Advanced Government Countries Call For $10.2 Billion for 2011 Financing Needs

Japan and the United States are among the top advanced nation governments needing to borrow the most in 2011. Financial debts have risen to levels that haven’t been experienced since the after effects of World War II. According to estimates from the International Monetary Fund, Japan, the United States, and 13 other major developed-country governments will have to raise $10.2 trillion. This estimate is up 7% from last year. Most countries are not having problems raising the money needed to finance their budget deficits. Even so, there are issues related to the increased borrowing. Some of these concerns include, rising interest rates, continued tapping of government borrowers into smaller international capital flows, and increased pressures on China to allow its currency to appreciate against the dollar. In the U.S., the Federal Reserve recently said it will buy $600 billion of U.S. government bonds over the next eight months in an effort to drive interest rates down and promote more borrowing and growth. Where recovery is a primary focus right now, the chances that investors will lend to governments is highly unlikely. In the end, risk of serious financial trouble is growing as global borrowing is increasing.

Stock Ends at Fresh Two-Year Highs

The stock market ended Friday with a slight gain. All three major indexes hit a two year high point. After the Fed announced a $600 billion addition to the economy, the market rallied. There was also a response to the large number of Republicans elected into the house and Senate which is favorable for Wall Street as the Republican Party favors business and fiscal conservatism more so than the Democratic Party.

Economists Share Nobel for Studying Job Market

This is an extremely interesting article written about three men who won the 2010 Nobel Memorial Prize in Economic Science. The article related well to our class discussion talking about how fiscal and monetary policy were needed to speed up job growth. The article explains that the slower things happen the more workers are discouraged and people lose their skill sets relating to the jobs they once held. The article also explained how unemployment benefits in good or bad economic times can increase the amount of people unemployed. This is an idea we discussed earlier in the semester saying that the higher the unemployment benefit is the less the cost of being unemployed is.

In India, Obama pushes U.S. jobs

President Obama recently unveiled that new contracts with the Indian government and private firms will increase U.S. exports about $10 billion. These new contracts consist of selling to India military transport planes as well commercial airlines form Boeing, also engines and gas turbine technology from General Electric. Obama also declared that the government understands the importance of exports. "And the more we export abroad, the more jobs we create in America. In fact, every $1 billion we export supports more than 5,000 jobs at home.”

Yes, a Recovery Did Begin

The European debt crisis is being looked at as a factor of the slow down of our economic progress this past spring. The beginning of 2010 looked like a good start to our recovery, but so far the second half has not been looking too promising. Looking at graphs of non census employment we can see the slow, but nevertheless increase in job findings. Regardless of what has happened we still are showing positive signs of recovering.

Voters to States: No New Taxes

This article discusses some of the tax cuts that have been occuring at the state level in the U.S. Many tax laws that are being voted on are either not being passed or getting erased if they already exist. This shows people's concern for money in our economy right now. People are trying to reduce all of these taxes in order to increase consumption due to their large desire to consume. The state residents want to be able to spend more and see an opportunity to achieve this desire by voting against taxes. This is proving to be a successful strategy for the people. On the other hand, the government is at a point where they claim to need the money that comes from taxes more than ever. So, this creates a dilemma between the state residents wants and needs and the wants and needs of the government.

Power Shift in U.S. Stirs Economic Worries Overseas

With the recent election, congress will shift from democratic control to republican control. Overseas trading partners worry that this change in power will create new challenges for the global economy.

Based on campaign agendas, republicans are expected to curb government spending and extend the Bush tax cuts to address the unemployment and growth problems facing the US. Unfortunately, these plans do not go together. Continuing the Bush tax cuts will add to the deficit and further weaken the dollar.

“Republican claims to fiscal probity are a little difficult to buy into,” said Simon Tilford, the chief economist at the Center for European Reform in London. “What they’re advocating would probably increase the deficit rather than effect the dramatic reduction which they claim they want to bring about.”

While the weakening dollar will make our exports more competitive, it will only do so temporarily. While the US continues to fall, other countries such as China, India and Brazil will continue to outpace us as drivers of global growth.

The Morning After

The world is now reacting to the US Treasury’s QE2 program to purchase treasuring bonds. Ben Bernanke comments that we are seeing inflation levels below those recommended for economic growth. When inflation is too low, it can lead to deflation. The low inflation combined with continued high unemployment convinced the Fed to take further action. Bernanke also admits that QE2 will not get the economy back to normal and will need help from fiscal policy as well.

Economist Menie Chinn is skeptical of the Treasury’s actions. “Treasury yields have fallen, equity markets have risen, and the dollar has tumbled.” With the American currency now depreciated 5%, the hiring and investment plans of domestic firms might have to change.

5 Options for Congress to Cut Taxes

This was a very interesting article. It suggest 5 options for congress to cut taxes in light of the Bush tax cuts expiring soon.

1) Fiscal responsibility : it suggest that the expiring tax cuts will show whether candidates meant what they said about the deficit. Ending the tax cuts in any way will help raise a significant amount of money to put towards our deficit. It suggested that letting all tax cuts expire will raise 260 billion dollars a yr over the next decade.
However, right now the democrats suggest renewing all tax cuts except for households over 250000 dollars a yr and the republicans suggest renewing tax cuts for everyone.

2) Close Loopholes : There are a lot of loopholes in getting tax returns. Taking out many of these, for personal income and for businesses, would create a lot of government revenue. " In all last year, they cost the Federal Government $1.05 trillion." This is striking next to the figure $915 billion which is the total revenue for all personal income tax combined.

3) JOBS,JOBS,JOBS : Many republicans claim that continuing the tax cuts will give people more money to spend. However, the tax cuts are not likely to help and after Bush originally implemented them, job losses continued for another two years. They propose businesses tax cuts and infrastructure investment.

4) A Millionaires Tax: They suggest creating a new tax bracket above the highest 35% level.

5) A Tactical Retreat: the final possibility if all these other suggestions fail - to permanently extend tax cuts for families making under 250000 and only extend for those above for two years.

Fed Fires $600 Billion Stimulus Shot

The Federal Reserve, in a dramatic effort to rev up a "disappointingly slow" economic recovery, said it will buy $600 billion of U.S. government bonds over the next eight months to drive down interest rates and encourage more borrowing and growth.