What to do with the Bush tax cuts?

Fresh from the Thanksgiving celebrations, politicians in Washington are set to meet this week to determine the future of the Bush tax cuts that are set to expire at the end of the year.    

President Obama hopes to sit down with bipartisan Congressional leaders to decide whether or not to let the tax cuts expire, which many agree will be a crucial decision considering the fragile economic recovery in the United States.

The summit, which was supposed to be held last month, is not expected to result to any finalized agreement but rather will begin a series of discussions between the Democrat president and a Republican-led Congress. Both the White House and Capitol Hill agree that raising taxes at this point would be detrimental particularly to middle income Americans.

The Democrats, who were “shellacked” in the recently held mid-term elections, earlier proposed a tax hike measure to households earning over $250,000 a year. This is especially tricky since several analysts predicted this will hit small businesses which are considered the lifeblood of the economy that is currently suffering from unemployment of near 10 percent.    

There is also much speculation whether the current “lame-duck” Congress can achieve something significant regarding the tax cuts debate although some quarters see the Bush tax cuts will be extended for another 2 years in time for the next presidential polls.

Will the Eurozone Break Up?

Europe is no doubt in the age of austerity and as efforts are being made to lead the region back to recovery, an underlying drama continues to unfold threatening that progress. The eurozone in recent days has faced tremendous pressure as it tries to deal with the Irish crisis fanning rumors that the 16-nation common currency bloc will break up in the foreseeable future.

Just a few months ago, European Union (EU) leaders set up a $1 trillion emergency fund after they were forced to bail out Greece back in May. Now that the Republic of Ireland has demanded to tap into that loan facility, many argue that core members of the EU such as Germany are starting to have doubts whether their experiment of a genuine European single currency is actually working.

Defenders of the euro of course will immediately strike down such claims even as international markets have become increasingly nervous with the possibility that Portugal and Spain will follow suit as countries lining up for aid from the European Financial Stability Facility (EFSF).

German leaders and taxpayers are beginning to be impatient and have lately been tough against weaker members of the eurozone saying they need to clean up their house and warned that the euro was in seriously bad shape. This has irked some members of the European Central Bank stating Germany should tone down their alarmist stance and try to look beyond the surface and understand the deeper root causes of the problem within individual states.

Competitive imbalances are often blamed for the problems in the region. Germany for example enjoys a trade surplus compared to Portugal which has a forecasted current account deficit of 8 percent of gross domestic product (GDP) in 2012.  Bond yields in Spain and Portugal are now at record highs diminishing their respective governments’ ability to pay off their debts without external aid.

Economists are hoping that both countries will survive the crisis and prevent another Greek- and Irish-style meltdown. However, if they do indeed fall in the same hole, questions will definitely mount whether there are more countries to follow and how long will the richer countries in the eurozone bear the burden.

Although the idea seemed inconceivable just a few weeks ago, the eurozone may soon see itself without Germany who will reintroduce the deutche mark or the eurozone may get rid itself of weaker members in order to have a more homogenous and more equal membership. SE6Q68XBG4YA

A backgrounder of the Korean conflict

World leaders lined up to condemn the hostilities in the Korean peninsula which caused the death of two South Korean soldiers and injured dozens more after North Korea shelled the island of Yeonpyeong. This is just eight months after the communist North sunk a South Korean warship which was also viewed then by many as an act of provocation by the Kim Jong-Il regime.

Technically, the war between the two Koreas, which goes all the way back to the 1950s, is still ongoing and only a Cold War-era armistice, which eventually separated the two states, is the thing that kept an all-out war from breaking out again although a few skirmishes have erupted in between.

For centuries, the Korean peninsula was under the influence of foreign powers including China and Japan. When the Second World War was nearing its end, the Soviet Union and the United States took their respective claim in the area as they tried to chase away the Japanese forces out of the country.

The northern part of the 38th parallel belonged to the Soviets in which they created their own communist state while the southern part came under American occupation. As the North became stronger militarily and economically under the guidance of the Soviets and communist China, they decided to invade the struggling South with the aim of unifying the two Koreas under a Marxist system.

The United States and its allies came to the South’s aid but found themselves not only fighting the North Korean army but also against the Chinese, who came to the side of its communist neighbor. As the war wore on, it eventually became unpopular among the American public and as the new Eisenhower administration took rein in Washington, it signaled the start of a possible end to the war.

After a final toll of 2 million casualties, a truce was signed setting the border back to its pre-conflict site at the 38th parallel. Until now, the area surrounding that zone is still one of the most militarized areas in the world as the two countries are still technically at war.

Today, South Korea is among the world’s economic powers and a leader in exports and technology advancement. North Korea claims itself as a military state and has constantly been under scrutiny by the international community for its armed nuclear programs and human rights abuses.

It is quite understandable that the North will provoke such incidents, like the one that just happened in Yeonpyeong because the basis of their existence is essentially to achieve military victory. What is crucial is how the South will respond and how long its patience will last from the constant bullying by the communist regime.

The Irish bailout explained

Economies all over the world have set their eyes on Ireland over the course of the week. For many, the decision that will be made by the European Union (EU) and multinational lending agencies will determine whether Europe’s “road to recovery” will continue or will face a standstill. Many ordinary citizens are now asking what really happened over there.

Ireland is one of the eurozone’s economic darlings in the past decade and for most part of this century. Economic growth was generally high from 1995 to 2007. When the global economic crisis erupted in 2008, the Irish economy contracted significantly and unemployment rose sharply.

Irish banks likewise suffered as in the case of other states in Europe during the crisis. The Irish central bank has been pumping cash into these banks to keep them afloat which in turn shore up the country’s public deficit.

The EU and the International Monetary Fund (IMF), aware that this condition if allowed to continue could potentially be perilous not only for Ireland but for other economies in the eurozone facing similar problems, offered to step in during these past few days. An emergency loan facility for Ireland amounting to an estimated 100 billion euros is expected to be announced any time soon.    

As expected, there are pros and cons for the bailout. Some analysts maintain that an “early” bailout could avoid further complications for Ireland and could stabilize countries like Spain and Portugal, which are also having debt problems of their own.

Skeptics of the plan, meanwhile, believe that Ireland will be left with no choice but to follow IMF-dictated austerity and revenue generating measures including increasing their generous corporate tax rates, one of the most competitive in Europe, in order to contain their ballooning fiscal deficit which is now expected to stand at a third of the gross domestic output after the bailout.

Markets in Europe, North America, and Asia are keenly anticipating how the drama will unfold. Since word has gone out that a bailout package is in the works, it has somehow assuaged the fears of many that the global economic recovery will take a little while more rather than sooner.

APEC leaders out to explore possibilities of the TPP

As the Asia Pacific Economic Cooperation (APEC) gets underway this weekend in Yokohama, Japan, there is one trade agreement that stands out in which participants are keen on inserting in this year’s summit’s working agenda.

The Trans Pacific Partnership (TPP) was given a boost by U.S. President Barack Obama as something that could lay the foundation for a free trade area in the Asia Pacific region. The TPP currently includes just four economies including Brunei, Chile, New Zealand, and Singapore but other major economies like Australia, Malaysia, and Vietnam are already in negotiations to secure membership.

President Benigno Aquino III hopes to get the Philippines an invitation in the negotiating table during the sidelines of the APEC summit.

Obama’s declaration of interest for the TPP could be a sign that America does not want to be left out of the free trade game led by China and ASEAN. With the Doha round of WTO talks still inconclusive, many analysts feel that the TPP is the only bright spot for free trade in a world economy seeing a rise of protectionist policies in recent weeks.

Myanmar’s junta will be less threatened if they prioritize economic development than political ideology

Myanmar has once again caught the world’s attention because of the conduct of their elections. A few predict the polls will be fair and neither the United States nor the European Union expect drastic changes will occur in the leadership in the capital Yangon where the military junta is expected to stay in power.

The pro-democracy National League for Democracy (NLD) party has boycotted this year’s elections and maintains the results were rigged. In addition, there were still no guarantees yet made for the release of their leader Aung San Suu Kyi, who continues to be in house arrest since 2003.

Recent clashes between the government troops and ethnic fighters have brought thousands of Burmese running for cover near the Thai border. Although clashes have ceased, it was another embarrassment for the junta government which continues to crush any form of opposition by any means necessary.

Despite this, Western business speculators, however, are said to be lining up to get a piece of Myanmar, known for its rich and largely untapped energy resources. If the military leaders would follow the path made by Vietnam and Cambodia to open up to the West and create a role for free markets, they can improve their country’s economic condition and the same time maintain power.

As long as the government neglects economic development, they will continue to be threatened by internal and external factors. Thus, it is crucial for the military leaders in Yangon to redirect their efforts in stimulating economic activity by engaging with foreign business and governments that could support their national interest for providing prosperity for the Burmese people.

QE2 puts US under pressure in G20

Ahead of the Group of 20 (G20) meeting in Seoul, South Korea this week is a brewing war of words between several of the grouping’s major players including the United States, China, and Germany. This came after the announcement by the U.S. Federal Reserve that it was pouring $600 billion of freshly printed money into the economy by buying treasury bonds in what is commonly known as quantitative easing (QE2).

The stimulus package aims to kick start the slow U.S. economic growth but is viewed by the European Union as well as other emerging economies, including the Philippines, as a threat to their economic recovery. Analysts have predicted that these funds will eventually find its way offshore where yields are much higher because the U.S. Fed has since implemented record-low interest rates to boost domestic economic activity.

The fragile economic recovery in Europe and in the emerging economies will likely face inflationary pressures due to inflows of “hot money” from the United States and many of them have already taken precautionary measures in order to safeguard their economy. Despite criticisms from abroad, U.S. President Barack Obama has recently defended the move by the Fed saying that the recent stimulus package is crucial since it would enhance liquidity in the financial system giving incentives for banks to lend again which would lead to higher economic activity and put millions of unemployed Americans back to work again.

President Obama, fresh from a mid-term election “shellacking” of his Democratic Party allies, is now in India to forge better ties with another rising Asian power India. The South Asian country is also a member of the G20 and is seen by Obama as a strategic economic and political ally in Asia where China is fast becoming a dominant figure. Obama has called for a permanent Security Council seat for India, a foreign policy move largely seen to check the growing power of China.