Smart Taxes Network » US

Ann Pettifors’ Predictions for 2012

Emer — Wed, 11 Jan 2012 17:28:10 +0000

Ann Pettifor is depressing reading in her blog ‘Debtonation’. She was right before and sadly, likely to be so again.

…We, and many others, expect the banks of all the major OECD economies to collapse over the next few months. This will drag the UK, Eurozone and US down. In other words, and to be absolutely clear:the Eurozone and the world will be dragged down by the banks, not vice versa.

Politicians, advised by deranged and culpable economists, will hasten, and intensify this global private banking collapse by accelerating austerity. It is those policies that will prolong and deepen the global economic crisis.

So prospects are bleak. Unless and until, that is, politicians in the UK and Eurozone get real, and face reality. It is time now to stop blaming the victims – public sector workers, pensioners, single mothers, the frail and vulnerable – for a global financial crisis designed by bankers, technocrats, economists and politicians.

It’s time now to address the solution: first, subordination of the private banking sector to the interests of society; and second, policies for employment. Only jobs can now generate the income needed to revive the economy, to pay down private debts, and to stabilise the global economy. “Look after employment” said Keynes, “and the budget will look after itself.” (link to article)

Occupy targets evictions : Shades of the Irish Land Wars !

Emer — Wed, 30 Nov 2011 18:45:07 +0000

Even the language sounds quaintly familiar to the Irish ear in this account by Justin Elliott in Salon

The backdrop for all this is a new study suggesting the foreclosure crisis is only half over, with 4 million homes in some stage of foreclosure. Meanwhile, reports of illegal or questionable behavior by banks and mortgage lenders continue to stream in.

Like many of the Occupy actions that have focused on specific policy questions, this one is being organized by established progressive and labor-affiliated groups along with their allies in the movement. Among the allied groups listed on Occupy Our Homes’ website, for example, are the New Bottom Line and New York Communities for Change. On the Occupy Wall Street side of things, members of the direct action working group and the movement-building group in New York have been involved in the project.

Occupy Our Homes’ website (which was registered by a former SEIU ~~official~~ staffer) has the trappings of a slick professional campaign, with videos featuring the stories of families facing foreclosures and a pledge visitors are encouraged to sign stating:

… that until the banks do their part to help homeowners and to fix the economy, by writing down mortgage principal to current home values, I will:

I will support homeowners resisting wrongful foreclosure evictions.

I will resist any attempt by the bank to take my home.

If they come to foreclose, I will not go.

A network of groups organized as Take Back the Land has been doing eviction defenses and related actions around the country for five years, according to organizer Max Rameau.

“Now with this Occupy movement ramping up, I think we have a significant chance to keep large numbers of people in their home,” Rameau told Democracy Now earlier this month. “[The goal is to] not only force the banks to allow the family to stay in the home. But also then force policy changes that would help thousands of other people for whom we’re not doing eviction defenses.”

We saw a similar dynamic in the preexisting campaign to extend the millionaire’s tax in New York, which has benefited from new energy and a new banner offered by the Occupy movement.

Evans Pritchard: America and China must crush Germany into submission

Emer — Mon, 14 Nov 2011 19:17:03 +0000

My goodness, have things come to this?
The normally circumspect Ambrose Evans Pritchard writes in the conservative UK newspaper The Telegraph as follows…

“Having followed the German political scene closely for the last five months, it is clear to me that almost the entire German political establishment is out of its depth, ideological, sometimes smug, apt to view the EMU debt-crisis as a Calvinist morality tale, and lacking in deep understanding of what it has got itself into.

One can understand German worries about money printing – and especially the loss of fiscal sovereignty and democratic control – but matters have already moved on. It is too late for that.

As for the EU authorities with their mad contractionary fiscal and monetary policies in an accelerating slump, they seem to have achieved little by toppling two elected governments in one week.

In Italy they have already made matters worse. I doubt that much will change with “technocratic governments” in either Greece and Italy, yet immense damage has been done to democratic accountability.

The EU Project has become both dangerous and insane. (link to article)

Bill Black: Jobs Now, Stop The Foreclosures, Jail The Banksters

Emer — Thu, 03 Nov 2011 18:18:37 +0000

Jobs Now, End forclosures, jail the banksters

The US current account will be in surplus in 5 years says Evans Pritchard

Emer — Mon, 24 Oct 2011 18:46:26 +0000

Interesting post from Ambrose Evans Pritchard of the Telegraph who is often ahead of the pack in picking trends. He is very bullish about the US…

World power swings back to America

The American phoenix is slowly rising again. Within five years or so, the US will be well on its way to self-sufficiency in fuel and energy. Manufacturing will have closed the labour gap with China in a clutch of key industries. The current account might even be in surplus.

Assumptions that the Great Republic must inevitably spiral into economic and strategic decline – so like the chatter of the late 1980s, when Japan was in vogue – will seem wildly off the mark by then.

Telegraph readers already know about the “shale gas revolution” that has turned America into the world’s number one producer of natural gas, ahead of Russia.

Less known is that the technology of hydraulic fracturing – breaking rocks with jets of water – will also bring a quantum leap in shale oil supply, mostly from the Bakken fields in North Dakota, Eagle Ford in Texas, and other reserves across the Mid-West.

“The US was the single largest contributor to global oil supply growth last year, with a net 395,000 barrels per day (b/d),” said Francisco Blanch from Bank of America, comparing the Dakota fields to a new North Sea.

Total US shale output is “set to expand dramatically” as fresh sources come on stream, possibly reaching 5.5m b/d by mid-decade. This is a tenfold rise since 2009.

And scathing about Europe…

Europe has only itself to blame for the current “hollowing out” of its industrial base. It craved its own reserve currency, without understanding how costly this “exorbitant burden” might prove to be.

China and the rising reserve powers have rotated a large chunk of their $10 trillion stash into EMU bonds to reduce their dollar weighting. The result is a euro too strong for half of EMU….

…Europe’s EMU soap opera has shown why it matters that America is a genuine nation, forged by shared language and the ancestral chords of memory over two centuries, with institutions that ultimately work and a real central bank able to back-stop the system.
The 21st Century may be American after all, just like the last.

Well… What do the US ‘Deficit Chicken Lickens’ think of that then?

How Cutting Property Taxes Makes You Poor

Emer — Mon, 22 Aug 2011 14:19:25 +0000

Tipperary Farmland

The Irish have a lot of learning to do about property taxes. Following the 1903 Land Acts, the new largely Catholic landowners who displaced the largely Protestant absentee landlords, immediately sought to deny their obligation to the people of the nation that had helped them win their fine farms. The worst fears of the hero of the Land Struggle Michael Davitt, were realised as the newly minted nation of small freeholders turned its back on the landless labourer, the urban dweller and the poor. Fianna Fail, the Political Party of the small freeholder grown to encompass the developer and land speculator, went on to first reduce, then abolish and then relieve with capital allowances every fiscal obligation on property owners during their years of uninterrupted power. Town and country planning became an oxymoron as scattered mansions pimpled the hills and rural villages sprouted suburban dead-end appendixes. Infatuation with the land’s ability to capture an easy slice of others’ productivity led to the culpable ignorance and over weaning confidence of a whole cohort of Irish politicians, bankers and professional class. Still they sit on their hands – reluctant to take the first steps to redress the damage to economy and society of the ‘free rides and free lunches’ enjoyed by land ownership. While a Site Value Tax is in the Programme for Government as demanded by the IMF, ECB and ESFS, the Irish Department of Finance has made no move to undertake the research and preparatory work needed to implement it. Word has it, the Department has not been given the political instruction to do so. No Fine Gael nor Labour politician has the ‘magairle’ for the popular backlash. Translation here.

It is hard to credit that the only research currently being undertaken to prepare for a fair property tax is by a tiny underfunded NGO. You guessed it - Smart Taxes.

That long introductory rant introduces Michael Hudson’s brilliant new piece in New Economic Perspectives on how the gradual reduction of US property taxes has lead to a form of debt slavery for millions of Americans. How much worse then it is for the Irish…

Untaxing real estate has served mortgage bankers by freeing more rental income (the land’s site value) to be paid as interest. Property taxes have not absorbed anywhere near the rise in debt-leveraged housing and commercial prices. However, this has not lowered the cost of housing for most people. New buyers must pay a price that capitalizes the property’s rental value. Less and less of this payment has taken the form of local property taxes. More and more has been paid to mortgage lenders as interest. So cutting property taxes has simply left more revenue to be capitalized into higher debt-financed prices. (link to article)

Michael Hudson on Rating Agencies

Emer — Fri, 19 Aug 2011 17:51:35 +0000

Michael Hudson is always worth the time to read. In this piece in New Economic Perspectives he eviscerates the rating agencies. Here are his concluding remarks..

…No less a financial publication than the Wall Street Journal has come to the conclusion that “in a perfect world, S&P wouldn’t exist. And neither would its rivals Moody’s Investors Service and Fitch Ratings Ltd. At least not in their current roles as global judges and juries of corporate and government bonds.”[4] As its financial editor Francesco Guerrera wrote quite eloquently in the aftermath of S&P’s bold threat to downgrade the U.S. Treasury’s credit rating: “The historic decision taken by S&P on Aug. 5 is the culmination of 75 years of policy mistakes that ended up delegating a key regulatory function to three for-profit entities.”

The behavior of leading banks and ratings agencies Cleveland and other similar cases – of promising to give good ratings to states, counties and cities that agree to pay off short-term bank debt by selling off their crown jewels – is not ostensibly criminal under the law (except when their hit men actually succeed in assassination). But the ratings agencies have made an compact with crooks to endorse only public borrowers that agree to pursue such policies and not to prosecute financial fraud.

To acquiescence in such economically destructive financial behavior is the opposite of fiscal responsibility. Cutting federal taxes and Social Security payments to obtain a more positive S&P “opinion” would give banks an ability to “pull the plug” and force privatization and anti-labor austerity plans by refraining from rolling over the U.S. debt – and cutting taxes Tea-Party style rather than funding spending by taxation on a pay-as-you-go-basis.

The present meltdown of the euro provides an object lesson for why policy-making never should be left to central bankers, because their mentality is pro-creditor. Otherwise they would not have the political reliability demanded by the financial sector that has captured the central bank, Treasury and regulatory agencies to gain veto power over who is appointed. Given their preference for debt deflation of the “real” economy – while trying to inflate asset prices by promoting the banks’ product (debt creation) – central bank and Treasury solutions tend to aggravate economic downturns. This is self-destructive because today’s major problem blocking recovery is over-indebtedness.

Mosler Responds to Krugmann with Insider Knowledge versus Abstract Theory

Emer — Wed, 17 Aug 2011 08:54:19 +0000

From Mike Norman here copied in full so there is no excuse not to read and fully understand this crucial issue concerning government spending v bonds sales and inflationary risk.

Monday, August 15, 2011

Warren Mosler critiques Paul Krugman’s “MMT, again”

Paul Krugman’s post is italicized in block quotes. Warren Mosler responds point by point in caps.

Let’s have a more or less concrete example. Suppose that at some future date — a date at which private demand for funds has revived, so that there are lending opportunities — the US government has committed itself to spending equal to 27 percent of GDP, while the tax laws only lead to 17 percent of GDP in revenues.

And consider what happens in that case under two scenarios. In the first, investors believe that the government will eventually raise revenue and/or cut spending, and are willing to lend enough to cover the deficit. In the second, for whatever reason, investors refuse to buy US bonds.

The second case poses no problem, say the MMTers, or at least no worse problem than the first: the US government can simply issue money, crediting it to banks, to pay its bills.

WHICH, WHEN LOOKING AT GOVT. ON A CONSOLIDATED BASIS- FUNCTIONALLY COMBINING THE TSY AND FED, IS WHAT HAPPENS IN ANY CASE.

GOVT. SPENDING ADDS TO MEMBER BANK RESERVE BALANCES, AND TAXING REDUCES THOSE SAME BALANCES. BORROWING SHIFTS THOSE BALANCES FROM RESERVE ACCOUNTS TO SECURITIES ACCOUNTS, BOTH AT THE FED. AND REPAYING BORROWING IS THE SHIFTING OF DOLLARS FROM SECURITIES ACCOUNTS BACK TO RESERVE ACCOUNTS.

POINT HERE IS, THE GOVT. (FROM INCEPTION) CAN’T DO WHAT’S CALLED A RESERVE DRAIN (DEBITING RESERVE ACCOUNTS) WITHOUT FIRST DOING A RESERVE ADD (SPENDING OR LENDING).

SO UNLESS THE GOVT. ALLOWS BANK OVERDRAFTS- AND AN OVERDRAFT, IS, FUNCTIONALLY, A LOANS TO THAT BANK, AND BOOKED AS SUCH WHEN IT HAPPENS- IT CAN’T TAKE DOLLARS OUT OF MEMBER BANK RESERVE ACCOUNTS WITHOUT FIRST PUTTING THEM IN. AND IN THE CASE OF OVERDRAFTS IN RESERVE ACCOUNTS, THE OVERDRAFT LOAN IS THE GOVT DOING A RESERVE ADD FIRST, AND THEN A RESERVE DRAIN.

IT’S LIKE A BUS COMPANY CAN’T COLLECT IT’S TOKENS FOR ANY REASON UNTIL AFTER IT ISSUES THEM. THAT’S THE DIFFERENCE BETWEEN ISSUER AND USER- ISSUERS MUST ISSUE FIRST, AND THEN COLLECT, USERS MUST FIRST COLLECT AND THEN MAKE PAYMENTS.

But what happens next?

We’re assuming that there are lending opportunities out there, so the banks won’t leave their newly acquired reserves sitting idle; they’ll convert them into currency, which they lend to individuals.

IN THE BANKING SYSTEM, THE CAUSATION IS FROM LOANS TO DEPOSITS. LOANS DON’T DIMINISH THE TOTAL RESERVES IN THE BANKING SYSTEM.

So the government indeed ends up financing itself by printing money, getting the private sector to accept pieces of green paper in return for goods and services.

NOT EXACTLY. IF GOVT SPENDS AND DOESN’T ISSUE SECURITIES, WHICH ARE TIME DEPOSITS IN FED SECURITIES ACCOUNTS, THE DOLLARS INSTEAD SIT IN RESERVE ACCOUNTS. IN ORDER TO SUPPORT THE FED’S TARGET RATE OF INTEREST, THE FED THEN PAYS INTEREST ON THOSE RESERVE BALANCES, OFTEN CALLED THE ‘SUPPORT RATE’, OR THE MARGINAL COST OF FUNDS- THE FED FUNDS RATE- FALLS TO 0%.

THE WAY THE GOVT SUPPORTS A NON ZERO RATE TARGET IS TO PAY INTEREST ON THE RESERVE BALANCES CREATED BY DEFICIT SPENDING. IT CAN USE EITHER TSY SECS, WHICH ARE FUNCTIONALLY TIME DEPOSITS AT THE FED, OR INTEREST BEARING RESERVE BALANCES HELD BY MEMBER BANKS AT THE FED.

And I think the MMTers agree that this would lead to inflation; I’m not clear on whether they realize that a deficit financed by money issue is more inflationary than a deficit financed by bond issue.

WITH TODAY’S FLOATING EXCHANGE RATE POLICY, IT’S PRIMARILY THE ACTUAL SPENDING THAT’S INFLATIONARY, AND NOT SO MUCH THE WAY THE SUPPORT RATE IS PAID- EITHER ON OVERNIGHT BALANCES OR ON TERM DEPOSITS (TREASURY SECURITIES).

For it is. And in my hypothetical example, it would be quite likely that the money-financed deficit would lead to hyperinflation.

AS ABOVE. YOUR CONCERN IS FOR FIXED EXCHANGE RATE REGIMES, SUCH AS A GOLD STANDARD, WHERE TREASURY SECURITIES MUST COMPETE WITH THE OPTION TO CONVERT AT THE GOVT. OF ISSUE. AND BY NOT OFFERING TREASURY SECURITIES OR OTHERWISE COMPETING WITH A COMPETITIVE INTEREST RATE, THE HOLDERS OF THE DOLLARS WOULD BE PRONE TO CONVERT THEM AND DRAIN THAT NATION’S RESERVES, WHICH CAN QUICKLY LEAD TO DEVALUATION AND AT LEAST A ONE TIME JUMP IN THE PRICE LEVEL.

The point is that there are limits to the amount of real resources that you can extract through seigniorage. When people expect inflation, they become reluctant to hold cash, which drive prices up and means that the government has to print more money to extract a given amount of real resources, which means higher inflation, etc..

I CALL THAT A DROP IN SAVINGS DESIRES. WITH FLOATING EXCHANGE RATES, INFLATION FROM THAT SOURCE IS TAKEN OUT IN THE LEVEL OF THE CURRENCY. AND YES, WITH INFLATION GOVT SPENDING TENDS TO GO UP, HOWEVER SO DO TAX RECEIPTS, AS PER THE SMALL CARTER SURPLUS IN 1979?

Do the math, and it becomes clear that any attempt to extract too much from seigniorage — more than a few percent of GDP, probably — leads to an infinite upward spiral in inflation.

ALSO, INFLATION IS ALREADY DEFINED AS A CONTINUOUS INCREASE IN THE PRICE LEVEL. MORE OFTEN THAN NOT, I’VE SEEN RATES OF INFLATION STABILIZE AT ELEVATED LEVELS, RATHER THAN ACCELERATE, THOUGH IT’S CERTAINLY POSSIBLE IF PUSHED ENOUGH.

I SAY IT THIS WAY- THE RISK OF OVERSPENDING IS INFLATION, NOT SOLVENCY.

AND EVEN IN RUSSIA IN 1998, A CLASSIC FIXED EXCHANGE RATE BLOW UP, THE RUBLE WENT FROM 6.45 TO THE DOLLAR TO ABOUT 28 TO THE DOLLAR, WHERE IT’S PRETTY MUCH BEEN EVER SINCE. SAME WITH THE MEXICAN PESO A FEW YEARS BEFORE THAT. IT WENT FROM 3.5 TO ABOUT 10 TO THE DOLLAR AND PRETTY MUCH STABILIZED THERE. BUT ALL I’M SAYING HERE IS THAT CONTINUOUSLY ACCELERATING INFLATION ISN’T NECESSARILY AUTOMATIC, EVEN IN SITUATIONS FAR WORSE THEN ANYONE’S IMAGINING FOR THE US.

In effect, the currency is destroyed. This would not happen, even with the same deficit, if the government can still sell bonds.

AS ABOVE, IT’S NOT ABOUT BOND SALES PER SE WITH OUR CURRENT INSTITUTIONAL ARRANGEMENTS.

The point is that under normal, non-liquidity-trap conditions, the direct effects of the deficit on aggregate demand are by no means the whole story; it matters whether the government can issue bonds or has to rely on the printing press. And while it may literally be true that a government with its own currency can’t go bankrupt, it can destroy that currency if it loses fiscal credibility.

RESPECTFULLY DON’T AGREE, AS ABOVE. WITH TODAY’S INSTITUTIONAL STRUCTURE IT’S ENTIRELY A MATTER OF AGGREGATE DEMAND.

Now, I am not predicting hyperinflation for the US — I am not Peter Schiff! Most of our current deficit is cyclical, and even in the long run a modest return of political rationality would make the budget issue eminently solvable. But the MMT people are just wrong in believing that the only question you need to ask about the budget deficit is whether it supplies the right amount of aggregate demand; financeability matters too, even with fiat money.

AGAIN, NOT THE CASE WITH TODAY’S INSTITUTIONAL STRUCTURE. I’VE BEEN AN ‘INSIDER’ IN MONETARY OPERATIONS FOR ALMOST 40 YEARS. I KNOW HOW THE DEBITS AND CREDITS WORK. AND EVERYONE IN FED OPERATIONS WOULD AGREE WITH ME.

source

William Black Speaks the Truth

Emer — Sat, 13 Aug 2011 13:34:38 +0000

from New Economic Perspectives

Bill Black quotes the CIA as saying the Irish austerity programme is ‘draconian’. Great fun!

Saturday, August 13, 2011

William K. Black interviewed by Ian Masters on KPFK FM-90.7 – Los Angeles

William K. Black was interviewed by Ian Masters on KPFK FM-90.7 – Los Angeles. Click here to listen to the full interview. You can also listen to the full program .

Why minting trillion dollar coins is not inflationary

Emer — Mon, 01 Aug 2011 16:15:58 +0000

This is a long post in New Economic Perspectives setting out patiently and exhaustively why minting trillion dollar coins is not inflationary in itself…

Coin Seignorage and Inflation

Monday, August 01, 2011

By Scott Fullwiler

Solving the debt-ceiling issue via proof platinum coin seigniorage—an idea that began and was nurtured within the MMT ranks, mostly by Joe Firestone and Beowulf (see Joe’s post here and the numerous links therein)—has gone viral in the blogs and news sources as a viable option to end the debt ceiling crisis. The one thing that naysayers, and even some supporters, instinctively claim, however, is that coin seigniorage would be inflationary or even hyperinflationary. But this is not true!….

Let’s begin by noting the most basic point in the proposal (see link above for more details)—a platinum coin or coins would be minted and deposited in the US Mint’s Public Enterprise Fund (PEF) at the Fed, where it would be credited for its (their) full legal tender face value by the Fed. The Treasury would then “sweep” the profits (the difference between the cost to the Mint of producing the coin (s) and face value of the coin(s)) into the Treasury general Account (TGA) at the Federal Reserve. The face value of the coin(s) can be whatever the Mint chooses to stamp on it (them); there is no requirement that the coin(s) weight be related to the face value. So, the coin(s) could be $1 trillion or more, or less if preferred. This is all perfectly legal, as, again, several blogs and news articles have explained. It’s highly unlikely that one would have to worry about the coin(s) being stolen—they would be nothing more than a collector’s item as the extraordinarily high dollar value could never actually be cashed anywhere (who’s going to give you change for $1 trillion?).

He concludes…

Analytical Mistakes Made by Those Claiming Coin Seigniorage Would Be Inflationary

All in all, those claiming that proof-platinum coin seigniorage would be inflationary are in fact guilty of one or more of the following:

(a) misunderstanding the very basics of the proposal;
(b) misunderstanding how the monetary system actually works;
(c) misunderstanding the standard textbook explanation of the monetary system; and/or
(d) misunderstanding the options available to policy makers for dealing with concerns related to the standard textbook understanding of the monetary system.

Consequently, there is simply no reason for anyone who has carefully thought through the proposal and how it would actually work to argue that coin seigniorage would be inflationary (aside from the possible temporary reactions by those in markets that might similarly have a poor understanding of both of these—which itself assumes that policy makers in conflict with their own interests do a poor job of explaining the proposal and its effects).

Conclusion

We need to be on guard against inflation all the time; indeed, MMT’ers have always argued that inflation is the true constraint that the government should concern itself with, not traditional notions of “sound finance” or “bankruptcy.” Even so, we shouldn’t be paralyzed in adopting new financial arrangements for the federal government by people invoking the bogeyman hiding under the bed. That, only means that we will never cope with our financial problems and always remain in the present silly deadlocks, or worse (as in, sometimes the solutions to the deadlocks make one wonder if the deadlock was all that bad). What I’ve shown above is that there’s no reason to believe that using proof-platinum coin seigniorage will cause either significant demand-pull or cost-push inflation, regardless of the denomination, whether it be $ 1 trillion or $60 trillion, of the coin used to fill the federal purse. So, the coin seigniorage option for coping with the debt ceiling—whether now or in the future—is both a legal option, and also one that will not have any inflationary side effects.

The amount of coin seigniorage employed is highly significant for several issues, including the following: whether we will have any federal debt in the future as measured by the debt ceiling or the ratings agencies; whether wealthy individuals or foreign nations will continue to receive risk-free “welfare” payments in the form of interest from the federal government; whether we will perform reserve drains via debt issuance or paying interest on reserve balances; whether arguing over the national debt and deficits will have a place in our politics anymore; whether we will ever suffer the fate of Greece. However, one issue that it is not relevant to is whether coin seigniorage itself causes inflation. It just doesn’t.

(Special thanks to Joe Firestone for helpful comments and suggestions. For those interested, there is further discussion of the issues raised above here)