Archive for November, 2009
Bank of Japan Ready for Market Intervention?
Posted by: | CommentsAs financial markets across the globe begin to regroup and find new direction, each country is seemingly taking steps to ensure the banking system does not collapse. The latest news comes out of Japan, where the governor of the Bank of Japan (BOJ) said that the bank will act decisively in the event of renewed turmoil.
While historically tight lipped on policy direction, this comment provided the strongest hint yet that the BOJ would support the economy by buying back government bonds if needed, or return to quantitative easing. BOJ Governor Masaaki Shirakawa is set to meet with Prime Minister Yukio Hatoyama this week, and a discussion on quantitative easing is on the agenda. As the government fears deflation, they will lean more on the central bank to use their policy tools.
The government has declared that Japan is in a period of deflation, and has openly criticized the BOJ’s view that annual consumer price falls will gradually ease and that another recession is unlikely. Hatoyama said the government and central bank needed to act decisively against deflation and the yen’s surge, as this hurts Japanese firms exporting their goods, by making their goods less competitive overseas. Compounding this, the yen surged last week, hurting manufacturers’ profitability, which could derail the export-driven recovery.
Shirakawa, in a conference with business leaders in Nagoya, central Japan said: “We absolutely don’t have any plan to prepare for exiting our easy policy. We had some developments in financial markets last week. If we experience financial market turmoil again, the BOJ will act aggressively and decisively.”
The Japanese government has applied increase pressure to the bank in recent weeks, as they have become increasingly concerned at the chance of another recession. The BOJ has said that there is little it can do, beyond keeping interest rates at the current low rate of 0.1 percent, in an effort to push prices up. Facing such pressure, some analysts have remarked the BOJ will eventually be pressed into quantitative easing, essentially flooding markets with extra cash to raise prices and inflation.
As an election looms in mid 2010, the nightmare scenario for the cabinet is an economic downturn, which could prompt their replacement. The line between fiscal and monetary policy is becoming blurred quickly in Japan, and who controls the monetary policy is an important segregation of duties, to avoid over tinkering to meet political agendas. As the central bank carries out policy decisions, Japan’s banks will be on notice.
Losing Sales Taxes
Posted by: | CommentsUnder current law, on-line retailers—as well as other remote sellers such as catalog stores—need to collect state sales tax from buyers only when the retailer has physical presence in the state (“substantial nexus” in legal terms). That’s because a 1992 U.S. Supreme Court case, Quill Corp. v. North Dakota, found that sales tax on remote sales violated the interstate commerce clause of the Constitution and unfairly burdened retailers.
In fact, the burden falls on states that lose out on billions of dollars of sales tax revenue every year. On-line sales have grown rapidly in large part because retailers charge no sales tax on buyers outside the retailer’s home state and sellers advertise that fact. Other factors may also help lower on-line prices but sales tax avoidance likely provides the biggest kick.
Unbeknownst to most shoppers, however, most states require their residents to pay “use tax” on taxable items they purchase without paying sales tax. Virginia, for example, includes an entry on its income tax return to encourage tax filers to pay their use tax. Not many do. Some years ago, the Virginia Department of Taxation told me that only about one in a thousand returns included use tax. It didn’t help that the then governor had said in a radio interview that, if he weren’t governor, he wouldn’t pay the tax. Talk about giving license to cheat the state out of taxes owed!
For years, the Multistate Tax Commission has worked to develop a “simplified sales tax system” so states could impose a uniform set of taxes on interstate sales. The idea is straightforward: a uniform sales tax would impose no additional burden on sellers beyond what they already face from their own states’ sales taxes. If such a system were adopted, the basis for Quill would disappear. Unfortunately, the commission has yet to reach consensus and there’s no simple tax.
While the commission dithers, states continue to lose out. Forrester Research has projected that on-line sales in 2009 will total $156 billion, up 11 percent from the year before. On-line holiday sales alone have more than doubled since 2003. Even in good times, states need revenue. In the current downturn, losing taxes from on-line sales has huge costs.
MBS CLOSE: MBS REACH ANOTHER ALL TIME HIGH!
Posted by: | CommentsPosted To: MBS Commentary
It was a fairly anticlimactic trading day on which to hit the highest closing prices in the history of the 4.5 MBS. With limited data to either douse the dreams or fuel the fires of Dubai-induced flights to quality, bonds were forced to turn to Chicago PMI as the sole appetizer to a more robust offering of post-holiday fare later in the week. And as is the case in many households, sometimes the most anticipated part of Thanksgiving is the week of leftovers that follows. Whatever the case, the rest of your charts this week will not be the orderly movement of decreasing volatility within a range as seen below. The theme even plays out in the long term chart as we can see wider and more volatile ranges evolving into the more narrow and contained rally that has defined recent months. More of a...(read more)