Economy

(Tokyo)

In a statement that is affecting markets in just the opposite way as intended, Japanese PM Shinzo Abe yesterday announced an update to his “third arrow” economic reform policies. For markets, his statements were disappointingly short on details, but he focused on the fact that Japan would cut its corporate tax rate, reform the agricultural center, and change its massive state run pension management program into a more risk-taking, equity-driven, investment house. Various political statements indicate that Japan will likely cut the corporate tax rate from its current 35% to somewhere around 20-30%, but no specifics have been offered. Abe also announced the closing of a discriminatory tax against two-income families, and will now require companies to declare what percentage of executives are female, all in an effort to boost women’s participation in the labour force. Finally, Abe will introduce legislation which will allow employers to negotiate contracts directly with workers rather than following national guidelines.


 

FINSUM: For the most part these changes seem modest but attainable. However, they are not the earth-moving kind of reforms one hoped would accompany such a revolutionary course of monetary stimulus. It is ironic that Abe’s plans have been watered down by the very type of culture he is trying to change.

(New York)

In a sign of the growing size of the shale oil boom, newly released figures show that the United States’ petroleum production has hit a new 44-year high. The recent boom in output has reversed four decades of decline in just five years and is helping support a renaissance in American manufacturing. In terms of petroleum production, which includes products beyond crude oil, the US is currently putting out 11.27m barrels per day, nearly matching the average of 11.3m b/d in 1970. The US is now the top combined producer of oil and gas globally, and third overall in crude production behind Russia and Saudi Arabia. America’s performance is in direct contrast to the rest of the world, where production has dropped. New “fracking” techniques have allowed the US to exploit its unique geology and produce the boom, though analysts say production will peak once more in 2020 and then begin to decline.


 

FINSUM: This is a tangible statistic which shows just how prolific the US boom has been. It is one of the major factors that is driving the resurgence of American manufacturing.

(New York)

This article, run in the NY Times, compares the current problems in the student loan debt market to problems that existed in the mortgage market before and after the crisis. The piece shows how the student loan market is experiencing the same kind of lender and servicer foot-dragging over helping borrowers with unmanageable debt loads as occurred with mortgage borrowers before and after the crisis. Servicers, in particular, have little incentive to assist borrowers in repayment because they have comparatively little to lose if the loan defaults. The US government, which provides student loans has pressed its contracted servicers to help restructure repayment plans, but the costs and time of doing so have meant that little has been done to help recent graduates repay. Complicating the issue further, inertia has gripped the whole market as there have been massive transfers of loan portfolio ownership over the last few years, meaning no one is quite sure who has the legal right to alter the loans’ terms, again similar to the mortgage crisis. Young borrowers are having their credit records ruined and are facing much higher living costs as a result.


 

FINSUM: The rapid rise in tuition fees has led to startling buildup in student debt and young people are suffering under its burden. While the ABS market likes to repackage such loans, the government should act directly to clean up the mess.

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