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      Biden’s America and MBS’s Saudi Arabia: Is Diplomacy Possible?

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      The Fair Observer website uses digital cookies so it can collect statistics on how many visitors come to the site, what content is viewed and for how long, and the general location of the computer network of the visitor. These statistics are collected and processed using the Google Analytics service. Fair Observer uses these aggregate statistics from website visits to help improve the content of the website and to provide regular reports to our current and future donors and funding organizations. The type of digital cookie information collected during your visit and any derived data cannot be used or combined with other information to personally identify you. Fair Observer does not use personal data collected from its website for advertising purposes or to market to you.As a convenience to you, Fair Observer provides buttons that link to popular social media sites, called social sharing buttons, to help you share Fair Observer content and your comments and opinions about it on these social media sites. These social sharing buttons are provided by and are part of these social media sites. They may collect and use personal data as described in their respective policies. Fair Observer does not receive personal data from your use of these social sharing buttons. It is not necessary that you use these buttons to read Fair Observer content or to share on social media. More

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      Who Can Put a Price on the Ukraine War?

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      The Fair Observer website uses digital cookies so it can collect statistics on how many visitors come to the site, what content is viewed and for how long, and the general location of the computer network of the visitor. These statistics are collected and processed using the Google Analytics service. Fair Observer uses these aggregate statistics from website visits to help improve the content of the website and to provide regular reports to our current and future donors and funding organizations. The type of digital cookie information collected during your visit and any derived data cannot be used or combined with other information to personally identify you. Fair Observer does not use personal data collected from its website for advertising purposes or to market to you.As a convenience to you, Fair Observer provides buttons that link to popular social media sites, called social sharing buttons, to help you share Fair Observer content and your comments and opinions about it on these social media sites. These social sharing buttons are provided by and are part of these social media sites. They may collect and use personal data as described in their respective policies. Fair Observer does not receive personal data from your use of these social sharing buttons. It is not necessary that you use these buttons to read Fair Observer content or to share on social media. More

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      Why is the US about to give away $52bn to corporations like Intel? | Robert Reich

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      Why is the US about to give away $52bn to corporations like Intel? Robert ReichThe Chips Act would provide an enormous subsidy to chipmakers for making their chips in the US. This is extortion Congress will soon put final touches on the Chips Act, which will provide more than $52bn to companies that design and make semiconductor chips.The subsidy is demanded by the biggest chipmakers as a condition for making more chips in America.It’s pure extortion.Fed chief vows to keep raising rates until ‘compelling evidence’ of falling inflationRead moreThe world’s biggest chipmaker (in terms of sales) is already an American corporation – Intel, based in Santa Clara, California.Intel hardly needs the money. Its revenue rose to $79bn last year. Its chief executive, Pat Gelsinger, got a total compensation package of $179m (which was 1,711 times larger than the average Intel employee).Intel designs, assembles, and tests its chips in China, Israel, Ireland, Malaysia, Costa Rica, and Vietnam, as well as in the US.The problem for the US is Intel is not helping America cope with its current shortage of chips by giving preference to producers in the United States. And it’s not keeping America on the cutting edge of new chip technologies.Obviously, Intel would like some of the $52bn Congress is about to throw at the semiconductor chip industry. But why exactly should Intel get the money?Among the other likely beneficiaries of the Chips Act will be GlobalFoundries, which currently makes chips in New York and Vermont – but in many other places around the world as well.GlobalFoundries isn’t even an American corporation. It’s a wholly owned subsidiary of Mubadala Investment Co.,the sovereign wealth fund of the United Arab Emirates.The nation where a chipmaker (or any other high-tech global corporation) is headquartered has less and less to do with where it designs and makes things.Which explains why every industry that can possibly be considered “critical” is now lobbying governments for subsidies, tax cuts, and regulatory exemptions, in return for designing and making stuff in that country.It’s a giant global shakedown.India, Japan and South Korea have all recently passed tax credits, subsidies and other incentives amounting to tens of billions of dollars for the semiconductor industry. The European Union is finalizing its own chips act with $30bn to $50bn in subsidies.Even China has extended tax and tariff exemptions and other measures aimed at upgrading chip design and production there.“Other countries around the globe … are making major investment in innovation and chip production,” says Senate majority leader Chuck Schumer. “If we don’t act quickly, we could lose tens of thousands of good-paying jobs to Europe.”But who is “we,” senator?John Neuffer, the chief executive of the Semiconductor Industry Association (the Washington lobbying arm of the semiconductor industry) warns that chipmaking facilities are often 25 to 50% cheaper to build in foreign countries than in the United States.Why is that? As he admits, it’s largely because of the incentives foreign countries have offered.As capital becomes ever more global and footloose, it’s easy for global corporations to play nations off against each other. As the then-chief executive of US-based ExxonMobil unabashedly stated: “I’m not a US company and I don’t make decisions based on what’s good for the US”People, by contrast, are rooted within nations, which gives them far less bargaining power.This asymmetry helps explain why Congress is ready to hand over $52bn to a highly profitable global industry but can’t come up with even $22.5bn the Biden administration says is necessary to cope with the ongoing public health crisis of Covid.If they are publicly owned, corporations must be loyal to their shareholders by maximizing the value of their shares. But over 40% of the shareholder value of American-based companies is owned by non-Americans.Besides, there’s no reason to suppose a company’s American owners will be happy to sacrifice investment returns for the good of the nation.The real question is what conditions the United States (or any other nation that subsidizes chipmakers) should place on receipt of such subsidies.It can’t be enough that chipmakers agree to produce more chips in the nation that’s subsidizing them, because chipmakers sell their chips to the highest bidders around the world regardless of where the chips are produced.If the US is going to subsidize them, it should demand chipmakers give highest priority to their American-based customers that use the chips in products made in the United States, by American workers.And Congress should demand they produce the highest value-added chipmaking in the US – design, design engineering, and high precision manufacturing – so Americans gain that technological expertise.What happens if every nation subsidizing chipmakers demands these for itself?Chipmakers will then have to choose. The extortion will then end.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
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      Federal Reserve announces biggest interest rate hike since 1994

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      Federal Reserve announces biggest interest rate hike since 1994Fed confirms 0.75 percentage-point increase as Americans across country hit hard by rising prices and shortages of key items With soaring inflation and the shadow of recession hanging over the United States, the Federal Reserve announced a 0.75 percentage-point increase in interest rates on Wednesday – the largest hike since 1994.Until this week the Fed had been expected to announce a smaller increase. At a press conference, the Fed chair, Jerome Powell, said the central bank decided that a larger hike was needed after recent economic news, including last week’s announcement that inflation had risen to a 40-year high.He made clear that a similarly outsized rate rise should be expected at its next meeting in July unless price rises softened. “We at the Fed understand the hardship inflation is causing,” he said. “Inflation can’t go down until it flattens out. That’s what we’re looking to see.”The hike will increase the Fed’s benchmark federal-funds rate to a range between 1.5% and 1.75% and officials said they expected rates to rise to at least 3% this year.Powell acknowledged that the Fed’s attempt to cool spending is likely to lead to job losses. The Fed expects unemployment to rise to 4.1% from the current rate of 3.6% as it attempts to bring inflation back down to its target rate of 2%.“We never seek to put people out of work,” Powell said. But, he added: “You really cannot have the kind of labor market we want without price stability.”The rate rise came after more bad news on inflation late last week sent US stock markets into a tailspin, presenting the Fed and the Biden administration with an escalating crisis amid fears that runaway inflation has now spread through the economy.Over a third of US population urged to stay indoors amid record-breaking heatRead moreThe Fed cut rates to near zero at the start of the coronavirus pandemic, as the US and global economies effectively shut down. It increased rates for the first time since 2018 in March this year, but the increase did nothing to tamp down rising prices.Powell initially described rising prices as “transitory”, but has changed his view and says the Fed intends to aggressively increase rates in order to bring prices back under control. There are already signs that consumers are cutting back in the face of rising inflation. Retail spending fell for the first time this year in May, the commerce department said on Wednesday. Home sales have fallen for three consecutive months and consumer confidence hit a record low between May and June.Last week the labor department announced consumer prices were 8.6% higher in May than they were a year ago. The increase was broad-based, with food and fuel prices rising alongside rent, airfares and car prices.Across the country, consumers are being confronted by rising prices and shortages. Nationally, gas now costs an average of $5 per gallon, close to $2 higher than a year ago. In California, a gallon of gas now costs more than $6, up from just over $4 a year ago.Supply chain disruptions and other issues have led to shortages of basic necessities including tampons and baby formula.On Wednesday, Joe Biden summoned top oil executives to the White House to discuss ways they can “work with my administration to bring forward concrete, near-term solutions that address the crisis”.Biden’s handling of the inflation issue has battered his poll numbers. With crucial midterm elections, and control of Congress, coming up in November, Biden’s approval rating is 33%, according to Quinnipiac University’s national poll, equal to the lowest rating for his administration.Many parts of the economy remain strong and the Fed is aiming for a “soft landing” – hoping it can tame inflation by raising rates without sharply increasing the unemployment rate – but Powell acknowledged some risks, including the war in Ukraine, were beyond the influence of the Fed.Nearly 70% of the academic economists polled by the Financial Times and the University of Chicago’s Booth School of Business now believe the US economy will tip into a recession next year.TopicsFederal ReserveUS interest ratesUS economyInflationUS politicsBiden administrationEconomicsnewsReuse this content More

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      Janet Yellen tells Congress US faces ‘unacceptable levels of inflation’

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      Janet Yellen tells Congress US faces ‘unacceptable levels of inflation’Treasury secretary admits she regrets describing inflation as ‘transitory’ and says it is ‘top economic problem at this point’ Janet Yellen told Congress that the US is facing “unacceptable levels of inflation” on Tuesday as the treasury secretary defended herself from criticism of her previous comments that rising prices were “transitory”.Although the hearing with the Senate finance committee was centered on Joe Biden’s budget for 2023, Yellen was forced to answer questions on inflation, including some on how she once said that inflation would be “transitory”, or temporary.In response to a question about how she had initially framed inflation, Yellen said: “When I said that inflation would be transitory, what I was not anticipating was a scenario in which we would end up contending with multiple variants of Covid that would be scrambling our economy and global supply chains.“I was not envisioning impacts on food and energy prices we’ve seen from Russia’s invasion of Ukraine.”Yellen said she and the Federal Reserve chair, Jerome Powell, “could have used a better term than transitory”.She said: “There’s no question that we have huge inflation pressures, that inflation is really our top economic problem at this point and that it’s critical that we address it. I do expect inflation to remain high, although I very much hope that it will be coming down now.”Last week, Yellen drew headlines for making similar comments to CNN, during an interview in which she had been “wrong then about the path inflation would take”.At the hearing on Tuesday, Yellen said: “We currently face macroeconomic challenges, including unacceptable levels of inflation, as well as the headwinds associated with the disruptions caused by the pandemic’s effect on supply chain and the effects of supply-side disturbances to oil and food market.”‘We’re still struggling’: low unemployment can’t hide impact of low wages and rising inflationRead moreThe Biden administration has been delicately walking the inflation tightrope over the last few months as they try to push an aggressive response while also emphasizing other indicators that prove the economy is still improving, particularly in the jobs market.Biden celebrated the figures shown in May’s jobs report, released last Friday, which showed that 390,000 new jobs were created that month.“Because of the enormous progress we’ve made on the economy, Americans can tackle inflation from a position of strength,” Biden said in remarks following the release of the jobs report.Republicans in Tuesday’s hearing repeatedly pointed to the passing of the $1.9bn American Rescue Plan, which was passed in March last year and delivered further coronavirus aid, as a key driver of inflation.In response, Yellen noted that Biden “inherited an economy with very high unemployment”.“We had to address the possibility that this could be the downturn that could match the Great Recession,” she said. “In the policy, there were various risks taken into account. Of course, inflation was one of them. But the overwhelming risk was that America would be marred by a deep and long recession.”Yellen pointed to the expansion of child tax credit, which gave extra assistance to families, in the stimulus package that “resulted in a dramatic reduction in childhood poverty and financial insecurity for American families and contributed little to nothing to inflation”.She also said the US is “not the only country that’s experiencing inflation – you can see that in virtually every developed country around the world”.TopicsInflationJanet YellenEconomicsUS politicsBiden administrationnewsReuse this content More

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      Making Sense of the Economic Consequences of the Russia-Ukraine War

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      The Fair Observer website uses digital cookies so it can collect statistics on how many visitors come to the site, what content is viewed and for how long, and the general location of the computer network of the visitor. These statistics are collected and processed using the Google Analytics service. Fair Observer uses these aggregate statistics from website visits to help improve the content of the website and to provide regular reports to our current and future donors and funding organizations. The type of digital cookie information collected during your visit and any derived data cannot be used or combined with other information to personally identify you. Fair Observer does not use personal data collected from its website for advertising purposes or to market to you.As a convenience to you, Fair Observer provides buttons that link to popular social media sites, called social sharing buttons, to help you share Fair Observer content and your comments and opinions about it on these social media sites. These social sharing buttons are provided by and are part of these social media sites. They may collect and use personal data as described in their respective policies. Fair Observer does not receive personal data from your use of these social sharing buttons. It is not necessary that you use these buttons to read Fair Observer content or to share on social media. More

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      How the US student loan debt crisis started — and how it could end

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      How the US student loan debt crisis started — and how it could end The $1.8tn debt has become a hot political issues as midterm elections approachAmerica’s students have a debt problem. A big one. More than 45 million Americans – more than the population of California – now owe a collective $1.7tn in student debt.What to do about that debt has become a hot political issues as midterm elections approach.The vast majority of the money is owed to the federal government, which has been backing or directly offering student loans for higher education since 1958. While student loans are not new in the United States, the amount of student debt has more than tripled over the last 16 years.The Biden administration has recently hinted that some form of student debt forgiveness could be announced soon – specifically, canceling at least $10,000 in student debt for Americans earning less than $125,000 a year. With that threshold, most student loan borrowers will qualify for some debt forgiveness.If the executive action is undertaken, it will be the first large debt cancellation by the federal government to address the student debt crisis. Understanding the impact of such a dramatic policy requires unpacking the student debt crisis, beginning with its origins.How the student debt crisis startedIn 1957 the Soviet Union successfully launching the first earth-orbiting satellite, Sputnik. With the cold war raging the federal government feared the US education system was failing to produce enough scientists and engineers to compete with the Soviets and, in 1958, started handing out student loans through the National Defense Education Act.Nearly a decade later, the Higher Education Act of 1965 allowed more people to take out loans as the federal government promised to pay back banks for any loans that were not repaid.“It all started from this choice, which I think was a terrible choice, to decide that as a policy matter we should support higher education … by giving [students] an opportunity to get a loan,” said Dalié Jimenez, professor of law and director of the Student Loan Law Initiative at the University of California at Irvine. “It was just a terrible mistake.”Starting in 2010, the federal government started directly lending money to student borrowers. In the wake of the Great Recession, the amount of student debt began to increase rapidly. Colleges were seeing increased enrollment as people left the workforce to go back to school. States slashed their higher education budgets, leading to higher tuition. More students were turning to for-profit colleges, which tend to be more expensive than public colleges.Over the last few years, the amount of grant aid, which does not need to be paid back, has risen. Yet despite this appearance of more financial support for students to attend college, the cost of attendance has remained the same.Two line charts comparing the gap between the listed price and what it actually costs to attend public and non-profit private institutions.The cost of attending public college has actually increased at a higher rate than the cost to attend a private college. The net cost of attendance for four-year public colleges, which takes into account any grants students receive, went from $17,500 in 2006 to $20,210 in 2016, according to data from College Board.Line chart of the costs of public and private non-profit increasing and then slightly decreasing from 2006-07 to 2020-21 school years.“That era 10 years ago was a really formative moment for producing a lot of debt that’s still out there,” said Kevin Miller, associate director for higher education at the Bipartisan Policy Center’s Economic Policy Project. “The cost of college attendance has gone up a lot while household incomes in the United States haven’t … there’s a real sense that if grant, state or institutional aid isn’t filling the gap, that just leaves debt as the only option.”What student debt looks like todayFor the 2021-2022 school year, the average cost of tuition and fees for a four-year public college is $10,740. The cost is nearly quadrupled for private institutions, at an average of $38,070. Even with grant aid, the cost of attendance is an average of $19,230 for public institutions and $32,720 at private schools.Estimates put the average debt of those in the class of 2019 who took out student loans at $28,950. The number is close to the maximum $31,000 that students who are dependents of parents or guardians can borrow from the federal government to fund undergraduate education.Area chart of student debt increasing from Q1 2006 to Q1 2022.Continuing racial wealth disparities are reflected in who has to take out loans to fund college. About half of Black college students take out student loans, compared with 40% of white students. Black Americans owe an average of $25,000 more in debt than their white counterparts and are more likely to be behind on their payments.Despite the amount of debt many students need to take on to attend college, nearly 20 million Americans still enroll in college every year. While earnings can depend on a person’s industry, those with a bachelor’s degrees earn 75% more in their lifetime than those with just a high school diploma.“The message is you have to get a college degree. It’s not just a rhetorical message, it’s an actual truth that if you don’t have a college degree, particularly if you are Black or brown … you will not be able to get a job that is better than your parents’,” Jimenez said.Those with graduate and professional degrees earn even more, but the price for an advanced degree is even higher. A good chunk of student debt – about 40% – is held by those who took out loans to pay for graduate school.What the government has done to address student debtThe most substantial policy addressing student debt was first implemented by the Trump administration, which paused student loan payments and interest accrual at the beginning of the Covid-19 pandemic. Both Trump and Biden extended the pause over the last two years, and it is now set to expire on 31 August.Since the beginning of this year, Biden has announced a slate of additional policies alongside the pause extension. Those who have defaulted or are delinquent on their federal student loans will be returned to good standing. Biden forgave $415m in student debt for borrowers who attended predatory for-profit schools.His administration also announced changes to the Public Service Loan Forgiveness Program, which forgives the student loans of borrowers who are non-profit and government employees after 10 years of debt or after 120 payments are made. Over 113,000 borrowers with a cumulative $6.8bn in debt are now eligible for forgiveness. Over the years, the program has been under much criticism, as relief through the program was rare and borrowers were often deemed not qualified for logistical reasons.The debate over debt forgivenessEven as it seems Biden is prepared to cancel some debt, the idea has gotten some criticism over the last few months.Republicans have been using student debt as a talking point against Biden as the midterm elections start rolling.Senator Mitt Romney suggested that Democrats canceling student loans is a way of bribing voters. “Other bribe suggestions: Forgive auto loans? Forgive credit card debt? Forgive mortgages?” he wrote on Twitter. JD Vance (who went to Yale Law School) told the Washington Post that “Biden essentially wants blue-collar workers like truck drivers – who didn’t have the luxury of going to college to get drunk for four years – to bail out a bunch of upper-middle-class kids.”The reality is that the student loans of those in the highest income quartile – people making more than $97,000 – do make up a third of all outstanding student debt. But many low-income Americans also have student debt, though the amount of debt they have is smaller. Those making below $27,000 a year make up 17% of all borrowers, but their loans comprise 12% of all the outstanding debt.An income threshold could be a way for the government to target forgiveness to those who need it most. But some have pointed out that an income ceiling does not take into consideration a person’s wealth.“You’re looking at a snapshot of what your income was this year or last year, that tells you very little,” Jimenez said. “If your family has no wealth, you’re very differently situated from someone who has family wealth or personal wealth from previous careers.”Those who have been advocating for student debt cancellation say that $10,000 in forgiveness will not be enough to address the breadth of the crisis. Democratic lawmakers, including Senate majority leader Chuck Schumer, Senator Elizabeth Warren and Representative Alexandria Ocasio-Cortez, have called on Biden to cancel up to $50,000.“I don’t believe in a cutoff, especially for so many of the frontline workers who are drowning in debt and would likely be excluded from relief,” Ocasio-Cortez told the Washington Post. “Canceling $50,000 in debt is where you really make a dent in inequality and the racial gap. $10,000 isn’t.”Ending the student debt crisis for goodEven if Biden forgives some student debt, future college students will continue to take out loans – and at higher interest rates. Tackling the price tag of college will come with its own complications, but advocates say it will be necessary to ensure student debt does not get worse.While Biden’s plan for free community college was killed along with the rest of the social and climate spending bill that was making its way through Congress, some efforts for better college funding are happening at the local level.In March, the governor of New Mexico signed a bill that would use $75m in state funds to cover tuition and fees for undergraduate students at two- and four-year colleges. Drives for similar government support have been seen in Pennsylvania, California and Maine.“The cost of college is too high for a lot of students to manage without debt. Making it so that students can go without debt or take less debt in the first place is the thing that we really need to be focusing on,” Miller said. “What about the next generation or the one after that?”
      This article was amended on 26 May 2022. An earlier version stated that student debt had doubled over 16 years. In fact, it has more than tripled.
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      US inflation rate slows but remains close to 40-year high

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      US inflation rate slows but remains close to 40-year highConsumer price index reveals costs rising by a monthly rate of 0.3% in April, down from 1.2% in March, the first fall since August 2021 Price rises slowed in the US in April but the annual inflation rate remained close to a 40-year high, leaving many Americans struggling to afford necessities including food, shelter and fuel.The latest consumer price index (CPI) figures – which measure a broad range of goods and services – showed prices rising by a monthly rate of 0.3% in April, down from 1.2% in March, the first fall since August 2021.But it is still too early to say whether inflation has peaked. At 8.3% the annual rate of inflation in April was down from 8.5% in March but remains at a level unseen since the 1980s. Over the year the CPI’s food index increased 9.4%, the largest 12-month increase since April 1981. The so-called core-price index – which excludes the volatile categories of food and energy – increased 0.6% on the month, up from March’s 0.3% gain.The figures come as the Federal Reserve is moving to sharply increase interest rates in an attempt to bring prices back under control. The pace of rate rises, and fears that they may trigger a recession, have spooked investors and sent stock markets reeling.Soaring demand and a lack of supply thanks to the pandemic have led to price rises across a broad swath of goods and services. Air fares are up 40% over the last three months. A booming house market has made housing unaffordable for many Americans, especially people of color, and 49% of people recently told Pew Research that affordable housing is a large problem in their community.Randall Kroszner, an economics professor at the University of Chicago and former Fed governor, said the sharp rise in core inflation would worry the Fed. “That is where you look for evidence that inflation is becoming entrenched,” he said.Kroszner said global issues including the war in Ukraine and China’s Covid woes had combined with rising rates to deliver a “one-two punch” to the US economy. He believes the chances of the US entering a recession have risen and that the housing and jobs markets may be the next to suffer.“I’m generally an optimist but this is challenging,” he said.The rising cost of living has become a leading political issue as the US prepares for November’s midterm elections. Rising prices have battered Joe Biden’s approval ratings. This week an Investors Business Daily/TIPP poll found that Biden’s approval had fallen to 39%, approaching his previous record low of 38% set in February, and confidence in the US economy was close to an eight-year low.On Tuesday, Biden said his administration was doing all it could to tackle inflation. “I want every American to know that I’m taking inflation very seriously,” he said in remarks from the White House. “It’s my top domestic priority.The Biden administration has made attempts to bring down prices. In March the White House announced plans to release up to 1m barrels of oil a day from the strategic reserve, in an attempt to dampen high gasoline prices exacerbated by the war in Ukraine. But gas prices remain elevated at a national average of $4.37 a gallon compared with $2.96 a year ago, according to AAA.Republicans have blamed Biden’s stimulus programs for rising prices, a claim he disputes. ​​ The president said his policies had “helped not hurt” the nation’s economic outlook.MIT economics professor Kristin Forbes said the US recovery had shown the US economy lacked skilled workers in industries where demand for jobs was high, pushing up wages – a problem that also afflicted the UK in the wake of the pandemic.The former Bank of England policymaker told a committee of MPs in the UK parliament that she expected inflation in the US to fall, especially once increases in borrowing costs feed through into more expensive mortgages and loans.However, she said the UK faced an acute inflationary spiral that would continue into the autumn because Britain was the only country affected by all six drivers of global inflation. Inflation is running at 7% in the UK, but is forecast by the Bankto exceed 10% later this year. She highlighted the impact on the UK of higher energy prices, a falling exchange rate, trade restrictions that pushed up goods prices, a decade of modest inflation going into the pandemic, expectations among businesses and consumers of much higher inflation in a year’s time and a tight labour market, forcing wages higher.“The UK is the only country to tick every box with inflation pressures coming from all six areas,” she said.TopicsUS economyInflationEconomicsUS politicsBiden administrationnewsReuse this content More