fortruss--2019-09-30--China-US trade war pulls German economy into recession

The largest economy in the European Union is experiencing serious problems as China and the United States introduce new duties on mutual trade, and Brexit can bring a new batch of problems for Germany under the accelerated scenario. Expectations of a recession in the German economy intensified after German GDP declined 0.1% in the second quarter. If the decline is recorded in the third quarter ending on September 30, the fact of the recession will be recognized by formal indicators. So far, the sharp slowdown in the German economy is mainly due to external factors – the German domestic market is holding quite confidently. However, it is difficult to count on a quick recovery in world trade, and the problems of the German economy are already beginning to exert influence on other countries of the European Union.  According to the September forecast of the German Institute for Macroeconomics and Market Research (IMK), the country’s economy is in a state of “acute threat of recession” – its probability is estimated at 59.4%, although in August this figure was 43%. The Ifo Institute for Economic Research in Munich predicts a 0.1% decline in German GDP in the third quarter, while the Kiel Institute of Economics expects an even larger drop of 0.3%.  The OECD forecast was also published in mid-September, according to which German GDP will grow by only 0.5% this year, and growth by 0.6% is expected next year. This is significantly worse than the expected growth in the eurozone as a whole (1.1% and 1%, respectively) and compared with the previous forecast. The OECD’s previous forecast estimated Germany’s economy to grow by 0.7% in 2019 and 1.2% in 2020.  The main pressure on the export-oriented German economy is creating a reduction in world trade, primarily due to the trade war between China and the United States. Signs of problems were noticeable last year, when the volume of new export orders for German enterprises began to decline, falling to the level of the end of 2016. At the same time, the dynamics of German industry began to slow down, especially in industries such as engineering, pharmaceuticals and the chemical industry. In July, when the industrial production index decreased by 0.6%, a number of executives of the largest German auto parts manufacturing companies reported that realities turned out to be worse than their pessimistic scenarios. The reduction in orders from automakers hit the business of the world’s largest chemical concern BASF,  “Weakness in industry spreads like an oil slick to other sectors of the economy. The weakness of the situation is already affecting the labor market: unemployment in Germany has been recorded for the fourth consecutive month, ” Timo Wolmershuiser, an Ifo Institute expert, quotes the German news agency Deutche Welle . Not only economists expect a recession: according to an August assessment by Ifo, the German business sentiment index fell for the fifth consecutive time, dropping to a minimum since November 2012.  China became Germany’s main trading partner in 2016, displacing the United States, which immediately moved to third place after France. Donald Trump Protectionist Policies Contribute to US Reduction, which was dissatisfied with the almost twofold lag in US imports to Germany from German exports to the United States (for 2015, respectively, 60.7 billion and 113.2 billion euros). On the contrary, in the case of China, the Germans were faced with the task of reducing the mutual trade deficit, which in 2015 amounted to 20.6 billion euros. Over the past three years, due to the growth of German exports to China, this imbalance has noticeably decreased: last year, the volume of Chinese imports to Germany amounted to 106.2 billion euros, the export of German goods to China reached 93.1 billion euros, including due to the German auto industry. Exactly a year ago, under the influence of the trade war, Germany became a leader in the export of cars to the Chinese market. In general, China last year retained first place in total trade with Germany, ahead of the Netherlands (189.4 billion euros) and the United States (178 billion euros).  But already in February of this year, Germany faced a fall in foreign trade – exports fell by 1.3% compared to the same month of 2018, and imports fell by 1.6%. According to data as of mid-August, German exports fell already by 5.1% compared to the same period of the previous year (to $ 632.9 billion), and industrial production was also declining at the same pace. “The weakening of world trade, the global struggle in the automotive industry, Brexit and China’s economic problems are bringing a perfect storm for Germany,” said Keith Jax , strategy expert at French bank Societe Generale, for CNN in August .  In early September, German Chancellor Angela Merkel made a two-day official visit to Beijing , who had to take a very difficult line in negotiations with the PRC leadership. On the one hand, Hong Kong protest activists counted on Merkel’s support, sending a letter to the German chancellor reminding them of an international campaign to support civil rights activists in the GDR three decades ago. On the other hand, representatives of German business announced problems with the bureaucracy in doing business in China. During negotiations with Premier of the State Council of China Li KeqiangMerkel said that in order to resolve the situation in Hong Kong, the parties need to refrain from violence, while urging “not to impede the development process of China.” In addition, the German chancellor expressed the hope that an agreement on the protection of investment between China and the European Union will be concluded in the near future.  As for the economic relations between Germany and the USA, here one of the most negative expected scenarios is the introduction of 25 percent duties on the import of German cars and auto parts into America. Donald Trump announced the relevant plans in February, but they were postponed for six months after the European Commission announced a response in the form of duties on US exports in the amount of 20 billion euros. This timeout expires in mid-October.  Another serious risk for the German and European automobile industry as a whole is Brexit. A few days ago, the European Automobile Manufacturers Association (EAMA) issued a statement signed by 23 automakers, which said that in the event of a tough scenario for Britain to exit the European Union, the automobile industry would face a “genuine earthquake”. The possible restoration of customs barriers will lead to huge costs for automakers, and Germany will be among the most affected, given its significant investment in the British auto industry (for example, companies such as Bentley, Rolls-Royce, Mini).


fortruss--2019-11-18--Decentralization of the Russian economy shows positive results

MOSCOW – According to the French portal Les Échos, the lower use of the US dollar in the Russian economy produced good results and favored the ruble.  With rising tensions between Russia and the United States in 2014, Moscow is increasingly reducing its dependence on the dollar, both to circumvent US sanctions and to strengthen its economic power.  As published by the French portal Les Échos, such a policy has been presented by the increasing use of national currencies in trade between Russia and countries like Iran, China and Turkey, all who have strained relations with Washington.  In addition, Russian currency reserves in the BRICS countries increased, thus favoring trade between these countries, which amounted to the equivalent of $125 billion in 2018, which was also confirmed by the president of the BRICS VTB bank, Andrei Kostin.  “The share of non-dollar payments to the EU, China and BRICS countries has already exceeded 50%. Russian banks and US companies have reduced their dependence on dollar financing. The share of US dollar assets in Russian reserves is already halved,” said Kostin.  Still according to the media, the Russian ruble had fallen 17% against the dollar in 2018. However, with the dollarization the Russian currency has risen 7.6% since then.  Such a result could indicate greater independence of the ruble against the US currency.  This comes as the Russian Ministry of Finance has reported that the country will not borrow in US dollars until 2021.  “We will borrow in currencies other than the dollar,” Russian Finance Minister Anton Siluanov said on Thursday, adding that the country will not borrow any more in 2019.  “This year we have no plans to borrow more in foreign markets, we have fulfilled our program and even exceeded it. Next year we will see. It will probably not only be in euros, but perhaps in [Chinese] yuan,” said Siluanov.  In March, the Russian ministry issued €2.7 billion of Eurobonds due 2035. Three months later, the Finance Department issued €1.37 billion of additional Eurobonds to mature in 2029 and €900 million in 2035.


fortune--2019-01-05--Americas Disastrous New Normal A Booming Economy and Soaring Deficits

America’s Disastrous New Normal: A Booming Economy and Soaring Deficits

The U.S. is currently experiencing a disastrous “new normal”: The economy is booming at the same time that government debt and deficits are exploding. That scenario is a radical departure from the normally healthy, self-correcting interplay between economic growth and budget shortfalls—and its likely long-term consequences are worth losing sleep over.  In almost every other period in recent history, U.S. deficits have been counter-cyclical. When growth weakens, unemployment rises, so that fewer people are paying taxes. Falling profits shrink revenues from corporate levies, and the government frequently enacts emergency spending measures to recharge the economy. The shrinking tax receipts and temporary outlays swell the deficit. When the economy revives, in contrast, an expanding workforce and a surge in earnings lifts revenues and narrows the budget gap.  What’s remarkable is that the countervailing forces have held debt and deficits in a relatively tight range, keeping our fiscal course well outside the danger zone. The gap between outlays and revenues generally fluctuates, from deficits seldom exceeding 4% of GDP to occasional surpluses, so that over the long-term, annual shortfalls have averaged around 2%. The U.S. economy has been able to handle those modest deficits with ease. So long as GDP growth matched or exceeded 2%, federal debt as a share of national income remained constant, or even declined.  Today, that trend is reversing. Growth and deficits are moving upward in tandem, something that’s happened only briefly in the past. In 2018, GDP expanded at a robust 3.1%, and the Congressional Budget Office forecasts a decent 2.4% reading for 2019. Yet the agency predicts that the deficit will jump by 46% to $970 billion in 2020, rising to 4.6% of GDP, and that the shortfall will grow to 7.1% of GDP by 2028 if Congress extends tax reductions that are scheduled to sunset, a likely outcome.  A December 13 report from the non-partisan Committee for a Responsible Budget (“The Deficit Has Never Been This High When the Economy Was This Strong“) points out that past periods of big deficits were usually accompanied by high unemployment and a large “output gap,” meaning that the economy was operating far below its potential because a big share of the workforce, and swaths of manufacturing capacity, stood idle.  The CRFB notes that at the time of the 1992 recession, the unemployment rate was 7.4%, the output gap reached 3.5%, and GDP had contracted slightly the previous year, factors that drove the deficit up to 4.5% of GDP. In 2009, the U.S. had a jobless reading of 8.5%, an output gap of 5.9%, and a no-growth economy that pushed deficits to 9.8% of GDP, a number inflated by a wave of emergency spending.  By contrast, today a record-low 3.4% of the workforce is unemployed, the economy is operating above potential, and growth last year exceeded 3%. Yet the deficit is projected to jump from 3.9% this year to 4.6% next year, with higher numbers to come. “Those numbers show that fast growth cannot wash away the deficit, and that deficits will keep getting bigger even at 3% growth,” says Marc Goldwein, CRFB’s senior policy director.  What’s really scary, says Goldwein, is that the CBO projects that the rate of U.S. economic expansion will drop below 2% by 2020, and stay in the sub-2% range for the next eight years. As he points out, growth in the range the CBO projects would drive deficits to over $1.5 trillion by 2028, and push the ratio of total outstanding federal debt to GDP to around 100%, an extremely dangerous number.  As Goldwein acknowledges, the U.S. could keep piling on seemingly unsustainable debt and deficits for years, without triggering a financial crisis. “You don’t know if a crisis will come next year, or far in the future,” he says. “What you do know is that even now, the deficits are curbing growth.”  The U.S. must issue gigantic volumes of Treasury bills and bonds to fund the deficits, and many investors and companies purchase those safe securities instead of channeling that money into entrepreneurial ventures, or providing private enterprises with fresh capital for new plants and data centers. Each year, Goldwein says, deficits divert an estimated $5 trillion a year that could be spurring private enterprises into Treasuries, slightly lowering growth year after year in a cycle that will make the U.S. economy significantly smaller in a decade than if deficits were shrinking.  Big and growing deficits pose a second near-term threat, even if the U.S. avoids a funding crisis. Growing interest payments will crowd out spending that’s needed for social programs. “Government interest payments next year will exceed everything the federal government spends on children, including child tax credits, school lunches and the like,” says Goldwein. “That means we’ll spend more for the past generation than investing in the future generation.” By 2028, the CBO projects, interest on the debt could reach $1 trillion, or more than one dollar in eight of all spending, versus one in thirteen in 2018.  The deficit’s big driver is demographics. Even if the economy expanded at 3% or more a year, revenues wouldn’t remotely rise fast enough to cover exploding healthcare and retirement costs for the fast-growing population of seniors. Nevertheless, recent, mainly misguided, legislation is making the problem a lot worse. The budget agreement of 2018 that expanded both military and domestic spending, and 2017 tax bill, will add a combined $420 billion to the 2019 deficit; if those measures hadn’t been enacted, the shortfall would be just 2.6% of GDP.  Goldwein fears that the Trump administration and Congress will reach another budget-busting compromise this year. Both parties are championing a big infrastructure deal. President Trump advocates financing the new outlays by raising the gasoline tax; the Democrats want to lift levies on the rich. It’s probable that the two sides will deadlock on raising revenues, and enact the new spending sans funding, adding even more to the deficit.  The outlook isn’t all bleak. The Trump administration is advancing a number of promising proposals to attack galloping healthcare costs. It’s seeking legislation to reduce pay for doctors employed by hospitals to the scale that applies to private physicians. Trump also seeks to shift enrollees in Medicare Part D to cheaper generic drugs, and to start negotiating lower prices on pharmaceuticals prescribed by private physicians under Medicare Part B. Another promising area is removing loopholes from the huge new deduction granted to small businesses, by eliminating incentives for individuals to register as self-employed in order to avoid taxes.  Those reforms would help. But only radical entitlement reform, a big new source of revenue, or a combination of the two, can tame future deficits, and forestall a looming funding crisis.  A few years ago, I wrote a piece citing two figures who agree on almost nothing. Paul Ryan (in his pre-speaker days) and economist-pundit Paul Krugman, both contended that if nothing is done to restrain spending, America may turn to a European-style value-added tax (VAT). Unsurprisingly, Ryan despised that course, and Krugman embraced it. “We could get a funding crisis, and Democrats will claim that that only a VAT will save the country,” Ryan told me.  Goldwein agrees that a VAT may be in American’s future. “The longer we wait, the more likely a VAT,” he says. The shame is that because Congress and the Administration are refusing to act, America may be forced into a solution that will take the pressure from where it should be––cutting spending––and permanently raise the size of government. In the process, a VAT could cap expansion of the private sector that funds that government. That’s the price America may pay for years of profligate spending, unfunded tax cuts, and fiddling in the face of fiscal disaster.


fortune--2019-01-12--US Economy Is Floating on an Ocean of Debt Gundlach Warns

U.S. Economy Is Floating on an ‘Ocean of Debt’, Gundlach Warns

Jeffrey Gundlach said yet again that the U.S. economy is gorging on debt.  Echoing many of the themes from his annual “Just Markets” webcast on Tuesday, Gundlach took part in a round-table of 10 of Wall Street’s smartest investors for Barron’s. He highlighted the dangers especially posed by the U.S. corporate bond market.  Prolific sales of junk bonds and significant growth in investment grade corporate debt, coupled with the Federal Reserve weaning the market off quantitative easing, have resulted in what the DoubleLine Capital LP boss called “an ocean of debt.”  The investment manager countered President Donald Trump’s claim that he’s presiding over the strongest economy ever. The growth is debt-based, he said.  Gundlach’s forecast for real GDP expansion this year is just 0.5 percent. Citing numbers spinning out of the USDebtClock.org website, he pointed out that the U.S.’s unfunded liabilities are $122 trillion — or six times GDP.  “I’m not looking for a terrible economy, but an artificially strong one, due to stimulus spending,” Gundlach told the panel. “We have floated incremental debt when we should be doing the opposite if the economy is so strong.”  Gundlach is coming off another year in which his Total Return Bond Fund outperformed its fixed-income peers. It returned 1.8 percent in 2018, the best performance among the 10 largest actively managed U.S. bond funds, according to data compiled by Bloomberg.  Gundlach expects further declines in the U.S. stock market, which recently have steadied after reeling for most of December since the Great Depression. Equities will be weak early in the year and strengthen later in 2019, effectively a reversal of what happened last year, he said.  “So now we are in a bear market, which isn’t defined by me as stocks being down 20 percent. A bear market is determined by the way stocks are acting,” he said.  Rupal Bhansali, chief investment officer of International & Global Equities at Ariel Investments, picked up on Gundlach’s debt theme in the Barron’s cover story. Citing General Electric’s woes, she urged investors to focus more on balance-sheet risk rather than whether a company could beat or miss earnings. Companies with net cash are worth looking at, she said.


fortune--2019-01-28--35-Day Government Shutdown Cost the US Economy 3 Billion in Permanent Losses

35-Day Government Shutdown Cost the U.S. Economy $3 Billion in Permanent Losses

The 35-day government shutdown cost the U.S. economy $11 billion, of which $3 billion isn’t likely to be recovered.  That’s according to a new report from the Congressional Budget Office.  The $8 billion that should be recouped comes from the government reopening and federal workers receiving back pay, the CBO said.  In total, losses amount to a 0.1% reduction in GDP in the fourth quarter of 2018 and 0.2% in the first quarter of 2019. The CBO estimates the lasting economic effects of the shutdown will cause the 2019 level of GDP—the value of all U.S. goods and services— to be 0.02% smaller than it would have been otherwise.  Going forward, the shutdown has lowered the expected annualized economic growth rate by 0.4% in the first quarter of 2019, according to CBO estimates. In the fourth quarter of 2018, the shutdown decreased that rate by 0.2%.  The most negatively affected? Federal workers who went weeks without pay and private sector companies that lost business, amounting to permanently foregone income. The CBO’s calculated losses also don’t include the indirect negative effects the CBO was unable to quantify.


fortune--2019-02-27--Global Economy May Have Already Bottomed Out Says Goldman Sachs

Global Economy May Have Already Bottomed Out, Says Goldman Sachs

The global economy may have already bottomed out, according to Goldman Sachs Group Inc. Chief Economist Jan Hatzius.  While growth remains soft, Goldman’s current activity indicator in February is slightly above the downwardly-revised December and January numbers.  “Some green shoots are emerging that suggest that sequential growth will pick up from here,” Hatzius and Sven Jari Stehn wrote in a note dated Feb. 26. Still, the risk to Goldman’s global GDP forecast of 3.5 percent for 2019 “is probably still on the downside.”  remains positive on risk assets, although upside is now probably lower as markets have become “more sanguine on recession” expects bond yields to rise maintains a bearish dollar view, given a dovish Fed and expectation for a pickup in global growth is modestly bullish on oil over the next 2-3 months, but sees a more bearish outlook for the remainder of the year’The case for a pickup from the current pace is strongest in the U.S. as the drag from a tightening of financial conditions eases, according to Hatzius.  Goldman also sees tentative signs of a turnaround in Chinese growth. That’s in line with Bloomberg’s snapshot of early indicators of activity:  Some executives remain cautious. Jamie Dimon, Chief Executive Officer of JPMorgan Chase & Co., used the bank’s annual presentation to investors to acknowledge a growing number of potential obstacles to the economy that carried his firm to record profits last year.  “We are prepared for a recession,” Dimon said. “We’re not predicting a recession. We’re simply pointing out that we are very conscious about the risks we bear.”  Goldman reckons Europe looks like the weakest major region, “with Italy in recession, Germany close to it, and most other economies growing at only about a trend pace,” according to the note. Goldman has pushed back its expectations for the first ECB hike from late-2019 to mid-2020.  As for the Fed, Goldman says the prospects for moves in the next 6 to 9 months have fallen and an increase toward the end of the year would require a rebound in both growth and core inflation. It expects an announcement at the March meeting that the Fed will end balance sheet runoff later this year, probably in September.


fortune--2019-04-08--SP Global CEO Says Hiring More Women Could Boost Economy By 8

S&P Global CEO Says Hiring More Women Could Boost Economy By 8%

S&P Global CEO Doug Peterson is on a campaign to hire and promote women more in the workforce. He calls it “Change Pays.” He says it makes economic sense and he has the numbers to prove it.  “If the U.S. had promoted women at the same rate as countries like Norway,” he says, “the economy could grow by 8 percent or $1.6 trillion dollars.”  Peterson is calling on business leaders to create benchmarks to reach gender parity. That includes his own company, S&P Global, the giant data and financial firm that is ranked on the Fortune 500 list of the largest companies in America. He says there are four women on the company’s board of directors and women account for 30 percent of the executive ranks at S&P. But he confesses, “We need to do a lot more. We have to hold ourselves accountable.”  The S&P “Change Pays” initiative comes as a California law now requires that all public companies based in the Golden State have at least one woman on their boards. By the end of 2021, most will need three, a change that could cause a significant shift in gender equality at American companies.  When Peterson talks with CEOs, he has a simple message that he hopes will bring about change.  “What I say to business leaders is, ‘What do you want for your daughter? What do you want for your cousin? What do you want for your sister? And what kind of opportunities do you want for women in the world?'” he says. “And this is the way you have to think about it.”  Watch the video above for more from my interview with Peterson.


fortune--2019-07-25--Theres a Refugee Pay Gapand Its Costing the Global Economy Trillions

There’s a Refugee Pay Gap—and It’s Costing the Global Economy Trillions

Underutilized. Underpaid. Underemployed. And the global economy is $1.4 trillion worse off because of it.  That’s the assessment of an extensive new report covering the untapped economic—not to mention, societal—value of refugee women released on Wednesday by the Georgetown Institute for Women, Peace and Security (GIWPS) and International Rescue Committee (IRC).  Refugee women don’t just face a pay gap worthy of the loudest “equal pay!” chant, they are systematically and routinely shut out of the market by restrictive labor laws, increased threats of violence, all forms of discrimination, as well as regulatory and administrative barriers in their host countries. That all adds up to big losses for the global economy. The report’s authors calculate that were those employment and earnings gaps to be closed, the global GDP would climb $1.4 trillion annually. (Add refugee men and women and the estimate climbs to $2.5 trillion.) Locking refugee women out of the U.S. economy alone costs the country $1.6 billion.  From Washington to Brussels, immigration policy is dividing countries from within, with leaders on the right and left drawing starkly different positions on how to handle the flow of migrants—it’s estimated there are 70 million displaced people around the world—across the border. Hardline politicians and their base want more barriers on new entrants into their home markets. This week, the Trump Administration sought expanded powers to fast-track the deportation of undocumented individuals in the country. Economists and civil rights activists, meanwhile, have repeatedly warned that by excluding this group from the labor market, the entire economy suffers. Refugee parents often are forced to keep their children out of school, and their skills as shopkeepers, artisans and entrepreneurs are never allowed to flourish in the marketplace.  "This is not a zero-sum game,” said Melanne Verveer, GIWPS Executive Director. “When refugee women are gainfully employed, they and their families benefit—along with their communities and host countries. Our findings underscore the need for regulatory reforms and policy change to unlock refugee women’s potential.”  The report zeroed in on Turkey, Uganda, Lebanon, Jordan, Germany, and theU.S.—six countries which together host almost eight million refugees, or 40% of the world’s refugee population. The authors then extrapolated their findings across the top 30-refugee hosting countries, which host 90% of the world's refugees.  A vast disparity in employment rates across the six countries it surveyed. At 40%, the U.S. had the highest refugee women employment rate. Germany, Jordan and Lebanon had the lowest at 6%.  Drilling down into earnings, refugee women are consistently short-changed. Turkey is the biggest offender where a pay gap of roughly 94 cents per dollar exists between refugee women and host men. In the U.S. that same gap is roughly 29 cents per dollar earned.  Closing the pay gap and discriminatorylabor barriers could boost overall GDP by $53 billion in the six countriesstudied.  IRC’s president and CEO David Miliband said they plan to use the findings of the report to push policy makers for meaningful change in refugee labor practices. “For example,” he said, “candidates to lead the International Monetary Fund, must be asked if they will continue Christine Lagarde's focus on closing the gender pay gaps around the world, and how they plan to address the specific issue of women refugees.”  —You might have longer than you think to invest for retirement  —Facebook’s Libra currency could threaten the global financial system  —The surprising way Republicans used to use immigration to boost the economy  —One of Warren Buffet’s favorite metrics is flashing red. Corporate profits are due for a hit  Don't miss the daily Term Sheet, Fortune's newsletter on deals and dealmakers.


fortune--2019-08-01--Is Easy Money From the Fed Turning the US Economy Japanese

Is Easy Money From the Fed Turning the U.S. Economy Japanese?

Ruchir Sharma, the Chief Global Strategist for Morgan Stanley, is worried easy money from the Fed could cause an economic crisis in the United States similar to the three-decade malaise of deflation and low growth experienced in Japan. Sharma shared the following in The New York Times:  In this environment, cutting rates could hasten exactly the outcome that the Fed is trying to avoid. By further driving up the prices of stocks, bonds and real estate, and encouraging risky borrowing, more easy money could set the stage for a collapse in the financial markets. And that could be followed by an economic downturn and falling prices — much as in Japan in the 1990s. The more expensive these financial assets become, the more precarious the situation, and the more difficult it will be to defuse without setting off a downturn.  It's certainly possible the Fed could be blowing bubbles by continuing to keep interest rates low. Valuations are already at nosebleed levels in U.S. stocks and no one really knows what the impact will be from a decade or so of keeping rates on the floor.  But it's important to draw some distinctions between the markets in Japan back in the 1980s and what's going on in the U.S. today.  While it's true U.S. stocks have had an unbelievable run over the past 10 years or so, it pales in comparison to the magnificent bubble in Japan during the 1980s. In his book Devil Take the Hindmost, Edward Chancellor provides many anecdotes and stats that show how insane the Japanese real estate and stock market bubble was in that time:  In the 10 year period from 1980-1989, the MSCI Japan Index was up 1142% or nearly 29% per year. And that's after it was up nearly 400% (17.4% per year) from 1970-1979. Through the end of June 2019, the S&P 500 is up 14.7% per year (300% in total). The 10 years prior to that, the S&P was down 20% or more than 2% per year. One of the biggest reasons U.S. stocks are up so much over the past 10 years is because they performed so terribly in the preceding 10 years. This is more about mean reversion than a runaway bubble.  A $100,000 investment in Japanese large-cap stocks in 1970 would have turned into $5.7 million by 1989.  A $100,000 investment in large-cap U.S. stocks in 1999 would have turned into less than $315,000 by June 2019. This is one of the reasons the overhang in Japan was so severe. They pulled forward decades and decades of returns. We have a long way to go to ever catch up to the atmospheric rise in Japanese financial assets.  Until they began raising interest rates in late-2015, the Fed effectively kept short-term interest rates at zero for nearly a decade. Although the stock market recovered mightily in this time, it doesn't appear the U.S. consumer went on a crazy borrowing spree.  Household debt to GDP has fallen substantially as consumers have slowly but surely repaired their balance sheets following the worst credit crisis since the Great Depression. This means there is now more income available to service household debt. If anything, U.S. households were taking more credit risk during the housing bubble even though yields were higher as the Fed began raising rates in the mid-2000s.  And according to the Federal Reserve Bank of New York, the quality of debt people are taking on is also improving. Fewer people are taking out mortgages from the peak housing bubble years but much of the drop off has come from borrowers with low credit scores:  One of the reasons things got so out of hand during the Great Financial Crisis of 2007-2009 is because the debt was being issued hand over fist to low-quality borrowers. A combination of high debt levels with lower income and credit quality meant the first signs of trouble in the housing market sent borrowers into a tailspin. Both the debt service level and credit quality of borrowers have improved in the aftermath of the crisis.  All of this is not to say that the U.S. can't or won't experience downturns or credit busts in the future. Anything is possible. But the U.S. has a long way to go to reach the levels of craziness that were exhibited in Japan in the 1980s or even here in the mid-2000s.  Ben Carlson, CFA is the Director of Institutional Asset Management at Ritholtz Wealth Management.


fortune--2019-08-23--Mastercard CEO How to Make the Digital Economy Work for Everyone

Mastercard CEO: How to Make the Digital Economy Work for Everyone

For the last 75 years, globalization has emerged as one of the most powerful forces in human history in alleviating poverty, significantly expanding the middle class, and enhancing prosperity around the world. But, while the benefits of globalization have been significant, they have not always been broadly shared. And while economic growth has been substantial, that growth has not included all.  Tomorrow the G7 will convene to discuss economic inequality. Tackling inequality starts with inclusion. This is true of any of the themes being raised by our global leaders—equal access to opportunity regardless of gender or origins, more fair and equitable economic policies, maximizing the potential of digital technologies.  So how do we level the playing field for all those being left behind?  Four years ago, Mastercard set out to achieve financial inclusion for 500 million unbanked people by 2020. We acknowledge that reaching this goal, however, is the beginning of the journey. We need to do more to help people achieve financial security and realize their full potential in today’s dynamic digital economy.  We have seen how advances in digital technology can be a spark for the well-being of communities and countries. Yet globally, more than a billion people cannot prove their identity, and 1.7 billion adults lack access to any financial services. This isn’t a developed or developing world problem alone.  Bridging the inequality gaps we face today requires us all to think about how technology and innovative partnerships can help people be their most productive, whether they need training, tools, services, access to capital, savings, insurance, or simply connectivity.  We are seeing this come to life in a program we’re piloting with Neumann Kaffee Gruppe (NKG), the world’s largest coffee trader, which has enabled hundreds of smallholder farmers in Latin America to be paid immediately, directly, and digitally. Operating in a digital supply chain, these farmers now have greater visibility into the market and prices, quicker payment options, and more access to financial services. NKG has more insight into its sourcing, boosting the company’s ability to extend credit to farmers going forward so they can safely grow their businesses and save for the future.  This is just one example. We all have an opportunity across the private and public sectors to work together to better understand the needs of the most vulnerable and customize solutions to meet those needs. For Mastercard that means creating opportunities for women in factories to be paid safely and securely for their work. It means unlocking credit for microbusiness owners. It means helping families in the most remote areas easily pay school fees and keep their lights on.  Making the digital economy work for everyone everywhere requires tackling some of society’s most basic problems. For example, identity documentation helps governments establish residents’ rights to national benefits. A well-designed digital identity ecosystem allows institutions to serve the individual with ease and at low cost. Every individual in the world should be the owner of their own identity and should be able to define it, protect it, and use it to advance their goals. This is where we and other entities are looking to add further support.  This isn’t just an issue of philanthropy or corporate social responsibility, as important as those are. This is about businesses achieving commercially sustainable social impact, aligning their business models and products and services with broader social and economic imperatives. This is not at odds with delivering shareholder returns, but the means by which to do so.  This is part of a long-standing commitment at Mastercard to do well by doing good, a sentiment which I believe most CEOs agree with, as the recent statement from my colleagues at the Business Roundtable also demonstrates.  Growth is not sustainable if it is not inclusive. Financial inclusion is just the first step.  Ajay Banga is the president and CEO of Mastercard.  —Girls Who Code CEO: Men need to be brave in the service of women  —Delivering on the promise of purpose beyond profits  —Regulate fintechs for what they do, not what they don’t  —Retaining good employees is tougher than ever, but offering paid family leave can help  —Supporting LGBT employees is a patriotic act  Listen to our audio briefing, Fortune 500 Daily


fortune--2019-09-18--Recession Watch The Yield Curve Suggests Some Worry About the Economy Has Passed

Recession Watch: The Yield Curve Suggests Some Worry About the Economy Has Passed

Just a few weeks ago, the big bond market story was yield curve inversion—when shorter-maturity bonds pay more in interest than longer ones—and the 30-year Treasury dropping to an historical low yield of under 2%.  Today, after a few weeks of cooling and the Fed having cut an interest rates an additional 0.25%, things seem calmer. Yields on bonds are higher than they were at the beginning of September and the big type of inversion that investors watch—when the yield of the 2-year bond is higher than that of the 10-year—that happened in August has reversed itself again. That suggests some worry about the economy may have passed.  "We've had a very aggressive move down in yields and we're taking a breather," said Ed Al-Hussainy, senior interest rate and currency analyst at Columbia Threadneedle.  "The pullback of rates of last week was in response to an overbought, technical condition," agreed Raul Elizalde, chief investment officer and president at Path Financial. "Traders had jumped on a trend of lower and lower rates and long positions in bonds were piling on each other." In other words, investors expected yields to continue dropping, making bonds with higher yields worth more.  The tendency to jump on trends has "become more prevalent in recent years," notes to Elizalde, which can magnify moves in either direction.  The rush to bonds really heated up in early August as investors, worried about an escalation of trade tensions between the U.S. and China, looked for a safe haven for their money. The more institutions and individuals that buy bonds, the higher the price goes, as laws of supply and demand kick in. And the higher the prices, the lower the yields, which move inversely.  "The goodwill gestures by both China and the U.S. to work on their differences and resume trade talks may have been the catalyst to get everyone standing on one side of the boat to run to the other side," said Blaine Rollins, managing director and portfolio manager for 361 Capital.  Related: Yes, the market will eventually crash. Here’s how to be ready for the next one  Now, after the attacks on Saudi Arabia oil fields and the Fed's announcement of an expected rate cut, Treasurys have moved back small amounts. According to data from Bloomberg, as of 2 p.m. on Wednesday, the 30-year bond was yielding 2.22% instead of Friday's 2.37%, the 10-year is at 1.76% rather than 1.9%, the 2-year dropped from 1.79% to 1.71%, but the 6-month up from 1.88% to 1.89% and the 3-month landing at 1.92% from Friday's 1.99%.  "As long as US Treasuries continue to have positive rates, they will remain hugely attractive to the rest of the developed world, much of which is trading well in negative-rate territory," Elizalde said.  A difficulty in discussing yield curves is that the term is slippery. It refers to a comparison of one maturity-length government bond's yield compared to another. There could be an inversion between 2-year and 10-year bonds at a given time but not between 2-year and 20-year or 30-year. So inversion can be an issue of degree.  In addition is the question of how long the inversion lasts. A few months is more serious than a few weeks—at least it historically was—and we've had a couple of short-term yield inversions so far this year, the latest having started in mid-August. But no one has ever been able to track the predictive efficiency of yield inversions at times of ultra-low interest rates while the Fed reduces them even more.  The good news, at least in the short term? Even when yield curves have heralded recessions, it has taken anywhere from 10 to 22 months for the economic slowdown to happen. Now to see what effect, if any, the Fed's rate cut will ultimately have.  —Are we near a recession? The godfather of the inverted yield curve says it's "code red"  —Saudi Aramco is getting what it’s long wanted—perhaps at the expense of its IPO  —Passive investing has exploded. But here’s why fears of a bubble are overblown  —Why the next recession may feel very different than 2008  —U.S. recession indicators haven’t made up their minds  Don't miss the daily Term Sheet, Fortune's newsletter on deals and dealmakers.


fortune--2019-10-08--Trump’s Tariffs Were Supposed to Ding China, But the U.S. Economy Is Getting Hit 2.5x Harder

Facebook Brings Workplace to Portal Devices, Moving in on WebEx, Skype, and Zoom’s Teleconference Turf


fortune--2019-10-17--Is the U.S. Consumer ‘Wavering’? Slowing Retail Sales Are a Warning Sign That the Economy May Be in

Is the U.S. Consumer ‘Wavering’? Slowing Retail Sales Are a Warning Sign That the Economy May Be in Trouble

When Trade Wars Hit You in the Stomach—Tariffs on This Beloved Italian Cheese Go Into Effect in a Matter of Hours, and the Markets Are Grumbling


fortune--2019-12-10--3 Lessons for Today’s Economy from Former Fed Chair Paul Volcker’s Long and Storied Career

Netflix Expects 40 Million Households to Watch ‘The Irishman’ Over the First Month


foxnews--2019-05-03--Surging economy complicates Dems 2020 message against Trump

Surging economy complicates Dems’ 2020 message against Trump

President Trump might as well stick his tweet Friday morning on a campaign bumper sticker: "JOBS, JOBS, JOBS!"  The social media declaration came as the Labor Department reported robust new economic numbers, saying employers added 263,000 jobs in April as the unemployment rate dropped to a 49-year low.  The stats only bolstered the president's economy-focused message as he gears up for what is sure to be a grueling 2020 re-election fight. As Democrats increasingly make the election about the president's character and controversies, the string of positive jobs reports are complicating any efforts to expand that message to run on more traditional kitchen-table issues.  "I'll be running on the economy," Trump said flatly, speaking to reporters at the White House Friday.  Trump's campaign was quick to tout the numbers as well, with press secretary Kayleigh McEnany declaring "the era of low expectations for American workers and their families is long over thanks to the Trump economy."  She added in a statement, "With this kind of momentum, we look forward to hearing the economic plans of the Democrats as they spin tales about Americans not feeling the results of the Trump economy, when in fact workers everywhere can feel the boom!”  The unemployment rate fell to 3.6 percent with the latest report. While part of that drop was due to an increased number of Americans who've stopped looking for work, the jobless rate is at its lowest level since 1969.  Also of note: the average hourly pay for workers jumped 3.2 percent from a year ago, which is considered a very healthy increase by economists.  The new numbers appear to put to rest fears earlier this year that the economy was heading toward recession. And they extend the nation's nearly decade-long recovery from the Great Recession. That economic recovery, which started during then-President Barack Obama's administration, is expected to become the longest in the nation's history come July.  The president touted on Twitter that "we can all agree that AMERICA is now #1. We are the ENVY of the WORLD — and the best is yet to come!" as he re-tweeted a Drudge Report headline that read "ENVY OF THE WORD. UNEMPLOYMENT 49-YEAR LOW."  While Trump spotlighted the new economic report, the news appears to make it a tougher sell for the 2020 Democratic presidential nomination contenders on the economy, which remains a leading issue for voters.  Many of the leading Democratic presidential candidates passed on reacting to the Labor Department's report.  But former Colorado Gov. John Hickenlooper, taking aim at Trump, argued that "nobody should be beating their chest over that ... We've got a long way to go."  Hickenlooper, speaking with Fox News in the first-in-the-nation primary state of New Hampshire before unveiling his own plans to boost the economy, admitted that "certainly we're making progress and that's great." But he added, "is it fast enough for most Americans? I don't think so."  McEnany boasted that "the new jobs report is further proof that the Trump economy continues to boom and deliver benefits that all Americans are feeling."  Her statement was an implicit shot at many of the leading Democratic contenders, who've continuously slammed the president as they argue the Trump tax cuts and the economic recovery have only benefited the wealthy and large corporations.  "The middle class is hurting, it’s hurting now,” former Vice President Joe Biden declared on Monday in Pittsburgh, as he delivered the first speech of his newly declared White House bid.  “The stock market is roaring. But you don’t feel it. There was a $2 trillion tax cut last year. Did you feel it? Did you get anything from it?” Biden asked, as the audience packed into a union hall chanted, "No."  Sen. Bernie Sanders of Vermont, a top rival for the Democratic nomination, wrote in an opinion piece for Fox News last month that "in America today, we have more wealth and income inequality than any other major country on Earth and it is worse now than at any other time since the 1920s."  And the independent senator from Vermont, who's making his second straight White House run, vowed to fight for "an economy that expands the middle class and reduces poverty and not one that makes the very rich much richer."  Another progressive contender for the nomination, Sen. Elizabeth Warren of Massachusetts, repeatedly spotlights that the 2020 election "is our chance to dream big, to fight hard, and to make this an America that works not just for the rich and the powerful but an America that works for everyone.”  Veteran New Hampshire-based political scientist Wayne Lesperance said that "challengers to the president are working hard to craft a narrative that elevates their stature and defines the president as not deserving a second term. Part of the strategy is to reframe the president’s strengths as illegitimate."  Lesperance, vice president of academic affairs at New England College, stressed that "the fact is economic growth and job creation are stronger than expected and impact all Americans positively."  "Harry Truman’s famous maxim that the buck stops here is as true in good economic times as bad. President Trump is the beneficiary of a surprisingly strong and growing economy. And if the past is prologue, American voters will reward the president as they continue to vote with their pocketbooks," he added.  The release of the report comes just two days after a new national poll by CNN indicated Trump had hit a new high on his economic approval ratings, with 56 percent of those questioned saying the president's doing a good job on the economy. CNN's polling, though, also showed numerous Democratic candidates including Sanders, Biden and former Texas Rep. Beto O'Rourke beating Trump in head-to-head matchups.  While there's plenty for Trump to brag about and a good narrative for him to tell, there's no guarantee he'll stay on message. Republicans in Congress urged the president to spotlight the economy and the tax cuts during the 2018 midterm elections, but he often drifted to other issues as he stumped for GOP candidates.  Some pundits question whether the 2020 election will see an electorate focused on the economy, or on values.  White House acting chief of staff Mick Mulvaney thinks the economy will win out over all the controversies that have consumed the Trump presidency.  Spelling out the president's 2020 economic message, Mulvaney on Tuesday suggested voters would still be willing to support Trump at the ballot box even if they don't like him personally.  "You hate to sound like a cliché, but are you better off than you were four years ago? It's pretty simple, right? It's the economy, stupid. I think that's easy. People will vote for somebody they don't like if they think it's good for them," Mulvaney said as he spoke at the Milken conference in Los Angeles.


france24--2019-02-14--Nigerian elections Has the countrys economy improved under Buhari

Nigerian elections: Has the country's economy improved under Buhari?

Nigeria has banned the import of rice, but it's a strict move which is beginning to benefit factories like this in Kano. FRANCE 24's Anna Cunningham visited a plant where they process 350,000 tonnes of rice every day. This business has an estimated turnover of anything between five and eleven million euros a year, a huge profit in a part of Nigeria that largely remains impoverished. Being based in the north, with close access to rice farmers has been key. Northern Nigeria is much less industrialised than the South. But in Kano a lot of businesses are begining to gravitate towards food processing. This company makes plastic food bags. Like other businesses it has benefited from the improved security situation, in a city that no longer has multiple checkpoints.


freedombunker--2019-02-16--Amazons NYC Pullout Shows Economy Is Rigged Just Not the Way Most People Think

Amazon’s NYC Pullout Shows Economy Is Rigged, Just Not the Way Most People Think

Amazon announced Thursday it will not build a new headquarters in New York City, citing the backlash from union leaders and some lawmakers over the nearly $3 billion in government incentives included in a deal to bring the company to NYC. Those leaders treat Amazon’s decision as a victory. For Governor Andrew Cuomo and NYC Mayor Bill De Blasio, it’s a defeat, as they led the effort to lure the company to New York.  No matter how it’s spun, the facts don’t change. This decision represents billions in lost tax revenues for the city and state, over and above the $3 billion in incentives. Amazon won’t be employing an estimated 25,000 additional New Yorkers. And many millions more in business with local vendors will not occur.  To opponents of the deal, a principle has been defended: Giant corporations like Amazon shouldn’t be offered tax “subsidies” to come in and “exploit” local workers and the community. But this theory raises several questions.  First, what is a “subsidy"? Strictly speaking, a subsidy is when the city, state, or federal government cuts a check out of its treasury to the corporation in question. In some cases, as in Governor Cuomo’s $485 million check to Solar City in 2016, corporations are subsidized.  It is a gross abuse of the English language to call allowing a private company to keep its own money a subsidy.  But often, what is described as a subsidy is really a tax exemption, meaning not collecting taxes the company would otherwise owe in return for something the government wants. This may be the promise of new jobs, new “green products,” or just the new taxes the government expects to collect over and above the exemption(s) it has offered the company to establish a location within its jurisdiction.  It is a gross abuse of the English language to call allowing a private company to keep its own money a subsidy. But it still seems wrong, doesn’t it?  It is, but not for the reasons most people think. Most objections to these types of deals are based upon envy of some rich person’s wealth, which used to be considered un-American and is a bad basis for policy regardless. What really makes these deals wrong is that they amount to government central planning of the economy. Here’s how it works:  Step One is to tax and regulate everyone into a state of complete economic paralysis.  Step Two is to grant limited relief to those businesses who either represent something politicians like or who promise to deliver something politicians need. The far-left politicians who protested Amazon establishing an HQ in Queens to some degree bit their own noses to spite their faces. Companies like Tesla do both. First, they represent the green energy movement, the cause célèbre of politicians everywhere. They also promise to create a significant number of jobs in places they establish manufacturing or other large presences, which helps politicians get re-elected. Third, they provide what politicians crave most: new tax revenues they otherwise wouldn’t receive, even if they must give away a little to get a lot.  In Amazon’s case, the green angle isn’t so much a factor, although they likely say all the right things in their marketing literature. But they do provide the other two benefits to politicians: the new jobs to take credit for and the new tax revenues to spend. The far-left politicians who protested Amazon establishing an HQ in Queens to some degree bit their own noses to spite their faces. Amazon would have poured money into local and state tax coffers that would have been proportionally funneled into New York’s generous welfare state.  Alexandria Ocasio-Cortez gleefully tweet-celebrated this as a victory against “Amazon’s corporate greed, its worker exploitation, and the power of the richest man in the world.” To her and those of her ilk, Jeff Bezos and presumably all Amazon’s shareholders are the villains, although it’s never clear if members of the far left understand publicly traded companies are owned by people other than their founders. Bezos owns 16 percent of the stock. The rest is largely owned by mutual funds, investing for anyone with a 401K, including public school teachers and other people leftists like.  If the deal is passed by the legislature and signed by the governor or mayor, democracy is served, for whatever that’s worth.  Regardless, the owners of Amazon or any other corporation have no implicit obligation to open new locations anywhere. Their objection to Step One in the central plan is perfectly understandable and unquestionably within their rights. They also have the right to name conditions for doing business in any given locale. If the deal is passed by the legislature and signed by the governor or mayor, democracy is served, for whatever that’s worth. All Bezos or the other Amazon shareholders have done is act legally in their own interests.  The real villains are the politicians, who established the central plan in the first place. In a free country, the government is supposed to protect the right of everyone “to bring both his industry and capital into competition with those of any other man, or order of men,” as Adam Smith put it. Steps One and Two do exactly the opposite. They create a barrier to entry to the market that can only be breached via an admission ticket granted by the government. That ticket costs money only the largest corporations can pay.  Ironically, the very taxes and regulations anti-capitalists champion provide the means for corporations they say they hate to grow to unnatural size and eliminate the small, locally-owned competitors they claim to cherish. That’s not to say that in an honest, free market Amazon wouldn’t be dominant, but there would be more room for competitors in niches and on the margins to survive. Amazon’s competitors one set of victims of these central planning schemes.  Consumers are victims, too, but not because they are “subsidizing” large corporations. The tax exemptions corporations get are more than offset by the new taxes they pay in the locales they relocate to. That’s why politicians are willing to offer the exemptions in the first place. The real loss to consumers is choice. They have less choice in a world where Amazon has fewer competitors, which is inevitable when the economy is centrally planned, and politicians decide who can play and who can’t.


freedombunker--2019-05-01--How a Tiny Village Transformed Chinas Economy by Proving Incentives Matter

How a Tiny Village Transformed China’s Economy by Proving Incentives Matter

"Work hard, don't work hard—everyone gets the same. So people don't want to work." Those were the words of Yan Junchang, the Chinese farmer who spearheaded a secret agreement that ultimately saved millions of lives.  In 1978, farmland in China was divided up into collectives. Courtesy of the Communist revolution, no personal ownership of farmland was allowed. "Back then, even one straw belonged to the group," said Jungchang, who was a farmer in the village of Xiaogang in 1978. "No one owned anything."  At the time, the produce of the farmers belonged to the government, who would then divide up the food evenly among the farmers in the collective.  Contrary to the plentiful bounty that socialists insist would result from collective ownership over the means of production, “there was never enough food, and the farmers often had to go to other villages to beg. Their children were going hungry. They were desperate.”  But under collectivism, some are more equal than others. As the farmers starved to death, “no civil servant suffered from hunger in our region,” Junchang recalled.  According to the contract, “The farmers agreed to divide up the land among the families. Each family agreed to turn over some of what they grew to the government, and to the collective. And, crucially, the farmers agreed that families that grew enough food would get to keep some for themselves,” according to the NPR report.  Even a partial introduction of the linking of effort to reward reaped stunning results.  “Grain output increased to 90,000 kilograms in 1979, over six times as much as the previous year,” according to China.org. “The per capita income of Xiaogang climbed to 400 yuan from 22 yuan.”  Farmers, now incentivized by the opportunity to even partially benefit from their effort rather than see their produce forcibly shared with the collective, unsurprisingly exerted greater effort. "We all secretly competed," said Junchang. "Everyone wanted to produce more than the next person."  “Before the contract, the farmers would drag themselves out into the field only when the village whistle blew, marking the start of the work day,” NPR added. “After the contract, the families went out before dawn.”  Not everyone was pleased with the Xiaogang farmers’ actions, however. As China.org has noted, “Some people accused Xiaogang's villagers of ‘digging up the cornerstone of socialism.’ Luckily, Fengyang Prefecture's Party Secretary, Wang Yuzhao, was open-minded.”  Yuzhao was informed of the favorable harvest yielded by the new arrangement and promised to protect the village’s secret as long as the practice didn’t spread.  Word of the farmers’ contract did spread, however. But fortunately for Yan and his fellow villagers, “there were powerful people in the Communist Party who wanted to change China's economy. Deng Xiaoping, the Chinese leader who would go on to create China's modern economy, was just coming to power,” reported NPR.  The Chinese government allowed for other economic liberalizations, as well, which helped spur historic growth credited with lifting up to 500 million Chinese out of poverty.  The Xiaogang farmers’ agreement inspired the end of communal farming in China three decades ago, but unfortunately, the Chinese government continues to refuse to legalize rural land ownership.  The courageous actions of the Xiaogang farmers illustrate a point as important now as ever. As more people, especially the young, have been developing a sympathetic view of socialism and the collectivization of the means of production, the farmers’ story reminds us of just how disastrous collectivism can be.  The elimination of the proper incentives provided by private property rights over the means of production creates not an egalitarian bounty but a paradise for parasites. Separating reward from effort kills the initiative to work.  Private property rights in a free economy, on the other hand, are indispensable for the eradication of poverty and the growth of human flourishing.  When confronted by your socialist family member or friends on social media advocating for economic collectivism, be sure to tell them the story of the secret contract that revolutionized China.


freedombunker--2019-06-27--How the Gig Economy Can Save a Generation Drowning in Student DebtIf We Let It

How the Gig Economy Can Save a Generation Drowning in Student Debt—If We Let It

When Guenevere Garrido got accepted into UCLA, she knew it was an opportunity she couldn’t turn down, even if she wasn’t sure how she was going to pay her tuition. Like 44 million other Americans, she made the decision to take out student loans and borrowed $40,000 to pay for her college education.  Majoring in child development, Garrido’s first job after graduation was working in a preschool where she made $13 an hour. While she eventually made a career switch into a higher paying job, no matter how much her paycheck increased, she was still being strangled by debt.  Combined with accrued interest and other outstanding debt, Garrido soon found herself $68,000 in the hole. Realizing she needed supplementary income to dig herself out, Garrido decided to start driving for Uber and the rideshare company SideCar. Since both companies let drivers set their own hours, Garrido was able to drive nights and on the weekends without it interfering with her full-time job. In July 2016, just three years after she began participating in the gig economy, Garrido made her very last student loan payment. In 2018, she became 100 percent debt free.  Garrido credits that second income with changing her life. The additional money allowed her to pay down her loan and taught her life skills she didn’t even know she needed. She described no longer feeling helpless, but empowered.  “There were times when I made a payment of $3,000 at once. It was always about preparation,” she told NBC News.  As of now, the average student loan debt is pushing $40,000. To make matters worse, more than one out of every ten people are delinquent on their monthly payments. Fortunately, the gig economy has offered a lifeline to a generation of college graduates crippled by student loan debt and eager to break free of their financial chains.  According to the Bureau of Labor Statistics, in 2017, 55 million people, or more than 35 percent of the US workforce, were participants in the gig economy. By 2020, that number is expected to jump to 43 percent. Yet, instead of praising the gig economy for creating so many opportunities for Americans, many insist that these workers are being treated unfairly and need to be made full-status employees, completely disregarding why this sector is so appealing to so many.  California legislators are currently considering a bill which, if signed into law, will majorly disrupt the gig economy. Assembly Bill 5 (AB 5), would effectively change the employment status of hundreds of thousands of freelance workers within the state from independent contractors to full-status employees, placing new financial burdens on employers and threatening the livelihood of the entire gig economy and its participants.  If they are not careful, the entire gig economy may soon be regulated out of existence.  The bill passed the State Assembly—the state’s lower house—at the end of May by a vote of 53-11 and will now need to be approved by the California State Senate before reaching Governor Gavin Newsom’s desk. AB 5 comes in response to labor rights activists pushing for rideshare companies like Uber, Lyft—as well as other gig economy participants like DoorDash and TaskRabbit—to give its contractors the same employment rights as are granted to regular employees.  “Every worker in California deserves to earn a living wage, benefits, and to be able to join together with their co-workers so they can set standards for their jobs,” Doug Bloch, political director at the local chapter of the Teamsters union in California, told Politico.  While these labor activists might be filled with good intentions, they are failing to understand, or at least recognize, why so many people—consumers and contractors alike—were drawn to the sharing economy in the first place. And if they are not careful, the entire gig economy may soon be regulated out of existence.  The steep rise of the gig economy over the last decade has ushered in a whole new era of job opportunities for Americans. For those looking to supplement their income, moonlighting as an Uber driver is a great way to earn extra money quickly. For artists or writers looking to build their careers, many might work full-time jobs during the day and then take on “gigs” working hourly or at a per-piece rate. And with the number of Digital Nomads increasing, taking “gigs” as opposed to traditional employment has allowed many young people to travel and live life on the go, rather than staying strapped to one place.  In addition to a quick onboarding process that allows participants to begin earning money within a week of signing up, the gig economy allows the flexibility of having a part-time job and access to additional income whenever you feel like it with few strings attached.  The gig economy’s contractor model has helped keep freelancers and transitioning workers on their feet during times of personal financial crises.  And in exchange for this flexibility, those who participate as contractors forgo the benefits typically given to full-status payroll employees, like health insurance or vacation pay.  This is how the gig economy works, and it is what has made it so attractive to so many (see graph above). In choosing to participate in the gig economy, contractors understand what it is they are signing up for and what they are sacrificing. By not having to request time off or make sure you haven’t used too many of your vacation days, you have made the choice that you value your freedom over the security of a job with benefits and health care. This is about subjective value and personal choice, not oppression or exploitation.  And, while California lawmakers and labor activists might not want to admit it, in many cases the gig economy’s contractor model has been precisely what has helped keep freelancers and transitioning workers on their feet during times of personal financial crises.  A few years ago, Moises Abrego abruptly lost his job. He was fortunate enough to quickly find a position selling insurance, but since that profession relied heavily on commission, he was still struggling to make ends meet as he built up a client base. Abrego needed supplemental income quickly if he was going to be able to make his mortgage payment and prevent a foreclosure on his home—a concern that kept him awake at night.  After a friend told him about Uber, Abrego decided to give it a try. Since Uber is contractor-based, he didn’t have to go through a lengthy interview process or wait weeks for an answer from a prospective employer. Instead, he was able to start making money almost immediately.  A New Jersey resident at the time, he found that he could make about $800 a week staying local or about $2,000 if he was willing to drive into the city. With this additional income, Abrego was able to generate enough money to keep his house and pay his bills.  Thornberg writes that “the idea these people are being exploited and need help just doesn’t fly."  “There are many others out there who are struggling. Do not hinder our opportunity to get those jobs,” Abrego said. “Uber is providing a good means for people to make a decent living and support their families.”  By turning contractors like Abrego into full-status employees, the California legislature is threatening to hinder the growth of the burgeoning sector and potentially spell the end of the gig economy. As economist Chris Thornberg points out, these legislators fundamentally misunderstand the appeal of gig work.  "California's economy has the lowest unemployment rate it has ever had. People have options, and they're still choosing to drive Uber or Lyft,” Thornberg writes. “The idea these people are being exploited and need help just doesn’t fly."  At the heart of this new proposed legislation rests the pressing question of what makes someone a full-status employee versus a contractor. In 2018, the California Supreme Court handed down its ruling in the case of Dynamex Operations West, Inc. v. Superior Court of Los Angeles. The ruling, now known as the “Dynamex decision,” dealt with the employment status issue of contracted delivery drivers and instituted the “ABC test” as a means of determining whether or not a person is an employee or a contractor. The ABC test sets specify:  (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.  It is estimated that the California state government loses about $7 billion annually from the alleged misclassification of employees.  The new bill gives legal teeth to the Dynamex decision by setting forth legislation that would mandate that companies use the ABC test to determine the tax and employment status of each worker. While passed off as a giant leap forward for workers rights, this bill is really a means for the government to get its hands on more money.  It is estimated that the California state government loses about $7 billion annually from the alleged misclassification of employees. By forcing employers to categorize more of their workers as full-status employees, the state hopes to increase its tax revenue. Yet, even with revenue serving as an obvious incentive for government officials, this hasn’t stopped labor activists from jumping on board and making this an issue of employee rights—something it most certainly is not. And if the bill is approved, which is likely given California’s political climate, the economic repercussions will be felt in sectors beyond just the gig economy alone.  In addition to the contractors suffering from the passage of AB 5, companies themselves will suffer tremendous losses. If gig economy “employers” are forced to pay for their contractors benefits and higher pay, many will be unable to financially stay afloat. And without Uber in business, you cannot have Uber drivers. And without these jobs, which in 2015 accounted for 160,000 for Uber alone, many would find themselves suddenly without a previously relied upon income.  But Uber and others in the gig economy are hardly alone in fearing what these employment status changes may do to its financial livelihood. Independent contractors can be found in almost every industry, and in California, a state dominated by the entertainment sector, Hollywood is expected to suffer huge losses.  From actors to makeup artists and everything in between, Hollywood is comprised of many independent contractors and thrives as a result. If instead of this gig model, the entertainment industry is forced to take on additional costs in order to treat each contractor as an employee, the whole sector could be threatened.  Thornberg predicts that if AB 5 is signed into law, many film and television productions would be forced to either leave the state or find a way to cut costs elsewhere. "The reaction is typically lower base pay," he says.If California wants to protect workers and foster a thriving economy, it should allow people to make their employment decisions independent of state action. "For the industry to shake out, ultimately people are going to get more in the way of benefits, more in the way of comfort, and less in the way of take-home pay."  And Hollywood is not the only ally of the gig economy when it comes to the new legislation. Already, several other industries have come forward asking for exemptions from the bill, including: doctors, dentists, lawyers, architects, insurance agents, accountants, engineers, financial advisers, real estate agents, and hairstylists who rent booths at salons.  Unions can yell about worker rights until they are blue in the face, but at the end of the day, the people who should be involved in determining a “worker’s” status is the company and the individual performing the work. If a contractor wants to be a full-status employee, he or she can decline contract work and find a job where this is possible.  Legislators should also not be too hasty in altering the employment status of gig economy workers unless they want to bear the responsibility of rendering the sector completely nonexistent in the process. If California wants to protect the rights of its contractors and help foster a thriving economy, it should allow people like Moises Abrego and Guenevere Garrido to make their employment decisions independent of state action.


freedombunker--2019-10-09--The Economy Keeps Growing, but Americans Are Using Less Steel, Paper, Fertilizer, and Energy

Environmental scientist Jesse Ausubel remembers the moment his research trajectory changed. Over dinner one night in 1987, his friend and colleague Robert Herman, a physicist with a wide range of interests, wondered aloud, "Are buildings getting lighter?" That apparently simple question inspired the pair to begin looking into the "material intensity" of the modern world.  In 2015, Ausubel published an essay titled "The Return of Nature: How Technology Liberates the Environment." He had found substantial evidence not only that Americans were consuming fewer resources per capita but also that they were consuming less in total of some of the most important building blocks of an economy: things such as steel, copper, fertilizer, timber, and paper. Total annual U.S. consumption of all of these had been increasing rapidly prior to 1970. But since then, consumption had reached a peak and then declined.  This was unexpected, to put it mildly. "The reversal in use of some of the materials so surprised me that [a few colleagues] and I undertook a detailed study of the use of 100 commodities in the United States from 1900 to 2010," Ausubel wrote. "We found that 36 have peaked in absolute use…Another 53 commodities have peaked relative to the size of the economy, though not yet absolutely. Most of them now seem poised to fall."  A few years earlier, a writer and researcher named Chris Goodall had noticed something similar in the United Kingdom's Material Flow Accounts, "a set of dry and largely ignored data published annually by the Office for National Statistics," as the Guardian put it. He summarized his findings in a 2011 paper titled "'Peak Stuff ': Did the UK Reach a Maximum Use of Material Resources in the Early Part of the Last Decade?"  Goodall's answer to his own question was, essentially, yes: "Evidence presented in this paper supports a hypothesis that the United Kingdom began to reduce its consumption of physical resources in the early years of the last decade, well before the economic slowdown that started in 2008. This conclusion applies to a wide variety of different physical goods, for example water, building materials and paper and includes the impact of items imported from overseas. Both the weight of goods entering the economy and the amounts finally ending up as waste probably began to fall from sometime between 2001 and 2003."  Goodall was eloquent about the significance of dematerialization: "If correct, this finding is important. It suggests that economic growth in a mature economy does not necessarily increase the pressure on the world's reserves of natural resources and on its physical environment. An advanced country may be able to decouple economic growth and increasing volumes of material goods consumed. A sustainable economy does not necessarily have to be a no-growth economy."  I agreed with Goodall about the significance of economy-wide dematerialization, especially because the United Kingdom and the United States were the leading economies of the Industrial Era—a period that was defined by an unprecedented and extraordinary rise in the use of natural resources and other exploitations of the environment. If those two countries could reverse course and achieve substantial dematerialization, it would be a fascinating and hopeful development.  It would also be surprising, because it would mean that something fundamental about the mainstream understanding of how growth works would be incorrect. Most of us carry around an implicit or explicit belief that because humans always want to consume more, we will use more resources year after year to satisfy these wants. Technologies that allow us to make more efficient use of resources will not let us conserve resources, because we'll just use the technologies to let us consume even more—so much more that overall resource use will continue to rise.  This was the clear pattern until 1970. What could possibly have caused it to change? Moreover, if absolute dematerialization was a real and durable phenomenon, were there any interventions that individuals, communities, and governments could make that would help accelerate and spread it?  Fortunately for anyone interested in dematerialization, a lot of high-quality evidence exists about resource consumption over time in America. Much of it comes from the U.S. Geological Survey (USGS), a federal agency formed in 1879 and tasked by Congress with "classification of the public lands, and examination of the geological structure, mineral resources, and products of the national domain."  That examination of mineral resources is a boon to anyone interested in dematerialization, because since the start of the 20th century, the USGS has been collecting data on the use of the most economically important minerals in America. Of particular interest is the survey's yearly estimate of "apparent consumption" of each mineral.  This consumption takes into account not only domestic production of the resource but also imports and exports. For example, to calculate America's total apparent consumption of copper in 2015, the USGS would take the amount of copper produced in the country that year, add total imports of copper, and subtract total copper exports.  The survey's data tell a fascinating story. To understand it, let's start with metals, one of the most obviously important materials for any economy. Here's total annual consumption from 1900 to 2015 of the five most important metals in the United States. A reminder: This is not annual consumption per American. This is annual consumption by all Americans—the total tonnage used year by year of these metals.  All of these metals are "post-peak" in America, meaning that the country hit its maximum consumption of each of them some years ago and has seen generally declining in use since then. The magnitude of the dematerialization is large. In 2015 (the most recent year for which USGS data are available), total American use of steel was down more than 15 percent from its high point in 2000. Aluminum consumption was down more than 32 percent and copper 40 percent from their peaks.  This dematerialization becomes even more impressive when consumption of resources in the United States is compared to the country's economic growth. Note that a huge decoupling has taken place. Up to 1970, consumption of metals in America grew just about in lockstep with the overall economy. In the years since 1970, the economy has continued to grow pretty steadily, but consumption of metals has reversed course and is now decreasing. We're now getting more "economy" from less metal year after year. We'll see a similar great reversal in the use of many other resources.  America is an agricultural powerhouse—the world's largest producer of both soybeans and corn and fourth-largest producer of wheat. Fertilizer is, as we've seen, essential for growing crops. So here's the country's total consumption over time of fertilizer, water, and cropland. Instead of GDP, this graph charts total U.S. crop tonnage.  Here again, output (crop tonnage) used to be tightly linked to inputs (water and fertilizer). But then that relationship changed, and we're now getting more from less. Fertilizer use is down almost 25 percent from its 1999 peak, and by 2014 total water used for irrigation had decreased by more than 22 percent from its maximum in 1984. Total cropland has also fallen, to levels rivaling the lowest points of the previous century.  Building structures and infrastructure requires a lot of resources, so let's look at total consumption, according to the USGS, of the most important building materials. Let's also include data on timber use from the U.S. Department of Agriculture and throw in paper for good measure.  Here I see two different stories. The first is about building materials—cement, sand and gravel, and stone. Consumption of all of these peaked in 2007 and has dropped sharply since. But the sharp drop-off is surely because of the Great Recession, which hit the construction industries particularly hard. As construction recovers, we may find that we are not post-peak in these materials. But I predict that we're forever post-peak in our use of both wood and paper. Total timber use is down by a third and paper by almost 20 percent since their high points.  Are these graphs representative of what's been going on in the American economy as a whole? They are. Of the 72 resources tracked by the USGS, from aluminum and antimony through vermiculite and zinc, only six are not yet post-peak. Of these, we spend by far the most on gemstones. We Americans apparently have a bottomless thirst for bling. If shiny ornamental stones are excluded from the analysis, then more than 90 percent of total 2015 resource spending in America was on post-peak materials.  American consumption of plastics, which is not tracked by the USGS, is an exception to the overall trend of dematerialization. Outside of recessions, the United States continues to use more plastic year after year in the form of trash bags, water bottles, food packaging, toys, outdoor furniture, and countless other products. But in recent years, there has been an important slowdown.  According to the Plastics Industry Trade Association, between 1970 and the start of the Great Recession in 2007, American plastic use grew at a rate of about 5.2 percent per year. This was more than 60 percent faster than the country's GDP grew over the same period. But a very different pattern has emerged in the years since the recession ended. The growth in plastic consumption has slowed down greatly, to less than 2 percent per year between 2009 and 2015. This is almost 14 percent slower than GDP growth over the same period. So while America is not yet post-peak in its use of plastic, it's quickly closing in on this milestone.  Finally, let's look at total energy consumption combined with greenhouse gas emissions, which are the most harmful side effect of generating energy from fossil fuels.  I was surprised to learn that total American energy use in 2017 was down almost 2 percent from its 2008 peak, especially since our economy grew by more than 15 percent between those two years. I had walked around with the unexamined assumption that growing economies must consume more energy year after year. This turns out not to be the case anymore—a profound change. Energy use went up in lockstep with economic growth in America for more than a century and a half, from 1800 to 1970. Then the increase in energy use slowed down, and then it turned negative—even as the economy kept growing. Over the last decade, we've gotten more economic output from less energy.  Greenhouse gas emissions have gone down even more quickly than has total energy use. This is largely because we have in recent years been using less coal to generate electricity and more natural gas, which produces 50–60 percent less carbon per kilowatt-hour.  The conclusion from this set of graphs is clear: A great reversal of our Industrial Age habits is taking place. The American economy is now experiencing broad and often deep absolute dematerialization.  Is the rest of the world dematerializing? It's a hard question to answer definitively because there's no equivalent of the detailed and comprehensive USGS data for countries other than America. There is evidence, though, that other advanced industrialized nations are also now getting more from less. Goodall, of course, found that the United Kingdom is now past "peak stuff." And Eurostat data show that countries including Germany, France, and Italy have generally seen flat or declining total consumption of metals, chemicals, and fertilizer in recent years.  Developing countries, especially fast-growing ones such as India and China, are probably not yet dematerializing. But I predict that they will start getting more from less of at least some resources in the not-too-distant future.