As predicted last night, the down tumbled 450 points at the opening, but after the fed cut the fed fun rate by 3/4 of a point.
The fed also cut the discount rate, the rate it charges banks to borrow from the central registry by the same 3/4 point.
This was the largest rate cut by the fed since October 1984.
Stocks recovered at 11am and the Dow was only down around 55 points.
At noon, the Dow, was heading back down at 180.
Google which hit as low as $561 in the morning recovered back to $595, by noon it was heading south back to $582.
Personally i do not think this rate cut will be enough. Nor will the planned tax rebate. Throwing a few hundred dollars at every taxpayer, one time, so they can run to Walmart and buy more crap made in China, is not going to solve the problems of this economy.
Further rate cuts will be required.
The fed needs to immediately freeze all adjustable mortgages from adjusting higher. Having million of more homes going into foreclosure is going to kill the economy. Let’s not forget most people, especially the middle class taxpayer, has only two assets. The equity in their home and their 401k. Further foreclosures will suck out the equity left in their home and the effect on the stock market will eat up their 401k.
There also needs to be an environment where people can get mortgages and refinance mortgages. We have gone from a period where anyone could get a mortgage with no verification of income and poor credit, to one where people with good jobs and fair credit can’t get a mortgage. People need access to the financial market for the housing sector to start to recover.
There needs to be a resolution to the capital gains question. Currently due to expire in 2010, there inclusion in the new stimulus package would help greatly but Bush has for the moment at least dropped his demand that the extension be included.
Some of the presidential candidates, would keep and make the capital gains tax permanent. Romney wants to have a zero capital gains tax for all taxpayers whose adjusted gross income is under $200,000, and leave the 15% tax on those above.
Ron Paul wants to eliminate the tax code all together.
Huckabee wants to eliminate all federal income taxes and go to a consumption tax.
Giuliani wants to make the Bush tax relief permanent leaving captial gains at 15%.
McCain also wants to make the Bush tax relief permanent.
On the other hand Obama wants to tax capital gains as ordinary income, for any taxpayer having an adjusted gross income of over $75,000.
Now I don’t know what planet Mr. Obama lives on, but here on earth a family with 2.2 kids making less than $75,000, doesn’t have a lot of money to invest in stocks. At best they might be able to stick a few thousand into their 401K plan.
Without the incentive to invest in the market, stocks are in trouble. If you have to pay 40% of your stock gains to the government, instead of 15%, it doesn’t take a genius to figure out there will be 25% less money to reinvest in the market.
Hillary Clinton wants to eliminate the capital gains rate fro those making more than $250,000
John Edwards want to boost the capital gains rate to 28%.
Raising the capital gains tax on those who have to money to invest will simply pull more money out of the market.
It has too. It’s just math.
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It will be interesting to see what happens to the market as we get polling numbers later in the year. I spoke with some mortgage reps today and they see rates going lower by the next payment for most adjustable rate loans. The teaser deals of 2.9% and all the other gimmicks have no choice but go up. Hopefully they were not fixed at above market average rates when they did re-set. The fine print was very tricky and some borrowers may have gotten a raw deal.
Paul Rubillo
Gov. Huckabee’s advocacy of the FairTax ( http://snipr.com/irsgone ) is the single most important policy position in this election. Research findings explain why:
The FairTax rate of 23 percent on a total taxable consumption base of $11.244 trillion will generate $2.586 trillion dollars – $358 billion more than the taxes it replaces ( http://snipurl.com/whatratewks ). [BHKPT]
The FairTax has the broadest base and the lowest rate of any single-rate tax reform plan ( http://snipurl.com/baserate ). [THBP]
Real wages are 10.3 percent, 9.5 percent, and 9.2 percent higher in years 1, 10, and 25, respectively than would otherwise be the case ( http://snipurl.com/realwages ). [THBNP]
The economy as measured by GDP is 2.4 percent higher in the first year and 11.3 percent higher by the 10th year than it would otherwise be ( http://snipurl.com/econbenes ). [ALM]
Consumption benefits ( http://snipurl.com/econbenes ) [ALM]:
• Disposable personal income is higher than if the current tax system remains in place: 1.7 percent in year 1, 8.7 percent in year 5, and 11.8 percent in year 10.
• Consumption increases by 2.4 percent more in the first year, which grows to 11.7 percent more by the tenth year than it would be if the current system were to remain in place.
• The increase in consumption is fueled by the 1.7 percent increase in disposable (after-tax) personal income that accompanies the rise in incomes from capital and labor once the FairTax is enacted.
• By the 10th year, consumption increases by 11.7 percent over what it would be if the current tax system remained in place, and disposable income is up by 11.8 percent.
Over time, the FairTax benefits all income groups. Of 42 household types (classified by income, marital status, age), all have lower average remaining lifetime tax rates under the FairTax than they would experience under the current tax system ( http://snipurl.com/kotcomparetaxrates ). [KR]
Implementing the FairTax at a 23 percent rate gives the poorest members of the generation born in 1990 a 13.5 percent improvement in economic well-being; their middle class and rich contemporaries experience a 5 percent and 2 percent improvement, respectively ( http://snipurl.com/kotftmacromicro ). [JK]
Based on standard measures of tax burden, the FairTax is more progressive than the individual income tax, payroll tax, and the corporate income tax ( http://snipurl.com/lessregress ). [THBPN]
Charitable giving increases by $2.1 billion (about 1 percent) in the first year over what it would be if the current system remained in place, by 2.4 percent in year 10, and by 5 percent in year 20 ( http://snipurl.com/moregiving ). [THPDB]
On average, states could cut their sales tax rates by more than half, or 3.2 percentage points from 5.4 to 2.2 percent, if they conformed their state sales tax bases to the FairTax base ( http://snipurl.com/staterates ). [TBJ]
The FairTax provides the equivalent of a supercharged mortgage interest deduction, reducing the true cost of buying a home by 19 percent ( http://snipurl.com/homebenes ). [WM]
ALERT: Kotlikoff refutes Bruce Bartlett’s shabby critiques of the FairTax ( http://snipr.com/bbrebuke ).
Ian
We have no problem with a the fair tax as you discussed it.
The US tax system definately places companies at a huge disadvantage in the global market.
This plan would also encourage investment and savings.
Great post which summed up a lot of important points. Thank you