Notes of Note from John F. Ince

Archive for March, 2011

Deficits and the Printing Press (Somewhat Wonkish) – NYTimes.com

Deficits and the Printing Press (Somewhat Wonkish)

Right now, deficits don’t matter — a point borne out by all the evidence. But there’s a school of thought — the modern monetary theory people — who say that deficits never matter, as long as you have your own currency.

I wish I could agree with that view — and it’s not a fight I especially want, since the clear and present policy danger is from the deficit peacocks of the right. But for the record, it’s just not right.

The key thing to remember is that current conditions — lots of excess capacity in the economy, and a liquidity trap in which short-term government debt carries a roughly zero interest rate — won’t always prevail. As long as those conditions DO prevail, it doesn’t matter how much the Fed increases the monetary base, and it therefore doesn’t matter how much of the deficit is monetized. But this too shall pass, and when it does, things will be very different.

So suppose that we eventually go back to a situation in which interest rates are positive, so that monetary base and T-bills are once again imperfect substitutes; also, we’re close enough to full employment that rapid economic expansion will once again lead to inflation. The last time we were in that situation, the monetary base was around $800 billion.

Suppose, now, that we were to find ourselves back in that situation with the government still running deficits of more than $1 trillion a year, say around $100 billion a month. And now suppose that for whatever reason, we’re suddenly faced with a strike of bond buyers — nobody is willing to buy U.S. debt except at exorbitant rates.

So then what? The Fed could directly finance the government by buying debt, or it could launder the process by having banks buy debt and then sell that debt via open-market operations; either way, the government would in effect be financing itself through creation of base money. So?

via Deficits and the Printing Press (Somewhat Wonkish) – NYTimes.com.

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Solution to the Budget Crisis: Keeping the State’s Money in the State

Cut spending, raise taxes, sell off public assets – these are the unsatisfactory solutions being debated across the nation; but the budget crises now being suffered by nearly all the states did not arise from too much spending or too little taxation.  They arose from a credit freeze on Wall Street.  In the wake of the 2009 financial market collapse, banks curtailed their lending more sharply than in any year since 1942, driving massive unemployment and causing local tax revenues to plummet.

The logical solution, then, is to restore credit to the local economy.  But how?  The Federal Reserve could provide the capital and liquidity necessary to create bank credit, in the same way that it provided $12.3 trillion in liquidity and short-term loans to the large money center banks.  But Fed Chairman Ben Bernanke declared in January 2011 that the Fed had no intention of doing that — not because it would be too costly (the total deficit of all the states comes to less than 2% of the credit advanced for the bank bailout) but because it is not part of the Fed’s mandate.  If Congress wants the Fed to advance credit to local governments, he said, it will have to change the law.

The states are on their own.  Policymakers are therefore considering a variety of reforms designed to increase bank lending, particularly to small businesses, the hardest hit by tightening credit standards.  One measure that is drawing increasing interest is the creation of a bank modeled on the Bank of North Dakota (BND), currently the only state-owned bank in the country.  The BND has a 92-year history of safe, secure and highly profitable banking.  North Dakota has the lowest unemployment rate in the country; and in 2009, when other states were floundering, it had the largest budget surplus it had ever had.

Eight states now have bills pending either to form state-owned banks or to do feasibility studies to determine their potential.  This year, bills were introduced in the Oregon State legislature on January 11; in Washington State on January 13; in Massachusetts on January 20  (following a 2010 bill that lapsed); and in the Maryland legislature on February 4.  They join Illinois, Virginia, Hawaii, and Louisiana, which introduced similar bills in 2010.  The Center for State Innovation, based in Madison, Wisconsin, was commissioned to do detailed analyses for Washington and Oregon.  Their conclusion was that state-owned banks in those states would have a substantial positive impact on employment, new lending, and state and local government revenue.

State-owned banks could be a win-win for everyone interested in a thriving local economy.  Objections are usually based on misconceptions or a lack of information.

via Solution to the Budget Crisis: Keeping the State’s Money in the State.

Nobel Laureate Muhammad Yunus Fights To Keep Job At His Microfinance Bank

DHAKA, Bangladesh — Nobel laureate Muhammad Yunus filed an appeal Wednesday with Bangladesh’s highest court in a final attempt to keep his job at the microfinance bank he founded.

Last week, Bangladesh’s central bank ordered 71-year-old Yunus out of Grameen Bank, saying he was violating the country’s retirement laws. A High Court upheld that decision on Tuesday.

An outspoken government critic, Yunus has said his dismissal is illegal and alleged that the government is trying to take control of his bank.

The appeal is Yunus’ last legal option in his bid to remain Grameen’s managing director, a post he has held for nearly 30 years. At issue is whether the central bank was properly consulted when Grameen exempted Yunus from its mandated retirement age of 60.

Supreme Court judge Syed Mahmud Hossain said arguments on the appeal will be heard March 15.

Yunus and Grameen Bank pioneered the practice of using tiny loans to help lift people out of poverty, inspiring such lending throughout the developing world. The concept won Yunus and the bank the 2006 Nobel Peace Prize.

via Nobel Laureate Muhammad Yunus Fights To Keep Job At His Microfinance Bank.

Warner’s Facebook plan hits Netflix shares – MarketWatch

Facebook ‘s empire expands …  Warner Bros. Studios’ plan to start streaming its films to Facebook users is taking a bite out of shares of movie-rental giant Netflix Inc., sending its stock tumbling nearly 6% Tuesday.

The proposal, which would allow immediate streaming of the venerable studio’s movies on the popular social-networking service, puts a new wrinkle in Hollywood’s adaptation to a digital world.

Warner is starting out the service by offering screenings of its 2008 hit “The Dark Knight,” which made more than $1 billion in worldwide receipts — seventh on the all-time box-office list. Facebook users who say they “liked” the film can rent the title from its page on the social network. Users would use 30 Facebook credits, worth $3, to pay for the rental.

Warner is calling the venture a “test,” saying it plans to put “selected” films on the site for rental or purchase. Users could watch the film via their Facebook account for up to 48 hours on demand, and be able to start and stop the stream whenever they choose. They could also network with others while watching the film on Facebook.

“Facebook has become a daily destination for hundreds of millions of people,” said Thomas Gewecke, president of the Warner Bros. digital-distribution unit, in a statement. “Making our films available … gives consumers a simple, convenient way to access and enjoy our films through the world’s largest social network.”

Facebook, however, insisted that the Warner plan does not constitute a exclusive transaction between the two parties. Facebook said it has consulted with Warner to get its project going, but it helps other content providers do the same, including CBS Corp. (CBS 23.70, -0.02, -0.08%) , Comcast Corp.’s (CMCSA 25.57, -0.02, -0.08%) NBC network and Walt Disney Co.’s (DIS 43.20, -0.03, -0.07%)  ABC network, as well as Netflix (NFLX 195.08, -0.37, -0.19%)

Facebook officials said in a written statement: “Right now, more than 400 games and applications use Facebook credits to give people a convenient and safe way to buy virtual and digital goods on Facebook. We’re open to developers and partners that want to experiment using credits in new and interesting ways, and we look forward to seeing what they come up with.”

Privately held Facebook said it gets a 30% cut from every showing via its network.

via Warner’s Facebook plan hits Netflix shares – MarketWatch.

How Wisconsin Could Turn Austerity into Prosperity: Own a State Bank by Ellen Brown

As states struggle to meet their budgets, public pensions are on the chopping block, but they needn’t be. States can keep their pension funds intact while leveraging them into many times their worth in loans, just as Wall Street banks do. They can do this by forming their own public banks, following the lead of North Dakota—a state that currently has a budget surplus.

via How Wisconsin Could Turn Austerity into Prosperity: Own a State Bank by Ellen Brown.

Reinventing Philanthropy in Chicago: Philanthropy Community Conversation – Trib Nation

In the confluence of a shaky economy and a technological boom that can mobilize masses via social media, a radical reinvention is underway for the mahogany-and-mothballs cliche of philanthropy as the hobby of a wealthy elite.

It’s the subject of our upcoming March 15 Chicago Forward forum on The Face of Philanthropy at the Thorne Auditorium, and of a smaller community conversation luncheon on the topic at the Tribune Tower earlier this week.

Increasingly, said Groupon G-Team manager Patty Huber, it is an area of interest to places like Groupon, with its 27 million members eager to pool small donations that serve a bigger cause. Recent trends show more philanthropic money coming from small donors than large donors, our 15 lunch guests told 11 Tribune journalists — while in many cases, more attention and more financial tools are employed to leverage and follow up on gifts more effectively.

De-Mythologizing Giving

There’s a mythology built around philanthropy, said Donors Forum CEO Valerie Lies. Amy Rasmussen of the Chicago Arts Partnerships in Education said philanthropy increasingly plays a role in the gray area between government and civic giving, such as in music programs in schools. Lines are blurring between non-profits and organizations that view philanthropy as an investment that both does good work and turns a guilt-free buck, said Sharon Schneider, philanthropic director at Foundation Source.

(My favorite moment? When Maria Kim suggested doing away with the tired term “non-profit” in favor of the phrase “mission-driven organization.” At Trib Nation, I can appreciate that!)

And when philanthropy is the province of monied families passing on their fortune, it is often viewed as a way to pass on generational values about involvement and giving back as much as it is about passing on the family millions, said Marguerite Griffin, National Director of Philanthropic Services for Northern Trust, whose group provides philanthropic advice to high net-worth clients nationwide.

There’s a reinvention underway for what “philanthropy” means, said Jason Saul, founder of Mission Measurement — and some fascinating personal stories hidden behind attention to money and giving, said Francia Harrington, the J.P. Morgan Chase Senior Vice President for Civic Affairs.

via Reinventing Philanthropy in Chicago: Philanthropy Community Conversation – Trib Nation.

PHILANTHROPY 2173: Why would a foundation tweet?

Lucy Bernholtz: Why would a foundation tweet?

A few days ago I checked my Twitter stream and saw several items tagged #JIFLAB. I could tell that these tweets were coming from staff of The James Irvine Foundation. I pinged the people I knew and asked “What’s #JIFLAB? What’s going on?”

I’ve been asked the question “Why should my foundation tweet?” at least 1,000 times. My usual answer has to do with listening. Chances are some of the people you want to learn from are using Twitter. Chances are they are using it to be part of interesting/important/relevant/useful/ thought-provoking conversations. If your job requires you to know what the key people in a certain field are talking about, then listening to and being part of the conversations on Twitter is part of that.

One of the people in the#JIFLAB conversation was the Foundation’s CEO, Jim Canales. I asked Jim (on Twitter, of course) if I could interview him for this blog on why the Foundation was tweeting and what they hoped to learn.

We tried the interview by Twitter but switched to email. Here’s the quick-and-dirty back and forth. Here is why one Foundation is trying out Twitter.

LB) Why is JIF staff tweeting? Is it part of an emergent strategy (on social media? listening? transparency? something else?) and, if so, what other practices are part of that strategy?

JC) In setting out the Foundation’s goals for 2011 (I do this annually for both board and staff to align our work and set key institutional priorities), I described that we should actively explore the ways in which social media might serve to advance our Foundation’s programmatic goals. More specifically, we are interested in exploring ways to use social media to: (1) share what we are learning more rapidly and broadly; (2) listen more actively to our partners and key stakeholders, building greater two-way exchange instead of one-way transmission of information; (3) build alliances and broader networks of support to advance our program goals; and (4) demonstrate Irvine’s continued commitment to transparency and openness.

via PHILANTHROPY 2173: Why would a foundation tweet?.