January 08, 2015

 

By Josh Boak 

AP Economics Writer 

 

The fallout from the greenback's appreciation is reverberating around the world. A more valuable dollar translates into cheaper oil and the imports lining U.S. store shelves. That represents both a boon for American consumers and a hardship for major oil producers such as Russia, Nigeria and Saudi Arabia.

 

Major companies such as Nike, Costco and ConAgra Foods warn that the stronger dollar is cutting into their overseas revenue — a trend that could pressure some of the biggest brand names in the stock market.

 

The combination of falling oil prices and a rising dollar has even led some economists to suggest that average U.S. consumer inflation could approach zero early this year. If it does, the Federal Reserve might have to alter its calculations about when to raise a key interest rate for the first time since the financial crisis erupted in 2008.

 

The dollar’s rise has been fueled by a dim outlook for the global economy. Europe is muddling through a slowdown, and accordingly, the dollar has appreciated roughly 12 percent against the euro in the past year.

 

Japan is mired in a recession, while Brazil just crawled out of one. The Japanese yen has shed about 16 percent of its value against the dollar in the past 12 months, the Brazilian real about 13 percent. In Russia, the ruble's collapse has left homeowners struggling to repay their dollar-denominated mortgages.

 

All of that spills over into other markets. Investors seeking to escape the turmoil crowded into U.S. Treasurys on Tuesday, causing the yield on the 10-year note to dip below 2 percent.

 

Crude oil prices fell more than 4 percent to under $48 a barrel. And the Standard & Poor’s 500 stock index declined nearly 1 percent amid fears about the global economy.

 

Here are five economic sectors that could be reshaped by a stronger dollar and the global sluggishness:

 

— OIL PRICES

 

Crude oil prices have more than halved from $107 a barrel since June. The global appetite for petroleum has diminished because of the worldwide economic slowdown, which extends to commodity-hungry nations such as China. Meanwhile, oil rigs in countries such as Saudi Arabia, which are competing for market share, are pumping out oil anyway. As a rule, continued supply and falling demand cause lower prices.

 

But the U.S. dollar also plays into this trend. Financial markets price oil in dollars. This gives petroleum a uniquely inverse relationship with the almighty buck. When oil prices fall, the U.S. dollar often rises against other currencies. As a result, Americans are reaping more of the benefits at the gasoline pump from falling oil prices than are the German, French or Portuguese consumers who buy their gas in euros.

 

—CONSUMER SPENDING

 

Gasoline is a must in most family budgets. So when prices at the pump fall — and they’re down a third over the past year nationwide to $2.19 a gallon, according to AAA — people can direct that spending elsewhere. They can splurge on a winter jacket, an SUV or an evening out at a restaurant.

 

But that increased spending usually lags.

 

“It takes time for people to realize the extent to which their finances have been improved by the drop in gas prices and for them to be convinced the gain will last, and finally for the money to be spent,” said Ian Shepherdson, chief economist at Pantheon Macro­economics.

 

U.S. consumer spending rose 3.2 percent during the July-September quarter of 2014. Shepherdson forecasts that it will top 4 percent in the first quarter of 2015 because of the boost from cheaper gas.

 

—INFLATION

 

When consumer spending surges, higher inflation usually follows. But not necessarily this time.

 

U.S. consumer prices will likely be flat in 2015 — unchanged on average at 0 percent, predicts Kevin Logan, chief U.S. economist at HSBC Securities. This would be due largely to falling oil prices, with an assist from a stronger dollar making foreign-made imports cheaper for American shoppers and businesses. The rising exchange rate causes denim from Osaka, Japan, that was originally priced in yen to become more of a bargain at U.S. boutiques. Prices have already fallen for vehicle imports.

 

—THE FEDERAL RESERVE

 

Fed Chair Janet Yellen has hinted that the U.S. central bank may lift the federal funds rate from its near-zero level at some point in 2015. That rate has been at near-zero since the financial crisis in 2008 and ensuing global recession put the Fed on an emergency footing. The Fed usually would raise the rate as jobs return and inflationary pressures increase. The unemployment rate has plunged to 5.8 percent from 6.7 percent at the start of 2014. Yet inflation appears to be moving further below the Fed's 2 percent target.

 

“It creates a little bit of a quandary,” said HSBC’s Logan.

 

He thinks the Fed won't make a move to raise this key rate until September, somewhat later than other analysts who have been predicting June.

 

— BONDS

 

Investors seem to think the Fed will be slow to lift the rate over time, as the 10-year U.S. Treasury has slid beneath 2 percent for the first time in three months. This is also likely a sign of international investors seeking a haven with a reasonable return. The U.S. dollar and government debt provide this shelter. Germany is staring down a financial mess across the euro zone, but a German can earn a 1.94 percent yield on a 10-year U.S. Treasury compared with just a 0.44 percent yield on 10-year German bond.

 

This causes more international investors to buy 10-year U.S. Treasurys, further lowering the yield. That then translates into lower mortgage rates for U.S. homebuyers.

 

— STOCKS

 

A stronger dollar means U.S. exports are more expensive abroad, which could affect the earnings of companies on the stock market. About a third of sales for the companies in the S&P 500 come from outside North America, said John Butters, an analyst for the data firm FactSet.

 

Some companies are already saying the stronger dollar could squeeze their foreign sales.

 

Nike described the rising dollar as a “headwind” despite its efforts to hedge the currency market. The consulting firm Accenture said its net revenue increased 10 percent in “local currency” during the previous quarter but only by 7 percent in U.S. dollars. It means the exchange rate subtracted from their growth by 3 percentage points. Cheerios-maker General Mills said currency differences lowered its sales by 2 percentage points, while Costco said the stronger dollar lowered its earnings in Canada and Japan.

January 01, 2015

 

By Ricardo Alonso-Zaldivar 

Associated Press 

 

It’s the first year all taxpayers have to report to the Internal Revenue Service whether they had health insurance for the previous year, as required under President Barack Obama’s law. Those who were uninsured face fines, unless they qualify for one of about 30 exemptions, most of which involve financial hardships.

 

Dayna Dayson of Phoenix estimates that she’ll have to pay the taxman $290 when she files her federal return. Dayson, who’s in her early 30s, works in marketing and doesn’t have a lot left over each month after housing, transportation and other fixed costs. She’d like health insurance but she couldn’t afford it in 2014, as required by the law.

 

“It’s touted as this amazing thing, but right now, for me, it doesn't fit into my budget,” she said.

 

Ryan Moon of Des Moines, Iowa, graduated from college in 2013 with a bachelor’s in political science, and is still hunting for a permanent job with benefits. He expects to pay a fine of $95. A supporter of the health care law, he feels conflicted about its insurance mandate and fines.

 

“I hate the idea that you have to pay a penalty, but at the same time, it helps other people,” said Moon, who’s in his early 20s. “It really helps society, but society has to be forced to help society.”

 

Going without health insurance has always involved financial risks. You could have an accident and end up with thousands of dollars in medical bills. Now, you may also get fined. In a decision that allowed Obama’s law to advance, the Supreme Court ruled in 2012 that the coverage requirement and its accompanying fines were a constitutionally valid exercise of Congress’ authority to tax.

 

In 2015, all taxpayers have to report to the IRS on their health insurance status the previous year. Most will check a box. It’s also when the IRS starts collecting fines from some uninsured people, and deciding if others qualify for exemptions.

 

What many people don’t realize is that the penalties go up significantly in 2015. Only 3 percent of uninsured people know what the fine for 2015 will be, according to a recent poll by the nonpartisan Kaiser Family Foundation.

 

Figuring out your potential exposure if you’re uninsured isn't simple.

 

For 2014, the fine is the greater of $95 per person or 1 percent of household income above the threshold for filing taxes. It will jump in 2015 to the greater of 2 percent of income or $325. By 2016, the average fine will be about $1,100, based on government figures.

 

People can get a sense of the potential hit by going online and using the Tax Policy Center’s Affordable Care Act penalty calculator. Many taxpayers may be able to get a pass. Based on congressional analysis, tax preparation giant H&R Block says roughly 4 million uninsured people will pay penalties and 26 million will qualify for exemptions from the list of more than 30 waivers.

 

But it’s unclear whether taxpayers are aware of the exemptions.

 

Deciding what kind of waiver to seek could be crucial. Some can be claimed directly on a tax return, but others involve mailing paperwork to the Department of Health and Human Services. Tax preparation companies say the IRS has told them it’s taking steps to make sure taxpayers’ returns don’t languish in bureaucratic limbo while HHS rules on their waivers.

 

TurboTax has created a free online tool called “Exemption Check” for people to see if they may qualify for a waiver. Charges apply later if the taxpayer files through TurboTax.

 

Timing will be critical for uninsured people who want to avoid the rising penalties for 2015.

 

That’s because Feb. 15 is the last day of open enrollment under the health law. After that, only people with special circumstances can sign up. But just 5 percent of uninsured people know the correct deadline, according to the Kaiser poll.

 

“We could be looking at a real train wreck after Feb. 15,” said Stan Dorn, a health policy expert at the nonpartisan Urban Institute. “People will file their tax returns and learn they are subject to a much larger penalty for 2015, and they can do absolutely nothing to avoid that.”

 

The insurance requirement and penalties remain the most unpopular part of the health care law. They were intended to serve a broader purpose by nudging healthy people into the insurance pool, helping to keep premiums more affordable.

 

Sensitive to political backlash, supporters of the health care law have played down the penalties in their sign-up campaigns. But stressing the positive — such as the availability of financial help and the fact that insurers can no longer turn away people with health problems — may be contributing to the information gap about the penalties.

 

Dayson, the Phoenix resident, says she’s hoping her employer will offer a health plan she can fit into her budget, allowing her to avoid higher fines for 2015.

December 25, 2014 

 

By Charlene Crowell 

NNPA Columnist 

 

The groundswell for criminal justice reform has become nearly daily headline news. Demon­strations spanning the nation and many parts of the globe have demanded justice for those lives taken by questionable and fatal police behavior.

 

Yet, Black America also suffers from another kind of injustice that is economic in nature and as pervasive as it is cruel. According to a new analysis of the Federal Reserve’s Survey of Consumer Finances, White household wealth stands at 13 times that of Black households. Similarly, when White wealth was compared to that of Latino households, the wealth gap was more than 10 times.

 

After accounting for total household financial assets such as savings, investments, and business equity, the Pew Research Center then subtracted all indebtedness, including mortgages, installment loans, credit cards student loans and more. The results in dollar values determined that the median net worth of White households in 2013 was $141,900. For Blacks and Latinos, however, median net worth was only $11,000 and $13,700, respectively.

 

The authors of the report, Richard Fry and Rakesh Kochhar, wrote, “[F]inancial assets such as stocks, have recovered in value more quickly than housing since the recession ended. White households are much more likely than minority households to own stocks directly or indirectly through retirement accounts. Thus, they [Whites] were in better position to benefit from the recovery in financial markets.”

 

This reasoning may apply post-recession; but America’s racial wealth divide has existed throughout most of the nation’s history.

 

For example, for more than 200 years enslaved Africans and their descendants worked with no wages. Emancipation freed former slaves; but few opportunities for immediate gainful employment existed. Although Reconstruction led to some short-lived economic gains, the “Black Codes” that soon followed with Jim Crow laws and practices reversed most financial gains. America’s ‘colored wages’ continued for several decades until 1960s federal civil rights legislation called for equal employment and banned racial discrimination in employment, public accommodations, housing and voting.

 

It is also noteworthy to remember that early federal homeownership programs were structured in ways that discriminated against Black borrowers. For example, the FHA and GI Bill’s housing programs had severe biases against urban homes and neighborhoods with large numbers of minorities. These policies and practices led to the virtual exclusion of Black families in obtaining affordable and sustainable mortgages.

 

At the local level, restrictive covenants banned people of color from neighborhoods, regardless of their ability to afford homes. Some restrictive covenants existed even in communities that did not officially mandate racial segregation.

 

The Community Reinvestment Act (CRA), enacted in 1977, requires depository institutions such as banks and credit unions to use safe and sound practices to meet the credit needs of communities where they operate – including low and moderate-income neighborhoods. In May 1995 and again in August 2005, CRA’s regulation was substantially revised and updated.

 

Even with CRA, however, predatory lenders consistently targeted consumers of color in their own neighborhoods. Often in the absence of full-service, mainstream financial services, these fringe lenders arrived to exploit financial needs in urban areas. In the process, valuable dollars have been drained from wallets and livelihoods.

 

For example, 2012 research by the Center for Responsible Lending (CRL) found that:

 

Black and Latino families bore $1 trillion of the nation’s $2 trillion in lost wealth due to the concentration of subprime mortgages in communities of color;

 

 Auto loan interest-rate markups cost consumers nearly $26 billion each year; and

 

 Borrowers in lower credit tiers pay up to 68 percent higher monthly payments on private student loans than on safer federal loans.

 

 If economic injustice is allowed to continue, America’s disturbing wealth gap trends will underscore what the 1960s Kerner Commission report predicted: two Americas divided by race.

 

As a New Year begins, a different kind of resolution is in order: Economic justice for all.

Charlene Crowell is a communications manager for the Center for Responsible Lending. She can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. .