Corporations Are Investing In Stock Buybacks That Don’t Pay

The Trump tax cuts were supposed to trigger a boom in business investment and wage growth. Instead, corporations are plowing record amounts of money into stock buybacks that don’t even reliably increase their share prices.
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On Structural Budget Balance

In an excellent paper Frances Coppola (@Frances_Coppola) shows that disentangling structural fiscal balance from the budget balance is not an easy task as it relied on not easy to define hypothesis.
Therefore, the question on the importance of the concept is on the table. Can it be useful if its definition can be perceived as fuzzy? May be is it just a way for economists to speak a very specific language that will not be understood by non economist?

Her conclusion
“The aftermath of a severe negative shock is no time to be worrying about “structural” deficits. Better to restore the economy first, by every means available. Dealing with what would be better named the “residual” fiscal deficit is a job for the good times.”

Her article is here

Issues of Economic Policy in France

The new government is expected to give a new breath to French economic policy. Manuel Valls the new prime minister will give a speech tomorrow at the National Assembly and we can expect that he give economic policy targets and how to reach them.
At the same time, Michel Sapin the new finance minister will have to negotiate with the European Commission the budget deficit trajectory. It was expected at 4.1% in 2013 but it will be at 4.3%. The target for 2015 is 3% and is probably not reachable. There are still discussions on the “Pacte de Responsabilité” that was announced by Francois Hollande during its press conference on January the 14th. This “pacte” will reduce payrolls tax. There are still discussions on the definition of the “pacte” and on who will finance this charge reduction? It will probably be financed by a reduction on government expenditures by EUR 50bn but the negotiation is not over yet.

On these issues, a macroeconomic point of view can improve the understanding of the situation. The two charts below will help.

In the long run, GDP profile is conditioned by private demand. Continue reading

Cyprus: The unsustainable trajectory

In Cyprus the choice that has been made is in favor of the Euro Area. It is how we have to interpret the vote on the banking sector restructuration and for the solidarity fund. Today a vote is expected for a tax on deposit above € 100 000.

After the failure of the negotiations with Moscow, this option means that the Cyprus as an off-shore banking sector will rapidly become an old story.

So what is the current situation for Cyprus?

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