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Business

Fed Chair on stimulus: There's little risk of overdoing it

The amount of money that the United States owes investors has hit record levels in more than a few ways, based on new numbers reported Friday by the US Treasury.

Both the annual deficit and total debt accumulated over the years has topped levels not seen since World War II.
On Friday, the US Treasury reported that for fiscal year 2020, which ended September 30, the US deficit hit $3.13 trillion (which is an estimated 15.2% of GDP) thanks to the chasm between what the country spent ($6.55 trillion) and what it took in ($3.42 trillion) for the year.

    As a share of the economy, the 2020 deficit is more than triple what the annual deficit was in 2019.
    The reason for the huge year-over-year jump is simple: Starting this spring, the federal government spent more than $4 trillion to help stem the economic pain to workers and businesses caused by sudden and widespread shutdowns. And most people agree more money will need to be spent until the Covid-19 crisis is under control.

    Having topped $21 trillion, the country’s total debt owed to investors — which essentially is the sum of annual deficits that have accrued over the years — is now estimated to have outpaced the size of the economy, coming in at nearly 102% of GDP, according to calculations from the Committee for a Responsible Federal Budget. Those calculations are based on GDP projections for 2020 from the Congressional Budget Office.
    Debt hasn’t been that high since 1946 when it hit 106% of GDP.
    “The only other time debt has exceeded the size of the economy was at the end of World War II — and we ran years of mostly balanced budgets afterward to bring it back down,” CRFB president Maya MacGuineas said. “We should be borrowing now, but once the economy recovers, our debt cannot continue to grow faster than the economy forever.”

    Concerns that will have to be put off

    With millions of Americans still out of work and struggling to get by as a result, the country’s burgeoning debt is understandably no one’s top concern at the moment.
    Even deficit hawks are urging a dysfunctional Washington and a chaotic White House to approve another round of badly needed stimulus to the tune of trillions of dollars.
    “The US federal budget is on an unsustainable path, has been for some time,” Federal Reserve Chairman Jerome Powell said last week. But, Powell added, “This is not the time to give priority to those concerns.”
    However, when the country eventually pulls out of its current health and economic crises, Americans will be left with quite a debt hangover.
    The problem with such high debt levels going forward is that they will increasingly constrain what the government can do to meet the country’s needs.
    Spending is projected to continue rising and is far outpacing revenue. And interest payments alone on the debt — even if rates remain low — will consume an ever-growing share of tax dollars.

      Given the risks of future disruptions to the economy, a debt load that already is outpacing economic growth puts the country at greater risk of a fiscal crisis, which in turn would require sharp cuts to the services and benefits on which Americans rely.
      “There is no set tipping point at which a fiscal crisis becomes likely or imminent, nor is there an identifiable point at which interest costs as a percentage of GDP become unsustainable,” Congressional Budget Office director Phillip Swagel said last month. “But as the debt grows, the risks become greater.”
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      Categories
      Markets

      US economy, Fed policy in 'good position,' Daly says

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      The U.S. Federal Reserve's vow to keep interest rates near zero for what could be years is "appropriate" for now, though more action could be needed as the recovery proceeds, San Francisco Fed President Mary Daly said on Tuesday.

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      "We've got the economy and the policy in a good position right now," Daly told reporters on a call. "I see us as well positioned to weather this storm we are in, and it remains to be seen if more will be needed … I'll continue to watch the data and see if adjustments will be necessary."

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      The Fed slashed interest rates to zero in the face of the coronavirus pandemic and began pumping trillions of dollars into financial markets, extraordinary actions that have helped fuel stock price gains even as the real economy struggles to regain its footing. Millions of Americans are still out of work.

      The situation, Daly said in a talk Tuesday hosted virtually by the University of California, Irvine, "seems unfair (and) another example of Wall Street winning and Main Street losing."

      FINAL JOBS REPORT BEFORE ELECTION DAY SHOWS US EMPLOYERS ADDED 661,000 WORKERS IN SEPTEMBER

      But keeping interest rates at their current near-zero levels until the economy returns to full employment, as the Fed has promised it will do, will in time create more jobs and help reduce inequality, Daly said.

      And while raising rates earlier might keep the already rich from adding further to their wealth, she suggested, it would also exacerbate inequality by making jobs for everyone else even harder to come by.

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      "I am not willing to trade millions of jobs … to keep the stock market from going up for the few who have those holdings," she said.

      (Reporting by Ann Saphir; Editing by Sandra Maler and Stephen Coates)

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      Categories
      Business

      Fed Chair on stimulus: There's little risk of overdoing it

      London (CNN Business)A strong comeback in 2021 is needed to help the global economy heal from the coronavirus pandemic. But the International Monetary Fund is downgrading its forecasts for next year, and warning of a long, slow recovery that will stoke poverty and damage growth.

      The IMF predicted on Tuesday that the world economy will shrink by 4.4% in 2020, a less severe contraction than it forecast in June. The improvement is driven by a stronger than expected bounce in the United States and Europe after lockdowns lifted, as well as China’s return to growth.
      However, the organization downgraded its outlook for 2021. The IMF now sees a 5.2% increase in global output next year, down from 5.4% in its previous report. Last month, the Organization for Economic Cooperation and Development also lowered its forecast for 2021.

        “The ascent out of this calamity is likely to be long, uneven, and highly uncertain,” IMF chief economist Gita Gopinath said in a blog post.
        Covid-19 has scarred the global economy, but it's not too late to change course
        Output in advanced economies, as well as emerging markets — with the exception of China — is projected to remain below 2019 levels next year, she said.

        Looking ahead, the IMF offered a bleak look at how the global economy might perform over the medium term, its first such forecast since the outbreak began.
        Global growth is expected to slow to roughly 3.5% between 2022 and 2025, leaving the output of most economies below levels that were predicted before the pandemic.

        Big consequences

        Slow growth over such an extended period will have large aftershocks, the IMF cautioned.
        One consequence will be worsening inequality and a “severe setback” for improvements to living standards, both in developed economies like the United States and emerging markets like Mexico and Argentina.
        Extreme global poverty is also expected to rise for the first time in more than two decades.
        The IMF’s predictions assume that social distancing will continue into next year before fading over time as people get vaccines and Covid-19 treatments improve.
        The US economy is expected to shrink by 4.3% in 2020 before expanding by 3.1% in 2021. The IMF thinks the 19 countries that use the euro will experience a harsher contraction but a sharper recovery, with output falling by 8.3% this year before jumping 5.2% next year.
        Working mothers are quitting to take care of their kids, and the US job market may never be the same
        Spain, which has been hard-hit by the virus and relies on service industries like tourism, is due to fare the worst among advanced economies, with output declining by 12.8% in 2020. Among emerging market economies, India — a key engine of global growth before the pandemic — will be especially damaged. The IMF thinks its economy will shrink 10.3% this year.
        Britain, which has the added challenge of Brexit to cope with, will see its economy shrink by 9.8% this year.
        Among major economies, only China is expected to expand in 2020. The IMF believes the country, which battled Covid-19 earlier than the rest of the world and was quickly able to move out of lockdown due to strict containment measures, will grow by 1.9%.

          The IMF emphasized that uncertainty surrounding its projections is “unusually large” given the lack of clarity on the health crisis and the economic response, especially as global debt levels increase.
          If new government spending is announced, the outlook could improve, the IMF said. It’s only factored in existing legislation and announcements. On the other hand, a stronger resurgence of the virus or slower-than-expected progress on vaccines could lead to a weaker economy.
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          Categories
          World News

          Michigan Governor Blames Trump for Fostering Hate Groups

          Hours after federal authorities charged six people with attempting to kidnap Michigan Governor Gretchen Whitmer, she held a press conference and blamed President Donald Trump for creating an environment that encourages such radical criminal behavior.

          “Our head of state has spent the past seven months denying science, ignoring his own health experts, stoking distrust, fomenting anger, and giving comfort to those who spread fear and hatred and division,” Whitmer told reporters in Lansing, the state capital, on Thursday.

          “Last week,” she said, “the president of the United States stood before the American people and refused to condemn white supremacists and hate groups like these two Michigan militia groups. Stand back and stand by, he told them.”

          Whitmer said that hate groups heard the president’s words “not as a rebuke, but as a rallying cry, as a call to action.”

          Michigan Attorney General Dana Nessel said six people had been charged with plotting to kidnap Whitmer as part of a plan to overthrow the state’s government. The suspects allegedly staked out Whitmer’s vacation home and planned to set off explosives to distract police while they kidnapped the governor. The U.S. said it would also bring charges against seven other people connected to the Wolverine Watchmen militia for attempts to target law enforcement officers and start a civil war.

          Trump “has continually condemned white supremacists and all forms of hate,” White House press secretary Kayleigh McEnany said in a statement. “Governor Whitmer is sowing division by making these outlandish allegations. America stands united against hate and in support of our federal law enforcement who stopped this plot.”

          Democratic presidential nominee Joe Biden, who spoke with Whitmer earlier in the day, complimented the FBI and police for handling the matter and criticized Trump. “The words of a president matter,” Biden said. “They can cause a nation to have the market rise or fall, go to war, make peace, but they can also breathe oxygen into those who are filled with hate and danger. And I just think it’s got to stop.”

          Whitmer’s comments are the latest chapter in a running feud with Trump. She accused the president of being slow to deliver medical supplies in March when the Covid-19 pandemic was spreading rapidly in her state. Trump, in turn, criticized Whitmer for not swiftly reopening the Michigan economy.

          Trump told Vice President Mike Pence, at a White House briefing in late March, “Don’t call the woman in Michigan.” That prompted her supporters to don t-shirts saying, “That Woman From Michigan.”

          Whitmer said during the press conference that she never expected to have her life threatened as governor.

          “When I put my hand on the Bible and took the oath of office 22 months ago, I knew this job would be hard, but I’ll be honest, I never could have imagined anything like this,” Whitmer said at the briefing.

          The coronavirus pandemic has created a deep political divide in the state where Whitmer initiated some of the nation’s toughest mandates to stop the spread of the virus. That led to criticism from Trump and Republican leaders in the state. Marches against her orders were organized and an armed protest at the capitol led to the cancellation of a legislative session.

          Whitmer’s measures were effective at slowing the spread of the virus. In early April, the state was seeing more than 2,000 new cases a day. The number has since dropped to fewer than 1,000 new cases on some days and less then 100 on others. The state’s unemployment rate fell to 8.7% in August from more than 10% in June, close to the national rate of 8.4%.

          Whitmer had been using emergency orders to enforce restrictions on schools, businesses and citizens to slow the spread of the virus, relying on a 1945 law granting the governor broad emergency powers. However, the state’s high court found that unconstitutional on Friday. That prompted Trump to call the decision a “BIG win” in a tweet on Wednesday.

          @realDonaldTrump

          We just got a BIG win for the people of Michigan. Open up your Churches and your Schools. Auto companies pouring in and expanding (thank you Mr. President!). Have fun!Young Americans for Liberty

          @YALiberty.@GovWhitmer is very sad the Michigan Supreme Court took away her unconstitutional emergency powers.
          She claims with a straight face that the state economy is at risk without her mandates preventing people from working.

          3:06 PM · Oct 7, 2020

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          Whitmer called for unity to get through the crisis during the press conference.

          “We are not one another’s enemy. This virus is our enemy and this enemy is relentless,” Whitmer said. “It doesn’t care if you’re a Republican or a Democrat, young or old, rich or poor. It doesn’t care if we’re tired of it. It threatens us all.”

          — With assistance by Jordan Fabian

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          Categories
          Economy

          Fed chief Jerome Powell calls for more coronavirus stimulus spending

          Federal Reserve chairman Jerome Powell on Tuesday called for more government spending to support the nation’s nascent economic recovery from the coronavirus pandemic.

          Both the central bank and Congress should continue their aggressive efforts to shore up the economy even though employment, consumer spending and other key measures have rebounded from their collapse in the spring, Powell argued in a virtual speech to the National Association for Business Economics.

          The risks of policymakers “overdoing it” with stimulus are fairly small, Powell said, but providing too little support would weaken the recovery by leading to more bankruptcies, hurting productivity and choking wage growth.

          “Even if policy actions ultimately prove to be greater than needed, they will not go to waste,” Powell said. “The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.”

          Powell and other Fed officials have urged Congress to pass another spending package to blunt the economic damage from COVID-19 as the central bank injected trillions of dollars into financial markets and slashed interest rates to near zero.

          Powell’s latest comments came as the Trump administration and House Speaker Nancy Pelosi worked to hash out a stimulus deal. President Trump expressed support for a spending bill while he was hospitalized with the coronavirus over the weekend, but it remains uncertain when an agreement will be reached.

          The recovery remains “incomplete” even though stimulus efforts so far — including March’s $2.2 trillion CARES Act — have helped prevent the recession from spiraling further out of control, Powell said.

          He also noted that the “burdens of the downturn have not been evenly shared,” with women and people of color suffering deeper job losses than other groups.

          “Combined with the disproportionate effects of COVID on communities of color, and the overwhelming burden of childcare during quarantine and distance learning, which has fallen mostly on women, the pandemic is further widening divides in wealth and economic mobility,” Powell said.

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          Categories
          Markets

          Stocks mixed ahead of Fed Chair Powell's remarks

          Economic recovery from coronavirus will take ‘years’ for big cities: Starwood Capital Group CEO

          Starwood Capital Group CEO Barry Sternlicht on his outlook for the reopening of the economy amid the coronavirus pandemic.

          Stocks saw a modest boost at the open on Tuesday as investors monitored ongoing progress on stimulus talks and awaited remarks from Federal Reserve Chairman Jerome Powell in the 10 am hour.

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          Ticker Security Last Change Change %
          I:DJI DOW JONES AVERAGES 28256.41 +107.77 +0.38%
          I:COMP NASDAQ COMPOSITE INDEX 11338.010471 +5.53 +0.05%
          SP500 S&P 500 3412.36 +3.73 +0.11%

          The Dow Jones Industrial Average and the S&P 500 saw early gains, helped by energy and material stocks, while the Nasdaq Composite struggled.

          Ticker Security Last Change Change %
          XLE ENERGY SELECT SECTOR SPDR ETF 30.61 +0.42 +1.39%
          XLB MATERIALS SELECT SECTOR SPDR ETF 64.82 +0.32 +0.50%

          Late Monday night, President Trump was discharged from Walter Reed Medical Center after having contracted COVID-19. The president will continue his treatment for the virus at the White House, his doctors said.

          Regeneron remains in focus after Trump used its experimental treatment of its COVID-19 vaccine.

          Ticker Security Last Change Change %
          REGN REGENERON PHARMACEUTICALS INC. 602.25 -2.83 -0.47%

          DOW JUMPS 465 POINTS AS TRUMP RETURNS TO WHITE HOUSE

          ECONOMIC NEWS

          On the economic front, the U.S. trade balance was wider than expected, at $67.1 billion for August. Economists were looking for a $66.2 billion deficit, up from a prior reading of $63.6 billion.

          And the closely watched JOLTS job openings figures came in at 6.4 million, slightly less than the 6.5 million estimate, however July was revised up to 6.7 million.

          EARNINGS SEASON KICKS OFF

          Ticker Security Last Change Change %
          PAYX PAYCHEX INC. 81.06 -0.40 -0.48%
          LEVI LEVI STRAUSS & CO. 14.83 -0.18 -1.20%

          The third-quarter earnings season is set to begin on Tuesday, with Paychex, Inc. and clothing manufacturer Levi Strauss & Co. reporting results.

          Paychex, which reports prior to the market open, is expected to earn 55 cents a share for its most recent quarter. San Francisco-based Levi Strauss reports after the market closes, with traders looking for earnings of 22 cents a share.

          Ticker Security Last Change Change %
          GOOGL ALPHABET INC. 1,475.88 -6.95 -0.47%
          MSFT MICROSOFT CORP. 209.66 -0.72 -0.34%

          CORPORATE NEWS

          Alphabet's Google unit announced it would rename its Microsoft Office competitor from G Suite to Google Workplace, along with new pricing tiers to better compete in the marketplace.

          Ticker Security Last Change Change %
          AAPL APPLE INC. 115.34 -1.16 -1.00%
          SONO SONOS INC 15.01 -0.63 -4.03%
          LOGI LOGITECH INTERNATIONAL S.A. 76.88 -3.89 -4.81%

          Ahead of an expected launch for its new iPhone, speaker and headphones, Apple Inc. has stopped selling rival products in its retail stores, impacting brands such as Bose Corp., Sonos Inc. and Logitech International SA, Bloomberg reported.

          Ticker Security Last Change Change %
          T AT&T INC. 28.85 +0.19 +0.65%

          AT&T's Warner Bros. movie division shuffled many of its upcoming movies, moving "Dune" to Oct. 1, 2021, and "The Batman" to 2022, Deadline reported.

          The news comes after Cineworld, parent company of Regal, announced plans to suspend over 500  theatres in the U.S. starting Oct. 8, citing "challenging theatrical landscape" tied to COVID-19.

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          Ticker Security Last Change Change %
          USO UNITED STATES OIL FUND L.P. 28.83 +0.90 +3.22%
          GLD SPDR GOLD SHARES TRUST – EUR ACC 179.60 +0.18 +0.10%

          Oil moved above $40 per barrel, while gold was little changed at $1,917.30 an ounce.

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