Tea Party Presentation Draft

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Tell Arnold to make them eligible for payment of state taxes and they can forever use the IOU’s for state purchases in place of $US

July 1 (Reuters) — California prepared on Tuesday to resort to issuing IOUs as the giant but cash-strapped U.S. state struggled to approve a new budget in time for the new fiscal year that begins on Wednesday.

The IOUs, which are notes promising payment to vendors and local agencies, or shutting down some public services, are among measures that California and other states may have to rely on as they contend with staggering budget gaps caused by the U.S. recession.

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Letter to the Governor of California

Dear Governor Schwarzenegger

I note that the State of California is planning to issue IOUs
(registered warrants) from tomorrow (July 2) to ease your cash situation
in the face of the political dispute you are having over the budget with
the Democrats.

My latest blog - California IOUs are not currency … but they could be!
- analyses this situation and suggests that you “tax-empower” these IOUs
- a move that will radically enhance the options available to you. You
can read the blog here

In summary:

1. It would be economic madness to start cutting your deficit now given
the extent of labour market deterioration your state is currently
enduring.

2. The present plan to issue IOUs will hurt the most disadvantaged
members of your community because the warrants will not be readily
tradeable and it is unclear whether banks will be prepared to hold them
for the interest payment on redemption (that is, cash them).

3. You can easily eliminate this disadvantage by making the IOUs
eligible for payment of Californian state taxes and fines. This one
change to your current plan will allow you to create your own sovereign
currency and the IOUs will become widely accepted within the community.
Even those who are not being directly paid in IOUs would be happy to
hold them because they would realise they could extinguish their tax
obligations to your government using them.

4. You could then use these IOUs forever for state purchases as a
substitute for USD and avoid issuing more debt.

5. You will also be able to directly employ the 2.1 million Californian
citizens who are currently unemployed with the IOUs and start using this
idle labour to advance public purpose via community development
projects.

If you need any further advice on this please do not hesitate to
contact me.

best wishes
bill

–

William F. Mitchell
Professor of Economics
Director, Centre of Full Employment and Equity
University of Newcastle
New South Wales, Australia

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I am thinking earnings season should be pretty good this quarter.

Fiscal policy has been more than supportive since year end, fiscal consolidation is currently still all talk.

Negative shock risks are still there, however, California, eurozone banks and/or governments, nukes, etc.

Not sure on timing.

World Outlook: Recovery ahead

For the first time since the beginning of the downturn we have revised up our forecasts for economic growth. We now expect global growth to rise to 2.5% in 2010 compared to 2.0% envisaged in our previous World Outlook from 30 March 2009. The upward revision is due entirely to better prospects for industrial countries, where growth next year is now seen reaching 1.0% compared to 0.3% before.

Most of the upward revision to global growth in 2010 results from a stronger outlook for investment growth (which has risen to 2.0% from 0.1%) and export growth (up to 4.1% from -2.2% before). The improved prospects for exports and investment reflect greater confidence in the effectiveness of authorities’ efforts to restore stability in the financial sector.

In our view the global economic and financial crisis has had two key drivers: (1) the breakdown of the global growth model of the past decade or so, which led to unsustainable international current account imbalances; and (2) the financial crisis, which ensued when the inability of debtors to repay their creditors became evident. As a result, we can expect to see lower trend growth and higher economic volatility, the opposite of what the world economy experienced during the era of the Great Moderation.

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Gasoline demand sort of flat year over year.

And GDP growth still negative, though less so now.

Doesn’t look like there was an serious ‘demand destruction?’

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Don’t think markets are ready for this:

Exporters warn of German credit squeeze

by Ralph Atkins

June 26th (Bloomberg) — Germany’s powerful export industry is warning of a credit squeeze in Europe’s largest economy even after the European Central Bank’s injection this week of one-year liquidity into the eurozone banking system.

The German BGA exporters’ association on Thursday forecast a “dramatic deterioration” in credit conditions in coming months, which would result in “massive financing squeeze”.

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This gets more ridiculous by the hour.
The dependence on China already was zero.

And, as in my previous post, the high savings rate of the non government sector
comes dollar for dollar from the deficit and is not necessarily indicative of
low spending.

If it were, that would imply there is no inflation risk to deficit spending on the grounds that it all gets added to savings.

So once again one of our opinion leaders is making a statement that supports the opposite of what he thinks it supports.

Federal deficit spending is clearly adding to incomes, savings, and spending.

As it always does.

Surging U.S. Savings Rate Reduces Dependence on China

by Rich Miller and Alison Sider

June 26th (Bloomberg) — Saks Fifth Avenue is cutting orders 20 percent after postinglosses in the last four quarters. Kia Harris says some customers at the Washington shoe store where she works are buying one pair rather than three.

Incomes and spending were up in yesterday’s report.

In the recession following a borrowing binge that sent consumer debt to the highest level ever, Americans are shutting their wallets and building their nest eggs at the fastest pace in 15 years.

Non government savings and income is ‘funded’ by federal deficit spending — to the penny

While the trend will put the country’s finances in better balance and reduce its dependence on Chinese investment,

Dependence on Chinese investment remains at zero where it’s always been.

it may also restrain economic growth in 2010 and beyond,

No, in fact the higher income and savings added by the federal deficit tends to expand aggregate demand and real economic growth.

said Lyle Gramley, a senior economic adviser with New York-based Soleil Securities Corp. and a former Federal Reserve governor.

Who would have thought???…

“There’s been a fundamental change in people’s behavior,” he said. “It will affect the economy for years.”

Government data today showed that the household savings rate rose to 6.9 percent in May, the highest since December 1993, as personal spending increased less than incomes. The rate in April 2008 was zero.

1993 was also a year of very high federal deficit spending.

This stuff is not that hard…

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Lending follows the markets.

As the economy improves banks and other lenders figure it out and jump in.

Also, today’s news on personal income is very bullish as well.

It shows fiscal policy ‘works’ as it did for q2 last year.

The concern is that the ’savings rate’ is high which takes away from spending.

Not necessarily.

The ’savings’ comes from federal deficit spending.

Net federal spending adds financial assets to someone’s account in the non government sector that can’t ‘go away.’

The federal spending can be spent many times over and savings will still go up by the same amount.

So to me it looks like the deficit spending is currently high enough to have sufficiently restored savings to levels that promote at least modest increases in consumption.

But not yet enough to bring unemployment down as the output gap continues to grow.

JPMorgan, Citigroup Expand in ‘Jumbo’ Home Mortgages

by Jody Shenn

June 26 (Bloomberg) —JPMorgan Chase & Co. and Citigroup Inc. are expanding in “jumbo” mortgages used to buy the most expensive homes, helping revive a market that shriveled amid a three-year jump in homeowner defaults.

JPMorgan resumed buying new jumbo loans made by other lenders this month, after halting purchases in March, spokesman Tom Kelly said. Borrowers must have checking accounts with the bank, he said. Citigroup is again offering the loans through independent mortgage brokers, spokesman Mark Rodgers said.

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Wonder if they’ve used it?

In my humble opinion lending them $30 billion unsecured is a high risk proposition.

U.S. Federal Reserve Extends Swap Line With Brazil Central Bank

June 25 (Bloomberg) — Brazil’s central bank said today it
has extended an agreement to access up to $30 billion from the
U.S. Federal Reserve as part of a coordinated international
effort to shore up shaky financial markets.

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Yes, infinite, in fact.

Put that into your debt to income calculations…

S&P SAYS JAPAN HAS ENOUGH FUNDS TO SERVICE RISING DEBT COSTS

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