http://uk.reuters.com/article/2012/11/07/uk-japan-economy-abe-idUKBRE8A60L020121107
http://www.zerohedge.com/news/2012-11-28/top-ten-fiscal-cliff-do-list
Submitted by Tyler Durden on 11/28/2012 20:26 -0500
LDP leader Abe: BOJ must ease until inflation hits 3 percent
TOKYO |
Abe's Liberal Democratic Party (LDP) leads in opinion polls, which puts the former prime minister in pole position to become the next premier in an election expected within months.
"The Bank of Japan basically needs to continue unlimited easing till 3 percent inflation is achieved," Abe told a gathering of business executives and academics, stressing that beating deflation and countering the yen's strength were Japan's most urgent economic policy issues.
He noted that although 3 percent looked like a good target, further discussion was needed and it would be up to the central bank to decide what measures to take.
Analysts, however, question the practicality of Abe's demands. "Setting an inflation target is advisable but a 3 percent price target is too high, and it will be very difficult to achieve by BOJ monetary easing alone," said Koichi Haji, chief economist at NLI Research Institute. "It would have an adverse effect on the economy."
The BOJ set a 1 percent inflation target in February and has faced growing pressure from the ruling Democrats for more monetary stimulus to prop up an economy mired in a decade-long deflation and on the brink of another recession.
The central bank has boosted its asset-buying programme four times this year and last week twinned the latest stimulus with an unprecedented joint statement with the government pledging continued efforts to end deflation.
Abe's comments raised the stakes in politicians' efforts to commit the central bank to even more aggressive steps.
He said that if his party returned to power he would consider revising a law guaranteeing the BOJ's independence to allow the government more say in shaping central bank policy.
"Monetary policy has been becoming an increasingly political issue," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. "But it is still uncertain whether what he said will become the LDP's election pledge at the moment."
Japan's Prime Minister Yoshihiko Noda promised in August to call an election "soon" in order to secure opposition votes for key piece of legislation, but he has been coy on exactly when he will call the election for the lower house, which must be held by August next year, with the opposition pressing Noda to keep his promise.
Japan's opposition-controlled upper house is also expected to hold an election next summer, which could further strengthen Abe's hand.
Latest data showed Japan's core consumer prices fell for the fifth straight month in September, factory output suffered its biggest fall since last year's earthquake while the government's index of leading indicators fell to a level suggesting the start of a recession.
Some market players also speculate that the central bank will ease again this year, possibly in December, to help the struggling economy with a strong yen.
and from europe.....
http://www.bloomberg.com/news/2012-11-28/eu-nations-clash-on-thresholds-for-direct-ecb-oversight.html
EU Nations Clash on Thresholds for Direct ECB Oversight
By Jim Brunsden & Rebecca Christie - Nov 29, 2012 5:21 AM ET
The European Union is quarreling over thresholds on how big euro-area lenders must be in order to be designated for direct oversight by the European Central Bank, according to draft proposals.
Nations are at odds over three different size thresholds, according to the document drawn up by Cyprus, which holds the EU’s rotating presidency. Some countries are seeking to set the bar as low as banks with more than 2.5 billion euros ($3.2 billion) in assets, while others are calling for divisions at 20 billion euros or 60 billion euros, according to the text, dated Nov. 27 and obtained by Bloomberg News.
Governments are racing to meet an end of 2012 deadline to set up a single supervisor at the Frankfurt-based European Central Bank. Photographer: Simon Dawson/Bloomberg
States are also split over having direct ECB supervision triggered by a ratio between a bank’s assets and the gross domestic product of its home country, according to the proposals, intended to forge a deal on the supervision plan. Suggested thresholds in the text put the tipping points at assets of more than 20 percent, 50 percent or 75 percent of GDP.
Governments are racing to meet an end of 2012 deadline to set up a single supervisor at the Frankfurt-based ECB. EU finance ministers will meet next week to seek compromises on the bank-oversight plan, which the bloc’s leaders have labeled as an essential step to break the bank-sovereign link that has worsened Europe’s debt crisis. The draft document didn’t reveal what nations held what positions in the talks.
All Banks
Direct ECB oversight would automatically apply to any lenders with cross-border presence, under the draft plans. The ECB would have powers “at any time ” to sideline national regulators and take over direct supervision of any bank, according to the proposals.
Dutch Prime Minister Mark Rutte yesterday urged the EU to press ahead with the new banking supervisor, starting with banks that already receive aid and broadening to expand all banks.
“We believe it should be built,” Rutte said in an interview in Amsterdam. “In the end, I believe you need to have some way involving all the European banks, the problems didn’t start with Santander (SAN) in Spain, they started with the cajas, which are the small local banks.”
Spanish Banks
The supervisor must be in place before the euro area can consider giving banks direct aid from the euro area’s rescue funds. Governments must currently take responsibility for loans from the firewall fund, such as Spain’s 100 billion-euro financial-sector rescue.
There is a “fundamental inconsistency between the single monetary policy of the euro area and the national responsibilities for banking policies,” said ECB executive board member Benoit Coeure, in a speech in Hong Kong yesterday.
“The need to sever the negative feedback loop between banks and sovereigns by taking responsibility for the stability of the banking system at European level has become clear. ”
Coeure said the ECB will delegate many tasks, “probably most of them,” to nations. At the same time, this should be “within a centralized decision-making process and according to a single handbook,” he said.
The ECB said it needs “control powers” over the whole supervisory system for the new oversight to work, according to a legal opinion from the central bank.
‘Full Recourse’
The central bank said it should have “full recourse to the knowledge, expertise and operational resources” of national bank regulators.
When delegating to the national banks, the ECB shouldn’t give up its own right to step in, the legal opinion said. The ECB should “without prejudice” be able to “provide guidance and instructions, or assume the tasks of national authorities when duly required,” the central bank said in an opinion published on its website.
ECB Vice President Vitor Constancio has said that the ECB is against a two-tier system that prevents it from overseeing some banks.
The revised plans drawn up by Cyprus would keep some power with national regulators over banking licenses, and authorizing mergers, while giving the ECB a 10-day period to veto decisions.
The Cypriot proposals also seek to address concerns from non-euro area countries that they would lack a voice in ECB decision making if they sign their banks up for joint oversight.
Anders Borg, Sweden’s finance minister, has said that the EU may have to change its treaties to prevent non-euro nations being second class members of the system, because current rules ban them from sitting on the central bank’s governing council.
Under the updated proposals, non-euro countries could opt- out of ECB decisions they disagreed with. The ECB would then determine whether non-compliance means the countries’ banks should be removed from the common oversight system.
and regarding the Fiscal Cliff , Erskine Bowles isn't optimistic a deal gets done by 12/31 despite the happy talk and photo moments our leaders have......
Bowles Says Fiscal Cliff Deal Unlikely by End of Year
By Heidi Przybyla - Nov 28, 2012 12:19 PM ET
The co-chairman of President Barack Obama’s 2010 fiscal commission said it’s unlikely the president and Congress will reach a deal by the end of this year to avert the so-called fiscal cliff.
Erskine Bowles, also a former chief of staff to President Bill Clinton, estimated there is a one-third probability the sides will strike a deal by the end of this year. Speaking today at a breakfast in Washington sponsored by the Christian Science Monitor, he said there’s another one-third chance that all sides will reach a deal early in 2013.
Erskine Bowles , co-chairman of the fiscal panel and a former chief of staff to President Bill Clinton, estimated there is a one-third probability the sides will strike a deal by the end of this year. Photographer: Andrew Harrer/Bloomberg
Nov. 28 (Bloomberg) – Erskine Bowles, co-chairman of President Barack Obama's deficit-reduction commission, talks with reporters in Washington about business leaders' meetings today with President Barack Obama and lawmakers on the so-called fiscal cliff. (Source: Bloomberg)
Nov. 28 (Bloomberg) – Erskine Bowles, co-chairman of President Barack Obama's deficit-reduction commission, talks with reporters in Washington about his meeting today with House Republicans on the so-called fiscal cliff. (Source: Bloomberg)
Nov. 28 (Bloomberg) -- Neel Kashkari, head of global equities at Pacific Investment Management Co., talks about the outlook for efforts to avert the so-called fiscal cliff, and investment strategy in Honda Motor Co., Obrascon Huarte Lain Brasil SA and Marathon Petroleum Corp. Kashkari speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
| Sponsored Links | |||||||
|
Get our free report to see what you can do before 201...
| |||||||
|
High Yield Savings Account With No Fees And Competiti...
| |||||||
|
Customize and configure a 2013 Tiguan. Compare now at...
| |||||||
| Buy a link | |||||||
“I’m really worried,” Bowles told reporters. “I believe the probability is we’re going over the cliff.”
Bowles isn’t involved in the budget negotiations, though he said he met with Obama yesterday. He also was among a group of company leaders who met today with House Republicans. Following the meeting, Bowles told reporters he sensed no greater willingness by Republicans to let income tax cuts for high earners expire Dec. 31 as Obama is demanding.
“We’ve got a very long way to go and very few days to get there,” he said. Bowles didn’t describe his conversation with the president.
‘Real Quick’
“There’s no scientific basis for me to say one-third, it’s just what I feel having spent my life as a negotiator,” Bowles said. As “people begin to react” and economic news comes out in the fourth quarter, there’s another one-third chance “you get something done real quick” in 2013, he said.
“That’s still leaves that one-third that we could actually have real chaos and no deal, and I think that would be a disaster,” Bowles said, a message he said he relayed to Obama.
While House Speaker John Boehner today reiterated his opposition to touching income tax rates, he also said he is “optimistic” that talks with Obama will continue.
The bond market isn’t showing anywhere near the same level of concern.
As the national debt has soared to more than $16 trillion from less than $9 trillion in 2007, U.S. borrowing costs have tumbled.
The yield on the 10-year note touched a record low 1.379 percent on July 25, down from more than 5 percent in mid-2007 before the financial crisis. The super-low yields have pushed rates for mortgages, car loans and corporate borrowing to historic lows.
‘Sticking Points’
The “sticking points” for a budget deal are the president’s call for $1.6 trillion in new tax revenue and the fact that “there’ve been no serious discussions” so far on changes to entitlement programs, Bowles said.
Based on his White House meeting yesterday, Bowles said, he also believes there is “flexibility” in the president’s call to let George W. Bush-era tax cuts expire for the wealthiest Americans.
“I didn’t sense it, I heard it” directly from Obama, he said. Bowles said while Obama believes the major portion of revenue should come from ending the tax cuts for the top 2 percent of taxpayers, a plan also could include limiting some deductions and credits, an approach favored by Republicans.
The Campaign to Fix the Debt, founded by Bowles and former Republican Senator Alan Simpson of Wyoming, is working to gather corporate and grassroots support for a bipartisan plan to cut the U.S. deficit by trimming entitlements and increasing revenue.
Beyond the jibber jabber , here are the facts on the ground regarding the fiscal Cliff.....
The Top Ten 'Fiscal Cliff' To-Do List
The schizophrenia in US equity markets (and by correlation all risk markets) is nowhere better highlighted than the last 24 hours of 2% swings in the S&P 500 on nothing more than boiler-plate comments from DC. However, as BofAML's Ethan Harris notes, "the year-end fiscal challenges in the US are more like an 'obstacle course' than a 'cliff' -politicians must navigate about 10 major policy decisions before year-end." We continue to expect a messy multistage deal on the cliff - with some wishy-washy partial deal late December and more complete resolution (as it will be called) late Spring. We agree with BoFAML's view that until then, we suggest that investors fade the likely “press fakes” of an imminent deal, and brace for downside volatility. It seems to us that the negotiations remains stuck at square one.
Via BofAML: Cliff Note: Stuck At Square One
Obstacle course
In our view, the year-end fiscal challenges in the US are more like an “obstacle course” than a “cliff”—politicians must navigate about 10 major policy decisions before year-end.
More than three weeks after the election and they are still stuck at the first obstacle: the role of taxes in any deficit reduction agreement. What is the hold-up here? Isn’t there an easy deal that focuses on capping deductions? After all, both parties have been talking about this approach as a way to raise taxes on the wealthy without raising tax rates.
We see three reasons why it is proving very hard to overcome this obstacle:
- There is a very big gap in the starting point for negotiations.
- The results of this negotiation could set the tone for future deals.
- On the surface, capping deductions looks like a painless way to raise revenues, but it looks quite ugly upon closer inspection.
As we have been arguing for more than a year, we expect a messy multi-stage deal on the cliff, with a partial deal in late December and a full resolution only in the Spring. During this period, we suggest that investors fade the likely “press fakes” of an imminent deal, and brace for downside volatility.
A big gap
Any deal on the cliff requires an acceptance of the relative role of revenues and outlays in closing the budget gap. The official positions of the major players are miles apart. President Obama has proposed a roughly $4 trillion 10-year deficit reduction plan that is $1.5 trillion (or 40%) tax increases, mainly from allowing the Bush tax cuts to expire for upper income households. His plan has been roundly rejected by Republicans. They argue that most of the spending cuts are not real: his $4 trillion includes almost a trillion in savings that were already agreed to in the first part of the debt-ceiling agreement and almost another trillion in savings from the winding down of the war in Afghanistan. Stripping those items out, the tax increases become three-fourths of a $2 trillion deficit reduction plan.
By contrast, the two main House Republicans, speaker Boehner and Budget Committee chairman Paul Ryan, have suggested that spending cuts should account for all or the vast majority of the cuts. In his negotiations with the President in 2011, Speaker Boehner was apparently close to agreeing in principle on $0.8 trillion in tax increases, or 20% of a $4 trillion dollar plan. However, that deal quickly fell apart once it began to be fleshed out and vetted with the rank and file members in Congress. Moreover, the plan’s reliance on “dynamic scoring”- raising revenues by stimulating growth—has already been strongly rejected by Democrats. Paul Ryan has offered budgets in each of the last two years that include dramatic cuts in spending - including effectively eliminating all of non-defense discretionary spending - but no increase in taxes.
To reach a deal, the two parties must not only bridge a huge gap in terms of the tax share—somewhere between 0% and 75% - they must also agree on the same accounting system.
A big precedent
The outcome in this initial round of negotiations could set the tone for future deals:
- What is the percentage split between revenues and outlays?
- What kinds of revenue increases are acceptable?
- Will the deficit reduction be “dynamically scored”?
- Will the austerity be relatively big or small?
Members of both parties feel that their leaders have given too much ground in the past. Democrats were upset when President Obama agreed to extend all the Bush tax cuts. Republicans are upset about extending the payroll tax cut and extended unemployment benefits. For different reasons, neither party was happy with the outcome of the debt-ceiling debate: for some fiscal conservatives, any debt-ceiling increase was wrong and neither party liked the sequester.
For Democrats, there will never be an easier time to raise upper-income tax rates, since they are set to go up automatically at year-end. This is why many liberal leaning politicians and analysts are arguing that it is better to let all the tax cuts expire—go over the cliff—and then offer to restore tax cuts for just low- and middle-income families. At the same time, if they raise revenues by closing loopholes, it will be harder to do comprehensive tax reform later. On Medicare, there are limits to how much payments to providers can be cut without seriously impairing service. Moreover, as we have seen with the “doc fix”, if the cuts are too big, they simply become part of the annual mini-cliff.
Beauty is skin deep
On the surface, capping deductions seems like an easy compromise. It is less offensive to Republicans than raising tax rates. It is favored by Democrats because the vast majority of the revenue increase would come from the wealthy. And it avoids the politically messy business of identifying which deductions should be limited. Deal done. Let’s move on.
Unfortunately, there is no free lunch in deficit reduction - someone gets hurt. As former budget director Peter Orszag argues, the three most important deductions are mortgage interest, state and local taxes and charity1. Of the three, the most discretionary—or easiest to change—is charity.
How hard is the hit to charities? Americans give about $300 billion (2% of GDP) to charities every year. Most studies suggest at least some loss of funding if the deduction is capped. Indeed, a recent literature review shows “some evidence” that limiting “the tax deductibility of individual charitable contributions would fall entirely on charities themselves: taxpayers would cut their gifts by roughly the increase in their tax bill, reducing charities by an equivalent amount.” In other words, if the government collects an extra $10 billion by capping charitable deductions, charitable giving would drop by about $10 billion, or 3.3%.
By contrast, a rise in tax rates for the wealthy might actually increase charitable giving. On the one hand, higher taxes would have a negative “income effect” on charitable giving, as people would have less income to devote to all kinds of spending. On the other hand, higher tax rates create a “substitution effect” where the cost of each dollar of giving is lower. Thus, if the tax rate is 40% instead of 30%, it costs 60 cents to give a dollar to your favorite charity rather than 70 cents. A cap on deductions creates other challenges. As we have noted before, it tends to hurt people in states that voted for President Obama. Looking at the electoral map, states with high taxes and high home prices—such as New York and California—tended to vote for Obama. Raising upper income taxes through tax rates has a uniform impact on high-income families across the country, while a cap tends to target states with higher-than-average deductions.
Outlook
The debate over deductions underscores many of our themes around the cliff:
- A long and painful negotiation.
- A multi-step deal into the Spring is much more likely than a quick fix.
- Fade the various press fakes around alleged done deals.
- Don’t be surprised if deals fall apart once the details are vetted.
The markets have vacillated between complacency and concern when it comes to the cliff. After the Fed easing in the fall, the markets seemed to run out of steam as they started to look ahead to year-end. After the election, there was a quick sell-off when the reality of continued split government sank in. The market then rallied Thanksgiving week, when politicians went home for a full week of vacation. And, in the latest week, they are again in worry mode.
There could be a number of critical moments for the markets:
- If politicians remain stuck at square one for too long, then, at some point, the markets will lose patience.
- If some kind of deal can be struck on a combination of tax increases and spending cuts, then the focus will shift to the remainder of the cliff. What is going to happen to the payroll tax cut, unemployment benefits, etc.?
- Once they decide whether to ignore or extend these items, what about the debt ceiling? The Bipartisan Policy Center now estimates that the government will hit the ceiling in December and run out of gimmicks by February.
Finally, all this needs to be bundled into legislation. Vague agreements in principle will have to become specific. They will have to agree on the overall split between tax increases, spending cuts and “can kicking.” If this “sticker shock” phase goes poorly, politicians could accidentally go over the cliff. In sum: Running an obstacle course along a cliff can be dangerous.
No comments:
Post a Comment