Notes of Note from John F. Ince

Archive for the ‘Economic Stimulus – Public Policy Debate’ Category

Bill Gates backs Tobin tax, G20 unconvinced | Reuters

(Reuters) – Microsoft founder Bill Gates on Friday backed a controversial financial transactions tax to aid development in poor countries but France acknowledged that most G20 countries did not like the idea.

The Gates Foundation was tasked by French President Nicolas Sarkozy to examine ways the Group of 20 leading economies could raise new money for the world’s poor, including plugging an estimated $80 billion to $100 billion funding gap to tackle climate change.

In a report presented to a meeting of G20 ministers in Washington on Friday, the billionaire philanthropist proposed taxing financial transactions, tobacco, and shipping and aviation fuels, according to details of the report obtained by Reuters.

With Western donors in Europe and the United States under pressure to cut their budgets, and a euro zone sovereign debt crisis escalating, developing nations are desperately seeking new ways to lift themselves out of poverty.

Gates’ point, according to a draft technical note on the report, is that if African countries maintain current average growth rates, their economies will double by early next decade and GDP per capital will rise by more than 50 percent.

The Gates’ report said a financial transaction tax could raise “substantial resources” for developing countries. By some estimates a financial transition tax could generate as much as $250 billion if derivatives contracts were included.

But the report suggests even a small tax of 10 basis points on equities and 2 basis points on bonds could bring in about $48 billion from G20 member states, or $9 billion if only adopted by larger European countries. A basis point is one one-hundredth of a percentage point.

The levy, commonly dubbed a “Tobin tax” after the U.S. economist who proposed the idea in the 1970s, has been mooted at regular intervals to raise funds, but has always struggled to get off the drawing board because it is easy to avoid unless all countries impose it.

“Tonight nobody can say that such a tax on financial transactions is not technically feasible,” French Finance Minister Francois Baroin told a news conference after a G20 meeting on development issues. “We are making progress on the technical coherence of this project,” he added.

via Bill Gates backs Tobin tax, G20 unconvinced | Reuters.

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White House to work for 10K/1M crowdfunding exemption – Change Crowdfunding Law

More wonderful news!  As part of the American Jobs Act introduced by President Obama earlier today, the White House announced that it will work with the SEC on a crowdfunding exemption.  Heres how the White House Office of Science and Technology explain it on their website and link to IndieGoGo and Kickstarter projects as examples:As part of the President’s Startup America initiative, the Administration will work to unlock this capital through smart regulatory changes that are consistent with investor protection.  This means reducing the disproportionately high costs that smaller companies face when going public, as well as raising the cap on “mini” public offerings Regulation A from $5 million to $50 million.  It also means responsibly allowing startups to raise money through “crowdfunding” – gathering many small-dollar investments that add up to as much as $1 million.  Right now, entrepreneurs like these bakers and these gadget-makers are already using crowdfunding platforms to raise hundreds of thousands of dollars in pure donations – imagine the possibilities if these small-dollar donors became investors with a stake in the venture.In a conference call with the press immediately after Obamas address, U.S. Chief Technology Officer Aneesh Chopra and Office of Science and Technology Policy Deputy Director Tom Kalil explained that they advocate an exemption, or at least a streamlined and less-expensive registration process, for public securities offerings of $1 million or less, with individual investment capped at $10K.  They also said that they believe the SEC has the authority to make this regulatory change, no legislation required.  Agreed– IANAL, but the Securities Act seems pretty clear about the SECs having the authority to write its own exemptions.

via White House to work for 10K/1M crowdfunding exemption – Change Crowdfunding Law.

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

Deficits and the Printing Press (Somewhat Wonkish)

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

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

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

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

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

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

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

A Real Jaw Dropper at the Federal Reserve

What have we learned so far from the disclosure of more than 21,000 transactions? We have learned that the $700 billion Wall Street bailout signed into law by President George W. Bush turned out to be pocket change compared to the trillions and trillions of dollars in near-zero interest loans and other financial arrangements the Federal Reserve doled out to every major financial institution in this country. Among those are Goldman Sachs, which received nearly $600 billion; Morgan Stanley, which received nearly $2 trillion; Citigroup, which received $1.8 trillion; Bear Stearns, which received nearly $1 trillion, and Merrill Lynch, which received some $1.5 trillion in short term loans from the Fed.We also learned that the Feds multi-trillion bailout was not limited to Wall Street and big banks, but that some of the largest corporations in this country also received a very substantial bailout. Among those are General Electric, McDonalds, Caterpillar, Harley Davidson, Toyota and Verizon.Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations including two European megabanks – Deutsche Bank and Credit Suisse – which were the largest beneficiaries of the Feds purchase of mortgage-backed securities.Deutsche Bank, a German lender, sold the Fed more than $290 billion worth of mortgage securities. Credit Suisse, a Swiss bank, sold the Fed more than $287 billion in mortgage bonds.Has the Federal Reserve of the United States become the central bank of the world?The Fed said that this bailout was necessary to prevent the world economy from going over a cliff. But three years after the start of the recession, millions of Americans remain unemployed and have lost their homes, life savings and ability to send their kids to college. Meanwhile, big banks and corporations have returned to making huge profits and paying their executives record-breaking compensation packages as if the financial crisis they started never happened.

via A Real Jaw Dropper at the Federal Reserve.

U.S. Corporate Profits Rose to Their Highest Level Ever – NYTimes.com

The nation’s workers may be struggling, but American companies just had their best quarter ever.

American businesses earned profits at an annual rate of $1.66 trillion in the third quarter, according to a Commerce Department report released Tuesday. That is the highest figure recorded since the government began keeping track over 60 years ago, at least in nominal or non-inflation-adjusted terms.

Corporate profits have been going gangbusters for a while. Since their cyclical low in the fourth quarter of 2008, profits have grown for seven consecutive quarters, at some of the fastest rates in history.

This breakneck pace can be partly attributed to strong productivity growth — which means companies have been able to make more with less — as well as the fact that some of the profits of American companies come from abroad. Economic conditions in the United States may still be sluggish, but many emerging markets like India and China are expanding rapidly.

Tuesday’s Commerce Department report also showed that the nation’s output grew at a slightly faster pace than originally estimated last quarter. Its growth rate, of 2.5 percent a year in inflation-adjusted terms, is higher than the initial estimate of 2 percent. The economy grew at 1.7 percent annual rate in the second quarter.

Still, most economists say the current growth rate is far too slow to recover the considerable ground lost during the recession.

“The economy is not growing fast enough to reduce significantly the unemployment rate or to prevent a slide into deflation,” Paul Dales, a United States economist for Capital Economics, wrote in a note to clients. “This is unlikely to change in 2011 or 2012.”

via U.S. Corporate Profits Rose in Third Quarter – NYTimes.com.

What’s Really Behind QE2? — Ellen Brown

The Looming Threat of a Crippling Debt Service

The federal debt has increased by more than 50% since 2006, due to a collapsed economy and the highly controversial decision to bail out the banks. By the end of 2009, the debt was up to $12.3 trillion; but the interest paid on it ($383 billion) was actually less than in 2006 ($406 billion), because interest rates had been pushed to extremely low levels. Interest now eats up nearly half the government’s income tax receipts, which are estimated at $899 billion for FY 2010. Of this, $414 billion will go to interest on the federal debt. If interest rates were to rise just a couple of percentage points, servicing the federal debt would consume over 100% of current income tax receipts, and taxes might have to be doubled.

via What’s Really Behind QE2? — Seeking Alpha.

Why Bernanke’s plan is raising trade tensions – Business – Personal finance – Stocks & economy – msnbc.com

WASHINGTON — The Federal Reserve’s plan to buy more Treasury bonds has incited critics at home to complain of inevitable high inflation and financial turmoil.

It turns out many foreigners are pretty angry, too. They say the Fed’s $600 billion program is a scheme to give U.S. exporters an unfair edge — one that endangers the global economy.

Is it? Or is the Fed’s plan a credible way to help end a desperate jobs crisis and revitalize a still-tepid economy?

In either case, few dispute that Fed Chairman Ben Bernanke is taking a gamble. Whether or not his plan succeeds in aiding the U.S. economy, it risks triggering a trade war and encouraging dangerous speculation in financial markets.

Already, the finger-pointing threatens to wreck this week’s summit of world leaders in Seoul, where the Fed’s plan has set off vociferous debate. President Barack Obama on Thursday was forced to defend U.S. policies at the summit, saying “the most important thing that the United States can do for the world economy is to grow.”

Many economists say the Fed didn’t have much choice — not with U.S. unemployment stalled at 9.6 percent, short-term interest rates already near zero and Congress refusing to spend more to jolt the economy.

“They’ve run out of bullets,” says Uri Dadush, director of the international economics program at the Carnegie Endowment for International Peace.

So the Fed announced plans to print enough money to buy an average of $75 billion in Treasury bonds each month for eight months. And it left the door open for more.

via Why Bernanke’s plan is raising trade tensions – Business – Personal finance – Stocks & economy – msnbc.com.