Hoover on austerity to balance the budget and defend the dollar in 1932

I have written quite a few posts highlighting the statements made by Herbert Hoover during his US presidency as he struggled with the economic contraction of the Great Depression. The general tenor of Hoover’s comments and actions goes to redoubling efforts toward balancing the federal budget in order to bring back the fiscal discipline that Hoover felt was proper irrespective of the macro environment and that Hoover also believed would support the US dollar.

In the past, some commenters have expressed doubt about Hoover’s deficit hawk bona fides. Having looked through the assortment of Hoover documents at the American Presidency Project, what is clear to me is that Hoover was indeed committed to balancing the budget by cutting expenditure and raising taxes despite the economic slide

Class Warfare

we are seeing an ever shrinking number of people paying an ever greater portion of the taxes. Though they also are the ever shrinking number of people acquiring an ever greater portion of the wealth. There is little that matches the artfulness in waving off criticism of the widening income gap as “class warfare”. And there is little that matches the gullibility of those who follow along

On Spain’s Budget With Details Tomorrow

Banks, households and the government sector are all engaged in deleveraging. It is difficult to see where aggregate demand will come from. Spanish exports in January were up about 4% from a year ago, but the pace appears to be leveling off. Spain’s stock market is the worst performing in the euro zone thus far this year, losing 6.1% and 10-year bond is the worst performing bond in the euro zone thus far as well. The risk is downside on growth and upside on the deficit

The Japan debt disaster and China’s (non)rebalancing

In this issue of the newsletter I want to sketch out a scenario in which rather than analyze policy announcements or make predictions I try to lay out what are the various possible paths open to China. The scenario concerns trade. China’s current account surplus has declined sharply from its peak of roughly 10% of GDP in the 2007-2008 period to probably just under 4% of GDP last year. Over the next two years the forecast is, depending on who you talk to, either that it will rise significantly, or that it will decline to zero and perhaps even run into deficit. The Ministry of Commerce has argued the latter and the World Bank the former

Italy has taken significant steps away from the abyss

Part of the rise of Italy under Monti is a function of how far it had slipped under Berlusconi. Another aspect of Italy’s improvement is a function of the Monti’s fellow countryman Draghi, who at the helm of the ECB has reversed Trichet’s tightening and accelerated the expansion of the ECB’s balance sheet with 3-year funding. There is another development that has benefited Italy. Italy’s star has risen as Spain’s star has dimmed

There is No Closure in Greece Whatsoever

Despite the Greek parliament’s approval of austerity measures, there is still considerable uncertainty in the Greek situation. This post outlines many of the issues still up in the air

Milton Friedman, Functional Finance and the Government Budget Constraint

Last week we examined Milton Friedman’s version of Functional Finance, which we found to be remarkably similar to Abba Lerner’s. The only problem with Friedman’s analysis is that he did not account for the external sector: he wanted a balanced budget at full employment, but if a country tends to run a trade deficit at full employment, then it must have a government budget deficit to allow the private sector to run a balanced budget—which is the minimum we should normally expect. Somehow all this understanding was lost over the course of the postwar period, replaced by “sound finance” which is anything but sound. It was based on an inappropriate extension of the household “budget constraint” to government

Spanish government doubts it can achieve deficit target

I have been saying for a few months now that all of the periphery would miss their targets as depression took hold. Belgian newspaper De Standaard reports that the new Spanish government is fearful. My translation from Dutch below

[Premium] Willem Buiter: “We will certainly have a panic stage before the debt crisis is resolved” (part 2)

Continuing from part 1 of the Willem Buiter interview with het Financieele Dagblad

Mosler: I advocate tax relief and jobs, but forecast muddle through at best

Warren Mosler proposes a full FICA suspension, a $150 billion one time distribution to the states and an $8/hr federally funded transition job for anyone willing and able to work. However he believes these proposals will likely not be followed and predicts muddle through at best as a result

It is Krugman who has shined the headlights on the difference between a currency issuer and a currency user

It seems to have been none other than Paul Krugman who made it safe for others to adopt MMT. He shined his headlights on the obvious: the reason why interest rates on government debt are not exploding in countries like Japan, the US, and the UK is because they issue their own currencies. So, Krugman shined the headlights on the difference between a currency issuer and a currency user. It is now time for everyone to follow Dean Baker—to look for the car keys under those MMT headlights

Government Spending with Self-Imposed Constraints

Let’s see how it is really done in the US—where the Treasury really does hold accounts in both private banks and the Fed, but can write checks only on its account at the Fed. Further, the Fed is prohibited from buying Treasuries directly from the Treasury (and is not supposed to allow overdrafts on the Treasury’s account)