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.

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.

Obama’s new bank tax: Is it even enough to cover the social losses?

Motivated by growing clamor to have major U.S. banks answer for their extravagant bonuses to their top executives despite the American public reeling on a 10% unemployment rate, the White House is set to announce a tax policy targeting the banks  which is seen to collect around $90 billion over a span of 10 years.

The amount is expected to cover the losses from the government’s $700 billion TARP, which analysts already believe have gone beyond $100 million.  Latest surge in the financial markets have given banks a huge boost in their profits which led to some of them to fully repay government the money they owe. This enabled the huge payouts for top Wall Street executives prompting harsh criticism from many fronts.

These financial institutions have forgotten that the same excesses were responsible for America’s worst economic meltdown since the Great Depression that left many Americans homeless and unemployed. This new taxation, which Obama will likely have no problem in getting approved in a Democrat-controlled Congress, might cover part of the money lost during the bailout but in no means will bring back the homes of millions of Americans virtually making many suburban areas across the States like ghost towns.

Time Person of the Year not going to bail Bernanke, Fed out

I watched Republican senator and last year’s U.S. presidential election aspirant Ron Paul two nights back on CNBC Squawk Box castigating the Federal Reserve for their seemingly mishandling of the financial crisis. For him the institution has become outdated and irrelevant in this modern age of complex financial products. I thought he was just in his usual maverick mood as the panel were pretending to be interested in his theories when in fact they were aching for the queue to call for a commercial.

Little that I know, since I have spent less time watching the news lately because I have a lot on my plate at work, that there has been a clamor in the U.S. Congress to curb the powers of the Federal Reserve amidst questions of their handling of taxpayer’s money to bail out Wall Street  in the height of last year’s financial collapse.

This comes as as Fed chairman Ben Bernake was hailed by Time Magazine as Person of the Year for 2009 for his role in bringing the United States economy out of recession. Expectedly, this has been met with criticism just as how people questioned President Barack Obama’s winning of the Nobel Peace prize last week.

Although Bernanke is set to be nominated anew as chairman of the central bank, he will probably be ushering a new age for the institution where it will no longer enjoy the autonomy it used to have after it was acknowledged for its failure to stop the American economy’s descent  to its worst financial crisis since the Great Depression.