Current legislation calls for over $500 billion in spending cuts and tax increases at the end of 2012, a “fiscal cliff” that The Economist argues politicians should postpone. While acknowledging that the United States faces long term budget challenges, the article describes the risk of recession under current law. Compromise is unlikely before November; the campaigns of both parties stress different budget priorities. The authors argue for delaying the fiscal cliff to March of 2013, to allow a new Congress, and perhaps a new President, to negotiate a long term solution.
Earlier this year, CFR’s Edward Alden discussed the CBO report on the budget impact of current legislation if Congress does not act. While he states that no action would be bad policy, he suggests that Congress take the current law as a budget baseline.
Debt and deficits. Read more from experts on the challenges in reducing U.S. debt.
International Trade and Investment
Arguments for a U.S.-EU FTA
The editors of Bloomberg recommend a free-trade agreement (FTA) between the United States and the European Union. Before the end of June, officials from both continents will recommend whether to pursue a FTA. While existing tariffs are relatively low, a FTA could increase trade by more than $120 billion within five years, according to a U.S. Chamber of Commerce study. Reduced regulatory barriers could accelerate trade further. Likely hurdles include traditional disputes over agriculture, subsidies to Boeing and Airbus, access to service markets, internet privacy concerns, and public procurement contract rules.
Possible Dollar Shortage?
Bloomberg discusses the possibility of a shortage of U.S. dollars, even though Federal Reserve programs have created more than $2 trillion in additional currency since 2008. Foreign central banks are acquiring more U.S. dollars to build their foreign exchange reserves amid increased concerns over the euro. The accumulation of dollars by central banks appears to be crowding out demand from the private sector.
International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy.
Corporate Regulation and Taxation
Regulations Push More Small Banks to Consolidate
With more than ninety deals announced so far, 2012 is expected to have the most bank mergers since 2007 (WSJ). Industry analysts expect further consolidation among the nation’s 6,643 small banks in response to new regulations, weak loan demand, low interest rates and profit margins, and limited growth prospects. The Federal Reserve proposed applying new Basel III international capital standards to all small banks. The JOBS Act raised the shareholder limit for avoiding SEC filings from 500 to 2,000, simplifying deals between private banks.
Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform.
The Morning Brief is compiled by Renewing America contributor Steven J. Markovich.