Fed Is Expected to Discuss More Ways to Revive Economy

The Fed's meeting on Tuesday will discuss major issues of how to revive the economy. They are debating using taxes and the purchase of treasury bonds to help.
Last month the central bank voted to use money from their portfolio of mortgage backed securities to buy long term treasury debt. They are trying to put downward pressure on the interest rate. The fed has already had a lot of influence over the short term rate *which is nearly zero. These new actions will lower the long term rate.
The Fed is most worried about our economy falling into inflation.

Economists surveyed want Bush tax cuts extended for all

31 economists were surveyed by CNNmoney, and most agreed that the Obama Administration should choose to continue the Bush tax cuts for all income categories. Many argue that eliminating them for the top 2 percent of earners, which is seemingly what the administration currently favors, would strain small businesses (though this is debatable). Others, in favor of eliminating the tax cuts for the top 2 percent of earners, argue that the money not going to taxes from this income bracket is saved anyways. Thus, it does not have as much of an impact as taxes on the middle or lower class do.

While most of the economists surveyed agreed that the tax cuts need to be extended in some form, others, like former FED chair Alan Greenspan, argued that the current US deficit should lead the administration to decide not to extend the tax cuts for anyone.

Bush Tax Cuts: What You Need to Know?

There has been a lot of blogs on the Bush Tax Cuts. This article breaks down the basics on the subject.
If Congress does not continue with the Bush tax cuts then everyone's income tax will increase. However, if you make less than 200,000 then it is unlikely that your taxes will increase. If taxes do increase, it is likely that consumer spending will decrease and economic growth will slow dramatically. However, if they do not change, tax payers will not notice a difference and economic stimulus may not change. The political pressure of ending the tax cuts for those families making over 250,000 will be an issue as Republican and Democrats argue over the logistics. In short, it is truly difficult to predict what will happen due to party difference and inter-party differences. However, chances are high that middle and lower tax brackets will continue with the cuts since both parties are in favor.

Bond Markets Get Riskier

Bond markets are growing riskier as investors seeking steady returns bid up prices and ignore some early warning signs similar to those that flashed during the credit bubble.

The U.S. high-yield default rate fell to 5.1% in August from 13.2% a year ago, Moody's Investors Service reported recently, adding it expected the rate to fall to less than 3% by the end of the year.

Interest rates paid by companies with strong credit ratings have tumbled this year, falling to 1.8 percentage points above the yields on comparable U.S. Treasury bonds, which themselves are among the lowest yields in decades. Companies with weak credit ratings are paying 6.2 percentage points above Treasurys, down from nearly 20 percentage points in 2008, according to Barclays Capital indexes.

Treasurys have already seen their weaknesses exposed after a recent sell-off. Since the start of September, 10-year Treasurys have lost 2.2% and 30-year government bonds are down 6.9%, compared with a 5.6% gain for the Dow Jones Industrial Average.

The demand for bonds has allowed some of the riskiest borrowers to sell bonds with fewer protections for investors. These provisions, or covenants, prevent companies from taking actions that would hurt bondholders and would protect investors if companies are sold.

Weak Dollar, Tight Credit

The author outlines two main reasons behind a ‘credit crunch’. Financial institutions are more reluctant to lend credit mainly for fear of not making profits due to the weakness of the dollar and because it is very likely that the Fed will lower interest rates. This is a serious dilemma because with the decrease in interest rates, investment is supposed to increase but if financial institutions are not willing to give out the money, it will be hard to boost the economy, especially through the expansion of small businesses.

Bioscience can be just the pill Ohio's economy needs

While most of the economy around the country and state are doing poorly, not BioOhio. BioOhio is a government-supported non-profit organization that focuses on new, technology based industries in Biology. Furthermore, this biology company has been one bright spot of Ohio's economy. Since 2000, BioOhio has grown by almost 18 % and has added an additional 55,000 workers. This sector has more than 1,200 companies in all, which include research, drug makers, medical labs, medical equipment manufacturers, and diagnostic imaging centers. Also soon BioOhio will provide courses and training at community colleges around the state of Ohio. This is obviously a growing sector which could help get the economy back on track. With BioOhio, many jobs are opening up, and opportunities in education are being provided. This line of work is providing a bright spot now, and could provide a stable job market for the future.

Tax Increase Would Hit Few Small Businesses

As Congress and President Obama wrestle over whether to let the Bush tax cuts expire for the wealthiest Americans, one of the most heated aspects of the debate, in Washington and in neighborhoods across the country, is how a tax increase would affect small businesses.

Mr. Obama wants to extend the cuts for most taxpayers. But he proposes eliminating them for the top 2 percent of wage earners, whose taxes would rise. Opponents of the plan warn that a tax increase would batter hundreds of thousands of small businesses — from Silicon Valley start-ups to mom-and-pop convenience stores — and prevent them from creating the jobs that might lift the sagging economy.

Supervising Banks’ Liquidity Is a Pain for Regulators

Central Bank Chiefs and regulators in Switzerland are deploying new ways on how to prevent financial chaos among banks if they were to go out of business. In the financial crisis in September 2008--when the Lehman Brothers bank plummeted--policymakers and others were concerned with how much money banks should hold in reserve. They have made it clear that they are going to wait until 2015 to make the final decision and the time in between will help officials come to their final decision. This article is interesting because this can effect banks in the states- who knows, maybe that small print appearing on our banks doors that say FDIC will no longer be there?

The Bush Tax-Cuts: A Slight Reprieve?

The article addresses two sides of the Bush tax-cut extension:

1. The extension is not complete - the richest are no longer receiving the cuts. This, though will worsen the budget deficit, will save 700 million compared to the Bush's version.

2. Another issue is about the weaken economy. Financial crisis leaves behind a crippling effect that supposedly make the recovery very slow. Thus the extension is somewhat necessary to avoid future risk to the feeble economy, and also a small step to fight against budgetary deficit.

Currently the factors of production are largely underemployed, so tax cuts could have the effect as a fiscal stimulus without an investment crowding out, but a rise in level of investment. However, cautious firms are very hesitant to expand their investments, keeping the economic activities largely under-operating. Real production could not be delivered until financial certainty are ascertain to firms -- so why don't the government do more extended effort to first help the financial market first?

John Edwards Tax Out, Steve Schwarzman Tax Still In

Max Baucus, Senate Finance Committee Chairman, has revised a previously proposed bill designed in order to provide tax breaks in research and development as well as sales for businesses. The new version only taxes the carried interest from S corp top salaries, instead of including higher social security and medicare taxes as well. In the past, the carried interest was taxed at the corporate gains rate of 15%, with Baucus' proposal, this rate will increase to the ordinary income rate of 35%. The problem with this proposal is that the owners of the S corps can somewhat avoid this carried interest tax rate by claiming their income as profits. in 1998, Senator John Edwards claimed $360,000 of income and $5 million in profits from his S corp. The trend of smaller S corp owner salaries is predicted to become more propular in the future. In 2013, the new health reform law will increase the medicare surtax 0.9% on the amount of income exceeding $250,000, which will only motivate more people to falsely claim smaller incomes.

In my opinion, this proposal by Max Baucus relies too much on the honesty of S corp owners reporting their income andprofits, which in the world of business, is a lot to ask.