Fed Governor Questions the ownership of Physical Commodities

    Federal Reserve Governor Daniel Tarullo has raised concerns on whether investment banking institutions such as Morgan Stanley and Goldman Sachs should be allowed to own physical commodities. He believes that this practice exposes the banking institutions to non traditional risks  and thus breaches "the wall between banking and commerce."

  Mr. Tarullo's concerns arise from the 1999 Gramm-Leach- Bliley law. This law ended the separation of investment and deposit-taking firms. This law grandfathered commodities that Morgan Stanley and Goldman Sachs had before 1997.

  Mr. Tarullo thinks that these two firms should be treated just like all other bank holding companies, as these two companies were securities firms until they became bank-holding companies during the 2008 crisis.

   "While the Fed can't change laws, it can make commodities ownership more onerous for banks by requiring them, for example, to hold more capital or disclose more information about the activities."

  Amid Fed and lawmaker pressure and declining commodity prices,Wall Street firms have been exiting the physical commodities business.




 

Puerto Rico's Governor Proposes 16% Value-Added Tax

Recently, the Governor of the U.S. Commonwealth of Puerto Rico proposed a 16% Value-Added Tax. This tax would see the dissolving of an income tax as well as the deductions and credits that go along with it. Puerto Rico has heavy debt and its economy has been near or in recession standing for the past 8 years. Governor Alejandro Garcia Padilla sees the poor economic situation's cause as the failure to collect a significant amount of Puerto Rico's taxes.
This value-added tax looks to charge based on consumption not productivity or income. As a result, getting around paying this tax is near impossible. Under this system Padilla hopes to lower the debt the island has taken on and increase tax revenues.

What issues or benefits can you see if this proposed tax reform is passed?
Who does it harm or benefit? Puerto Ricans or Visitors to the Island?

Source:http://www.reuters.com/article/2015/03/09/usa-puertorico-tax-idUSL1N0WB2HX20150309

Following the money

A strategic rivalry has been ignited between the United States and China involving the AIIB (Asian Infrastructure Investment Bank). Traditional US allies have backed China in creating this new bank that will help develop infrastructure in Asia. Britain, France, and Germany have all shown desires to be founding members of the bank, while some US allies have stayed true to the US. Some believe China is trying to side step the United States as the IMF is going through reform in the United States Congress. The United States also has control over the World Bank, so for China to be in control of it's own development bank would be huge. China is having difficulties securing funding for it's infrastructure projects, a problem that resulted from it's huge economic rise over the past few years.

This could show the fall of the United States power over other nations.

http://www.economist.com/news/asia/21646629-development-finance-helps-china-win-friends-and-influence-american-allies-following-money

Housing starts collapse but it's not the end of the world

Amidst much hope for a recovering economy February marked one of the roughest months for real-estate in a long time. During the month of February housing starts fell 17% to an annualized pace of 987,000 widely missing expectations according to business insider.com. Although housing starts fell by 17% building permits increased 3% to a pace of 1.092 million which exceeded estimates.

Although this is a negative sign for the economy one can not ignore the winter the eastern half of the United States has faced this winter. With Boston and much of New England experiencing record breaking snowfall we could only expect a standstill in production. It is a good sign that although the weather would slow down building starts, building permits did increase by 3%. I would take this information with a grain of salt. I believe once spring commences we will see a large pickup in housing starts throughout the United States as well as a rebound in the real estate market in the coming months.

http://www.businessinsider.com/february-housing-starts-march-17-2015-3

Federal Debt

The FOMC is going to start increasing its target Federal Funds rate in the near future. The likely result is that investors, who have become accustomed to an environment in which they can't buy risk-free assets unless they agree to earn virtually nothing on them, will start looking for a higher yield. That means that as the U.S. Treasury issues more debt and rolls over existing obligations, the price it has to pay will start to rise.

To be clear, absent a highly unlikely economic catastrophe, interest rates are expected to remain at historically low levels for a considerable time to come. That said, as they rise, the consequences for the federal budget are fairly dramatic.

http://www.cnbc.com/id/102499815

Industrial Zone Shifts East in Europe

The industrial zone of Europe once coined the "blue banana" has shifted over to Germany. The "blue banana" encompassed England to Italy, through the Netherlands and West Germany. A more modern term, the "golden football" reflects the shift on the industrial zone with a Germany centered location. With this shift the former communist nations joined the EU in 2004 and are partially the reason why the shift occurred. These nations are now manufacturing cars and some machinery while before they were only suppliers of raw material.
As a result of this shift a number of countries are experiencing loss of trade, while "golden football" countries are experiencing increases. Some of the reasons explained by the article state a change in type of businesses in some companies. For example England has shifted towards more business services than industrial. What are some other reasons you believe this shift has occurred? What are the implications of this shift for Europe?

Source:http://www.nytimes.com/2015/03/17/business/international/industrial-zone-shifts-east-in-europe.html?ref=international&_r=0

Will Hillary Clinton Follow Democrats on Capital Gains?

http://www.nytimes.com/2015/03/14/upshot/will-hillary-clinton-follow-democrats-on-capital-gains.html?ref=economy&abt=0002&abg=1

"In a debate in April of that year, Mrs. Clinton said she would not raise the capital gains rate above 20 percent “if I raised it at all.” At the time, the top rate was 15 percent, as a result of the Bush tax cuts. Ms. Clinton’s position was in line with the economic policies of Bill Clinton’s administration, which called for much higher tax rates on wage income than capital income for high earners. In 1997, Mr. Clinton signed a law that cut the top capital gains tax rate from 28 percent to 20; in 1993, he had raised the top tax rate on ordinary income from 31 percent to 39.6 percent, and imposed aMedicare tax on high earners that effectively pushed their top tax rates above 40." ..."Economists tend to advocate lower taxes on capital on the grounds that investors are more likely to be driven away by high taxes than workers are, and because much capital income is subjected to corporate income tax before the capital gains tax is applied."

Turkey's lowering currency

The cost of imported goods is rising because of the falling currency, which is causing inflation to rise. As the Turkish central bank is determine to stabilize the currency the president Mr. Erdogan is desperate for growth to increase since and election is approaching. There has been an ongoing battle between the central bank and Erdogan because of contradicting views and accusations, but the facts still show a declining currency due that may have some influence of Mr. Erogan ideas.

http://www.economist.com/news/finance-and-economics/21646264-president-and-governor-central-bank-are-loggerheads-frenzy

American Class Perceptions

http://blogs.wsj.com/washwire/2015/03/15/american-class-perceptions-weather-economic-storm/?mod=WSJ_hp_LEFTTopStories

"American Class Perceptions Weather Economic Storm"

Two take-aways from this article

1) Most Americans continue to see themselves as middle-class or within reach of middle class status
2) Most Americans do not understand inflation or the perception of what real income level needed to be in the middle class changed (I think they might both be true)

The article re-asked segments of American society where they think they are in the economic distribution, and how they felt about the state of the middle class in general.