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      Biden says his student loan relief is ‘life-changing’. Will it fix the system’s inequities?

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      Biden says his student loan relief is ‘life-changing’. Will it fix the system’s inequities?The initiative’s income cap and unclear bureaucratic process could fail to address the racial disparities that already exist01:15As Joe Biden announced the details of his plan to help those with student loan debt, Kat Welbeck wrestled with the idea. For millions of Americans, the unprecedented relief would be “life-changing”, especially for low-income and Black and Latino Americans, who are disproportionately saddled with decades-long debt, she said.But the plans’ income cap on who can receive cancellation, and its unclear bureaucratic process for Americans seeking debt relief could perpetuate the inequities that underpin the nation’s student loan system, Welbeck, director of advocacy and civil rights counsel for the Student Borrower Protection Center, said.Student loan forgiveness: what you need to know about Biden’s planRead more“While a $10,000 cancellation is so meaningful for millions of student loan borrowers, there’s a lot that’s still to be done to fix this student debt crisis,” Welbeck says.On Wednesday, the White House released its long-anticipated plan on how to tackle the nation’s mounting $1.6tn student loan debt, accounting for more than 43 million people, with almost a third owing less than $10,000, according to federal data.The initiative would cancel up to $10,000 in debt for borrowers who earn less than $125,000 a year ($250,000 for married couples). Borrowers whose low income level qualified them for a Pell Grant will receive up to $20,000 in relief. The White House also extended a pause for “one final time” on student loan payments through January.The White House has projected that the plan would eliminate full debt balances for 20 million Americans and that 90% of debt relief dollars would go toward people with incomes less than $75,000. The White House also touted it as an effort to “advance racial equity”, pointing to its targeted relief for those who received Pell Grants. Officials noted that Black Americans were twice as likely to receive such grants as white Americans.Senator Elizabeth Warren, who, like others, have advocated for cancelling at least $50,000 in student debt, praised the administration’s plan as “transformative for the lives of working people all across the country” and would “help narrow the racial wealth gap among borrowers”.Still, some argue that the cancellation of just $10,000 for most borrowers would fail to substantially affect the racial disparities within the student loan system. Black and Latino borrowers disproportionately come from poorer households and, as a result, take on more debt than white Americans. At the same time, white American households have, on average, 10 times the wealth of Black households.Derrick Johnson, president of the NAACP, which had been advocating for cancellation of $50,000, wrote in an op-ed that Biden’s plan would “do little to help” Black Americans who, on average, hold nearly twice as much student debt as white borrowers. “Canceling just $10,000 of debt is like pouring a bucket of ice water on a forest fire,” he said. Canceling $10,000 in student debt when the average white borrower is $12,000 in debt, while Black women hold on average over $52,000 isn’t just unacceptable, it’s structural racism.— Nina Turner (@ninaturner) August 23, 2022
      The emphasis on income in the White House’s cap represents a possible barrier that could exclude borrowers of color who meet the income threshold yet their families lack the wealth to tackle the debt, Welbeck says. A June 2020 report from the Student Borrower Protection Center found that 90% of Black Americans and 72% of Latino Americans took out student loans, a far cry from the 66% of white Americans.And 20 years after graduating college, the median Black borrower still owed 95% of their original debt while the median white borrower paid down the same amount. For Latinos, after 12 years, they owed 83% of their original debt, more than the white borrower over the same time.Given that Black and Latino Americans typically earn less than white Americans, borrowers of color will start from behind without the intergenerational wealth available to reduce the debt they already hold.“So if you’re already coming from a lower-wealth household, you now have more debt, and then that cuts into opportunities for you to build wealth for the next generation,” Welback says. “You might see higher-income households that are Black or Latino, but that does not take away the fact that you still have those wealth disparities.”Student loan forgiveness: what does it mean for the US debt crisis?Read moreHistorically, the education department has complicated access to loan forgiveness through the programs it creates, such as the Public Service Loan Forgiveness program for non-profit and public service workers seeking relief and the borrower defense program for those who were defrauded by predatory for-profit colleges.The White House initiative does nothing to address private student loan debt, which accounts for more than $140bn in debt. Although Latino borrowers were more than twice as likely to report struggling with private student loan debt as white borrowers, Black borrowers were a staggering four times as likely to fall behind on private debt payments, according to the Student Borrower Protection Center.An application process could make it harder for people to access relief, Welbeck says. But recent decisions by the education department to automatically discharge debts for hundreds of thousands of students who attended ITT Technical Institute and Corinthian Colleges, two for-profit college chains that imploded, show that a widespread relief without bureaucratic hurdles is possible. The two debt cancellations at the for-profit institutions amounted to roughly $10bn affecting more than 700,000 students.“The student debt crisis is a result of the longstanding history of racial discrimination that we have in our country, and it continues to perpetuate them,” Welback says. “So until we address student debt as a civil rights crisis, we’re not going to be able to make meaningful gains toward equity.”TopicsUS student debtBiden administrationUS student financeRaceJoe BidenUS politicsUS educationnewsReuse this content More

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      Biden unveils plan to cancel $10,000 in student loan debt for millions

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      Biden unveils plan to cancel $10,000 in student loan debt for millionsPresident delivers on campaign promise and outlines debt relief measures for those on lower incomes in White House speech01:15Millions of Americans received welcome news on Wednesday when Joe Biden delivered on a campaign promise to provide $10,000 in student debt forgiveness.Borrowers who earn less than $125,000 a year will be eligible for loan forgiveness, with those whose low incomes qualified them for federal Pell Grants receiving up to $20,000 in relief. About a third of US undergraduate students receive Pell Grants.Biden also extended a pause on federal student loan payments through the end of the year. The White House said it would be the last pause, and borrowers should expect to resume payments in January.If it survives probable legal challenges, Biden’s plan could offer a windfall to many Americans in the run-up to midterm elections in November. More than 45 million owe a combined $1.7tn in federal student debt. Almost a third owe less than $10,000, according to federal data.Biden also proposed a new income-driven repayment plan that would cap loans for low-income future borrowers and introduce fixes to the loan forgiveness program for non-profit and government workers.“Twelve years of universal education is not enough,” Biden said, announcing the plan at the White House. “How do we remain the most competitive nation in the world with the strongest economy in the world with the greatest opportunities?“That’s what today’s announcement is about. It’s about opportunity. It’s about giving people a fair shot. It’s about the one word America can be defined by: ‘possibilities’. It’s about providing possibilities.Biden noted that the federal government gave loans to small businesses during the Covid pandemic.“Now, it’s time to address the burden of student debt the same way.”Biden added that “an entire generation is now saddled with unsustainable debt.“The burden is so heavy that even if you graduate, you may not have access to the middle-class life that the college degree once provided. The burden is especially heavy on Black and Hispanic borrowers who, on average, have less family wealth to pay for it.”Biden said more information on the plan would soon be released and borrowers who qualify for forgiveness could expect a “short and simple form to apply for this relief”, sent by the Department of Education.The US has a long history of student debt, the vast majority owed to the federal government, which has been offering loans for college since 1958. US student debt has more than tripled over the last 16 years.Senior Democrats on Capitol Hill cheered Biden’s announcement. The Senate majority leader, Chuck Schumer, and the Massachusetts senator Elizabeth Warren, a longtime advocate of the policy, issued a joint statement.They said: “With the flick of a pen, President Biden has taken a giant step forward in addressing the student debt crisis by cancelling significant amounts of student debt for millions of borrowers.“The positive impacts of this move will be felt by families across the country, particularly in minority communities, and is the single most effective action that the president can take on his own to help working families and the economy.”The senators added that Democrats would continue with efforts “to help close the racial wealth gap for borrowers and keep our economy growing”.Biden has faced pressure from liberals to provide broader relief. The cancellation falls short of the $50,000 many activist groups wanted. Some groups have called for full student debt cancellation.“If we can cancel $10k, we can cancel it all,” the Debt Collective, a union of debtors, tweeted on Wednesday.Administration officials claimed the plan could reduce inflation. The top Senate Republican, Mitch McConnell, argued that it would worsen the problem.McConnell said: “Biden’s student loan socialism is a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt, and every American who chose a certain career path or volunteered to serve in our armed forces in order to avoid taking on debt. This policy is astonishingly unfair.”Biden’s continuation of the pandemic loan payment freeze came just days before millions were set to find out when their next student loan bills were due. The end of the payment freeze extension was set for 31 August.During the 2020 presidential campaign, Biden was initially skeptical of student debt cancellation as he faced progressive candidates including Warren and Bernie Sanders, the democratic socialist senator from Vermont.On Wednesday, Sanders hailed “a great step forward” but said: “We have got to do more.”New York special election victory gives Democrats hope for midterms – liveRead moreAs he tried to shore up support among younger voters, Biden unveiled a proposal for debt cancellation of $10,000 per borrower, with no mention of an income cap. That campaign promise was narrowed in recent months by embracing the income limit.Democrats pushed the administration to go as broad as possible, seeing debt relief as a galvanizing issue, particularly for Black and young voters.‘There’s been a dramatic shift in how Americans think about the role of government in helping people out for college,” said Brian Powell, professor of sociology at Indiana University Bloomington who co-authored a book on the student loan crisis.Powell noted that support for debt cancellation and college affordability has grown. Those who go to college make on average $30,000 more a year than those with just a high school degree.TopicsUS student debtJoe BidenUS politicsUS educationUS domestic policynewsReuse this content More

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      The Guardian view on Biden’s risky gamble: betting on lowering oil prices | Editorial

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      The Guardian view on Biden’s risky gamble: betting on lowering oil pricesEditorialThe climate agenda risks being derailed by energy market disruptions caused by Russia’s war in Ukraine Joe Biden’s trip to Saudi Arabia this month highlights the paradox of American power. The US has the economic heft to punish an opponent – but not enough to alter the behaviour of a determined adversary. Sanctions will see Russia’s economy contract by 9% next year. But Washington needs more nations to join its camp to halt Moscow’s brutal invasion of Ukraine. Mr Biden has been forced to prioritise war objectives over ethics in meeting Crown Prince Mohammed bin Salman, who the CIA says ordered the barbaric murder of the prominent journalist Jamal Khashoggi.The havoc that Russia’s war has caused on the world’s energy markets is contributing to an economic crisis that is playing into the hands of Mr Biden’s domestic opponents. This highlights the west’s failure to confront the climate emergency with a less carbon-intensive economic model. The green agenda risks being derailed by sky-high hydrocarbon prices. This scenario could have been averted if western nations had accelerated their net zero agendas by driving down energy demand – the lack of UK home insulation is one glaring failure – and spending on renewables to achieve energy security. Instead, this week the G7 watered down pledges to halt fossil fuel investment over fears of winter energy shortages as Moscow squeezes supplies.Boycotts and bans against Russia, even as they take a toll on the global economy, will cause ordinary Russians hardship. But this has not moved Vladimir Putin. Soaring crude prices fuel Moscow’s war machine. A price cap on Russia’s petroleum exports might choke off the cash. But a concern is that China and India will buy Mr Putin’s oil at a price that still lets the Kremlin profit. Clever technical solutions mask hard choices. Sanctions drive up energy prices for consumers unless there are alternative supplies available. Right now, to bring down oil prices means producing more planet-destroying energy. That requires US engagement with Saudi Arabia and the United Arab Emirates, both of which bear responsibility for the disastrous Yemen war. Washington might have to woo Venezuela and Iran, nations which will play Moscow off against the west.The US is pursuing a three-pronged strategy: increasing pressure on Russia; getting more oil into markets to bring prices down; and allowing central banks to raise interest rates to levels that look as if they might cause a recession. The latter is designed to signal to oil producers that energy prices will collapse. The painful recessions of the 1970s and early 1980s played a part in bringing down oil prices after energy shocks – and contributed to the Soviet Union’s disintegration. But this took 15 years. Mr Putin’s Russia may not be as powerful as its forerunner. It might be more brittle than the Soviet Union. But there are few signs of imminent collapse.As the west seeks to reduce its reliance on Russian hydrocarbons, there seems to be a global “gold rush” for new fossil fuel projects defended as temporary supply measures. The risk, with the US as the largest hydrocarbon producer, is that the world becomes locked into an irreversible climate catastrophe. Europe might become as reliant on US gas as it once was on Russian gas. Donald Trump proved America could be an unreliable ally. Rightwing supreme court justices have hobbled Mr Biden’s power to limit harmful emissions. Meanwhile, China has emerged as a world leader in renewable energy as well as the metals on which it depends. Mr Biden had wanted to transition the US away from oil. Yet during his time in office the sector’s market value has doubled because prices have risen. Jarringly, as the climate emergency grows ever more urgent, fossil fuel appears the pivot on which the war in Ukraine will turn.TopicsUkraineOpinionClimate crisisJoe BidenUS politicsSaudi ArabiaMohammed bin SalmanOileditorialsReuse this content More

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      Budget 2021 calculator: What does it mean for you

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      Rishi Sunak vowed to help families to meet the rising cost of living and promised a “stronger economy of the future” as he revealed a host of changes in the 2021 Budget. The chancellor announced a planned fuel duty hike would be scrapped and duty on UK domestic flights would be slashed in his statement to parliament on Wednesday.Another key announcement was about changes to alcohol duties, which included a planned rise in duty on spirits, wine, cider and beer would be cancelled. The Budget also contained a rise in the minimum wage from the current £8.91 to £9.50 an hour next year.Extra funding was also announced for schools, childcare and “A Start for Life” parenting programmes. Clearly, there is a lot to consider. But the online calculator below, created by accountants Blick Rothenberg, offers a quick reckoner as to how the latest raft of changes will affect you, broadly speaking.Input a few details and it will offer an indication as to how much better or worse you will be following the chancellor’s announcements. More

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      Biden is already backtracking on his promises to provide student debt relief | Astra Taylor

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      At his recent town hall, Joe Biden made a series of convoluted and condescending comments about American student debt. His remarks cast doubt on his ability, or willingness, to confront this country’s ballooning student loan crisis. Within hours, #cancelstudentdebt was trending on Twitter.Biden’s rambling justification of the status quo was peppered with straw men, invocations of false scarcity and non-solutions. He pitted working-class Americans against each other, implying that people who attend private schools aren’t worthy of relief, as though poor students don’t also attend such schools. He said that money would be better spent on early childhood education instead of debt cancellation, as if educators aren’t themselves drowning in student debt, and as if we can’t address both concerns at once. He suggested relying on parents or selling a home at a profit to settle your debt, a luxury those without intergenerational wealth or property cannot afford. And he touted various programs, including Public Service Loan Forgiveness (PSLF), that have totally failed borrowers: over 95% of PSLF applicants have been denied.In contrast to Biden’s smug comments, Congresswoman Ayanna Pressley recently revealed that she defaulted on her student loans. Similarly, at a recent Debt Collective event, congressional hopeful Nina Turner said that she and her son owe a combined $100,000. Former Georgia gubernatorial candidate Stacey Abrams has, of course, proudly confessed to being in debt, and Alexandria Ocasio-Cortez has said that becoming a congressperson was easier than paying off her debt. Philadelphia councilmember Kendra Brooks (who is planning to introduce a city resolution calling on the Biden administration to cancel all student debt) has also spoken out about her own struggles as a borrower. Their experience and candor – and commitment to real solutions including cancellation – demonstrate why we need debtors, not millionaires, in our public offices.Let’s be clear about another thing. Biden absolutely has the legal authority to use executive power to cancel all federal student debt. Congress granted this authority decades ago as part of the Higher Education Act. It’s even been put to the test: in response to the Covid pandemic, Donald Trump and his former education secretary, Betsy DeVos, used that authority three times to suspend payments and student loan interest.As he rambled on, Biden gave the distinct impression that he preferred not to have the power to do so. That way he could blame Congress should his campaign promises go unkept. (The day after the town hall, Biden’s press secretary, Jen Psaki, attempted to clarify her boss’s remarks about whether he will use executive authority to cancel student debt. She stated that the administration was still considering the possibility.)Adding to the confusion, Biden seemed unable to keep his own campaign pledges straight, muddling his student debt cancellation proposals. For the record, he campaigned on two distinct planks. One: “immediate” cancellation of $10,000 for every borrower as a form of Covid relief. Two: the cancellation of all undergraduate student loans for debt-holders who attended public universities and HBCUs and who earn up to $125,000 a year. Keeping these two promises is the absolute minimum the Biden administration needs to do to keep the public’s trust.But the Biden administration should, and can, do much more. Biden should cancel all student debt using executive authority. It is the simplest way the new administration can help tens of millions of people who are being crushed by the double whammy of unpayable loans and an economy-destroying pandemic.Yet, to date, all the Biden administration has done for this country’s 45 million student debtors is extend Trump and DeVos’s federal student loan payment suspension. Continuing a flawed Republican policy is hardly a progressive victory – especially not for the 8 million FFEL borrowers who are unconscionably left out of the moratorium.Biden owes this country debt relief not only because he campaigned on it, but because he helped cause the problem. A former senator from Delaware, the credit card capital of the world, he spent decades carrying water for financial interests and expanding access to student loans while limiting borrower protections.Biden’s brand is empath-in-chief, but on student debt he is alarmingly out of touchBiden’s record shows that he won’t address the problem without being pushed. Indeed, the fact that the president has embraced debt cancellation at all (however inadequate his proposals) is testament to ongoing grassroots efforts. The Debt Collective, a group I organize with, has been pushing for student debt abolition and free public college for nearly a decade. On 21 January, we launched the Biden Jubilee 100 – 100 borrowers on debt strike demanding full cancellation within the administration’s first hundred days. A growing list of senators and congresspeople have signed on to resolutions calling on Biden to cancel $50,000 a borrower using executive authority. (It’s worth noting that the $50,000 figure is based on outdated research. After three years of rapidly rising debt loads, the scholars behind it now recommend $75,000 of cancellation.) A growing chorus of voices from across the country and a range of backgrounds are shouting in unison: cancel student debt.Biden’s brand is empath-in-chief, but on student debt he is alarmingly out of touch. The president has shared that his own children borrowed for college and noted that he was the “poorest man in Congress” – meaning the poorest man in a body of millionaires. He didn’t question the ease with which his well-connected kids got well-compensated jobs enabling them to repay their loans, nor mention that people his age were able to go to college without being burdened by a mountain of debt. All people want today is the same opportunity that Biden and his peers had.Instead of acknowledging this generational disparity, Biden reiterated a common criticism of more generous forms of student debt cancellation – that it would help the privileged, specifically the minuscule subset of debt-holders who attended the Ivy League. But as Ocasio-Cortez tweeted in response: “Very wealthy people already have a student loan forgiveness program. It’s called their parents.” As things stand, poor and working people typically pay more for the same degrees than their affluent counterparts due to years or decades of monthly payments and accumulating interest. Our debt-financed higher education system is a tax on poor people who dare pursue a better life.Imagine if, instead of defending the status quo, Biden used his platform to articulate the social benefits of cancelling student debt. He could have said that cancelling student debt will support 45 million Americans and provide an estimated trillion-dollar economic boost over the next decade and create millions of desperately needed jobs. He could have spoken about canceling student debt as a way to help close the racial wealth gap, acknowledging that Black borrowers are the most burdened, or talked about how education should be free and accessible to all if we want to expand opportunity and deepen democracy. He could have acknowledged that cancellation will help struggling seniors, especially those having their social security checks garnished because of student loan defaults. He could have mentioned that debt cancellation is popular, even among many Republicans, and that eliminating it will help his party stay in power.He didn’t say any of that, and so we have to say it. Debtors have to get organized, connecting online and protesting in the streets. We live in a period of intersecting crises. Some of them are very difficult to solve. But cancelling student debt is easy. By refusing to act, the president and his administration are choosing to perpetuate a system that causes profound, pointless, and preventable harm.Astra Taylor is the author of Democracy May Not Exist, but We’ll Miss It When It’s Gone, and an organizer with the Debt Collective More

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      Columbia students threaten to withhold tuition fees amid Covid protest

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      Almost 1,800 students at Columbia University in New York are threatening to withhold tuition fees next year, in the latest signal to US academia of widespread preparedness to act on demands to reduce costs and address social justice issues relating to labor, investments and surrounding communities.In a letter to trustees and administrators of Columbia, Barnard College and Teachers College, the students said: “The university is acutely failing its students and the local community.”They accused the university of “inaction” since the start of the Covid-19 pandemic in March, when students began demonstrating against what they say are exorbitant tuition rates “which constitute a significant source of financial hardship during this economic depression”.The letter referred to national protests over structural racism, accusing the university of failing to act on demands to address “its own role in upholding racist policing practices, damaging local communities and inadequately supporting Black students”.Emmaline Bennett, chair of the Columbia-Barnard Young Democratic Socialists of America and a master’s student at Teachers College, told the Guardian the university and other colleges had made no effort to reduce tuition fees as they moved to remote learning models necessitated by pandemic conditions.“We think it says a lot about the profit motive of higher education, even as the economy is in crisis and millions of people are facing unemployment,” Bennett said. “This is especially true of Columbia, which is one of the most expensive universities in the US.”Demands outlined in the letter include reducing the cost of attendance by at least 10%, increasing financial aid by the same percentage and replacing fees with grants.Such reforms, the letter said, should not come at the expense of instructor or worker pay, but rather at the expense of bloated administrative salaries, expansion projects and other expenses that do not directly benefit students and workers.The university, the letter said, must invest in community safety solutions that prioritise the safety of Black students, and “commit to complete transparency about the University’s investments and respect the democratic votes of the student body regarding investment and divestment decisions – including divestment from companies involved in human rights violations and divesting fully from fossil fuels.“These issues are united by a shared root cause: a flagrant disregard for initiatives democratically supported within the community. Your administration’s unilateral decision-making process has perpetuated the existence of these injustices in our community despite possessing ample resources to confront them with structural solutions.“Should the university continue to remain silent in the face of the pressing demands detailed below, we and a thousand of fellow students are prepared to withhold tuition payments for the Spring semester and not to donate to the university at any point in the future.”A Columbia spokesperson said: “Throughout this difficult year, Columbia has remained focused on preserving the health and safety of our community, fulfilling our commitment to anti-racism, providing the education sought by our students and continuing the scientific and other research needed to overcome society’s serious challenges.”The university has frozen undergraduate tuition fees and allowed greater flexibility in coursework over three terms. It has also, it said, adopted Covid-related provisions including an off-campus living allowance of $4,000 per semester, to help with living and technology expenses related to remote learning.Columbia is not alone in facing elevated student demands. In late August, for example, students at the University of Chicago staged a week-long picket of the provost’s house as part of a campaign to disband the university police department, Chicago’s largest private force.The issue of student debt remains challenging. In a nod to progressives, President-elect Joe Biden last month affirmed his support for a US House measure which would erase up to $10,000 in private, non-federal loan debt for distressed individuals.Biden highlighted “people … having to make choices between paying their student loan and paying the rent” and said such debt relief “should be done immediately”.Some Democrats say relief should go further. In September, Senate minority leader Chuck Schumer and Massachusetts senator Elizabeth Warren co-authored a resolution which called for the next president to cancel up to $50,000 of outstanding federal loans per borrower.At Columbia, students say their demands for Covid-related fee reductions are only a starting point.“In the long-term, we need to reform the educational system entirely,” said Bennett. “We need to make all universities and colleges free, and to cancel all student debt to prevent enduring educational and economic inequalities.” More

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      The Guardian view on Trump’s tax take: only for the little people | Editorial

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      The emperor’s new clothes is a cautionary tale that politicians know well. A vain ruler who cannot resist buying new garments is sold an imaginary new suit. Out on a stroll in this “magical” attire, he is revealed to be naked by a little boy. Hans Christian Andersen’s exercise in groupthink has the emperor, despite the obvious, continuing to claim that he is garbed in finery. It is a subversive message; that power can bend the truth. Donald Trump thinks himself such a ruler.According to the New York Times, President Trump paid minuscule amounts of federal income tax – $750 in 2016 and 2017, and nothing in 10 of the previous 15 years. That’s because he had a reverse Midas touch with business. Rather than the self-made-billionaire image honed by The Apprentice, Mr Trump excelled at losing, not making, money. Mr Trump’s golf courses have lost $315m since 2000. This time it was the Old Grey Lady, not a child, who showed how Mr Trump was, figuratively, naked.The president’s reaction was to call the story “totally fake news”. He hopes this language resonates with his base and causes them to identify with him rather than listen to the facts. Mr Trump built a coalition by appealing more to conspiracy theory than to partisanship; and his strategy has been to supply his supporters with conspiracy theories to fight what they see as a conspiracy against them. He lies outrageously and often. His supporters may even appreciate his deceits. Many think all politicians are liars and consider those outraged by Mr Trump’s falsehoods to be hypocrites.But the New York Times story carries a sting in its long tail. Should Mr Trump win, he is liable for $300m in loans that will come due within four years. “His lenders could be placed,” the paper notes dryly, “in the unprecedented position of weighing whether to foreclose on a sitting president.” Being in hock to foreign entities would surely pose a major security risk. As the story is unfolding, its impact on the most important election in modern US history cannot be easily judged. The news arrived on the eve of the first presidential debate between the Democrats’ Joe Biden and Mr Trump. Mr Biden’s campaign was quick to cast the president as a leader who thought taxes were just for the little people, pointing out that teachers, nurses and firefighters all paid a lot more to the government than Mr Trump does.America seems broken by Covid-19 after four years of Mr Trump. Almost 30 million are claiming unemployment insurance. Hunger is growing. Two-thirds of households hit by coronavirus face financial hardship. Decades of worshipping greed has destabilised society. The lack of political pressure to compel Congress to extend the $600 per week additional jobless benefit when it expired in July was shocking – especially considering the Republican rush to push through Judge Amy Coney Barrett’s supreme court confirmation hearings. Inequality is a US national emergency. It ought to be addressed by increased taxes on the wealthy. Mr Trump won in 2016 by making promises to voters he was not going to keep. He cheated his working-class supporters, suggesting that many of their fears cannot be of concern. Mr Trump probably believed his own story. One hopes for the US’s sake that come November fewer people will trust him again. More

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      What could negative interest rates mean for your finances?

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      The idea of dipping below the black line into negative interest rates has been muttered about for months now as one unprecedented economic circumstance gave way to the next like a line of dystopian dominoes.As the Bank’s Monetary Policy Committee (MPC) of high ranking and sage financial types revealed that, surprise surprise, this wasn’t going to be the month that the base rate of interest increased, it instead confirmed that it was seriously exploring how it would implement a bank rate that dipped below the 0.0 per cent line if necessary.Already sitting at a record low 0.1 per cent, the news caused the pound’s value to drop against the euro and US dollar. So if you have decided to brave an overseas holiday, this may already be hitting you in the wallet.But if the world of negative interest rates, which have already been deployed in countries including Denmark, Japan, Sweden and Switzerland, does come knocking, what are the other effects on our financial affairs?Read moreWe asked a panel of experts to shine a light on a very grey area.The big picture“Modern societies have been built around the notion of positive inflation – that demand for products and services is larger than the capacity of the economy to provide them,” explains Dr Nikolaos Antypas, a lecturer in finance at Henley Business School.“Prices go up to reflect the competition for products by consumers and for resources by producers.“Companies plan their investments in new projects under the assumption that demand will continue to grow, therefore prices will be increasing, at least modestly. “These price increases will help them pay off the corporate loans they issued in order to finance such plans.” Price increases also fuel savings by consumers, the pursuit of better paying jobs and the development of more residential and commercial property, for example. “This is a simplified version of the inflation mechanics, but the suggested implications are stark: switching from an inflationary to a deflationary regime upends the foundation of modern economics,” Antypas adds. Which doesn’t sound a lot like good news…But many experts believe consumers will be largely insulated from the effects of negative interest rates. “For example, despite a prolonged period of both negative rates and negative 10-year bond yields, mortgage rates remain stubbornly above zero,” says Alastair George, chief investment strategist for investment research firm Edison Group.“For savers, banks have often opted not to charge interest on positive balances, except for the very largest accounts. In future, UK lenders and borrowers may be more concerned about future repayments than the cost of borrowing, as negative interest rate policy would only be used if there is a sharp decline in economic activity or loss of consumer confidence.“Mortgages and loansBut there may yet be some positives. At least in the short term. For a few of us. Though don’t hold out hope that your lender may start paying you for the privilege of furnishing you with a loan.“Homeowners who are on a variable or tracker mortgage could potentially see rates reduce slightly if the base rate is cut. However, homeowners should expect a reduction of just 0.1 per cent as lenders do have a floor to their rates,” Miles Robinson, head of mortgages at online mortgage broker Trussle, warns.“In the 2008 financial crisis, people who had tracker rate mortgages pegged below the base rate found lenders reducing their rates to 0 per cent on occasion, but not into the negative because of the floor, as well as terms and conditions in place.“Those on fixed-rate mortgages will not see an impact on their payments during their fixed term. However, for those nearing the end of a fixed-rate mortgage term, there are some competitive deals out there so now may be a good time to see if you could be saving money.“If you’re considering remortgaging ahead of your fixed-term mortgage ending, you need to take into account any Early Repayment Charges (ERC). If these charges are less than the savings you could make, it could be worthwhile switching to a better deal.”“Lower mortgage rates will rekindle the property market and we should be able to see more properties becoming available again, after a period of shy sellers,” Antypas believes, though he warns the impact of lower interest rates during this particular recession may have not have a uniform impact on house prices.“Since the higher-income jobs have been affected less by the pandemic, we should expect that the relatively expensive properties will increase in price due to higher demand. “In contrast, since the lower-income jobs have been affected more and these workers opt for cheaper properties, we should expect properties around £300,000 or below to see smaller increases in demand and therefore more stagnant prices.Unfortunately, any reprieve we enjoy from lower lending costs could be outmatched by the malaise of deflation. “If inflation does turn negative, we risk seeing mass firings and company bankruptcies, which will subsequently lead to decreases in consumption and savings, and then more firings and bankruptcies,” says Antypas. “Negative rates may not lead to inflation straight away, but the longer we remain in such a regime, the more we risk the ‘downward spiral’.”“As Brits we are used to being able to open a bank account and deposit our money, without paying a penny but there is a cost and someone is always landed with the bill,” says Finn Houlihan, managing director at financial advice firm ATC Tax. “In the UK, banks typically absorb the cost of holding our money and make up the margin on other areas of their operations such as lending. In much of the world it is common practice for banks to charge a monthly fee for current accounts [and] a number of banks appear to be getting ahead of the introduction of negative rates in the UK. “ UBS recently announced a cash holding fee on balances over £500,000, for example.
      Those with limited savings will likely withdraw their money from the bank, reverting to the cash-under-mattress approach“Whether consumers are set to see the introduction of fees for basic banking as a result of negative rates largely depends on the mood music coming out of the BoE – if this is a two or three-year short measure necessary to save the economy, the likelihood is that the banks will absorb the cost,” Houlihan adds.“However, if we are set for a decade of negativity, we can expect to see bank account charges coming into effect before the turn of the year.“This is one troubling reality for British consumers – fees are easy to instigate for banks. They already hold our cash, so can switch on monthly charges with minimal delay.”Brits aren’t going to pay a bank to hold onto their money any time soon, so those with cash savings will probably shift it into fixed-term savings products and other assets including gold. “For others, the introduction of negative rates pulls us into conflict with the decline of cash. Those with limited savings will likely withdraw their money from the bank, reverting to the cash-under-mattress approach, to avoid what they will likely see as unreasonable charges,” suggests Houlihan.“There is the danger that this move prompts people not to save in any form and encourages additional spending which, when coupled with the availability of cheap borrowing, could create a dangerous financial cocktail for the UK consumer.”InvestmentsAgain though, there’s some disagreement about what happens next. “We do not feel that consumers will go out on a huge spending spree, instead they are likely to look for areas yielding a good safe and steady return,” Thomas Goldie, a financial adviser at Hoxton Capital Management, says because so many people were caught off guard when the pandemic first hit.  “We would expect that stocks that have remained resilient during the pandemic and continued to pay good dividends will be favoured by financial advisers and retail investors alike. Individuals will concentrate on the income in the form of dividends rather than the return.”“Government would be the biggest beneficiary [of the BoE interest rate going negative] since it generally runs a big deficit (ie has to borrow) and no more so than today. Households would likely be bigger losers,” says Peter Dixon, senior economist at Commerzbank.“Although the difference between household interest receipts and payments has moved into balance, having traditionally run a deficit prior to 2008, the pain will fall on future pension incomes.  In the low rate environment the amount which pensions pay out – the annuity rate – has collapsed. “A representative pension currently pays around 4.9 per cent for every pound in the pension pot, compared with almost 8 per cent in 2007. This will only get worse in a negative rate environment.”Will negative rates work?The short answer is that nobody seems sure. “The main problem with negative rates is that there is scant evidence that they actually work in the way intended, by boosting confidence and increasing economic activity,” says Tom Stevenson, investment director at Fidelity International. “One reason is that there appears to be a so-called ‘reversal’ rate of interest below which people are not encouraged to borrow and spend more but are instead spooked into precautionary savings. “Some economists argue that very low or negative interest rates lead to low inflation, because they encourage the self-fulfilling expectation that prices will fall.”OK then, how long might negative interest rates last? There doesn’t seem to be a way of building a consensus on that either. Read more“Historically, negative interest rates have been a recent sight in the west, while Japan has had its fair experience with zero interest rates and deflation in the last 30 years,” says Antypas.“The BoE’s goal is to retain inexpensive capital so that economic activity can pick up fast when all the macroeconomic factors are in place. We should see the BoE turn around on its negative rate decision when inflation picks up to the long-term target of 2 per cent. “We only hope Dr Bailey [the governor of the BoE] pulls the plug of low rates soon enough before we enter a hyper-inflationary environment, which is dreadful in its own right.” More