Our Changing Globe

Archive for the ‘regulation’ Category

“Thanks”, or “no thanks” to Obamanomics, the U.S. is now losing its competitive edge with Europe, to say nothing of China and a whole list of other countries.

China has been moving in the direction of free-market capitalism for many years, and the benefits of the move have been spectacular.

China now has a two trillion dollar trade surplus, and it’s now America’s principal banker.

With every day that passes. the U.S. is more fiscally reliant on China, and it continually begs the Chinese to go on supporting it.

In the short run, the Chinese will, but the interest rate will have to be much higher and in the long run, they probably won’t.

According to Fortune magazine’s latest list;

a) The number of U.S. companies in the world’s top 500 fell to the lowest level ever.

b) More Chinese firms than ever made the list.

c) Thirty-seven Chinese companies now rank in the top 500, including nine new entries.

d) The number of U.S. firms fell to 140, which is the lowest total since Fortune began the list in 1995.

e) China surpassed the United States as the world’s biggest automaker in the first half of 2009. American sales were 4.8million vs. China’s 6.1 million which is a huge difference.

How Did China Do It?

a) China has no capital-gains tax and only a 15 to 20% corporate tax.

b) The United State intends to raise its cap-gains tax rate to 20% percent, and also increase its top personal tax rates.

Investment flows to its most profitable destination, provided it has a stable currency, but it can be moved with a couple of mouse clicks and Bush’s last year and Obama’s first several months have made the U.S. a turnoff when it comes to investment.

The highest taxes in the U.S. look likely to be around 50%, but in the OECD (Organization for Economic Cooperation and Development) they’re 42%!

If health care is nationalized which seem more and more unlikely at the time of writing it will consume around 15% of the U.S.’s economy and the energy proposals, another 15%.

As I write this;

a) Dow Jones stocks are down 8%

b) China’s stocks are up 71%

c) The world index is up 4%

d) Emerging markets are up 25%

Investment risk and work effort, are sadly no longer seen as rewarding, or as things worthy of pursuing in the U.S. and the increasing bureaucratic red tape and the current government’s policies on taxes, spending and regulation are causing the United States to lose more and more of its competitiveness in the global race for capital, prosperity and growth.

Put together, the seven biggest U.S. credit card issuers earned over $27 billion in operating profit in 2007.

Although banks can borrow at interest rates that are nearly as low as Treasury yields, they’ve been cutting credit lines and raising their fees, and the average annual percentage rate offered to new card customers in the U.S. is now 14.2 percent.

Just a few years ago, a booming economy kept loan losses in check and banks perfected marketing tricks and introduced the concept of teaser rates, and in just eight years Americans received around 44 billion pieces of mail jammed into their mail-boxes that promoted credit cards.

Now however, issuers are developing new models to calculate the fees and interest rates that they say are needed to cover the growing number of bad debts.

New rules are being put into place too, and if somebody who’s had a card for a long period suddenly uses it at a grocery store for the first time, then it’s quite likely that he’ll be flagged as a potential credit risk and be added to a watch list.

It’s perhaps understandable that banks need healthy credit card earnings to ensure their survival because they can no longer rely on the securities markets that caused the economy to collapse, but it now appears likely that many of them will lose their long-term customers after the economy stabilizes.

Credit cards have become a mainstay of U.S. banking in recent years because the offer a steady income without the volatility that goes with trading and investment banking, but loans on credit cards are unsecured, and the industry absorbed about $55 billion in credit card defaults last year, which is up from $43 billion in 2007.

Fed rules, which will curb sudden changes in interest rates are set to go into effect on July 1, 2010 – but many Democrats in Congress are now pushing to have the legislation advanced, and they also want greater built-in consumer protection.