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America’s economy: Over the cliff? | Katonah Realtor
BEN BERNANKE, the chairman of the Federal Reserve, is not known for his turns of phrase. But “fiscal cliff”—the term he coined to describe the tax increases and spending cuts that will hit America’s economy at the start of 2013 unless politicians agree to avert them—has inspired songs (“The fiscal cliff is a danger zone/It’s where grown men go when budgets are blown,” croons Merle Hazard, a satirical singer) and television comedy (Jon Stewart’s “The Daily Show” calls it “Cliffpocalypsemageddonacaust”).
There have also been more serious consequences. The shadow of the fiscal cliff has depressed corporate investment. American consumer confidence has started to wobble. Growth is slowing, perhaps to as little as 1% in the fourth quarter. Policymakers around the world are fretting: Australia’s central bank has just cut rates, citing the cliff as a worry.
These worries are understandable but overblown (see article). In the short term the risk of economic catastrophe is minimal. The real threat—and the real opportunity for Barack Obama—lies in the medium and long term.
The long and the short of it
If lawmakers do nothing, America faces fiscal tightening in 2013 worth up to 5% of GDP. That is a Greek-scale squeeze. It would not take many months for it to push the country into recession. A complete stand-off between Mr Obama and Congress would lead to disaster even sooner, for unless America’s lawmakers vote to increase the “debt ceiling” (the maximum amount of debt that the Treasury can issue) by around March, the federal government will be unable to pay its bills—including, potentially, its bondholders. The damage from a self-induced default would dwarf even that from the fiscal cliff.
However, precisely because the consequences of prolonged stalemate would be so disastrous, there almost certainly will not be one. Either towards the end of December, or early in 2013, Mr Obama and the Republicans in Congress are likely to reach an agreement that avoids most of the tax increases and spending cuts, and raises the debt ceiling. Elements of that deal are becoming a little clearer: the Republicans seem to have given in to Mr Obama and accepted that wealthier Americans will have to pay more tax, probably through both limited deductions and higher tax rates.
But there are still two big reasons for America—and the rest of the world—to worry. First, depending on the details of the deal, there could still be too great a fiscal squeeze in 2013. Second, and more important, entitlement spending is America’s biggest long-term fiscal challenge. Any fiscal deal must reform Social Security (pensions), Medicare (for the old) and Medicaid (for the poor). Mr Obama has been demanding tax increases of $1.6 trillion over the next ten years, but has offered entitlement cuts of only some $400 billion. He needs to increase the latter, to entice the Republicans into a deal and because it is the right thing to do.
America has a chance to straighten out not just its finances, but also the highly polarised politics that underpin them. Republicans believe passionately that higher taxes will wreck the economy; no Republican in Congress has voted for higher income taxes since 1990. Democrats believe equally passionately in the sanctity of health-care and pension schemes for the old. The last time pensions were overhauled was in 1983. Since then politicians have added handouts even as medical costs have soared and the population has aged. The result is a gaping, and growing, fiscal hole. America’s underlying “structural” budget deficit is almost 7% of GDP. Among rich countries, only Japan’s is bigger.
Since the financial crisis America’s ideological stand-off has, as it happens, produced sensible short-term fiscal policy. The United States cushioned its recession with stimulus and, by keeping fiscal policy loose, has supported the recovery. With many other rich countries tightening further and faster, that did the world a service.
In today’s weak recovery the same logic holds. With bond yields near record lows America need not, and should not, tighten policy too fast. Some tightening in 2013 is both expected and manageable. Most forecasters expect around 1.5% of GDP, as measures that were always designed to be temporary, such as the payroll-tax cut, expire. But there is a danger that a minimalist deal would result in too big a squeeze. An agreement that extended tax cuts only for the middle-class, for instance, would imply a tightening of some 3% of GDP in 2013. That is too fast.
To preserve the recovery, a deal must be less draconian. It should focus on long-term entitlement reform rather than short-term cuts. That is good politics, since overhauling entitlements is a Republican priority. And it is good economics. Spending on the old will rise faster in America than in most other rich countries. That is partly because Europe’s austerity plans have already delivered some fairly tough pension reforms, but mainly because America’s health-care costs are so high and rising fast.
A big deal
Mr Obama has the opportunity to fix this and to reform entitlements—something that has eluded every president since Ronald Reagan. The combination of his re-election and the fiscal cliff has forced the Republicans to show some flexibility on increasing the tax take. That victory has given Mr Obama leverage over the left of his own party. If he uses it to force real change, from lower indexation of pension payments to tougher means-testing of health-care benefits, he will transform America’s long-term fiscal outlook.
So far the president has shown lamentably little boldness, arguing that pensions should not be part of any deal and that health-care costs can be controlled by reducing payments to providers, such as hospitals (as opposed to cutting benefits). In private, things may be different. Mr Obama is said to want a big deal that not only averts the fiscal cliff but sets America on a sustainable fiscal course. Such a deal is within his reach. He should grasp it.
via economist.com
Obélix among the Belgians | Katonah-Lewisboro Real Estate
Gérard Depardieu, the French actor, has said he is giving up his passport in an escalation of his dispute with François Hollande’s Socialist government over its punitive tax rates.
In an open letter to Jean-Marc Ayrault, the French prime minister, on Sunday, Mr Depardieu said he was quitting France for Belgium because “you consider that success, creativity and talent … must be sanctioned”.
The move by the 63-year-old film actor, who is popular in France after playing roles such as Cyrano de Bergerac and Astérix the Gaul’s sidekick Obélix, would be the highest-profile departure since Mr Hollande imposed a 75 per cent tax rate on people earning more than €1m a year.
“I hand over my passport to you and my social security card, which I have never used,” the letter said, referring to prime minister Jean-Marc Ayrault.
It is unclear whether Mr Depardieu has taken concrete steps to renounce his French citizenship though he has reportedly inquired about procedures for acquiring Belgian residency.
In his letter, Mr Depardieu said he had paid 85 per cent taxes on his revenues this year and estimated that he had paid €145m in total since he started work as a printer at the age of 14.
Bernard Arnault, chief executive of LVMH and France’s richest man, has also sought to establish residency in Belgium, though he has insisted this is not for tax reasons.
David Cameron, the British prime minister, offered to “roll out the red carpet” to French tax exiles after Mr Hollande’s election in May, though much of the evidence of departures has remained largely anecdotal so far, with estate agents and hairdressers complaining about the loss of custom as bankers quit Paris.
Other business leaders such as Jean-Paul Agon, chief executive of L’Oréal, have warned of the damage to France as a global business destination from the new tax rate, which the government says is temporary while the economy recovers.
Mr Depardieu, who has put his luxury house on Paris’s Left Bank up for sale for an estimated €50m, had been labelled “pathetic” and unpatriotic by Mr Ayrault after it emerged that he was planning to leave the country.
In his angry letter, published in Le Journal du Dimanche newspaper, Mr Depardieu said he had been “insulted” by Mr Ayrault.
“I haven’t killed anybody, I don’t think I have acted in an unworthy manner. I’ve paid €145m in taxes in 44 years, I have created work for 80 people in businesses that have been created for them and which are managed by them. I’m not complaining or looking for praise but I reject the word ‘pathetic’.”
The actor added: “Who are you to judge me like this, Mr Ayrault? I ask you, who are you?”
The furore has taken place amid evidence of the increasing unpopularity of Mr Hollande’s government, including from the left after its perceived capitulation during a dispute with ArcelorMittal over the closure of two steel furnaces.
Ifop, the French pollsters, said at the weekend that Mr Hollande’s public approval rating was just 37 per cent and Mr Ayrault’s 35 per cent.
Dear All,
Let me see if I understood well. CB’s printed money to keep the Oligarchy intact and the whole Socio-economic structures exactly as it was before the crisis. This means that in practice nothing changed in terms of who has the power.
We have in place the same people who did the bad decisions and the bad investments and who to save their own positions have literally messed up the lives of the ones who had foreseen and advised what had to be done before the crisis. had the CB’s not put a penny in the system and let it fail wll the current Establishement would be now failing and in disgrace. Insurance companies would have gone broken and also many of the asset managment companies and the banks and in this way the so called billionares would have a high probability of being in the best of the cases millionaires.
Only the few ones with access to liquidity would have been saved. People who would be honest and have their assets in a non-leveraged way would be saved and would probably be quite rich as they would be able to buy those expensive assets for peanuts.
The good ones would have been the ones gettiong the world. Now what we have is the richers even more richer having used the money from the rest to keep the Status Quo just like it was…. and they do not want to understand that they have been bailed out…. at the cost of the good ones….
What a mess!!
Mr Depardieu is certainly right in not wanting to pay 75% in taxes…. but I am not sure he is well aware of how much he would have lost if the crooks would not have been saved by the current crooks in power…
What a robery!!
Many thanks, Best regards, A_Reader
The French socialist revolution is going to sink France into depression. How can one dream of grandeur in a country that will Robin Hood your money to feed government bureaucrats? It doesn’t even make its way to the poor. France declared war on finance and rich people. They certainly have every right to flea the country under asylum rules. Will France succeed as a country of technocrats, striking unions and whiners? Let’s see.
Pathetic are Ayrault’s personal attacks and Hollande’s leadership.
Ayrault and Hollande have taken a sharp left turn, their road leads to serfdom and poverty, their sermons of ‘high taxes are patriotic’ nothing more than Orwellian ‘slavery is freedom’ and ‘ignorance is strength’.
Merci, Mr. Depardieu, for having the courage to stand up, speak your mind and walk out in protest.
Not much to add to Depardieu´s very good letter. One cannot help but feel contempt for a government which pushes people out of their own country. Arrogant, resentful and short sighted the Hollande team represents the worst kind of conservatism: no ideas, no courage, just slimy and cheap populism.
Obviously he is just a greedy unpatriotic old man Who for some reason is unhappy with retaining a generous 15% of the income he had earned. The real question here is why let him keep that 15% . Why not make the tax 99% of income or better yet get it over with and take 100% of what he earns. If he does not comply we can assassinate his character.. to start with. From each according to his means, to each according to his needs. Clearly the government can redistribute that money in a better fashion than he can. Hmm. Where have we seen this kind of model before? Anyway I’m sure it will work out fine.
At 75 PCF tax revenues will still fall short, so what then 85 pct, 90 pct, perchais thé lot.
The rich in the USA are kicking and screaming about a modest tax increase from 35% to as much as 39% and consider the new rate would be crippling. Is it any wonder that the sensible wealthy like M. Depardieu are fleeing France when faced with a ridiculous rate of 75%?
Well done, Gerard, for showing some common sense and sending a message to the lunatic left in Paris and let’s hope that more like you leave France in the immediate future until Holland et co get the message that this super tax and other measures they are taking are doing irreparable damage to the French economy. Once the wealthy businessmen flee the country and take their businesses with them, they won’t be coming back.
According to a survey carried out by Ipsos in 2011 in France, 66 % of French parents would like their children to become civil servants “fonctionnaire”. In other words they want their children to be paid by other people who create wealth. To finance those ambitions a tax rate of 75% seems roughly right.
The current Socialist government has no new ideas. It’s still following the OLD prescriptions. There is nothing in the policies of Hollande’s government to help young people start new businesses. Young people in France suffer disproportionately high unemployment. They work on lousy temporary contracts for low wages. They’re ambitious and want independence (i.e. starting their own businesses) just like lots of young people around the world. But France’s regulations make it so hard and expensive for a young person to do that and now, the government, via its increased taxes, has just made it impossible for these new businesses to raise capital. Many young, smart, ambitious people are leaving France. And it’s not because they’re greedy. They just want to have a decent chance to start something of their own.
Let him go.
When you are rich you can decide where to reside. This is a benefit of being rich and when you are rich enough you will decide where you want to live, whatever the income tax..
I have several friends who left UK to avoid tax. Of course the UK does not control how often they are in UK so it is an easy scam. Still they worry when they cross the border.
Personally I am rich enough that I do not care about the tax rate and I live where I choose. Luxury!
Tax avoidance is for the in-betweens.
Yes, the wealthy should pay their fair share towards society, but paying 85% or even 75% in taxes is simply daylight robbery. No sane government should imagine that it can take away half or more of anyone’s income. Psychologically not holding onto half of what you earn is simply going to enrage most people and cause them to take evasive action. The French smash and grab is a lazy way of dealing with the real issues.
Having said, the current capitalist system is surely broken and we need a different form of capitalism, but again, grabbing 50% or more of what a person or company earns is not the way to go.
via ft.com
Everyone loves a low mortgage rate, especially the Fed | Katonah NY Real Estate
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Expiring law pushes short sale spurt | Katonah NY Real Estate
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Rising home prices signaling ‘recovery’ | Katonah Realtor
Rising home prices signal ‘recovery,’ analysts sayU.S. home prices rose in September for the sixth straight month, despite seasonal weakness, signaling that the housing market is “in the midst of a recovery,” according to the S&P/Case-Shiller home-price index released this week. The index that looks at 20 cities showed that prices have gained 3% over the past 12 months, echoing other recent positive housing data, such as gains in new construction and existing-home sales. However, despite recent increases, prices are about 30% below peak levels in 2006. And the housing market still faces challenges from shadow inventory, and tight credit standards.Read more about home prices.Sandy hits new-home sales Sales of new single-family homes in the U.S. ticked down in October, with a large drop in the hurricane-hit Northeast while there was a record surge in the Midwest, according to data released by the U.S. Department of Commerce. By region, sales in October fell 32% in the Northeast and 12% in the South. Monthly sales rose a record 62% in the Midwest and 9% in the West. While the new-home-sales data are volatile on a monthly basis, a trend over the last few months has been steady, showing an average U.S. annualized rate of almost 370,000. That average rate is up 17% from a year earlier, but far below a peak rate of almost 1.4 million in 2005.Read more about new-home sales.Third-quarter growth revised higher, but…The government’s estimate for economic growth in the third quarter was revised higher this week, but the news wasn’t entirely rosy. A large portion of the higher estimate is due to inventories, which can be positive or negative. If these goods are sold soon, then the inventories were a good bet. If not, companies will have excess supply on their hands. Read more about GDP.Residential investment grows in third quarterThe economy’s expansion in the third quarter was also due, in part, to faster growth in the housing sector, government analysts said. In the third quarter, residential fixed investment grew at an annualized rate of 14.2%, compared with 8.5% in the second quarter. However, looking longer term, this sector has lost much of its heft. Residential fixed investment— which measures purchases of homes — currently accounts for about 2.5% of the economy, down from a bubble peak of more than 6% in 2005. Read more about GDP. Breakdown of GDP
After consumption was largely responsible for growth in the second quarter, there was a more evenly divided split between consumption, investment and government spending this time around. The big push behind government spending is a one-time boost in defense spending, so that is not likely to be sustained in the fourth quarter.
3 overlooked real estate benefits | Katonah Real Estate
Recently, I took a brief, self-imposed retreat to work on some involved, important and frankly, neglected, projects. I left a tad bit late, which put me right in the worst of the commute-hour, end-of-week traffic, which is particularly bad in the direction I needed to drive.
It turned what should have been a two-hour drive into a three-hour odyssey. But I noticed how, right at the two-hour mark, my route took me onto one of the most scenic of California’s coastal highways. So I spent the last hour (the extra hour that had been tacked onto my trip unnecessarily) watching the sky turn from bright blue to golden, auburn-ey red-oranges and purples as I saw the sun set over the Pacific Ocean.
When I checked in, the concierge asked me how my drive was, and I told him, “Longer than expected, but I’m glad that it was because it gave me the chance to see the sunset that last hour driving down Highway 1.” He sort of looked at me strangely and said, “Wow, I’ve never heard anyone say they were grateful about traffic,” shook his head and carried on with his work.
The fact is, I’m rarely unencumbered enough, in terms of obligations on my time, to see a sunset, so I was particularly aware of how fortunate I was. And this is common: Since the time I broke my foot, I’m ecstatic to be able to work out and run. Mark Nepo, a famous poet and one-time cancer patient, has written about how grateful he is to see the lawn keep growing back in order to need mowing — something he once perceived as relentless, and a reason to complain.
All this came to mind when I was having a conversation with a couple of homebuyers recently around the subject of trade-offs. It became crystal clear, during our talk, that they were struggling to reconcile their conflicting wants and needs between themselves, but, more importantly, within themselves, creating an internal war and state of being stuck when it came to committing to a firm direction in which to proceed with their house hunt.
As I explained that everyone compromises (no matter whether they are spending $50,000 or $50 million on their home), it became apparent that these folks really just needed some help seeing the upsides of some of the seeming compromises they were contemplating.
Here are a few of the most overlooked trade-offs and hidden benefits in real estate:
Older construction → maturity of home and neighborhood. Some people like old homes, while others like new ones. My personal preferences tend to run to older homes, but I grew up in an area where no one buys anything but brand new, if they can avoid it.
The advantages of a newer home are pretty obvious: modern conveniences and construction, among them. But most people think older homes are a purely aesthetic indulgence. What they overlook is that older homes and the neighborhoods they are in have already settled, so that their mature state is clear to the buyer to be. That may mean they have already physically settled, surfacing any condition problems so that what is unknown is minimal. And with respect to older neighborhoods, the trees have matured and the nature of the area has as well, so you find less dramatic shifts with older neighborhoods than you do with new ones.
“Inconvenient” locations → quiet and privacy. Living right in the mix of things has obvious advantages, in terms of convenience of commute and nearby amenities, plus the energy downtown runs at a higher vibration than elsewhere. But having lived right in the heart of a bustling quasi-commercial district and having lived in the way-out hills has made clear to me the upsides of living in a less convenient location, namely peace, quiet and privacy.
A buyer’s desire for these qualities can evolve as he moves through the stages of life.
When I first got out of college and apartment living, I craved quiet and was willing to drive a ways to get to the grocery store to get it. After a few years, though, I was ready to be closer to other people and activities.
In any event, it’s critical to understand the multisensory trade-offs of picking a super-convenient, commutable or even highly walkable location or a less convenient locale, in terms of noise and serenity.
Mortgage interest → tax deduction. At the depth of the trough in home values a couple of years back, most homeowners I know busied themselves refinancing their home loans at all-time low rates and appealing the assessed values of their homes to have their property taxes lowered. What many failed to realize until a year later was that these numbers they had reduced were also the basis for their largest income tax deductions: the mortgage interest and property tax deductions. Long story short, as these costs went down, their income tax liability went up.
This is not to suggest that anyone should pay a single cent more than they need to for mortgage interest or property taxes — that would be foolish. However, when the thought of paying mortgage interest or paying property taxes gets you down, it bears reminding that these costs of homeownership are also the basis of the pretty amazing tax advantages that come with this version of the American dream. And that can make signing those checks just a little bit more palatable, sort of like sitting in traffic as you drive down the coast.
via inman.com
