The Investment Thread

Big Daddy

Super User
India goes to international markets to raise money (SBI hits international bond mkt to raise USD 1 billion - PTI). India will issue bonds to non-Indians and in turn will be required to pay dividends in dollars. This makes things interesting and puts more pressure on government. Issuing bonds is raising dollars to get more foreign exchange at an interest. Both interest and principle will have to be paid in dollars. To pay dollars back, India now has to manufacture goods that it can sell in International markets. To sell goods in international markets, India will have to compete in International markets.

Slowly capitalism and free market forces are creeping in! No matter how much you want to stop it, truth always wins. Socialism, communism are a smoke screen systems that either fail or lead to utter misery!
 

Yogesh Sarkar

Administrator
Big Daddy, read about the Obama Administration’s proposed cap on IRAs for upper middle class and rich people and also the planned reduction in the deductibles. Kind of seems in line with the recent global witch hunt of well to do.

Guess more Americans will now be planning to shift their money to tax havens and developing countries now. Which I guess should be good news for countries like India, especially with the new proposed international bonds.
 

Big Daddy

Super User
Big Daddy, read about the Obama Administration’s proposed cap on IRAs for upper middle class and rich people and also the planned reduction in the deductibles. Kind of seems in line with the recent global witch hunt of well to do.
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Guess more Americans will now be planning to shift their money to tax havens and developing countries now. Which I guess should be good news for countries like India, especially with the new proposed international bonds.
America is good about tracking money across the globe for tax purposes. For Americans even Swiss bank accounts are no longer secret from the government so they will have to pay no matter where they put their money. The problem with Obama is that he is financially illetrate. Most of his ideas are pretty stupid and rarely get approved by congress. All he can do is come up with stupid ideas and see them die. Tax the rich, control guns, health care for all ... none of these ideas are going to stick but he will keep on coming with these ideas. In the end, he becomes irrelevant and goes into history as a loser president. Unionized states like California, NJ, Illinois, Wisconsin, Michigan etc. are all renegotiating their state pensions and one city in California is filing for bankruptcy. NY and NJ are reeling under heavy state taxes and losing populations to southern states like Florida and Texas which have zero state tax.

Implementation and approval of policies is whole another thing. Thank god to the genius of American founding fathers, America can handle a series of mediocre presidents and still come out stronger. Presidents in America do not have the power to govern, power to pass policies rests with the Congress. President proposes and congress disposes. The only power given to president is right to say "No." (Veto).

The only time I will be afraid is when Congress comes up with policy of taxation but then again Congress and Senate consists of America's richest people. You cannot get elected in Congress/Senate unless either you are rich or rich people give you money. America really is a country run by the rich and American policies will always support rich.

So what is Obama doing then to propose such strategies that he knows will not stand in Congress? He is trying to hide his mediocrity by proposing ideas that make sense to 80% of the population that will eventually rejected by Congress. This way when his term is over, he can blame the Congress for not approving his ideas. He is seeking popularity for his lack of self esteem. Let him do it. America remains unchanged by Obama. Even if some policies do get passed they can always be changed in the future. I love how America works!
 

Yogesh Sarkar

Administrator
That is good to know, because what I read Last night regarding this seemed to make little sense and was akin to socialist policies of Europeans, rather than Americans.
 

Big Daddy

Super User
That is good to know, because what I read Last night regarding this seemed to make little sense and was akin to socialist policies of Europeans, rather than Americans.
Let me explain this a bit and see how crafty this whole thing is. Increasing taxes is neither good or bad. Good or bad happens depending on what you do with the tax revenue. There are two things a government can do with the tax revenue: reduce deficits and/or fund generous social programs. Most of the discussion on increasing taxes in America centers around reducing deficits. Europeans focus on increasing taxes to fund generous social programs (Although not all European countries are same--UK and Germany are more capitalistic than Spain, Italy and France). So America and Europe focus on different things when they increase taxes.

America once had a top tax rate as high as 94%. During 1970s-1980s it was as high as 70% and today it is less than 40% (TopTaxBracket_TaxRate.jpg Photo by OnlyObvious | Photobucket), which is less than Clinton's era before two major wars and the great recession. What really changed is that world got richer, American military stronger and America could reduce tax rates by selling inflation-protected bonds to countries like Japan (1980-1990s) and China (1990s-2000s). The problem today is that America's deficit is making its enemies stronger. China is funding its military using interest America pays on its debt.

If America raises taxes to reduce deficits then there is no problem. With huge deficits, taxes will go up sooner or later anyway unless economy grows, which will reduce the need to raise taxes. Reducing deficits makes America stronger. The place where it gets crafty is that Obama wants to increase taxes to do both (reduce deficits and fund social programs). Congress wants government to cut social programs to reduce deficit. Both Obama and Congress take extreme positions. Most likely compromise would be small increase in taxes and small cut in government programs. All the money from increase in taxes and savings from social program cuts will go toward reducing deficit. This way both Obama and Congress come out looking like a winner. Also, this is the only thing that is in the best interest of America as well as for the world economy. Keep in mind that America still needs to regain its S&P credit rating of AAA+ so that is one factor that will be weighing on the minds of Congress and even Obama because he is the first US president who had this credit rating downgrade.

There is another aspect to this equation. Real social programs like Welfare and State Pensions are state's responsibility and are funded by state taxes. States like California, Illinois etc. that mismanage these programs end up insolvent and sometimes lose their populations to other low tax states thereby reducing their tax base even further. However, Federal government administered social programs like Social Security and Medicare are really not social programs in the sense that they are funded by individuals and not by the government. So technically cutting Federal social programs really is Federal taxation. It is like putting money into provident fund and government not giving you interest it had promised. Every working American has to pay for national interests one way or the other. The real job of the government is to get as many Americans working as possible. Low taxation encourages people to work because they get to keep more of their money than they would get otherwise by not working.

The place where Europe gets it wrong is that it penalizes rich and takes money from them to help poor. Increasing taxes this way reduces productivity because such tax structure inhibits people from working hard. With reduction in productivity, national wealth goes down and everyone becomes poor together. For more detail analysis see this: The Effect of Income Taxes on Economic Growth

BTW, Obama's personal income is falling (http://money.cnn.com/2013/04/12/pf/taxes/obama-tax-returns/index.html?iid=Lead). Once out of office, he has to learn to live with less and that can be a problem!
 
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Big Daddy

Super User
Food for thought for anyone planning his/her retirement on pension alone The Real Story Behind Obama's Proposed Social Security 'Cuts' - Forbes

And this is by a Democrate President, raising a lot of his election funds through contribution of mango people.
This is how deficit gets reduced. Rich pay higher taxes and poor pay by getting lower benefits. I call it balanced approach or compromise.

A polar approach is for democrats to say rich should pay higher taxes with no cuts in benefits, whereas republicans say that cut the benefits and keep tax cuts away. In the end, everyone (rich and poor) has to share the sacrifice.
 

Yogesh Sarkar

Administrator
I understand that, however this ought to come as a wakeup call for anyone who was planning to be wholly dependent upon retirement benefits or one type of investment, to live rest of their life. This should serve as a motivator for people to diversify their portfolios and ensure their own financial viability post retirement.
 

Big Daddy

Super User
This is the problem with government management retirement programs (social security or provident funds) because when the time comes either the government will cut benefits or give sub-par returns (in case of provident funds). This is not a new problem limited to any one country; Greeks got their government retirement benefits cut as well and many states in US (California in particular and Illinois) are going to cut the retirement benefits of their retirees as well.

With a personal managed portfolio, you are in full control. Unfortunately, most people believe in their governments more than they should because they think that they can vote a person out. With every country's debt rated by credit agencies, governments have their hands tied and, sooner or later, reality sets in and hard decisions have to be taken. These hard decisions tend to hurt poor more than the rich. Since the number of poor are always more than the number of rich, government always makes promises that appeal to poor. All poor need is hope. It is a hope that never materializes because it is foolish hope of expecting something out of nothing.
 
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