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Posts Tagged ‘crisis’

A just released report by the Commerce Department shows that retail sales unexpectedly dropped by 0.4% in April, following a revised drop of 1.3% in March and analysts contributed the drop to the biggest loss of household wealth on record, falling home values and rising unemployment.

Most economists had predicted that retail sales would rise by 0.2% after a 1% decrease a month earlier.

Bill Cheney, who is the chief economist at John Hancock Financial Services Inc. said in an interview that, “The second quarter is going to be tough. Consumers are losing their jobs, concerned about losing their jobs and losing wealth”.

Mike Niemira who is the chief economist at ICSC was a little bit less downbeat and said, “We’re still working our way through the slowdown. I think it will get better as the year progresses. The month of May will still be tough and I suspect by the summer that things will be a little broader in terms of the improvement”.

The decline in sales was led by falling demand at furniture, clothing, grocery and electronics’ stores, and even as fuel prices rose, receipts at service stations fell, indicating perhaps that Americans were driving less.

Clothing sales fell by 0.5% and sales at general-merchandise stores fell by 0.1%.

Auto sales unexpectedly gained by 0.2% after dropping by 2% in March, with automobiles selling at a 9.3 million annual pace in April, compared with a 9.9 million rate in March.

Chrysler, whose U.S. whose sales were down by 48% from the same month last year, started offering rebates of up to $6,000 on May 6 and the offers will continue until the end of the month.

The Labor Department reported last week that payrolls fell by 539,000 workers last month making it the smallest drop since October, but it took the unemployment rate to 8.9%, which is the highest level since 1983 and economists expect it to average 9.6% in 2010.

Supply-Side Economics | The CERF Blog

www.clucerf.org1/10/12

As early as the 1950s, Mundell proposed an economic policy program of tight monetary policy to stabilize the value of the currency and low tax rates to stimulate economic activity. During the late … The Reagan Scenario included a sharp drop in inflation, a recession in 1982 due to tight monetary policy, passage of the Kemp Roth tax cuts and an economic boom starting in 1983. … Inflation and interest rates are much lower and tax rates are lower as well. While a high …

The hidden dangers of low interest rates | David Cay Johnston

blogs.reuters.com1/10/12

Low rates also come at a cost, cutting income to older Americans and to pension funds. This forces retirees to eat into principal, may put more pressure on welfare programs for the elderly, and … If rates return to, say, 6.64 percent, the level they were in 2000, one year's interest costs would equal the individual income taxes for all of 2011 plus the first few weeks of 2012. Last week , rates took a step in that direction. The yield on the 10-year bond, a benchmark for other …

President Obama’s recent claim to homeowners, that refinancing their mortgage loans at a lower rate, equates to a tax cut, doesn’t ring true for many tax experts.

Obama said at a recent press conference that the housing plan his administration had launched, had “already contributed to a spike in the number of homeowners who are refinancing their mortgages, which is the equivalent of another tax cut. The main message we want to send today is that there are 7 to 9 million people across the country who right now could be taking advantage of lower mortgage rates and that is money in their pocket”.

What Obama failed to mention however is that unlike the housing boom that led to the current financial crisis, this time, only borrowers with strong credit ratings and stable jobs will be able to save money if they refinance.

Obama’s announcement caused many tax analysts, including Gil Charney, who is an analyst for The Tax Institute at H&R Block to shout “foul”;

“While there could be overall savings by refinancing and lower monthly payments, there also could be reduced tax benefits as less interest is paid. Also refinancing could extend the period before the mortgage is fully paid off, so this might not be desirable for someone who wants to be mortgage-free. Therefore, someone about to make a financial decision should take their complete financial picture into account, not just their tax situation”.

In fairness to Obama, some analysts like Mark Steber, who is vice president of tax resources at Jackson Hewitt Tax Service did express a more supportive viewpoint, “While generally there is no tax advantage to refinancing at a lower rate, an individual can save on the total out of pocket costs each year over the life of the loan. Though a tax bill will actually increase after refinancing, the increase in taxes may be less than half of the total difference in interest paid, so the taxpayer may save more money than their taxes increase, therefore resulting in net savings”.