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      Credit agency Moody’s cuts outlook on US government to negative

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      The credit ratings agency Moody’s reduced its outlook on the US government from stable to negative, citing division in Washington DC and risks to the nation’s fiscal strength.While Moody’s maintained the US’s current top-grade AAA rating, it raised the prospect that this may be cut.Moody’s warned that the US’s deficits are likely to remain “very large” in the face of higher interest rates. It also cautioned that “continued political polarization” in Congress rasies the risk that governments “will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability”.The federal government is on the brink of another shutdown, with just a week left for the Republican-led House, Democratic-led Senate and Biden White House to reach a breakthrough on funding.The Biden administration said it disagreed with the decision, which comes just three months after another major agency, Fitch, downgraded its top rating for the US. Standard & Poor’s, the other leading ratings agency, had already done so.“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects that the US’s fiscal deficits will remain very large, significantly weakening debt affordability,” the agency said in a statement.Wally Adeyemo, the US deputy treasury secretary, said: “While the statement by Moody’s maintains the United States’ AAA rating, we disagree with the shift to a negative outlook. The American economy remains strong, and treasury securities are the world’s pre-eminent safe and liquid asset.”Karine Jean-Pierre, White House press secretary, suggested the move was “yet another consequence of congressional Republican extremism and dysfunction”. More

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      Does Wile E Coyote explain US voters’ gloom amid buoyant economy?

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      Strolling past the colorfully restored Victorian homes of the Fourth Ward, watching the barman hand-carve blocks of ice for old fashioneds at the jam-packed bar of The Crunkleton, it’s easy to fall for Charlotte’s ample southern charms. And yet, people are not happy – at least according to the polls.Consumer sentiment in North Carolina is now lower than it was at the height of the pandemic, according to High Point University’s confidence tracker. “People are just not feeling particularly good,” said Martin Kifer, director of the university’s survey research center.North Carolina is not alone. Official figures suggest the US pulled off an astonishing recovery from the Covid pandemic and recession.More than 20 million people in the US lost their jobs in April 2020 as the coronavirus pandemic shuttered the world’s largest economy. The unemployment rate rose to 14.7%. But the rebound was just as dramatic. Unemployment has hovered near 50-year lows since January 2022 and is now 3.8%. In North Carolina, it’s just 3.3%. More than 100 people are moving to the city every day.But as an exclusive Guardian/Harris Poll survey found this week, two-thirds (68%) of Americans report it’s difficult to be happy about positive economic news when they feel financially squeezed each month.Across the country, poll after poll shows people are not feeling it. That’s not good news for the Biden administration, particularly in a potential swing state where the perceived success – or failure – of “Bidenomics”, as Biden has dubbed his economic strategy, will be one of the key issues in next year’s election.The election is still a way out, and Biden has proven pollsters wrong in the past. Nevertheless, the economy – or voters’ perception of it – will be a defining issue in one of the most consequential elections in US history.Americans are deeply divided on the economy. The Harris poll shows over half (53%) of Americans believe the economy is getting worse. Some 72% of Republicans share that view compared with 32% of Democrats. But the unhappiness runs deep on both sides. Only a third of Democrats believe that the economy is getting better.Even when Americans say they are doing OK financially, they believe the economy is in trouble. According to the Federal Reserve’s annual survey of economic wellbeing, 73% of households said that they were “at least doing OK financially” at the end of 2022. In 2019, that figure was 75% of households. But back then, 50% said the national economy was good or excellent. By 2022, that number had fallen to just 18%.Some heavyweight voices share the gloom. Both the former Treasury secretary Larry Summers and Bill Dudley, former president of the Federal Reserve Bank of New York, have speculated that having shot out of the pandemic like a coyote chasing a roadrunner, the US may be in a “Wile E Coyote” economy and, like Warner Brother’s cartoon canine, the US economy may be heading off a cliff. “Falling back to earth will not be a pleasant experience,” Dudley has warned.Partisanship explains much of the seeming disconnect between economic data and sentiment. But not all of it. Large forces are reshaping the US economy and may explain the nation’s vertigo.Many low-wage workers, have been living with that fear of falling for a long time.Ieisha Franceis’s wages have shot up from $12.50 to $17 since the Durham, North Carolina, resident made the shift from working in fast food to a job at a senior living facility. Wages are – finally – running ahead of inflation overall but for Franceis, “everything looks the same. Inflation’s not gone down, it’s just not going up,” she said. “These days $17 an hour is looking a lot like $12.50,” said the low-wage activist.Franceis used to buy her family’s side dishes, boxes of macaroni and cheese, mashed potato, at Dollar General. The Kraft Macaroni and Cheese (“the good stuff”) has gone. “Now they only carry a cheaper brand with the powdered cheese.” At the average grocery store, that Kraft Mac and Cheese is over $2.“The Dollar Tree went from everything being $1 to everything being $1.25. Now they even have a $5 section and a $10 section. Huh? This was a dollar store,” she said. “Bidenomics” means little to Franceis. “What we need is higher wages and more unions,” she said.Even entrepreneurs are finding the new, post-Covid economy taxing.Cocktail queen Tamu Curtis saw her business boom during lockdown. A Los Angeles transplant, she started giving cocktail classes online and saved enough to open her bricks-and-mortar shop. The Cocktailery – nestled between an Anthropologie and Warby Parker inside an old streetcar station – opened in September 2021 when the vaccines started rolling out. “I thought, OK everybody is going to run and get the vaccines. We are saved! Of course, it didn’t work out that way,” she said ruefully. “That was a plot twist.”Up and running now for over a year, business has been strange. “This has been the craziest summer. It’s so slow,” she said.Retail sales have collapsed but classes have boomed. “People will spend money on experiences. On travel. We spent two years filling our houses with stuff. Maybe we just don’t need that any more.”On top of that, she said, “inflation is killing me.” An order of cocktail bitters that used to cost her $700 shot up to $1,500. “There’s only so much you can pass on. I can’t sell a bitter for $42. There’s a max people will pay.”At the same time, rent is high and financing is getting tougher as interest rates rise. “It’s difficult,” she said. And more so for a minority, woman-owned business. She hasn’t been able to get a traditional bank loan yet or a line of credit from her bank, Charlotte-based Bank of America. “Now the banks aren’t lending the way they were.”Post-Covid has been an easier ride for other local business people but still, existential questions remain, ones that may point to a wider national malaise.Desmond Wiggan and his partner Aubrey Yeboah launched their business, BatteryXchange, in 2019, just before the pandemic. The company sets up battery charging stations for mobile devices and the idea had originally been to target people at conferences or out on the town. “Suddenly there were no people,” said Wiggan.BatteryXChange retooled and now rents its equipment to healthcare providers and others who use the service to help keep their customers online. It worked and business is booming, as is Wiggan’s profile. He has just returned from a business symposium on swanky Martha’s Vineyard. A copy of Propel, a local Black business magazine, sits on his office table. Wiggan’s headshot is above a message from Michelle Obama: “Success isn’t about how much money you make, it’s about the difference you make.”But Wiggan has some wider concerns. He spent two years living in China and has seen firsthand that other countries think on a longer timescale. Back in the US, he said, it’s all about the next election cycle. On top of that another likely hot election issue worries him. “The age gap of our leaders. They are old. The torch has got to be passed.“These other countries are starting to sniff us out,” he said. Foreign students were getting their education in the US then going home because they see their country looking to the future, he said. “They are thinking 2060 not every four, eight years when we go back and forth.”****Why people feel so bad about an economy that – technically – appears strong is a question that is vexing not just the White House but Nobel economic laureates. Historians will have a better answer. For now, the reasons look manifold.As HPU’s Kifer points out “the perception of the economy is not the economy.” The disconnect between the official figures and how people feel may be temporary. Nor is it unusual for the hangover of a recession to outlast what looks like the beginning of a recovery. High Point’s own consumer confidence index started in 2010, two years after the peak of the 2008/2009 recession. It wasn’t until September 2011 that confidence started rising.The US’s pandemic recession began in February 2020 and ended two months later, making it the shortest recession on record. The body blow it dealt to confidence is, however, proving hard to shift. And things are different this time. For one, there is relatively high inflation – something never directly experienced by Americans under 40. Slowing increases have done little to calm people’s nerves and most people in North Carolina expect inflation to get worse next year, according to another HPU poll.The mood of economic despondency is fueled by other fires, too, illustrated by life in North Carolina and felt across the country.Politics plays a huge role. The University of Michigan’s national consumer confidence index shows Republican confidence soared under Trump and dropped under Biden while Democrats’ did the opposite.But it’s not the only factor. While people may not have lost their jobs, America’s middle class has lost $2tn in wealth since 2020 thanks to inflation and the fastest increase in interest rates since the 1980s, according to data compiled by economists at the University of California, Berkeley.That fall comes after outsized gains from stimulus cheques, rising house prices and other assets for those who rode out the pandemic with little financial cost. Still, the psychological pain of losing is about twice the pleasure of winning, according to Nobel-winning psychologist and economist Daniel Kahneman. Losses loom larger than gains.Then there are the epochal issues of our day – ones that will spread far beyond North Carolina and the Biden presidency.North Carolina has been voted the best state for business for two consecutive years and business is still good. But there are signs of a slowdown. According to the Charlotte Regional Business Alliance, the Charlotte area expects businesses to invest $2.3bn in the region this year and create 7,200 jobs. That’s down from $8bn in investment and 20,000 jobs last year.Uncertainty is a large part of that drop, said Danny Chavez, chief business recruitment officer of the Charlotte Regional Business Alliance. Concerns about the direction of interest rates and political change are part of it – businesses waiting to see what happens next year, a natural part of the cycle. There is also something more.The number of jobs created per investment is also decreasing as tech takes jobs. Financial services and manufacturing are extremely important to the region. They remain so, said Chavez. “But in terms of jobs, both those industries are highly vulnerable to automation and AI,” he said.While Charlotte is better positioned than most to ride out that change, Chavez said the region – and the rest of the US – is also increasingly competing with global players. India and China are challenging the US’s rank as the world’s largest economy.Biden’s economic plans are playing to the long term and America has proved resilient to big shocks before. The president also has a track record of beating expectations. If hiring stays steady and inflation keeps receding, maybe Americans will hear the good news soon. That may or may not happen before the 2024 election.But the polls may also reflect a wider anxiety about the existential challenges the US (and other economies) face. Perhaps those challenges explain some of the national mood. It’s hard to measure existential dread.Longer term, neither Bidenomics – nor Trumponomics – are likely to fix America’s broken healthcare and childcare systems or the climate crisis. Nor do they offer clear solutions to the global trade winds that threaten American exceptionalism or the challenges presented by AI and automation.Little wonder then that so many in the US feel like Wile E Coyote, running off the cliff, treading air, waiting for the fall. More

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      US economy going strong under Biden – Americans don’t believe it

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      Americans do not trust the government’s economic news – or the media’s reporting of it – according to a Harris poll conducted exclusively for the Guardian that presents the White House with a major hurdle as it pushes Biden’s economic record ahead of next year’s election.The US has roared back from the Covid recession by official measures. But two-thirds of Americans are unhappy about the economy despite consistent reports that inflation is easing and unemployment is close to a 50-year low. And the poll suggests many are unaware of or don’t believe the positive economic news the government has reported.The results illustrate a dramatic political split on economic views – with Republicans far more pessimistic than Democrats. But unhappiness about the economy is widespread.
      Two-thirds of respondents (68%) reported it’s difficult to be happy about positive economic news when they feel financially squeezed each month (Republicans: 69%, Democrats: 68%).
      Two-thirds of Americans (65%) believe that the economy is worse than the media makes it out to be rather than better (35%).
      In August the unemployment rate was 3.8%, close to a 50-year low. But the poll found that 51% wrongly believe that unemployment is nearing a 50-year high rather than those who believe it’s actually low (49%).
      The lack of confidence in the economy has many academics and politicians puzzled. Some have blamed the US’s polarized politics and this was illustrated in the poll. But Harris’s data also shows that fears are widespread – and reinforced by disbelief of or ignorance about official figures and a mistrust of the media’s reporting of them.Some 82% of Republicans and 66% of independents believe the economy is worse than the media’s portrayal. But nearly half of Democrats (49%) also said the media viewed the economy too favorably.Overall, the poll found widespread despondency about the state of the economy. More than half of Americans (53%) believe the economy is getting worse instead of better or staying the same. Republicans and independents are more likely to think it’s getting worse (72% and 58%, respectively, v Democrats: 32%), while more Democrats think it’s getting better (32% v Republicans: 8%, independents: 13%).The results paint a difficult picture for Joe Biden, who is making “Bidenomics” – his economic policy record – a central plank of his re-election platform.The views of those familiar with Bidenomics showed a perhaps unsurprising party split. Some 60% of Democrats believe his plans are improving the US economy overall compared with 12% of Republicans.There is a widespread belief that Bidenomics is good in theory but isn’t being implemented well – something both Democrats and Republicans agree with (62% v 58%).Biden supporters have just launched a $13m advertising campaign extolling the president’s economic achievements, which include a landmark $1.2tn infrastructure and climate bill, massive investment in domestic microchips production and green energy solutions. His legislative actions are predicted to create 1.5m jobs per year for the next decade.That message may be hard to sell given the widespread disbelief of and ignorance about the health of the US economy highlighted by the poll.As well as being wrong about the unemployment data, respondents were unaware of, or chose to mischaracterize, other major economic data points.skip past newsletter promotionafter newsletter promotionThe widest measure of economic growth – gross domestic product – increased at a 2.1% annualized rate last quarter and has been steadily improving since the Covid downturn. But more respondents (59%) believe that the US economy is shrinking this year than those who believe it is growing (41%). More Republicans (72%) and independents (63%) believe the economy is shrinking than do Democrats. But still, a sizeable 44% of Democrats believe the economy is shrinking.The S&P 500 stock market index is up 16% so far this year. But 59% of respondents wrongly said they believe the S&P is down for the year compared with those who said they believe it is up (41%). The majority of all those asked said the S&P was down whether Republican (66%), independent (60%) or Democrat (52%).US wages are, finally, growing faster than inflation. But 75% of those polled wrongfully believe that wages aren’t keeping up with inflation. That view is held by the majority of Republicans (84%), independents (75%) and Democrats (67%).There was some good news for Biden. The poll found that 75% of respondents support at least one of the four main branches of Bidenomics: improving infrastructure, attracting high-tech electronics manufacturing, building clean energy manufacturing facilities and attracting more high-paying union jobs.Still, 51% of Americans believe that government spending under the current administration is having a negative impact on the US economy (Republicans: 72%, independents: 54%, Democrats: 30%) rather than a positive impact (21%) or no impact (28%). And only just over a third of Democrats (35%) believe it’s having a positive impact (Republicans: 11%, independents: 16%).“All these perceptual-reality gaps underscore Biden’s difficulty in claiming credit for economic gains. Americans either view the economy through their politics or aren’t feeling it in real life, or both,” said John Gerzema, the CEO of Harris Poll.
      This survey was conducted online within the US by the Harris Poll from 1 to 3 September among a nationally representative sample of 2,055 US adults, where 1,063 were familiar with Bidenomics. More

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      US inflation in August rose to 3.7% amid sharp increase in energy prices

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      US inflation in August rose for the first time since June 2022, rising to 3.7% as a sharp increase in energy prices pushed prices up toward the end of the summer.Growth in prices still remains far below the decades-high inflation rates that were seen last summer, when the rate peaked at 9.1% in June. Still, an increase in inflation means the US economy is further from the Federal Reserve’s target rate of 2% and will probably make officials consider pushing interest rates up later this year.The price of energy commodities, including gas and oil, jumped up 10.5% over the last month, according to the latest Consumer Price Index data, which measures the prices of a basket of goods and services. Gas prices ticked up in August as Russia and Saudi Arabia continued aggressive cuts in supply, bringing the price of crude oil to 10-month high at $91 a barrel. Higher gas prices accounted for more than half of the increase in the overall inflation rate.Meanwhile core inflation, which measures the price of goods and services minus the volatile energy and food industries, actually decreased in August to 4.3%, down from 4.7% in July, reflecting the impact higher energy prices are having on the overall inflation rate.Even with the decrease in core inflation, which has been higher and going down at a slower rate than the 12-month inflation rate, inflation still remains far above the Federal Reserve’s target rate of 2%.Though price decreases have been seen in used cars and medical care services over the last few months, home prices have hit a near-record high in June, keeping core inflation stubbornly high. The median home price hit $413,80, the second-highest price ever, according to the National Association of Realtors. Home prices cooled slightly to $406,700 in July, but home prices still remain 7.3% higher than a year earlier.Even with inflation slightly up, the Fed is on track to keep interest rates the same at their next board meeting on 20 September. Economists say the Fed has had a pause planned for the meeting for a while as many officials say the economy has yet to feel the full effects of interest rates, which are at a 22-year high at 5.25% to 5.5%.But as the health of the economy continues to be hard to pin down – job growth has remained relatively stable even amid high interest rates, but inflation is still far from 2% – the Fed could still raise interest rates at future meetings. Future interest rate increases could introduce more volatility to the US economy, and potentially trigger a recession, though the Fed’s mission to bring down inflation has yet to bear dramatic consequences.The Fed chair, Jerome Powell, said last month that officials were aware of the precarity, saying they will “proceed carefully” as they decide what to do with interest rates. Powell has said the overall decline in inflation has been a “welcome development”, but it still remains high.“We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” he said. More

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      President centers ‘Bidenomics’ as 2024 re-election campaign gathers pace

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      As Joe Biden launches his 2024 re-election campaign, the White House is hoping to revamp the messaging on the president’s economic performance with a series of speeches, memos and the term “Bidenomics”.On Wednesday, Biden delivered what was billed as a major speech focused on the economy as he told an audience in Chicago that the Republican policy of “trickle-down economics” had “failed America”. In its place, Biden vowed to create policies that would prioritize growing the middle class, touted post-pandemic economic recovery and announced “Bidenomics is working” – one of 15 times he used the word over the course of his speech.Earlier in the week, a White House memo from two of Biden’s top advisers was sent to reporters and laid out a range of talking points. It touted the president’s various accomplishments on post-Covid economic recovery and job creation, while reiterating the theme that “Bidenomics is working.”“In the weeks and months ahead, the president, members of his cabinet, and senior administration officials will continue fanning out across the country to take the case for Bidenomics and the President’s Investing in America agenda directly to the American people,” the memo announced.The administration’s campaign appears to take aim at one of the president’s key vulnerabilities for the election, with polling showing voters have a dim assessment of how he has handled the economy. A Pew Research Center survey from this month found that inflation is the top concern among Republicans and Republican-leaning voters, while support for Democratic economic policies lags 12 points behind support for GOP policies. An AP/NORC poll from last month showed that only 33% of Americans supported Biden’s handling of the economy.The perceptions of Biden’s handling of the economy are at odds with a range of positive economic indicators that the White House is eager to highlight. Inflation has gone down to the lowest levels since 2021, while the administration has repeatedly touted months of consistent job growth and low unemployment. The US economy has generally outperformed economic experts’ forecasts, and for now has staved off a recession that seemed inevitable.But these gains have not appeared to resonate with voters, who have repeatedly given Biden poor marks on the economy as workers have struggled with rising prices that often outpaced growth in wages. Republicans have meanwhile been eager to capitalize on issues of inflation, labeling the spike “Bidenflation” and making it a frequent point of attack.Biden’s team attempted to defend the president’s economic achievements in the past, including dedicating a significant portion of his State of the Union address in February to highlight his record on job growth and unemployment. The White House even passed out small “palm cards” to Democratic lawmakers with a list of talking points about the economy. But as the presidential election begins to take shape it appears these efforts are intensifying, attempting to go on the offensive with a positive message about the administration’s economic agenda.Some Democratic politicians have embraced the talking points, earning them favorable positions as surrogates for the president. The California governor, Gavin Newsom, reportedly won praise from administration officials this month after an appearance on the Fox News host Sean Hannity’s show, in which Newsom forcefully challenged assertions that Biden’s economic plans were struggling and touted the president’s job creation.The “Bidenomics” memo sent to reporters earlier this week was the work of two longtime Biden advisers, Anita Dunn and Mike Donilon. Dunn is Biden’s most senior communications adviser and played a key role in turning around his 2020 presidential election bid. Donilon has worked with Biden for decades, and as his chief strategist during the 2020 election was key in shaping the campaign’s messaging.Biden initially joked about the “Bidenomics” term at a rally on 17 June hosted by union members in Philadelphia, where he said it was “time to end the trickle-down economics theory” that was commonly associated with former President Ronald Reagan’s plan of ‘Reaganomics’.“We decided to replace this theory with what the press has now called ‘Bidenomics’,” the president said. “I don’t know what the hell that is. But it’s working.” More

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      So what if Biden trips up? On the political stage his footwork is the fanciest seen in decades | Will Hutton

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      He stumbles when coming down the stairs of Air Force One; he trips over a sandbag on stage to fall flat on his face when handing out diplomas at the US air force academy; he muddles his words with alarming regularity. It is easy to write off President Joe Biden as a senile, 80-year-old duffer. Yet he is already being regarded by many Democrats, and some Republicans, as significant a Democrat president as Franklin Roosevelt or Lyndon Johnson. He is dramatically changing the face of the US around Democrat priorities – reindustrialisation to support blue-collar jobs and wages, wholeheartedly fighting climate change, investing massively in science and education, doing more for the poorest and, not least, rejuvenating the US’s decaying public infrastructure.But, unlike his famous predecessors, he has never had their big majorities in Congress, and after November’s midterm elections he does not even control the House of Representatives. He has had to rely on guile, sheer political craft and reading the Washington runes better than any alive. For the last few months we were being warned of financial Armageddon, as an implacable Republican party forced the US to default on its debts, only to be avoided if the administration agreed to its demands for swingeing public spending cuts to avoid going through an artificial debt ceiling limit. Tomorrow was to be the witching day when default occurred and a financial crisis engulfed the world. Instead, last week the wily Biden again outfoxed his opponents, and struck a deal massively weighted in his favour that was voted for by overwhelming majorities. It was an extraordinary victory and, when invited to claim it as such, he replied: “You think that’s going to help me get it passed?” First rule in Washington politics, from which the affable Biden has never deviated: always allow the defeated to save face because you’re soon going to have to cut another deal with them.Yet what lay behind the Republican retreat is important not just for US politics but our own. The ever more ideological US right, so influential among British Tories, has been abandoning fiscal conservatism as a dead end for some time. It goes through the motions of bloodcurdling threats to cuts in public spending, but it does not have the bottle to face the political consequences – the decimation of social programmes beloved of its own base and which any Republican presidential nominee needs preserved to have a hope in 2024. Instead, the new terrain is the fight against “the woke” – from banning drag queen reading hours to penalising investment companies that invest on “environmental, societal and governance” principles – laced with traditional social conservatism fighting against abortion along with a dose of America-first nationalism. It is, in effect, Donald Trump’s politics. The ghastly cocktail might work in the US, although I doubt not enough to win national presidential elections. It certainly won’t work in Britain.Biden’s negotiating tactics were textbook. Publicly, he took seriously the threats of Kevin McCarthy, leader of the House of Representatives, to cut $4.5tn of spending over a decade, talking up the threat and flying back early from the G7 summit to negotiate, showing the depth of his concern. Privately, he knew the Republican would back off: cuts of that scale would mean that social programmes would be decimated, given that so much federal spending is on defence, which the Republicans did not want to touch. This was not 2011, when the Republicans used the same tactic and meant it, when their libertarian tax-cutting right were in control; now they are big spenders too.Biden read the mood swing well: he knows his opponents better than they know themselves. Taking over the key negotiations himself, I am told, he forced the realities home on McCarthy, who successively scaled back his demand to a headline cuts figure of $1.5tn, which helped him save face. But even that was vastly overstated because of a series of side, off-balance-sheet deals. Federal spending will end up by being reduced by 0.2%, if that, over the next 10 years, while all the huge spending programmes on chips, infrastructure and green investment that Biden has negotiated through are intact. A stunning victory.There are problems ahead: the US, accounting for 15% of world GDP, can comfortably afford spending on this scale, but it will just have to increase its tax base. The Internal Revenue Service has been hollowed out over the years. As a first step, Biden wants to build up its capacity to go after the scarcely taxed US super-rich – one area where McCarthy did get a spending cut, if not decisive. But before 2030 the US will have to raise taxes. This will not lower its growth: as the Institute of Government recently reported, there is little or no evidence that tax cuts have any impact on growth. But it will force a huge political battle into the open.Meanwhile, Bidenomics defines the new consensus, what US treasury secretary Janet Yellen describes as “modern supply side” economics, set out in perhaps the best statement of social democratic economic analysis ever to come out of Washington, the 2022 Economic Report of the President. In her recent trip to Washington, the shadow chancellor, Rachel Reeves, met the principal architects, including Yellen, all endorsing her own version of modern supply side economics she has been developing since getting the job in 2021. At its simplest, this is a commitment to ambitious public investment, particularly over net zero, in a deliberative partnership with business as the foundation for economic growth. It is working in the US. It will work in the UK.British Tories are in a parallel position to McCarthy’s Republicans. They may deplore public spending and the big state in principle, but they shrink from the consequences of putting their ideology into action. They find themselves giving aid to new technologies and supporting the green transition as political and economic necessities without believing in either – so their approach is tepid, ad hoc, unconvinced. They are tempted to follow the US right into the poisonous thickets of being anti-woke – but Britain is a much more liberal, easygoing society than the heartlands of the US midwest. And round the corner comes the spectre of having to raise, not cut, taxes. It may be that both Britain and the US will be in the throes of national elections in autumn 2024. For the first time in 40 years, not only does the liberal left have the better argument; with a following wind, they can go all the way. More

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      ‘It left me with nothing’: the debt trap of payday loans

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      Meka Armstrong of Detroit, Michigan, has struggled in a cycle of debt from payday loans for years. She first took out a payday loan in 2010 to cover the costs of medication she needs as she is disabled and lives with lupus.“Worst decision I ever made,” said Armstrong. “The interest rate was 49% and I thought I would get my medications and pay the money back, but when I paid the money back, it left me with nothing. That’s how they get you. I, unfortunately, started the payday nightmare, and you can’t get out of the loop.”Armstrong is just one of the 12 million Americans who take out payday loans annually in the states where payday lending is not prohibited, shelling out up to $9.8bn in fees to payday lenders every year. The industry targets Black borrowers such as Armstrong, and Latinos, who are more likely to have lower credit scores and be unbanked compared with their white counterparts.A payday loan is a short-term, high-cost loan typically due on an individual’s next payday. But the payday industry thrives and depends on borrowers who take out numerous loans and face exorbitant fees and interest rates when they can’t keep up. Payday lenders collect 75% of their fees from borrowers who take out 10 or more loans a year, according to the Consumer Financial Protection Bureau.The average payday loan customer has an annual income of about $30,000 and four in five payday loans are rolled over or renewed. The average payday borrower stays in debt for five months, paying $520 in fees to borrow $375 on average. The majority of borrowers, seven out of 10, take out payday loans to pay rent, utilities or other basic expenses.It took Armstrong years to get out of the debt cycle, which she said was difficult because the payday lenders have borrowers’ bank account information, can sue them and even threaten them with jail time for nonpayment.During the Covid pandemic, Armstrong had to take out another payday loan, even though she had previously experienced the debt trap and the consequences of doing so, because she caught Covid in 2020 and was sick.“It’s embarrassing because I know how predatory they are, but I had Covid-19 for 98 days, almost died, my whole house was sick and we were behind on bills,” she added. “I’m still in the payday nightmare because of that desperation unfortunately.”The US has a poor record when it comes to regulating payday lenders. Currently 20 states and Washington DC have enacted rate caps of 36% annually or less to rein in the cycle of debt that traps consumers who take on payday loans, aligning these states with the federal Military Lending Act passed during the George W Bush administration that capped annual interest rates on consumer loans for active duty military at 36%.In states without caps, the average annual interest rate for payday loans is about 400% and as high as 664%.“The debt trap is very much by design and it’s how payday lenders’ business model works,” said Yasmin Farahi, deputy director of state policy and senior policy counsel at the Center for Responsible Lending. “They succeed by making sure their customers fail. They target low-income communities and communities of color, and it’s a model that’s based on their customers failing, essentially, for them to stay in business and generate fees.”In Minnesota, the state legislature recently passed a law to cap interest rates on payday loans to 36% annually, from average annual interest rates in the state of 220% in 2022.Opponents to the legislation claimed the cap would deter lenders from doing business in Minnesota, though advocates have countered that this has not been the case in states where similar legislation has already been enacted.“It’s meant to be a continuous cycle,” said a payday loan recipient in Minnesota who requested anonymity. “You end up having an emergency, and then you think that, OK, I can pay this off, it’ll be a one-time thing and that’ll be that, but then your next paycheck comes, and it comes out of your bank account automatically and then you’re essentially just back where you started. So then you have to take the same loan out, basically the same day that you pay it off. And it just keeps going and going and going every payday.”Anne Leland Clark, the executive director of Exodus Lending in Minnesota, supported the cap. The legislation was split across partisan lines with Democrats introducing and supporting the bill though polling across political lines showed 79% of Minnesotans supporting a 36% or lower interest rate cap.Prior to Democrats in Minnesota winning a trifecta majority in the state government in November 2022, efforts were made at the local level to enact interest rate caps.“No longer will people be turning and getting into debt traps, or balloon payments, where their ability to repay is not accounted for,” said Clark.She noted a provision was added to the legislation that would permit lenders to charge 50% annual interest rates as long as they report doing so, but Clark noted her organization will be monitoring to see how lenders utilize the provision.“When you crowd out the predators, people are going to turn to and find the more responsible lenders and the more responsible lenders are going to license in your state,” Clark added.Jason Ward, a bankruptcy lawyer in South Carolina, where payday lending is permitted and unregulated, said over half of his clients filing for bankruptcy have at least one payday loan.The average annual interest rate for a payday loan in South Carolina is 385 %.“The interest numbers are so high that I honestly don’t believe the payday loan companies even intend to get paid back,” said Ward.He said many of his clients take out the loans out of desperation to cover basic expenses and that desperation is taken advantage of by payday lenders who know many clients will accept loans with exorbitant terms because they are just focusing on trying to survive at the present.“When you weigh how desperate somebody can be with what’s being offered, you get the sense that it can be predatory,” Ward said. “I don’t think people understand the desperation of a lot of people’s situations.” More

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      What is the US debt ceiling and what would happen if it is not raised?

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      Joe Biden and the House Republican speaker, Kevin McCarthy, have reached a deal “in principle” to raise the federal government’s $31.4tn debt ceiling, potentially averting an economically destabilising default on 5 June.With any new agreement still required to pass through a divided Congress, the risk that the Treasury department runs short of money to cover all its obligations does however remain.Without raising the debt limit, the US government would default on its bills, a historic first that would likely carry catastrophic consequences. Federal workers would be furloughed, global stock markets would crash and the US economy would probably drop into a recession.As details of the deal begin to come to light, here is a quick guide on the debt ceiling and what it means for the US government and people across the country:What is the debt ceiling?The debt ceiling is the limit on the amount of money the US government can borrow to pay for services, such as social security, Medicare and the military.Each year, the government takes in revenue from taxes and other streams, such as customs duties, but ultimately spends more than it takes in. This leaves the government with a deficit, which has ranged from $400bn to $3tn each year over the last decade. The deficit left at the end of the year ultimately gets tacked on to the country’s total debt.To borrow money, the US treasury issues securities, like US government bonds, that it will eventually pay back with interest. Once the US government hits its debt limit, the treasury cannot issue more securities, essentially stopping a key flow of money into the federal government.Congress is in charge of setting the debt limit, which currently stands at $31.4tn. The debt ceiling has been raised 78 times since 1960, under both Democrat and Republican presidents. At times, the ceiling was briefly suspended and then reinstated at a higher limit, essentially a retroactive raising of the debt ceiling.What happens if the US defaults?The US has never defaulted on its payments before, so exactly what would happen is unclear. It’s not likely to be good.“Failure to meet the government’s obligation would cause irreparable harm to the US economy, the livelihoods of all Americans and global financial stability,” the US treasury secretary, Janet Yellen, said in a letter to Congress in January.Investors would lose faith in the US dollar, causing the economy to weaken quickly. Job cuts would be imminent, and the US federal government would not have the means to continue all its services. Mortgage rates would probably soar – tanking the housing market.Why is the US debt so high?The US debt grows when the government is spending more money or when its revenue is lower.Throughout its history, the US has had at least some amount of debt. But the debt really started to grow in the 80s, after Ronald Reagan’s huge tax cuts. Without as much tax revenue, the government needed to borrow more money to spend.During the 90s, the end of the cold war allowed the government to cut back on defense spending, and a booming economy led to higher tax revenues. But then, in the early 2000s, the dotcom bubble burst, leading to a recession. George W Bush cut taxes twice, in 2001 and 2003, and then the US military campaigns in Iraq and Afghanistan increased spending by as much as nearly $6tn over the course of the war.When the 2008 Great Recession started, the government had to bulk up spending to bail out banks and increase social services as the unemployment rate hit 10%.When the unemployment rate returned to its pre-recession levels, in 2017, a major tax cut was passed under Donald Trump. The debt rose by $7.8tn while he was in office.And then the Covid-19 pandemic hit. The US government passed a series of stimulus bills to offset the worst of the pandemic’s impacts that ultimately totaled $5tn.What are the main contributors to federal government spending?The biggest chunk of US government spending goes to mandatory programs, such as social security, Medicaid and Medicare, which comprise nearly half of the overall annual budget. Military spending takes up the biggest chunk of discretionary spending, taking up 12% of the budget. Other big-ticket items include spending on education, employment training and services and benefits for US veterans. More