Britain's Billionaire Exodus Shows Cost of Tax Raid
The UK government says ending special tax privileges for the wealthy will bring in billions. Ben Stupples explains why a growing wealth exodus is putting their decision to the test. (Source: Bloomberg)
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Yahoo
36 minutes ago
- Yahoo
Effort to strip Fed of interest paying power seen likely to bring upheaval to markets
By Michael S. Derby NEW YORK (Reuters) -A Republican senator's plan to take away the Federal Reserve's power to pay banks interest on cash they park on central bank books could cause chaos for monetary policy implementation if it were implemented, market participants said. In recent days, Senator Ted Cruz of Texas has been speaking about this power and his desire to see it ended as part of what he views as an effort to save money by the federal government. Stripping the Fed of the longstanding power would save the government $1 trillion, Cruz said in a CNBC interview last week. The senator said then that he did not know if it was likely his effort would work but that it was certainly possible. On Wednesday, Bloomberg reported that Cruz had also lobbied President Donald Trump, who has long been at odds with the Fed, as well as Republican colleagues, about his idea. 'We're agonizing trying to find a $50 billion cut here and there. This is over a trillion dollars, big dollars in savings,' Cruz told Bloomberg, saying of the payments, 'half of it is going to foreign banks, which makes no sense.' Cruz's office did not respond to a request for comment. The Fed declined to comment. Cruz's effort is being treated cautiously by Senator Tim Scott, the Republican from South Carolina who chairs the Senate Finance Committee. "While the desire to return to pre-crisis monetary policy operating procedures is understandable," the matter must be considered under normal Senate procedures, Scott said in a statement. Any move on this must start with a hearing, Scott said, adding, "this is not a decision to be rushed – it must be carefully considered and openly debated." The Fed's power to pay banks interest, granted by Congress, took effect in 2008 as the financial crisis dawned. It quickly gained prominence as part of a large-scale overhaul of the monetary policy architecture, as the Fed confronted the greatest economic downturn since the Great Depression. As it now stands, the Fed pays deposit-taking banks 4.4% for reserves. It uses another tool called the reverse repo facility to take in cash from money market funds and others, paying them 4.25%. Together, the two rates are designed to keep the federal funds rate, the central bank's main tool for influencing the economy, within the desired range. Paying financial firms for de facto loans of cash is essential for interest rate control due to the very large amount of liquidity created by bond buying stimulus efforts. During the COVID-19 pandemic, the Fed more than doubled the size of its balance sheet to a peak of $9 trillion, with asset purchases providing support to the economy beyond what the then near-zero short-term rates could deliver. If the Fed did not have the power to pay interest on deposits, the still substantial amount of liquidity sloshing around in markets would prevent it from controlling short-term rates. That said, concerns have long existed, even among some former central bankers, that paying banks money to deposit cash at the Fed is effectively a subsidy to banks. The other issue with paying interest on reserves is that it has led the Fed into an unprecedented period of loss-making. The Fed has been operating in the red because the interest rate it now has in place outstrips the income it earns off bonds it owns. Most analysts expect the loss-making to occur for some time to come. Fed losses mean that it is not handing over profits back to the Treasury, as it is required to do when it is in the green. Sums handed back to the Treasury over recent years contributed modestly to lowering deficits. Experts believe Cruz's plan would completely fail to achieve its goals and would instead cause huge upheaval in money markets. Barclays Capital economists said on Tuesday that ending the power would simply push the cash into the reverse repo facility, which means the central bank would still be paying lots of interest to financial firms, thus negating any deficit savings. J.P. Morgan strategists said in a note last week that under Cruz's plan, 'the Fed's ability to control money market rates may be compromised, complicating its efforts to guide broader financial conditions via the fed funds rate and other money market rates.'
Bloomberg
41 minutes ago
- Bloomberg
Wealthy Australians Brace for a New Tax on Retirement Savings
Australia is forging ahead with a new tax on its richest retirement savers amid concerns that the country's A$4.1 trillion ($2.7 trillion) pensions system is becoming a high-wealth accumulation vehicle. The Labor government plans to slap an extra 15% levy on profits from pension balances above A$3 million, in a change likely to impact around 80,000 savers. That's on top of the 15% tax that they — and most Australian workers — already typically pay on investment earnings in their superannuation accounts.
Washington Post
43 minutes ago
- Washington Post
Is Russia's slow, endless grind really a recipe for victory?
In today's edition: Russia would like you to believe it is winning its war of aggression against Ukraine. But let's look at some numbers: Russia, what exactly do you mean by 'winning'? These statistics come from strategy analyst Riley McCabe's examination of the terrible price Russia has paid for marginal gains, and they are just the beginning; McCabe also studies the equipment Russia is losing, and the situation there looks no better. It is true Russia remains on the offensive, McCabe says, 'but initiative alone is not victory.' He writes: 'Ukraine's defense-in-depth strategy, bolstered by U.S. and European support, has transformed the battlefield into a war of attrition that favors defenders and punishes attackers.' McCabe says the West needs to leverage Russia's slow bleed. But however bruised it is, Russia could yet open another front in the war, Jim Geraghty writes. 'You're forgiven if you haven't spent a lot of time thinking about Moldova's parliamentary elections coming up in September,' he opens his column — but you might want to start. It is in Europe's least-visited country that Russia is meddling with to install a friendlier government, the Moldovan prime minister recently alleged. Moscow's eye is on Transnistria, the rogue region of Moldova that has pledged fealty to Russia for years. Jim writes that 'few in their right mind would choose to visit a pseudo-country that still has a hammer and sickle on its flag,' so naturally he went to check it out. Jim's column is both a profile of this strange place (including its through-the-looking-glass Soviet version of a Hard Rock Café) and a warning of how things could go very, very badly if it falls even deeper under Russia's control. From Karen Tumulty's review of Tuesday's primary elections for New Jersey governor. All eyes are on the Garden State, Karen notes, one of two 'that hold their gubernatorial contests in the year following presidential elections and are therefore seen as bellwethers of national politics.' For a state that moved sharply to the right just seven months ago, a surprising number of Democratic voters pulled up to the polls. Rep. Mikie Sherrill (D) herself described the turnout as 'unheard of' — and hopefully a peek at 'what's coming in November here' (and, perhaps, everywhere else). This Father's Day, Los Angeles writer Nick Dothée offers us gentle reflections on his last moments with his dad. Dothée's father was a public defender, who believed 'everyone deserved someone in their corner, even if — especially if — they'd made a mess of things.' When Dothée made a mess of his own life — the writer experienced addiction in his past — his father made the painful decision to sever ties until his son could recover. Dothée got sober as his dad's health declined, but in the father's final years, the two reconnected, drawing from the deep reserve of father-son love to hold each other up. 'If he had died without seeing me sober, I would've carried the guilt for a lifetime,' writes Dothée. 'But he saw me. And I saw him. And I got to tell him he did right by me.' It's a goodbye. It's a haiku. It's … The Bye-Ku. Conquering a foe One Delaware at a time Works on Delaware *** Have your own newsy haiku? Email it to me, along with any questions/comments/ambiguities. See you tomorrow!
