I am very happy to introduce the latest guest contribution to Blawgconomics. Eric Sidler's post examines the recent actions by the members of the Southern African Development Community in regards to Zimbabwe's flouting of court orders to protect property rights in the country. A very interesting topic in its own right, it is also notable in that it expands the reach of Blawgconomics to African issues, novel territory for the site. The topic is also very interesting in that it rests directly in the crosshairs of both law and economics. Although on its face, it is legal in nature, the fact that both breaking rules and then ignoring court judgments has been embraced by Zimbabwe's African neighbors has direct economic implications for the region as well. This is because other countries will continue to view dealings in the area, both economically and politically, with a sceptical and wary eye. And, as Mr. Sidler concludes, the most likely effective remedy for this will be internal change. Until then, citizens are likely going to be the ones who suffer most.
On June 5, 2009, the Southern African Development Community (SADC) Tribunal held the Zimbabwe government in contempt for defying the Tribunal’s November 28, 2008 judgment in favor of a group of white commercial farmers in Zimbabwe. The Tribunal’s November 28, 2008 judgment directed the Zimbabwe government: (1) to “take all necessary measures through its agents to protect the possession, occupation and ownership” of the lands of 78 white commercial farmers whose land was forcibly seized as part of Zimbabwe’s controversial “fast track” land reform program; and (2) to pay fair compensation for these lands. (i) In a letter of August 7, 2009, Zimbabwe’s Minister of Justice and Legal Affairs, Patrick A. Chinamasa, communicated the Zimbabwe government’s refusal to comply with the Tribunal’s judgment and asserted that Zimbabwe was withdrawing from the SADC Tribunal entirely. As support for Zimbabwe’s position, Chinamasa argued that the SADC Tribunal Protocol is not binding on Zimbabwe because it has not been ratified by two-thirds of SADC member states. Pursuant to Article 32(5) of the SADC Tribunal Protocol, the Tribunal referred the matter to be resolved at the SADC Summit in Kinshasa, Democratic Republic of the Congo, on September 2-8, 2009.
At the 2009 SADC Summit in Kinshasa, rather than renounce the Zimbabwe government’s defiance of its obligations under the SADC Treaty, Zimbabwe’s Southern African neighbors instead trumpeted the progress made toward implementation of the 2008 Global Political Agreement between President Robert Mugabe’s ZANU-PF party and Prime Minister Morgan Tsvangirai’s Movement for Democratic Change (MDC) and adopted President Mugabe's call for an end to Western sanctions against Zimbabwe. The SADC’s tepid response to the Mugabe regime’s acts of defiance comes as a disappointment to many supporters of human rights who want regional organizations such as the SADC to exert more external pressure on Mugabe to respect human rights and the rule of law. To these entities, external pressure on Zimbabwe appears all the more necessary in light of the violence surrounding the March 2008 elections – in which President Mugabe’s ZANU-PF party lost control of Parliament and Tsvangirai’s MDC party claimed victory in the first round of the presidential race – and President Mugabe’s seemingly unrelenting campaign of terror against his political opponents during the last year.
In light of the unwillingness of SADC member states to provide accountability in the face of Zimbabwe’s brazen defiance of its international obligations under the SADC Treaty, internal political change may be one of the only viable options for bringing an end to the lawless acquisition of titled land and other human rights abuses by the Mugabe regime. The 2008 Global Political Agreement between ZANU-PF and MDC is a start in the right direction toward democratic reform and respect for the rule of law, but more coordinated internal pressure is necessary to achieve lasting democratic reform and respect for the rule of law. By calling for an end to international sanctions against Zimbabwe, SADC leaders appear to have opted for a policy of solidarity rather than confrontation. Although this policy arguably conflicts with the SADC’s stated goal of “consolidate[ing], defend[ing] and maintain[ing] democracy, peace, security and stability,” (ii) it remains to be seen whether this choice will ultimately prove most effective for realizing a fully democratic Zimbabwe that respects the rule of the law.
(i) Campbell v. Zimbabwe, SADCT 2/07, 58 (Nov. 28, 2008).
(ii) SADC Treaty – 2001 Amendments Art. 5(c) (Aug. 14, 2001).
11.29.2009
Veränderungen im europäischen Profi-Fußball durch Anhebung des Spitzensteuersatzes?
Blawgconomics is happy to be able to post a German translation of Changing Tax Regimes Could Shift the Balance of Power in European Football courtesy of native speakers and very good friends of the site Christine Wecker and Florian Seelig. As always, comments and feedback are appreciated.
Dem Durchschnittsbürger mag es von Zeit zu Zeit schwerfallen, die Nöte und Sorgen eines Fußballspielers nachzuempfinden, der mehrere zehn bis hunderttausend Dollar pro Woche verdient und dabei noch von einer großen Schar von Fans verehrt wird. Vor allem in Zeiten wie diesen, inmitten der weltweiten Wirtschaftskrise, in der die Arbeitslosenquote in den USA die 10%-Marke erreicht, erscheint dies besonders schwer nachvollziehbar.
Trotz alledem werden auch Fußballspieler von ganz alltäglichen Sorgen geplagt. Auch sie müssen Hypotheken bedienen, Luxusautos unterhalten und Restaurantrechnungen in Höhe von mehreren tausend Dollar begleichen, um den Ansprüchen ihrer Modelfreundinnen gerecht zu werden... Nun ja, vielleicht unterscheiden sich ihre Sorgen ein wenig, aber auch der Ottonormalverbraucher kann im Prinzip den folgenden Punkt erfassen; einige professionelle Sportler, Fußballspieler eingeschlossen, treffen Entscheidungen bezüglich ihrer künftigen Karriereplanungen lieber im Hinblick auf einen möglichen Gehaltsscheck als auf die Möglichkeit sportlichen Renommees.
Aufgrund dieser schockierenden Tatsache und im Hinblick auf zukünftige Änderungen im Besteuerungssystem der Länder, in denen die Top-Ligen dieser Welt zu Hause sind, dürfte das jetzige Gleichgewicht der erfolgreichsten Ligen in Europa bald ins Wanken geraten. Auch wer weit vom Spitzensteuersatz der Topverdiener entfernt ist, kann sich leicht ausmalen, was mit einem Gehalt passiert, das einen Steuerabschlag von 43-50% erleidet, bevor es auf dem Konto des Empfängers landet. Genau das wird nämlich den ausländischen Spielern in Spanien und England ab nächstem Jahr blühen.
England hat bereits einen Spitzensteuersatz von 40%, die angekündigte Erhöhung auf 50% ist gleichwohl drastisch. Ein noch dramatischerer Eingriff ist in Spanien geplant, wo Ausländer in der Top-Steuerklasse dank des 2004 erlassenen sogenannten Beckham-Gesetzes gegenwärtig mit einem Steuersatz von nur 24% besteuert werden. Dieses Gesetz wurde erlassen, um Topverdienern aus allen Branchen einen Anreiz zu bieten, ins Land zu kommen. Nun soll der Spitzensteuersatz Anfang nächsten Jahres von 24% auf 43% steigen. Obwohl das spanische Gesetz keine Rückwirkung entfaltet, sind seine Auswirkungen auf den spanischen Fußball nur allzu gut vorstellbar. Wechsel von Top-Spielern wie Alonso, Ibrahimovic, Kaka, Ronaldo oder Benzema zu spanischen Clubs wie noch im letzten Jahr erscheinen unter den Bedingungen dieses wenig wettbewerbsfähigen Gehaltsschemas in Zukunft weniger wahrscheinlich. Einige kürzlich erschiene Artikel haben sich mit den Auswirkungen auf die spanische Primera Division befasst, die mit Streik droht, falls die angekündigte Erhöhung des Steuersatzes Wirklichkeit zu werden droht. Den möglichen positiven Auswirkungen wurde jedoch kaum Beachtung geschenkt.
Zu diesen zählt vor allem eine mögliche Assimilierung der Ligen. Ein gewisser Grad an Parität kann - wie in den amerikanischen Ligen NFL, NBA und auch der Major League Baseball - durchaus positiv sein. So könnte etwa das Erringen der Meisterschaft in der Champions League und den anderen europäischen Wettbewerben für eine größere Zahl an Vereinen möglich sein und letztendlich zu einer größeren Leitungsdichte und Attraktivität der Ligen führen. In den letzten Jahren dominierten englische und spanische Clubs die Champions League. Die Rückkehr von deutschen, italienischen oder auch portugiesischen und holländischen Clubs aufs Podium hätte eine belebende Wirkung für die gesamte Sportart. Und dies erscheint nur dann möglich, wenn es für die Top-Spieler schlicht finanziell weniger reizvoll wird zu einem der großen Clubs wie Madrid, Manchester, Barcelona oder London zu wechseln.
Deshalb könnte die Geldgier in diesem Fall – abgesehen von der Maßlosigkeit einiger Sportler, die besonders in diesen ökonomisch schwierigen Zeiten viele von uns erschrecken – eine gute Seite haben. Wenn es sich Spieler zweimal überlegen, ob sie aufgrund des Besteuerungssystems nach England oder Spanien wechseln oder aber auch der Verbundenheit zu einem Club oder Land folgen, könnte das Ergebnis eine größere Ausgewogenheit der europäischen Ligen bedeuten, was letztlich zu einer interessanteren und wettbewerbsfähigeren Struktur führen würde.
Dem Durchschnittsbürger mag es von Zeit zu Zeit schwerfallen, die Nöte und Sorgen eines Fußballspielers nachzuempfinden, der mehrere zehn bis hunderttausend Dollar pro Woche verdient und dabei noch von einer großen Schar von Fans verehrt wird. Vor allem in Zeiten wie diesen, inmitten der weltweiten Wirtschaftskrise, in der die Arbeitslosenquote in den USA die 10%-Marke erreicht, erscheint dies besonders schwer nachvollziehbar.
Trotz alledem werden auch Fußballspieler von ganz alltäglichen Sorgen geplagt. Auch sie müssen Hypotheken bedienen, Luxusautos unterhalten und Restaurantrechnungen in Höhe von mehreren tausend Dollar begleichen, um den Ansprüchen ihrer Modelfreundinnen gerecht zu werden... Nun ja, vielleicht unterscheiden sich ihre Sorgen ein wenig, aber auch der Ottonormalverbraucher kann im Prinzip den folgenden Punkt erfassen; einige professionelle Sportler, Fußballspieler eingeschlossen, treffen Entscheidungen bezüglich ihrer künftigen Karriereplanungen lieber im Hinblick auf einen möglichen Gehaltsscheck als auf die Möglichkeit sportlichen Renommees.
Aufgrund dieser schockierenden Tatsache und im Hinblick auf zukünftige Änderungen im Besteuerungssystem der Länder, in denen die Top-Ligen dieser Welt zu Hause sind, dürfte das jetzige Gleichgewicht der erfolgreichsten Ligen in Europa bald ins Wanken geraten. Auch wer weit vom Spitzensteuersatz der Topverdiener entfernt ist, kann sich leicht ausmalen, was mit einem Gehalt passiert, das einen Steuerabschlag von 43-50% erleidet, bevor es auf dem Konto des Empfängers landet. Genau das wird nämlich den ausländischen Spielern in Spanien und England ab nächstem Jahr blühen.
England hat bereits einen Spitzensteuersatz von 40%, die angekündigte Erhöhung auf 50% ist gleichwohl drastisch. Ein noch dramatischerer Eingriff ist in Spanien geplant, wo Ausländer in der Top-Steuerklasse dank des 2004 erlassenen sogenannten Beckham-Gesetzes gegenwärtig mit einem Steuersatz von nur 24% besteuert werden. Dieses Gesetz wurde erlassen, um Topverdienern aus allen Branchen einen Anreiz zu bieten, ins Land zu kommen. Nun soll der Spitzensteuersatz Anfang nächsten Jahres von 24% auf 43% steigen. Obwohl das spanische Gesetz keine Rückwirkung entfaltet, sind seine Auswirkungen auf den spanischen Fußball nur allzu gut vorstellbar. Wechsel von Top-Spielern wie Alonso, Ibrahimovic, Kaka, Ronaldo oder Benzema zu spanischen Clubs wie noch im letzten Jahr erscheinen unter den Bedingungen dieses wenig wettbewerbsfähigen Gehaltsschemas in Zukunft weniger wahrscheinlich. Einige kürzlich erschiene Artikel haben sich mit den Auswirkungen auf die spanische Primera Division befasst, die mit Streik droht, falls die angekündigte Erhöhung des Steuersatzes Wirklichkeit zu werden droht. Den möglichen positiven Auswirkungen wurde jedoch kaum Beachtung geschenkt.
Zu diesen zählt vor allem eine mögliche Assimilierung der Ligen. Ein gewisser Grad an Parität kann - wie in den amerikanischen Ligen NFL, NBA und auch der Major League Baseball - durchaus positiv sein. So könnte etwa das Erringen der Meisterschaft in der Champions League und den anderen europäischen Wettbewerben für eine größere Zahl an Vereinen möglich sein und letztendlich zu einer größeren Leitungsdichte und Attraktivität der Ligen führen. In den letzten Jahren dominierten englische und spanische Clubs die Champions League. Die Rückkehr von deutschen, italienischen oder auch portugiesischen und holländischen Clubs aufs Podium hätte eine belebende Wirkung für die gesamte Sportart. Und dies erscheint nur dann möglich, wenn es für die Top-Spieler schlicht finanziell weniger reizvoll wird zu einem der großen Clubs wie Madrid, Manchester, Barcelona oder London zu wechseln.
Deshalb könnte die Geldgier in diesem Fall – abgesehen von der Maßlosigkeit einiger Sportler, die besonders in diesen ökonomisch schwierigen Zeiten viele von uns erschrecken – eine gute Seite haben. Wenn es sich Spieler zweimal überlegen, ob sie aufgrund des Besteuerungssystems nach England oder Spanien wechseln oder aber auch der Verbundenheit zu einem Club oder Land folgen, könnte das Ergebnis eine größere Ausgewogenheit der europäischen Ligen bedeuten, was letztlich zu einer interessanteren und wettbewerbsfähigeren Struktur führen würde.
Bernanke Fires Back on the Role of the Fed
The latest shots in the battle for control of the US financial system have been fired as Ben Bernanke pushed back against the idea that the Fed needs additional Congressional oversight. While one should be mindful of the source, Chairman Bernanke's latest comments suggest that further oversight of the Fed would have a detrimental effect on the economy. Although he can point to studies showing inflationary effects stemming from central bank oversight, this is more likely just political wrangling ahead of the inevitable upcoming changes to the banking system. Observers should expect that this type of back and forth will continue until substantive legislation results in a new financial system framework.
11.26.2009
Dubai Manages to Make US Debt an Attractive Option
Once every few years a country makes a decision that leaves the global financial community scratching its collective head and reminds the world why US debt continues to be greedily devoured even in times of miniscule yields. One need look no further than Dubai for the 2009 edition of this phenomenon.
What is perhaps most interesting about the city state's decision to postpone debt payments on two sovereign-controlled corporations is the shocked reaction of investors. Unfortunately, like the pricking of an asset bubble or a down cycle in the economy, history tells us that occasional defaults on sovereign debt are inevitable. Of course, this is not to say that foreign investment or attempting to gain the best return possible are not good strategies. Indeed quite the opposite is true. However, it does highlight the risk/return equation, which indicates that investors in Dubai have a right to be disappointed, but should not be shocked. At the same time and on the other side of the coin, it highlights how the US is able to continue to fund gargantuan projects, including multiple wars, while providing next to no return to investors. To wit, it has never defaulted on a debt payment since Hamilton's First Bank of the United States was created for the very purpose of avoiding doing so.
In the end, therefore, those who invest in the US, like those who invest in Dubai, may be disappointed, and occasionally angry, at least when calculating returns. However, days like this remind them that these returns help them avoid being shocked, and serve the rest of the world a needed reminder of the risk/return equation. This can be a tough lesson, but like lessons regarding asset bubbles and economic cycles, it is one seldom learned.
What is perhaps most interesting about the city state's decision to postpone debt payments on two sovereign-controlled corporations is the shocked reaction of investors. Unfortunately, like the pricking of an asset bubble or a down cycle in the economy, history tells us that occasional defaults on sovereign debt are inevitable. Of course, this is not to say that foreign investment or attempting to gain the best return possible are not good strategies. Indeed quite the opposite is true. However, it does highlight the risk/return equation, which indicates that investors in Dubai have a right to be disappointed, but should not be shocked. At the same time and on the other side of the coin, it highlights how the US is able to continue to fund gargantuan projects, including multiple wars, while providing next to no return to investors. To wit, it has never defaulted on a debt payment since Hamilton's First Bank of the United States was created for the very purpose of avoiding doing so.
In the end, therefore, those who invest in the US, like those who invest in Dubai, may be disappointed, and occasionally angry, at least when calculating returns. However, days like this remind them that these returns help them avoid being shocked, and serve the rest of the world a needed reminder of the risk/return equation. This can be a tough lesson, but like lessons regarding asset bubbles and economic cycles, it is one seldom learned.
November IEA Data
It never seems more appropriate to keep up with tradition than on days like Thanksgiving. In that spirit, I am continuing my monthly posting of the latest IEA Oil Market Data. Here is a link to the November summary which includes a .pdf of the full report. At first glance, it would appear that it was an interesting month with stocks, demand, and prices all higher. However, it would take a far more grizzled oil man than Blawgconomics has on staff to determine whether or not that is a blip on the radar or a signal of anything more interesting to come. Therefore, and as always, comments are appreciated.
11.23.2009
Decourcy on Krugman
I am happy to present the latest in a series of guest contributions to Blawgconomics. Today, repeat contributor Patrick Decourcy presents a point by point analysis of Paul Krugman's recent op-ed piece in the New York Times on the state of the economy. Though we are not often keen to go toe-to-toe with Nobel laureates (despite being realistic about how much they would care), and though the very careful reader will likely note a particular tone to his analysis, I do feel that Pat was able to highlight a few holes in Krugman's article. This is particularly true in regards to stimulus and interest rates, topics which have been discussed on this page in the past. If anyone disagrees (particularly anyone quoted below with a Nobel Prize), Blawgconomics would appreciate their comments and responses. Without further ado, and in all of its unedited glory, I give you Mr. DeCourcy:
Paul Krugman is a left wing partisan democrat hack. To even refer to him as an "economist" damages the credibility of the science. His recent article again proves his partisanship and Obama cult worship will supersede any scientific analysis of the economic situation in this country. Here are my quote by quote responses to this Nobel Laureate’s recent op/ed:
"To be sure, “centrists” in the Senate have hobbled efforts to rescue the economy."
How so exactly? By standing up for some potential fiscal restraint in regards to a needless health care reform package after approving trillions of new spending on a stimulus that only 15% has been spent? Or the $700 billion TARP? Or the GM, AIG, Chrysler, Citi bailouts? How exactly have these centrists hobbled these efforts?
"President Obama and his inner circle have been intimidated by scare stories from Wall Street."
Intimidated? This moron forgets there is a pay czar regulating the salaries of Wall Street! If anyone is being intimidated its Wall Street, not the White House.
"Consider the contrast between what Mr. Obama’s advisers were saying on the eve of his inauguration, and what he himself is saying now."
Notice how Dr. Krugman tells us to contrast Mr. Obama's advisers, and not Mr. Obama himself. Did we see statements that Bush’s advisers told him to invade Iraq, or Bush’s advisers told him to do a flyover of Hurricane Katrina? No we didn’t. This is a nice little left-wing media trick to help throw the advisers under the bus as the economy worsens - rather than Mr. Obama - who knows nothing about the economy. And why should he - community organizers and former ACORN lawyers usually don't study capitalism since they are concerned with gaming the free market by loudly protesting banks (brandishing them racist) when they didn't want to give people with poor credit home loans....we saw how that worked out! How’s that hope and change and other centrist campaign platitudes working out for all of you Obama voters?
"In December 2008 Lawrence Summers, soon to become the administration’s highest-ranking economist, called for decisive action. “Many experts,” he warned, “believe that unemployment could reach 10 percent by the end of next year.” In the face of that prospect, he continued, “doing too little poses a greater threat than doing too much.”
"Ten months later unemployment reached 10.2 percent, suggesting that despite his warning the administration hadn’t done enough to create jobs. You might have expected, then, a determination to do more."
What more could be done? Obama spent trillions and bailed out numerous large-cap corporations while ballooning the deficit to unheard of levels? Now he is trying to spend trillions more on a health care plan which is unpopular and will not improve health care. Couldn't someone argue we have done too much and now its time for big govt to get the hell out of the economy? Of course, always the partisan hack, Krugman argues for more deficit spending, tax increases on the rich, and stimulus. Sounds like the DNC platform to me, not the analysis of an award winning economist.
Paul Krugman is a left wing partisan democrat hack. To even refer to him as an "economist" damages the credibility of the science. His recent article again proves his partisanship and Obama cult worship will supersede any scientific analysis of the economic situation in this country. Here are my quote by quote responses to this Nobel Laureate’s recent op/ed:
"To be sure, “centrists” in the Senate have hobbled efforts to rescue the economy."
How so exactly? By standing up for some potential fiscal restraint in regards to a needless health care reform package after approving trillions of new spending on a stimulus that only 15% has been spent? Or the $700 billion TARP? Or the GM, AIG, Chrysler, Citi bailouts? How exactly have these centrists hobbled these efforts?
"President Obama and his inner circle have been intimidated by scare stories from Wall Street."
Intimidated? This moron forgets there is a pay czar regulating the salaries of Wall Street! If anyone is being intimidated its Wall Street, not the White House.
"Consider the contrast between what Mr. Obama’s advisers were saying on the eve of his inauguration, and what he himself is saying now."
Notice how Dr. Krugman tells us to contrast Mr. Obama's advisers, and not Mr. Obama himself. Did we see statements that Bush’s advisers told him to invade Iraq, or Bush’s advisers told him to do a flyover of Hurricane Katrina? No we didn’t. This is a nice little left-wing media trick to help throw the advisers under the bus as the economy worsens - rather than Mr. Obama - who knows nothing about the economy. And why should he - community organizers and former ACORN lawyers usually don't study capitalism since they are concerned with gaming the free market by loudly protesting banks (brandishing them racist) when they didn't want to give people with poor credit home loans....we saw how that worked out! How’s that hope and change and other centrist campaign platitudes working out for all of you Obama voters?
"In December 2008 Lawrence Summers, soon to become the administration’s highest-ranking economist, called for decisive action. “Many experts,” he warned, “believe that unemployment could reach 10 percent by the end of next year.” In the face of that prospect, he continued, “doing too little poses a greater threat than doing too much.”
"Ten months later unemployment reached 10.2 percent, suggesting that despite his warning the administration hadn’t done enough to create jobs. You might have expected, then, a determination to do more."
What more could be done? Obama spent trillions and bailed out numerous large-cap corporations while ballooning the deficit to unheard of levels? Now he is trying to spend trillions more on a health care plan which is unpopular and will not improve health care. Couldn't someone argue we have done too much and now its time for big govt to get the hell out of the economy? Of course, always the partisan hack, Krugman argues for more deficit spending, tax increases on the rich, and stimulus. Sounds like the DNC platform to me, not the analysis of an award winning economist.
11.21.2009
Chinese and European Dollar Comments are Not Without Merit
It would be absurd to think of the US as a developing nation or third world economy. However, recent comments by Chinese and European officials regarding the dollar sound more like those the United States may have made in the past about the Asian Tigers or former Soviet Bloc countries than something valued trade partners would say about each other. Despite this, and despite the root of the comments from both east and west lying in different concerns, these claims of far too casual treatment of the dollar are not without merit.
The US dollar is unique among the world's currencies in that it is the lead global currency of exchange. This is due to the many global business transactions that occur in dollar terms, and many commodities transactions are settled using cash. The US is also the world's largest debtor, meaning that dollar-denominated securities are held throughout the world. Among a few other factors, the US is also the world's largest economy. All of these factors impact the dollar, as it impacts them. During the best of times, no one is very concerned about this looping relationship, as the benefit of convenience and precedent combine to keep the dollar on its throne.
But it is hardly the best of times for the US economy or the dollar's position as the global currency of choice. Commodities prices, particularly oil, have fluctuated wildly over the past decade. The US Treasury is printing money to fund war and stimulus debts at an unprecedented rate. The pound and the euro are both substantially stronger than the dollar. And China's global economic relevance has never been higher. In addition to the more recent comments, this has lead to a wide range of reactions from many quarters, including threats from the middle east of dropping the dollar as the currency of the oil markets. This would be more believable if the parties of OPEC could stick to a cartel agreement, nevermind develop a currency regime, but it is still cause for concern.
These factors and many more are leading to the recent complaints by both Europe and China. In the former's case, there are fears that the a disproportionate burden of the future global trade imbalance correction will fall upon Old World shoulders; in the latter, that a currency pegged to a dollar wearing concrete boots will impact its own rise to global prominance. There are actions that could be taken by everyone involved to ease the collective burden of dollar distress. However, some of the recent comments do make sense and should case concern for the Fed, the Treasury and anyone else who cares about the dollar or the US economy.
The US dollar is unique among the world's currencies in that it is the lead global currency of exchange. This is due to the many global business transactions that occur in dollar terms, and many commodities transactions are settled using cash. The US is also the world's largest debtor, meaning that dollar-denominated securities are held throughout the world. Among a few other factors, the US is also the world's largest economy. All of these factors impact the dollar, as it impacts them. During the best of times, no one is very concerned about this looping relationship, as the benefit of convenience and precedent combine to keep the dollar on its throne.
But it is hardly the best of times for the US economy or the dollar's position as the global currency of choice. Commodities prices, particularly oil, have fluctuated wildly over the past decade. The US Treasury is printing money to fund war and stimulus debts at an unprecedented rate. The pound and the euro are both substantially stronger than the dollar. And China's global economic relevance has never been higher. In addition to the more recent comments, this has lead to a wide range of reactions from many quarters, including threats from the middle east of dropping the dollar as the currency of the oil markets. This would be more believable if the parties of OPEC could stick to a cartel agreement, nevermind develop a currency regime, but it is still cause for concern.
These factors and many more are leading to the recent complaints by both Europe and China. In the former's case, there are fears that the a disproportionate burden of the future global trade imbalance correction will fall upon Old World shoulders; in the latter, that a currency pegged to a dollar wearing concrete boots will impact its own rise to global prominance. There are actions that could be taken by everyone involved to ease the collective burden of dollar distress. However, some of the recent comments do make sense and should case concern for the Fed, the Treasury and anyone else who cares about the dollar or the US economy.
State Unemployment Numbers
Bloomberg has a summary of the latest state unemployment numbers up. Michigan has the highest rate at an eye-popping 15.1 %, while California, Delaware, South Carolina and Florida all broke previous highs.
11.20.2009
Changing Tax Regimes Could Shift the Balance of Power in European Football
This is a reposting of a piece that I particularly like from a few weeks back. As always, comments are appreciated.
It is generally tough to empathize with people who make tens or even hundreds of thousands of dollars per week while being adored by millions to play a sport. This is especially true while the world is in the midst of a global economic crisis and on a day where headlines scream about 10% unemployment in the US.
However, despite it all, footballers are still people. Many of them have the same problems as everyone else, such as mortgage bills, car payments, bar tabs and dinner bills in the thousands of dollars, demanding model and pop star girlfriends… Well, perhaps in some cases problems are slightly different, but it is nonetheless conceptually easy for the average Joe to grasp the following point; some professional athletes, including soccer players, make career decisions based more on potential paychecks than opportunities for trophies.
Based on this less than shocking revelation, and due to some upcoming changes in the tax regimes of the host nations of what are arguably the top leagues in the world, the balance of power between the most successful leagues in Europe may soon shift. Even for those not facing the perils of the top-earners tax bracket, it is not difficult to imagine what could happen to a salary getting a 43% to 50% haircut before the direct deposit to checking occurs. And that is exactly what is going to happen to foreign players in Spain and England, respectively, starting next year.
England already taxes top earners at 40%, but its scheduled change to a 50% rate is nonetheless fairly dramatic. An even more dramatic change is scheduled in Spain, where due to the so-called Beckham Law passed in 2004, foreigners in the top bracket are only taxed at a 24% rate currently. This law was passed to attract high earners in all fields to the country. However, the top rate of 24% rate is scheduled to increase to 43% early next year. Though the Spanish law will not work retroactively, it is not difficult to imagine that a year that has seen players the caliber of Alonso, Ibrahimovic, Kaka, Ronaldo, Benzema agitate for moves to Spanish clubs would be less likely in the future under a less competitive wage scheme. Many recent articles have focused on the claims of the Spanish Primera that it will strike if this potential change occurs as scheduled. However there has been less analysis on the good result which could come of it.
This good result is namely the potential for greater parity between leagues. As can be seen in American sports leagues such as the NFL, the NBA and some extent Major League Baseball, some degree of parity can be good. It creates the potential for more clubs and fan bases to go through their seasons believing that they have a chance at the ultimate prize, and can ultimately lead to more teams with championship trophies over time. With the dominance of English and Spanish teams in the cross-border Champions League the past few years, it may be refreshing to see clubs from other nations, such as Germany or Italy, or even Portugal or Holland, return to the podium. And this may be possible if there is less incentive for top players to immediately go to Madrid, Manchester, Barcelona or London as soon as one of the big clubs come knocking.
Therefore, despite the excesses of athletes which so many find appalling, particularly in tough economic times, this may be a case where greed, for lack of a better term, is good. If players think twice about going to England or Spain due to their tax regimes, greater parity may be the result throughout Europe, with the end result being a more interesting, and more competitive continental structure.
It is generally tough to empathize with people who make tens or even hundreds of thousands of dollars per week while being adored by millions to play a sport. This is especially true while the world is in the midst of a global economic crisis and on a day where headlines scream about 10% unemployment in the US.
However, despite it all, footballers are still people. Many of them have the same problems as everyone else, such as mortgage bills, car payments, bar tabs and dinner bills in the thousands of dollars, demanding model and pop star girlfriends… Well, perhaps in some cases problems are slightly different, but it is nonetheless conceptually easy for the average Joe to grasp the following point; some professional athletes, including soccer players, make career decisions based more on potential paychecks than opportunities for trophies.
Based on this less than shocking revelation, and due to some upcoming changes in the tax regimes of the host nations of what are arguably the top leagues in the world, the balance of power between the most successful leagues in Europe may soon shift. Even for those not facing the perils of the top-earners tax bracket, it is not difficult to imagine what could happen to a salary getting a 43% to 50% haircut before the direct deposit to checking occurs. And that is exactly what is going to happen to foreign players in Spain and England, respectively, starting next year.
England already taxes top earners at 40%, but its scheduled change to a 50% rate is nonetheless fairly dramatic. An even more dramatic change is scheduled in Spain, where due to the so-called Beckham Law passed in 2004, foreigners in the top bracket are only taxed at a 24% rate currently. This law was passed to attract high earners in all fields to the country. However, the top rate of 24% rate is scheduled to increase to 43% early next year. Though the Spanish law will not work retroactively, it is not difficult to imagine that a year that has seen players the caliber of Alonso, Ibrahimovic, Kaka, Ronaldo, Benzema agitate for moves to Spanish clubs would be less likely in the future under a less competitive wage scheme. Many recent articles have focused on the claims of the Spanish Primera that it will strike if this potential change occurs as scheduled. However there has been less analysis on the good result which could come of it.
This good result is namely the potential for greater parity between leagues. As can be seen in American sports leagues such as the NFL, the NBA and some extent Major League Baseball, some degree of parity can be good. It creates the potential for more clubs and fan bases to go through their seasons believing that they have a chance at the ultimate prize, and can ultimately lead to more teams with championship trophies over time. With the dominance of English and Spanish teams in the cross-border Champions League the past few years, it may be refreshing to see clubs from other nations, such as Germany or Italy, or even Portugal or Holland, return to the podium. And this may be possible if there is less incentive for top players to immediately go to Madrid, Manchester, Barcelona or London as soon as one of the big clubs come knocking.
Therefore, despite the excesses of athletes which so many find appalling, particularly in tough economic times, this may be a case where greed, for lack of a better term, is good. If players think twice about going to England or Spain due to their tax regimes, greater parity may be the result throughout Europe, with the end result being a more interesting, and more competitive continental structure.
11.18.2009
IRS Gains Access to Secret Account Data
I am very happy to announce the latest in our series of guest blawger posts. Today, Joseph Lavoie Jr. takes a look at recent IRS efforts to crack down on foreign bank-facilitated tax evasion, as many wealthy Americans have historically used Swiss banks to skip their annual April 15th bill. Joe focuses on the positive effects of these recent efforts. Though the banks claim that this could have a chilling effect on investor behavior, I think that on the whole it is a positive development. Joe manages to get in a plug for tax law classes as well.
Yesterday, Bloomberg reported that nearly 15,000 voluntary disclosures of tax evasion have been brought to light through an IRS partial amnesty program. This announcement comes in the wake of this summer’s agreement between the U.S. and Swiss governments for the release of data to the U.S. on up to 4,450 UBS accounts. Although the U.S. intially requested information on up to 52,000 accounts, this will still be impactful as the files the IRS will receive includes those accounts with over 1 million Swiss francs (~ $985,000) and which were already under suspicion of tax fraud or similar crimes.
While the U.S. is looking at billions of dollars returning to the country through this investigation, the real payoff will be the dis-incentivizing effect on wealthy individuals, who will refrain from hiding money oversees for the foreseeable future. Senators such as Carl Levin (D-MI) and Max Baucus (D-MT) and Representative Charles Rangel (D-NY) are outspokenly against the veil of secrecy employed by foreign banks, despite firms such as Credit Suisse group AG claiming that this approach could hurt foreign investment in the U.S.
While the additional tax revenues and future impacts are positive for the Treasury, perhaps the best part is the 800 jobs that the IRS plans to create in the next year to staff eight overseas offices. For all of the law students reading, this could be good news, as they’re bound to need some folks with Tax Law expertise. Applicants should brush up on their Mandarin and Spanish, as Beijing and Panama City are just a few of the offices the IRS is looking to staff. Those potential applicants who don't speak a foreign language can head to the land down under and find work at the Sydney office. However, when you start raking in the big bucks, just remember what William Sharp, of Sharp Kemm PA, has to say ‘…the days of bank secrecy are over.’
Yesterday, Bloomberg reported that nearly 15,000 voluntary disclosures of tax evasion have been brought to light through an IRS partial amnesty program. This announcement comes in the wake of this summer’s agreement between the U.S. and Swiss governments for the release of data to the U.S. on up to 4,450 UBS accounts. Although the U.S. intially requested information on up to 52,000 accounts, this will still be impactful as the files the IRS will receive includes those accounts with over 1 million Swiss francs (~ $985,000) and which were already under suspicion of tax fraud or similar crimes.
While the U.S. is looking at billions of dollars returning to the country through this investigation, the real payoff will be the dis-incentivizing effect on wealthy individuals, who will refrain from hiding money oversees for the foreseeable future. Senators such as Carl Levin (D-MI) and Max Baucus (D-MT) and Representative Charles Rangel (D-NY) are outspokenly against the veil of secrecy employed by foreign banks, despite firms such as Credit Suisse group AG claiming that this approach could hurt foreign investment in the U.S.
While the additional tax revenues and future impacts are positive for the Treasury, perhaps the best part is the 800 jobs that the IRS plans to create in the next year to staff eight overseas offices. For all of the law students reading, this could be good news, as they’re bound to need some folks with Tax Law expertise. Applicants should brush up on their Mandarin and Spanish, as Beijing and Panama City are just a few of the offices the IRS is looking to staff. Those potential applicants who don't speak a foreign language can head to the land down under and find work at the Sydney office. However, when you start raking in the big bucks, just remember what William Sharp, of Sharp Kemm PA, has to say ‘…the days of bank secrecy are over.’
11.17.2009
Recession Leads to Counter-Cyclical Profits for Gunmakers
And now, a story that one might not be surprised to see in the next edition of Freakonomics. It seems that despite the recession, which has resulted in reduced spending on discretionary items such as hunting rifles, overall profits are rising in the firearms industry as consumers are trying to purchase piece of mind in the form of personal protection. At least that is the conclusion that the Times Online of the UK arrives at. Although other factors are noted, including increased spending arising out of potential regulatory changes, the fear of recessionary-fueled crime is what the manufacturers cited seem to believe is the main stimulus behind buying.
The government would typically be happy to see consumer spending on the rise. However, it is difficult to think that the gun industry would top the list of sectors it would like to see leading the charge out of the current recessionary dip. Despite this, could being a growth area protect the gun industry from regulation in the near term? Probably not; this story is perhaps most notable for the purposes of this blawg as an example of how law and economics are not always inextricably linked. In fact, it would whimsical, even for a law and economics blawger, to think that economics alone would impact something as contentious as handgun issues in the States. However, lest any gun owners rights advocates reach this point of the post quaking in their boots, they can probably continue surfing the web knowing that the government has bigger fights on its hands, at least for the time being.
The government would typically be happy to see consumer spending on the rise. However, it is difficult to think that the gun industry would top the list of sectors it would like to see leading the charge out of the current recessionary dip. Despite this, could being a growth area protect the gun industry from regulation in the near term? Probably not; this story is perhaps most notable for the purposes of this blawg as an example of how law and economics are not always inextricably linked. In fact, it would whimsical, even for a law and economics blawger, to think that economics alone would impact something as contentious as handgun issues in the States. However, lest any gun owners rights advocates reach this point of the post quaking in their boots, they can probably continue surfing the web knowing that the government has bigger fights on its hands, at least for the time being.
11.15.2009
Ideas that Don't Work In American - Congestion Pricing
Count this one under ideas that probably wouldn't go over so well in America.
The Dutch government is trying to get legislation through its Parliament regarding a pay as you go tax on automobiles. It is an economically interesting method to reduce congestion and emissions based largely on the idea of internalization of externalities. The idea is not entirely new, as some European cities have congestion pricing plans in place. Additionally, there are plans currently being worked on in US cities regarding congestion pricing, though a Manhattan plan was scrapped a few years back.
However, those currently in place are based on checkpoints at times of heavy traffic, while the Dutch plan would rely upon tracking devices to tax driving no matter where or when it happens. It is hard to imagine Americans being on board with such a plan, due to privacy reasons almost as much as pecuniary concerns. However, it would hardly be the only area where differences could be identified between the two nations. . .
The Dutch government is trying to get legislation through its Parliament regarding a pay as you go tax on automobiles. It is an economically interesting method to reduce congestion and emissions based largely on the idea of internalization of externalities. The idea is not entirely new, as some European cities have congestion pricing plans in place. Additionally, there are plans currently being worked on in US cities regarding congestion pricing, though a Manhattan plan was scrapped a few years back.
However, those currently in place are based on checkpoints at times of heavy traffic, while the Dutch plan would rely upon tracking devices to tax driving no matter where or when it happens. It is hard to imagine Americans being on board with such a plan, due to privacy reasons almost as much as pecuniary concerns. However, it would hardly be the only area where differences could be identified between the two nations. . .
Continuing the Discussion on Deficit Reduction
The Associated Press claims that Americans are as concerned about the deficit now as they were in 1992 when Ross Perot put in one of history's most entertaining third party presidential bids. In another of a series of recent articles discussing the deficit, it is once again noted that continuing down the current red ink-streaked path may just not be politically viable for the Democrats, even in the face of tough elections in the coming year.
The latest word from Capitol Hill is that agencies are being told that freezes and cuts are on the way. However, so often the biggest impact of such warnings is a rise in government spending due to all of the exemption paperwork that is filed as a result. Additionally, Congress is asking for an increase in the debt ceiling for next year, indicating that the debt could get worse before it gets better. In other words, if the government had its way, increased tax revenues rather than spending cuts would be the only way to balance the budget. This is not a Democrat or a Republican problem, as the Bush Administration started this downward spiral and the current has only compounded the issue.
As noted on this page previously, however, when debt becomes a nationally discussed issue, and when many Americans are already unhappy with their representatives over contentious votes on healthcare and stimulus, many in Congress may be unwilling to vote on increase debt ceilings and additional spending plans. Though representatives like to point to pet projects in their constituencies, particularly during election years, the economy might just have reached a tipping point where voters are more impressed with responsible government than 'bridges to nowhere.' Let us hope so, because the current state of the national debt, and its implications for the dollar as the international reserve currency, are even scarier than the giant sucking sound Perot used to make during his ultimately doomed campaign.
The latest word from Capitol Hill is that agencies are being told that freezes and cuts are on the way. However, so often the biggest impact of such warnings is a rise in government spending due to all of the exemption paperwork that is filed as a result. Additionally, Congress is asking for an increase in the debt ceiling for next year, indicating that the debt could get worse before it gets better. In other words, if the government had its way, increased tax revenues rather than spending cuts would be the only way to balance the budget. This is not a Democrat or a Republican problem, as the Bush Administration started this downward spiral and the current has only compounded the issue.
As noted on this page previously, however, when debt becomes a nationally discussed issue, and when many Americans are already unhappy with their representatives over contentious votes on healthcare and stimulus, many in Congress may be unwilling to vote on increase debt ceilings and additional spending plans. Though representatives like to point to pet projects in their constituencies, particularly during election years, the economy might just have reached a tipping point where voters are more impressed with responsible government than 'bridges to nowhere.' Let us hope so, because the current state of the national debt, and its implications for the dollar as the international reserve currency, are even scarier than the giant sucking sound Perot used to make during his ultimately doomed campaign.
11.13.2009
When Political Fears Result in Results
So often in the political arena, tough talk is not followed up by equally substantive action. Whether it is promises on wars, or jobs creation, or spending, outcomes hardly ever match the fiery rhetoric that eminates from Capitol Hill leading up to decisions. However, as Politico reports, political concerns could lead Democrats to back up budget cut talk with action in 2010.
The current deficit hole was dug during the Bush Administration in large part by tremendous increases in military spending to fund dual wars. Compounded by lower recessionary tax revenues, additional stimulus spending and government bailouts, the numbers have only become worse. If one factors in the spending that will be necessary to meet President Obama's healthcare and green policy goals, the numbers become almost too daunting to comprehend.
However, in addition to the practical matter that money needs to be printed just to meet payroll, there are political reasons for this spending trend to stop. The recent elections and polls have seen a dramatic shift towards Republicans by independent voters. Though moving to the opposition frequently occurs when one party dominates the legislative and executive branches, it is particularly worrying to Democrats with a big election cycle peaking next year. Therefore, it will be difficult for the Administration to ask party members, particularly moderates and those in battleground areas, to vote for increased spending if doing so means losing the independent vote. On the other hand it is perhaps equally as difficult to ask legislators to return to their constituencies empty-handed when spending is cut.
However, this is perhaps one of those times where the big national issues trump local ones, and when people are more concerned with what is happening in America than in Texas, Minnesota, or Oregon. If that is the case, expect tough decisions to accompany tough talk when it comes to future plans for spending.
The current deficit hole was dug during the Bush Administration in large part by tremendous increases in military spending to fund dual wars. Compounded by lower recessionary tax revenues, additional stimulus spending and government bailouts, the numbers have only become worse. If one factors in the spending that will be necessary to meet President Obama's healthcare and green policy goals, the numbers become almost too daunting to comprehend.
However, in addition to the practical matter that money needs to be printed just to meet payroll, there are political reasons for this spending trend to stop. The recent elections and polls have seen a dramatic shift towards Republicans by independent voters. Though moving to the opposition frequently occurs when one party dominates the legislative and executive branches, it is particularly worrying to Democrats with a big election cycle peaking next year. Therefore, it will be difficult for the Administration to ask party members, particularly moderates and those in battleground areas, to vote for increased spending if doing so means losing the independent vote. On the other hand it is perhaps equally as difficult to ask legislators to return to their constituencies empty-handed when spending is cut.
However, this is perhaps one of those times where the big national issues trump local ones, and when people are more concerned with what is happening in America than in Texas, Minnesota, or Oregon. If that is the case, expect tough decisions to accompany tough talk when it comes to future plans for spending.
11.12.2009
Don't Do the Crime if Your Brother's Doing Time; Ethical Issues with Familial DNA
Here is a link to one of the better pieces I have seen on a very interesting topic; law enforcement use of familial DNA. Though it is a bit dated, it presents both sides of this controversial topic, and hits most of the main points well.
Imagine the following: your brother/mother/son has committed a crime for which s/he was convicted and sent to prison. Since every state takes a DNA sample of convicted felons, their DNA is on file. Now, imagine that another crime has been committed, and that the police have DNA of a potential suspect. After sending it to the lab, technicians are able to determine that it wasn't your incarcerated family member, but that the sample is a partial match. In some states, this could lead to the police knocking on your door. Why? It is because partial DNA matches point to familial relationships, meaning that there is a reasonable probability that it was your DNA at the scene.
This may seem like an efficient way to solve crimes, get criminals off the streets, and arrive at just results. These are some of the main arguments utilized by advocates of the practice. However, on the flip side, opponents point to the potential for privacy issues and intrusion into basic civil rights. This side would argue that, although under a social contract framework, a felonious family member may have lost their own privacy rights upon being convicted, it does not follow that every family member has done the same.
The FBI currently has an interim policy in place where states may determine their own policies in using partial, or familial, matches. Some of the most high-profile states pursuing this method include Colorado, California and Massachusetts. The only state with a legislative policy against the practice is Maryland. Most other states fall somewhere in between. And this is part of the problem, according to opponents; a lack of a clear policy makes it nearly impossible to determine which states are doing what, or sharing what information with whom. Much of this is due directly to the FBI's policy, as many states are reluctant to set out a definite course of action barring clear direction from the nation's top cops.
This relatively new crime fighting technique has been used for some time in England with success. Additionally, a quick Google search will also lead to some interesting stories of both cold and recent cases in the States being solved with the help of this technology. However, the inherent privacy concerns should not be lightly brushed aside, and it is both interesting and telling that both the FBI and many states are taking such a hands-off approach to the topic. Until the FBI establishes a definitive strategy, the most likely outcome is that both sides will continue to argue over this contentious topic with both victims of crime and victims of unjustified privacy violations being the ones who truly suffer.
Imagine the following: your brother/mother/son has committed a crime for which s/he was convicted and sent to prison. Since every state takes a DNA sample of convicted felons, their DNA is on file. Now, imagine that another crime has been committed, and that the police have DNA of a potential suspect. After sending it to the lab, technicians are able to determine that it wasn't your incarcerated family member, but that the sample is a partial match. In some states, this could lead to the police knocking on your door. Why? It is because partial DNA matches point to familial relationships, meaning that there is a reasonable probability that it was your DNA at the scene.
This may seem like an efficient way to solve crimes, get criminals off the streets, and arrive at just results. These are some of the main arguments utilized by advocates of the practice. However, on the flip side, opponents point to the potential for privacy issues and intrusion into basic civil rights. This side would argue that, although under a social contract framework, a felonious family member may have lost their own privacy rights upon being convicted, it does not follow that every family member has done the same.
The FBI currently has an interim policy in place where states may determine their own policies in using partial, or familial, matches. Some of the most high-profile states pursuing this method include Colorado, California and Massachusetts. The only state with a legislative policy against the practice is Maryland. Most other states fall somewhere in between. And this is part of the problem, according to opponents; a lack of a clear policy makes it nearly impossible to determine which states are doing what, or sharing what information with whom. Much of this is due directly to the FBI's policy, as many states are reluctant to set out a definite course of action barring clear direction from the nation's top cops.
This relatively new crime fighting technique has been used for some time in England with success. Additionally, a quick Google search will also lead to some interesting stories of both cold and recent cases in the States being solved with the help of this technology. However, the inherent privacy concerns should not be lightly brushed aside, and it is both interesting and telling that both the FBI and many states are taking such a hands-off approach to the topic. Until the FBI establishes a definitive strategy, the most likely outcome is that both sides will continue to argue over this contentious topic with both victims of crime and victims of unjustified privacy violations being the ones who truly suffer.
11.11.2009
The Next Big Fight...Reforming the Financial Industry
Senator Chris Dodd, Chairman of the Senate Finance Committee, yesterday released a draft of the much- anticipated financial industry reform bill. Covering everything from the role of the Fed to executive compensation and hedge fund regulation, it is an attempt at making wholesale changes at a time when a beaten down and finance-sceptical public has lost faith in the banking system.
Much like healthcare, and despite current turmoil, any legislation to reform the financial industry faces an uphill battle, and it is likely that even sensible changes will be challenged by the industry itself. And, much like healthcare, pushback is expected from the opposition party. It is also unlikely that the Fed will take drastic cuts to its authority lightly, or that today's multiple regulators, such as the FDIC, will acquiesce to losing their individual powers to a single regulator without a fight. However, if the recent integration of several entities into Homeland Security is any indication, sometimes consolidated oversight can have positive results. Additionally, there are some interesting ideas both here and in the in-progress House bill regarding how to avoid bank collapses in the future that at least merit discussion. These include insurance funds, hybrid bonds and liquidity lending provisions.
As with healthcare, the picture will not become clearer until both houses release bills and go through the obligatory process of negotiation and consolidation that produces a final version. Most likely, this process will stretch into the new year. However, there do seem to be some novel ideas among the noise, and for the sake of the American banking industry, it will be critical for all parties to work together on this now inevitable legislation borne out of the inadequacies of a failed system.
See the bill here.
Much like healthcare, and despite current turmoil, any legislation to reform the financial industry faces an uphill battle, and it is likely that even sensible changes will be challenged by the industry itself. And, much like healthcare, pushback is expected from the opposition party. It is also unlikely that the Fed will take drastic cuts to its authority lightly, or that today's multiple regulators, such as the FDIC, will acquiesce to losing their individual powers to a single regulator without a fight. However, if the recent integration of several entities into Homeland Security is any indication, sometimes consolidated oversight can have positive results. Additionally, there are some interesting ideas both here and in the in-progress House bill regarding how to avoid bank collapses in the future that at least merit discussion. These include insurance funds, hybrid bonds and liquidity lending provisions.
As with healthcare, the picture will not become clearer until both houses release bills and go through the obligatory process of negotiation and consolidation that produces a final version. Most likely, this process will stretch into the new year. However, there do seem to be some novel ideas among the noise, and for the sake of the American banking industry, it will be critical for all parties to work together on this now inevitable legislation borne out of the inadequacies of a failed system.
See the bill here.
11.10.2009
Avoiding the Inherent Free-Rider Problem in Healthcare Reform
In an interview, President Obama avoided direct comment on the jailtime provision included in the House version of the bill that was narrowly passed Saturday night. However, he did speak of incentives in broader terms and correctly identified the inherent free-rider issue that arises almost any time there is a mandatory system such as universal healthcare that depends to some extent on personal action.
An imprisonment penalty was already removed from the healthcare bill in the Senate Finance Committee. This likely shifts the odds against a final bill actually including such a provision. However, even for those who vehemently oppose such a penalty, the free-rider problem is one that will likely have to be addressed if universal healthcare legislation is passed. It remains to be seen how this is accomplished, but the most likely scenario is fines for those who do not insure themselves. However, as parties continue to argue about not just the provisions, but merits of the plan, this is not likely a topic that will disappear any time soon.
An imprisonment penalty was already removed from the healthcare bill in the Senate Finance Committee. This likely shifts the odds against a final bill actually including such a provision. However, even for those who vehemently oppose such a penalty, the free-rider problem is one that will likely have to be addressed if universal healthcare legislation is passed. It remains to be seen how this is accomplished, but the most likely scenario is fines for those who do not insure themselves. However, as parties continue to argue about not just the provisions, but merits of the plan, this is not likely a topic that will disappear any time soon.
Could Rising Unemployment Help Jobs Market in the Long Run?
CNBC is reporting results from a recent poll of economists who say that unemployment will likely move higher, possibly to 10.5%, before the job market improves. The unemployment rate recently hit an over 25 year high of 10.2%. The highest recorded number since the late 1940s is 10.8%.
In addition to the obvious negative implications of such predictions coming true, there could be a positive longer term impact as well. Some observers believed that there was an outside shot that the Fed could increase interest rates after the turn of the year. However, if jobs numbers do not improve between now and then, and because any recent recovery can be linked directly to government, rather than corporate, spending, it is unlikely that interest rates will be changed any time soon.
Because low interest rates result directly in lower demand for the dollar and dollar-denominated investments, the implications of high unemployment have recently flowed over into other areas, such as commodities markets. That has been obvious the past few days as gold has topped $1100 an ounce with investors flocking to perceived safety. What is perhaps less obvious is that high unemployment now could be good for the recovery of the economy. This is because a low dollar is good for exports, and therefore profits. Higher corporate profits lead to spending, which in turn leads to job creation. Therefore, though it may not feel this way right now, in a roundabout way, it is possible that today's jobs pain could help lead to tomorrow's jobs recovery.
In addition to the obvious negative implications of such predictions coming true, there could be a positive longer term impact as well. Some observers believed that there was an outside shot that the Fed could increase interest rates after the turn of the year. However, if jobs numbers do not improve between now and then, and because any recent recovery can be linked directly to government, rather than corporate, spending, it is unlikely that interest rates will be changed any time soon.
Because low interest rates result directly in lower demand for the dollar and dollar-denominated investments, the implications of high unemployment have recently flowed over into other areas, such as commodities markets. That has been obvious the past few days as gold has topped $1100 an ounce with investors flocking to perceived safety. What is perhaps less obvious is that high unemployment now could be good for the recovery of the economy. This is because a low dollar is good for exports, and therefore profits. Higher corporate profits lead to spending, which in turn leads to job creation. Therefore, though it may not feel this way right now, in a roundabout way, it is possible that today's jobs pain could help lead to tomorrow's jobs recovery.
11.07.2009
House Passes Healthcare Bill
218 votes is what the Democrat's version of the healthcare bill needed to pass. It received 220. At just about 11:08 EST, H.R. 3962 passed 220-215 with the support of 1 Republican, Rep. Cao of Louisiana. Meanwhile, 39 Democrats were counted among the 215 nays.
The House version of the bill was always going to be the easier one to pass as Senate procedure could delay a vote on that house's version of the bill until after the new year. Even still, there were doubts leading up to tonight's vote as concerns over funding were leading some fiscally responsible Democrats to question some of the bill's costlier provisions. The result, however, backed up predictions by House Democrat leadership that it had the votes to pass a bill.
Going forward, the interplay between House and Senate will likely result in legislation that looks different than the bill passed tonight, and there is still a long way to go before any final bill reaches the President's desk. However, tonight's vote will certainly be viewed favorably by many proponents of healthcare reform and is another in a series of steps toward the type of change many Americans envisioned when they went to the polls just about a year ago. One can only hope that it is not also another in a series of steps toward the time-tested cliche beginning 'be careful what you wish for...'
The House version of the bill was always going to be the easier one to pass as Senate procedure could delay a vote on that house's version of the bill until after the new year. Even still, there were doubts leading up to tonight's vote as concerns over funding were leading some fiscally responsible Democrats to question some of the bill's costlier provisions. The result, however, backed up predictions by House Democrat leadership that it had the votes to pass a bill.
Going forward, the interplay between House and Senate will likely result in legislation that looks different than the bill passed tonight, and there is still a long way to go before any final bill reaches the President's desk. However, tonight's vote will certainly be viewed favorably by many proponents of healthcare reform and is another in a series of steps toward the type of change many Americans envisioned when they went to the polls just about a year ago. One can only hope that it is not also another in a series of steps toward the time-tested cliche beginning 'be careful what you wish for...'
11.06.2009
Market Status Latest in Long Line of US/China Trade Disputes
Today, The Financial Times reported the latest in a series of what seem to be daily squabbles between the US and China on trade issues. Though disputes over individual products like tires and poultry receive many of the day-to-day headlines, larger disputes over the framework of trade between the nations are much more important to the overall bilateral relationship. Some of the more highly publicized among these have been claims of Chinese currency manipulation by the US, and US protectionism by China. The latest issue in the limelight, though not necessarily a new one, is the status that the US gives China for purposes of trade disputes.
The Department of Commerce, a central player in many disputes due to its role as the tariff-setting body in the US, does not currently list China as a Market Economy. Not giving market status to China may seem to be an obvious decision to someone who still thinks of China as a socialist nation. However, despite continued ntervention, China's economy grows freer daily, and not granting Market Economy Status (MES) has as many political implications as it does economic. This is because though MES would make it more difficult to bring trade disputes against China, it would also likely reduce the number of day to day disputes the US finds itself in. It would also likely improve the overall relationship between the two nations.
Though nations do not need to grant China Market Economy Status for about 7 more years per its accession agreement with the WTO, they may decide to do so in the interim. Doing so would undoubtedly make it more difficult to bring anti-dumping cases against China, likely one of the main reasons the decision has not yet been made. Domestic and foreign policy considerations also impact the decision. US industry is weary of granting MES to China for fear of the Chinese taking advantage of poor labor standards to flood the US with cheap products, a possibly legitimate claim that could also be based in protectionist fear. On the other side, the Chinese point to incredible changes made in both the human rights area and in its economy as proof that MES should be granted. However, the government retains controls over industry and human rights concerns have not been entirely alleviated. In this situation, logical arguments can be made by both camps, and the US needs to continually weigh the health of domestic producers against concerns about protectionism and its relationship with a growing power.
The latest in a long line of trade issues with China, and by no means the last, it will be interesting to see how the US handles this going forward. Whatever the outcome, however, it is merely a reminder that China's growing stature will undoubtedly keep it in focus for policymakers for the short, medium, and long term.
The Department of Commerce, a central player in many disputes due to its role as the tariff-setting body in the US, does not currently list China as a Market Economy. Not giving market status to China may seem to be an obvious decision to someone who still thinks of China as a socialist nation. However, despite continued ntervention, China's economy grows freer daily, and not granting Market Economy Status (MES) has as many political implications as it does economic. This is because though MES would make it more difficult to bring trade disputes against China, it would also likely reduce the number of day to day disputes the US finds itself in. It would also likely improve the overall relationship between the two nations.
Though nations do not need to grant China Market Economy Status for about 7 more years per its accession agreement with the WTO, they may decide to do so in the interim. Doing so would undoubtedly make it more difficult to bring anti-dumping cases against China, likely one of the main reasons the decision has not yet been made. Domestic and foreign policy considerations also impact the decision. US industry is weary of granting MES to China for fear of the Chinese taking advantage of poor labor standards to flood the US with cheap products, a possibly legitimate claim that could also be based in protectionist fear. On the other side, the Chinese point to incredible changes made in both the human rights area and in its economy as proof that MES should be granted. However, the government retains controls over industry and human rights concerns have not been entirely alleviated. In this situation, logical arguments can be made by both camps, and the US needs to continually weigh the health of domestic producers against concerns about protectionism and its relationship with a growing power.
The latest in a long line of trade issues with China, and by no means the last, it will be interesting to see how the US handles this going forward. Whatever the outcome, however, it is merely a reminder that China's growing stature will undoubtedly keep it in focus for policymakers for the short, medium, and long term.
Changing Tax Regimes Could Shift the Balance of Power in European Football
It is generally tough to empathize with people who make tens or even hundreds of thousands of dollars per week while being adored by millions to play a sport. This is especially true while the world is in the midst of a global economic crisis and on a day where headlines scream about 10% unemployment in the US.
However, despite it all, footballers are still people. Many of them have the same problems as everyone else, such as mortgage bills, car payments, bar tabs and dinner bills in the thousands of dollars, demanding model and pop star girlfriends… Well, maybe not the exact same troubles, but it is nonetheless conceptually easy for even the average Joe to grasp the following point; some professional athletes, including soccer players, make career decisions based more on potential paychecks than opportunities for trophies.
Based on this shocking fact, and due to some upcoming changes in the tax regimes of the host nations of what are arguably the top leagues in the world, the balance of power between the most successful leagues in Europe may soon shift. Even for those not facing the perils of the top-earners tax bracket, it is not difficult to imagine what could happen to a salary getting a 43% to 50% haircut before the direct deposit to checking occurs. And that is exactly what is going to happen to foreign players in Spain and England, respectively, starting next year.
England already taxes top earners at 40%, but its scheduled change to a 50% rate is nonetheless fairly dramatic. An even more dramatic change is scheduled in Spain, where due to the so-called Beckham Law passed in 2004, foreigners in the top bracket are only taxed at a 24% rate currently. This law was passed to attract high earners in all fields to the country. However, the top rate of 24% rate is scheduled to increase to 43% early next year. Though the Spanish law will not work retroactively, it is not difficult to imagine that a year that has seen players the caliber of Alonso, Ibrahimovic, Kaka, Ronaldo, Benzema agitate for moves to Spanish clubs would be less likely in the future under a less competitive wage scheme. Many recent articles have focused on the claims of the Spanish Primera that it will strike if this potential change occurs as scheduled. However there has been less analysis on the good result which could come of it.
This good result is namely the potential for greater parity between leagues. As can be seen in American sports leagues such as the NFL, the NBA and some extent Major League Baseball, some degree of parity can be good. It creates the potential for more clubs and fan bases to go through their seasons believing that they have a chance at the ultimate prize, and can ultimately lead to more teams with championship trophies over time. With the dominance of English and Spanish teams in the cross-border Champions League the past few years, it may be refreshing to see clubs from other nations, such as Germany or Italy, or even Portugal or Holland, return to the podium. And this may be possible if there is less incentive for top players to immediately go to Madrid, Manchester, Barcelona or London as soon as one of the big clubs come knocking.
Therefore, despite the excesses of athletes which so many find appalling, particularly in tough economic times, this may be a case where greed, for lack of a better term, is good. If players think twice about going to England or Spain due to their tax regimes, greater parity may be the result throughout Europe, with the end result being a more interesting, and more competitive continental structure.
However, despite it all, footballers are still people. Many of them have the same problems as everyone else, such as mortgage bills, car payments, bar tabs and dinner bills in the thousands of dollars, demanding model and pop star girlfriends… Well, maybe not the exact same troubles, but it is nonetheless conceptually easy for even the average Joe to grasp the following point; some professional athletes, including soccer players, make career decisions based more on potential paychecks than opportunities for trophies.
Based on this shocking fact, and due to some upcoming changes in the tax regimes of the host nations of what are arguably the top leagues in the world, the balance of power between the most successful leagues in Europe may soon shift. Even for those not facing the perils of the top-earners tax bracket, it is not difficult to imagine what could happen to a salary getting a 43% to 50% haircut before the direct deposit to checking occurs. And that is exactly what is going to happen to foreign players in Spain and England, respectively, starting next year.
England already taxes top earners at 40%, but its scheduled change to a 50% rate is nonetheless fairly dramatic. An even more dramatic change is scheduled in Spain, where due to the so-called Beckham Law passed in 2004, foreigners in the top bracket are only taxed at a 24% rate currently. This law was passed to attract high earners in all fields to the country. However, the top rate of 24% rate is scheduled to increase to 43% early next year. Though the Spanish law will not work retroactively, it is not difficult to imagine that a year that has seen players the caliber of Alonso, Ibrahimovic, Kaka, Ronaldo, Benzema agitate for moves to Spanish clubs would be less likely in the future under a less competitive wage scheme. Many recent articles have focused on the claims of the Spanish Primera that it will strike if this potential change occurs as scheduled. However there has been less analysis on the good result which could come of it.
This good result is namely the potential for greater parity between leagues. As can be seen in American sports leagues such as the NFL, the NBA and some extent Major League Baseball, some degree of parity can be good. It creates the potential for more clubs and fan bases to go through their seasons believing that they have a chance at the ultimate prize, and can ultimately lead to more teams with championship trophies over time. With the dominance of English and Spanish teams in the cross-border Champions League the past few years, it may be refreshing to see clubs from other nations, such as Germany or Italy, or even Portugal or Holland, return to the podium. And this may be possible if there is less incentive for top players to immediately go to Madrid, Manchester, Barcelona or London as soon as one of the big clubs come knocking.
Therefore, despite the excesses of athletes which so many find appalling, particularly in tough economic times, this may be a case where greed, for lack of a better term, is good. If players think twice about going to England or Spain due to their tax regimes, greater parity may be the result throughout Europe, with the end result being a more interesting, and more competitive continental structure.
US Unemployment Breaks 10% for the First Time in Over 25 Years
I think the title of the post is pretty self-explanatory. Yahoo provides the grim details.
China Bans Physical Punishment for Treatment of 'Internet Addiction'
Apparently, the overuse of the internet among China's teens is so rampant that there is an industry developing around breaking the habit. The methods being utilized to do so have come under fire however after the recent beating death of a teen in a treatment center. This has lead to Chinese authorities banning the use of physical punishment in the treatment of internet addictions. Despite taking this step, the government did not come out against Internet Boot Camps in general, and has stated that intervention to prevent improper use of the internet is appropriate. This is because overuse of the internet is seen as a bad habit. Official statements make it clear, however, that normal internet use is just fine.
Though there are obvious benefits to the banning of physical punishments in treatments, there will always be questions about State motivations regarding internet policy. Ever since the Google debacle a few years ago, and in light of some of the restrictions still in place on internet use, advocates for human rights have pointed to internet policy as one of the areas where China needs to change. Short of more sweeping changes, however, this is clearly a positive development.
Though there are obvious benefits to the banning of physical punishments in treatments, there will always be questions about State motivations regarding internet policy. Ever since the Google debacle a few years ago, and in light of some of the restrictions still in place on internet use, advocates for human rights have pointed to internet policy as one of the areas where China needs to change. Short of more sweeping changes, however, this is clearly a positive development.
11.04.2009
October IEA Oil Market Report
Here is a link to the full October IEA Oil Market Report. As noted in the past, I will try to keep posting these reports, as I feel the IEA provides the best current analysis as well as most insightful outlooks on the oil markets.
Note that this is a few weeks old as the full report is released on a two week delay. Also note that I posted the October one-pager a few weeks ago; this full report correlates to that.
Note that this is a few weeks old as the full report is released on a two week delay. Also note that I posted the October one-pager a few weeks ago; this full report correlates to that.
11.03.2009
Fading Hope for Healthcare Reform in 2009?
Top Congressional Democrats are apparently concerned about any version of a healthcare reform bill passing through both houses in 2009. Despite continued progress and the fact that this is the hottest political topic in the nation currently, this serves as a reminder that there is still a long way to go.
Lack of progress will likely be a blow to the White House, which has appeared confident that a bill would be signed by President Obama by the end of this year. Notably, many politicians will be starting campaigns for hotly contested seats in the spring, a fact that takes on added significance if the results of tonight's gubernatorial races are any indication. If Republicans appear to be gaining further traction in close races, expect moving up the timeline on this legislation to be a high priority for Democrat leadership over the next few months.
Lack of progress will likely be a blow to the White House, which has appeared confident that a bill would be signed by President Obama by the end of this year. Notably, many politicians will be starting campaigns for hotly contested seats in the spring, a fact that takes on added significance if the results of tonight's gubernatorial races are any indication. If Republicans appear to be gaining further traction in close races, expect moving up the timeline on this legislation to be a high priority for Democrat leadership over the next few months.
Moving Markets Without Moving Interest Rates
Financial market observers and participants have been abuzz the past few days in anticipation of the release of the latest Federal Reserve Board interest rate statement tomorrow afternoon. The statement is expected around 2.15 p.m., and will be the result of two days of discussion about the state of the economy among Board members.
Though nobody anticipates the Fed to actually change its target for the federal funds rate during this meeting, it can still release a statement that has a high impact on the financial markets. Though not something a casual observer might be aware of, markets anticipate actual rate moves as they are discussed, analyzed and typically signalled far in advance of Fed moves. Therefore, interest rate changes are often priced into interest rates and equity markets ahead of changes. However, when rates have stayed at a certain level, such as the currently low range of 0.00% to 0.25%, for an extended period, the wording of statements can have a far greater impact on investor behavior than actual rate changes.
The key language utilized in the past few statements has been '...exceptionally low levels of the federal funds rate for an extended period.' This indicates that, due to economic conditions, the Fed is willing to keep interest rates low to stimulate borrowing, and in effect, spending, by consumers and corporations. However, some economic numbers have been improving recently while the dollar has been dropping due to low rates. If the Fed were to do something as seemingly small as drop the 'extended period' from the end of its statement, than it would be a strong signal to the markets that the Fed, which has the latest and greatest information on the economy, sees conditions improving. Though this might cause a drop in the stock market immediately as it would mean less lending liquidity in the future, it would also likely strengthen the dollar in the short-term. This is because the demand for dollar-denominated securities will increase. It will also be a good signal for equities in the short- to medium-terms because earnings should improve as the overall economy does.
Though there are reports that the Board members are sharply divided on whether or not to change the language, the statement as released is typically seen as representing the voice of the whole board. Therefore, whatever is released will be a strong signal to the markets about the direction the Fed believes the economy is moving, and in effect, the direction it may take after the turn of the year.
Though nobody anticipates the Fed to actually change its target for the federal funds rate during this meeting, it can still release a statement that has a high impact on the financial markets. Though not something a casual observer might be aware of, markets anticipate actual rate moves as they are discussed, analyzed and typically signalled far in advance of Fed moves. Therefore, interest rate changes are often priced into interest rates and equity markets ahead of changes. However, when rates have stayed at a certain level, such as the currently low range of 0.00% to 0.25%, for an extended period, the wording of statements can have a far greater impact on investor behavior than actual rate changes.
The key language utilized in the past few statements has been '...exceptionally low levels of the federal funds rate for an extended period.' This indicates that, due to economic conditions, the Fed is willing to keep interest rates low to stimulate borrowing, and in effect, spending, by consumers and corporations. However, some economic numbers have been improving recently while the dollar has been dropping due to low rates. If the Fed were to do something as seemingly small as drop the 'extended period' from the end of its statement, than it would be a strong signal to the markets that the Fed, which has the latest and greatest information on the economy, sees conditions improving. Though this might cause a drop in the stock market immediately as it would mean less lending liquidity in the future, it would also likely strengthen the dollar in the short-term. This is because the demand for dollar-denominated securities will increase. It will also be a good signal for equities in the short- to medium-terms because earnings should improve as the overall economy does.
Though there are reports that the Board members are sharply divided on whether or not to change the language, the statement as released is typically seen as representing the voice of the whole board. Therefore, whatever is released will be a strong signal to the markets about the direction the Fed believes the economy is moving, and in effect, the direction it may take after the turn of the year.
11.01.2009
Changes in Society are Leading to Changes in Divorce Settlements
I will start this posting by noting that I have not had the misfortune of firsthand experience with a divorce. However, with the divorce rate rising and even amicable splits resulting in financial consequences for both parties, this Wall St. Journal article caught my eye as it takes a look at the recent movement toward more flexible, and less permanent, alimony settlements.
Although there will always be societal concerns about one partner from a dissolved union being left in a precarious pecuniary position, the rise in the employment rate of women, the prevalence of dual income households, and the closing gap in gender income inequality are leading many jurisdictions to rethink permanent alimony plans.
Of course even with the positive changes in gender equality, there will always be outliers where one party is left in a poor position. These can hopefully be reduced in general with agreements which are fair when they are entered into. And, it is more likely that parties will enter into fair arrangements when they believe that future problems may be avoided by doing so. However, unfairness is usually only seen in retrospect and after the situations of one or both former partners have dramatically changed. Therefore, I think the trend toward flexible agreements that consider factors such as time, future co-habitation, and future increases/declines in income are positive and will result in a net reduction of the types of unfairness which result from many of today's agreements.
Hopefully the divorce rate will drop in the future. However, that appears unlikely. In that light it is important that agreements are as amicable and fair as possible, and I agree that the trend toward more flexible alimony settlements is a right step in that direction.
Although there will always be societal concerns about one partner from a dissolved union being left in a precarious pecuniary position, the rise in the employment rate of women, the prevalence of dual income households, and the closing gap in gender income inequality are leading many jurisdictions to rethink permanent alimony plans.
Of course even with the positive changes in gender equality, there will always be outliers where one party is left in a poor position. These can hopefully be reduced in general with agreements which are fair when they are entered into. And, it is more likely that parties will enter into fair arrangements when they believe that future problems may be avoided by doing so. However, unfairness is usually only seen in retrospect and after the situations of one or both former partners have dramatically changed. Therefore, I think the trend toward flexible agreements that consider factors such as time, future co-habitation, and future increases/declines in income are positive and will result in a net reduction of the types of unfairness which result from many of today's agreements.
Hopefully the divorce rate will drop in the future. However, that appears unlikely. In that light it is important that agreements are as amicable and fair as possible, and I agree that the trend toward more flexible alimony settlements is a right step in that direction.
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