Government Deficits Generate Household Savings

by L. Randall Wray

A Bloomberg report by Rich Miller and Alison Sider recently noted that "Americans are shutting their wallets and building their nest eggs at the fastest pace in 15 years." It went on: [T]he 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. Most of the rise in income in May was due to one-time government stimulus payments to seniors, said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

These should not be surprising events, as we have explained in previous posts (here, here and here). Government sector spending creates private sector income; government sector deficits create private sector savings. These are identities that virtually no one recognizes. I can recall that during the Clinton administration's budget surpluses, the Wall Street Journal ran two front-page stories side-by-side, one congratulating the government for finally getting its budget in order—supposedly adding to national savings--and the other chastising consumers for spending more than their incomes—reducing national savings. The rising Obama budget deficit will help our private sector to accumulate savings and retire debt, part of the necessary remedy to the run-up of debt that occurred over the past dozen years. Unfortunately, fiscal policy remains too tight, as evidenced by continued (and, I think, growing) stress in the retail sector.

The report goes on: "the trend will put the country's finances in better balance and reduce its dependence on Chinese investment". Now this is utterly confused. Yes, our household sector's finances will improve and might eventually recover—if the fiscal stance loosens and job losses are turned around to employment growth. However, the US did not, indeed in a significant sense cannot, rely on the Chinese. Our spending is in dollars, and we are the source of those dollars. Needless to say, every dollar spent by the Chinese was generated by us. In fact, we "financed" their accumulation of dollars, mostly through our current account deficit (we bought more stuff from them than they bought from us). This allowed them to "net save" in dollar assets. As our trade deficit with China shrinks (by the way, not necessarily a good thing for us!), China's net saving in dollars will also shrink. It is quite unlikely that the trade balance will reverse any time soon (China is not going to become a net importer in the near future), so China will continue to accumulate dollar assets although (probably) at a reduced pace. But that does not "finance" US domestic spending.

Why The Stimulus Isn't Working

by Stephanie Kelton

President Obama's economic advisors are predicting that the recession will come to an end sometime this year, as fiscal stimulus spending kicks into high gear. But the conditions for an economic recovery have not been laid.

What the left hand giveth (see table), the right is quickly taking away.

And I'm not talking about the "right-wing." I'm talking about state and local governments across the nation, who are unwittingly pulling the rug out from under the federal government and thwarting any chance for a sustainable recovery by 2010.

But it isn't their fault. Tax revenues have fallen off a cliff, leaving states with a cumulative budget gap of more than $100 billion for fiscal '09.

To deal with these shortfalls, states have laid off or furloughed thousands of employees, raised taxes and fees, and slashed spending on education and other social programs - some, many times over. It was supposed to balance their '09 budgets. But it wasn't nearly enough.

As it turns out, state officials were far too optimistic about the '09 revenue picture, and they are scrambling to deal with widening shortfalls before the end of the fiscal year (which, by the way, is tomorrow for all but a few states). At this stage in the game, there are only a couple of ways for states to balance their '09 budgets (it's too late for more tax hikes and spending cuts). Most are expected to do one of two things: (1) tap rainy day funds or (2) use federal stimulus money.

For example, Ohio is expected to dip into its $948 million rainy day fund in order to deal with its worst-ever decline in tax revenue. Meanwhile, Massachusetts Gov. Deval Patrick has indicated that his state will be forced to use some of its federal stimulus money to plug a budget gap of nearly $1 billion by June 30.

The problem, of course, is that the macroeconomic effects of these micro-level policies are working at odds against the federal stimulus effort. Jobs that are being created (or saved) through the left hand of the Obama stimulus package are disappearing at least as rapidly as the right hand slashes billions from state budgets.

And, while Obama's advisors are focused on the silver lining in the recent job data (losses are slowing), the employment picture remains bleak. The following table shows the change in unemployment rates - by state - since the start of the recession and from April '09 to May '09.

All but two states saw an increase in unemployment last month, and fourteen states are now in double-digit territory. President Obama's economic team has admited that the national average will probably reach double-digits, but they anticipate a turnaround as a flood of stimulus money makes its way into the economy later this year.

But Obama's advisors may be overlooking the fact that much of the stimulus money isn't going to be there to fund new projects and drive economic growth. This is because states like Massachusetts are diverting stimulus money away from future projects in order to cover past (2009) budget shortfalls.

And the worst may be yet to come. States are bracing for even bigger revenue shortages next year, and governors across the nation are warning of deeper cuts in fiscal 2010. And right now, no single state poses a bigger threat to the nation's economic recovery than California.

With an estimated $24 billion budget shortfall and a July 1 deadline to close its deficit, California's top officials asked the federal government for emergency funding to help alleviate further drastic cuts in state spending. But the president's top economic advisors - including Treasury Secretary Timothy Geithner, and White House economists Lawrence Summers and Christina Romer - rejected Gov. Schwarzenegger's request for aid, choosing, instead, to admonish the governor for failing to put California's fiscal house in order.

The Washington Post reported that Gov. Schwarzenegger was denied federal assistance because White House officials feared that it would lead to "a cascade of demands from other states." This kind of head-in-the-sand thinking will have tragic consequences.

States need more aid, and they need it now. The White House should be faced with a cascade of demands, and these demands should come from a broad coalition of governors, who storm the White House - cameras rolling - to explain the dire consequences of denying them emergency aid. Randy Wray suggested, in a previous post, that states need another $400 billion or so, and that seems like a reasonable figure. I would urge our nation's governors to immediately request an additional $1,000 per resident.

As I have argued in a previous post, the Obama administration's initial forecasts were far too rosy, and the Economic Recovery & Reinvestment Act didn't provide enough aid for states. More needs to be done, and it needs to be done now. Every dollar slashed from a state budget undermines a dollar of federal stimulus spending.

The Congressional Budget Office’s long-term budget outlook

by Felipe Rezende and Stephanie Kelton

The Congressional Budget Office (CBO) has just released its long-term budget outlook. The dismal report warns:

“Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the U.S. population will cause federal spending to increase rapidly under any plausible scenario.” Given these large increases in projected spending, the report went on to caution that “[u]nless tax revenues increase just as rapidly, the rise in spending will produce growing budget deficits and accumulating debt." Finally, the report asserts that the ensuing "[l]arge budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress income growth in the United States.”

Once again, we find it necessary to point out the flawed logic of those who certainly ought to have a better understanding of things. First, taxes do not pay for government spending. It would help a great deal if those at the CBO (and elsewhere) would work through the balance sheet entries to decipher exactly how government "financing" operations work.

As Kelton and Wray have explained in earlier posts, the federal government spends by crediting bank accounts. Period. Tax payments to the government result in the destruction of money -- high-powered money to be exact -- as the banking system clears the checks and reserve accounts are debited. In other words, taxes don't provide the government with "money to spend". Tax payments destroy money. Not in theory. Not by assumption. By definition.

Second, growing budget deficits do not reduce national savings. They do just the opposite. Indeed, the private sector -- households and firms taken as a whole -- cannot attain a surplus position unless some other sector (the public sector or the foreign sector) takes the opposite position. Again, it is an indisputable feature of balance sheet accounting that is governed by the following identity:

Private Sector Surplus = Public Sector Deficit + Current Account Surplus

This fundamental accounting identity can be found in any decent International Economics texbook (see, e.g., Krugman and Obstfeld), and it is one of the most important macroeconomic concepts we can think of. It demonstrates the conditions under which national savings will be positive. Not in theory. Not by assumption. By definition.

Source: Levy Institute

To appreciate the interplay, consider the main sector balances in 2004. The public sector's deficit of about 5% of GDP was just enough to offset the 5% current account deficit, leaving the private sector with no addition to its net saving (i.e. private sector savings were zero). Today, in contrast, private savings are up sharply because: (1) the public deficit is up sharply and (2) the external deficit is declining. Add today's (rising) public deficit to today's (falling) current account deficit and, voila, the CBO's much-feared explosion in the government deficit has translated into an explosion in private savings.

As for the relationship between savings and investment . . . let's tackle that accounting lesson next week.

Update: See some Wynne Godley's pieces here, here , and here. See also Krugman's piece here.

The Financial Instability Hypothesis

By Felipe Rezende

Janet Yellen, President of the San Francisco Federal Reserve, pointed out at the 18th annual conference honoring the work of Hyman P. Minsky that:

"... with the financial world in turmoil, Minsky’s work has become required reading. It is getting the recognition it richly deserves."

Paul Krugman has also been re-reading Hyman Minsky’s most famous book Stabilizing an Unstable Economy.

Central to Minsky’s view of how financial meltdowns occur is his Financial Instability Hypothesis (FIH) -- what has come to be known as 'an investment theory of the business cycle and a financial theory of investment'. But, what is it all about? Quoting from Minsky . . .

"The theoretical argument of the financial instability hypothesis starts from the characterization of the economy as a capitalist economy with expensive capital assets and a complex, sophisticated financial system... The focus is on an accumulating capitalist economy that moves through real calendar time..."

"The capital development of a capitalist economy is accompanied by exchanges of present money for future money. The present money pays for resources that go into the production of investment output, whereas the future money is the "profits" which will accrue to the capital asset owning firms (as the capital assets are used in production). As a result of the process by which investment is financed, the control over items in the capital stock by producing units is financed by liabilities--these are commitments to pay money at dates specified or as conditions arise. For each economic unit, the liabilities on its balance sheet determine a time series of prior payment commitments, even as the assets generate a time series of conjectured cash receipts...
A part of the financing of the economy can be structured as dated payment commitments in which banks are the central player..."

"Thus, in a capitalist economy the past, the present, and the future are linked not only by capital assets and labor force characteristics but also by financial relations. The key financial relationships link the creation and the ownership of capital assets to the structure of financial relations and changes in this structure..."

"In spite of the greater complexity of financial relations, the key determinant of system behavior remains the level of profits. The financial instability hypothesis incorporates the Kalecki (1965)-Levy (1983) view of profits, in which the structure of aggregate demand determines profits. In the skeletal model, with highly simplified consumption behavior by receivers of profit incomes and wages, in each period aggregate profits equal aggregate investment..."

"In a more complex (though still highly abstract) structure, aggregate profits equal aggregate investment plus the government deficit. Expectations of profits depend upon investment in the future, and realized profits are determined by investment: thus, whether or not liabilities are validated depends upon investment. Investment takes place now because businessmen and their bankers expect investment to take place in the future..."

"The financial instability hypothesis, therefore, is a theory of the impact of debt on system behavior and also incorporates the manner in which debt is validated...."

"The financial instability hypothesis takes banking seriously as a profit-seeking activity. Banks seek profits by financing activity and bankers. Like all entrepreneurs in a capitalist economy, bankers are aware that innovation assures profits. Thus, bankers (using the term generically for all intermediaries in finance), whether they be brokers or dealers, are merchants of debt who strive to innovate in the assets they acquire and the liabilities they market..."

"Three distinct income-debt relations for economic units, which are labeled as hedge, speculative, and Ponzi finance, can be identified.

Hedge financing units are those which can fulfill all of their contractual payment obligations by their cash flows.

Speculative finance units are units that can meet their payment commitments on "income account" on their liabilities, even as they cannot repay the principle out of income cash flows. Such units need to "roll over" their liabilities: (e.g. issue new debt to meet commitments on maturing debt)

For Ponzi units, the cash flows from operations are not sufficient to fulfill either the repayment of principle or the interest due on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest or selling assets to pay interest (and even dividends) on common stock lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes. A unit that Ponzi finances lowers the margin of safety that it offers the holders of its debts."

"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 sizeable 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."

Source: Excerpts from Hyman Minsky's 1992 paper linked to above.

Update: A good summary of Minsky's view can be found here and here.

“William Black: Obama’s Regulation Proposal “Too Timid””

The Fiscal Storm

By L. Randall Wray

While most commentary about government budgets has centered on the federal government, the real concern is the impact of the economic crisis on state and local government budgets. Unlike the federal government, state and local governments really do need tax revenue to finance their spending. As the economy has slowed, tax revenues have plummeted for these governments. All US states but one have constitutional requirements that dictate balanced budgets. However, even if this were not the case, states try to submit balanced budgets because markets punish deficits by credit downgrades and interest rate hikes. Hence, an economic slowdown forces states to tighten. The following graphics from today’s New York Times are telling:

Since the Nixon era, Keynesian economic policy had fallen out of favor. Not only were "welfare" programs cut, but federal government also reduced its support for state governments through devolution (moving program responsibility to the state and local government level), it slowed growth of spending—especially on defense--and it increased payroll taxes, which reduced the role of the federal government while gradually tightening the fiscal stance. This finally led, over the course of the 1990s Goldilocks expansion, to sustained and large fiscal surpluses. In spite of the conventional wisdom, fiscal policy remained chronically too tight—and is probably still too tight but that is a topic beyond the scope of this blog.

Turning to the state level, states were faced with more responsibility, especially for social programs like welfare and Medicaid. However, all but one state is restricted by statutes or constitutions to running balanced budgets. The problem is that state revenue is strongly pro-cyclical, increasing in a boom and falling in recession. And this is a big problem when the states are increasingly responsible for types of spending that need to rise in recession—like welfare and Medicaid. What States typically do is to cut taxes and increase spending in a boom—which helps to fuel the boom—and then raise taxes and cut spending in a recession—adding to the depressionary forces that generate the recession. States have also come to rely more heavily on regressive taxes—especially taxes on consumption, while like the Federal government they give tax credits and inducements to encourage saving. This depresses spending, especially in recession when the regressive taxes on consumption are increased at exactly the time that households are trying to cut back spending to increase rainy day funds.

In addition to the current revenue problems faced by states, the second challenge, only dimly recognized, lies in the very real needs neglected by the federal government since the days of President Nixon: public infrastructure investment, public health services, pre-collegiate education, training and apprenticeships programs for those who will not attend college, jobs programs for those not needed in the private sector, and fiscal relief for state and local governments. So what we need now is a major federal government program comprised of three parts: immediate fiscal relief for state and local governments, longer term revenue substitution, and national infrastructure funding.

1. Immediate relief: To do immediate good, we need to ramp up federal social spending to relieve state budgets. Increased unemployment compensation and other forms of social spending are needed. It is also important to help state and local governments, which are reeling from the double whammy of higher expenses and plummeting tax revenues. They need at least $400 billion of “block grants”—perhaps based on population—to be spread among these governments. Maybe some of the money would be targeted (public infrastructure projects that were already underway, or are on the shelf and ready to go), some would go to Medicaid, and some would come with no strings attached.

2. Reducing use of regressive taxes: The “devolution” that has taken place since the early 1970s puts more responsibility on state and local governments but without funding it; in response they have increased (mostly) regressive taxes such as sales and excise taxes. So in addition to immediate relief, we also need to encourage them to move away from regressive taxes (in the average state, poor people pay twice as much of their income in state and local taxes as do the rich). I suggest we offer federal government funding to states that agree to eliminate regressive taxes (except for the taxes on sin), on dollar-for-dollar basis. Of course, there are some fairness issues involved (states that relied more on regressive taxes would get more relief), so, again, federal tax relief could be determined on a per capita basis, with each state required to eliminate its most regressive taxes.

3. Public Infrastructure: Elsewhere, I have argued that government spending needs to operate like a ratchet: increase in bad times to get us out of recessions, and increase in good times to generate demand for growth of capacity. What should we spend on? Infrastructure, social programs and jobs. Here I will just focus on infrastructure spending. We’ve got a $2 trillion public infrastructure deficit—just to bring America up to the minimal standard expected by today’s civil engineers. If anything, our relative dearth of public investment in roads, parks, schools, and energy infrastructure is even worse than it was when J.K. Galbraith brought it to our attention. The long fashionable belief that the market knows best now seems crazily improbable. Heck, the market couldn’t even do a relatively simple thing such as determine whether someone with no income, no job, and no assets ought to be buying a half million dollar McMansion with a loan to value ratio of 120%. Jimmy Stewart’s heavily regulated thrifts successfully financed more housing with virtually no defaults or insolvencies, and with none of the modern rocket scientist models that generated the subprime fiasco. Let the market mow lawns and determine toothpaste flavors; leave the important stuff—education, child and elder care, health care, military and security services, interstate highways and other social infrastructure and services--to government.

The Global Reserve Currency

From the Financial Times by Michael Hudson:

"For starters, the six countries intend to trade in their own currencies so as to get the benefit of mutual credit, rather than give it to the US. In recent months China has struck bilateral deals with Brazil and Malaysia to trade in renminbi rather than the dollar, sterling or euros.

Many foreigners see the US as a lawless nation. How else to characterise a country that holds out a set of laws for others - on war, debt repayment and the treatment of prisoners - but ignores them itself?

The US is the world's largest debtor, yet has avoided the pain of "structural adjustments" imposed on other debtor nations. US interest rate and tax reductions in the face of exploding trade and budget deficits are seen as the height of hypocrisy in view of the austerity programmes that the "Washington consensus" has forced on other countries via the International Monetary Fund and other vehicles. The US tells debtor economies to sell off their public utilities and natural resources, raise their interest rates and increase taxes while gutting their social safety nets to squeeze out money to pay creditors."

Professor L. Randall Wray responds to a question:

By L. Randall Wray

Question: I heard a news report that the US Government is issuing bonds to finance its budget deficit, and that this will drive up interest rates and might even threaten government solvency. Also I have heard that the US Government has to rely on China to finance our deficit. Isn’t that why the stock and bond markets are bearish?

Answer: This news report reflects two related misunderstandings: first, that government “funds” its deficit by borrowing; second that a large deficit threatens government with insolvency. Let me first deal with those fallacies, then move on to what is happening in markets.

Government spends by crediting bank accounts (bank deposits go up, and their reserves are credited by the Fed). All else equal, this generates excess reserves that are offered in the overnight interbank lending market (fed funds in the US) putting downward pressure on overnight rates. Let me repeat that: government spending pushes interest rates down. When they fall below the target, the Fed sells bonds to drain the excess reserves—pushing the overnight rate back to the target. Continuous budget deficits lead to continuous open market sales, causing the NY Fed to call on the Treasury to soak up reserves through new issues of bonds. The purpose of bond sales by the Fed or Treasury is to substitute interest-earning bonds for undesired reserves—to allow the Fed to hit its interest rate target. (In the old days, these reserves earned no interest; Chairman Bernanke has changed that, effectively eliminating the difference between very short-term Treasuries and bank reserves. It also entirely eliminates the need to issue Treasuries—but that is a topic for another day.) We conclude: government deficits do not exert upward pressure on interest rates—quite the contrary, they put downward pressure that is relieved through bond sales.

On to the question of insolvency. Let me state the conclusion first: a sovereign government that issues its own floating rate currency can never become insolvent in its own currency. (While such a currency is often called “fiat”, that is somewhat misleading for reasons I won’t discuss here—I prefer the term “sovereign currency”.) The US Treasury can always make all payments as they come due—whether it is for spending on goods and services, for social spending, or to meet interest payments on its debt. While analogies to household budgets are often made, these are completely erroneous. I do not know any households that can issue Treasury coins or Federal Reserve Notes (I suppose some try occasionally, but that is dangerously illegal counterfeiting). To be sure, government does not really spend by direct issues of coined nickels. Rather, it spends by crediting bank accounts. It taxes by debiting them. When its credits to bank accounts exceeds its debits to them, we call that a budget deficit. The accounting and operating procedures adopted by the Treasury, the Fed, special deposit banks, and regular banks are complex, but they do not change the principle: government spending is accomplished by crediting bank accounts. Government spending can be too big (beyond full employment), it can misdirect resources, and it can be wasteful or undesirable, but it cannot lead to insolvency.

Constraining government spending by imposing budgets is certainly desirable. We want to know in advance what the government is planning to do, and we want to hold it accountable; a budget is one lever of control. At this point, it is impossible to know how much additional government spending will be required to get us out of this deep recession. Whether the Obama team finally settles on $850 billion worth of useful projects, or $1.5 trillion, voters have the right to expect that the spending is well-planned and that the projects are well-executed. But the budgets ought to be set with regard to results desired and competencies to execute plans—not out of some pre-conceived notion of what is “affordable”. Our federal government can afford anything that is for sale in terms of its own currency. The trick is to ensure that it spends enough to produce sustainable growth and other desired outcomes while at the same time ensuring that its spending does not have undesirable outcomes such as fueling inflation or taking away resources that could be put to better use by the private sector.

Why do stock markets and bond markets react the way they do, given that insolvency is out of the question? Sophisticated market players do recognize that government cannot go insolvent and that government will always make all interest payments as they come due. Markets are, however, concerned that all the government spending plus the Fed bail-outs (lending reserves and buying bad assets) will be inflationary. In the current environment, that is quite unlikely. Even if oil prices stabilize at a higher level, that will not compensate for all the deflationary pressures around the world as firms cut prices to maintain sales in the face of plummeting demand. Still, it is not really inflation that bond markets are worried about, but rather future Fed interest rate hikes. (Again, that will not happen in the near future, and might not happen for several years—but there is little doubt that the Fed will eventually raise rates when the economy finally recovers.) Rate hikes lead to capital losses on longer-maturity bonds (interest rates and bond prices always move in the opposite direction). The Treasury persists in issuing bonds with a range of maturities (although the maturity structure in recent years has shortened). This is evidence that the Treasury does not fully understand the purpose of bond sales (since bonds are simply an alternative to bank reserves, it makes most sense to offer only overnight bonds)—but, again, that is a topic for another day.

The Treasury is having some trouble selling the longer maturity bonds (so their price is low and their interest rate is high). China is probably playing a role in this because they are shunning longer maturity debt out of fear of capital losses; they have also shifted some of their portfolio to other currencies (partly to diversify so that they will not lose if the dollar depreciates, and perhaps to pressure US authorities to keep the dollar strong). The solution is that the Treasury should shift even more strongly to shorter maturities—something it will do even if it does not fully understand why it should: Treasury sees that short term interest rates are much lower, hence, will sell short term debt to reduce the “cost of funding the deficit”. If Treasury really understood what it was doing, it would simply offer overnight deposits at the Fed, paying the Fed’s target interest rate. Then it would not “need” to sell bonds at all, and we could stop worrying about government “borrowing from the Chinese”. If the Fed wanted to control interest rates of longer term debt, it can offer interest on deposits of different maturities—for example, it can offer an overnight rate, a 30 day rate, a 90 day rate, and so on, for deposits held at the Fed.

Don’t Fear the Rise in the Fed’s Reserve Balances

By Scott Fullwiler

Many in the financial press have noted the rise since September 2008 in the Fed's reserve balances from about $20 billion to more than $800 billion today. A number of well-known economists have expressed concern that this will be inflationary.

However, fears that these are inflationary are misplaced, even inapplicable, as they apply only to a monetary system operating under a gold standard, currency board, or similar arrangement, not the flexible exchange rate system of the U. S.

Under a gold standard, for instance, banks must be careful when creating loans that they have sufficient gold or central bank reserves to meet depositor outflows or legal reserve requirements. This is the fractional banking, money multiplier system standard in the economics textbooks. If there is an inflow of gold, then bank deposit creation can increase and prices can rise. The same can occur if the central bank raises the quantity of reserves circulating relative to its own gold reserves.

But that's not the case under modern monetary systems with flexible exchange rates.

In the U. S., when a bank makes a loan, this loan creates a deposit for the borrower. If the bank then ends up with a reserve requirement that it cannot meet by borrowing from other banks, it receives an overdraft at the Fed automatically (at the Fed's stated penalty rate), which the bank then clears by borrowing from other banks or by posting collateral for an overnight loan from the Fed. Similarly, if the borrower withdraws the deposit to make a purchase and the bank does not have sufficient reserve balances to cover the withdrawal, the Fed provides an overdraft automatically, which again the bank then clears either by borrowing from other banks or by posting collateral for an overnight loan from the Fed.

The point of all this is that the bank clearly does not have to be holding prior reserve balances before it creates a loan. In fact, the bank's ability to create a new loan and along with it a new deposit has NOTHING to do with how many or how few reserve balances it is holding.

In other words, there is no loan officer at any bank that checks with the bank's liquidity officer to see if the bank has reserves before it makes a loan.

What constrains a bank in the creation of new loans and deposits, then? First, there is the fact that there must be a willing borrower . . . one whom the bank deems to be creditworthy. Second, the loan must be perceived as profitable . . . in this case, the bank's ability to raise deposits does matter, since it probably expects the borrower to withdraw the deposit it will create, and finding new deposits is much cheaper for the bank than borrowing from other banks or from the Fed. Third, the loan must be on the regulator's approved list of assets, and if the loan results in an expansion of the bank's balance sheet, the bank must be aware of the impact on its capital requirements and other financial ratios with which the regulator is concerned.

But, how many reserve balances the bank is holding does NOT affect its operational ability to make the loan.

Most fears expressed by economists, policymakers, and the financial press regarding the rise in reserve balances since September presume—like the inapplicable money multiplier model—this will necessarily lead to excessive creation of loans and deposits by banks and thus rising inflation.

But this cannot possibly be true. Banks have the same ability to create loans with $800 billion in reserve balances that they had with $20 billion. The difference now is mostly that they do not see as many creditworthy borrowers coming through their doors, given the deep recession, which has led them to create fewer loans.

Admonishments of banks by members of Congress for "not lending out the TARP funds" make the same mistake. Banks don't lend out TARP funds or any other funds. They create loans and deposits out of thin air, then use reserve balances to settle payments or meet reserve requirements.

For further evidence, consider two recent extreme cases:

In Canada, reserve balances have been effectively zero for over a decade now, and bank lending continues as it does anywhere else. Canada's inflation also has been similar to that of the U. S.

In Japan, under the so-called quantitative easing regime of 2001-2005, reserve balances reached around 15% of GDP, and the monetary base (reserve balances plus currency in circulation . . . often termed "high powered money") reached 23% of GDP. But Japan has, if anything, experienced deflation during and since this period, which is not surprising, since—again—the rising quantity of reserve balances did not enhance Japanese banks' abilities to create loans.

In the U. S., by comparison, reserve balances have reached about 6% of GDP, with the monetary base rising from about 6% to about 12% of GDP since September 2008. Those fearing rising Fed reserve balances apparently haven't noticed that an increase in reserve balances about three times the size in terms of GDP already happened in Japan, with none of the effects that have been predicted for the U. S.

In short, don't fear the rise in the Fed's reserve balances. It is not inflationary because the money multiplier view, found in the textbooks, doesn't apply to the flexible exchange rate monetary system of the U. S. The U. S. may indeed experience rising inflation in the future (or it may not), but it won't have anything to do with the quantity of reserve balances banks are holding.

Will the Run-Up in Government Debt Doom Us All?

By Stephanie Kelton

Arthur Laffer has taken aim at Chairman Bernanke and President Obama, warning that somewhere down the road their policies will exact a huge price on the American economy. With respect to the Chairman's handling of monetary policy, Mr. Laffer predicts "rapidly rising prices and much, much higher interest rates." I am not going to critique Laffer on this point, because Paul Krugman and Mark Thoma have already done so in fine form.

Instead, I want to address Mr. Laffer's fiscal concerns. He said:

"Here we stand more than a year into a grave economic crisis with a projected budget deficit of 13% of GDP. . . With U.S. GDP and federal tax receipts at about $14 trillion and $2.4 trillion respectively, such a debt all but guarantees higher interest rates, massive tax increases, and partial default on government promises."

I believe that he is wrong on each of the above points, and here is why:

1. Increases in the federal deficit tend to decrease, rather than increase, interest rates. This is because deficit spending leads to a net injection of reserves into the banking system. (And big deficits imply big injections of reserves.) When the banking system is flush with reserves, the price of those reserves – in the U.S. the federal funds rate – is driven to zero (yes, zero!). Unless a zero-bid is consistent with Fed policy, the central bank will begin selling bonds in order to drain excess reserves. The bond sales continue until the fed funds rate falls within the Fed's target band. The Federal Reserve sets the key interest rate in the U.S., and it can always hit any nominal interest rate it chooses, regardless of the size of the budget deficit (or debt). And this isn't just true of the Fed. Just look at the Japanese experience:

Thus, despite a debt-to-GDP ratio in excess of 100%, the Bank of Japan never lost the ability to set the key overnight interest rate, which has remained below 1% for about a decade. And, the debt didn't drive long-term rates higher either. The chart below shows that rates on 10-yr government bonds trended sharply downward as Japan's public sector debt exploded:

Laffer's prediction about what will happen to U.S. interest rates as a consequence of the Obama stimulus package are based on a faulty understanding of the relationship between deficit spending, bank reserves and interest rates. The Japanese experience serves as prime example of his flawed logic. (My fellow bloggers, Scott Fullwiler, Randy Wray and I have all published numerous articles that lay out the technical details surrounding the coordination of Treasury Fed operations and the management of U.S. interest rates.)

2. Increases in the federal deficit (and the subsequent run-up in outstanding debt) do not mandate higher taxes in the future. Taxes do not "pay for" the deficits we ran in the past. Taxes drain reserves (an important function) and constrain aggregate demand. Tax revenue obviously moves endogenously, with the business cycle, but revenues can also change as a matter of policy. What Mr. Laffer is apparently arguing is that today's deficits will require "tomorrow's" leaders to raise marginal tax rates (or impose new taxes). But this isn't the U.S. experience.

Corporate taxes, as well as taxes on the wealthiest Americans, have trended downward for decades, even as the U.S. debt quadrupled in size.

And, while payroll taxes have risen steadily over the past 40 years, tax revenues, as a percentage of GDP have hardly budged in more than 50 years.

Thus, Laffer's assertion that the current run-up in government debt will require "massive tax increases" isn't borne out by our experience. And, it wasn't the case in Japan either:

Despite an explosive increase in the government debt in both the U.S. (throughout the 1980s and again under George W. Bush) and Japan (especially in the late 1990s and early 2000s), taxes in both countries are among the lowest in the developed world.

3. Laffer contends that a "partial default on government promises" is an inevitable consequence of the Obama administration's "ill-conceived" fiscal policies. A statement like this is at best misleading and at worst intellectually dishonest.

As any serious macro economist knows, a government like the United States – i.e. one that issues a sovereign currency – can meet any and all outstanding financial obligations, provided the debts are denominated in the national currency. This is a point that Alan Greenspan made several years ago, when he wrote that the U.S. government, by virtue of its ability to create money, can never become insolvent with respect to obligations in its own currency. In this regard, the size of the national debt is irrelevant.

Fiscal Sustainability

James K. Galbraith (via Julie Kosterlitz) on "What Is Fiscally -- And Politically -- 'Sustainable'?"

James K. Galbraith, Professor of Economics, University of Texas

"Chairman Bernanke may, if he likes, try to define "fiscal sustainability" as a stable ratio of public debt to GDP. But this is, of course, nonsense. It is Ben Bernanke as Humpty-Dumpty, straight from Lewis Carroll, announcing that words mean whatever he chooses them to mean.

Now, we may admit that the power of the Chairman of the Board of Governors of the Federal Reserve System is very great. But would someone please point out to me, the section of the Federal Reserve Act, wherein that functionary is empowered to define phrases just as he likes?

A stable ratio of federal debt to GDP may or may not be the right policy objective. But it is neither more nor less "sustainable," under different economic conditions, than a rising or a falling ratio.

In World War II, from 1940 through 1945, the ratio of US federal debt to GDP rose to about 125 percent. Was this unsustainable? Evidently not. The country won the war, and went on to 30 years of prosperity, during which the debt/GDP ratio gradually fell. Then, beginning in the early 1980s, the ratio started rising again, peaked around 1993, and fell once more.

Thus, a stable ratio of debt to GDP is not a normal feature of modern history. Gradual drift in one direction or the other is normal. There seems no great reason to fear drift in one direction or the other, so long as it is appropriate to the underlying economic conditions.

History has a second lesson. In a crisis, the ratio of public debt to GDP must rise. Why? Because a crisis – and this really is by definition – is a national emergency, and national emergencies demand government action. That was true of the Great Depression, true of war, and true of the Great Crisis we're now in. Moreover, we've designed the system to do much of this work automatically. As income falls and unemployment rises, we have an automatic system of progressive taxation and relief, which generates large budget deficits and rising deficits. Hooray! This is precisely what puts dollars in the pockets of households and private businesses, and stabilizes the economy. Then, when the private economy recovers, the same mechanisms go to work in the opposite direction.

For this reason, a sharp rise in the ratio of debt to GDP, reflecting the strong fiscal response to the crisis, was necessary, desirable, and a good thing. It is not a hidden evil. It is not a secret shame, or even an embarrassment. It does not need to be reversed in the near or even the medium term. If and as the private economy recovers, the ratio will begin again to drift down. And if the private economy does not recover, we will have much bigger problems to worry about, than the debt-to-GDP ratio.

It is therefore a big mistake to argue that the next thing the administration and Congress should do, is focus on stabilizing the debt-to-GDP ratio or bringing it back to some "desired" value. Instead, the ratio should go to whatever value is consistent with a policy of economic recovery and a return to high employment. The primary test of the policy is not what happens to the debt ratio, but what happens to the economy.

*****

Now, what about those frightening budget projections? My friend Bob Reischauer has a scary scenario, in which a very high public-debt-to-GDP ratio leaves the US vulnerable to "pressure from foreign creditors" – a euphemism, one presumes, for the very scary Chinese. Under that pressure, interest rates rise, and interest payments crowd out other spending, forcing draconian cuts down the line. To avert this, Bob has persuaded himself that social spending cuts are required now, not less draconian but implemented gradually. Thus the frog should be cooked bit by bit, to avoid an unpleasant scene later on when the water is really boiling hot.

With due respect, Bob's argument displays a very vague view of monetary operations and the determination of interest rates. The reality is in front of our noses: Ben Bernanke sets whatever short term interest rate he likes. And Treasury can and does issue whatever short-term securities it likes at a rate pretty close to Bernanke's fed funds rate. If the Treasury doesn't like the long term rate, it doesn't need to issue long-term securities: it can always fund itself at very close to whatever short rate Ben Bernanke chooses to set.

The Chinese can do nothing about this. If they choose not to renew their T-bills as they mature, what does the Federal Reserve do? It debits the securities account, and credits the reserve account! This is like moving funds from a savings account to a checking account. Pretty soon, a Beijing bureaucrat will have to answer why he isn't earning the tiny bit of extra interest available on the T-bills. End of story.

The only thing the scary foreign creditors can do, if they really do not like the returns available from the US, is sell their dollar assets for some other currency. This will cause a decline in the dollar, some rise in US inflation, and an improvement in our exports. (It will also cause shrieks of pain from European exporters, who will urge their central bank to buy the dollars that the foreigners choose to sell.) The rise in inflation will bring up nominal GDP relative to the debt, and lower the debt-to-GDP ratio. Thus, the crowding-out scenario Bob sketches will not occur.

I'm not particularly in favor of this outcome. But unlike Bob Reischauer's scenario, this one could possibly occur. If it did, it would lower real living standards across the board. This is unpleasant, but it would be much fairer than focusing preemptive cuts on the low-income and vulnerable elderly, as those who keep talking about Social Security and Medicare would do.

****

Now, it is true, of course, that you can run a model in which some part of the budget – say, health care – is projected to grow more rapidly than GDP for, say, 50 years, thus blowing itself up to some fantastic proportion of total income and blowing the public finances to smithereens. But this ignores Stein's Law, which states that when a trend cannot continue it will stop, and Galbraith's Corollary, which states that when something is impossible, it will not happen.

Why can't health care rise to 50 percent of GDP? Because, obviously, such a cost inflation would show up in – the inflation statistics! – which are part of GDP. So the assumption of gross, uncontrolled inflation in health care costs contradicts the assumption of stable nominal GDP growth. Again, the consequence of uncontrolled inflation is... inflation! And this increases GDP relative to the debt, so that the ratio of debt to GDP does not, in fact, explode as predicted.

I do not know why the CBO and OMB continue to issue blatantly inconsistent forecasts, but someone should ask them.

Further confusion in this area stems from treating Social Security alongside Medicare as part of some common "entitlement problem." In reality, health care costs and haphazard health insurance coverage are genuine problems, and should be dealt with. Social Security is just a transfer program. It merely rearranges income. For this reason it cannot be inflationary; the only issue posed is whether the elderly population as a whole deserves to kept out of poverty, or not.

Paying the expenses of the elderly through a public insurance program has the enormous advantage of spreading the burden over all other citizens, whether they have living parents or not, and of ensuring that all the elderly are covered, whether they have living children or not. A public system is also low-cost and efficient, and this too is a big advantage. Apart from that, whether the identical revenue streams are passed through public or private budgets obviously has no implications whatever for the fiscal sustainability of the country as a whole.

****

What is politically sustainable is nothing more than what the political community agrees to at any given time. I have been surprised, and pleased, by the political community's acquiescence in the working of the automatic stabilizers and expansion program so far. The deficits are bigger, and therefore more effective, than many economists thought would be tolerated. That's a good sign. But it would be a tragedy if alarmist arguments now prevailed, grossly undermining job prospects for millions of the unemployed.

Let me note, in passing, that Chairman Bernanke should please read the Federal Reserve Act, and focus on the objectives actually specified in it, including "maximum employment, stable prices and moderate long-term interest rates." He does not have a remit to add stable debt-to-GDP ratios or other transient academic ideas to the list. One might think that the embarrassing experience with inflation targeting would be enough to warn the Chairman against bringing too much of his academic baggage to the day job. "

Question: “How big is the debt problem?” Answer: “ENORMOUS”

By Eric Tymoigne

The U.S. now has the highest ratio of debt-to-GDP in its history: nearly 5. And, while much has been made of the public sector’s growing debt levels, private finance has been the leading contributor to this massive growth of indebtedness. Two other contributors are GSEs (private/public financial sector) and households.

Figure 1: Total Financial Liabilities by Sectors Relative to GDP
Sources: Historical Statistics of the United States: Millennium Edition, Historical Statistics of the United States: Colonial Times to 1970, NIPA, Flow of Funds (from 1945).

Securitization, together with internationalization of finance, has been the main driver of those tendencies, enabling the financial sector to reap large profits…until recently.

Figure 2: Proportion of Corporate Profit Received by the Financial Sector*















*Excludes Federal Reserve Banks.
Source: BEA. Tables 6.16B, 6.16C, and 6.16D. Corporate profit with inventory valuation and net of capital consumption.

Interestingly, debt levels in the 1980s rivaled those of the Great Depression, which gave a hint that the quality of indebtedness matters as much as the quantity of debt. Take mortgages for example: IO mortgages were a major problem during the Great Depression, which led to a reform of the mortgage industry toward long-term fixed, fully-amortized mortgages. Until the early/mid 2000s, IOs and other exotic mortgages were of limited proportion or non-existent, but as the quality of mortgage deteriorated so did the capacity to sustain a given level of indebtedness.

Solving the debt problem is going to take many years and radical steps (some of them on the distributive and employment sides rather than the financial side). Already financial institutions are cutting the amounts due on credit cards (sometimes in half!) if customers are willing to repay in full at once. Creditors are beginning to understand the enormous problem posed by massive indebtedness. Policymakers should take note: a sustainable economic recovery cannot take place without first allowing private sector balance sheets to recover.

The Failure of the Mainstream Model

By Stephanie Kelton

In an appearance on Meet the Press this morning, Vice President Joe Biden insisted that the president's $787 billion stimulus package has already "saved or created" 150,000 jobs. The show's moderator, David Gregory, challenged him on this point, noting that, at 9.4%, the unemployment rate has risen well above the 8% maximum predicted by top Obama advisors in January 2009.

Biden's response: "We took the mainstream model." And therein lies the problem.

For as near as I can tell, the mainstream models have been successful at just one thing: failure. They predicted that: subprime loans would not default at substantially different rates than prime loans; the riskiness of credit default swaps and other mortgage backed securities could be efficiently judged; deregulated financial markets were capable of self-policing; and so on. And they were wrong.

Even Alan Greenspan lost faith:

The essential problem is that our models – both risk models and econometric models – as complex as they have become, are still too simple to capture the full array of governing variables that drive global economic reality. . . models, as we currently employ them, are structurally deficient."

The prediction that comes out of any macroeconomic model is, to a very large extent, driven by the assumptions that underlie it. The mainstream models tend to assume things like: efficient markets, rational expectations, infinite planning horizons, and so on. The rosier the assumptions, the rosier the predictions.

President Obama believed his advisors when they told him that the fiscal stimulus would keep the unemployment rate from rising above 8%, but their forecasts were wrong. They were wrong because their underlying assumptions turned out to be too optimistic.

It's time to abandon the mainstream model and the rose-colored glasses that go with it.

Why We Should Abandon the Free Market

James Galbraith's lecture at the Schwartz Center for Economic Policy Analysis at the New School in New York.

Why Regulation Matters

James Galbraith's lecture at the Schwartz Center for Economic Policy Analysis at the New School in New York.

Economic Growth and Public Investment

by Felipe Rezende

You may check James K. Galbraith's interesting conference paper "The Macroeconomic Considerations of a Public Investment Strategy" here.

An important point is that "contrary to popular myth, U.S. economic development has never been solely the result of private investment."

He goes on to demystify the belief that government deficits crowd out private investment and that the US federal goverment relies on foreigners to finance its spending.

"Interest Rates. Critics assert that efforts to expand the scope of the public sector will drive up interest rates and crowd out private business investment. The accusation is particularly likely to be heard when a proposal explicitly foresees the use of the credit market, deficits, and public debt to finance the expansion.
Are these fears justified? There is a two-part answer to this question, the first related to economic theory, and the second to the specific conditions facing the United States in the world credit markets. The theory of “crowding out” is based on a common misconception of the nature of savings in our economy, namely the idea that savings are a “pool,” fixed in size, from which the public and private sectors alike draw to finance their desired rates of spending. No such pool exists. Rather, what we measure as savings is created after the fact, by the spending decisions of governments and private businesses. These decisions create income; the difference between income and consumption (the latter, strongly established by habit), is savings...We can conclude, first, that there is no direct connection between federal budget deficits or surpluses and long-term interest rates."

"Financing Abroad and the Dollar: The deficit in the external accounts is the accounting counterpart—the exact equal—of the sum of public and private sector deficits in the domestic economy.

This phenomenon is often referred to as “borrowing from foreigners to finance current consumption,” but again the shorthand is misleading. When an American purchases a Japanese car, credit is created and extended by an American bank.

Rather, a bank loan made in the United States has created a dollar asset, which subsequently has been purchased by an institution (the Bank of Japan) that has no immediate use for it and merely chooses to store it in a liquid, interest- bearing form."

The Predator State

James K. Galbraith's new book explained.

James K. Galbraith and The Predator State

James K. Galbraith discuss his new book, "The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too."

James K. Galbraith on the Global Financial Crisis

See below James K. Galbraith's lecture in Dublin, June 5 2009, at the Institute for International and European Affairs, on the current economic crisis. With Q&A and a small postscript.

Kelton is interviewed by KMBCtv

Click here to see Stephanie Kelton's interview.

Financial Architecture Fundamentals

Click here to view Warren Mosler's presentation on financial architecture fundamentals.

Did Greenspan "Blow" It?

Click here to read Stephanie Kelton's presentation at the UMKC Carolyn Benton Cockefair. She discussed the current financial crisis and the prospects for recovery offered by the government stimulus plan, bailout packages and regulatory initiatives.

Fixing the Financial Crisis

James K. Galbraith, University of Texas economics professor, offers his insight.

A 'people first' strategy

Click here to read James K. Galbraith's piece on the Guardian.

Big, Bigger, and Too Big

Click here to to read James K. Galbraith's piece on The Deal Magazine.

The Guy Has a Track Record of Failure Everywhere He's Gone

Click here to read William K. Black's piece on Geithner: "The Guy Has a Track Record of Failure Everywhere He's Gone"

Alternative Stimulus and Bailout Proposals

Click here to listen to the audio of session 6 of the 18th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies. The order of the session is as follows:

Click here to see “No Return to Normal”, by James K. Galbraith, The Levy Economics Institute and University of Texas at Austin

Click here to see“Alternative Proposals for a U.S. Nonconvertible Currency Regime”, Warren Mosler, Valance Company, Inc.

Click here to see“Riding the Debt Deflation Guardrails”, Robert W. Parenteau, The Levy Economics Institute and MacroStrategy Edge

Click here to see“The Return of Big Government: A Minskyan New Deal”, L. Randall Wray, The Levy Economics Institute and University of Missouri–Kansas City

Alternative Proposals for a U.S. Nonconvertible Currency Regime

Click here to read Warren Mosler's presentation at the 18th Annual Hyman P. Minsky Conference.

Riding the Debt Deflation Guardrails

Click here to read Robert W. Parenteau's presentation at the 18th Annual Hyman P. Minsky Conference.

Mortgage Fraud's Impact on the U.S. Housing and Financial Markets

Click here to read William K. Black's presentation at the 18th Annual Hyman P. Minsky Conference.

The Return of Big Government: A Minskyan New Deal

Click here to read Randall Wray's presentation at the 18th Annual Hyman P. Minsky Conference.

Minsky and the Regulation of the Financial System

Click here to read Jan Kregel's presentation at the 18th Annual Hyman P. Minsky Conference.

KEATING ECONOMICS: John McCain & The Making of a Financial Crisis

Stress tests Total Sham

"Stress tests Total Sham" William K. Black on Fox Business.

The Audacity of Dopes

Click here to read William K. Black's piece on The Audacity of Dopes.
William K. Black is Associate Professor of Economics and Law, University of Missouri - Kansas City. He held senior regulatory positions during the S&L debacle and is the author of "The Best Way to Rob a Bank is to Own One" (2005)

Guest Bloggers:

Mathew Forstater, Ph.D. is Associate Professor of Economics and Black Studies and Director, Center for Full Employment and Price Stability, Department of Economics, University of Missouri —Kansas City. Forstater previously was a Visiting Scholar at the Jerome Levy Economics Institute of Bard College (1997-1999) and taught at Bard and Gettysburg College (1992-1997), where he was the recipient of a number of teaching awards and recognitions. He remains a Research Associate with the Levy Economics Institute of Bard College. Forstater received his B.A. (summa cum laude) in African American Studies from Temple University (1987), and an M.A. (Honors, 1993) and Ph.D. (1996) in Economics from the New School for Social Research.

Pavlina R. Tcherneva, Ph.D. is Assistant Professor of Economics at Franklin and Marshall College, Research Scholar at The Levy Economics Institute, and Senior Research Associate at the Center for Full Employment and Price Stability. Her research expertise is in: fiscal and monetary policy, direct job creation, and the economics of gender.

Scott Fullwiler, Ph.D. is Associate Professor of Economics and James A. Leach Chair in Banking and Monetary Economics at Wartburg College, Research Associate at the Center for Full Employment and Price Stability, and Director of the Social Entrepreneurship Program at Wartburg College. His research expertise is in: central bank operations, Treasury operations, and monetary economics.






Eric Tymoigne, Ph.D. is Assistant Professor of Economics at Lewis and Clark College and Research Associate at The Levy Economics Institute. His research expertise is in: central banking, monetary economics, and macroeconomics.







Rob Parenteau, CFA, is sole proprietor of MacroStrategy Edge, editor of the Richebacher Letter, and a research associate with the Levy Economics Institute.

Marshall Auerback has over 28 years’ experience in investment management. Since 2003, he has worked as a global portfolio strategist for RAB Capital PLC, a UK-based fund management firm, and as a consulting economist for PIMCO.

Policy Proposals

The Role of Subprime Mortgages

What Caused the Crisis?

Click here to read James K. Galbraith's piece on the causes of the crisis.

Historical Perspectives on the Crisis

Monetary Policy and the Crisis

The Crisis: An Overview

US Financial Crisis

UMKC Economists' Policy Response

The following is a dynamic listing of the latest views and news from UMKC Economics Department Faculty regarding the crisis.

Professor Media Source

UMKC Economists on the U.S. Financial Crisis

UMKC economists offer their insights on the current financial crisis, its causes and solutions. Their current views can be found here.

Meet the Bloggers:

Stephanie Kelton, Ph.D. is Associate Professor of Economics at the University of Missouri-Kansas City, Research Scholar at The Levy Economics Institute and Director of Graduate Student Research at the Center for Full Employment and Price Stability. Her research expertise is in: Federal Reserve operations, fiscal policy, social security, health care, international finance and employment policy.

L. Randall Wray, Ph.D. is Professor of Economics at the University of Missouri-Kansas City, Research Director with the Center for Full Employment and Price Stability and Senior Research Scholar at The Levy Economics Institute. His research expertise is in: financial instability, macroeconomics, and full employment policy.

William K. Black, J.D., Ph.D. is Associate Professor of Law and Economics at the University of Missouri-Kansas City. Bill Black has testified before the Senate Agricultural Committee on the regulation of financial derivatives and House Governance Committee on the regulation of executive compensation. He was interviewed by Bill Moyers on PBS, which went viral. He gave an invited lecture at UCLA's Hammer Institute which, when the video was posted on the web, drew so many "hits" that it crashed the UCLA server. He appeared extensively in Michael Moore's most recent documentary: "Capitalism: A Love Story." He was featured in the Obama campaign release discussing Senator McCain's role in the "Keating Five." (Bill took the notes of that meeting that led to the Senate Ethics investigation of the Keating Five. His testimony was highly critical of all five Senators' actions.) He is a frequent guest on local, national, and international television and radio and is quoted as an expert by the national and international print media nearly every week. He was the subject of featured interviews in Newsweek, Barron's, and Village Voice.

Jan Kregel, Ph.D. is Distinguished Visiting Research Professor at the University of Missouri-Kansas City, former United Nations Financial Expert, and Research Director at The Levy Economics Institute. He worked as a high-level expert at the United Nations, and he is a Life Felllow of the Royal Economics Society. His areas of expertise are: international finance, trade and development, decision-making under uncertainty and Post-Keynesian economics.

Government Data

Federal Government Data

• Bureau of Economic Analysis (BEA)
• Bureau of Labor Statistics (BLS)
• US Department of Commerce

Federal Reserve Board Economic Research

• The Federal Reserve Board Research & Data

Federal Reserve Districts Economic Research

• Boston Fed Publications
• Fed Bank NY Research Publications
• Philly Fed Research Publications
• Cleveland Fed Publications
• Richmond Fed Economic Research
• Fed Bank Atlanta Publications
• Chicago Fed Economic Research & Data
• St. Louis Fed Publications
• Minneapolis Fed Publications
• Kansas City Fed Publications and Education Resources
• Dallas Fed Publications and Resources
• San Fran Fed Economic Research & Data

US Treasury

• US Treasury Publications

Office of Management and Budget

• OMB

U.S. Census Bureau Economic Programs

• Census

Regional Economic Information Network (REIN)

• REIN

Housing market indicators

• FHFA
• National Association of REALTORS

Central Bank Websites

• Central Bank Research Hub

Monetary & Financial Stability

• BIS's Committees
• IMF Global Financial Stability Report

The Financial Crisis Timeline

The Federal Reserve Bank of St. Louis - St Louis Fed timeline - provides information about major financial events and policy responses. They also have a website on the Great Depression timelines.

The Federal Reserve Bank of New York timelines,"Timelines of Policy Responses to the Global Financial Crisis", have links to press releases, news stories, and data.