Evelyn Reynolds

More stories

  • 188 Shares169 Views

    in Economy

    A recession is coming — and stock markets won’t come through it unscathed, strategist says

    Chris Watling, chief executive of financial advisory firm Longview Economics, said Friday that he believed a recession was coming.
    Watling cited what he described as “pretty compelling” and “brutally bad” leading economic indicators.
    The Conference Board on Thursday said its Leading Economic Index for the U.S. fell by 1.2% in March, slipping to its lowest level since November 2020.

    The latest U.S. economic data suggests a recession is coming, according to the chief executive of financial advisory firm Longview Economics, and investors may need to prepare for some pain in the stock market.
    Speaking to CNBC’s “Squawk Box Europe” on Friday, Chris Watling said he believed a recession was on its way, citing what he described as “pretty compelling” and “brutally bad” leading economic indicators.

    The Conference Board on Thursday said its Leading Economic Index for the U.S. fell by 1.2% in March, slipping to its lowest level since November 2020. The data appeared to indicate that economic weakness could soon intensify and spread throughout the U.S. economy.
    Alongside this warning signal, Watling said the typical timeline for a recession after the inversion of the Treasury yield curve, which first inverted in March 2022, then again in the following months, was roughly one year or so.
    “Every time you’ve had that in the U.S., you’ve had a recession. So, I think it’s coming, it’s on its way. It’s just a timing issue,” Watling said.
    While many economists have warned of a looming recession, the International Monetary Fund suggested only last week that it had been surprised by the recent strength of the U.S. labor market and consumer spending.
    The IMF on April 11 released its latest World Economic Outlook report, in which it said it sees the world’s largest economy expanding by 1.6% this year, up from the 1% forecast in 2022.

    Gita Gopinath, the IMF’s first deputy managing director, told CNBC’s Joumanna Bercetche last week that signs of cooling inflation data had given the fund reason to believe the U.S. economy could avoid a recession. However, a so-called hard landing was still “within the realm of possibilities,” she added.

    Earnings expectations ‘way too optimistic’

    Asked on Friday whether equity markets could come through an expected economic downturn relatively unscathed, Watling replied: “I mean they won’t come through it unscathed in our opinion. I’m not even sure about relatively.”
    “The reality is if you look at profit margins, they went to record highs in 2021 and a bit of 2022, and of course when you have a lot of inflation around, you can get very good operating leverage so you can get record high profit margins,” Watling said.
    “When you get into recession, we’ve got to do a double hit on profit margins. You’ve got to normalize them back to normal levels and then you’ve got to price in a recession. So, I think the expectations for earnings are way too optimistic and therefore the stock market will have to contend with that at some point.”
    — CNBC’s Karen Gilchrist contributed to this report.
    Disclaimer More

  • 75 Shares179 Views

    in Economy

    America’s Inflation Antihero Gets a Makeover

    As the Fed fights inflation with a wary eye on the 1970s, some are arguing that Arthur Burns, the Fed chair at the time, gets too bad a rap.The years have not been kind to Arthur Burns, who led the Federal Reserve from 1970 to 1978 and is often remembered as perhaps the worst chair ever to head America’s central bank. His poor policy decisions, critics say, allowed inflation in the 1970s to jump out of control.Chris Hughes thinks he deserves another look. Mr. Hughes, 39, is a newly accepted doctoral student focused on central bank history at the Wharton School of the University of Pennsylvania. This is a third career for Mr. Hughes, who was Mark Zuckerberg’s college roommate and a founder of Facebook, a first act that left him with a personal fortune estimated to total hundreds of millions of dollars.Mr. Hughes then bought and for four years served as publisher of The New Republic, the liberal magazine. Starting this fall, he will spend his days studying the law and politics of central bank development and writing a book on the history of financial markets and politics.As a person who knows something about reinvention, Mr. Hughes thinks Mr. Burns should get one, too.He wrote a 6,000-word article for the journal Democracy on how America has misunderstood the former Fed chair, made the argument on NPR’s Planet Money and is now taking his spiel to academic gatherings.His point? He thinks Mr. Burns is portrayed in ways that are unfair to him — and which may offer the wrong lessons as America approaches the inflation burdening the rest of us at the grocery store, used car lot and day-care center today.Mr. Burns is frequently remembered in central banking and economic circles as a weak leader who failed to lift interest rates enough to control inflation because he feared harming the economy too much; Mr. Hughes and other Burns revisionists — a small but growing group of historians and economists who don’t necessarily love him, but do think he got an unfair rap — see him as someone who tried to balance concerns about hurting workers with a dedication to slowing down price increases. History often paints him as a political shill; the contrarians argue that he saw controlling inflation as a project that the Fed and elected officials in the White House and Congress could and should share.And because Mr. Burns gets blamed, without much nuance, for his failure to contain inflation, Mr. Hughes thinks that people miss the possible virtues of his more complicated view of price increases — as a problem that required multiple players, alongside the Fed, to successfully tackle.“I think he’s easily weaponized,” Mr. Hughes said in an interview. “The caricature is worth revisiting.”Mr. Burns plays the role of antihero in most stories about the Great Inflation of the 1970s — tales that are repeated often in academic circles and the news media as a warning about what not to do.Mr. Burns, a conservative economist, presided over rate increases during the 1970s, but he never pushed them far enough to bring inflation under control. And he may have pursued that start-and-stop approach partly because he was bending to political pressure.Richard Nixon with Arthur Burns in 1968. In the run-up to the 1972 election, President Nixon, who appointed Mr. Burns as Fed chair, urged him to cut rates.Associated PressPresident Richard Nixon, who appointed Mr. Burns as Fed chair, wanted him to cut rates in the run-up to the 1972 election. In taped conversations, Nixon urged Mr. Burns to push the Fed’s policy committee to lower borrowing costs.“Just kick ’em in the rump a little,” Nixon was recorded saying. Fed officials did cut rates in the latter part of 1971.Inflation deepened as the Fed’s rate moves remained more dawdling than decisive, and Mr. Burns’s name eventually became synonymous with bad central banking: irresolute and politicized. He remains the key historical foil to Paul Volcker, Fed chair from 1979 to 1987, who pushed interest rates up to nearly 20 percent in 1981, crashed the economy into a deep recession and ultimately saw price increases cool. Mr. Volcker, hated by many in his time, is now recalled as an almost heroic figure.The parable of Mr. Burns and Mr. Volcker retains a powerful hold today, as the Fed contends with the first major burst of inflation since the 1970s and ’80s. Fed officials regularly emphasize that they view a noncommittal approach to raising interest rates to slow the economy and choke off inflation — Mr. Burns’s style — as a mistake.Meanwhile, Mr. Volcker described his own approach as one of “keeping at it.” Jerome H. Powell, the current Fed chair, has echoed that phrase aspirationally.It is not clear whether the Fed would pursue a strategy just like Mr. Volcker’s. Mr. Powell has publicly noted that today’s circumstances differ from those of the 1970s. Nor do officials plan to push rates to the double-digit heights they reached in 1981 and 1982. But Mr. Volcker’s policies came at such a cost to workers, pushing unemployment up to a staggering 10.8 percent, that mere admiration of his approach has been enough to stir concern among some liberal economists and historians.Mr. Hughes agrees that rate increases have been necessary, but he is also pushing for a more detailed reading of Mr. Burns’ legacy. He has spent the past four years researching central bank history, including as a graduate student of economics at the New School in New York City, where he lives with his husband — a former Democratic congressional candidate — and their two children. He remains a senior fellow at the Institute on Race, Power and Political Economy at the New School.Chris Hughes, a doctoral student on Fed history at Wharton, wrote a 6,000-word journal article defending Mr. Burns’s actions as Fed chair.Gili Benita for The New York TimesHis own rapid jump from an adolescence in North Carolina’s middle class to a young adulthood at the upper end of the Bay Area elite, one that pushed his net worth to just shy of $500 million before his 30th birthday, piqued his interested in the design of the nation’s economic system — in particular, how it intersects with government policy and how it allows immense inequality.Perhaps no part of that design is more complicated, or less well understood, than the Fed. “Some are looking at Burns as an example of what not to do,” said Mr. Hughes, who quickly became intrigued by the 1970s. “But I think that’s not necessarily right.”Tradeoffs between inflation and employment could be particularly stark in the coming months. Officials have rapidly lifted their main policy rate over the past year to nearly 5 percent. At their upcoming meeting in May or shortly thereafter, central bankers are poised to wrestle with when they ought to stop raising interest rates.And as 2023 progresses and growth slows, unemployment is expected to rise. Policymakers will most likely need to decide how they want to strike the balance between fostering a strong job market and controlling inflation in a slowing economy. Should policymakers keep rates high even if unemployment rises substantially?Mr. Burns avoided punishingly high rates for reasons beyond his politics, Mr. Hughes and those who agree with him argue. While he deeply hated inflation, he blamed supply-related forces, including union bargaining power, for the jump in prices. The Fed’s tools affect mostly demand, so he thought other parts of the government could do a better job of tackling those forces. Relying on rates alone to fully control inflation would come at an untenable economic cost.He was working from “a place of ideological conviction,” Mr. Hughes said.Still, many economists think Mr. Burns deserves his bad reputation, whatever his motivations.Because his Fed took so long to control inflation, households and businesses came to expect fast price increases in the future, said Donald Kohn, a former Fed vice chair who worked at a regional Fed during the Burns era. That changed consumer and corporate behavior — people asked for bigger raises and companies instituted regular price jumps.As that happened, inflation became a more permanent feature of daily life, making it harder to stamp out. If Mr. Burns hadn’t let inflation spin so far out of control, this argument goes, Mr. Volcker might never have needed to cause such a painful recession to tame it.Paul Volcker, the Fed chair from 1979 to 1987, raised interest rates to nearly 20 percent in 1981, crashing the economy into a deep recession.Chick Harrity/Associated Press“It felt like he was trying to find a way to bring down inflation without paying the price — and it just wasn’t possible,” said Mr. Kohn, who remembered Mr. Burns as an “autocratic” leader who did not accept differing views from the Fed’s research staff.“The Fed was dealt a bad hand and played it poorly,” he added.When Mr. Burns’s reputation went down in flames, so did the idea that controlling inflation should be a joint effort of the Fed, Congress and the White House. Since Mr. Volcker’s stand, inflation has been seen, first and foremost, as the central bank’s problem.Many economists see the Fed’s independence from politics and clear focus on controlling prices as a feature, not a bug: Someone now stands ready to promptly clamp down on price increases. Economists even argue that today’s Fed won’t have to act like Mr. Volcker specifically because it will not act like Mr. Burns.Yet skeptics of Mr. Volcker’s economic shock treatment have pointed out that he partly got lucky. Oil embargoes that had pushed inflation much higher eased during his tenure.Given the towering costs Mr. Volcker’s policies inflicted on workers, some are asking: Even if it failed to stem inflation, is it fair to conclude that everything about Mr. Burns’s approach was wrong?“Our simple story about what happened makes it harder to see the complexities of what is happening now,” said Lev Menand, who researches money and central banking at Columbia Law School.Mr. Hughes argued in his essay published last fall that modern policymakers could learn from Mr. Burns’s cross-government collaboration. Raising taxes, revising zoning rules, and other frequent Democratic priorities could help temper price increases, he thinks.Other suggestions for government intervention to tame price increases have gone even further: Isabella Weber, an economist at the University of Massachusetts Amherst, has suggested that price and wage controls should be reconsidered. Their design and implementation in the 1970s did not work, but that does not mean they never could.But such interventions — even if successful, which is far from assured — would take time. The way today’s central bankers understand Mr. Burns as disaster and Mr. Volcker as savior could matter more immediately.And while Peter Conti-Brown, a Fed historian at Wharton and Mr. Hughes’s thesis adviser, said he thought Mr. Burns deserved most of the blame he received for failing to control inflation, he also thought it was possible that Mr. Volcker had been improperly lionized.To foster both maximum employment and stable inflation — the Fed’s twin jobs — is a balancing act, and to do it requires acting like neither Mr. Volcker, with his firm concentration on inflation, nor Mr. Burns, with his yielding one, he said.“I think in the history of central banking, there are few if any heroes,” Mr. Conti-Brown said. “There are also few if any villains.” More

  • 100 Shares179 Views

    in Economy

    Franchisers, Facing Challenges to Business Model, Punch Back

    Discontented franchisees have found allies among state legislators and federal regulators in pushing for new laws and rules, but change has been slow.When you visit a McDonald’s, a Jiffy Lube or a Hilton Garden Inn, you may assume you’re visiting one business. More likely, you’re actually visiting two: the operator of that particular location, known as the franchisee, and the larger company that owns the intellectual property behind it, or the franchiser.Conflict is inherent in that relationship, but it has hit a boil in recent months, as franchisees say they’re being squeezed out of the profits their business generates through new fees, required vendors and constraints on their ability to sell.On Monday, the Government Accountability Office released a report finding that franchisees “do not enjoy the full benefit of the risks they bear,” citing interviews with dozens of small-business owners who said they lacked control over basic operations that determined their ability to earn a profit.They’ve found a sympathetic ear in the Biden administration and in several state legislatures, giving rise to a growing wave of proposals to limit the power of franchisers.Franchisers have been largely successful in heading off new laws and rules, which the chief executive of McDonald’s, Chris Kempczinski, has described as an existential threat.“The reality is that our business model is under attack,” he said in February at the convention of the International Franchise Association, a trade group for franchisers, franchisees and franchise suppliers. “If you’re not paying attention to these pieces of legislation because you think they don’t impact you, think again.”The chief executive of McDonald’s says the franchising industry’s business model is “under attack” because of a push for new laws and rules.Haiyun Jiang/The New York TimesFranchising has been a feature of American capitalism for decades, allowing brands to grow quickly using investment from entrepreneurs who commit their own capital in exchange for a business plan and a logo that consumers might recognize. The Federal Trade Commission requires franchisers to disclose factors including start-up costs and the company’s financial performance to those considering buying a franchise, and some state laws govern considerations like transfer rights.But much of the relationship is largely unregulated — changes a franchiser can make to contracts, for example, and which vendors can be required.Keith Miller, a Subway franchisee in California who has become an advocate for franchisee rights, said the lack of oversight had given rise to an increasing number of disputes. “There’s more of a squeeze on the franchisees than ever,” he said. Franchisees’ royalty payments used to cover things like marketing, new menus and sales tools, he added, but “now you seem to have to pay for your services.”The franchise industry says that its business model remains beneficial to individual owners, and that additional regulation would protect substandard franchisees at everyone else’s expense. Matthew Haller, chief executive of the International Franchise Association, cited a 2021 survey by the market research firm Franchise Business Review in which 82 percent of franchisees said they supported their corporate leadership.But legislative battles at the state level reflect rising tension.Hotel franchisees, squeezed by lost revenue during pandemic lockdowns, say they have also been hurt by the hotel brands’ loyalty programs, which require the hotelier to rent rooms at a reduced rate. A bill in New Jersey that would limit those loyalty programs, as well as rebates that brands can collect from vendors that franchisees are required to use, faces fierce opposition from the American Hotel and Lodging Association. In a statement, the association’s chief executive, Chip Rogers, said the bill would “completely undermine the foundation of hotel franchising by limiting a brand’s ability to enforce brand standards.”Laura Lee Blake, the chief executive of the 20,000-member Asian American Hotel Owners Association, said hoteliers had reached desperation. “There comes a point when you’ve tried and tried to meet with the franchisers to ask for changes, and they refuse to listen,” she said.In Arizona, legislation introduced to enhance franchisees’ ability to sell their businesses and prevent retaliation from franchisers if they band together in associations has also faced resistance. The bill was approved by two committees in February and March, but the International Franchise Association hired two lobbying firms to fight it. In a Republican caucus meeting, opponents attacked the legislation as a “sledgehammer” that would bring the government into private business relationships. The bill’s sponsor, Representative Anastasia Travers, a freshman Democrat, said she was taken aback by how quickly opposition snowballed, and ultimately gave up on it for the 2023 session.“Time has not been my friend,” Ms. Travers said.A similar bill in Arkansas, which the International Franchise Association initially said would be “the most extreme franchise regulation of any state,” was amended to strip entire sections, including one that would have prevented franchisers from imposing any requirement that “unreasonably changes” the financial terms of the relationship as a condition of renewal or sale.After the bill was slimmed down — leaving provisions such as one restoring the existing statute, which had been rendered ineffective by a subsequent law, and another requiring the franchiser to establish material cause before terminating the franchise — the industry group withdrew its opposition, allowing swift passage.A Subway location in New York. “There’s more of a squeeze on the franchisees than ever,” said Keith Miller, a Subway franchise owner in California.Carlo Allegri/ReutersIn an email to supporters before the votes, the franchise association’s vice president for state and local government relations, Jeff Hanscom, credited the Arkansas agribusiness giant Tyson Foods for being “instrumental in negotiating this outcome.” Tyson Foods did not respond to a request for comment.At the federal level, franchisers may face greater challenges.The Biden administration is moving on two fronts. One is the Federal Trade Commission, which issued a request in March for information about the ways in which franchisers control franchisees. The initiative could result in additional guidance or rules — putting the industry on high alert.The second front is the National Labor Relations Board, which has proposed making it easier for franchisers to be designated as “joint employers” that would be liable for the labor law violations of franchisees if they exerted significant control over working conditions. Franchisers maintain that this would “destroy” the business model, because it would subject them to unacceptable risks.Franchisers attribute the flurry of activity to union influence. The Service Employees International Union, in particular, has long fought to get McDonald’s designated as a joint employer so it would be easier to mount an organizing effort across the chain, rather than store by store.Robert Zarco, a Miami lawyer retained by an association of 1,000 McDonald’s owners, said that to avoid the joint-employer designation, and the extra liability it would bring, franchisers could choose to weaken their grip on franchisee operations.“If the company wants to not be considered a joint employer, it’s very simple to fix,” he said. “Unwind all those excessive controls that they have implemented that are outside of protecting the brand and the product and service quality.”The franchise association’s federal lobbying spending hit a high of $1.24 million in 2022, alongside millions more spent in recent years on federal elections, and doesn’t include money spent by the individual franchise brands.The high stakes are evident in other ways, as well.The Franchise Times, a 30-year-old independent trade publication with six editorial employees, writes about day-to-day events in the industry: acquisitions, executive leadership changes, technology trends. When strife arises, such as lawsuits and bankruptcies, it writes about those, too.The publication’s legal columnist, Beth Ewen, wrote several stories this year about Unleashed Brands, a portfolio of franchises that has drawn lawsuits from franchisees. In response, the company published a markup of one of Ms. Ewen’s stories in red pen font with “DEBUNKED” stamped across the top. (The organization had given similar treatment to an article about the company by The New York Times. Both publications stand by their reporting, and Unleashed did not ask for corrections.)In March, a new website popped up at the address “NoFranchiseTimes.com.” Its front page was devoted to an attack on what it called “editorial bias,” “denigrating the businesses that support their publication.”It called for the publication’s advertisers — which include law firms, vendors and brands — to cancel their purchases.Michael Browning Jr., the chief executive of Unleashed Brands and a member of the International Franchise Association’s board, emailed the trade group’s membership saying that while he had not created the website, he supported its message and thought the group should revoke The Franchise Times’s membership. Mr. Browning did not respond to a request for further comment.The association declined to revoke the membership, and the publication says its advertising revenue is up from last year. But to Ms. Ewen, a 35-year veteran of business reporting, the episode shows that the industry is trying to divert attention from real problems — and that some members are playing hardball.“They’re trying to hit at our business model and our ability to keep going,” she said. “There’s a lot of people spending a lot of time trying to get us and others to stop doing these stories.” More

  • 100 Shares109 Views

    in Economy

    Ukraine Grain Deal Raises Tensions for European Farmers

    When Russia’s war blocked vitally needed grains at Ukrainian ports, officials succeeded in finding other routes out. But the solution brought its own problems.In Britain, food prices were up 19 percent last month from the previous year. In Spain, farmers are worried that a lack of rainfall will irreversibly damage wheat and barley production. And in West and Central Africa, record numbers of people are facing potentially dire food shortages.Nonetheless, a handful of European nations including Poland and Hungary have blocked the entry of farm products from Ukraine — one of the world’s biggest grain exporters — arguing that the flood of cheap imports is ruining local farmers. Now, to quell the rising discord, the European Union is considering a temporary ban on grain imports to five nations.The combination of spiraling prices for consumers in one part of the world and plummeting incomes for farmers in another illustrates the maddening complexities of the global food market.Long before Russia’s invasion of Ukraine last year, climate change, violent conflicts, supply-chain bottlenecks related to the pandemic and burdensome debts were contributing to food shortages and hunger around the world. But the war in Ukraine threatened to seriously worsen the crisis by reducing the country’s grain exports and driving up food and fertilizer prices.With sea shipments from Ukrainian ports blocked or restricted by Russian forces, the European Union suspended tariffs and quotas on food from Ukraine and rushed to transport as much as possible by rail and truck through neighboring countries. The idea was to create an alternate pathway that would funnel grain from Ukraine’s breadbasket to the Middle East, Africa and parts of Asia, where it was most needed.The plan worked, at least to some degree, easing anxieties over shortages. Food prices have dropped by more than 20 percent from a peak in March 2022, according to a food price index calculated by the United Nations Food and Agriculture Organization.Much of the Ukrainian grain was getting to far-off markets by traveling through Poland, Romania, Slovakia and Hungary, as well as Bulgaria — but not all of it. And that is what has set off the tensions.“Enough makes its way to local markets, and makes it more difficult for European farmers to get the price they want,” said Monika Tothova, an economist with the United Nations Food and Agriculture Organization.Trucks were lined up for more than 10 kilometers at the Ukrainian-Polish border on Tuesday.Yuriy Dyachyshyn/Agence France-Presse — Getty ImagesThe uproar in rural areas has created political headaches for government leaders.With a national election coming up in Poland, which has been one of Ukraine’s staunchest allies, Prime Minister Mateusz Morawiecki last week imposed a unilateral ban on Ukrainian grain and certain other farm imports, a violation of European Union rules.As early as last summer, some farmers in Romania were complaining about the glut of Ukrainian grain, saying it had pushed down prices for their own products at a time when the costs of fuel, pesticides and fertilizer were rising.Hoping to dampen the growing internal discord, the European Union promised on Wednesday to offer “comprehensive proposals” to address the concerns of the five Eastern and Central European countries and provide 100 million euros ($110 million) to compensate farmers.On Thursday, an E.U. official confirmed that one of the measures under consideration was a temporary ban on certain Ukrainian food exports to Bulgaria, Hungary, Poland, Romania and Slovakia, if those five countries canceled any unilateral measures.It was not clear if the countries would all go along with the plan, which some European officials said did not go far enough.“We have to expand this product range,” the Hungarian agriculture minister, Istvan Nagy, wrote on Facebook late Wednesday, adding, “We must also apply restrictions on eggs, poultry and honey” coming in from Ukraine.The prohibitions on Ukrainian grain to neighboring countries come at the same time that Russia is threatening to back out of a deal brokered by the United Nations and Turkey to allow grain shipments to leave Ukraine’s Black Sea ports. That deal is set to expire on May 18, although talks about an extension are continuing.Even with the deal in place, though, passage through the Bosporus in Turkey is slow, uneven and expensive. Ukraine is already harvesting 40 percent less than it did before the war. High shipping fees add to the costs and may cause farmers to plant even less next year, and in turn further reduce food production.“There is no global food crisis,” Ms. Tothova said. “There are many crises in different countries. The problem last year was a problem of access. Grain was available but many did not have enough resources to buy it.”Even as Europe’s leaders skirmished over Ukrainian grain, Ukraine itself was given encouragement on Thursday that it would eventually be accepted into the European military fold.On a visit to Kyiv — his first since the Russian invasion over a year ago — Jens Stoltenberg, the secretary general of NATO, said Ukraine’s “rightful place” was in the alliance.“I am here today with a simple message: NATO stands with Ukraine,” Mr. Stoltenberg said at a news conference with the Ukrainian president, Volodymyr Zelensky. Mr. Stoltenberg said the issue of Ukraine’s NATO membership would be “high on the agenda” at a NATO summit in Lithuania in July.Though Ukraine is not a member of NATO, the alliance has helped coordinate its requests for nonlethal assistance and supports deliveries of humanitarian aid. And some NATO members have provided major military assistance to help Ukraine fend off Russian forces.Even those NATO members who are open to the entry of Ukraine have made it clear that it is a long-term goal.But Mr. Zelensky, who has been invited to attend the NATO summit, said it was important that Ukraine be invited to join the alliance.“There is no objective barrier to the political decision to invite Ukraine into the alliance,” he said.On Thursday, Mr. Zelensky also tried to win over lawmakers from Mexico, which has said little publicly about the Russian invasion.“Ukrainians and Mexicans hurt equally when we see innocent lives taken by cruel violence, where true peace could reign,” he said, addressing them remotely.The Ukrainian president has spoken to dozens of legislatures over the past year, often using the occasions to ask for military aid. But speaking to the Mexican lawmakers, Mr. Zelensky seemed content just to ask for their support.Victoria Kim More

  • 100 Shares119 Views

    in Economy

    What’s in the House G.O.P. Debt Limit Bill

    Republicans revealed a proposal on Wednesday that would cut federal spending and unravel parts of the Biden administration’s policy agenda in exchange for lifting the nation’s borrowing cap.WASHINGTON — House Republicans on Wednesday unveiled a bill that would cut billions in federal spending and roll back some of President Biden’s policy priorities in exchange for lifting the debt ceiling for one year.After trying and failing to coalesce lawmakers around a budget blueprint of their own, Republican leaders have instead framed the legislation as an opening offer to Democrats and a way to get the White House to come to the negotiating table.Mr. Biden has insisted that Republicans raise the debt limit without any conditions and said that he would not meet with them to discuss spending cuts until they passed their own fiscal plan.Speaker Kevin McCarthy said he would put the new legislation, which Republicans claim would save the nation $4.5 trillion, to a vote next week.Negotiations have so far been frozen, and time is running short: The United States, which has already hit a $31.4 trillion cap on how much money it can borrow, could run out of money to pay its bills as soon as June.That could have catastrophic effects, potentially leading to a global financial crisis and a painful recession in the United States.While the two sides could soon begin talks, Mr. Biden is unlikely to accept few, if any, of Mr. McCarthy’s proposals. Here is a look at what is in the bill.Rescind unspent Covid-19 relief fundsRepublicans proposed rescinding pandemic relief funds that have not yet been spent, which they estimated would return about $50 billion to $60 billion to the government’s coffers.In 2020 and 2021, Congress approved about $4.6 trillion in stimulus funding, which was intended to help the country recover from the effects of the coronavirus pandemic. Most of that money has been spent.But there is some leftover funding for programs that provide grants to health care providers, medical care for veterans, pension benefits and aid for public transit agencies. Some of the programs have unspent money because applications are still open or their funds do not expire until next year. Others, including one devised to help aircraft manufacturers pay for compensation costs, are not expected to use all of their allotted funds.Biden administration officials have pushed back on the effort, since they expect a majority of unspent relief funds to be used before they expire.Speaker Kevin McCarthy said he would put the new legislation regarding the debt ceiling to a vote next week. Haiyun Jiang/The New York TimesCap spending to fiscal 2022 levelsHouse Republicans have long complained that federal spending is out of control, and the conference began the year with the aspiration of balancing the budget in 10 years. But that would require deep spending cuts to popular federal programs, something G.O.P. leaders have been unable to coalesce their conference around. The bill instead aims to assuage conservatives by proposing freezing spending to last year’s levels.That would effectively force budget cuts. As costs of government programs rise with inflation over time, lawmakers would have to cut some programs to stay under the cap. That would require Republicans to identify spending cuts totaling $3.6 trillion over a decade, by their own calculations, and this bill does not outline them. Instead, House Republican leaders are punting those decisions to the Appropriations Committee.One fight appropriators will have to resolve is how to balance the cuts between defense-related spending and spending on other domestic programs, like environmental protection and education. House Republicans in particular have been loathe to adopt any cuts to military spending, but leaving those budgets intact would require steeper cuts to other programs.Democrats have sought to make that part of the proposal politically toxic. They released a memo on Thursday accusing Republicans of seeking to kill manufacturing jobs by cutting government subsidies for low-emission energy technology.Karine Jean-Pierre, the White House press secretary, said in a briefing that the White House was still reviewing the plan but broadly called it unserious and harmful to Americans “who are struggling everyday to make ends meet.”Even if Republicans succeeded in imposing the caps, there is no guarantee they would produce anywhere close to the promised savings. Lawmakers in the future could simply vote to ignore them, as they did frequently with the spending caps that President Barack Obama and congressional Republicans agreed on to avoid a debt default in 2011.Roll back some of the Biden administration’s climate measuresThe bill would undo major parts of the Biden administration’s landmark health, climate and tax law, which Democrats passed last year and named the Inflation Reduction Act.Republicans proposed repealing an array of energy tax credits in the law that aim to cut greenhouse gas emissions, including those that incentivize the use of previously owned electric vehicles and the production of clean electricity and fuel. Republican lawmakers claim the move would save about $271 billion to $1.2 trillion.The Republican plan also includes proposals in a separate energy bill that House G.O.P. lawmakers passed last month to bolster domestic energy production. Although that bill has not passed the Democratic-controlled Senate, it includes provisions that would expand mining and fossil fuel production in the country and speed up the construction of necessary infrastructure by reforming a permitting process that can take up to five years.Claw back funding from the Internal Revenue ServiceRepublicans also vowed to “defund Biden’s I.R.S. army” by rescinding the bulk of new funding that the tax collection agency was given to improve customer service and crack down on tax cheats.The Inflation Reduction Act approved $80 billion in additional funding for the I.R.S., which has been struggling to deal with backlogs of tax filings and answer taxpayer calls because of declining resources over the years.The funding has come under intense scrutiny from conservatives, who claim that they will be used to increase audit rates for average taxpayers. I.R.S. officials have reiterated that they will not raise audit rates above “historical levels” for taxpayers who earn less than $400,000 a year and will focus on increasing compliance among large corporations and wealthy people.Cutting that spending would actually add to federal deficits, the Congressional Budget Office estimated. That’s because the money is projected to help the I.R.S. crack down on taxpayers who do not pay what they owe — bringing in an estimated $200 billion in new revenue over a decade. That revenue would be lost if the funding is taken away.Impose stricter work requirements for food stamp and Medicaid recipientsThe proposal would enact more stringent work requirements for recipients of food stamps and Medicaid benefits, which Republicans claim would help attract more people to the work force and save about $110 billion to $120 billion. Republican leaders backed down from pursuing more drastic requirements after lawmakers who are facing challenging re-election battles in swing districts raised concerns.The measure would make able-bodied adults without dependents who receive both federal food assistance and Medicaid benefits subject to work requirements until they are 55 years old, raising the current age from 49. It also seeks to close a loophole Republicans have claimed that states abuse, which allows officials to exempt food assistance recipients from work requirements.The legislation bill would repeal the Biden administration’s plan to forgive up to $20,000 in student loan debt.Andrew Caballero-Reynolds/Agence France-Presse — Getty ImagesBlock student loan forgivenessThe bill would repeal the Biden administration’s actions to forgive up to $20,000 in student loan debt for millions of borrowers making under $125,000 a year. The move would wipe out more than $400 billion in debt, although the Supreme Court’s conservative majority appeared to be deeply skeptical of the legality of the plan ahead of an expected ruling by June.Republicans would also block a second student-loan change the Education Department has announced, which would reduce payments for future borrowers who go on to earn relatively low incomes after college. The department has estimated that plan would cost more than $100 billion over a decade, though the University of Pennsylvania’s Penn Wharton Budget Model pegs the cost at about $350 billion.Raise the debt limit through March 2024In exchange for the spending cuts and policy changes, Republicans would raise a statutory cap on how much the United States can borrow through March 2024, or until the nation’s debt grows to $32.9 trillion.That length of extension would be much shorter than Mr. Biden would prefer, guaranteeing another economy-rattling showdown as the presidential campaign heats up next year.The United States could default on its debt if both parties fail to reach an agreement. That could potentially lead to a financial crisis, damaging economic output and causing a deep recession if the country is unable to pay all its bills on time.The country might not be able to afford salaries for federal workers or Social Security checks, among other things. A debt default could also have global repercussions and destabilize bond markets across the world, since U.S. Treasury bonds are typically seen as one of the safest investments.Christopher Cameron More

  • 113 Shares129 Views

    in Economy

    Julie Su Faces Senate Fight as Labor Dept. Nominee

    Business groups are critical of the candidate, Julie Su, and key senators are wavering. The administration’s labor policies are central to the clash.Just over a year ago, the White House suffered an embarrassing defeat when three Democratic senators voted against advancing President Biden’s pick to run a key labor agency, dealing a blow to the administration’s pro-labor agenda.On Thursday, the administration and Senate Democrats tried to ensure that history wouldn’t repeat itself, only this time the stakes were even higher.The occasion was the Senate confirmation hearing of Julie Su, who has served as acting labor secretary since March 11 and is Mr. Biden’s choice to fill the job permanently.As with last year’s confirmation battle, over the government’s top enforcer of minimum wage and overtime laws, Ms. Su’s nomination represents a broader fight over workplace regulation, with business groups chafing against Mr. Biden’s push to strengthen unions and increase workers’ rights and benefits.And once again, there are signs that the administration may fall short, with at least two Democrats and an independent wavering over whether to support Ms. Su. A vote of the Senate Committee on Health, Education, Labor and Pensions is scheduled for next week.In her testimony before the committee on Thursday, Ms. Su largely associated herself with the record of her predecessor, Martin J. Walsh — whom some Republicans and business groups have held up as pragmatic, and whom Ms. Su served as deputy.She said she would seek employers’ advice on improving worker safety, and described the reverence she gained for small business owners after watching her immigrant parents operate a dry cleaner and a pizza franchise.Democrats argue that Ms. Su, who has strong backing from labor unions, would be a strong worker advocate and enforcer of provisions like the minimum wage, safety regulations and restrictions on child labor, as well as the right to join unions.“You need in terms of a bully pulpit a secretary of labor who makes clear that she is going to stand with working families, and she is prepared to use the powers of the office to take on corporate interests,” Senator Bernie Sanders, the Vermont independent who heads the labor committee, said in an interview on Wednesday.If confirmed, Ms. Su is also likely to lead the Biden administration’s effort to expand overtime pay for salaried workers. The administration is expected to propose a rule substantially raising the salary threshold — currently about $35,500 — below which most workers automatically qualify for overtime.Those questioning the merits of Ms. Su’s nomination have cited her record as California labor secretary and her support for the state’s labor regulations to suggest that she is a threat to certain industries.When Senator Bill Cassidy of Louisiana, the committee’s ranking Republican, pressed at the hearing for assurances that she wouldn’t pursue regulations that could harm the franchise business model, Ms. Su reminded him that her parents had been franchise owners and suggested that their businesses “were the reason my sister and I were able to go to college.”President Biden with Ms. Su and her daughters at the White House in March.Yuri Gripas for The New York TimesThe Flex Association, a trade group representing several prominent gig economy companies, has called attention to her support for a California measure that would have effectively classified gig workers as employees, requiring companies like Uber and DoorDash to pay them a minimum wage and overtime and to contribute to unemployment insurance. (The law was later scaled back through a ballot measure.)The group circulated an email on Wednesday expressing concern that Ms. Su “does not appreciate” that classifying gig workers as employees could cause many to lose access to such work.Some labor experts have disputed this claim, and a rule being finalized by the Labor Department on how to classify workers takes a different approach from the California measure. But Kristin Sharp, the Flex Association’s chief executive, said that the labor secretary would have discretion over how to carry out the new rule and that “we want to make sure that person is objective in his or her views of nontraditional work.” The group has not taken an official stand on Ms. Su’s nomination.Other business groups have cited what they say is Ms. Su’s support for a California law setting up a council to issue health and safety regulations for fast-food restaurants and create an industry-specific minimum wage.“She has supported policies that directly attack our model,” said Matthew Haller, president of the International Franchise Association, alluding to the fast-food measure. A ballot measure next year will allow voters to decide whether to nullify the law. It is unclear from a video the groups point to that she has specifically supported the law.And Republicans and a variety of business groups have highlighted accusations that California issued billions in fraudulent unemployment insurance claims while she was the state’s labor secretary in 2020. At the hearing, Mr. Cassidy recounted a report of a rapper securing hundreds of thousands of dollars in fraudulent funds in California and boasting about it on a video.Ms. Su has conceded that a large number of claims were improper. Mr. Sanders pointed out that the overpayments reflected features of a federal program that the state merely administered, and that other states paid out a far higher percentage of fraudulent claims.In recent weeks, a coalition of business groups has erected billboards and run ads critical of Ms. Su in the home states of potentially decisive senators, such as Joe Manchin of West Virginia, Kyrsten Sinema of Arizona and Jon Tester of Montana, all of whom have so far refrained from backing her nomination.The effort is reminiscent of a business-backed campaign against David Weil, whom Mr. Biden tapped to head the Labor Department’s Wage and Hour Division in 2021, and who had led the agency during the Obama administration. That nomination died on the Senate floor last year after Mr. Manchin, Ms. Sinema and a third Democratic senator, Mark Kelly of Arizona, declined to support him. (Ms. Sinema has since become an independent.)Mr. Weil and his backers lamented the muted response from progressive groups on his behalf. This time, labor unions and other supporters are making a more determined push. The A.F.L.-C.I.O. president, Liz Shuler, announced on Wednesday that a coalition of unions would make a “six-figure buy” of ads backing Ms. Su in states like Arizona and West Virginia and would urge local union members to contact their senators.The United Mine Workers of America, which is influential in Mr. Manchin’s home state and sat out the fight over Mr. Weil, endorsed Ms. Su last week.Emilie Simons, a spokeswoman for the president, said that the White House felt confident about Ms. Su’s confirmation and that it was working hard for every vote. She said that Ms. Su had offered to meet with every senator on the labor committee and that she had met with senators from both parties.At a Senate Democratic lunch on Tuesday, Senator John Hickenlooper of Colorado, regarded as one of the more moderate Democrats on the labor committee, spoke up on Ms. Su’s behalf, noting her work on expanding apprenticeships as deputy secretary.Mr. Hickenlooper said in an interview that he had watched Mr. Tester, his undecided colleague from Montana, as he delivered his remarks and that he was “hopeful that we’ll get him.”But Mr. Manchin and Ms. Sinema may be harder to wrangle, according to veterans of such nomination fights. Mr. Manchin, who is up for re-election next year in a Republican-leaning state, has yet to meet with Ms. Su. Ms. Sinema is likely to face a challenge from a labor-backed candidate in her re-election bid, giving her little incentive to accommodate unions.Larry Cohen, a former president of the Communications Workers of America who advises multiple unions and has helped secure the nomination of many pro-labor officials over the years, said that generating popular support for Ms. Su in Arizona and West Virginia might help her cause with Mr. Manchin and Ms. Sinema.But, he added, “I think there is good reason to be worried about both of them.”Jonathan Weisman More

  • 163 Shares169 Views

    in Economy

    Veteran investor David Roche says a credit crunch is coming for ‘small-town America’

    The collapse of Silicon Valley Bank and two other small U.S. lenders last month triggered contagion fears that led to record outflows of deposits from smaller banks.
    Earnings reports last week indicated that billions of dollars of deposit outflows from small and mid-sized regional lenders, executed amid the panic, were redirected to Wall Street giants.

    A home in Lynch, Kentucky.
    Scott Olson | Getty Images

    The banking turmoil of March, which saw the collapse of several regional U.S. lenders, will lead to a credit crunch for “small-town America,” according to veteran strategist David Roche.
    The collapse of Silicon Valley Bank and two other small U.S. lenders last month triggered contagion fears that led to record outflows of deposits from smaller banks.

    Earnings reports last week indicated that billions of dollars of deposit outflows from small and mid-sized lenders, executed amid the panic, were redirected to Wall Street giants — with JPMorgan Chase, Wells Fargo and Citigroup reporting massive inflows.
    “I think we’ve learned that the big banks are seen as a safe haven, and the deposits which flow out of the small and regional banks flow into them (big banks), but we’ve got to remember in a lot of key sectors, the smaller banks account for over 50% of lending,” Roche, president of Independent Strategy, told CNBC’s “Squawk Box Europe” on Thursday.
    “So I think, on balance, the net result is going to be a further tightening of credit policy, of readiness to lend, and a contraction of credit to the economy, particularly to the real economy — things like services, hospitality, construction and indeed small and medium-sized enterprises — and we’ve got to remember that those sectors, the kind of small America, small-town America, account for 35 or 40% of output.”

    The ripple effects of the collapse of Silicon Valley Bank were vast, setting in motion a chain of events that eventually led to the collapse of 167-year-old Swiss institution Credit Suisse, and its rescue by domestic rival UBS.
    Central banks in Europe, the U.S. and the U.K. sprang into action to reassure that they would provide liquidity backstops, to prevent a domino effect and calm the markets.

    Roche, who correctly predicted the development of the Asian crisis in 1997 and the 2008 global financial crisis, argued that, alongside their efforts to rein in sky-high inflation, central banks are “trying to do two things at once.”
    “They’re trying to keep liquidity high, so that the problems of deposit withdrawals and other problems relating to mark-to-market of assets in banks do not cause more crises, more threats of systemic risk,” he said.
    “At the same time, they’re trying to tighten monetary policy, so, in a sense, you’ve got a schizophrenic personality of every central bank, which is doing with the right hand one thing and doing with the left hand the other thing.”

    He predicted that this eventually results in credit tightening, with fear transmitting to major commercial banks that receive fleeing assets and “don’t want to be caught up in a systemic crisis” and will be more cautious on lending.
    Roche does not anticipate a full-scale recession for the U.S. economy, although he is convinced that credit conditions are going to tighten. He recommended investors should take a conservative approach against this backdrop, parking cash in money market funds and taking a “neutral to underweight” position on stocks, which he said were at the “top of the crest” of their latest wave.
    “We will probably go down from here, because we will not get rapid cuts in interest rates from central banks,” he said.
    He added that 10-year U.S. Treasurys were “reasonably safe” at the moment, as are long position on the Japanese yen and short on the U.S. dollar.
    Investors assume long positions by buying assets whose value they expect to increase over time. Short positions are held when investors sell securities they do not own, with the expectation of purchasing them at a later date at a lower price.
    Despite commodities not yielding much this year, Roche is sticking to long calls on grains, including soya, corn and wheat.
    “Beyond the geopolitical risks which are still there, the supply and demand balances for those products looking out five years is very good,” he said. More

  • 163 Shares169 Views

    in Economy

    House G.O.P. Eyes Rescinding Unspent Covid Money as Part of Its Fiscal Plan

    Estimates put the amount of leftover money between $50 billion and $70 billion. But even if Republicans could claw it back, it would not make much of a dent in the deficit.WASHINGTON — House Republicans demanding spending cuts in exchange for raising the nation’s debt limit have rallied around a seemingly straightforward proposal: recalling billions of dollars in coronavirus relief funds that Congress approved but have not been spent.Top Republicans regard the idea of rescinding unspent pandemic emergency money — an amount estimated to be between $50 billion and $70 billion — as an easy way to save money while avoiding more politically perilous options like cutting funding for popular federal programs. Their focus on the idea reflects how, after toiling unsuccessfully for months to unite their rank and file around a fiscal blueprint, G.O.P. leaders have become acutely aware that they have few options for doing so that could actually pass the House.On Wednesday, Speaker Kevin McCarthy highlighted the measure when he finally unveiled House Republicans’ proposal to raise the debt limit for one year in exchange for a series of spending cuts and policy changes. The party plans to vote on the legislation next week.“The American people are tired of politicians who use Covid as an excuse for more extreme inflationary spending,” Mr. McCarthy said in a speech on the House floor. “If the money was authorized to fight the pandemic, what was not spent during the pandemic should not be spent after the pandemic is over.”But going after the leftover money scattered across the patchwork of government programs used to dole out the relief funding — dozens of different accounts — is easier said than done.And even if House Republicans can find a way to identify and get their hands on the comparatively small sums of leftover money, it would do little to shrink the nation’s $1.4 trillion deficit. Additionally, the federal budget analysts who calculate the deficit have already accounted for the fact that some of the money Congress allocated for pandemic relief programs will likely never be spent.House Republicans have identified the move as just one way to rein in federal spending, which they say must be done in exchange for their votes to raise the debt ceiling, which is expected to be breached as early as June.But the challenges around what has widely been considered one of the simplest options underscore how difficult it will be for the party to meet the lofty goals Republican leaders laid out at the beginning of the year. They have already abandoned their aspiration of balancing the federal budget in 10 years and have been unable to reach consensus on freezing spending levels and other cuts that would shave down the deficit without touching Medicare or Social Security.Jeenah Moon for The New York TimesOver the span of two years and six laws, Congress approved about $4.6 trillion in federal spending to help the nation respond to and recover from the coronavirus pandemic. While most of that money has already been spent, either by federal agencies or state or local governments, tens of billions of dollars have yet to be earmarked for specific use.An internal document circulated by House Republican leaders laying out a draft of their fiscal demands in exchange for raising the debt limit until May 2024 estimated that there is $50 to $70 billion in leftover federal coronavirus relief funds scattered across federal agencies and programs. The Government Accountability Office reported in February that there was about $90 billion remaining.That money is spread across dozens of programs, and many agencies are still doling out money, including the Health and Human Services Department, the Department of Veterans Affairs and the Transportation Department.The bulk of it is intended for grants to health care providers, medical care for veterans, pension benefits and aid for public transit agencies that saw ridership levels plummet during the pandemic. Although Biden administration officials expect much of the remaining funds to be spent eventually, officials believe some programs with leftover money are largely over, including one designed to help aircraft manufacturers pay for compensation costs during the pandemic, which had about $2.3 billion left as of January.The funds could be unspent for various reasons. Transit agencies could already be using some to fund operations, but may not have submitted reimbursement requests to the federal government because they have more than a year left to spend the money. Funds for public health have been set aside for research, vaccine distribution and refilling stockpiles of personal protective equipment. A program that provides assistance to financially troubled pension plans is accepting applications through 2026 because of its extensive review process.Economists and policy researchers said rescinding the unspent funding would help trim the deficit — but only by a relatively small amount.Even if lawmakers were able to rescind, for example, $70 billion in relief funds, it likely would not result in a $70 billion reduction of the deficit, according to economic researchers. That is because researchers at Congress’s nonpartisan Congressional Budget Office who project the deficit have already assumed that not all pandemic relief funds would be spent and factored that into their calculations.Douglas Holtz-Eakin, the president of the conservative American Action Forum and a former C.B.O. director, said it would “make good sense” to rescind unspent relief funds if there were a substantial amount left and they were not needed, but the total savings would be relatively scant. He argued that it would be more effective for lawmakers to instead focus on slowing the growth of benefit programs such as Social Security or Medicare.“If you’re genuinely worried about the fiscal future and the unsustainable nature of the federal budget, good, but this won’t solve any of those problems,” Mr. Holtz-Eakin said. “This is a one-time reduction in spending that looks backward, not forward, and the real issues are in front of us.”Marc Goldwein, the senior vice president at the Committee for a Responsible Federal Budget, a nonpartisan fiscal watchdog group, said the federal government should pursue some of the relief money that is not being used and try to recoup funds by investigating cases of potential fraud, though it would be a “little too late” now.“We shouldn’t have a bunch of money sitting out there that’s not being used if it’s not needed, but we just shouldn’t expect much budget savings from it,” Mr. Goldwein said.The White House has pushed back on the proposal and signaled that it would not support a move to rescind a significant amount of the funds.Gene Sperling, a senior White House adviser, said that about 98 percent of the funding in the $1.9 trillion American Rescue Plan has already been spent or is “on the train to go out to people and places as it was specifically intended to by the law.”Rescinding the unspent funds, he said, would “lead to significant pain for veterans, retirees [and] small businesses.”“This is a one-time reduction in spending that looks backward, not forward, and the real issues are in front of us,” said Dr. Douglas Holtz-Eakin, the president of the conservative American Action Forum and a former C.B.O. director.Stefani Reynolds for The New York TimesCongressional negotiators have previously attempted to offset the costs of other bills by rescinding unspent Covid money provided to state and local governments, including last year, when Democrats tried to cover the cost of a $15 billion pandemic relief bill in part by rescinding funding earmarked for state and local relief funds.But a revolt from Midwestern House Democrats — whose states would have been disproportionately affected by the clawbacks and whose governors yowled at the idea of being stripped of money they had already planned to use — ultimately led party leaders to drop the measure altogether.The episode served as a warning to state and local leaders, and ahead of the debt limit fight, some prominent mayors began publicly warning their peers to spend down the federal funds available to them quickly.Lawmakers last year also sought to offset the costs of the stand-alone pandemic aid bill by raiding the $2.3 billion in unspent money from the Transportation Department’s program to help aircraft manufacturers cover the costs of their employees’ wages during the pandemic. The idea was ultimately scuttled after the revolt around rescinding state and local funds. More