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Why tech giants don’t invest tax cuts in American jobs: Don Pittis

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More than $100 billion US in tax cuts that were supposed to “make America great again” went into the pockets of well-off investors in U.S. tech companies, according to new research by one of the world’s most influential business newspapers.

Just as tech share prices show signs of weakness, there are growing worries that instead of investing those tax breaks into something that would last, much of that cash has just been gambled on what economist John Maynard Keynes described as casino capitalism.

“When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done,” Keynes wrote in his groundbreaking 1936 opus, The General Theory of Employment, Interest and Money.

Markets run amok

Canadian Keynes scholar Jean-Philippe Rochon is sure that when Americans look back at the tax money removed from public revenue and used for the sole purpose of creating a temporary jump in share prices, there will be profound regret.

“We live in an era of capitalism gone amok,” says Rochon, an economics professor at Laurentian University in Sudbury, Ont., and a founding editor of the Review of Keynesian Economics. In casino capitalism, he says, “What goes up must come down.”

Certainly if shares were to continue their recent declines, all that money removed from government revenue and used to bid up stocks using share buybacks and dividend payments could simply disappear into thin air. Meanwhile, taxpayers will be left with a bigger national debt and increased calls for cuts to public spending to balance the budget.

As Keynes observed, the purpose of capitalist markets is not to make a fortune in a matter of weeks or months on stock speculation, but instead to raise money for wise and productive investment in the economy.

North America has lost jobs because of high wage costs, but even in lower wage places such as China, companies are investing in automation technology. (Reuters)

And that was exactly what was supposed to happen with the tax cuts. 

As sold to the American public, giving the tech giants a tax break would encourage them to bring their money home from overseas tax shelters and allow them to invest in the U.S.

Instead of making iPhones in China, for instance, Apple could spend the money on the research and the machinery to create North American jobs.

While the U.S. might have had trouble competing on wages, even companies in China are automating their factories. According to President Donald Trump’s MAGA rationale, there is no reason why those factories, the new technology to run them, and the high-paying jobs to make it all happen could not be located in the U.S. instead of China.

In fact, the name of the bill said it all. When the tax-cutting legislation was presented to Congress at the end of last year it was introduced as the Tax Cuts and Jobs Act.

Yet, despite the plunging U.S. unemployment rate, jobs continue to go abroad while investors get rich on speculation.

‘Good for shareholders’

Calculations by the London Financial Times show that so far this year, five of the biggest U.S. technology companies, including Apple and Google parent Alphabet, spent a combined total of $115 billion buying back their own shares.
That’s about double the amount those companies spent on share buybacks in the previous year, before Trump’s tax cuts kicked in. And it represents only a fraction of the estimated $1 trillion US paid back to shareholders of tech and non-tech companies.

“Most companies are using cash to buy back stock and make acquisitions, rather than invest in new facilities,” Allianz investment manager Walter Price told the Financial Times. “I think this is good for shareholders and management.”

In theory, the money that goes to buybacks could eventually return to the economy, and certainly some of it does. For example, shareholders might sell their stocks and spend the money on restaurant meals, recirculating the cash into the economy. Or they could take the money and use it to hire people for a startup business.

Failure to invest in the future

But according to Rochon, in a “financialized” economy neither of those things tend to happen. The very rich who own most of the stock don’t circulate much of their wealth into the real economy. And when they sell shares, rather than investing in something entrepreneurial, they tend to use the money to buy some other financial investment in hope of further speculative returns.

Rochon says short-termism compounds the problem. Rather than waiting for a long-term investment to pay off at five to seven per cent a year, shareholders and managers — who are paid bonuses tied to their stock price — want to see shares rise now. Share buybacks solve that dilemma.

This photo from the New York Stock Exchange in 1947 shows bulletin clerk Dolores Hennessy changing bid and ask prices. By then, the market had begun to recover from the so-called casino capitalism of the 1920s and ’30s. (Dan Grossi/Associated Press)

“These companies are going to have a problem,” he says. “We’re going to see old technology, the need for reinvestment, and we’re going to look back and say, ‘We should have invested 20 years ago instead of buying back.'”

What applies to the individual companies applies to the wider economy as well. Failure by the private sector to invest in new U.S. technology, new U.S. plants, new robots and new jobs will mean the U.S. will find it harder to compete with global challengers, including China.

And any of the buyback money that disappears as share prices fall might just as well have been left in the public purse to invest in things like infrastructure and health care and education for the poorest — things that really could make America great again.

Follow Don on Twitter @don_pittis 

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7 Tips For First-Time Home Buyers In Calgary

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Buying a house for the first time can be overwhelming to say the least. If you’re wondering what neighbourhood to go with, what you can afford, or even how to just get started on the process, let us take some stress off your hands! We’ve teamed up with Hopewell Residential to give you 7 tips to ensure the home you end up with is everything you dreamed of.

Hopewell Residential is a five-time Developer of the Year award winner, so their expertise is second-to-none in Calgary and beyond. Who better to learn home-buying tips from than the homebuilders themselves?

Create a checklist of needs & wants

This is a biggie. When you’re buying your very first home, you’ll want to weigh your needs vs. your wants. Ensuring you have what you love in your first home is a big, big deal.

What should you do? Easy. Set up a list of needs and a list of wants, but be pretty strict with yourself, and make sure you take your lifestyle into consideration. With the increase in remote work over the past year, it’s important to keep in mind that a home office or flex room might just be the key to maximizing at home happiness. Especially if you’re thinking you might be expanding your family later on, spare rooms and extra space is key (but more on that later!).

Or for instance, you might need a home in an area with a high walkability score, but you want to be close to certain amenities. Set yourself up with the right level of compromise and the number of homes that actually fit your ‘perfect’ idea will skyrocket.

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‘Don’t give up’: Ottawa Valley realtors share statistics, tips for homebuyers in ‘extreme’ sellers market

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The real estate market in the Ottawa Valley can be summed up this way: people from far and wide are in a buying frenzy, but there’s hardly anything to buy at the “store,” and the limited inventory is overpriced.

This “stampede” — as one realtor described it — will affect rural towns as residents grapple with finding affordable housing and agonize over their inability to purchase homes in their price range.

“We are seeing a lack of inventory in all price ranges,” said Laura Keller, a real estate agent from Carleton Place.

Helen Vincent, a Renfrew realtor, said she’s never seen a market like this in her 36 years of practice. “We postpone offers for four to five days in order to get all the buyers,” she said.

Multiple offers — between seven and 10 — became the norm, with cash offers and no conditions, as buyers faced bidding wars. “In Ottawa, they have up to 50 (offers),” she added.

“It’s very stressful. You’re going to get nine (people) ticked off, and one happy. So many people are disappointed,” Vincent said.

Terry Stavenow, an Arnprior realtor for 40 years, said that “the pent-up need took over with inventory going low. It made a stampede on everything that was available.“

“Brand new housing — it’s very much gone. Several building developers are rushing to get inventory. They usually don’t do construction in the winter months,” said Stavenow.

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10 Tips For First-Time Home Buyers

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Buying a home for the first time is exciting and a commitment to the future. It’s often challenging, too, and the process requires a lot of steps, many of which can be tricky to navigate as a first-time home buyer.

What are some things you should keep in mind as a first-time home buyer?

First-Time Home Buyer Tips

Here are 10 tips to keep in mind as you begin your journey toward homeownership.

1. Have Your Finances in Order

It’s wise to begin saving as early as possible once you’ve made the decision to purchase a house. You’ll need to consider the down payment, closing costs (which often range from 2% to 5% of the down payment), as well as move-in expenses.

You also need to understand the other costs of homeownership, such as mortgage insurance. property taxes, utilities, homeowner’s insurance, and more.

2. How Much Can You Afford?

Knowing how much you can realistically afford in a home is another important financial consideration. Look for the home of your dreams that fits your budget.

One way to avoid future financial stress is to set a price range for your home that fits your budget, and then staying within that range. Going through the preapproval process will help you understand what price range is realistic for your budget.

3. Make Sure Your Credit is Good

Another thing to keep in mind as a first-time home buyer is your credit score because it determines whether you qualify for a mortgage and affects the interest rate that lenders offer. 

You can check your credit score from the three credit bureaus – Experian, Equifax, and TransUnion.

This is another good reason for getting preapproved before you start your search. Learn more about the preapproval process and your credit score.

4. Choose The Right Real Estate Agent

A good real estate agent guides you through the process every step of the way. He or she will help you find a home that fits your needs, help you through the financial processes, and help ease any first-time buyer anxiety you may have.

Interview several agents and request references.

5. Research Mortgage Options

A variety of mortgages are available, including conventional mortgages – which are guaranteed by the government – FHA loans, USDA loans, and VA loans (for veterans).

You’ll also have options regarding the mortgage term. A 30-year fixed-rate mortgage is popular among many homebuyers and has an interest rate that doesn’t change over the course of the loan. A 15-year loan usually has a lower interest rate but monthly payments are larger.

6. Talk to Multiple Lenders

It’s worth your time to talk to several lenders and banks before you accept a mortgage offer. The more you shop around, the better deal you’re liable to get – and it may save you thousands of dollars.

7. Get Preapproved First

Getting a mortgage preapproval (in the form of a letter) before you begin hunting for homes is something else to put on your checklist. A lender’s preapproval letter states exactly how much loan money you can get.

Learn more about the preapproval process and how preapproval provides you with a significant competitive advantage in our article How Preapproval Gives You Home Buying Power.

8. Pick the Right House and Neighborhood

Make sure to weigh the pros and cons of the different types of homes based on your budget, lifestyle, etc. Would a condominium or townhome fit your needs better than a house? What type of neighborhood appeals to you?

9. List Your Needs and Must-Haves

The home you purchase should have as many of the features you prefer as possible. List your needs in order of priority; some things may be non-negotiable to you personally.

10. Hire an Inspector

Hiring an inspector is another crucial step in the home buying process. An inspector will tell you about existing or potential problems with the home, and also what’s in good order. You can learn more about home inspections and how to find a home inspector through the American Society of Home Inspectors website.

Buying a home for the first time is a challenge, but it’s one you can handle with the right planning and preparation.

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