Open thread October 6, 2020 Dan Crawford | October 6, 2020 7:00 am Tags: open thread Comments (9) | Digg Facebook Twitter |
The U.S. trade deficit climbed nearly 6 percent to $67.1 billion in August
NY Times – October 6
WASHINGTON — The U.S. trade deficit in goods and services continued to climb in August, growing 5.9 percent from the previous month to $67.1 billion, the highest monthly level since 2006, as American imports outpaced exports.
The United States exported $171.9 billion of goods and services in August, compared with imports of $239 billion, the Commerce Department said. The trade deficit in goods rose to $83.9 billion in August, the highest level on record.
So far this year, the overall goods and services deficit has increased $22.6 billion, or 5.7 percent, from the same period in 2019. Exports have fallen $296.1 billion, or 17.6 percent, while imports fell $273.5 billion, or 13.1 percent.
The rising trade deficit comes at an inconvenient moment for the Trump administration, which is eager to declare victory on its trade agenda as the election approaches. Economists caution against using the trade deficit as a measure of the economy’s health, but President Trump views the figure as a measure of his success in rewriting trade deals in the United States’ favor.
The overall U.S. trade deficit shrank last year for the first time in six years as the American economy cooled and the trade war Mr. Trump waged against China bit into imports. But the trade deficit is once again trending upward this year, as the growth in imported goods outpaces exports.
The hefty tariffs that Mr. Trump placed on more than $360 billion of Chinese products has caused the trade deficit with China to shrink, though Americans have switched to importing products from other countries instead.
In August, the trade deficit with China fell $1.9 billion to $26.4 billion, as exports rose and imports remained flat. But the trade deficit with Mexico hit a record of $12.8 billion.
On Tuesday morning, the World Trade Organization revised its forecast for global trade, projecting a smaller contraction than it had in April as economies begin reopening.
The W.T.O. now expects the volume of global trade in goods to fall 9.2 percent in 2020, compared with its previous forecast of a drop of at least a 12.9 percent. But it said that growth was likely to be weaker next year, rebounding just 7.2 percent in 2021 to leave trade well below pre-pandemic levels.. …
Finite SS Trust Fund — perpetual load of new retirees :-O Maybe it’s supposed to be like the “loaves and the fishes.” 🙂
Is anybody building a “new” surplus (a.k.a., Trust Fund) for today’s young workers’ future retirements — even as we run down the “old” Trust Fund. Doing so, of course, would require raising FICA to create a surplus with which to buy government bonds (which buy money would go to pay today’s on budget items normally paid by income tax).
Meantime, as today’s surplus runs out, FICA is lower than it would have to be fully fund retirements w/o the bonds.
So, while FICA is lower during today’s run out, FICA would have to be hiked to build a “new” surplus (canceling each other’s move out). Trouble with the Trust Fund idea is that you never run out of new retirees to draw on a limited amount. :-O
Never saved much in any case: only three years of full pay out (not counting one year to keep the surplus “solvent”).
Meantime, higher income tax required cash “old” Trust Fund bonds to pay today’s retirees, would equalize out against less income tax because “new” FICA surplus would be covering on budget items.
All makes a lot of sense doesn’t it? 🙂
Union thought for today: we cannot raise the minimum wage any higher than the lowest wage that could be negotiated by collective bargaining. Leaving the minimum wage way short of fulfilling the need to catch American labor pay up to what the (consumer) market would really be willing to pay.
You need to read every one of Coberly’s posts on Social Security so you have an understanding of what it actually is.
That is rich! You are right though.
Powell Warns of Prolonged Economic Pain Without Help as Trump Calls Off Stimulus Talks
NY Times – October 6
Jerome H. Powell, the Federal Reserve chair, argued that it was better to overdo the pandemic policy response to avert “tragic” fallout than to undershoot.
WASHINGTON — Jerome H. Powell, the Federal Reserve chair, delivered a blunt message to Congress and the White House on Tuesday: Faced with a once-in-a-century pandemic that has inflicted economic pain on millions of households, go big.
Hours later, President Trump delivered his own message: Forget it.
In a series of conflicting tweets, the president said the economy was “doing very well” and coming back “in record numbers,” suggesting that no additional help was needed while also saying that he would wait until after the election to “pass a major Stimulus Bill that focuses on hardworking Americans and Small Business.”
While the chances of Congress reaching a deal on another package were already slim, Mr. Trump’s directive sent markets swooning as the reality sank in that the economic recovery, which is slowing, would not get another jolt before Nov. 3. The S&P 500 fell more than 1 percent soon after Mr. Trump’s tweet, after having been higher in the moments before.
In deciding to forego any more immediate relief, Mr. Trump could be setting the economy up for the type of painful and “tragic” outcome that Mr. Powell warned about on Tuesday. The Fed chair, who has increasingly called for more government help, said policymakers should err on the side of injecting too much money into the economy rather than too little.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Mr. Powell said in remarks before the National Association for Business Economics.
“Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth,” he said. “By contrast, the risks of overdoing it seem, for now, to be smaller.”
Nearly seven months into the pandemic, millions of Americans remain unemployed as the coronavirus keeps many service industries operating below capacity. The unemployment rate has fallen more rapidly than many economists expected, dropping to 7.9 percent in September, and consumer spending is holding up. But Mr. Powell again highlighted that the economy’s resilience owed substantially to strong government assistance that has been provided to households and businesses.
That included direct payments to families, forgivable loans to small businesses and an extra $600 per week in unemployment benefits, which Mr. Powell said had “muted the normal recessionary dynamics that occur in a downturn,” like a hit to spending that causes additional layoffs.
But that assistance has since run dry, putting what Mr. Powell called an “incomplete recovery” at risk without the government pumping more money into the economy.
“There is still a long way to go,” he said regarding jobs, adding that “there is likely to be a need for further support” given “many will undergo extended periods of unemployment.”
The comments were a clear signal that the Fed remained worried about the economy’s ability to continue its rebound without more government spending to prop up struggling households and businesses. One big risk, Mr. Powell noted, was that prolonged economic weakness could perpetuate job losses that have weighed most heavily on women, people of color and low-wage workers.
“A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy,” he said. “That would be tragic, especially in light of our country’s progress on these issues in the years leading up to the pandemic.” …
The Fed chair did not weigh in on what sort of package was appropriate. But Mr. Powell, who has a long track record of worrying about the federal debt, has tried to persuade lawmakers that “this is not the time to give priority to those concerns.”
Instead, he has reiterated time and again the importance of returning the economy to full strength, and that both the Fed and Congress need to continue to provide help.
“This will be the work of all of government,” Mr. 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.”
In his tweets, Mr. Trump said he wanted the Senate to instead focus on getting his Supreme Court nominee, Judge Amy Coney Barrett, confirmed.
We’ll not cheat our way out of this. We have to do all the things. This one at a time will not work.
US economy without more stimulus is nearing a dangerous ‘tipping point.’
NY Times – October 7
Here is the situation the U.S. economy faces, with a month to go before Election Day: Job growth is stalling. Layoffs are mounting. And no more help is coming.
American households and businesses have gone two months without the enhanced unemployment benefits, low-interest loans and other programs that helped prop up the economy in the spring. And now, after President Trump’s announcement Tuesday that he was cutting off stimulus negotiations until after the election, the wait will go on at least another month — and very likely until the next presidential term starts in 2021.
It could be a dangerous delay.
Already, many furloughs are turning into permanent job losses, and major companies like Disney and Allstate are embarking on new rounds of layoffs. The hotel industry is warning of thousands of closures, and tens of thousands of small businesses are weighing whether to close up shop for good. An estimated one of every seven small businesses in the United States had shut down permanently by the end of August — 850,000 in all — according to data from Womply, a marketing platform. The deeper those wounds, the longer the economy will take to heal.
“The risk to waiting is that we may find ourselves in a place where we’re unable to turn back, we’ll hit a tipping point,” said Karen Dynan, a Harvard economist and Treasury Department official during the Obama administration.
Jerome H. Powell, the Federal Reserve chair, echoed those concerns in a speech on Tuesday, arguing that failing to provide enough support carried risks for the economy.
“Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” he said. “Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy and holding back wage growth.”
The failure to provide that assistance will ripple through the economy.
“The economy needs another round of fiscal support with aid to households, small and midsized firms and states,” said R. Glenn Hubbard, a Columbia University economist who was chairman of the White House Council of Economic Advisers under President George W. Bush. “Failing to act will have real economic consequences.”
Stock indexes, which had risen in recent days on signs that negotiations might be making progress, dropped sharply after Mr. Trump’s announcement. Several major Wall Street banks had said in recent days that they would downgrade their growth forecasts if talks stalled.
Mr. Trump may have been listening. In a series of tweets late Tuesday, he urged both houses of Congress to “IMMEDIATELY” revive a lapsed loan program for small businesses and to approve funds for airlines and another round of stimulus checks. It remained unclear if his tweets reflected a willingness to restart negotiations.
The gridlock in Washington is a reversal from the spring, when fear of an imminent economic collapse led Congress to vote overwhelmingly to approve trillions of dollars in aid to households and businesses. The effort was largely successful: Households began spending again, companies began bringing back workers, and a predicted tidal wave of evictions and foreclosures mostly failed to materialize. The unemployment rate, which reached nearly 15 percent in April, fell to 7.9 percent in September.
But most of the aid programs expired over the summer, and in recent weeks economic gains have faltered. Economists across the ideological spectrum agree that the loss of momentum is likely to get worse if more aid doesn’t arrive soon. …