Topic: “In the market for U.S. Treasuries, options premiums have fallen back to
ID: 1107193 • Letter: T
Question
Topic:
“In the market for U.S. Treasuries, options premiums have fallen back to new lows and there is no sign of fear evident among complacent traders as they sit around and wait for the Fed’s December meeting and watch how the Republican tax plan unfolds in Washington. Once the business-friendly template was released, the lobbyists and dissenting legislators went after it like starving hyenas, especially the housing industry after it saw the deductibility of mortgage interest cut in half at the high end of that market. It seems that the only thing all parties agree on is that the bill could be delayed well into 2018, and it will not resemble the package offered last week. That leaves bond traders uncertain about the long-term supply-side impact from the tax cuts, and unwilling to bet this early on its success or failure.”
Review the news clip given above then answer the following questions:
How will new tax policy provides productive investment opportunities to businesses and the household sectors?
Do you think there is a positive link between financial development and economic growth?
Give suitable examples
“Not all government interventions in the financial system are beneficial” Do you agree with this statement? If yes, why? If no, why not?
Explanation / Answer
A country will get richer if it attracts more investment. f foreign rich people think your country is a good place to invest, they will help build factories and offices and hotels and houses in your country, creating more and better job opportunities for your citizens. Corporate tax cut will attract more international investment in U.S. Those investments whether they are used to upgrade worker skills, buy more efficient equipment or expand facilities fuel business expansion and job creation. The proposal would also allow American businesses to bring profits earned and taxed overseas back to the U.S. without having to pay additional taxes on them. The tax reform proposal would also lighten the personal tax load borne by families and individuals hence they can invest there money in businesses or properties. Living will be affordable.
Study has proven that there is a positive link between financial development and economic growth. Empirical results have shown that there is a single equilibrium growth between financial depth, growth and only cointegrating relation implies unindirectional casuality from financial depth to growth. and ancillary variable However short term multivariate result has shown mixed results. it seems that a well-functioning financial system is a necessary but not sufficient condition to reach steady economic growth in developing countries.Economic theory suggests that sound and efficient financial systems banks, equity markets, and bond markets which channel capital to its most productive uses are beneficial for economic growth. Sound and efficient financial systems are especially important for sustaining growth in developing Asia because efficiency of investment will overshadow quantity of investment as the driver of growth in the region. For example, the Republic of Korea’s financial markets suffered severe turbulence in October 2008, but they soon regained their footing after the Bank of Korea entered into swap deals with the US Federal Reserve, the Bank of Japan, and the People’s Bank of China. In fact, the primary impact of the global financial crisis on developing Asia was not financial at all but transmitted through the trade channel, as the recession in the industrialized countries dulled their appetite for the region’s exports.
Free market economists argue that government intervention should be strictly limited as government intervention tends to cause an inefficient allocation of resources. However, others argue there is a strong case for government intervention in different fields. State intervention has been pervasive in most developing countries as well as in many now advanced economies. In many countries, not only policy-based banks but also commercial banks were owned by the state. I wouldn't say a government should opt out of intervening in financial system.Government needs to intervene because of market failure, macroeconomic intervention and for greater equality.