Tuesday , August 9 2022

Warren Mosler

Warren Mosler is an American economist and theorist, and one of the leading voices in the field of Modern Monetary Theory (MMT). Presently, Warren resides on St. Croix, in the US Virgin Islands, where he owns and operates Valance Co., Inc.

Articles by Warren Mosler

Consumer credit, Supply Chain, China exports

1 day ago

This is about borrowing to spend, indicating positive spending and GDP:

Pressures easing here:

And this may indicate global spending is holding up:

So in short we had Covid deficit spending north of 15% of GDP supporting strong growth, followed by a collapse in deficit spending that resulted in a strong deceleration of growth. However sufficient deficit spending remains (about 5% of GDP) to sustain more modest levels of growth.

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Exports, employment

3 days ago

This is adding support to employment and output, even as consumption weakens. The relatively low cost of energy should keep it going for a while:

No sign of recession here:

Still falling short of price increases so obviously not the cause:

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Manufacturing PMI, construction spending, hires, loans

6 days ago

Still in positive growth:

A bit softer after a post-Covid acceleration:

Took a zig down last month but still very high and still trending higher:

Lending continues higher well after the rate hikes, which presumably work to cut demand by dampening lending:

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GDP, population, vehicle sales

11 days ago

Weak headline, but so far not looking as bad as most mistakenly expected with Fed rate hikes:

Slowing in real terms but growing:

Growing fast in nominal terms:

This is telling:

They’ve generally been falling off for several years, though up a bit for the last three months since the rate hikes:

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Durable goods orders, oil prices, Saudi OSP’s

12 days ago

Not adjusted for inflation but not showing signs of recession:

If oil prices remain near current levels the inflation is over and we’re back to pre-Covid low inflation and slow growth, with a government deficit of maybe 5-6% of GDP (including the new interest expense from the rate hikes which support the economy) supporting demand and a Congress that believes the deficit has to come down to contain inflationary pressures.

But I think it’s far more likely that oil prices spike much higher as Saudis have hiked prices again and are working with Russia to destabilize the west. And with higher oil prices it all falls apart again:

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DFO optimism, homebuyer competition, Architecture index, mortgage purchase apps, builder confidence

19 days ago

This makes sense to me. We have had a post-Covid war slowdown in federal spending that is evidenced by the decelerating economy. But the federal deficit is still high enough to keep things muddling through at modest growth, helped some by the rate hikes whichare universally believed to slow things down when in fact the increased deficit spending for the additional federal interest expense adds a bit of (highly regressive) support for the economy:

It has fallen off with the slowdown but remains reasonably high historically:

Down from the highs but still showing growth:

After a large Covid dip followed by a post-Covid recovery sales are just below where they were for most of the pre-Covid years. And with prices a lot higher nominal sales are still much higher:


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Shipping, CPI

24 days ago

Worst of the shipping issues are behind us:

Wholesale price growth is moderating as well:

Core CPI growth also moderating:

Headline CPI continues to grow, and it is mainly driven by energy prices:

Recently, however, energy prices, which have been the primary driver of higher prices, have dropped substantially, so the next CPI report will show a substantial reduction:

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ISM services, employment

July 8, 2022

The rate of growth has been decelerating due to the fiscal contraction, but remains over 50 which means positive growth:

No recession here as employment growth continues and unemployment isn’t rising. Yes, growth is slowing from the post-Covid fiscal collapse, but not yet to the point of negative growth. And the increase in prices that exceeds wage growth further works to cause people to take whatever jobs they can to make ends meet.

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Philly Fed, labor demand, bank loans

June 17, 2022

Manufacturing settling down to ‘neutral’ after peaking well before the rate hikes as post-Covid shortages are alleviated:

Labor demand also peaked well before the rate hikes:
Still no sign rate hikes have slowed lending 😉

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Housing starts, industrial production, small business index

June 17, 2022

Growth overall remains sluggish as the economy becomes dependent on private sector credit expansion (private sector deficit spending) to offset the too tight post-Covid fiscal policy.
Fed rate hikes add interest income to the economy as gov pays more interest on the $30+ trillion of public debt, which, if anything, supports rather than dampens demand or credit expansion, but it does contribute to higher prices which further reduces the real, inflation adjusted value of the public debt, which is a fiscal tightening. This is a repeat of 1979 where the increase in the price level exceeded the growth in deficit spending which is functionally the same as the govt running a budget surplus.
Down for the month but so far the weak upward trend remains:

Perhaps leveling off at

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Consumer sentiment, Federal receipts, CPI

June 10, 2022

The post-Covid fiscal deficit reduction continues to take its toll:

Higher prices automatically result in a spike in tax receipts:

Higher prices, now largely from energy prices pushing up costs, reduce the inflation adjusted value of the public debt, which acts like a tax on the economy:

With the rate of CPI increase above the rate of deficit spending, the effect is that of a budget surplus:

Spiking energy prices as Saudis set prices ever higher shift $ from consumers with high propensities to spend to producers with low propensities to spend, and this won’t end until demand collapses:

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Employment, ISM services, vehicle sales, oil price

June 4, 2022

Leveling off at approximately pre-Covid levels.
The growth rate slowed as deficit spending dropped:
Still in expansion but it has come way down with the post-Covid war.Drop in deficit spending that has been driving the general deceleration:

Not looking good. The parts shortage is largely over, so it is about a lack of demand as deficit spending falls and prices in general rise faster than incomes:

Oil prices (not money supply, for example) continue to drive headline inflation as Saudis continue to set the OSP spreads above ‘fair economic value’ which continuously drive price higher until demand collapses:

And as Saudis set price and then pump and sell as much as is demanded at their price.
Increased production indicates demand is increasing for their output:


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Consumer sentiment, NY manufacturing, oil prices

May 16, 2022

2008 type of collapse:

Lowest ever:

Saudi OSPs are still at premiums to fair market value, and the price trend is still up. If it keeps going all heck breaks loose:

The President threw the strategic petroleum reserve at it, and lots of other nations did the same, to no avail. And the calendar spreads in the futures market is indicating absolute spot shortages:

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Small business optimism index, record budget surplus, commodities

May 12, 2022

This is the automatic fiscal stabilizers doing their thing to slow things down during a recovery, and they keep increasing the pressure until growth goes negative. Additionally, with some $30 trillion of public debt, an 8% increase in prices means the value of the public debt- the net money supply in the economy- has contracted by about $2.4 trillion. This is a direct ‘removal of savings’ and functions the same as a tax on savings, thereby slowing the economy. It is reflected in the debt/GDP ratio which is falling rapidly.

This is how a typical post war slump develops- high wartime deficit spending followed by a reduction in deficit spending.

The US posted a budget surplus of USD 308 billion in April of 2022, the highest on record, switching from a USD 226

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May 11, 2022

My take is we’ve had a one time upward adjustment in prices due to increased costs from Covid-related supply issues, along with supply side disruptions from the Trump/Biden tariffs.

Prices seem to have begun to level off and go sideways, which would mean CPI increases returning to the lower, pre-Covid monthly increases:

However, if energy costs don’t level off and instead rise dramatically, CPI will be dragged upward as well:

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Employment, China

May 6, 2022

Employment generates income and spending.
The gap vs the pre-covid path is closing at an ever slowing rate.
And the cost of living is rising faster than wages, which exacts a toll as well.

These are inflation-adjusted:

This came out last week:

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Personal income and spending

May 3, 2022

This series keeps drifting lower as personal income isn’t keeping up with price increases:

And the economy itself isn’t growing real personal income the way it did pre-covid:

Likewise, personal consumption is sluggish:

People are saving less and less every month:

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GDP, jobless claims

May 3, 2022

Typical post war recession type of outcome, as previously discussed:

One reason for the low unemployment in the US is that for a lot of people you need a job to get health insurance:https://tradingeconomics.com/united-states/jobless-claims

Reported inflation will fall rapidly unless energy prices increase from current levels,which is likely given current Saudi OSP’s and EU responses to the war:

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Europe’s debtors must pawn their gold for Eurobond Redemption

April 27, 2022

And their central banks can buy unlimited amounts to support the price.
Not that they would do that…

Europe’s debtors must pawn their gold for Eurobond Redemption
By Ambrose Evans-Pritchard
May 29 (Telegraph) — The German scheme — known as the European Redemption Pact — offers a form of “Eurobonds Lite” that can be squared with the German constitution and breaks the political logjam. It is a highly creative way out of the debt crisis, but is not a soft option for Italy, Spain, Portugal, and other states in trouble.
The plan is drafted by the German Council of Economic Experts and inspired by Alexander Hamilton’s Sinking Fund in the United States — created in 1790 to clean up the morass of debts left by the Revolutionary War. Flourishing Virginia was comparable to Germany

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Thinking Caps On – Grab a Coffee – Sales/Trading Commentary

April 21, 2022

From: JJ LANDOAt: May 14 2013 07:41:14
Consider the following thought experiment. These are the scenarios:A. The Treasury decides that it will fund itself 30% more in Overnight Bills and reduce issuance across the curve.B. The Fed announces it will increase QE by 30% (it will remit the net income of this activity back to the Treasury like taxes)C. Congress announces a new tax on all passive income from USTs, to holders both at home and abroad (ie Central Banks), for all new-issue USTsD. Lew pre-announces that we will ‘selectively default’ and apply a haircut of on all future Treasury coupon payments of new issues.
Here’s what’s funny. Most intelligent market participants will say things like:A. Stocks down a few percent on fear of downgrade. Economy slightly weaker or

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