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Is the Job Guarantee a Ponzi Scheme?

“The basic idea is that the government can’t run out of money. It creates money just by spending.” — Stephanie Kelton

This is true. Government cannot run out of its own money. But what is money? It is a token or pledge that can be redeemed for something of value. If government creates much more money than there are things of value to redeem it for the prices of those things go up. Not to worry, Zach Carter assures us:

But even inflation doesn’t impose a hard limit on policy options. The Federal Reserve can raise interest rates to deal with it, Congress can raise taxes to pull money out of circulation or even impose price controls.

Hyman Minsky expanded on this explanation in his financial instability hypothesis:

The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system.

In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy with a sizable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values.

The financial instability hypothesis is a model of a capitalist economy which does not rely upon exogenous shocks to generate business cycles of varying severity. The hypothesis holds that business cycles of history are compounded out of (i) the internal dynamics of capitalist economies, and (ii) the system of interventions and regulations that are designed to keep the economy operating within reasonable bounds.

See? If “the authorities” decide to “exorcise [the demon of] inflation” through taxation or higher interest rates, it won’t be the government that goes belly up. It can’t run out of money. It will just be those speculative and Ponzi units whose net worth will evaporate. No problem!
It remains a mystery to me why job guarantee proponents point to Minsky as the patron saint of the job guarantee idea. It was, after all, Leon Keyserling who drafted the Full Employment Act of 1946, The Freedom Budget (1966) and job guarantee provisions of Humphrey-Hawkins (1976). Good old “siphoning off the increment to pay for the excrement” NSC-68 Leon.
Mr. Keyserling was a big fan of spending that “paid for itself” by augmenting growth in the gross national product. His 1966 Freedom Budget was also touted as being financed through an “economic growth dividend.” The idea was that economic growth of five percent over a ten year period would generate the revenue to pay for the program.
If it wasn’t the government doing it, the method of financing that Keyserling advocated would be a Ponzi scheme because it relied on revenues that would presumably arise solely from disbursements and not from the sales of value-added goods or services. Fortunately, a government cannot operate a Ponzi scheme because “it creates money just by spending.”
So, technically speaking, a job guarantee is not a Ponzi scheme. It’s only a wee bit Ponzyish.

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Downsizing

Dan here….Downsizing the home when retiring? How is that done? Anecdotal evidence in the Boston area reveals to me several reasons why downsizing is only a small percentage of the housing market:  Aside from being able to handle maintenance to a later age than in the past, and wishing to maintain personal community that a move would disrupt, downsizing is not necessarily as affordable as a cursory look might suggest.   Here is one look at data:

Via Calculated Risk:

Some interesting analysis from economist Josh Lehner, at the Oregon Office of Economic Analysis on whether people actually downsize in retirement. This is important since so many baby boomers are reaching retirement age. Will they downsize or will they age in place?

A few excerpts: Do People Really Downsize?

The question, or the assumption that older households downsize as they age is one that I’ve really struggled with trying to answer. Obviously it makes theoretical sense. As one’s children grow up, you no longer need as much space, and the love/hate relationship with the yard may become more physically taxing. I hear comments along these lines quite frequently. And many urbanists rightfully point out that one of the benefits of the missing middle housing — duplexes, quads, townhomes, etc — is it better allows aging in place. That is it would provide additional housing options within existing neighborhoods so if a household does sell/downsize, they do not have to leave their longtime friends and social networks. They can remain in the same area. An added benefit in this scenario would then be a larger, single family home coming back onto the market for another family to move into. We could adjust, or tailor our housing situation with our actual housing needs. Again, all of that makes sense. But do we actually see households downsize overall, let alone stay in the neighborhood? Turning to the data shows that it it kinda, sorta does happen on a small scale. …

 

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Jobs, Jobs, Jobs: GUARANTEED! — May 20 update

Class war? What class war?

Stephanie Kelton Has The Biggest Idea In Washington 

“Everybody wants a piece of Kelton these days because a simple, radical idea she has been workshopping her entire career is the next big thing in Democratic Party politics. She calls it the job guarantee… “

  • “Once an outsider, her radical economic thinking won over Wall Street. Now she’s changing the Democratic Party.”
  • “A onetime college dropout at California State University in Sacramento, Kelton has managed to earn the esteem of both Sanders and an oddball clique of multimillionaire Wall Street traders.”
  • “If you listen to Kelton long enough, you notice that she never refers to “bankers” or “Wall Street” with the derisive tone common among her political allies. She talks instead about “the financial community.”
  • “After all, Wall Street took her under its wing before Democrats took her seriously.” 
  • “Her career had changed tracks. She wasn’t just a clever economist with some quirky ideas anymore. Her credibility with Wall Street began to register as academic clout.”
  • “There are thousands of left-wing economists. But it’s hard for the economically inexpert to distinguish brilliant creativity from quackery. Kelton’s social credentials with Wall Street helped her stand out.”

I dunno what that’s about. Something about Wall Street?

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Jobs, Jobs, Jobs — GUARANTEED!

The current mania for “job guarantee” policies is making the Sandwichman anxious. I’ve been on the full employment beat for over 20 years so I think I have a pretty good grasp of the terrain. First principle is that there are no panaceas. My favorite policy option — reduction of working time — is not a panacea. Neither is yours.

Like my learned friend Max B. Sawicky, I am in favor of a job guarantee — provided it meets MY criteria. The proposals currently being shopped around don’t. That should not be a fatal flaw. Inadequate policy proposals can serve as the starting point for dialog that can lead to better proposals. From the left, Matt Brunig, and from the center?, Timothy Taylor have offered constructive critiques of the current proposals. I would like to offer a bit of critique from history.

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A Guide to the (Financial) Universe: Part III

by Joseph Joyce

A Guide to the (Financial) Universe: Part III

Parts I and II of this Guide appear here and here.

4.      Stability and Growth

Is the global financial system safer a decade after the last crisis? The response to the crisis by central banks, regulatory agencies and international financial institutions has increased the resiliency of the system and lowered the chances of a repetition. Banks have deleveraged and possess larger capital bases. The replacement of debt by equity financing should provide a more stable source of finance.

Indicators of financial volatility, such as the St. Louis Fed Financial Stress Index, currently show no signs of sudden shifts in market conditions. The credit-to-GDP gap, developed by the Bank of International Settlements (BIS) as an early warning indicator of systemic banking crises, exhibits little evidence of excessive credit booms. One exception is China, although its gap has come down.

But increases in U.S. interest rates combined with an appreciating dollar could change these conditions. Since the financial crisis, financial flows have appeared to be driven in part by a global financial cycle that is governed by U.S. interest rates as well as asset market volatility. This has led Hélène Rey of the London Business School to claim that the Mundell-Fleming trilemma has been replaced by a dilemma, where the only choice policymakers face is whether or not they should use capital controls to preserve monetary control. Eugenio Cerutti of the IMF, Stijn Claessens of the BIS and Andrew Rose of UC-Berkeley, on the other hand ,have offered evidence that the empirical importance of any such cycle is limited. Moreover, Michael W. Klein of Tufts University and Jay C. Shambaugh of George Washington University in one study and Joshua Aizenman of the University of Southern California, Menzie Chinn of the University of Wisconsin and Hiro Ito of Portland State University in another have found that flexible exchange rates can affect the sensitivity of an economy to foreign policy changes and afford some degree of policy autonomy.

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Trump to ban Title X federal funding of Planned Parenthood Clinics regardless of whether they Do Abortions or Not

“The Trump administration wants to effectively pull Title X funding from family planning clinics providing abortion services” as reported in Modern Healthcare.

Planned Parenthood while offering other healthcare services would not receive federal funding if they provided any abortion services or referred patients to other facilities that did perform abortions.

The Washington Post “For Planned Parenthood abortion stats, ‘3 percent’ and ’94 percent’ are both misleading

Planned Parenthood would say abortions are just 3% of total health services.

The Susan B Anthony would argue abortions are 94% of all Planned Parenthood Pregnancy Services.

I would argue it is better to have an abortion in a controlled medical area rather than in a back alley with a coat hanger.

Of course let us not forget the person signing this rule has paid a $million for one Playboy Bunny to have an abortion and somewhere in the files are probably more hidden payments made. The fact that he would even bring himself to sign such a bill after what he has done and talked about is ludicrous.

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The percentage of employees who don’t get wage raises; is the Taboo undergoing an “extinction burst”?

The percentage of employees who don’t get wage raises; is the Taboo undergoing an “extinction burst”?

I came across the below graph yesterday from the Kansas City Fed. It’s pretty shocking:

It represents “wage rigidity.” In english, that means the percentage of employees who don’t get any annual wage increases.

It speaks for itself. Nine years into the economic expansion, with an unemployment rate under 4%, and un underemployment rate of 7.8% (only 1% above its all time low), more workers still aren’t getting any raises than at any time during the 2001 recession or at any time during the expansion thereafter.

And it isn’t simply slack in the labor force.  Here’s the employment-population ratio for prime age workers:

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Sister Survivors

The Detroit News story, January 2018 “What MSU Knew” details when the abuse started. For twenty years, the female athletes who engaged in the Michigan State Gymnastics program complained of Dr. Larry Nassar to university representatives. MSU President Lou Anna Simon was amongst those who were informed and had known of the 2014 Title IX complaint and police report filed against an unnamed physician.

According to university records and victim’s accounts, amongst those who knew of the abuse were athletic trainers, coaches, a university police detective, the local police and an official who is now MSU’s assistant general counsel. Larissa Boyce is believed to be the first to complain in 1997 to the head Gymnastics Coach Kathie Klages at MSU. Klages then told Larry Nasser, no one else, and advised Larissa there could be serious consequences in filing a report. A fellow female Gymnast had also confirmed she had also been touched while being treated by Nasser.

A runner, Christie Achenbach told her coach Kelli Bert about Nassar’s behavior in 1999 while seeking treatment for a hamstring injury. Christie recalled coach Kelli Bert words; “he is an Olympic doctor and he should know what he is doing.” According to Kelli Bert, she does not remember the conversation and did not know Nasser was an Olympic doctor.

Spartan softball player Tiffany Thomas Lopez went to Nassar to be treated for lower back pain. She later told MSU Trainer Lianna Hadden of Nassar’s treatment regime. Hadden advised Tiffany to talk to MSU trainer Destiny Teachnor-Hauk. Destiny told Tiffany she could file a report if she was uncomfortable; but, there may be consequences.

Two years after Tiffany’s abuse, Jennifer Rood Bedford complained to Destiny Teachnor-Hauk about being uncomfortable with Nasser’s treatment. As told by Jennifer, Hauk said “that filing a report would involve an investigation, making an accusation against Nassar, and requires a statement that I felt what Nassar did was unprofessional or criminally wrong.” Rood could not say with certainty the treatment was wrong or unprofessional.

The stories being told by female athletes stopped with those who should have been advocating for them. Larissa Boyce had hoped this would come from a female coach. Over seventeen years, Destiny Teachnor-Hauk claims she never heard a complaint about Larry Nasser. The system failed, it failed at the coach/teaching level and not with the athletes who sounded the alarm of sexual abuse at the hands of a doctor. The abuse also happened outside of the MSU system.

The first to publicly testify against Nassar about abuse outside of MSU, Kyle Stephens said he began molesting her in 1998 by exposing himself in the basement of his home. She was 6. In 2004, she told her parents who told MSU Clinical Psychologist Dr. Gary Stollak. The parents met with Nassar and Stollak. Nassar denied everything and her parents believed the doctors. A retired Dr. Stollak testified he had a stroke in 2016 and could not remember any details of the meeting.

Upon leaving the second visit for back pain with Nassar in the Spring of 2004, Brianne Randall-Gay went to local police. She told them he had touched her bare breast and put his hand between her legs. A few weeks later, police asked Randall-Gay and her parents to meet with Nassar. Randall-Gay‘s parents went without her. Nassar said and the police confirmed what she experienced was a legitimate treatment.

Doctors and the police did not believe the young women and girl’s complaints.

Lindsey Lemke is a “Sister Survivor,” the name taken by the 256 survivors of Larry Nassar’s physical sexual assault. She and the others spent the last 18 months fighting “not just for justice for Nassar;” but, they also fought for accountability, “the accountability of Michigan State University who enabled Nassar’s continued abuse” by not reacting.

April of this year found Lindsey attending a dinner at Michigan State, an Athletic Gala sponsored by the university hosts and meant to honor student athletes having a GPA of 3.0 or higher. Lindsey was happy to have a night out celebrating her athletic accomplishments. It turned to a night of frustration and anger as the host talked about the disappointment the Michigan Spartans experienced over the last 16 months because of one man. And no, they were not going to let him bring it down for the University and the remaining Sister Survivors at the university.

Lindsey grew angry as she listened to the comparison being made by the speaker about the hard time MSU was having answering questions and explaining for 16 months about Nasser’s physical sexual abuse of Lindsey and the other female athletes. As explained in The Detroit News, the abuse continued over 20 years. It continued even though Lindsey and the other athletes went to their coaches and others . . . nothing was done.

A false equivalency was being made by the speaker as if the spotlight on Michigan State was the equivalent of the sexual abuse, or worse, then what the women athletes experienced, and endured again as they told their stories in public. The speaker spoke as if there could be an equivalency to each experience endured . . . making the University’s reputation more important than the sexual abuse at the hands of a MSU employee. There was no apology being made to Lindsey Lemke or her Sister Survivors.

In the same week as the dinner and in a Jane Doe investigation, Michigan State University allowed a female witness to be identified as a complainant. This can be a violation of federal law in response to a Title IX lawsuit.

A federal lawsuit filed Monday alleges a former female student was raped by three unnamed members of the school’s basketball team in April 2015. Following that alleged assault, the woman said the school’s counseling center discouraged her from reporting, telling her to “just get yourself better.”

The university responded by posting a detailed response online, raising concerns about student privacy.

Again, MSU failed to take into regard the importance of a student’s safety, their privacy, and the care required to protect them while answering various questions and reports. MSU acts according to its own best interest at the expense of its students.

Between 1997 and 2015, young women, girls, and older women alike raised concerns about Nassar’s treatments. It started to come to a head when Amanda Thomashow filed a formal Title IX complaint about Nassar in 2014. The complaint still did not result in the removal of Nassar.

Over 20 years, Nassar abused hundreds of women while at MSU. The University, its athletic department, and it’s president would continue to deflect responsibility for not taking action. In her letter of resignation, Lou Anna K. Simon the President in charge 13 of the 20 years in her letter of resignation stated:

“I have been told it is virtually impossible to stop a determined sexual predator and pedophile, that they will go to incomprehensible lengths to keep what they do in the shadows. As tragedies are politicized, blame is inevitable. As president, it is only natural that I am the focus of this anger.”

The State of Michigan appointed former Governor John Engler as the interim president after former President Lou Anna K. Simon was asked to resign by the Board of Trustees. She is still being paid a $750,000 salary for one year and will return to teaching at $500,000 annually. The same Board of Trustees failed to take action in an earlier 2014 Title IX investigation complaint about Nassar is still in place. The abuse was allowed to continue. MSU maintains it did nothing wrong during that investigation the 2014 filing.

John Engler was the political choice;

I will move forward as though my own daughters were on this campus.”

were the words Engler used to help build trust with the MSU Sister Survivors and the public.

Instead of helping to provide greater protection for MSU women and Nassar’s victims, Engler personally campaigned in the legislature against bills meant to increase the statute of limitations for victims of sex abuse and make more authority figures mandatory reporters of child sex abuse. The 15 public universities in Michigan also opposed the bills. Engler claimed Nassar’s victims were only interested in leveraging MSU and were not interested in mediation.

Engler comment raises the question of how does the one responsible for taking action mediate the results of their failure with the victim? The outcome will always be in the mediator’s best intersts.

Engler argued publicly with Rachael Denhollander, the first woman to come forward publicly with allegations against Nassar. At a Trustee’s meeting early in April, “Engler publicly threatened Kaylee Lorincz when she shared the story about his attempt to buy her silence. Kaylee Lorincz also revealed during that meeting Engler lied to her about his settlement talks with other survivors, and downplayed the sexual harassment charges against Nassar’s boss, Dean William Strampel, calling them merely a ‘slap on the butt.’”

The Board of Trustees remains in place and reiterated their support for John Engler.

It is a pattern and a practice for MSU. As Think Progress points out “sexual assault allegations against football and basketball players have been ignored or mishandled by the athletic department and administration at MSU. Investigations into allegations have been shoddy and well hidden (if they happen at all). Victims have been encouraged not to come forward with allegations against high-profile players or coaches on campus due to potential backlash or retaliation.”

The same pattern and practice was experienced by the Sister Survivors as told by them about Nassar experienced by them with the Board of Trustees and the interim President John Engler. The Department of Education’s Office for Civil Rights investigation confirmed MSU had not met multiple Title IX requirements, including notifying students of the name of the Title IX coordinator, conducting investigations within appropriate time frames, and following proper grievance procedures.

Jerry Sandusky’s sexual abuse case at Penn State received around-the-clock attention for weeks. The Sister Survivor’s case has disappeared from the public eye since MSU’s Nassar was sentenced. Attorney John Manly believes he knows why:

I think it’s sexism, misogyny, and you know, it’s not college football, it’s gymnastics. And the audience for gymnastics doesn’t generate hundreds of millions or billions of dollars.

Think Progress updated its initial report on Michigan State University. The law firm representing MSU sent a letter to the NCAA on May 4. The letter acknowledges Nassar, “under the guise of medical treatment, sexually assaulted at least 25 MSU student-athletes between 1997-2016, including six student-athletes since 2014, when MSU botched its Title IX investigation into Nasser’s abuse.”

The letter was sent to clarify and despite the sexual assaults that,

“no violations of NCAA rules occurred with regard to the criminal conduct of Dr. Larry Nassar, a former employee at the University.”

In spite of the many sexual abuse over 20 years, the assaults mostly occurring on the MSU campus, the deaf ear by MSU employees to female athletes, the condemnation by the Michigan state legislature of MSU for its failure to protect female athletes, and the Gymnastics Coach Kathy asking her team (including survivors of Nassar’s abuse) to sign a card of support for him after he was fired due to the allegations of sexual abuse in 2016; Michigan State University is more concerned about violations of NCAA rules and its image rather than Nassar’s female victims. There is no sympathy, morose, embarrassment when confronted with what was allowed to happen over the years. Business as usual.

The NCAA has not responded to the victims or Michigan State University.

References:

Michigan State still doesn’t care about victims of sexual assault Lindsay Gibbs, Think Progress, March 23, 2018

Michigan State is finding new ways to victimize the survivors of Larry Nassar’s abuse Lindsay Gibbs, Think Progress, April 18, 2018

Michigan State admits Nassar sexually abused student-athletes, but says he didn’t break NCAA bylaws? Think Progress, Lindsay Gibbs, May 4, 2018

What MSU knew: 14 were warned of Nassar abuse Kim Kozlowski, The Detroit News 2018

Michigan State ‘regrets’ providing an ‘unnecessary amount of detail’ in response to Title IX lawsuit‘ MLive, April 13, 2018

run75441 @ Angry Bear Blog

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Intercompany Guarantee Fees and Trump’s Lido City Loan

Intercompany Guarantee Fees and Trump’s Lido City Loan

Matthew Yglesias notes:

Trump stands to gain from an Indonesian project that got a $500 million loan right before he flip-flopped on ZTE… But it also happened the same week a Chinese state-owned company came through with hundreds of millions of dollars in loans, some of which will go to facilitate the construction of Trump-branded properties in Indonesia.

Does anyone know what the interest rate will be on this loan? After all, it is highly unlikely that the lender has given Trump’s business an interest fee loan. Let’s speculate that the interest rate is 4% per annum so Trump’s business would be paying $20 million per year in interest expenses. But how would that compare to market rates? The yield on 10-year Chinese government bonds is just over 3.7% according to this source. If Trump’s business got a 4% interest rate on a ten-year loan denominated in RMB (to be fair I do not know the currency of denomination or the term either), then the lender was assuming a AAA credit rating for this business, which sounds incredible to me. Of course it is entirely possible that the lender was receiving some sort of guarantee from the Chinese government in case Trump’s business defaults. Some tax accountant defines intercompany guarantee fees as:

With guarantees between affiliated group companies, the question arises of whether a guarantee fee must be paid to the company giving the guarantee. The credit rating of the company receiving the guarantee is also important when answering this question.

What would be a reasonable credit rating on a standalone basis for Trump’s business? Let’s also speculate that this credit rate would be no better than BB, which would likely imply that a loan on a true arm’s length basis would command an interest rate closely to 7%. In that case, the value of the loan guarantee is 3% or $15 million per year in interest savings. OK – I admit this is all speculative guesses but it does pose a reasonable means for evaluating the extent of the kick back Trump’s business got from deal.

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