A brothel running from a single-bed flat above a Rose Hill shop was shut down by police yesterday. Officers entered the flat to find two Brazilian women aged 33 and 40 at 4.30pm. One said she was married, the other was wearing a towel

December 20, 2013 § Leave a comment


… when you think about money it is at least a good idea to take into account that the definition you use might need to include government bonds. They are a central part of the transaction infrastructure of the U.S. economy.

And if you include government bonds as money, then you’ll see there is very little money creation going in QE. Trading bond-money for reserve-money shifts the components of the money supply but does not necessarily increase it. (If the Fed is paying a premium for the bonds, or the Fed’s buying drives the market for the bonds up, there probably is some marginal increase in the money supply.) Of course, this might have important effects but the effect cannot be explained as simply as the standard monetarist narrative would have it.

So why not consider government bonds money? Here’s how Sumner recently responded in the comment section on his blog:

And I do not consider money and bonds to be close substitutes. When I go shopping I do not agonize about whether to bring cash or T-bills to the grocery store. And bonds pay interest, cash does not. Even reserves paid no interest until 2008, when the Fed shot itself in the foot with IOR.

Frankly, I don’t know what the grocery store insertion accomplishes here. My local grocery store won’t accept bills in denominations larger than $50. Are $100 bills not money? Is the balance of my bank account not money because I have to write a check or go to an ATM to settle a transaction at my grocery store? Is all available consumer credit card indebtedness money because it could be used in grocery stores? The grocery store test is both under-inclusive and over-inclusive.

More importantly, Sumner begs the question: are bonds money? It’s not whether money and bonds are close substitutes but whether, when it comes to figuring out whether QE is inflationary, bonds and reserves are close substitutes and should both count as money. And with both bonds and reserves paying a bit of interest these days, and both being transactional currencies considered both safe and liquid, it seems that they are.

The upside of counting bonds in the relevant money supply is that it explains why the QE-driven enormous expansion of the Fed’s balance sheet—that is, the growth of base money—hasn’t been very inflationary. You don’t have to make up phantom, Occam’s Razor violating concepts such as “demand for reserves,” to explain this. You just notice that QE doesn’t grow the money supply by very much.  read more

PHOTOGRAPH: Andrew Shapter

I give this book one star because the drone landed on my cat

December 3, 2013 § Leave a comment


If the government is in surplus, it means that the government is taking in more cash than it’s spending, which is the opposite of stimulus.

It’s also well known that the US trade deficit exploded during the late 90s, which means that ‘X-M’ was also a huge drag on GDP during his years.

So the trade deficit was subtracting from GDP, and the government was sucking up more money from the private sector than it was pushing out.

There was only one “sector” of the economy left to compensate: Private consumption. And private consumption compensated for the drags from government and trade in two ways.

First, the household savings rate collapsed during the Clinton years.

And even more ominously, household debt began to surge.

So already you can see how the crisis started to germinate under Clinton.

As his trade and budget policies became a drag on the economy, households spent and went into debt like never before.

Economist Stephanie Kelton expounded further…

“Now, you might ask, “What’s the matter with a negative private sector balance?”. We had that during the Clinton boom, and we had low inflation, decent growth and very low unemployment. The Goldilocks economy, as it was known. The great moderation. Again, few economists saw what was happening with any degree of clarity. My colleagues at the Levy Institute were not fooled. Wynne Godley wrote brilliant stuff during this period. While the CBO was predicting surpluses “as far as the eye can see” (15+ years in their forecasts), Wynne said it would never happen. He knew it couldn’t because the government could only run surpluses for 15+ years if the domestic private sector ran deficits for 15+ years. The CBO had it all wrong, and they had it wrong because they did not understand the implications of their forecast for the rest of the economy. The private sector cannot survive in negative territory. It cannot go on, year after year, spending more than its income. It is not like the US government…”  read more

PHOTOGRAPH: Achille Volpe

A subject and a verb walk into a bar. They have a disagreement. They walks out

November 8, 2013 § Leave a comment


To put things crudely, there are two ways to get the increase in total spending that we call “economic growth.” One way is for government to spend. The other is for banks to lend. Leaving aside short-term adjustments like increased net exports or financial innovation, that’s basically all there is. Governments and banks are the two entities with the power to create something from nothing. If total spending power is to grow, one or the other of these two great financial motors–public deficits or private loans–has to be in action.

For ordinary people, public budget deficits, despite their bad reputation, are much better than private loans. Deficits put money in private pockets. Private households get more cash. They own that cash free and clear, and they can spend it as they like. If they wish, they can also convert it into interest-earning government bonds or they can repay their debts. This is called an increase in “net financial wealth.” Ordinary people benefit, but there is nothing in it for banks.

And this, in the simplest terms, explains the deficit phobia of Wall Street, the corporate media and the right-wing economists. Bankers don’t like budget deficits because they compete with bank loans as a source of growth. When a bank makes a loan, cash balances in private hands also go up. But now the cash is not owned free and clear. There is a contractual obligation to pay interest and to repay principal. If the enterprise defaults, there may be an asset left over–a house or factory or company–that will then become the property of the bank. It’s easy to see why bankers love private credit but hate public deficits.

All of this should be painfully obvious, but it is deeply obscure. It is obscure because legions of Wall Streeters–led notably in our time by Peter Peterson and his front man, former comptroller general David Walker, and including the Robert Rubin wing of the Democratic Party and numerous “bipartisan” enterprises like the Concord Coalition and the Committee for a Responsible Federal Budget–have labored mightily to confuse the issues. These spirits never uttered a single word of warning about the financial crisis, which originated on Wall Street under the noses of their bag men. But they constantly warn, quite falsely, that the government is a “super subprime” “Ponzi scheme,” which it is not.

We also hear, from the same people, about the impending “bankruptcy” of Social Security, Medicare–even the United States itself. Or of the burden that public debts will “impose on our grandchildren.” Or about “unfunded liabilities” supposedly facing us all. All of this forms part of one of the great misinformation campaigns of all time.

The misinformation is rooted in what many consider to be plain common sense. It may seem like homely wisdom, especially, to say that “just like the family, the government can’t live beyond its means.” But it’s not. In these matters the public and private sectors differ on a very basic point. Your family needs income in order to pay its debts. Your government does not.

Private borrowers can and do default. They go bankrupt (a protection civilized societies afford them instead of debtors’ prisons). Or if they have a mortgage, in most states they can simply walk away from their house if they can no longer continue to make payments on it.

With government, the risk of nonpayment does not exist. Government spends money (and pays interest) simply by typing numbers into a computer. Unlike private debtors, government does not need to have cash on hand. As the inspired amateur economist Warren Mosler likes to say, the person who writes Social Security checks at the Treasury does not have the phone number of the tax collector at the IRS. If you choose to pay taxes in cash, the government will give you a receipt–and shred the bills. Since it is the source of money, government can’t run out.

It’s true that government can spend imprudently. Too much spending, net of taxes, may lead to inflation, often via currency depreciation–though with the world in recession, that’s not an immediate risk. Wasteful spending–on unnecessary military adventures, say–burns real resources. But no government can ever be forced to default on debts in a currency it controls. Public defaults happen only when governments don’t control the currency in which they owe debts–as Argentina owed dollars or as Greece now (it hasn’t defaulted yet) owes euros. But for true sovereigns, bankruptcy is an irrelevant concept. When Obama says, even offhand, that the United States is “out of money,” he’s talking nonsense–dangerous nonsense. One wonders if he believes it.

Nor is public debt a burden on future generations. It does not have to be repaid, and in practice it will never be repaid. Personal debts are generally settled during the lifetime of the debtor or at death, because one person cannot easily encumber another. But public debt does not ever have to be repaid. Governments do not die–except in war or revolution, and when that happens, their debts are generally moot anyway.

So the public debt simply increases from one year to the next. In the entire history of the United States it has done so, with budget deficits and increased public debt on all but about six very short occasions–with each surplus followed by a recession.  read more

PHOTOGRAPH: Michael Wolf

If all else fails (has failed) I can at least describe a place

July 26, 2013 § Leave a comment


“Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $30,000,000 of their own money the people of the United States should be compelled to pay $66,000,000 — that is what it amounts to, with interest. People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work. That is the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost, on that account. Under the present system of doing business we simply add 120 to 150 per cent, to the stated cost.

“But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good. The difference between the bond and the bill is that the bond lets the money brokers collect twice the amount of the bond and an additional 20 per cent, whereas the currency pays nobody but those who directly contribute to Muscle Shoals in some useful way…

“It is absurd to say that our country can issue $30,000,000 in bonds and not $30,000,000 in currency. Both are promises to pay; but one promise fattens the usurer, and the other helps the people. If the currency issued by the Government were no good, then the bonds issued would be no good either…”

“Are you going to have anything to do with outlining this proposed policy?” Mr. Edison was asked.

“I am just expressing my opinion as a citizen,” he replied.  “Ford’s idea is flawless. They won’t like it…”  read more

PHOTOGRAPH: Thomas Demand

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