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Latest Comments37 Comments
High U.S. Corporate Taxes Are a Myth
In a competitive world economy investment goes to were it receives the highest return. Hence, very little of the corporate income tax is collected from investors.
In a competitive world economy corporations cannot pass on the cost of the corporate taxes to consumers because they can buy a foreign substitute product with the lowest price.
So who is left holding the bag and paying for corporate taxes? Employees of the corporation of course. They can't move their labour services between countries to avoid paying the corporate tax. So employees end up paying the cost of corporate taxes. Some studies show up to 90% of the tax incidence falls on labour.
Republicans Running Out of Arguments
Obama called for renegotiating NAFTA. Since when are dry freight shipping rates important to North America trade?
Since when has a government bureaucracy run anything well?
Finally you forgot the best policy that will put an end to the stock crash. Eliminating corporate taxes automatically increases net income of all companies by 35%. Putting money in the hands of those who know how to invest is the quickest and most efficient way of improving markets.
New Bank Data: Latest Lending
Banks, of course, know this and attempt to move MBS off their balance sheets. But the problem of asymmetric information, where sellers have more information on the MBS than buyers causes the prices on MBS to implode. Buyers believe the securities offered for sale are low quality and offer prices that are below the true value or the ‘hold to maturity price’.
The obvious solution is to independently verify the value of MBS, but this is costly, tedious and time consuming. So what can the government do?
The Paulson plan is for the government take on the bad MBS. This saddles the government with the mortgage problems but does not convey any information to distinguish between the good banks and the bad banks. The same problem that good banks are indistinguishable from bad banks remains. Plus does anyone think the government can fix the mortgages underlying MBS? Those issues are best solved by the firms who created the mortgages.
The solution is for the government is to impose rules on firms that eliminate the adverse selection problem that only bad banks raise capital. 1) All banks must suspend dividends. 2) All banks must raise equity capital. 3) Improve FDIC insurance to prevent bank runs. 4) Allow hold to maturity rules. Require MBS holders to provide the data and model used to value MSB to maturity so that investors can compare prices using various models. This will increase transparency for investors who can run the data through their own models to estimate prices.
To directly improve liquidity to banking the government can take preferred equity stakes to improve banks balance sheets. Preferred stock becomes part of the company’s capital stock which increases the company’s capitalization. Also capital gains taxes on MBS can be eliminated so that investors are encouraged to take more risk in the MBS markets and corporate taxes can be reduced to encourage investment.
Why Not a Transaction Tax?
" On the one hand, often the motivation for such proposals is to reduce short-term speculative turnover (a tax of 0.1% means nothing to a long-term investor, but is a strong disincentive to those who trade hold their positions for only minutes or hours), with the idea that this will reduce volatility."
"The historical experience with small taxes seems to be that there is no discernible effect on volatility. "
Will Paulson's Bailout Be the Last Request for Money?
And since 1913 the United States has not periodically experienced events that are often referred to as "financial panics"?
Maybe disbanding the fed and following a money growth rule would be a better policy.
Let the treasury deal with the asset swaps of government treasuries for cash flow impaired mortgage assets. Holding treasuries will improve tier 1& 2 capital ratios of banks immediately and reduce the yield spreads on 3 month CD’s and treasuries. What is important is the price paid for the impaired assets. A fair price can be constructed from expected loss and known loss ratios. If priced correctly the treasury department should have an expected loss of zero on the impaired assets (some may want to set prices that generate and expected profit.)
As for regulator’s they are like traffic cops. They always show up after the accident has happened. I do not believe any new regulatory regime will change this fact.
Fed Is Likely to Make Money from Its Bank Buyouts
Let’s substitute the collective judgment of hundreds of millions of Americans for a bureaucrat in the setting of prices. And what happens when the bureaucrat makes a mistake or foreign markets disagree with the set prices? How is the government going to stem domestic and foreign capital flows that are going to take advantage of mistakes and force changes in prices?
On matching assets and liabilities wouldn’t it be sensible if the government actually matched social security liabilities with assets? Even a couple of dollars worth.
Long-Term Capital Gains Tax Expectations
It is a common story that Warren Buffet has never sold a share of Berkshire stock. If true, he has never paid a dime of capital gains tax and never will. He can just borrow against his stock to raise cash.
Not surprisingly when capital gains taxes are raised tax revenues actually fall. The truly rich don't care what about the capital gains tax rate because they don't pay it.
Who Had Superior Economic Performance - the Democrats or the Republicans?
The simple fact is Americans respond to incentives. Lower marginal income tax rates stimulate labour supply and investment which results in higher GDP growth. Of course there is an extreme theoretical view that Americans don’t respond to changes in incentives. This view has been contradicted by the evidence.
One other myth, that marginal tax cuts reduce revenues, is discredited by the evidence. In actuality income tax receipts rose 28% after the tax cuts in 2003. From 2003 to 2006 tax revenues increased at a compound rate of 6.5%. From 1993 until 2003 tax receipts increased by 58% a compound increase of 4.7% after the Clinton Tax increase.
Table 1
www.irs.gov/taxstats/i...
Who Had Superior Economic Performance - the Democrats or the Republicans?
1) Nafta ... Obama the opposite
2) Abandoned Socialized Health Care ... Obama the opposite
3) Capital gains tax cuts .... Obama the opposite
4) Welfare cuts (redisitribution policies) .... Obama the opposite
5) Government Spending cuts .... Obama the opposite
6) Less Regulation .... Obama the opposite
Does anyone disagree with the premise if the opposite policies are followed that the opposite result will occur?
4 Money Problems That Obama Can't Fix
1) When oil production is maxed, repealing the 18 cent tax will not reduce oil prices. That's because any decrease in price will result in a slight increase in demand that cannot be met by an increase in production. So market price of gas will remain unchanged.
2) Current and future oil prices are linked by arbitrage equation
F= P + C.
where C is the carrying cost of inventories and cost of borrowing.
Any information that causes individuals to believe that future price of oil will be lower will impact current prices negatively. Offshore drilling for oil today will create expectations of increased future supply. This will have a negative impact on future oil prices and by arbitrage reduce current prices.
What Business Can Expect from Obama
1) Nafta ... Obama the opposite
2) Abandoned Socialized Health Care ... Obama the opposite
3) Capital gains tax cuts .... Obama the opposite
4) Welfare cuts (redisitribution policies) .... Obama the opposite
5) Government Spending cuts .... Obama the opposite
6) Less Regulation .... Obama the opposite
Does anyone disagree with the premise if the opposite policies are followed that the opposite result will occur?
Let's Not Emulate the Hoover Administration
If negative M1 growth caused the depression why didn’t the economy return to normal growth as M1 was expanding during the 1933-39 period. Secondly, the M0 only declined in 1930 and increased thereafter so it was not a negative factor in the depression.
Lastly, it is a generally subscribed theory that money shocks affect the economy through Keynes nominal wage rigidity. However, despite Hoovers 1929 attempt to stop industrial nominal wages from being cut they were actually quite flexible after 1930.
Another problem with rigid wage explanation is that as employees are laid off the remaining employees become more productive. This is counter factual, labour productivity actually fell by 15% form 1930 to 1933 and real wages were below normal.
Banking failures and the M1 contraction had a role in the Great Depression but the explanations of their roles are weak
The Obama Plan: We Can't Entitle Our Way Out of Paying Taxes
"Balancing the federal budget without a tax increase is possible, but will require strong fiscal restraint."
However, the author must certainly agree with the proposition that
"broadening the tax base combined with revenue neutral marginal rate reductions will result in higher economic growth and an increase in tax revenues".
Unless of course the author holds the extreme belief that the supply side effect of marginal tax rate reductions is zero.
Let's Not Emulate the Hoover Administration
Also it is difficult to pin the 1930-33 contraction on bank failures that affected 2.5% of deposits . Banking services were hardly in scarce supply. In fact the deposit/output ratio actually increased, loans fell less than output and the stock of loans relative to GNP also rose during 1930-33 period.
Furthermore, bank holdings of federal securities increased and credit spreads for good borrowers changed little. For high risk borrowers credit spreads increased less than the average for a post war recessions despite higher default rates.
Lastly, if banks were curtailing their lending to firms then one would expect retained earnings to increase as firms substitute to internal financing out of bank financing. In fact during the 1930-33 period retained earnings fell and went negative.
If banks were cutting financing why were firms reducing their cash holdings? I'd like to hear the author explain these facts and why banking failures caused the Great Depression.
Interview with Jim Rogers, Part I: Bigger Financial Shocks Loom
Jim is correct about the Federal Reserve it should be abolished. Set a money growth rule and let the market establish the short term interest rate. After all the market already establishes long term rates.