Increasing taxes does not necessarily lead to higher income tax revenues for the Federal government according to a study by The Heritage Foundation:
Source: 2011 Budget Chart Book, The Heritage Foundation
Increasing taxes does not necessarily lead to higher income tax revenues for the Federal government according to a study by The Heritage Foundation:
Source: 2011 Budget Chart Book, The Heritage Foundation
China and India are two of the largest emerging markets in the world. With rising middle-class and increasing wages, the countries are experiencing tremendous economic growth. However in terms of overall growth, India still lags behind China in most metrics. This is despite India being the world’s largest democracy and China being a communist state with a one-party rule. Though both countries embraced free market capitalism, China’s political system keeps the country on the right track by focusing on economic prosperity and country’s development while India’s political system breeds chaos, corruption and other social ills that fails to lift the majority of the population. China’s huge manufacturing sector offers well-paying jobs for workers. India’s manufacturing base is low in comparison and the much-hyped IT sector employs a small fraction of the working population.
I came across two articles that discussed the differences in growth between India and China. From The Economist article Comparing India and China – Chasing the dragon:
The chart shows the number of years that have elapsed since China passed the development milestones that India has now reached. India’s income per head, for example, was about $3,200 in 2009 (holding purchasing power constant across time and between countries). China reached that level of development nine years ago. The lag in social progress is much longer. A child’s odds of surviving past their fifth birthday are as bad in India today as they were in China in the 1970s. Moreover, the chart does not necessarily imply that India in nine years’ time will be as rich as China is today. That is because China grew faster in the last nine years than India is likely to grow over the next nine. We stopped the clock at $3200 per head. But China did not stop racing ahead.
From Will India overtake China in the next decade? by Ganeshan Wignaraja in Vox:
China currently dominates world manufacturing export markets, while at the same time it is taking a larger global share of medium- and high-technology exports. In achieving its pre-eminent status, China benefited from favourable initial conditions including a large domestic market, low-cost productive labour, and the geographical advantage of its proximity to Japan, the previous engine of Asian growth. Even more importantly, China pursued a swift and coordinated economic liberalisation programme beginning in 1978 that served as a catalyst for subsequent decades of economic growth. This reform programme included:
An open-door policy toward foreign direct investment (FDI)
Promotion of technology transfer through FDI
Steady liberalisation of a controlled import regime
Export incentives, and
A strategic approach to free trade agreements (FTAs) with neighbouring Asian economies.By comparison, India’s economic liberalisation did not begin until 1991 – more than a decade later – and it focused more narrowly on easing restrictions on FDI and imports. In recent years India has accelerated reform of FDI entry regulations and import tariffs (Bardhan 2010). For instance, India’s simple average import tariffs reached 13% in 2009 compared with 10% for China. Nonetheless, as a result of China’s “first-mover” advantage and more comprehensive liberalisation programme, it has been able to achieve consistently higher trade growth than India for the past several decades and has a much larger export base than India.
From less than $10 billion in 1985, Chinese exports ballooned to $1.8 trllion in 2010, accounting for 11% of world exports (see Figure 1). Meanwhile, Indian exports, which were also less than $10 billion in 1985, have grown more modestly to $326 billion in 2010 and account for 2% of world exports. Over this same period, China’s share of world export manufactures jumped from 0.5% to 11%, while India’s share increased from 0.5% to around 2%.
The above articles clearly show that India’s economy has to accelerate faster to catch up with China. Democracy with free-market capitalism offer the best combination for emerging countries to develop into advanced countries. However the current democratic system is corrupt and needs a complete overhaul. China’s population seem to be content with the current market socialism system as it raising the standard of living for the majority. But in the long run the Chinese may demand full freedom and initiate a peaceful transition to democracy.
Related ETFs:
PowerShares India (PIN)
iShares S&P India Nifty 50 (INDY)
iShares FTSE/Xinhua China 25 Index Fund (FXI)
Disclosure: No Positions
Sovereign debt defaults has become a topic of investors’ worry in the past few years. Some of the European countries such as Greece, Spain, Italy, Portugal, etc. are suffering from fiscal issues and may default on their debts. At the height of the credit crisis some suggested that the US may have to default should China and other creditor nations reject to buy US debt. However until now none of the countries noted above have defaulted despite some having their credit ratings cut.
The following are some of the key points on sovereign debt defaults based on Credit Suisse Research Institute’s Country Indebtedness – An Update earlier this year:
Source: Country Indebtedness – An Update , Credit Suisse Research Institute, January 2011
Transfer payments are government payments to individuals in the form of social security, unemployment benefits, disability benefits, food stamps, etc. Some of these payments are big expenditure for the government and have increased in recent years. For example, food stamp expenditures totaled $64.7 billion for the fiscal year ending in September 2010 and is projected to exceed to $70 billion this year.
Trasnfer payments as a percentage of disposable income have increased consistently since the 1950s as shown in the chart below:
Transfer payments now account for about 20% of disposable income. As disposable income is critical for the consumption-based US economy, transfer payments are also important. Hence a decrease in transfer payments will negatively impact the economy. Unfortunately these payments have started to decrease in the past couple of months as shown in the chart above due to belt tightening by the government and the ending of some Federal stimulus programs. According to an article by Russ Koesterich of the iShares blog, additional reduction in transfer payments may increase the chances of a double-dip recession significantly.
Looking from another angle, Transfer Payments as a share of Government Spending is also steadily rising as shown in the chart below. It has doubled from 22% in 1966 to 44% in 2010 according to an article by Professor Dr. Mark J. Perry of the University of Michigan.
Click to enlarge
Rising transfer payments is not conducive for the overall advancement of the country as they can turn the U.S. into a “nanny state” similar to many countries in Europe. Instead of trying to help the disadvantaged with payments, the Federal government should develop policies for sustainable economic growth that can reduce people’s dependency on welfare.
Sources:
Transfer Payments and the Risk of a Double Dip, Advisor Perspectives
Chart of the Day: Transfer Payments, Carpe Diem
Germany’s DAX index rose over 3% yesterday after having fallen heavily in the past few weeks due to the debt crisis triggered by Greece and other weak European countries. While financials were focus of investors, non-financial firms were also thrashed in the recent sell-off. As a result, some of these non-financial stocks are now worth looking into for possible addition to one’s portfolio. Many of the German companies have strong export-based business models and so their earnings are not impacted by Greece, Italy but mostly by other countries especially by countries located outside of Europe.
Five OTC-traded German ADRs are listed below with their YTD change:
1.Company: Adidas AG (ADDYY)
YTD Change: 3.00%
Sector: Footwear
2.Company: BASF SE (BASFY)
YTD Change: -12.58%
Sector:Chemical Manufacturing
3.Company: Continental AG (CTTAY)
YTD Change: -14.84%
Sector:Auto & Truck Parts
4.Company: Hannover Rueckversicherung (HVRRY)
YTD Change: -8.43%
Sector: Reinsurance
5.Company: Linde (LNEGY)
YTD Change: -3.04%
Sector:Chemical Manufacturing
Each of the above five companies excel in their line of business. BASF is the undisputed world leader in chemical manufacturing. Hannover Re is a reinsurer which insures insurance companies. Last week Continental Tire announced plans to build a $500 million factory in South Carolina. Linde is a maker of speciality chemicals. Adidas owns the Reebok brand and is well respected around the world. In addition to footwear, the company also makes many sports-related products and clothing.
Disclosure: No positions