bush package -last night

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    The only way this package can be finaced is via the bond mkt which will increase interest rates and devalue
    the usd even more
    That's why maybe insto's have been buying the aussie$
    because relative it was cheap compared to other currencies

    From egoli

    ABN-AMRO: The Bush tax package in perspective
    Wednesday, January 08, 2003.

    You have to put the Bush tax package into perspective. US$674bn sounds a lot, but that’s the cost over 10 years. The President estimates that it will cut taxes by $98bn this year, of which $70bn is personal tax cuts and another $20bn is the removal of the double-taxation of dividends. The first, obvious, point to note is that we’re talking about a $10tr economy, so a $100bn boost is around 1% of GDP.

    That’s significant, but it doesn’t change the economic outlook – particularly given that by the June quarter last year the public sector was pumping a $275bn stimulus. Secondly, this package may not get the biggest bang for the buck in terms of shortterm stimulus. Tax cuts may be saved, reducing their short-term growth impact. Thirdly, remember the stiff headwinds that policy-makers now face.

    The chart shows the extent of equity withdrawal from US real estate wealth. The September quarter data show another step up in withdrawals: households increased mortgage debt by an astounding $724bn (at an annual rate), of which only $274bn (in net terms) was invested back into real estate – implying equity withdrawal running at $450bn at an annual rate.

    The chart shows the figures on a four quarter rolling sum basis, both in dollar terms and relative to household income. Now, not all this money is spent – much, presumably, is used to refinance other debts, or to invest in other financial assets. But as everyone recognises, this equity withdrawal – which is just another form of leveraging – has been critical to supporting US consumer spending.

    If it halves over this year it would reduce the household sector’s cash flow by $160bn – more than offsetting the Bush tax package. In other words, this latest fiscal package is not large enough to prevent a meaningful slowing in US growth this year if US consumers become more cautious. Given consumers’ problems, that remains a very likely prospect.

    To view the complete report please click here.

    DISCLAIMER: The information contained in this report has been taken from sources believed to be reliable. ABN AMRO Equities Australia Limited (ACN 002 768 701) (“ABN AMRO Equities”) does not represent that the information is accurate or complete and it should not be relied on as such. Any opinions expressed reflect ABN AMRO Equities’ judgement at this date and are subject to change. ABN AMRO Equities and/or its affiliated companies may make markets in the securities discussed. Further ABN AMRO Equities and/or its affiliated companies and/or their employees from time to time may hold shares, options, rights and/or warrants on any issue included in this report and may, as principal or agent, sell such securities. ABN AMRO Equities may have acted as manager or co-manager of a public offering of any such securities in the past three years. ABN AMRO Equities’ affiliates may provide or have provided banking services or corporate finance to the companies referred to in the report. The knowledge of affiliates concerning such services may not be reflected in this report. ABN AMRO, in preparing this report, has not taken into account an individual client’s investment objectives, financial situation or particular needs. Before a client makes an investment decision, a client should, with or without ABN AMRO’s assistance, consider whether any advice contained in the report is appropriate in light of their particular investment needs, objectives and financial circumstances. It is unreasonable to rely on any recommendation without first having spoken to your adviser for a personal securities recommendation. For clients in the USA, ABN AMRO Incorporated does not accept responsibility for the contents of this report. Any orders, originating in the USA, resulting from this report should be placed through ABN AMRO Incorporated and not with ABN AMRO Equities. For clients in the UK, ABN AMRO Equities (UK) Limited accepts responsibility for the contents of this research material. 001 ABN AMRO Equities Australia Limited (ACN 002 768 701) A Corporate Member of the Australian Stock Exchange Limited A Corporate Member of the Australian Stock Exchange Limited. The views in this note do not represent ABN AMRO’s house call

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