Where Our Tax Dollars Go To – Fiscal Overview

For fiscal 2015, the federal government took in over $3.2 trillion in tax payments, a record year compared to previous fiscal years. The federal budget for fiscal year 2015 ran from October 1, 2014, to September 30, 2015. The total figure amounts to approximately $21,833 for every person in the United States.

Taxpayers often wonder, where does all their tax money go. The Office of Management & Budget breaks down where tax payments go each year, allowing Americans to see what they’re getting.

Source: Office of Management & Budget

Fixed Income Update – Global Bond Markets

The ECB disclosed additional details in April about its bond buying program, stating that it will purchase government and corporate debt with maturities of 6 months to 30 years. Effectively, this strategy will provide cheap loans to global corporations operating in Europe, leading to a possible surge in debt issuance as companies take advantage of the ECB’s plan.

So far this year, corporate bonds have outperformed most government bond sectors, including Treasuries and mortgage-backed debt. High-yield corporate debt has seen the most appreciation of all corporate debt. Historically, high-yield bonds tend to correlate with equity markets due to factors as improving earnings and credit ratings.

Some analysts believe that the Fed’s stance on keeping rates stable for now and the ECB’s stimulus program in Europe of buying corporate debt has prompted domestic bond values to rise.

Sources: ECB, Bloomberg, Federal Reserve

International Review

China released economic data that showed exports were growing and that its GDP was heading higher. International analysts and economists tend to play down economic data released by the Chinese government due to perceived inaccuracies of what it releases.

Economic growth in the eurozone surpassed growth in the Unites States for the first quarter, a sign that central bank stimulus in Europe may be making some progress. The dollar’s recent slide against the euro was also an indicator that U.S. growth was stagnating relative to international markets.

Many economists believe that the central banks in Europe and Japan have held back on further stimulus efforts until financial conditions stabilize and their currencies regain some strength.

Sources: Eurostat, Bloomberg, Reuters

Japanese Yen Surges – Currency Update

The yen has risen over 10 percent against the dollar so far this year, with any additional gains intensifying speculation that the Bank of Japan would intervene sooner rather than later, as Japanese politicians have raised concerns about the yen’s run-up. Japan’s rising currency is making Japanese exports form cars to pens more expensive worldwide, stifling any stimulus efforts that had originally been enacted.

Japanese Prime Minister Shinzo Abe is scheduled to visit Italy and Germany in May where it is believed he will try to set the stage for a possible intervention in currency markets as Japan prepares to host a G7 meeting later in the month.

Some currency analysts expect a possible resurgence in a currency war should the yen and other major currencies continue to rally versus the U.S. dollar.

Competitive devaluation of a nation’s currency, also known as a currency war, is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency.

The benefits of a devaluing currency for a nation’s economy include an increase in exports, which may result in additional manufacturing and employment. A significant hindrance of a devaluing currency would be imports becoming more expensive, thus indirectly causing inflationary pressures within an economy.

Source: Federal Reserve Bank of New York