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Globalization took hits in 2016; Will 2017 lead to more?

Globalization, the path that the world economy has largely followed for decades, took some hefty blows in 2016.

The election of Donald Trump as U.S. president and Britain’s decision to leave the European Union have raised questions over the future of tariff-free trade and companies’ freedom to move production to lower-cost countries.

Borders are back in vogue. Economic nationalism is paying political dividends.

“We want our country back” was the rallying cry of those backing Brexit, a sound bite that had echoes in Trump’s “Make America great again.”

The rise of Trump and the triumph of Brexit had their roots in the global financial crisis of 2008.

Eight years later, the world economy has still not yet fully gotten past that shock to its confidence — people are nervous, some are angry, and many are seeking novel solutions to their problems. Next year, there’s scope for more uncertainty with elections in France and Germany.

Here’s a look at the year’s top business stories for 2016:

BREXIT SHOCK

In what was a sign of things to come, Britain voted to leave the EU in a referendum in June. The decision came as a surprise — certainly to bookmakers and many pollsters who had consistently given the “remain” side the edge — and means Britain has to redefine itself after 43 years of EU membership. David Cameron resigned as prime minister after the vote and the new Conservative government led by Theresa May is planning to trigger the formal process by which Britain exits the EU early next year. There are many shades of potential Brexit, from an outright divorce that could put up tariffs on goods and services, to a more amicable parting that sees many of the current trading arrangements kept in place. The pound’s fall to a 31-year low below $1.20 at one point is testament to that uncertainty.

 

TRUMP CARD

Pollsters and bookmakers got it wrong again a few months later when Trump defeated Hillary Clinton in the U.S. presidential election. Whether he translates his “America First” platform into action following his inauguration in January will help shape the global economy for the next four years at least. Trump has railed against long-standing trading agreements, including the North American Free Trade Agreement, and vowed to punish China for the way it devalues its currency against the dollar and to tax U.S. firms that move jobs overseas. He has also laid out plans to bring America’s creaking infrastructure up to 21st-century standards, a new spending pitch that has the potential to boost jobs — but which could also lay the seeds of higher inflation.

MARKETS MARCH ON

Trump’s victory did not cause the bottom to fall out of the stock market rally that’s been largely in place since 2009, when the world economy started to first claw out of its deepest recession since World War II.

In fact, both the Dow and the S&P 500 rallied to hit a series of record highs. Stocks have also benefited from a raft of big corporate deals this year — executives are seeing takeovers as a fast way to generate growth in what is otherwise a low-growth global economy disrupted by non-stop technological innovations.

Notable deals in 2016 included the announcement of an $85 billion merger of Time Warner and AT&T and the $57 billion takeover of Monsanto by Germany medicine and farm-chemical maker Bayer. The $100 billion takeover of SABMiller by Budweiser maker Anheuser-Busch InBev was also completed.

FED FINALLY DELIVERS

During his campaign, Trump criticized Federal Reserve Chair Janet Yellen, saying she should be “ashamed” of the way she’s run policy since taking the helm in 2014. A year ago, the Fed appeared set to follow up its first interest rate hike in nearly a decade with three or four more in 2016. But there was no move until Dec. 14, when the U.S. central bank raised its main interest rate to a range between 0.5 percent and 0.75 percent. Many factors explained its hesitation to raise rates, including unease over the global impact of China’s economic slowdown and uncertainty surrounding the U.S. election. But with the U.S. economy continuing to do better than most developed countries — with unemployment below 5 percent and inflation on the way up — the Fed finally delivered another hike. The markets are predicting another three or four increases next year. Those expectations have helped the dollar rally, especially as other major central banks persevere with super-loose monetary policies to breathe life into their economies.

CHINA’S KEY ROLE

As the world’s second-largest economy, China is playing a bigger role in the functioning of the global economy. Nowhere was that more evident than in the early months of 2016, when jitters over the scale of the slowdown in China caused wild swings in financial markets. Stocks took a pounding while commodities tanked, with oil skidding to 13-year lows, as traders factored in lower demand from resource-hungry China. The slump in commodities weighed heavily on economies like Australia that are big exporters of raw materials. China’s economy is ending the year in relatively good health as authorities try to pivot the economy’s focus from manufacturing to more consumer spending. But Trump’s promises to take a tough stance in trade will be of concern to Beijing.

OPEC TAKES A STAND

For the first time since December 2008, at the height of the financial crisis, the Organization of Petroleum Exporting Countries cut its production levels in 2016. November’s cut, soon followed by more cuts by non-OPEC countries like Russia, helped push oil prices sharply higher. At over $50 a barrel, benchmark New York crude is markedly higher than the near 13-year lows around $30 recorded at the start of 2016, when investors focused on high supply and concerns over an economic slowdown. The oil slump helped put several crude-producing countries into severe recessions, including Brazil and Venezuela, and even saw wealthy Saudi Arabia cut back on spending. The question for 2017 is whether OPEC — and non-OPEC — countries can deliver on their production promises. If they do and higher oil prices stick, that will push up inflation in the global economy.

IT JUST GRATES

One of the major reasons why popular sentiment has turned against governments has been a growing distrust of elites. Perhaps nothing illustrated the issue more than the “Panama Papers,” a leaked trove of data on thousands of offshore accounts that helped the wealthy, the powerful and celebrities shelter their cash from the taxman, often without breaking the law. Critics say these tax schemes are the core of a system that gives an unfair advantage to big corporations and the wealthy. Outrage grew in the U.S. when it was revealed that Wells Fargo employees opened up to 2 million bank and credit card accounts fraudulently to meet sales goals. Bank employees also allegedly moved money between those accounts and created fake email addresses to sign customers up for online banking.

It just grates.

Walker’s inability to manage his personal finances speaks volumes

If tea party Republicans are right about the nation needing more successful business people in public office, then Gov. Scott Walker’s record at handling his personal finances affirms the opposite: that career politicians shouldn’t be trusted with taxpayer money.

Walker, a career politician, has been plagued with economic failures since he took office. His signature job agency, known as WEDC, has lost track of millions of taxpayer dollars and given millions to companies that weren’t required to — and didn’t — try bringing jobs to the state in return. Audits of the agency, which Walker chaired, cited gross mismanagement.

Walker has also hurt the economy by turning down millions in federal subsidies — funds that Wisconsin taxpayers paid into — for no rational reason. At least two of those subsidies prevented diversification of the state’s economy in promising ways and resulted in expensive lawsuits against the state.

The list of Walker’s economic failures goes on and on, and maybe the way he’s handled his own money helps explain why: His personal financial liabilities far outweigh his assets. Maybe that helps us better understand how he took a budget surplus and turned it into a $2.2 billion budget shortfall? Or why Wisconsin has lagged in the bottom rungs of job creation? Or why the state has the nation’s fastest-shrinking middle class?

Walker’s personal financial data was released  recently by the Federal Election Commission, which releases such data for all the presidential candidates (i.e., there was no liberal conspiracy against him). The record shows Walker is one of the least wealthy candidates in the 2016 race and that his personal finances are as messy as the state’s.

Walker reported personal assets between $36,000 and $190,000 — made up mostly of his life insurance and a government deferred compensation plan. The reporting forms offer broad ranges, making it impossible to detail his exact worth.

Walker owes between $120,000 as $280,000, largely because of student loan debt for his children that could be as high as $250,000. He lists no property in the forms.

He lists a governor’s salary of $222,899 and reported a $45,000 advance payment for his recent book.

Walker has two credit-card debts of more than $10,000 each, one of them with Barclays. According to his financial disclosure form, Walker amassed a debt of between $10,000 and $15,000 with Barclays since 2014 and is paying an absurd interest rate of 27.24 percent on the card. Most Americans know you’re supposed to shed credit-card debt as quickly as possible, especially cards with such high interest rates.

Walker has carried credit-card debt for four years, according to the disclosure form, despite his gubernatorial salary of $222,899 since the start of 2014. During that time Walker also received a $45,000 advance for a book, Unintimidated, about his governorship.

Post-DOMA: A financial checklist for same-sex couples

After celebrating the Supreme Court’s historic rulings on marriage equality, it’s time for same-sex married couples to sit down and go over their finances.

That’s because legally married same-sex couples are now entitled to the same federal benefits as their straight counterparts. Married gay couples can file joint federal income taxes for the first time and as spouses they won’t have to pay inheritance taxes when one partner dies.

But the decision still leaves a lot of unanswered questions: What do couples who move to states that don’t recognize gay marriage do? Can they file taxes jointly? (Thirteen states – California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington – and the District of Columbia allow same-sex marriage.) It could take a few months before there are clear answers, says Lisa Siegel, a senior wealth planner at Wells Fargo Private Bank.

The Internal Revenue Service says that it is reviewing the Supreme Court decisions, and will offer “revised guidance in the near future.”

But gay married couples can take action now by checking in with an adviser. They may not have all the answers yet, but they can set out a plan and begin to get familiar with your circumstances, says Siegel.

Here’s what gay married couples need to consider:

• FIND GOOD HELP

Before you start making financial plans, make sure the lawyer or accountant you hire have experience working with same-sex couples. “Ask them, it’s very important,” Siegel says. Because of the changing laws, finances can be more complex for gay couples. You’ll want to work someone who is already familiar with these issues. 

Look for financial planners that have received the accredited domestic partnership advisor designation, or ADPA. That designation means that planner has been trained in domestic partnership issues.

Lambda Legal, a legal nonprofit that fights for equal rights of lesbian, gay, bisexual and transgender people, can refer you to lawyers if you call their help desk. Go to www.lambdalegal.org/help for the phone numbers.

Pride Planners, an organization of financial professionals that helps gay and lesbian people, has a search function on its websites to find financial planners and accountants in most states around the country. Go to PridePlanners.com to conduct a search.

Local newspapers and other publications for the gay community  – such as the Wisconsin Gazette – can be a resource. Look for professionals who advertise in the paper, says Sharon Rich, a financial planner and founder of Pride Planners. Or you can ask friends for referrals.

• CALL A TAX ACCOUNTANT

Married couples who filed separate federal income taxes in the past couple of years may be entitled to a refund, says Elda Di Re, a partner in Ernst & Young’s personal financial services group. 

Ask a tax accountant to amend your past returns to determine if you would have gotten a refund if you had filed jointly. The IRS allows taxpayers to amend income taxes from the past three years.

Filing jointly is not always beneficial. Couples in which one person earns much more than the other could see a refund. But if both people have high incomes, they will probably pay more taxes than if they filed separately, says Mark Luscombe, an analyst at tax software and services company CCH.

It’s still unclear if the IRS will be giving out refunds, but experts expect the IRS to allow couples to amend their returns. So ask your accountant to run the numbers now, or amend the returns yourself on any tax software you may have used.

Widowed individuals who were in same-sex marriages and paid inheritance taxes may also be able to get that money back, says Luscombe.

• REVIEW YOUR BENEFICIARY DESIGNATIONS

Check with your employer and see who the beneficiary is on your 401(k) plan. 401(k) accountholders should know that their spouse will automatically inherit the account, unless the spouse signs a waiver. So if couples want to make other arrangements, it needs to be outlined clearly in the beneficiary form and, if necessary, a waiver needs to be in place from the spouse, says Alexander Popovich, a wealth adviser at JP Morgan Private Bank.

You should also check to see if your spouse is a beneficiary on your life insurance and any other retirement accounts, such as an individual retirement account, says Alexander Popovich, a wealth adviser at JP Morgan Private Bank.

• REEXAMINE REAL ESTATE DEEDS

Some married gay couples may have left spouses out of real estate deeds to avoid a gift tax, which is triggered when someone transfers money or property to another person, says Popovich. Same-sex married couples no longer have to pay gift taxes after the Supreme Court ruling. If you want to add a spouse to a real estate deed, speak to a lawyer who can make that change.

• REVISIT YOUR WILL

Now that married gay spouses don’t have to pay federal estate taxes on anything they inherit after a spouse’s death, married couples should review their will to see if it makes sense in the current environment, says John Olivieri, a partner at law firm White & Case.

• CHECK HEALTH BENEFITS

If your employer didn’t allow you to name your spouse on your health insurance, it should now, says Frank Fantozzi, a wealth planner and founder of Planned Financial Services. Couples should check to see whose health benefits are cheaper, or which employer offers more coverage and decide if they want to make a change.  

Minn. pastor supports gay rights, may lose church

A Minnesota pastor who watched most of his congregation leave after he voiced his support for gay marriage is now at risk of losing his church, unless he can collect enough donations to keep the doors open.

The Rev. Oliver White, 69, runs Grace Community United Church of Christ. He needs to raise $200,000 by June 30 to pay off a loan the St. Paul church took out in 2007.

While the odds are steep, supporters from around the country have taken up his cause. Most of White’s fundraising efforts have entailed asking supporters to each mail in $1, the St. Paul Pioneer Press reports. As of last week he had raised $13,000, he said.

“I haven’t allowed any of this to make me stop, because I feel that I have to continue in this journey,” White said. “But it’s also a monumental task.”

A black leader at the helm of a predominantly black church, White – who marched for racial equality during the Civil Rights era – faced pushback from his own community after he stood up for gay rights in 2005.

During a national synod of the United Church of Christ in Atlanta, he joined a majority of delegates from across the country in voting to adopt a resolution supporting gay marriage.

He returned to his congregation the following Sunday and explained his decision. Almost immediately he saw church membership plummet. Within weeks he lost two-thirds of his followers, and now a Sunday sermon draws at most about 20 people.

The church’s financial struggles have caught the attention of activists nationwide.

Nick Warshaw, a San Francisco entrepreneur, started a fundraising website for Grace Community.

So did Joseph Ward of “Believe Out Loud,” an online forum based in New York and Washington, D.C., where faith leaders can express their support for gay rights. He hadn’t used the forum as a fundraising tool before, but after asking for help for Grace Community the website brought in $7,100.

White said he’s grateful for the support, and he continues to believe strongly in the cause. He recently recorded a podcast with John Ong, the Kansas City, Mo., host of an online audio show, in which he said his church is not a “gay church” but welcomes everyone.

He also said he doesn’t regret taking his stand, even if it ultimately means the church will be no more.

“If we are not successful, I am not going to feel that we are defeated,” White said. “I’ve often said if one person has been turned around, if their thinking has been turned around, and they are no longer homophobic, and they can reach out and love their brothers and their sisters as they love themselves, unconditionally, without labeling them in any way, then losing the church will not be in vain.”

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