Friday, 30 November 2012

No Time Like The Present

Sooner or later the harsh realities have to be faced.  Why not face it now?  Obama thinks Republicans will be blamed.  Maybe....maybe not.  Obama is in the White House and his party controls the Senate.  Why not fight the good fight right now.  Go over the cliff and do not raise the debt ceiling.  Force the country to come to grips with the debt situation while it is still possible to do something about it.

By coming to a fictitious agreement that may seem politically advantageous in the short run, such an agreement gives up on the country.  Letting the national debt spiral out of the control, which is the Obama plan, destroys the American economy and potentially it's political fabric.  Why not tackle the issue now while Republicans control the House and can block any further madness by the Obama Administration.  The future isn't very bright either way, but there is no hope for the future if Republicans cave in here.

The time is now.

The Geithner Plan Bares All

According to Geithner, the President has no interest in reducing spending at all.  In fact, he proposes major spending increases for infrastructure.  As for taxes, the sky is the limit, apparently, to the President.  So much for the economy.  This is all about "revenge" after all.

As noted in a journal op-ed two days ago, the unfunded liability in social security and medicare increases by over $7 Trillion every single year.  This $ 7 Trillion is not in the budget or under discussion.  So, raising $ 1.6 Trillion in taxes over the next ten years does what?  The only purpose of the Obama tax cut is to punish enemies.  That's it.  And if the American economy is condemned to stagnation for a generation or two, who cares?  Certainly not the President.

Going over the cliff looks so much better than this.  Let's hope the Republicans think of country first, strap on their seat belts, and take us over the fiscal cliff.  Only in this manner can we ever hope to deal openly with the problems that the country faces.  Avoiding the fiscal cliff, simply means avoiding have to face the issues squarely.

Wednesday, 28 November 2012

Buffett Should Study the Numbers

Warren Buffett opined today that a minimum tax of 30 percent should be placed on incomes north of $ 1 million, jumping to 35 percent for those with incomes above $ 10 million.  In the same interview he seemed to be either (1) unaware of how Berkshire Hathaway pays corporate taxes; or (2) intent on misleading his audience about the taxes that Berkshire actually pays.  You wonder if Warren is really doing his homework these days.

Buffett argues that the fiscal cliff is easy to avoid.  Simply move tax revenues up to 21 percent and hold federal spending at 21 percent.  Thanks, Warren, but that won't even come close to getting it done.  The entitlements are on a trajectory to consume 40 percent of GDP within the next two generations (that 40 percent rises to over 100 percent eventually).  What's the plan, then, Warrren -- raise rates to a minimum of 60 percent and 70 percent on the way to 100 percent?

Making tax revenues chase entitlement spending is a losers game and ends up with modern day Europe.  There is no reason, Warren, for you to be collecting social security and receiving medicare.  That is the problem.  These programs apply to everyone.  Such programs should be restricted to the truly needy, though, under what you advocate, Warren, the truly needy will be an ever growing percentage of the American population.


Tuesday, 27 November 2012

ETP update: 10 Key Achievements (Nov 2012)



Below is the 10 key achievements highlighted by CEO of Pemandu, that demonstrates the positive inroads of the ETP:
  1. Projects will be implemented within the 12 focused National Key Economic Areas (NKEA) and also implement 51 Strategic Reform Initiatives (SRI) to ensure competitiveness will flourish.
  2. Whilst Malaysia's GNI per capita was only US$6,700 in 2009, it grew dramatically by 45% in 2011. (Target is US$15,000 by 2020)

  3. GDP grew by 5.3% year-to-date. This is significant, considering Singapore's growth of only 1.3% while neighboring countries recorded the following GDP growth:
    • Thailand 3.0%
    • South Korea 1.6%
    • Taiwan 1.0%
    • Hong Kong 1.3%
  4. Economy continues to grow to reach new GDP and GNI records in 2011, with Government achieved its highest revenue in history with RM185 billion in 2011, allowing the Government to implement many programmes, including those under GTP such as BRIM1 and BRIM2.
  5. Private investment continues to achieve robust growth. As of Sept 2012, private investment grew by 25.5% yoy, reaching a new record of RM112.2 billion.


  6. Domestic private consumption continues healthy growth of 8.2% year to date, an evidence of growing disposable income by Malaysians.
  7. FTSE Bursa Malaysia KLCI market capitalization scaled new historic high on 1st Nov of 1,675.69 points, with market capital Rm1.46 trillion.


  8. Consistent delivery of fiscal deficit reduction from 6.6% of GDP in 2009, 5.6% in 2010, 4.8% in 2011 and further reductions are planned in 2013 and beyond. Debt ceiling was capped at 55% of GDP.


  9. Recognition of Malaysia's tremendous progress by external parties such as World Bank (ranking in Doing Business), AT Kearney's FDI confidence index, IMD World Competitiveness Yearbook, WEF Global Competitiveness and CNN ranked KL as 4th best shopping cities.
  10. Achievements against the KPI were at 123% in 2011 and 94% this year


Source: etp.pemandu.gov.my (summarized by Finance Malaysia blog for ease of reading)

Sunday, 25 November 2012

Giving Up on Economic Growth

Growing the economy is no longer an American policy objective.  The Obama Administration rarely mentions the topic.  They talk about the economy but do not seem to think that eononmic growth is really all that important.  Somehow, according to Obama, you can get jobs and full employment with little or no economic growth.  There are no prior historical examples of job creation without economic growth, but maybe Obama knows something that we don't know.

The main focus of the administration is to figure out how to put the economy into a straight jacket.  The political rhetoric that garners support for this absurd economic program is to demonize the rich and successful.  The media helps, of course.  When was the last time you watched a television program where a businessman was anything other than a sleazy crook.  The anti-business mentality not only infects the White House, it permeates our entire culture.

If business is the enemy and economic growth is irrelevant, then the future is clear.  These are exactly the policy plans of Europe.  Europe does not see economic growth as relevant and they are not facing their own fiscal cliff.  There is no hope for Europe and political and economic stability are now unavoidable for Europe.  That seems to be our future as well.

Only going "over the cliff," offers any real hope of facing up to the problems that America faces.  Kicking the can down the road once more is not the solution. The media and the financial press will hail a "solution," but there will be no real solution, just more political rhetoric and a continued march down the path to Greece.  Entitlements are not a "sustainable" economic policy.  That's the true message of the European crisis.

Friday, 23 November 2012

Walmart and the Free Market

Walmart has provided low wage jobs for hundreds of thousands of Americans.  None of those employees were promised a living wage, guaranteed health care, and a plethora of fringe benefits.  If an employee did not want the low wage job that was offered, they could look elsewhere.  That is still true.  Nothing has changed.

Now the big unions want a new deal.  The new deal is all about the living wage, health care coverage and host of other goodies not normally available to low-skilled, low wage employees.  So, now Walmart is the bad guy, in the eyes of the unions.

Walmart should be free to offer whatever jobs they want to offer and if people don't want those jobs, then they can work somewhere else.  This is an economic transaction, not a religious order.   Any Walmart employees, unhappy with existing working arrangements, can leave and work somewhere else.  That's what disgruntled employees of Walmart should do, instead of inconveniencing customers of Walmart with demonstrations.  The customers of Walmart are well serviced by a company that provides products to the great middle class at lower prices than were previously available.

Walmart is a triumph of capitalism, not an icon to be pilloried by the liberal establishment. Those who want higher pay should develop the skill set and the energy level that can lead to a job with a higher pay level.  Paying people more money than their skill set would justify will not encourage such people to develop the work ethic and skill set that would truly justify higher pay and all that goes with it.  Long term, the effort to gut the essence of free market economics will lead to a poorer society with fewer opportunities for those who would like a step-up on the ladder of life.

Once again, a peek into the future is right in front of our eyes.....Greece.

Thursday, 22 November 2012

Redistribution Economics

Casey Mulligan, an econ prof at the University of Chicago, has provided a fascinating analysis of why so many people have given up looking for work in the Obama economy.  His new book, "The Redistribution Recession," lays out the "high marginal tax rates" that the unemployed and the poor in general face in the Obama economy.

Here's an example you might not have thought about.  Under the Obama mortgage loan foregiveness rules, the amount of loan forgiveness depends upon your income.  The higher your income, the less you can receive in loan forgiveness.  This functions like a tax: if you work and receive income you lose the ability to receive loan forgiveness.  So, why work?  The same kind of disincentives are in place with food stamps, unemployment compensation and host of government programs to help the needy and the middle class.

The result:  people rationally choose to leave the labor force and live off of the various pecuniary benefits that one can receive if one is not working.  The point is that you lose these benefits if you choose to work for a living.  That is essentially the same as a tax.

Mulligan's argument is that, as folks drop out of the labor force (as more than 6 million Americans have done since Obama was sworn into office), the economy deteriorates because those 6 million and more are no longer producing anything.  That lost GDP is gone forever.  Transfer payments, Obama's favorite economic policy, reduce GDP.  The result is that we are all poorer.  In the end, the middle class suffers, because the middle class depends, for economic improvement, on a vibrant economy.

The policy of redistribution makes the whole society poorer than the society would be otherwise.  Of course, a weak economy, made weaker by Obama policies, has the most severe impact upon our lowest income citizens.  The result: policies designed to help poor people end up impoverishing poor people.

Yes, the middle class has lost ground in the last couple of generations.  But, not for the reasons you might think.  The steady rise of government and the steady rise of redistribution schemes has created disincentives for a growing number of Americans, who simply drop out.  These folks, an increasingly larger percentage of the population, become a burden to themselves and to the country.

Fast forward....Greece.

EPF Flexible Age 55 Withdrawal

As all of us know, Employees Provident Funds (EPF) is meant for our retirement savings which helps us go through our golden years. However, statistic shows that most of the contributors opted for full withdrawals at age 55 and finished it all within a period of 10 years.


In addressing this issue and encouraging contributors to keep their savings longer, EPF has launched a campaign to promote awareness on their "Flexible Age 55 Withdrawal Scheme". How flexible is it? If you're one of the to-be-retiree, then this post more than relevant to you. Read on and share this with other contributors if you think that this might be useful for them.

How does "EPF Flexible Age 55 Withdrawal Scheme" works?

By opting the scheme, contributors could withdraw part of their savings at any one time or make monthly withdrawals or a combination of both options. This is how flexible it is where you can vary the frequency and withdrawal amount anytime. In other words, withdraw only when you need it, otherwise, just left it with EPF to continue accumulate with compounding dividends for a longer period.


To elaborate further, the eligible combination withdrawal method are as follows:

  1. Withdrawal of a partial amount of your savings & retain the balance in your EPF account
  2. Withdrawal of a partial amount of your savings & transfer the balance for monthly payments
  3. Withdrawal of a partial amount of your savings & transfer a partial amount for monthly payments while maintaining the balance in your EPF account;
  4. Transfer your entire savings amount for monthly payments.


Members can submit the application within 6 months before age 55, according to the date of birth. However, payment will be made within 5 working days after reaching the age of 55.



Withdrawal Amount Eligibility
Minimum withdrawal amount for partial withdrawal is Rm2,000. Meanwhile, let's have a look at Monthly Payment Withdrawal as below:


  • You may choose monthly payments with the minimum amount of RM250.00 per month for a minimum period of 12 months.
  • The minimum amount that can be transferred as monthly payments is RM3,000.00.
  • You need to determine the total monthly payment amount, the amount per month, the number of months and the payment commencement month.
  • The EPF will transfer the total withdrawn amount into a special account. Crediting will be made into your bank account every month according to the amount and number of months applied.
  • Payments will be made on the 25th of every month.
  • The number of months for the monthly payments do not go beyond your age of 75 years.
  • You may cancel this withdrawal any time.


Is it very troublesome?
In order to opt for the said withdrawals, you would need to prepare the following documents only:

  • MyKad
  • For payment via direct crediting to member’s bank account:
    • Bank passbook or Saving/Current account statement
    • Owns an account with the panel bank appointed by EPF
    • The bank account must still be active
    • Your identification number matches with the bank’s record
    • Payment is made in Ringgit Malaysia
    • Otherwise, payment will be made via banker’s cheque


Should you have any enquiry or require additional information regarding this withdrawal, kindly contact:

  • Any EPF Office nearest to you;
  • The EPF Call Management Centre (CMC) at: 03-8922 6000
  • Customer Feedback: http://enquiry.kwsp.gov.my


Source: EPF website

Wednesday, 21 November 2012

More Big Government Needed

Another economist for big government.  We don't seem to run out of these guys.  This time Eduardo Porter is in the spotlight.  His article in today's NY Times argues that the middle class is losing ground because government isn't big enough! 

No, that is not a joke.  Porter really said that.

I guess he must think government has been shrinking over the past few decades.  What rock has he been hiding under?

As government in the US at all levels has expanded without any apparent limit, the position of the middle class has deteriorated.  Yes, that is true.  Guess why?

The government is not the friend of the middle class.  It is the government that has taken away the incentives that the middle class once had to save and provide for their future and the future of their children.  Now, the middle class presumes, incorrectly it turns out, that the government is doing the saving for them and will provide for them in their old age.  Wrong.

The government and the Democrats are simply trading the future of middle class Americans for power today for a few entitled Democrats.  Nancy Pelosi is not a middle class American, nor is John Kerry, Chuck Schumer, Barrack Obama or any of these folks.  They are all one percenters. Big government won't hurt them. They know how to play the game.

The folks that will be decimated by the continued expansion of the government and the middle class are the middle class and the poor.  Their future opportunities are rapidly disappearing in the wake of an ever expanding government and entitled class of government employees.

The rulemakers are ruling out a future for the American middle class.  Fast forward to Greece to get a view of how well big government solves the problems of the middle class.  Waiting in the wings are Spain, France, Italy and yes, even Germany.  The big government outcome is visible for all to see. Maybe economist Eduardo Porter should take a glance at the future.  Porter, of course, is one of the entitled, so maybe he hasn't noticed the turn of events in Europe.

Monday, 19 November 2012

Are Their Limits?

Who should decide whether or not a driver, alone in his/her car, should wear a seatbelt?  The government?  Why?

What if the driver feels that they can drive more safely without the encumbrance and annoyance of a seatbelt?  Does that count for anything?

The usual answer to this question is that if the driver sustains an injury the rest of society may have to pay for his/her injury.  But, why is that?  Why isn't the driver alone responsible for their own injury?  Why is this the responsibility of someone down the street?

But what if the driver is correct?  The driver may be a safer driver without the imposition of the seatbelt.  What then?  Aren't other people less safe if the driver becomes more, not less, accident prone because of having to wear a seatbelt?

It is not unreasonable to suppose that some people drive better when not encumbered by a seatbelt.  Should we ignore that?

The requirement that a lone individual driving without passengers must wear a seatbelt or face the criminal justice system is an example of how out-of-control our regulatory regime has become in the US. 

Individuals, when by themselves, should decide whether or not to wear a seatbelt without big government intervening.  But, gradually, over time, the vast majority of Americans have come to believe that individuals, alone and by themselves, should be compelled to wear seatbelts.  That shows just how far Americans have come from Thoreau's Walden Pond, where individuals controlling their own destiny was the over-riding principle.

Is there any limit to what the government can compel people to do when no one else is around nor even affected by their behavior?

Saturday, 17 November 2012

The Price of Redistribution

Progressive taxation, income maintenance schemes, food stamps, public housing, and other redistribution schemes determine priorities.  Given the level of redistribution in the US and Europe, there is no room left to provide for infrastructure rebuilding.  Uwe Reinhardt's article in today's NY Times is another example, as if anymore were needed, of an economist off the rails.

Reinhardt laments the fact, undeniable, that US infrastructure is crumbling.  Guess what, Uwe, there is no money available for infrastructure.  Current tax revenues are mostly transfer payments going from one part of the US population to another.  There is no room left to provide for basic needs like infrastructure, national defense, the court system, the schools, etc.  Instead we need our tax revenues to provide things for people that they should be providing for themselves -- lunches for their own children is just one example.

The price of redistribution is that you will not have money available for basic services.  Watch Greece.  The Greeks can no longer even provide police protection for their citizens or deliver the mail.  The Greeks perfected the Obama system -- massive redistribution and strangling government regulation.  It worked.  Capitalism and free markets were snuffed out in Greece and tax revenues were devoted to public employees and transfer payments to favored groups.  Uwe Reinhardt, a Princeton professor, supports all of the anti-free market agenda and extols the virtue of the redistribution entitlement programs.  He wonders why we have no money left for infrastructure.

Like a lot of things, the answer to our crumbling infrastructure, is not, as Uwe thinks, a matter of having the will.  It is a matter of having the funds.  You don't need a Princeton professor to do the math.  It's pretty simple arithmetic.  There is no money left for infrastructure.  Forget about it.  The road to Greece will have a lot of potholes.

Friday, 16 November 2012

It's All About Revenues

As a percentage of GDP, revenues are at a lower level than they have been for years.  Why is that?  Because of the Bush tax cuts?  No.  The reason is that the recession of 2008 is still with us.  The economy is in slow motion, so revenues have never recovered (as a percentage of GDP).

So, how do you get revenues up?  That is where the rubber meets the road.

The democrats answer to that question is to raise tax rates.  If so, why not raise them to 90 or 95 percent?  That should raise revenues easily enough to solve the current deficit, if you take the democrat logic literally.  A good beginning would be to tax Congressional pay at a 90 percent rate. I like that one.

Heck, 100 percent sounds even better.  We could begin to make progress on reducing the national debt if we just confiscated everyone's income above $ 1 million.

Democrats believe that folks are indifferent to tax rates and will pay whatever the Congress decides without changing behavior.  Thus, 100 percent rates really make sense.  Lets do it.  Economists like Austin Goolsbee don't believe that tax rates really matter.  Folks are just as willing to work hard and produce jobs if you take all of their income and leave them with nothing as if you take 39 percent of the income.  There is no difference, says Goolsbee.  Maybe we should tax Goolsbee's income at a 90 percent rate and see if he still thinks that it doesn't make any difference.

The truth is that if democrats get their way and raise tax rates, the result will be further weakness in the economy and much lower tax revenues.  The result: a further expansion in the deficit and a rising national debt.  Combine that with economic stagnation and you get the Obama plan for our future.

Since tax rates are progressive, economic growth alone will dramatically raise tax revenues, just as economic contraction dramatically lowers tax revenues.  These facts are true whether tax rates are increased, reduced or remain the same.

The main impact of raising tax rates is to signal a lower after-tax income for investments in the economy.  Entrepreneurs and businesses, those greedy guys and girls, will pull in their horns by investing less, hiring less and generally taking an extended holiday.  This is where the Obama "fairness" gambit leads -- a weaker economy, lower tax revenues, a ballooning deficit and economic stagnation for a generation or more.

So, yes, it is all about revenues and if you want to guarantee that revenues will decline, then begin by jacking up tax rates.  That will definitely do the trick.

Wednesday, 14 November 2012

Obama and I Agree

President Obama was quoted today at his news conference:

"Raising rates will not break the backs of the wealthy."

I agree.  The wealthy are uniquely able to avoid these higher rates.  The net effect of raising rates will be to lower the taxes paid by the wealthy, because they will take measures to reduce taxable income and pay less in taxes.

We are in agreement, Mr. President.

Higher rates will discourage investment, increase the ranks of the unemployment and inhibit economic growth.

What you should have said, Mr. President, and what is true is the following:

"Raising rates will break the backs of the middle class, not the wealthy."

The Obama "Grand Bargain"

Obama proposes a $ 1.6 Trillion tax hike to solve a $ 66 Trillion unfunded liability.  He then proposes another $ 2.8 Trillion in Spending cuts.  This is the "Grand Bargain" that Obama seeks to strike.

Is this some kind of joke?  Besides not making a dent in the entitlement disaster that looms ahead, the tax hike virtually guarantees an economy that will join the European race to the bottom.  Why not cut to the chase?  France just raised marginal rates to 75 percent.  Why don't we follow suit?  We will get to that point anyway, in time, with the President's logic.

Instead of fixing the spending imbalance that is causing our national debt to explode, the President has a temporary fix that makes the situation look better on paper for a few months.  After a few months, the "Grand Bargain" will become the "National Straightjacket" as it becomes apparent that the higher tax rates reduce economic growth and dramatically lower tax revenues. 

Since very little spending reduction takes place, the deficit will move from $ 1.6 Trillion to $ 2 to $ 3 Trillion annually.  We will be staring at $ 22 Trillion in national debt by the time Obama leaves office with an unemployment rate within range of double digits.  We will not be Greece yet, but we will be well on our way.  That is what happens if we put in place Obama's "Grand Bargain."

So, why bother.  Let's go over the cliff.  The future will be much brighter than reaching for the "Grand Bargain."  Let's deal with the emergency now while it has some hope of being dealt with.  Time is not on our side in this one.

Tuesday, 13 November 2012

A "Balanced" Approach

"Balanced," according to whom.  With federal and state marginal rates in excess of 50 percent in many locales, how is more taxation "balanced?" 

Most Americans do not pay any federal income tax at all.  Many Americans, off-the-books Americans, not only don't pay income taxes, they don't pay payroll taxes either, much less medicare taxes.

So raising federal income tax rates targets the dwindling minority of Americans who pay taxes.  So this is balanced?

Instead of trying to develop government programs that help the truly needy, America has developed entitlement programs that make no distinction between Warren Buffett and his yardman.  They both get social security and they both get medicare.  I guess that is balance.

Over time Americans have grown accustomed to the idea that they need not pay for their retirements, health care, education, food -- frankly, much of anything.  So, it is no surprise that American spending habits are incredibly reckless.  Why not?

So, what exactly is balance.  Balance is pretending that there is some political fix to the unfixable.  Social security and medicare and Medicaid cannot be fixed.  They can only be ended -- either because the money simply runs out or because they are ended voluntarily. 

Snuffing out economic growth by raising tax rates (on the "wealthy," defined mostly as Americans with incomes less than $ 1 million and greater than $ 250,000) is not balance.  It is foolish and cruel and will lead to a generation of economic stagnation.

The very people that the President professes to want to help will be the victims of this "balanced" program.  Job prospects for folks on the way up are dismal in a no-growth economy.  If this is balance, who needs balance.

Take the Plunge

It is time to take a ride "over the fiscal  cliff."  Any compromise is only likely to make matters worse by pushing the problem down the road.  It will not be long before the only solution to our fiscal woes is the kind of economic and political chaos that is modern day Greece.

Far better to take the poison pill now.  Yes, the economy will suffer.  But, what happens in five years when the so-called compromise or grand solution unravels because it never had any substance anyway.  Politicians will find a way to "extend and pretend."  Why bother?

If we plunge over the fiscal cliff, then the implications of the entitlement state will be front and center for the body politic.  Better to face it now than later.  It is fixable now, if we see it as an emergency, which a plunge over the cliff will provide.

This Administration intends to insist on higher rates that will imperil our economic future and lead to a 1970s style economic stagnation or a 1930s style depression.  Since that is the direction Obama intends to take, why not see the implications of that future sooner rather than later.

No one is pushing free market solutions.  The nation has a negative savings rate (if you include government savings).  There are no assets to provide income security for the elderly or bankroll the promised health care benefits.  Nothing has been put aside and there is limited room to tax the middle class (where the bulk of the income is).  So, why temporize?

America's problem is simple arithmetic.  The great entitlement society is not affordable.  It doesn't matter what tax rate "millionaires and billionaires" pay.  Total confiscation won't get it done.  The numbers just won't work.

Time to face the facts.  Hang on to your seat belts.  Lets go over the fiscal cliff, including no more increases in the debt limit ceiling.  Lets go for it.

Sunday, 11 November 2012

In The Spirit of Compromise

Obama and Boehner have made post-election comments stating forthrightly that they are both "open to compromise."  The President insists on higher "tax rates" for everyone whose incomes are in excess of $ 250,000.  The vast majority of such taxpayers have incomes well below $ 1 million per year, but the President labels them "millionaires and billionaires."  You wonder why  he doesn't lower the threshold to $ 100,000, since the label doesn't match the reality anyway.

Boehner has offered a true compromise. He will agreed to tax changes that promise "higher revenues."  That is a significant change in the Republican position.  Alas, there is zero change in the Obama position.  Higher "tax rates" for "the wealthy," as Obama puts it, will lower tax revenues and stunt economic recovery.  That doesn't bother the president, so long as he wins the rhetorical war.  The election shows that you can, in fact, fool (a slim majority of) all the people some of the time and some of the people all of the time.  Hopefully, Lincoln is right.  Hopefully, Obama will not be able to fool all of the people all of the time.

So look for another sterile debate and much posturing.  The Republicans would be foolish to relent on the "tax rate" issue.  Tax rates need to be lowered not raised.  The only reason the Clinton years were not an economic disaster when rates were increased was the one time event of the "tech bubble."  Remember that one.  From the mid 1990s to 2000, the US economy was propelled by the beginning of the commercialization of the internet.  The tech bubble, not higher taxes, is what propelled the economy in the Clinton years.

Thursday, 8 November 2012

What is US "Fiscal Cliff" actually?

When everyone thought that US and the world will be better if Obama won his presidential re-election again, world equities markets today declines with US being the most serious market by dropping more than 2%. What's the reason? Answer: Fiscal Cliff ?


Hmmm... Then, what is fiscal cliff actually which many of us on the street do not even heard about this new term before. No worry, Finance Malaysia blog did his homework over here. Share this out if you like.

Understanding Fiscal Cliff...
The US fiscal cliff refers to the effect of a series of enacted legislation which, if unchanged, will result in tax increases, spending cuts, and a corresponding reduction in the budget deficit. With Obama retaining the presidency, it sends the signal that it's US government policies will pretty much stay the same as previous 4 years. Ben Bernanke will stay as Fed chairman, which also meaning that the open-ended liquidity and bond buying programs will continue, fueling risk taking appetite of equity and fixed income markets for the foreseeable future.

Budget deficits, projected through 2022. The "CBO Baseline" shows the effects of the fiscal cliff under current law. The "Alternative Scenario" represents what would happen if Congress extends the Bush tax cuts and repeals the Budget Control Act-mandated spending reductions beyond the end of 2012.
However, Obama has to resume his duties in a very likely divided congress, with Republicans controlling the House and Democrats controlling the Senate. With this political deadlock and the looming "Fiscal Cliff", that's the reason why US market sink this morning.

Good or Bad?
If you understand it, the so called "Fiscal Cliff" is not something bad, in which its purpose is to reduce budget deficit of US. What investors worried was the measures being taken will slow the already slow growth rate of US economy, subsequently the world economies including Asia. But, without the intention of reducing budget deficit of US, would you be more confident? Of course NOT, because US would never able to not walk out from the brushes. Right?

By now, you should be able to understand the term. Meanwhile, some analysts have argued that "fiscal slope" or "fiscal hill" would be more appropriate because while the cumulative economic effect over all would be substantial, it would not be felt immediately but rather gradually as the weeks and months went by. Hahaha...




Wednesday, 7 November 2012

Oh Well

The election shows that a slim majority of Americans seem to think that either: 1) Europe is an appropriate destination for America; or 2) Somehow, we are not headed that way.  There is, of course, the possibility that a majority of Americans are simply not paying attention.

The heart of the US problem is really no different than that of Europe -- can someone work for 30 years without saving anything and live comfortably for 85 years?  That is the real issue.  Social security and medicare assume that the government is doing the saving.  But, as we all know, the government is always a dis-saver not a saver.  So, in reality, no one is saving.

If none of the squirrels gather acorns, what happens in winter?  That is the American dilemna and that is the current nightmare in Europe.

The debate about free markets is important mainly because only free markets permit savers to participate in the broader economy -- something threatened in the US by the Dodd-Frank legislation. Current government policy bristles with suggestions that savers are bad people who are only concerned about accumulating wealth. Well, that's right actually.  That's why people save.   But, in the aggregate, Americans no longer save.  The politicians have won that battle.  Only a handful of people really save any more and Obama seems determined to snuff out even that small amount of frugality.

So, winter will come.  It has already come for Europe.  It is only a matter of time until it comes to the US.

One consolation of the election is that free market politicians are in the ascendancy in the Republican Party.  The John McCains and George Bushes are being replaced by the Paul Ryans, Mario Rubios, Nikki Haleys, Bobby Jindhals, etc.  So there will be a free market voice in our future.


Saturday, 3 November 2012

171,000 is Pitiful

The Obama Administration is doing high fives over Friday's employment report reporting 171,000 net job additions in the month of October.  I recall Bill Clinton accusing George Bush of "running the economy into the ditch" at a time when the economy was routinely producing in excess of 200,000 jobs per month.  Maybe we would be better off if the Obama Administration would run the economy into the ditch instead of over the cliff.

Leave it to the NYTimes to celebrate the new normal.   Cheering the October numbers, Catherine Rampell of the NY Times argues in today's business section that the economy "is looking a little stronger than had been feared just a few months ago." Rampell sees these numbers as helpful to Obama's re-election chances.  That seems to be all that really matters to the NY Times these days.

In an otherwise enthusiastic endorsement of Obama policies, even Rampell was forced to admit the dismal truth:  "The United States has now posted job gains for 25 consecutive months, but the increases have been barely large enough to absorb the increase in the working population." 

Gone are the goals of 4 percent unemployment.  That's so Reagan-like.  Now 8 percent unemployment is acceptable as the new normal to the Obama Administration and it's pals at the NY Times.

On to the real issues -- like taxing the millionaires and billionaires (defined as folks with income above $ 250,000 a year).  So what if there is anemic job creation thanks to the Obama policies.