Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19
It’s Not Technology but the Fed That Is Taking Away Jobs - 16th May 19
Learn to Protect your Forex Trading Capital - 16th May 19
Gold Ratio Charts Offer The Keys to the Bull Market - 16th May 19
Is Someone Secretly Smashing the Stock Market at Night? - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

U.S. Dollar Repatriation and Inflation

Economics / Inflation Jun 24, 2011 - 02:40 AM GMT

By: Jeff_Lewis

Economics

It’s starting to look like the corporate world will soon get another pass from Congress on paying its international tax bill.  Last proposed and passed in 2005, a dollar repatriation holiday would allow companies to bring dollars on overseas back to the United States with only a 5.25% tax rate.


What the New Proposal Means

Ordinarily, the US government taxes corporate earnings at a rate of up to 35%.  Proponents of the new measure say that it would allow for more capital spending here at home while, others say that it will only result in more share buybacks and dividends to reward investors, not job seekers.

At any rate, we have to wonder what such a policy might do for domestic inflation and dollar values.  In allowing conglomerates that operate internationally to bring their cash back to the United States, many will have to buy dollars to make the transaction, temporarily boosting the value of the dollar.

Additionally, the repatriation of capital to American soil could bring inflation.  Corporations have as much as $1 trillion overseas, and many won’t think twice about bringing it home inexpensively.  Analysts have noted that recent bond offerings to raise funds from cash-heavy conglomerates may be part of an accounting scheme to raise post-tax US dollars as domestic bank accounts dry up.  Companies have little incentive to bring back dollars to the US when they can borrow cheaply; however, new tax policy would allow for a wall of dollars to flow back into domestic markets.

Short-term Boom

It should be expected that anything to come of a tsunami of credit would be temporary.  The dollar may rise further against the Euro as international capital stored in euro-denominated tax havens comes back to the United States. 

It should also be expected that the equity markets will rally on such news.  In bringing capital back to the United States, companies will reward shareholders with heftier dividends and share buybacks, which increase shareholder ownership of a company by reducing the total shares of stock outstanding.  Naturally, large capital inflows reward companies thinking about making new acquisitions domestically, and high-dollar bids for largely American brands should help to revive a merger and acquisition spree that has stalled into the summer months.

Realistically, nothing will change with any dollar repatriation.  The markets will find equilibrium again for the dollar, and any happenings in the metals markets will reverse.  We expect some consolidation should this proposal be approved as a slurry of new deals, dividends, and general optimism for the US economy pushes the equity markets to overheat once more.

In the long-term, moving capital from international shores to the United States should concern inflation hawks.  In keeping capital overseas, the domestic inflation rate remains artificially low.  When the capital returns to the United States, it will flow to money market accounts, T-bills, and short-term debt markets to chase yields.  However, all this new capital will eventually be spent as it will be far more accessible by corporations and investors.  Await inflation should this proposal work its way through government; you may even get a chance to buy on a temporary, emotion-driven dip.

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2011 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules