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Tax Overhaul Could Jolt Dollar as U.S. Companies Bring Home Cash 

Corporations could repatriate as much as $400 billion in earnings and cash from abroad.

Companies could bring back as much as $400 billion, according to one estimate, as they take advantage of a one-time cut for repatriation of earnings and cash held overseas written into the GOP tax overhaul. That typically requires them to sell foreign holdings and buy assets denominated in dollars, which could boost the U.S. currency.

Gauging the dollar’s trajectory is crucial to both investors and corporations. The currency’s climb over the past several years has been blamed for pressuring profits among U.S. multinational companies and making exporters’ goods less competitive abroad.

Its trajectory also influences prices for raw materials like oil, copper and gold, which are denominated in dollars and become more expensive to foreign investors when the dollar rises.

Many investors expected the dollar to strengthen in 2017, boosted by the Trump administration’s fiscal-stimulus and infrastructure-spending pledges. Instead, the currency as of Friday had fallen nearly 7% against its peers, as key White House initiatives stalled.

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After Five Years, Dodd-Frank Is a Failure

obama-signs-dodd-frank

Before Dodd-Frank’s passage, former Sen. Chris Dodd said that ‘no one will know until this is actually in place how it works.’ Today we know. 

House Financial Services Committee Chairman Jeb Hensarling writes: Tuesday will mark five years since President Obama’s signing of the Dodd-Frank law, the most sweeping rewrite of the country’s financial laws since the New Deal. Mr. Obama told the country that the bankerlegislation would “lift our economy.” The statute itself declared that it would “end too big to fail” and “promote financial stability.”

“What is most disturbing about Dodd-Frank is the authority it gives bureaucrats to control huge swaths of the economy.”

None of that has come to pass. Too-big-to-fail institutions have not disappeared. Big banks are bigger, small banks are fewer, and the financial system is less stable. Meanwhile, the economy remains in the doldrums.

Dodd-Frank was based on the premise that the financial crisis was the result of deregulation. Yet George Mason University’s Mercatus Center reports that regulatory restrictions on financial services grew every year between 1999-2008. It wasn’t deregulation that caused the crisis, it was dumb regulation.

Photo by Mark Wilson/Getty Images

Photo by Mark Wilson/Getty Images

The law has crushed small banks, restricted access to credit, and planted the seeds of financial instability. 

“Oversight? CFPB funding is not subject to congressional appropriations, and Dodd-Frank requires courts to grant the bureau deference regarding its interpretation of federal consumer-financial law.”

Among the dumbest were Washington’s affordable-housing mandates, beginning in 1977, that led to a loosening of underwriting standards and put people into homes they couldn’t afford. The Federal Reserve played its part in the 2008 financial crisis by keeping interest rates too low for too long, inflating the housing bubble. Washington not only failed to prevent the crisis, it led us into it.

“Before Dodd-Frank, 75% of banks offered free checking. Two years after it passed, only 39% did so—a trend various scholars have attributed to Dodd-Frank’s ‘Durbin amendment,’ which imposed price controls on the fee paid by retailers when consumers use a debit card. Bank fees have also increased due to Dodd-Frank, leading to a rise of the unbanked and underbanked among low- and moderate-income Americans.”

Dodd-Frank was supposedly aimed at Wall Street, but it hit Main Street hard. Community financial institutions, which make the bulk of small business loans, are overwhelmed by the law’s complexity. Government figures indicate that the country is losing on average one community bank or credit union a day.

“Because of Dodd-Frank, financial markets will have less capacity to deal with shocks and are more likely to seize up in a panic. Many economists believe this could be the source of the next financial crisis.”

Before Dodd-Frank, 75% of banks offered free checking. Two years after it passed, only 39% did so—a trend various scholars have attributed to Dodd-Frank’s “Durbin amendment,” which imposed price controls on the fee paid by retailers when consumers use a debit card. Bank fees have also increased due to Dodd-Frank, leading to a rise of the unbanked and underbanked among low- and moderate-income Americans. Read the rest of this entry »


‘Not the Only Gorilla in the Jungle’: Japan Overtakes China as Largest U.S. Bondholder

japan-stock-WSJ

Japan’s purchases will help soothe lingering concerns that U.S. bond prices could decline as China slows its buying. 

Min Zeng in New York, Lingling Wei in Beijing and Eleanor Warnock in Tokyo report: Japan dethroned China as the top foreign holder of U.S. Treasurys for the first time since the financial crisis, following a wave of purchases by buyers shifting money to the U.S. as Japan’s economic policies push down interest rates there.

“China is currently the 800-pound gorilla in the U.S. Treasury market. However, it is not the only gorilla in the jungle.”

–James Sarni, a managing principal at investment manager Payden & Rygel, which oversees $90 billion of assets

In reclaiming its status as the largest foreign creditor to America in U.S. official data, Japan is japan-chart-WSJreasserting itself as Beijing holds its Treasury portfolio steady amid a weakening Chinese economy.

“U.S. debt bears higher yields than government bonds offered in other rich nations, thanks to the perception of stronger U.S. growth prospects and to central-bank bond purchases that have driven yields near zero across Europe and in Japan.”

Private investors and official institutions in Japan owned $1.2244 trillion of U.S. government securities at the end of February, compared with $1.2386 trillion at the end of January, according to the latest monthly data released by the Treasury on Wednesday.

China held $1.2237 trillion of Treasury debt at the end of February, compared with $1.2391 trillion a month earlier.

Over the past year, Japan has boosted its holdings by a net $13.6 billion, while China’s holdings dropped by $49.2 billion.

“The single largest holder of U.S. long-term debt is the Federal Reserve, with more than $2 trillion. The amount has surged from $755 billion at the end of 2007, fueled by Fed purchases of long-term securities in response to the financial crisis”.

The Treasury data, released with a two-month lag, don’t capture all of the Treasury-bond holdings China may have parked at middlemen in places such as the U.K. and Belgium. Many analysts and investors believe China has considerable holdings bought through such intermediaries. The Treasury notes on its website that “it is difficult to draw precise conclusions about changes in the foreign holdings of U.S. financial assets by individual countries” from the capital-flow data.

“The shift also reflects changes sweeping China. The world’s most-populous nation has in recent months largely held its Treasury portfolio in place, reflecting a slowdown in the growth of its $3.73 trillion foreign-exchange reserve, the world’s largest, and an effort to shift those reserves toward higher-yielding assets.”

The Japanese purchases have helped drive long-term U.S. bond yields near record lows despite an economic expansion that averaged 2.7% annually over 2013-14. Those low yields have, in turn, helped keep down interest rates for Americans on everything from home loans to credit cards. Read the rest of this entry »