Monday, November 22, 2010

The Two Leading News Stories Headed Into the New Week, According to Dr. Krause

Irish Debt Crisis Over?
"The two leading news stories for the upcoming week are the Irish debt bailout and the U.S. tax policy debate," said Dr. Krause, AIM program director. "It is a short week and most of the news cycle will be focused on Europe and the Washington D.C. tax discussion."

On Sunday, Bloomberg News reported that Ireland has applied for a bailout to help fund itself and save its banks, becoming the second euro member to seek a rescue from the European Union and the International Monetary Fund. They reported that Irish Prime Minister Brian Cowen said he expects talks on the package to be completed in the “next few weeks.” The loan is expected to be less than 100 billion euros ($137 billion).

The expected 'bailout' follows two years of budget cuts in Ireland that failed to restore market confidence and the cost of saving the financial industry soared. After Irish bond yields rocketed in the past month, European authorities pushed Ireland to seek aid to prevent the crisis that began in Greece this year from spreading to other euro-area countries such as Portugal.

Dr. David Krause, AIM program director said, "Similar to the Greece crisis in the spring, the Irish bailout package is likely to only address the short-term. I think it won’t solve the longer-term issue of fiscal sustainability of Ireland. The bondholders of Irish LT debt will still be vulnerable. Nevertheless, the news cycles are so short this week that I believe most financial reporters will conclude that the Irish crisis is over and we'll move on to the next story."

Warren Buffett speaks out
"The other major story this week will concern the U.S. tax debate," Krause commented. "Warren Buffett said today on ABC’s and BBC's World 'This Week With Christiane Amanpour,' that rich people in the U.S. should pay more in taxes and that the Bush-era tax cuts for top earners should be allowed to expire at the end of December. He said that taxes for the lower and middle class and maybe even the upper middle class should even probably be cut further, but that people at the high end - people like him - should be paying a lot more in taxes."

Dr. David Krause
Dr. Krause added, "The Buffett interview is going to move the discussion towards a simplified tax system. It will be very interesting to see if bipartisanship might be found on this issue. Frankly, I predict President Obama will tact to the center on this issue. This will be very interesting to watch this week and I think that Buffett's comments will have a definite impact on the tax debate in Washington. I honestly believe we are going to have some dialogue towards a simplified two-tier tax rate with limited deductions. Will it happen, I don't know, but we do need to address the debt situation in the U.S. and removing major tax deductions is one way to increase revenues to the U.S. Treasury."

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