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What We Read Today 18 January 2015

Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.

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Obama targets top 1% with $300bn tax plan (Financial Times)  In next week's State of the Union (Tuesday) President Obama will request tax code changes that would remove the set-up in basis for assets held by an estate, a new 28% tax bracket for large amounts of long-term capital gains and dividends and a 0.07% tax on liabilities for institutions with assets greater than $50 billion.  The proposal is to have this serve as redistribution tool with increases in earned income and child-care tax credits for the lower middle class and the poor.  As such, it would be tax-revenue neutral, involving of the order of $30 billion in shifted tax liabilities per year.  The FT says:

Seeking to exploit a rising tide of economic populism in the US, Mr Obama will unveil proposals that would pump funds raised from banks and rich families into initiatives likely to be popular with the middle class, such as adding a new tax credit for households where both spouses work and expanding the tax benefits for child care.

However, the president’s initiatives are also likely to face fierce resistance from Republican lawmakers and Washington’s powerful financial services lobby, which have managed to block bank tax plans tabled by the president in previous years.

Articles about events, conflicts and disease around the world

UK

Belgium

France

Greece

  • The economy’s dynamics (TO BHMA)  The new government to be elected in Greece at the end of January will have to face a serious funding problem from day one.
  • The era of Syriza (The Economist)  A populist election win need not spell disaster for Greece—or for the euro zone.

Democratic Republic of the Congo

Palestine

Syria

Ukraine

Russia

India


Federal Reserve's Total Capacity Utilization measure and Department of Labor's Initial Unemployment Claims  (David Paul Laipple, davidpaullaipple)  Here are two recession warning indicators which have been very reliable over the past 47 years.  They have signaled between six months and two years before each of the last seven recessions except for capacity utilization signaling after the recession started in 1973 and 2007 (three and six months late, but before the NBER had declared the start date).  We are currently in a region where a signal from either could occur at any time.  Note:  The signal cannot be confirmed for 6-12 months after it has occurred.

cap-util-init-claims-recessions-600x400


Democrats’ latest plan to close the income gap (Suzy Kim, MSNBC)  The proposals being discussed by Democrats are basically redistributional.  Not there is anything fundamentally wrong with some redistribution through tax policy - After all the tax changes over the past 50 years have been directed at changes in income distribution to the benefit of high incomes.  But are these proposals realistic?  Is there any chance any can even get out of committee in a Republican controlled Congress?  So the Democrats are posturing for the next election.  If they were serious about income distribution problems wouldn't there have been some attempt to address that when they had control?  See also Is this Hillary Clinton’s economic agenda? (Alex Seitz-Wald and Suzy Khimm, MSNBC).


Key Measures Show Low Inflation in December (Bill McBride, Calculated Risk)  For more about the Cleveland Fed CPI numbers see here and here.

Click for large image at Calculated Risk.
inflation-fed-four-ways-cr-2015-jan-17-600x450


FX broker FXCM gets rescue from Jefferies parent Leucadia (Mike Stone, Gertrude Chavez-Dreyfus and Jessica Toonkel, Reuters)  Large global banks and retail brokerages were hit hard by the Swiss National Bank's sudden move Thursday to scrap its three-year-old cap on the value of the Swiss franc against the euro and some didn't have enough to cover client's losses.  One of the largest of these was FXCM Inc (NYSE:FXCM) which announced of Thursday that it had a $225 million shortfall.  Friday it was announced that a $300 million rescue loan was on the way from Leucadia (NYSE:LUK), the parent of investment bank Jeffries.  Some of the smaller firms in trouble may not get rescued.


A Long-Term Look at Inflation (Doug Short, Advisor Perspectives dshort.com)  Doug Short is a regular contributor to GEI.  This the first half of the 142 history was a period of alternating inflation and deflation; the second half has seen persistent inflation.  The current period is the second-lowest period of long-term inflation since 1940, the lowest occurring in the 1960s.  But some of us think this disinflationary period is far from over.

Click for large image at Advisor Perspectives dshort.com,
inflation-monthly-1872-1914-600x450


The ECB is Getting a Freebie (Walter Kurtz, The Daily Shot email, no url)  Some have suggested the erou is going to par with the U.S. dollar.  It is well on it's way (see first chart below).  Kurtz says the freebie is the needed weakening of the euro is being achieved without yet implementing true QE - and weakening is what is needed to fight inflation and increase exports.

eurusd-sober-2015-jan-16

It took two days but the Swiss market ETF (NYSE:SMI) took the 15% writedown to accommodate the 15% increase in value for the franc.  We observed that the adjustment was only partial after the first day:  Zurich Turns the Euro into Swiss Cheese.  We should have been patient!

smi-sober-2015-jan-16

Finally Kurtz has a reminder of what is happening to the dollar.  It is continuing to hit new highs and this will be stressful for exporters but help consumers buy imports for fewer pennies.

us-dollar-index-sober-2015-jan-16


Other Economics and Business Items of Note and Miscellanea

Disappointing Trading Results Hobble 4th-Quarter Revenue at Goldman Sachs (The New York Times)

Barclays expects Taiwan's 2015 GDP to grow 4.5% (Focus Taiwan News Channel)

CANADA ECONOMICS: Market Here Pricing in Rate Cut Inside 12 Mos, Albeit With 4% Probability (Nasdaq.com)

ET Global Business Summit 2015: India definitely a country of the future, says Paul Krugman  (The Economic Times)

Amazon is in trouble over tax…again (CNBC)  Hat tip to Marvin Clark.

LETTERS: Readers discuss oil deals, trickle-down economics, police etiquette, the power of words and motorist blues (Waco Tribune)  Letters to the Editor from deep in the heart of Texas.


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