Flat Tax Proposals Among Republican Candidates

Many of the republican candidates have come out with flat tax proposals to help simplify the tax code and create breaks for the wealthiest brackets. Among the most prominent are Herman Cain's 9-9-9 plan which calls for 9% business tax excluding capital investments, a 9% individual tax, and a 9% sales tax. Newt Gingrich proposed a 15% flat tax and Rick Perry a 20% flat tax. The benefit to these plans are simplicity and transparency. Paperwork would be vastly cut and it would be much easier to tell who was or wasn't paying their taxes. However, the costs outweigh the benefits here. These flat taxes are very regressive, and force cuts on the rich to be paid by the poor. Of the 47% of people who do not pay income taxes in the U.S, many are living below the poverty line. To ask them to contribute the same amount of their income as much wealthier Americans is absurd, and luckily most of America supports a progressive tax instead. It will be interesting to see how big of an impact tax debate has on the election and whose plan is most well received.

Back to School

This is a great article telling how the government is giving tax breaks to college and school students in order to induce more and more people to get educated. As a result of these tax breaks more people aged 35 plus have enrolled in post high school programs then people aged between 18-24 which shows that older people want to retrain themselves and enter the market. Even at the 9% unemployment rate, employers were having difficulty finding people with the necessary skills which just shows that it is high time labor market brush their skills. Wither or not this tax break will provide the opportunity is a matter of debate.

student debt

Great article on cost of education in America and in other parts of the world.
and I guess a lot of people can relate to this.

I would love to see comments on this since I do not know what local Americans are going through.

Economic Growth on the Rise

In today’s business section of the NY times there was an article concerning the current economic growth of the US economy. There was overall joy in the fact that the growth rate in the third quarter was at about 2.5% up from the first quarter’s 1.3%. Though this is not enough to cover the unemployment, economic bust or even to mitigate the fears of a second recession it is good to see that the economy is not stuck in a slump, but instead is recovering.

The article continues by highlighting the fact that though the economy is growing there is still a low level of consumer confidence amidst all the positives efforts being taken in combating the current economic climate. This low consumer confidence has reduced the effect of the increased prosperity of the stock market. Along with this there are many other situations were the good is lessened by other occurrences. For instance, the article states that though the number of people filing unemployment has decreased, real income received by workers has been on a decline. Other effects of other factors, which had previously been slowing down the economy’s recovery such as, the earthquake in Japan (disrupting the global supply chain) are slowly fading away as indicated by the markets increased growth rate.

The fears surrounding a next recession seem to be a big factor in restricting the increase in economic growth. With this in the minds of consumers and businesses how will the economy manage?

Home Prices Up in Half of Major U.S. Cities, Survey Shows

Im glad to read that house prices are increasing in certain cities but at the same time some cities are still struggling. This can be a good economic indicator that the economy is slowly recovering. House price increases in big cities such as Chicago, Washington, and Detroit.

In some cities the house prices reach their lowest ever since the house burst four years ago. People are still reluctant to buy houses even after the recession even though the mortgage rates are very low. At the same time people with enough credits are reluctant to buy houses too since they are afraid that the price will drop even more. Even though some house prices are increasing in certain city the overall sales are still low and it will be worst.

More Jobs Predicted for Machines, Not People

One of the reasons that unemployment rates are so high its because of technology. “Many workers, in short, are losing the race against the machine" according to two top experts on technology and productivity from MIT.

Brynjolfsson and McAfee wrote "Race against the Machine"s based on their research how technology plays a role in jobless recovery. The pace increase rapidly with many new technology in the market such as robots, online commerce, voice recognitions, etc to replace human capital. Which sometimes can do a better job than human since there are more clever , cheaper, and faster software becomes available. Machines are use in the service sectors such as call centers, marketing and sales where it provides the most job. The last recession 1 in 12 people lost their jobs in the sales sector.

"Underwater" Rescue

This article by Zachary A. Goldfarb cover the recent announcement that the FHFA (Federal Housing Finance Agency) will allow "underwater" homeowners to refinance their homes at very low nominal rates. The term "underwater" refers to homeowners who owe more on their homes that the actual value of the property.  Although the program is expected to aid more that a million homeowners, the program was tried in 2009 and fell far short of it's expected effect. However, the FHFA removed the minimum cap on how much needed to be owed to participate in the program.
The agency hopes that the program could lower mortgage payments and free up some more money to be used in the economy (consumption, savings).Government Announces New Program to help "Underwater" Homeowners

Stocks Aim to Beat the Band

This article is from the Wall Street Journal and talks about the volatility of the market which is causing the stocks to go up and down leaving the investors mind boggled. The main reason for this volatility is the confidence: currently there is no confidence in the market as Europe is unable to come to any concrete conclusion regarding its debt situation and companies in the United States are posting results which are well below the market expectation.
The performance of the stock market is taken as a sign of the health of the economy and the fact that market is swinging from red to green and vise versa shows how unstable US market is right now. Many people are of the view that even in this situation, the government should not increase spending as it will lead to a "crisis" in near future as happened after 9/11. However the thing to note is that, currently investors are pessimistic and the only way to regain confidence is if the government continues to spend and calm the markets down. If the government does not fill in the gap created by falling investments the economy would fall into a bigger recession creating further unemployment .

Bailed Out Banks Give Advice?

In this article, author Jim Mctague talks about the 2008 financial crisis, and how the Federal Reserve Bank of New York took advice from banks who were themselves being bailed out by the government TARP (Troubled Assets Relief Program). Some of the banks the New York Fed had asked advice from included Goldman Sachs, Morgan Stanley, JP-Morgan Chase and State Street. This is very peculiar as the banks giving the New York Fed advice as how to solve the 2008 financial crisis were the same banks that were receiving aid from the Fed itself. Coincidence? I think not. While technically nothing illegal went down between these banks and the Fed, the whole situation begs to question the "cozy" arrangement the Fed and the 12 most powerful banking institutions of the United States have with each other. The GAO (Government Accountability Office) cautioned against a possible conflict of interests between the Fed's relationship with these banks and their duty to regulate them and make sure economic stability does not arise. Mctague suggests that the GAO broadens its audit investigations of the Fed so a conflict of interests does not arise again in the immediate future.

More banks being bailed out?

This article focuses on the Belgian-French bank Dexia, and how many are angered by it being bailed out. I find this article interesting because it delves more deeply into the global issue of banking. It discusses the falling out of AIG, and suggests at some points that Dexia's problems could be related. The reason for this is the extent to how far the securitization and credit swaps of AIG reach is hard to measure. One thing they do know about Dexia is that their predictions on interest rates were wrong:" But the biggest drain on its cash stemmed from a series of complex, wrong-way bets it made on interest rates related to its municipal lending business."

Another important topic that this article addresses is the fact that Dexia is a trading partner with many large American banks. Dexia, having already been bailed out in 2008, is involved with controversy as to whether they can repay their American trading partners in full with the rescue money or not. Dexia has had problems lending to countries that cannot pay them back in full (Greece). Apparently, conservative lending is now overrated in the banking industry.

A Plan to get out of this mess

This paper (don't worry about reading the actual paper unless you have a lot of time, the abstract they provide is long enough) offers a very digestible yet very nuanced understanding of the current crisis and a plan to get out of this mess.
3 tenets of their plan:
-National debt restructuring
-Substantial long term infrastructure investment
-Changing global regulations and working to de-leverage Europe/United States

On the last tenet they make a great point that this will only be possible if Chinese consumption rises. If anything they play down the extent to which BRIC economic growth will be necessary for the U.S. economy to truly revive.

Check it out.

Overdose: The Next Financial Crisis

This is an interesting documentary on how bad government policies with respect to the current recession could trigger a bigger financial crisis in the future. It talks about how fall in consumer spending after 9/11 leading to more spending by the government lead to the housing bubble, which in turn led to the current financial recession. The documentary claims that western governments, especially the US are making the same mistake again, which could trigger an even bigger crisis in future. This is partly due to drastic not-so-insightful measures by the government and also due to the "too big to fail" attitude that many large institutions in the nation have. It will be interesting to wait and watch what is in store for us in future!