential Daily Briefing: August 6, 2001 – Bin Laden Determined to Strike in U.S.

An Egyptian Islamic Jihad (EIJ) operative told an [deleted] service at the same that Bin Ladin was planning to exploit the operative’s access to the U.S. to mount a terrorist strike.

Presidential Daily Briefing: August 6, 2001 – Bin Laden Determined to Strike in U.S.

FBI information since that time indicates patterns of suspicious activity in this country consistent with preparations for hijackings or other types of attacks, including recent surveillance of federal buildings in New York.

Presidential Daily Briefing: August 6, 2001 – Bin Laden Determined to Strike in U.S.

The FBI is conducting approximately 70 full field investigations throughout the U.S. that it considers Bin Ladin-related. CIA and the FBI are investigating a call to our Embassy in the UAE in May saying that a group of Bin Ladin supporters was in the U.S. planning attacks with explosives.

So Vice President Dick, tell me again how the REPUBLICANS WILL KEEP US SAFE?

So Senator McSame, tell me again how invading and occupying IRAQ has helped the U.S. hunt down BIN LADEN?

I’m printing my own bumper stickers filled with images from 9-11 and this text-

August 6, 2001 – Bin Laden Determined to Strike in U.S. – We Will Never Forget.

“I don’t think anybody could have predicted that these people would take an airplane and slam it into the World Trade Center”- Condoleezza Rice, National Security Advisor

“All right. You’ve covered your ass now.”- George W. Bush

Aug 06 2011

DocuDharma Digest

Regular Features-

Featured Essays for August 5, 2011-

DocuDharma

Aug 06 2011

DocuDharma Digest

Regular Features-

Featured Essays for August 5, 2011-

DocuDharma

Aug 06 2011

Evening Edition

Evening Edition is an Open Thread

From Yahoo News Top Stories

1 Eurozone asks markets for ‘weeks’ of breathing space

By Claire Rosemberg, AFP

7 hrs ago

The EU executive on Friday begged markets for a breathing-space of just “weeks” as it works to put into place measures to stem contagion of a debt crisis across the 17 nations that share the euro.

Rushing back to Brussels from vacation as European economic giants Italy and Spain came under intense market pressure, Economic Affairs Commissioner Olli Rehn said a wide-ranging contingency plan to defend the euro, agreed at a special summit July 21, will be ready “in weeks, not months.”

Officials “are working night and day to put flesh on the bones” of the agreement struck at a summit called over fears the Greek debt crisis could spill over to the eurozone’s third- and fourth-largest economies.

Aug 05 2011

Shrill? Part Deux.

As I assemble this the DOW is once again down over 200 points and the question is whether it will remain above 11,000 at the close.

Rates of Wrath

August 4, 2011, 11:41 am

The US 10-year bond rate is now down to 2.5%. So much for those bond vigilantes. What this rate is saying is that markets are pricing in terrible economic performance, quite possibly a double dip. And it also says that Washington’s deficit obsession has been utterly, totally wrong-headed.

Meanwhile, Italy’s spread against German bonds is soaring even further. What are markets pricing in here? Default as a real possibility; maybe even euro breakup. The latter certainly sounds a lot more plausible now than it did a few months ago.

The Wrong Worries

By PAUL KRUGMAN, The New York Times

Published: August 4, 2011

Consider one crucial measure, the ratio of employment to population. In June 2007, around 63 percent of adults were employed. In June 2009, the official end of the recession, that number was down to 59.4. As of June 2011, two years into the alleged recovery, the number was: 58.2.

…

And why should we be surprised at this catastrophe? Where was growth supposed to come from? Consumers, still burdened by the debt that they ran up during the housing bubble, aren’t ready to spend. Businesses see no reason to expand given the lack of consumer demand. And thanks to that deficit obsession, government, which could and should be supporting the economy in its time of need, has been pulling back.

…

Those plunging interest rates and stock prices say that the markets aren’t worried about either U.S. solvency or inflation. They’re worried about U.S. lack of growth. And they’re right, even if on Wednesday the White House press secretary chose, inexplicably, to declare that there’s no threat of a double-dip recession.

…

The point is that it’s now time – long past time – to get serious about the real crisis the economy faces. The Fed needs to stop making excuses, while the president needs to come up with real job-creation proposals.

…

This might or might not work. But we already know what isn’t working: the economic policy of the past two years – and the millions of Americans who should have jobs, but don’t.

You know, it’s just a stinking Nobel Prize in Economics.  This guy knows nothing.

Pulling Rank

August 5, 2011, 9:12 am

I’ll pass the specific arguments by, and note another feature of this “debate” that has struck me a lot during recent economic controversies: the way Williamson tries to settle the argument by pulling rank, portraying Quiggin as some kind of obscure and unqualified guy.

It’s funny in this case, because Quiggin is in fact a prominent economist, Williamson not so much. But even if this weren’t true, that’s no way to argue. Which is why it has been so sad to see how common this kind of argument has been in recent years.

I don’t have time right now to track down all the examples, but if you look at how many freshwater macroeconomists have responded to Keynesian arguments in this crisis, you find over and over again that they resort to assertions of privilege – basically, I am a famous macroeconomic expert and you aren’t – rather than really addressing the issues. And this is so ingrained a response, apparently, that they use it in situations where it’s truly ridiculous: Lucas accusing Christy Romer of not understanding basic macro, then demonstrating that he doesn’t understand Ricardian equivalence; Barro belittling the credentials of yours truly, just after forgetting that there was rationing and investment controls during World War II.

Load more