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Friday, October 30, 2020
WASHINGTON — Federal Reserve officials were counting on Congress and the White House to pass additional aid for households and businesses hit by the pandemic as they laid out an optimistic forecast for the economic recovery last month. Now, that outlook is in jeopardy.In September, the Fed revised its economic forecasts to reflect a much rosier scenario than officials had penciled in earlier in the pandemic recession: Unemployment was seen dipping to 7.6 percent by the end of the year, down from a forecast of 9.3 percent in June. Growth was seen recovering by more, after plummeting early in the year.But Fed officials “noted that their economic outlook assumed additional fiscal support and that if future fiscal support was significantly smaller or arrived significantly later than they expected, the pace of the recovery could be slower than anticipated,” according to minutes from the Sept. 15-16 meeting, which were released on Wednesday.The Fed’s staff, likewise, “assumed the enactment of some additional fiscal policy support this year” without which “the pace of the economic recovery would likely be slower.”Now, the bet that more public money is right around the corner is crumbling. President Trump pulled the plug on stimulus negotiations on Tuesday,
LIKE OTHER crises before it, covid-19 seems destined to accentuate troublesome features of the world economy. Take global imbalances. Though these were briefly suppressed when the pandemic first struck, they have now rebounded. America recorded its largest trade deficit in 14 years in August, despite having gone from being a big importer of oil to a net exporter in that time. Its goods deficit is neatly matched by a resurgent surplus in China. Temporary factors, such as a surge in China’s exports of personal-protective equipment, are partly to blame. But there is reason to worry that these fault lines will persist, adding a dangerous element to an already fraught global policy environment. Global imbalances reached a modern peak just before the onset of the financial crisis of 2007-09, when the absolute sum of countries’ current-account surpluses and deficits amounted to over 5% of world GDP. Current-account gaps were pushed wider in part by what economists called the “global saving glut”, the result of soaring oil prices, and precautionary saving by emerging-economy governments prepared for sudden reversals in global risk appetites. Gaps eased in the decade after the crisis as oil prices fell and China edged towards rebalancing its economy.
WASHINGTON — On Tuesday, the bipartisan stimulus talks were off, abruptly ended by a series of indignant tweets by President Trump. On Wednesday, there was a glimmer of hope when he suggested he might reconsider, and top negotiators haggled privately by phone over possible legislation.By Thursday, the president performed a complete about-face and suggested that a deal could be at hand — then turned around and derided Speaker Nancy Pelosi of California, the top Democrat in the discussions, as “Crazy Nancy.” Ms. Pelosi, for her part, teased the announcement on Friday of legislation establishing a commission to advise Congress on whether the president should be forcibly removed from office for mental or physical impairments.As tens of millions of Americans, schools and businesses watched the flurry of developments that could determine whether they would receive another infusion of desperately needed pandemic relief, confusion reigned in Washington about whether an elusive stimulus compromise was dead, alive, on life support or somewhere in between.What remained clear was that the political stakes, which have long imperiled a bipartisan bargain, have only heightened. And the collateral damage across the country has continued to mount in the absence of federal funding, with more than 800,000 Americans
IN THE WEEKS following the stockmarket crash in October 1987, the investment committee of Yale University’s endowment fund convened two extraordinary meetings. Just after the crash its newish chief investment officer, David Swensen, had bought up stocks (which had become much cheaper) paid for by sales of bonds. Though in line with the fund’s agreed policy, this rebalancing appeared rash in the context of the market gloom—hence the meetings. One committee member said there would be “hell to pay” if Yale got it wrong. But the original decision stood. And it paid off handsomely. A lot of investors say they have a long horizon. A new study by David Chambers, Elroy Dimson and Charikleia Kaffe, of Cambridge University’s Judge Business School, finds that America’s big endowment funds have lived up to the claim.* They have been pioneers in allocating to riskier assets, most notably to “alternatives” such as private equity. When others flee risk, they have embraced it. They are supposed to see the farthest, after all: their goal is to meet the needs of beneficiaries for generations. Other investors seek to emulate the success of Yale and the other Ivy League endowments. Every other pension plan says it
GOVERNMENTS IN MANY poor countries have faced a sickening choice this year, between spending to support their populations through the covid-19 crisis and paying creditors. On October 14th finance ministers of the G20 group of countries offered a temporary salve for 73 of the world’s neediest countries, by saying they would extend their Debt Service Suspension Initiative (DSSI) to halt debt-service payments until July 2021. That should free up funds to fight the pandemic (see chart). But a lasting solution will take more dramatic action. Public debt in poor countries rose from 29% of GDP in 2012 to 43% in 2019, according to the IMF, and is expected to jump to 49% this year. Collapsing tax revenues and swollen deficits make it harder to pay the bills and give foreign investors the jitters. According to data from the World Bank and the three largest credit-rating agencies, at least 33 of the DSSI-eligible countries were either close to or in debt distress—ie, struggling to meet their repayment obligations. The 73 countries eligible for the DSSI were due to spend over $31bn servicing debt between May and December. About half of this was owed by the 33 countries under most fiscal
OAKLAND, Calif. — In 1978, a Los Angeles businessman named Howard Jarvis led an insurgent campaign to pass Proposition 13, a ballot measure that limited California property taxes and inspired a nationwide tax revolt. The law has been considered sacrosanct ever since, something California governors and legislators challenge at their peril.Now, as a pandemic tears through local budgets, a well-financed campaign backed by teachers’ unions has mounted a serious challenge to a major portion of the law: its application to commercial property.If voters approve the effort next week, they would give labor and progressive groups a striking victory in raising the low tax rates that longtime property owners enjoy. If it fails, the campaign will have spent tens of millions of dollars only to affirm that Proposition 13 is untouchable.The new initiative, Proposition 15, would amend the state’s Constitution so that properties like offices and industrial parks would no longer be protected by Proposition 13. By creating a “split roll” system, in which residential property would continue to be shielded from tax increases but commercial property would not, backers hope to capitalize on Democratic energy to raise taxes on large corporations without alarming homeowners.“We can’t afford to continue to give
CHINA’S BANKING system, with $35trn in assets, is the world’s largest. Its four biggest lenders, measured by assets, head the global league table. Yet Western banks rarely come up against Chinese peers in foreign climes. That has fed the stereotype that China’s banks are either uninterested in global business or, staffed by staid bureaucrats and stuffed with bad loans, are uncompetitive abroad. A new study suggests that this portrait is wide of the mark. In fact the global footprint of China’s banks has grown to rival that of Western lenders. In June this year its deposit-takers, including some of its policy banks, accounted for 7% of total cross-border lending flows, up from 5% in 2015, and lent to 196 out of 216 countries. A recent paper by Catherine Koch and Swapan-Kumar Pradhan of the Bank for International Settlements (BIS) and Eugenio Cerutti of the IMF explains why the rich world hasn’t noticed: China’s banks reign in poorer markets that Western lenders either never entered or are now abandoning. Chinese banks provide 26% of all cross-border loans to developing countries today, most of it in dollars (see chart). That is up from a fifth in 2016,
EVERY TUESDAY for most of 1979-80, the Blitz wine bar in Covent Garden was host to an influential club-night. London was then a run-down city. The Blitz was a seedy spot. What made it remarkable were the Blitz Kids, the extravagantly dressed Tuesday-night regulars. A teenage Boy George worked in the cloakroom. The door policy was strict. To get in, said Steve Strange, who ran the club-night, you had to look “like a walking piece of art”. Mick Jagger was once refused entry. This all seemed shallow and transient. The make-up, the get-ups and the evident disdain for people who were not walking pieces of art were marks of unseriousness. Yet the Blitz Kids, a mix of art students and urchins, would go on to shape popular culture, according to “Sweet Dreams: The Story of the New Romantics”, a new book by Dylan Jones. This brings us to another hangout for oddballs, fantasists and drop-outs: bitcoin. To most people it seems at best a fad, at worst a con-job. But it refuses to disappear. And its price in dollars is up by around 150% since March. It is hard to have a sensible conversation
WASHINGTON — Amtrak’s chief executive warned federal lawmakers on Wednesday that the rail agency would have to continue steep cuts to its work force and delay infrastructure improvements — including high-profile projects in New York and New Jersey — if it does not receive $2.8 billion in emergency funding by December.In a hearing before the Senate Committee on Commerce, Science and Transportation, William J. Flynn said his agency might have to cut an additional 2,400 jobs and divert funding from critical capital projects, such as the multibillion-dollar tunnel between New York and New Jersey — called the Gateway program — and improvements to New York Penn Station.His total budget request to Congress is $4.9 billion. That includes the rail agency’s $2 billion standard appropriation.Mr. Flynn urged Senate lawmakers to pass a version of the Heroes Act, which cleared the House on Oct. 1 and includes $2.4 billion in emergency funding for Amtrak. In September, lawmakers passed a continuing resolution that kept the rail agency’s existing funding levels in place until Dec. 11.“Given that nothing’s been enacted, we must be prudent and address the situation at hand,” Mr. Flynn said.
WASHINGTON — President Trump clashed with his own party on Thursday over a stimulus package to stabilize the economy, calling for a big-spending plan of the kind envisioned by Democrats even as the top Republican leader declared that such a measure had little support within the party.Mr. Trump declared he “would go higher” than the latest $1.8 trillion framework the White House has put forward in negotiations with Speaker Nancy Pelosi of California, faulting his own Treasury secretary for failing to offer enough money in the talks. A short time later, Senator Mitch McConnell, Republican of Kentucky and the majority leader, all but ruled out such a deal, saying senators in his party would never support a package of that magnitude.“He’s talking about a much larger amount than I can sell to my members,” Mr. McConnell told reporters in Kentucky, a refrain he reiterated in multiple appearances across the state. Instead, he plans next week to try to advance a scaled-down $500 billion package, which is likely to fail without Democratic support.The stark division between the top two Republicans in Washington was the latest indication of the dim pre-election prospects for enactment of a broad pandemic recovery package that economists
When the pandemic hit in March, a JBS meatpacking plant in Greeley, Colo., began providing paid leave to workers at high risk of serious illness.But last month, shortly after the plant was cited by the federal Occupational Safety and Health Administration for a serious virus-related safety violation and given two initial penalties totaling about $15,500, it brought the high-risk employees back to work.“Now the company knows where the ceiling is,” said Kim Cordova, president of the United Food and Commercial Workers union local that represents the workers, about half a dozen of whom have died of Covid-19. “If other workers die, it’s not going to cost them that much.”JBS USA said the return of the vulnerable workers in late September had nothing to do with the citation. “It was in response to the low number of Covid-19 cases at the facility for a sustained period of time,” a spokesman said, noting that the company began informing workers of the return in late July.The JBS case reflects a skew in OSHA’s Covid-related citations, most of which it has announced since September: While the agency has announced initial penalties totaling over $1 million to dozens of health care facilities and nursing homes,
For years, the Labor Department has made a practice of issuing sternly worded news releases calling out companies deemed by its enforcement staff to have violated the law, including rules governing discrimination, worker safety, the minimum wage and overtime.But the department’s appetite for using that spotlight appears to have waned.In a Sept. 24 memo, a copy of which was obtained by The New York Times, Deputy Secretary Patrick Pizzella instructed the heads of the department’s enforcement agencies that “absent extraordinary circumstances,” the findings of their agencies “generally should not be the basis” for news releases.Mr. Pizzella argued that such releases tend to linger prominently in search results about companies and can prove misleading if a citation or other enforcement action “is ultimately found to be unjustified.” He instructed officials responsible for enforcing labor and employment laws to generally refrain from issuing releases until after a matter has reached its conclusion — for example, once a court has issued a judgment or an employer has reached a settlement with the department.Citations are often issued at roughly the same point in the enforcement process that a prosecutor would bring an indictment in a criminal matter.The memo may be having some effect already.