Biden to Propose New Minimum Tax on Wealthiest Americans

 President Biden proposes a new minimum tax on households worth more than $100 million as a part of the annual Budget. The tax that has been proposed is to ensure the very wealthiest Americans pay at least 20% in tax on their income. The tax proposal would affect fewer than 20,000 household. The plan would roughly generate $360 million in revenue over 10 years which the government could use to spend or increase the saving. Large amount of money in the new plan would come from taxes on unrealized gains built over many years and include much of the wealth of founders of large firms such as Amazon, Facebook (now Meta). Under the Biden Plan, if assets declined in value the future stream of payments would be adjusted downwards and if the value increases, it would lead to a larger stream of tax payments. Under current law capital gains are taxed only when the asset is sold and they are taxed at a lower rates than ordinary income, therefore it creates an incentive for people to hold appreciated assets until death. 

https://www.wsj.com/articles/biden-to-propose-new-minimum-tax-on-wealthiest-americans-11648335232

the unlikely victim of the Ukraine crisis; a Bakery in Lebanon

 

Russia’s invasion of Ukraine has caused many supply shortages, the ones that come to mind are gas and energy. However, the supply of food has also been affected globally. Ukraine is also known as one of the breadbasket of Europe, being the fifth largest exporter of wheat in the world. There are supply shocks to be felt across the globe, given that Ukraine will lose half of it's harvest this year because of the Russian invasion and blockades. Moreover, Ukraine is also limiting its agricultural exports to ensure there is enough supply available for the nation. While developed countries have the resources to protect themselves in the short term, not everyone is as lucky. In particular, the developing world has felt the impact of these shortages in the short run. The MENA region is the highest exporter of wheat in 2020, with half of Lebanon and Libya's wheat supply coming from Ukraine. 

The effects are already being felt on the ground. A small bakery in war torn Beirut is at risk of going out of business. Mr Khafiyeh is struggling to keep his bakery open because his access to flour was primarily on the black market which is seeing price hikes of more than 1,000% since the Russian invasion. He now only bakes when customers pay upfront, has increased his prices by 50%, and fears he will soon have to shut down his business.

https://qz.com/2133068/conflict-in-ukraine-could-hit-lebanons-food-supply/

https://www.latimes.com/world-nation/story/2022-03-17/war-ukraine-kyiv-try-keep-life-going

https://www.middleeastmonitor.com/20220228-ukraine-war-threatens-to-make-bread-a-luxury-in-the-middle-east/

https://www.newsweek.com/bread-prices-may-rise-ukraine-halts-exports-china-sees-poor-harvest-1686416

Mortgage Rates Rising by Large Amounts

     The most common type of loan- the thirty year fixed mortgage- has risen by 24 basis points, up to 4.95%. This puts the thirty year fixed mortgage 164 basis points up from this time last year, which is quite the substantial amount. This is the second time this week the rates have shot up which puts it on par with 2013, the most recent time that the rates have shot up by such large amounts. These soaring rates have caused demands for mortgages and refinancing loans. With all the other prices rising due to inflation it is hard for buyers to keep up and put down payments making them unqualified for mortgages which could cause issues. This could become more of an issue as the spring housing market is one of the most prominent time for home buying and people might be hesitant to do so with mortgage rates soring and uncertainty setting in. This is causing many economists to revise their estimates and sales figures for the upcoming year. This is something that should be watched closely because any market no matter how small can cause a ripple effect in the economy as a whole.

The US is set to release 1 million barrels of oil per day from the US strategic Oil Reserve for six months

source: Joe Biden orders release of 1 million barrels of oil per day from US strategic reserve for six months (freepressjournal.in)

The US President, Joe Biden, has announced that the US will release 1 million barrels of oil from its strategic oil reserve for the next six months, in a historically unrivaled move, which is set to increase oil supply in the light of recent political events, which saw a decrease in the global level of oil supply, due to sanctions placed on the Russian Federation, due to the 'special military operation' being performed in Ukraine. 

This increase in oil supply would help decrease the recent rise in oil prices both domestically and internationally, as the US is a global exporter of oil (7491.36 USD Million in January 2022). According to the National Economic Council Director, there exist about 568 million barrels in the reserve, and the duration of six months was designed to afford a medium-term bridge between this period of oil scarcity, and the period at which they expect greater US production of oil to come back. Furthermore, he said that the US has been in touch with several countries, such as India, providing encouragement to participate and contribute to this act of releasing reserves.

This will, naturally, lead to a surplus of oil at current prices, allowing market forces to drive prices down, a fact that will definitely lead to a decrease in the costs of production for firms in the global economy, due to reduced transportation costs, which would then lead to increased levels of production, leading to greater levels of economic growth in all economies reliant of oil.

Surging Food Prices Take a Toll on Poor Economies

     Poor economies in the process of rising were already in a fragile state because of the lack of tourist activities from the pandemic. However, since the invasion by Russia into Ukraine has caused high commodity, food, and import prices, many less stable countries had rushes for resources, runs on the bank, and large devaluation in currencies. Already high debts are increasing because of food and commodity subsidies, and foreign-exchange reserves are dwindling. Therefore, in addition to taking on even more debt from foreign countries, countries like Egypt and Sri Lanka are being forced to turn to the IMF to forgive debt and offer bail outs. 

https://www.economist.com/finance-and-economics/2022/04/02/surging-food-prices-take-a-toll-on-poor-economies

Afghanistan's Economy Risks Falling into a "Death Spiral"

    The United Nations has only reached 13% of their $4.4 billion goal in fundraising for Afghanistan this year. The UN chief Antonio Guterres exclaimed that wealthy nations cannot ignore the consequences that their decisions have on vulnerable countries. This statement comes after western nations withdrew from Afghanistan last year, allowing Taliban to retake power. The withdraw of western nations has also caused the international community to freeze almost $9 billion in Afghan assets. Guterres has explained that around 95 percent of Afghan people don't have enough money to eat and around nine million are at risk of famine. People in Afghanistan are resorting to selling their body parts and children to feed their families and avoid starvation and malnutrition.

https://www.arabnews.com/node/2054506/world

How North Korea Keep Moving Without Fuel

North Korea is geographically in a poor place when it comes to fuel and oil. Without natural oil and with high expenses on imports of oil and imports in general, fueling their cars with gas is not sustainable and is definitely not reasonable. But, they’ve found their way around this with some creativity. Residential vehicles along with their military trucks use wood to keep their wheels moving. These vehicles have a burning, open fire pit attached to the engine where barrels of wood are poured in to keep them moving. 

I’m not sure how others would feel about this, but having an open flame fire pit right behind me while driving is not something I would feel the most comfortable with. However, you must give them credit as this is a smart play considering that normal fueling techniques are simply not applicable to North Korea.

https://blogs.scientificamerican.com/plugged-in/how-north-korea-fuels-its-military-trucks-with-trees/

Companies that have pulled out of Russia since its invasion of Ukraine and the long term affects.

    In many different ways the world was affected by the invasion in Ukraine from Russia. One of the ways involves a lot of big name corporations exiting in that country, that has become a global reject. No companies want to be apart of Russia's economy and continue there business mainly because they don't want to dampin their reputation.

    Companies that produce fossil fuels, cars, planes, consumer goods, manufacturers, firms, and tech have all distanced themselves from the situation. This is affecting Russia economy in a terrible way in the long run. They are calling it the "Big Business Retreat." The small foreign businesses that have not yet retreated from Russia will end up joining the exodus and shutting down. When this occurs, the overall economic suffering will exist. It all starts with hundreds of thousands of Russians to lose there jobs, then everything goes down hill from there.

https://www.investmentmonitor.ai/special-focus/ukraine-crisis/russia-economy-departing-companies-invasion

https://www.cbsnews.com/news/russia-ukraine-corporations-pull-out-invasion/

Soaring Cost of Diesel Ripples Through the Global Economy

 If we look at the beginning of the pandemic, diesel prices began to fall fairly quickly as the overall economy began to shut down.  With firms being shut down throughout the country, these prices were low.  Early in 2021, however, traffic resumed and these prices began their climb.  These increases spiked even more with Russia moving troops into Ukraine.  With Russia being a major fuel exporter, and the low stockpiles of fuel overall, these prices could keep rising indefinitely.  

While many consumers may not think about goods this way, every good requires the use of fuel in some capacity to make.  For example, crops require heavy machinery to produce and collect: tractors, combines, etc. Every good gets transported somehow as well; from trains and trucks to boats and planes, every method requires fuel.  These sudden increases in fuel prices are pushing inflation up and heavily impacting supply chains.  The most noticeable effect inflation will have on goods is in "big ticket items", these would be bigger home appliances and vehicles, but overall the consumers will begin to feel an increased effect of inflation on all goods.  

While fuel prices seem shockingly high in the United States, Europe is also being hit quite hard.  A gallon of diesel, on average, in the United States is ~$5.19, while in Germany it is 2.15 euros per liter or $9.10 per gallon.  This is an increase from February prices being 1.66 euro per liter.

https://www.nytimes.com/2022/03/31/business/economy/diesel-economy-russia-ukraine.html

Increase in Mortgage Rates

 Earlier this week rates for a 30 year mortgage interest rate rose to 4.95% which is the highest its been since 2013. According to the Real House Price Index, if income remains constant while mortgage rates increase a consumer’s buying power will decrease meaning they aren’t able to afford mortgages. On top of the rising interest rates, prices in other sectors are also rising which negatively affects a consumer’s house buying power. As the spring season is primetime for the housing market because most people choose to enlist and buy houses during this time, the market supply will be tighter which causes prices to further increase.

https://www.cnbc.com/2022/03/25/mortgage-rate-soars-closer-to-5percent-in-its-second-huge-jump-this-week.html