Before the vote today on part of the Fast-Track Trade Bill, President Obama made a rare trip to Capitol Hill in an effort to convince fellow Democrats to stand with him on the vote. He had a large number of Republicans on his side, so he was mostly appealing to his own party in the hopes of getting the deal passed. It was ultimately unsuccessful, as the Trade Adjustment Assistance part of the bill was defeated by a vote of 302-126. The opposition was led by long-time ally Nancy Pelosi and ultimately killed the bill. The President may try and rally support over the weekend, and the bill could go back up for a vote as early as Tuesday. If this measure ultimately fails, it will likely signal that President Obama will spend the final 18 months in office as a “lame duck” president, as he has been working on getting this measure passed for some time now.
Update on Greek Debt Crisis:
As Greece has been negotiating its next debt payments after deferring its June 5th payment, it appears to be at an impasse. Currently, Greece owes $1.7 billion to the International Monetary Fund (IMF) this month and $7.6 billion to the European Central Bank (ECB) in July and August. German Chancellor Angela Merkel called for all parties to return to the negotiating table, leading to a conversation between the parties, but nothing came of the talks. Greece has stated that it would not cross its “red lines”, intensifying political negotiations. Creditors have also basically given Greece a “take it or leave it” offer.
With both sides essentially drawing lines in the sand, it is looking more likely that Greece will default on its debt payments, likely leading to a banking system crisis. These developments were somewhat expected, though the markets have pulled back as a result of today’s news. That said, the big question now is what will happen if the default actually takes place. If Greece wants to stay in the euro zone, this would require bailout loans from the ECB’s Emergency Liquidity Assistance program, likely leading to strict capital controls from the ECB. The implications of this will really depend on the controls implemented and how Greece pulls itself out.
Should Greece exit the euro, the “crisis level” will depend on the terms of the exit. The ECB could provide Greece with an exit loan in the newly established currency, helping support the new currency. If no help is provided, it would likely get very ugly. Greece would likely go into a depression and could drag the rest of Europe in with it.
Ultimately, a Greek default will likely have far reaching implications on the euro zone and beyond and thus warrants extra attention. Greek officials have remained optimistic that a deal will be reached on June 18th when the euro group of regional finance ministers meet.
China Margin Requirements Ease:
We have been writing about the volatility in China, and lately it has been due to fears that margin requirements could get more demanding. This would be a big deal for Chinese investors, who currently leverage their investments and have helped drive the market to its highest level in nearly seven years. Ultimately, the China Securities Regulatory Commission (CSRC) said today that it will allow a reasonable extension of margin trade contracts that investors sign with brokerages. Currently, margin loans are good for up to six months. This move today allows brokerages to rollover the contracts, essentially creating longer-term loans. Interestingly, the CSRC stated, “At the moment, the margin-financing business is generally healthy and its risk remains controllable,” perhaps paving the way for additional easing in the future.
IRS Addresses Identity Theft:
The IRS announced plans to combat against identity theft by teaming with tax preparation software companies and payroll providers to protect taxpayers. The plan is to implement safeguards including steps to validate taxpayer information at the time of tax filing. The collaborative effort is aimed to address the ongoing problem of criminals filing fraudulent tax returns to claim false refunds. The issue has impacted thousands of taxpayers as well as cost billions of dollars to the U.S. The IRS estimates it paid $5.8 billion of fraudulent refunds in 2013 alone.
Procedures are expected to be in place for the 2015 tax filing season. This announcement comes after criminals recently stole information on 104,000 taxpayers from the IRS website, as well as reports that nearly 4 million government workers had their information stolen by hackers in China. The IRS has shut down the “Get Transcript” function of their website until such time that they are confident security measures are working properly.
Some of the steps to be used include data sharing at the time of filing a return to authenticate information to detect fraud. This includes monitoring for irregularities and unusual patterns. Both the public and private sectors will share information with each other to identify cases and help authorities track down the thieves. There is more work to be done, but this is a step in the right direction to protect taxpayers.
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