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While the economic recovery maintains growing profits, major U.S. banks anticipate one of their biggest profit years ahead — such as major players J.P. Morgan Chase and Co. and Citigroup. It’s no longer a question of whether profits will be strong, but how much.
A year ago, banks were socking away billions of dollars to prepare for soured loans. Still, as the economic outlook has brightened, banks have started to release reserves boosting the unexpected earnings. Banks are reporting second-quarter earnings 40 percent higher than the same period a year ago. However, the second quarter of 2021 denoted a marked slowdown without the drive of a pandemic reaction providing the base of this profit expansion.
Autonomous research is predicting 2021 net interest income decline at the big banks. Rising interest rates and increased lending should provide a double-bounce lift. Banks have plenty of money to lend — more than enough to absorb the highest possible demand that lies in the offing.
Many companies are still hoarding cash. According to data from the Federal Reserve, there is now $17 trillion worth of deposits in U.S. commercial banks; that is up nearly $3 trillion, equal to the size of the previous total in 2001.
The excess cash is dragging down margins because banks aren’t earning much more on the total amount. The biggest banks shelled out money during the depths of the pandemic to waive customer fees and get employees set up with working from home.
The KEW NASDAQ index rose 27 percent in 2021 so far, topping the S&P 500’s 16 percent increase during the same time. Where the bank stock basis goes in the future will be determined by how much banks lift their dividends and bring back their success. The rest of 2021 will tell much of what the future might bring.
Is Global Tax Deal Good for the U.S.?
Despite G-20 backing, most congressional members voiced their suspicion of a global tax deal. Several indicated that the bulk of this worldwide tax deal would eventually fall on the United States, as usual.
As detailed negotiations continue, other countries will look to see if U.S. lawmakers implement a minimum corporate rate of at least 15 percent and embrace new rules for dividing the power to tax the largest companies. It is expected that Congress will wait and see how fast other countries will sustain their commitment this time. Most U.S. lawmakers had seen such promises and little action before, with America eventually left holding the bag.
Using the budget reconciliation process, the Biden administration will try to turn its drive for a tougher minimum tax into legislation this fall without the need for GOP votes. This requires a simple Senate majority rather than the 60 votes needed for most bills.
However, business groups are urging both sides of Congress to wait. The White House would then attempt to change the international rules, likely asking for Republican votes in support.
The voluntary agreement signed by 130 countries includes an important shift in how the world sees the existing U.S. minimum tax under the Trump administration. The United States pressed other countries to accept the 2017 tax as complying with the “world’s other nations” before imposing it on the American people once again.
The agreement sets a minimum 15 percent tax rate and includes a mechanism to punish companies from countries without minimum taxes. These features are absent in current U.S. law, but they are in the Biden plan.
If this law isn’t deemed compliant, American companies could face higher taxes abroad. And this would suddenly raise these taxes without public knowledge of its consequences. Most members of Congress have paid little attention to the details of international talks, but the agreement gives the United States some flexibility as the legislative process unfolds.
Similar to previous world agreements, this one looks like another “Let good old Uncle Sam do it, and we’ll give it some thought.”
Why Manufacturing Solidifies U.S. Economic Future
When assessing America’s world manufacturing leadership of global economic power, we should remember that only the incredible U.S. manufacturing strength helped Western Europe regain most of its former strength in the wake of the destructive World War II. In addition to rebuilding Japan, Germany, France, the United Kingdom and Scandinavia, this American production power kept the red wave of Russia’s Communism from engulfing Central and Western Europe.
Even the bulk of America’s eventual 340 million residents took great pride in the fact that “Made in the USA” became the production base on which an anti-Communist Western Europe was able to revive to much of its former self.
Within the United States, great pride was taken in America’s massive production sector, even though the incredibly low prices seen elsewhere were not to be had at home. But the latter was taken advantage of by two-term Presidents William Clinton and Barack Obama. The latter judiciously discovered that global all-time low prices would be a vote benefit by many who saw great political advantage therein.
Never mind that 48,000 U.S. factories were closed because of the inability to be competitive.
It was not until the election of President Donald J. Trump that a serious effort was made to rebuild the Made in America moniker, both for nationalist and job reasons, but even greater finesse and value when many lost products regained life.
It is most unfortunate that the Biden administration has taken upon itself the object of erasing Trump’s success while returning to “Made outside the USA.” As a major factor, it is being seen largely as a huge retail sector advantage in votes.
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