Aurelia Butler

WASHINGTON (Reuters) – Elon Musk on Monday hosted Robert F. Kennedy Jr., the anti-vaccine activist and long-shot Democratic presidential hopeful, in his second Twitter Spaces event for a 2024 White House candidate.But unlike Republican Ron DeSantis’s glitch-plagued campaign launch on Twitter in May, the live audio chat with Kennedy was broadcast without major technological problems. Their 2.5-hour conversation had an audience of over 64,000 at some points.In April, Kennedy Jr., the son of assassinated 1968 Democratic candidate Robert F. Kennedy, announced a long-shot bid to challenge incumbent President Joe Biden for the 2024 Democratic presidential nomination. During the COVID-19 pandemic, Kennedy Jnr. criticized social-distancing requirements and vaccine mandates. At a 2022 rally in Washington he suggested that Americans had fewer freedoms during the pandemic than Jews living in Nazi Germany. He later apologized for his remarks.Kennedy had been banned by social media platforms for spreading misinformation about vaccines and COVID-19. He was recently reinstated by Instagram.On Monday, he praised Twitter CEO Musk for doing away with the “censorship” of social media.”I think if we don’t protect free speech at all costs, we don’t have a functioning democracy,” Kennedy Jr. said during a free-wheeling conversation.Kennedy accused social media companies of folding to pressure from the government to censor anti-establishment views. LGBTQ+ activists and other groups say they’ve seen a rise in threats and intolerance on Twitter since Musk took over.Kennedy’s anti-vaccine activism has earned him allies on the right. In 2017, former Republican President Donald Trump tapped him to oversee a vaccine review panel, drawing criticism from scientists who said it could legitimize unfounded skepticism. More

A top official at the IMF has warned of the risk of “substantial disruptions in labour markets” stemming from generative artificial intelligence, as she called on policymakers to quickly craft rules to govern the new technology. In an interview with the Financial Times, the fund’s second-in-command Gita Gopinath said AI breakthroughs, especially those based on large-language models such as ChatGPT, could boost productivity and economic output but warned the risks were “very large”. “There is tremendous uncertainty, but that . . . doesn’t mean that we have the luxury of time to wait and think of the policies that we will put in place in the future,” said Gopinath, first deputy managing director of the IMF. She added: “We need governments, we need institutions and we need policymakers to move quickly on all fronts, in terms of regulation, but also in terms of preparing for probably substantial disruptions in labour markets.”Gopinath’s comments on AI, her most extensive so far, follow warnings over the potential of the new technology to result in societal upheaval if workers lose their jobs en masse. Gopinath said automation in manufacturing over past decades served as a cautionary tale, after economists incorrectly predicted large numbers of workers laid off from car production lines would find better opportunities in other industries. “The lesson we have learned is that it was a very bad assumption to make,” she said. “It was important for countries to actually ensure that the people . . . left behind were actually being matched with productive work.” The failure to do so had contributed to the “backlash against globalisation” following the great financial crisis, Gopinath added. To avoid history repeating itself, governments need to bolster “social safety nets” for workers who are affected while fostering tax policies that do not reward companies replacing employees with machines. Meanwhile, she warned policymakers to be vigilant in case some corporations emerge with an unassailable position in the new technology. “You don’t want to have supersized companies with huge amounts of data and computing power that have an unfair advantage,” said Gopinath, also citing privacy concerns and AI-fuelled discrimination. The EU has proposed new legislation to regulate AI, which she said was an “encouraging start”, while the Biden administration is in the process of formulating regulatory plans.The push for co-ordinated global action comes amid fresh evidence that generative AI, once more widely adopted, could be hugely transformative. In a speech delivered later on Monday, Gopinath cited numerous studies that have tried to quantify the economic impact, including a Goldman Sachs report that estimated 300mn jobs could be automated, leading to higher productivity and a 7 per cent increase in global output over a decade.“AI could be as disruptive as the Industrial Revolution was in Adam Smith’s time,” she told an audience in Scotland at an event commemorating the economist.Gopinath said new technologies such as ChatGPT had “widescale appeal” and needed to be taken more seriously than other advances like self-driving cars that had been billed as game changers.“Usually when you see a technology behaving like a general purpose technology . . . that is when we think this could have a wide-ranging impact on the economy,” she said. More

Today’s top storiesBritish Airways, Boots and the BBC confirmed they had been hit by a “cyber security incident” affecting their payroll provider, which is also likely to have attacked scores of British companies including some of the country’s best-known names. The European Space Agency outlined a plan to send astronauts to the moon on a homegrown rocket within a decade.US banks are preparing for losses in the teetering commercial property estate market which could be “the next shoe to drop” after the recent turmoil among regional banks.For up-to-the-minute news updates, visit our live blogGood evening.UK prime minister Rishi Sunak heads to Washington on Wednesday in an attempt to put Britain at the heart of the debate over the development and regulation of artificial intelligence.Sunak is expected to discuss the idea of a “Cern for AI” — a research base modelled on the particle physics laboratory in Switzerland — with a global regulatory body that could look something like the International Atomic Energy Agency.The debate over how to regulate the fast-moving industry has heated up in recent weeks, with a group of chief executives and scientists from companies including OpenAI and Google DeepMind warning that its threat to humanity rivalled that of nuclear conflict and disease. Geoffrey Hinton and Yoshua Bengio, often described as the “godfathers” of AI, also signed the document on the technology’s risks. Hinton left his job at Google last month to speak freely about the potential dangers.But although the calls for regulation may verge on the apocalyptic, the industry seems reluctant to modify its own behaviour, says Stanford academic and EU adviser Marietje Schaake. She argues lawmakers should stop deferring to companies which claim they are the only ones smart enough to understand the issues involved. “From big tobacco to big oil, we have learnt the hard way that businesses cannot set disinterested regulations,” she writes.Whichever direction future regulation takes, investors’ enthusiasm seems undimmed. Nvidia last week became the first chipmaker to hit a $1tn valuation, projecting its sales would beat Wall Street’s previous forecasts by some 50 per cent. And, while the hype may recall some of the enthusiasm of the dotcom boom, there is reason to believe that much of the buzz about a “tipping point” in computing eras is on firmer ground.Economists are also starting to believe that AI could — eventually — be the answer to boosting productivity growth, which has been anaemic since the 2008 financial crisis.And for some groups, such as top Hollywood stars, the technology could enable the biggest productivity boost of all: that of working in several places at the same time.Need to know: UK and Europe economyTurkish inflation fell to the lowest level since late 2021, after president Recep Tayyip Erdoğan gave away free gas ahead of last month’s elections, pushing down household bills. The country’s new finance minister has promised a return to “rational” economic policy.The focus for postwar planning in Ukraine should focus on making the country a hub for Europe’s green transition, argues Martin Sanbu.Need to know: Global economySaudi Arabia said it would cut oil production by 1mn barrels a day to try to prop up prices after a meeting of the Opec+ group. Russia, the world’s second-largest exporter, could also have its targets lowered, though the group said this was subject to review.An annual reshoring index shows China will soon account for less than half of the US’s low-cost imports from Asia for the first time in more than a decade. The relocation of manufacturing was initially driven by Trump-era tariffs on goods and labour shortages in China, but has accelerated under the Biden administration.The strategic rivalry between the US and China highlights an “unheralded revolution” in America’s approach to international economics, writes chief foreign affairs commentator Gideon Rachman. But is the Biden administration winning the argument for a new Washington consensus?Nicolás Maduro, Venezuela’s authoritarian president, is gaining greater regional recognition, frustrating US and EU efforts to press him into free and fair elections next year. The seven western members of the Arctic Council in a series of FT interviews expressed fears that China and Russia could exploit geopolitical tensions to increase their influence over the region and its rich natural resources.Communities hit hard by climate change are turning to the courts for redress. An FT Big Read delves into the debate about who should pay to bring the coming wave of cases.Need to know: businessThe International Air Transport Association doubled its forecast for airline profits this year to $9.8bn as passenger demand bounced back after net losses of $3.6bn in 2022. The resurgence is also notable for new orders of aircraft.The British Chambers of Commerce announced a new business council to rival that of the troubled CBI, traditionally the UK’s biggest business lobby group, which is holding a members’ meeting tomorrow to agree plans for its relaunch. CBI president Brian McBride makes the case in the FT.A new FT Big Read looks at Orlen, the Polish oil and gas company at the heart of a debate over the state’s influence on the energy market and the rest of the economy. FT contributing editor Ruchir Sharma examines Europe’s dominance of the global luxury business and wonders whether it has become too reliant on a sector many see as a symbol of decadence. “If it’s not clear how much smartphones boost productivity growth, it is safe to say that French perfume and Italian handbags contribute even less,” he writes.Oil and gas companies’ returns in the form of dividends and share buybacks hit a 15-year high in 2022 — accounting for 39 per cent of spending, according to the International Energy Agency. The industry spent just 1 per cent of its cash investing in clean energy.

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The World of WorkWhen your passion is also your job: columnist Simon Kuper says ambitious opportunists might end up living in bigger houses but those with a vocation (usually) have a more satisfying life.Ever fancied having a remote personal assistant for those irksome work and domestic chores? Columnist Emma Jacobs road tests an increasingly popular employee benefit. Those of us whose inboxes have not dipped below half a million for many years will sympathise with Pilita Clark’s new column on the scourge of email, confirmed by a Microsoft report that found workers were struggling to keep up with a “crush of data, information and always-on communications”. Some good newsSome good news from FT HQ. Journalist Paul Gould’s Last Dance at the Discotheque for Deviants, which has won a diversity prize for a debut novel, is out this week. The book, which inaugurates a publishing imprint for writers of colour, is set in pre-Putin Russia after the collapse of the Soviet Union and explores the underground LGBT scene. Here’s Paul’s interview in the Bookseller. More

Reassuringly, if you weren’t aware China even had a local debt problem until you read the headline of this article, China says it doesn’t have a local debt problem. Via Bloomberg:China said local government debt is manageable and authorities have enough financial resources to avoid risks from spreading, seeking to allay investor fears of possible defaults.The official Xinhua News agency published a report Monday responding to recent concerns about local government finances. It quoted an unidentified official from the Ministry of Finance as saying government finances are generally healthy and urged local authorities to tackle their debts.The current challenge is that “the distribution of local government debt is unbalanced, with some regions exposed to relatively high risks and under rather big principal and interest payment pressure,” the official said in the Xinhua report. Beijing has urged local authorities to “hold on to the bottom line that no systemic risk will occur,” the official said.The last paragraph of which is interesting phrasing.So what’s the problem that isn’t a problem? In short, China is laden with municipal debt — about 156tn yuan of it according to Goldman Sachs, a lot of it held off of balance sheets via financing vehicles (local government financing vehicles/“LGFVs”) favoured by local government — and had a shoddy 2022 from local government revenues. This has led to a couple of close calls. Per Société Générale:Their broad revenues (general and fund combined) dropped by 11%. Within that, fund revenues, which consist mostly of land revenues, fell by 21%. Some provinces recorded particularly sharp falls, such as Tianjin (-62%), Jilin (-61%), Heilongjiang (-59%) and Liaoning (-56%). Meanwhile, broad expenditure still expanded by 3%. As a result, the local government broad deficit increased from 10.1% of GDP (or RMB11.7tn) in 2021 to 12.2% (or RMB14.8tn), 2pp above the pre-pandemic average (2015-19), requiring more direct transfers from the central government to plug the gap.A Goldman note published last week answered some key questions:What has led to the current stresses of LGFV debt repayment in provinces such as Guizhou and Yunnan? Falling local government revenues and the intensified cash shortage of LGFVs over the past few years have exacerbated the stresses of LGFV debt repayment in the most vulnerable provinces.What are the likely solutions to local governments’ debt risk? In the near term, we may see more debt swapping and debt restructuring/extension to defuse imminent risk events. Utilizing SOE shares/profits and idle assets may also help alleviate short-term repayment pressures. Policy banks and large commercial banks could play a more important role in this process.How would a potential default of an LGFV bond affect China’s economy and financial markets? It could pose downside risk to our investment outlook via crowding out effects on fiscal policy and credit supply. Policymakers will try to prevent bond defaults this year amid weak sentiment and uneven economic recovery, but we see risks on the rise, especially for the less developed inland regions.Wéí Yáó and Míchéllé Lám at SocGen say what happens next is… basically up to the politburo: The zero-COVID shock and the housing crash last year seem to have brought China’s implicit government debt stress close to a breaking point. The situation has barely improved this year, and more signs are suggesting that LGFV bond default risk is higher than ever. However, whether or how many outright LGFV bond defaults will occur depends on the central government’s judgement on the probability of such defaults triggering systemic financial risk.Apparent exposure varies pretty widely, when self-financing rates and remaining quota capacity to raise money via local government bonds (LGBs). Charts here from Goldman, then SocGen:

The solution, Goldman says, lies in debt restructuring and payments extensions (what did you expect? they were hardly going to call for regime change, this isn’t JPMorgan). Basically, weirdly, Beijing probably won’t just sit back and allow its municipalities to blow up.SocGen:The government has a playbook in place, comprised of both soft (debt extension) and hard (debt write-off) restructuring measures – the former has been more common than the latter. The deleveraging process will have to speed up, become more visible and expand in scale in the coming years.This playbook is getting more difficult to implement, however, as stresses grow. But this is China, so there will be a solution. What follows, SocGen reckons, is:— Banks being lent upon to provide more lending capacity— Interest rates being pushed downand, possibly:— Austerity measures at a local level— Sales of state-owned assets— Lean even harder on the banks— Tap other state-owned institutions to hide debt lossesWith some combination of the above, China will be able to make its way out, the analysts conclude, but the longer-term costs could be huge. Yao and Lam (their emphasis):[T]here may be a heavy cost to restructuring slowly – Deflation. Keeping zombie LGFVs alive requires locking up even more financial resources, intensifying the problem of capital misallocation and undermining productivity. Banks and the broader financial system would have less capacity to support productive areas. Local governments would have less resources to improve public services and social welfare. Slower income growth would mean weakening aggregate demand, which would make it harder to sustain unproductive assets. The longer the debt restructuring takes, the longer such downward spirals could last, and the more entrenched deflation could become. After losing its construction growth engine and tipping into deflation, China’s trend growth rate could fall to 3-3.5% over the coming decade in both real and nominal terms, compared with 7% and 10% over the past decade.In short, Japanification with Chinese characteristics — with some obviously huge implication for global macro. But as mentioned, Beijing says there’s nothing to worry about, so chill out. More

MADRID/Brussels (Reuters) -The European Commission has said it is a priority to conclude a long-delayed trade deal with South America’s Mercosur bloc, as the EU seeks new allies to reduce its dependence on China and the United States, according to a document seen by Reuters.The policy paper, due to be presented by the EU’s top diplomat Josep Borrell on Wednesday, sets out the importance of securing priority access to Latin America’s raw materials and other resources, in the face of “increasing geopolitical challenges”.It appeared to be a bid to give fresh impetus to efforts to rekindle relations with the Mercosur bloc of Argentina, Brazil, Paraguay and Uruguay. Such a deal would help the EU take a more independent stance and rely less on Beijing and on Washington, especially if Donald Trump wins re-election next year, EU diplomatic sources told Reuters. An EU-Mercosur trade pact was agreed in principle in 2019 but is still waiting to be ratified in the parliaments of those countries involved. France – where the deal is unpopular with local farmers – has since said it wants the Mercosur side to agree to various additional commitments, notably on respecting EU rules on deforestation, before it can back it.”By strengthening the partnership between two regions that are among the world’s most closely aligned in terms of interests and values, EU and LAC (the Latin America and Caribbean region) will be better placed to confront global challenges,” the document, seen by Reuters on Monday, reads.Latin America and Europe should work on reducing “excessive dependency” on third countries, it adds.The document sets out a roadmap for concluding a number of free trade and partnership agreements with Latin American countries as soon as possible, as well as for boosting bilateral relations with Mexico and Brazil.Many of the deals would build on an EU programme to invest in green and digital transition projects in Latin America which is due to be approved at a July 17-18 summit between the Community of Latin America and Caribbean States (CELAC) and the EU, the first since 2015.The supply of energy resources to the EU will also play a prominent role in the new relationship, with Brussels looking to sign agreements with Latin American countries as envisaged under the EU’s new Critical Raw Materials strategy, document says.That aims to mitigate the risks to supply chains for materials related to sustainable energy that were highlighted by shortages during the pandemic and in the energy crisis following Russia’s invasion of Ukraine. Negotiations are most advanced with Chile and Argentina, and a deal could be announced as early as July, according to the European diplomatic sources. More

WASHINGTON (Reuters) – Republicans and Democrats are touting a hastily-written debt ceiling deal that staves off a devastating U.S. default, but does little to slow a massive buildup of total federal debt now on pace to exceed $50 trillion in a decade.The deal’s first problem, budget experts say, is it only curbs non-defense discretionary spending, or just about one-seventh of this year’s $6.4 trillion federal budget. Defense, veterans’ care and big-ticket safety-net programs are spared.Longer term, it fails to alter the U.S.’s chronic and growing revenue shortfall, thanks to health and retirement spending on the country’s aging population and Congress’s failure to raise taxes.”If you’re worried about the deficit and debt problem, this thing does nothing,” said Dennis Ippolito, a public policy professor and fiscal expert at Southern Methodist University.”What you’ve got in place is essentially Democratic spending policy and Republican tax policy, and there is nothing in the works that suggests any change to either of those,” he said.The deal to suspend the $31.4 trillion debt ceiling until January 2025 holds non-defense discretionary spending largely flat this year, with a 1% increase in fiscal 2024.The Congressional Budget Office (CBO) estimates this would result in $1.3 trillion in savings over a decade.Even those savings may prove illusory, as Congress would be free to abandon its self-imposed spending limits within two years. On top of that, tax cuts passed by Republicans in 2017 expire on schedule in 2025, but the party is pushing to extend them.Making matters worse, higher interest rates are pushing up the government’s debt service costs. CBO projects that these will triple to $1.4 trillion by 2033 — far exceeding the projected defense budget at that time.SOCIAL SECURITY, MEDICARE OFF LIMITSIn their debt limit negotiations, both President Joe Biden and House of Representatives Speaker Kevin McCarthy vowed not to touch the main driver of U.S. debt: rising Social Security pension and Medicare health benefit costs.Social Security costs are projected to increase by 67% by 2032, and the Medicare health program for seniors will nearly double in cost during that period, according to CBO, as Americans 65 or older top 46% of the U.S. population, up from 34% this year.Together, these two programs account for roughly 37% of current federal spending and are both on a path toward insolvency in about a decade. Other programs for veterans and low-income people push such safety-net spending to over half the budget.Unlike discretionary programs, which are given a fixed amount of money each year, these “mandatory” programs pay benefits to all who qualify for them. CBO projects the government will spend $6 trillion on mandatory spending programs in the 2033 fiscal year, up from $4.1 trillion this year.To start to shrink debt, the International Monetary Fund has recommended that the U.S. cut Social Security and Medicare costs with higher eligibility ages, means testing and other restrictions.But Washington policymakers aren’t discussing such options, especially heading into the 2024 presidential election.There is a simple reason for this: they are popular with the public, in part because they are available to nearly everybody and form a lifeline for many U.S. seniors. A January Reuters/Ipsos poll found 84% of Democratic voters and 73% of Republican voters opposed reducing spending on the two programs.HIGHER TAXES, NOT JUST ON THE WEALTHYU.S. tax revenues are among the lowest among wealthy OECD countries and should be increased, some budget experts say.”The pure math of the federal budget is such that there has to be action on the revenue side,” said Nigel Chalk, the IMF’s Western Hemisphere Department acting director.That is not likely in the next several years. Biden was unable to get many of his proposed tax hikes passed last year, when his Democrats controlled both chambers of Congress, and Republicans who now control the House of Representatives say they are out of the question.Biden’s proposal would raise taxes on the wealthy and corporations while sparing those earning less than $400,000 from tax hikes, a carve-out that the IMF says is “unfeasible.”Brian Riedl, a fellow at the conservative Manhattan Institute, has estimated that the full menu of Democratic-backed tax hikes would not balance the budget over 10 years.The IMF suggested higher tax rates on corporations and wealthy individuals as well as revenue raisers well outside of the normal Washington fiscal debate: broad-based consumption taxes, carbon taxes and cutting long-cherished tax breaks for employer-provided health care benefits, mortgage interest and gains on sales of primary residences.Linda Bilmes, a Harvard Kennedy School professor and former Commerce Department finance officer who helped achieve the last balanced budgets at the turn of the millennium, said the deal ignores a growing array of tax breaks that are routinely extended with little debate.”We have $1 trillion in tax expenditures which stop money coming in, that are very, very targeted to the ‘haves’ of society. We haven’t even glanced at that in this agreement,” she said.NEW WAY FORWARD?Fiscal experts believe making painful changes to spending and revenues will require a new bipartisan fiscal commission that is given the authority to revamp a broken budget process that was last updated in 1974.These have had marginal success. A 1983 commission led to payroll tax and retirement age increases for Social Security. In 2010, when the federal debt was $13.5 trillion, the bipartisan Bowles-Simpson Commission recommended $4 trillion in 10-year deficit reduction through tax hikes and spending cuts.But the plan failed when then-president Barack Obama declined to endorse it, setting up Congress for the debt ceiling battle of 2011.A new commission would need to go further, changing the unwieldy fiscal committee structure in Congress and possibly replacing the debt ceiling, Bilmes said.That limit “doesn’t force some kind of Hamiltonian thoughtfulness around how we allocate resources in society. It is just a gun to the head.” (This story has been refiled after tweaking the headline) More