Tag Archive | "Tax Cut"

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U.S. Equities Enjoy Santa Rally

On a day when the global and national markets had more than enough reasons to fall, the financial, homebuilding and social media companies turned sharply higher.  Trading was low, but investors threw support into U.S. Equities.

The jump appeared to be based on a statement from the Federal Reserve that the new capital requirements were less severe than anticipated.  Investors showed a willingness to overlook more bad news from the Eurogroup and ignore the chaos caused when House Republican leaders Boehner and Cantor refused to bring the Senate Payroll Tax Cut and Unemployment Insurance extensions to a vote.

Last week, Republican Speaker of The House Boehner met with Harry Reid and Mitch McConnell, majority and minority leaders in the Senate.  Boehner participated in negotiations and gave his proxy the McConnell.  The bill passed the Senate with a dazzlingly harmonious bi-partisan majority of 89 –10.  Understanding that Boehner’s proxy was accepted, the Senate headed home.

On Monday, Boehner informed the world that he did not support the Senate bill.  He and Cantor orchestrated another artful dodge and tabled the two-month extension in favor of a conference with selected members of the Senate. 

Republicans, who did not favor the extensions originally, changed direction and demanded a longer-term extension of one year.  Boehner and Cantor refused an up and down vote so that the American public would not know how various House members voted.  This sparked conjecture that there were enough votes in the House to pass the bill.

The House Republicans opposed the Senate bill because the economy is staring to improve and they are determined to see the economy and President Obama fail.  Republicans view this as absolutely necessary to win the Presidency.  Recognizing this condition, the President has taken his message to the public.

This strategy is working.  The President’s approval rating has climbed to50% while the approval record of Congress is 9%.  Ineffective Republican caucus leader, Boehner, has lost credibility with the public and his party.  The Speaker of the House speaks with a forked tongue. 

House Republicans are calling the Senate back to session because they want to accelerate passage of the Keystone XL pipeline. 

Republicans have touted the pipeline as a jobs program. A report from the U.S. State Department indicates this is not the case.  Republicans will claim that the pipeline will ease the country’s dependency on foreign oil.  This is an untrue representation.

The Keystone XL Pipeline will increase, mot decrease the cost of oil product to the Midwest farming industry.  The State Department indicates that the cost of fuel to Midwest farmers will increase $0.20 per gallon.

The XL pipeline will run Canada’s tar sand oil to refineries in the Gulf Coast. Upon arrival, the majority share of the tar sand will be refined and then exported to Europe.  This refined product will not be used by Americans. However, this pipeline will reap big export profits for big oil in the USA.

The State Department also reported that the pipeline would provide about 3.500–4,000 jobs. Like House Republicans,  the pipeline has no credibility.

The State Department encourages research and a thorough environmental study.  The Keystone XL Pipeline states that this is a safe process. More than one pipeline failure per year is unlikely.  However, the Keystone I Pipeline has burst 12 times this year alone!

For farmers in the Midwest, the Keystone Pipeline will divert tar sand currently used in the Midwest in favor of sending that product to the more Gulf Coast.

To accelerate the pipeline project, Republicans have blocked the passage of the Senate bill that would have provided 160 million Americans a tax break and provided millions more Americans 40 more weeks of unemployment benefits.

This is the climate that investors ignored. Compounding market issues is the announcement that Spain’s Vega Asset Management Hedge fund resigned from the committee representing private creditors in restructuring the Greek debt. 

Greece is negotiating with creditors to accept a 50% reduction.  This structured default would decrease the country’s debt by 100 billion euros.  Greece is teetering.  There are no winners in this situation.  The ripples of a default by Greece will fall hard on Eurogroup banking institutions.

Investors must be cautious.  The euro is maintaining unjustified value.  The Eurogroup’s GDP is retreating, not growing.  Bond sales are labored, not fluid.  Italy and Spain cannot support then yields they are forced to pay.  Experienced investors are standing down on Eurogroup offerings.  They are also slow to move into the equities markets.  Today’s rise seems like a flight to safety that will not be safe if the tax cut and unemployment benefits are discontinued by House Republicans.

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Obama Leads Congress

Talk about on the job training!  In an unfamiliar role, President Barrack Obama shifted from the left to the middle and jumpstarted the lame duck Congress.  Despite nearly two years of political bickering and gridlock in Washington, Congress finally found some common ground and launched a bevy of last minute legislation before the new Congress convenes on January 1.  In the process, and with his back to the wall, President Obama transformed his persona and became a leader of the People and for the People.

In reality, the legislation was not last minute but was mired in gridlock as Republicans attempted to forestall passage of any bills prior the new year, when they will have a decided edge in the House.  The pace was fast and furious on Wednesday as Washington finally passed several pieces of legislation that taxpayers desired.

After the well-chronicled resolution of the new tax cuts, the doors to bi-partisan participation seemed to open ever so slightly.  Democrats and Republicans crossed party lines to vote for the will of the people, which often seemed to have been ignored for the past two years.

During this lame duck session, the most significant legislation to pass was: 

  • The Obama tax cut plan
  • Repeal of the Don’t Ask, Don’t Tell ban on gays in the military.
  • The Start nuclear arms treaty with Russia
  • Funding for 911 first responders.

 Ironically, many Democrats balked at the President’s stance on the extension of the Bush tax cuts and other attached conditions.  The legislation was drafted after meetings between the President and Republican leaders and extended controversial benefits to the country’s high-income population.

On the other hand, several Republicans crossed the aisle to support the ratification of Don’t Ask, Don’t Tell, approval of the Start Treaty and the 911 first responders legislation.

In the world of canned phrases known as political rhetoric, perhaps the most poignant statement was made by a first responder while pleading for passage of the 911 medical funding bill. The impassioned fireman begged his fellow Republicans and Democrats to put political bickering aside and do what the country wants.

New York’s two Senators, Chuck Schumer and Kirsten Gillibrand get high marks for walking the first-responders legislation through the paces.  When Republicans crossed the aisle on passage of the Start Treaty, taxpayers realized what can happen when Congress and the President work together for the common good.

What Lies Ahead

Congress also passed legislation assuring the federal government the funding to continue operations through March.  Passage of this extension assures Congress of a tumultuous start to 2011, but paves the way to fireworks when Congress reconvenes when the 2011 budget will need to be ratified.

When Congress reconvenes, the majority of the House will shift to the Republicans while Democrats have a slight advantage in the Senate.  The acknowledged top priority in Washington will be to reduce the deficits through cuts in spending.  Many of the components of the Simpson-Bowles deficit reduction plan will be discussed and possibly implemented.

At stake and sure to be contentious is exactly where cuts need to be made.  Democrats defend education, research and health initiatives while Republicans favor defense and tax reform.  At the core of the of the deficit problem is Social Security, Medicare and Defense.

These components continue to be politically sensitive topics, but a reality check is long past due. Whether Republicans or Democrats have the political courage to address these core issues remains to be seen. 

The recent November election results swayed to candidates who promised improvements in Washington and in fiscal management.  With Obama riding a winning streak, it is time for the President to put the cards on the table.  If real fiscal reform is to take place, strong leadership will be necessary. 

Now that the President realizes he will need to lead from the center, perhaps he will bring about real fiscal reform.  While politicians hesitate to discuss the real problems, America’s taxpayers know they must bite the bullet.  With Moody’s threatening to reduce America’s credit rating in two years, the time for fiscal reform is now.            



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The Worst Congress Ever?

On Thursday the House of Representatives followed the Senate’s lead and passed what will be called the Obama Tax Cut program.  The mixed messages from Democrats in the House quietly dissipated as the bill passed by a 277 – 148 vote, silencing critics from inside the President’s own party.

In what has boiled down to class warfare, high income Americans with strong backing from Senate Republicans won the day.  Republicans dictated an all or nothing position with the fate of 2 million unemployed Americans and another 5 million, whose benefits will expire in 2011, in jeopardy. 

The tax cut program will add another $858 billion to the federal deficit, which now has closed in on $14 trillion. When Bill Clinton left office ten years ago, President George Bush was handed a national surplus. Polls show that the majority of Americans supported passage of the new tax cuts but with the fate of so many unemployed in the balance, polling is slanted.

In any case, the highest earning Americans will continue to prosper and create an even greater divide between the classes.  The tax cut was approved reluctantly by President Obama and represents a high stakes gamble to boost the sagging economy.

In theory, high income Americans will continue to fuel the economy by investing in the country’s economy while Americans with restored unemployment benefits will spend their survival money on American made goods and services.

Riding a wave of success in November elections, the Republicans used effective bullying tactics to win the day.  However, the November elections should not be taken as an endorsement of the Republican Party but more as a signal that Americans are bitter and angry about the way the nation’s business is being handled in Washington.

At a time when Republicans are dancing in the street, the population is wondering if the current Congress is the worst in the history of the country. For two years, Republicans created gridlock, blocking any number of initiatives and offering no solutions until they had their hands squarely on the unemployed and could dictate legislation.

As the classes continue to divide by wider margins, voters are left to either take to the streets or leave their fate in the hands of egotistical, divisive politicians who have little contact with the real world.  The stakes are high as the U.S. wavers on the brink of becoming a second-class economy.

Sink or Swim Tax Cuts

In efforts to make a bad situation better, Treasury Secretary Timothy Geithner said, “This legislation is good for growth, good for jobs, good for working and middle class families and good for businesses looking to invest and expand their workforce.”  Geithner was part of the President’s team to resolve the tax cut dilemma.

Swayed to affirm the tax cut proposal, Democratic Representative Jane Harman explained, “If it works well, our economic growth rate should go up at least a full point next year.  That is worth taking this bet.”

Favoring tighter fiscal constraints, many economists and fiscal conservatives disagree.  IMF Managing Director Dominique Strauss-Kahn agreed that growth for the U.S. was critical but tempered his support saying, “But, having in mind always that there is no free lunch.  And, so what you do today has to be repaid later on.  And, you cannot just do it now without saying “How are you going to repay it?”

Strauss-Kahn speaks for a majority of Americans but a minority of Washington politicians.  The next obstacle promises to be the President’s budget and the increase of the nation’s debt ceiling.

As Republicans will control the House and Democrats the Senate, the promise of gridlock continues.  The new Congress will have to deal with the budget as early as February.  The incoming politicians are committed to fiscal conservatism and addressing the hard reality ahead.

In the wake of the tax cut debate, the Simpson-Bowles plan to trim the deficit has gained stronger than expected support.  Certain aspects of the stalwart report, which will impact every aspect of American life, may well be included in the new budget.

Heritage Foundation fellow Brian Riedl said, “Republicans have made clear they are going to push for significant spending reductions next year,” That sounds well and good but actions speak louder than words.  This year’s Congressional Republicans have hung America’s hat on tax cuts that have done little to improve the economy over the past ten years.

Bowles – Simpson Path to Success

The bi-partisan commission to trim the deficit was co-chaired by former Senator Republican Alan Simpson and Clinton Chief of Staff Erskine Bowles.  The report required ratification by 14 of the 18 members on the panel before it could be submitted to Congress.  In other words, it was doomed to never reach the floor.

However, few can question the 39 broad point recommendations from the committee whose co-chairs have no political ambitions.  Quite simply, the committee leadership provided an unbiased report that begins to eliminate federal spending immediately and which addresses Medicare and Social Security changes down the road.

The Simpson-Bowles Report would cut the deficit by nearly $4 trillion over the next decade and keep the deficit at 2.3 percent of gross domestic product (GDP) by 2.3 percent.  In 2009, the deficit was 8.9 percent of GDP and heading higher.

The report outlines cuts necessary to stabilize growth in the national debt by 2014 and reducing net debt, excluding Medicare and Social Security, to 60 percent of GDP by 2023 and 40 percent by 2035.  National debt is projected to rise to 68.9 percent by 2011.

The Simpson – Bowles Report does what no politicians have done and squarely faces the mounting deficit issue.  The report takes Washington’s political will out of the picture and provides a blueprint for fiscal redemption. 

There is a lot of pain in Simpson – Bowles.  Deep cuts would take place across the board and some defense spending is targeted immediately.  Simpson and Bowles have served the nation well and have pleaded their case publicly.  The question is, “Are the lights on in Washington?  Is anybody listening?”

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Hillary Clinton Points Finger at Greenspan While Defending Budget Increase

Secretary of State Hillary Clinton was called before a joint Senate and House Budget Oversight Committee to explain the Department of State’s whopping $52.8 billion budget request for 2011. In response, Clinton drew upon her experience as a former member of the Senate who served on the budget committee 10 years ago when the country had a balanced budget and was paying down the country’s debt.

clintonClinton took direct aim at former Federal Reserve Chairman Alan Greenspan who she said came before the committee during the Bush years and introduced the loose spending and tax cut formula that is at the root of the federal deficit.

Shortly after Greenspan’s appearance, the U.S. engaged in two wars and undertook a massive overhaul of the health care program that has enlarged the country’s debt. Greenspan felt the amount of debt was sustainable. Clinton used her defense of the agency’s budget to encourage lawmakers to address the $1.4 trillion deficit. In fact, she termed the deficit a threat to national security. China now holds $755 billion in U.S. securities.

In defending her budget request, Clinton explained that it represented a $4.9 billion increase over the 2010 budget. Most of that money would be used for the department’s efforts in Iraq, Pakistan and Afghanistan.  The agency, Clinton said, is “now assuming so many of the post-conflict responsibilities, and that is the bulk of our increase.”

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