Biden's Economy

[JRT]

In the world of central bank macroeconomics, the shorthand description of the policy trade off is unemployment vs. inflation.

Inflation is high. The average this year (8.1%) is the highest in 40 years. At the same time, new claims for unemployment benefits are the lowest in over 52 years.

Keep it in perspective.

Jay Powell at the Fed is trying to slow the rate of inflation with tighter monetary policy, higher interest rates, and with quantitative tightening, reducing liquidity in financial markets by reducing holdings on the Fed's balance sheet (that reduced liquidity will come at the cost of increased market pricing volatility in equities and commoditites),

However the Biden Administration wants to throw more gasoline on the fires of inflation with added fiscal stimulus, eg student loan forgiveness.

Biden wants to forgive $10,000 in federal student loan debt per borrower, regardless of whether they need it.

by Mike Riggs
01 June 2022

President Joe Biden is on the verge of announcing $10,000 in federal student loan forgiveness per borrower for millions of Americans, according to The Washington Post.

"The White House's latest plans called for limiting debt forgiveness to Americans who earned less than $150,000 in the previous year, or less than $300,000 for married couples filing jointly," write Post reporters Tyler Pager, Danielle Douglas-Gabriel, and Jeff Stein. Their sources did not say "whether the administration will simultaneously require interest and payments to resume at the end of August, when the current pause is scheduled to lapse."

Federal student loans have been frozen since March 2020. Since then, borrowers have not been required to make any payments, nor have their loans accrued interest, thanks to an executive order issued by President Donald Trump at the onset of the COVID-19 pandemic. The moratorium has also allowed participants in the Public Service Loan Forgiveness (PSLF) program—which forgives federal direct loans after borrowers make 120 payments while working for a government agency or a 501(c)(3) nonprofit organization—to count each month of the pandemic as a qualifying payment, even though they actually paid nothing.

The repayment moratorium was extended twice by Trump, and four times by Biden. Borrowers who first expected to resume payments in September 2020 are now looking to Biden's latest deadline of September 2022—a little more than a month before midterms.

Like the repayment moratorium, student debt cancellation is also a kicked can: In December 2020, Senate Majority Leader Chuck Schumer (D–N.Y.) challenged Biden to unilaterally forgive $50,000 per borrower. "You don't need Congress," Schumer said. "All you need is the flick of a pen." Sen. Elizabeth Warren (D–Mass.) has repeatedly called for the same. Shortly before his inauguration, however, Biden called on Congress to pass a law forgiving $10,000 worth of federal student loans per borrower. That never happened and will not happen before the midterms, when Democrats may lose their majority in Congress.

With the prospect of legislative forgiveness but a pipe dream, many progressives within and outside of Congress have insisted that Biden should use executive authority to forgive at least $50,000 per borrower, if not the entire $1.6 trillion student loan portfolio owned by the Department of Education. The $10,000 figure is simply unacceptable to most Democrats who want loan forgiveness.

The case against student loan forgiveness at this scale is that it primarily benefits educated people who don't need the help. Democrats know this. An analysis touted by Warren notes that $10,000 in forgiveness per person "zeroes out" out the federal loan balances of only 14 percent of borrowers who owe more after 12 years than they initially borrowed. This is why Warren wants $50,000 in debt forgiveness per borrower, except that payment would not only zero out the balances of 67 percent of borrowers who owe more after 12 years, but it would also reduce the number of indebted households in the top 10 percent of wealth from 4 percent to 3 percent.

In other words, any amount of blanket loan forgiveness will either not help truly distressed households enough or also help truly rich households; meanwhile, every figure proposed by Democrats helps some number of people who are financially better off having borrowed for college.

What about targeted student loan forgiveness programs, aimed at helping low-income borrowers who went to terrible schools or were defrauded? Well, we already have that. Billions of dollars worth, in fact. We also have the aforementioned PSLF program and income-driven repayment plans, which allow borrowers to pay a percentage of their adjusted gross income for 20 or 25 years, after which the balance is forgiven and the forgiven amount is treated as taxable income. The Biden administration has already expanded eligibility for both of these programs, and the Education Department is already actively working toward adjusting borrowers' accounts if they meet the relaxed criteria.

It makes a certain kind of political sense that once you help the very bottom (forgiveness for borrowers who attended shuttered schools) and the very top (PSLF for government and nonprofit workers, many of whom have advanced degrees), you should throw a bone to the comfortable-but-anxious middle quintiles.

That leads us to the question, soundness aside, of whether Biden can use executive authority to grant broad student loan forgiveness. Lawyers for the Department of Education under Secretary Betsy DeVos concluded last year that mass loan amnesty exceeded the statutory powers of the Education Department. A former Education Department lawyer under Obama wrote a private memo for a client this time last year arguing that mass loan forgiveness is illegal. Current Education Department lawyers, or their replacements, may have since reached a different conclusion. But as economist Carlo Salerno observed in The Hill this week, the White House refuses to publish the legal memo on loan forgiveness Biden had prepared last year.

Perhaps if Biden moves ahead with $10,000 in forgiveness per borrower, we'll also get to see the legal justification for putting every taxpayer in the country on the hook for erasing the federal student loan debt of not just the very poor, but also the upwardly mobile and even the upper crust.

[Albany Rifles]

Jay Powell at the Fed is trying to slow the rate of inflation with tighter monetary policy, higher interest rates, and with quantitative tightening, reducing liquidity in financial markets by reducing holdings on the Fed's balance sheet (that reduced liquidity will come at the cost of increased market pricing volatility in equities and commoditites),

However the Biden Administration wants to throw more gasoline on the fires of inflation with added fiscal stimulus, eg student loan forgiveness.

Or the Biden Administration recognizes the siren song of all need to go to college to succeed coupled with skyrocketing higher education costs, mostly in fees and tuition, has saddled half of college graduates saddled with student loans, averaging yens of thousands of dollars, is not good for the economy. Especially when wages have not kept pace, especially for entry level positions. At the same time faculties have been cut and more teaching has been offloaded to adjuncts than tenure track professors.

There can be a balance and we should find a way.

Of course, what choice do kids have since we have systematically destroyed our technical schools and unions. While America has shifted to a service economy there are still a ton of work which requires skilled labor...as much as a multinational corporation would love to try you can't offshore a plumbing or construction job.

In my family's case me and my siblings all graduated from college between 1972 to 1988. We all ended up in careers which had us all requiring graduate degrees. My siblings had their grad degrees paid for by their jobs. I am the only one who paid out of pocket...but I went at nights while working fulltime.

Our kids all graduated from college...but we grew from a middle class family to upper middle class. Part of the reason we were able is because we had minimal student loans undergrad which allowed us to take money which would have gone for student loans to go to saving for our children...but many can do this.

Bottomline is the economy is pear shaped...most of the growth has come for the top of the workforce and much less for those lower down are saddled with debt and have to work several jobs in a gig economy to just get by.

If they can get relief from student loans, even if it was capped to a percentage, will help. And I have faith in Chair Powell being able to get that camel through the eye of the needle.

[DOR]

ADD:
The unemployment rate (3.11%) among those 20 years of age and over is, for the second month in a row, the lowest in 68-1/2 years, since October 1953.

From Sept 2019 to Jan 2020, just before COVID when the economy was roaring away on massive fiscal deficits, the overall unemployment rate (not the same as the one above) briefly dipped below 3.6% for the first time in over 50 years.. It is now back at that level for the last three months.

[Albany Rifles]

ADD:

From Sept 2019 to Jan 2020, just before COVID when the economy was roaring away on massive fiscal deficits, the overall unemployment rate (not the same as the one above) briefly dipped below 3.6% for the first time in over 50 years.. It is now back at that level for the last three months.

Dor, in line with my just above post #352, how many of those jobs are gig economy jobs...part time w/ no benefits?

[DOR]

Dunno; jobs a job?

[TopHatter]

Dunno; jobs a job?

If you're not making a living wage then all you're doing is making a little pocket money.

[zraver]

18yo kids with no real credit training should not be a high interest profit center for private institutions managing government programs. Biden could split the difference and just cancel interest and have payments on a fixed schedule mailed to the Treasury. The legislators BNP'd for by the debt servicers would go into orbit

[DOR]

If you're not making a living wage then all you're doing is making a little pocket money.

If you used to make $7.25 and hour and inflation was very low, and are now making $15 / hr, and inflation is 8%, ... maybe we can figure out who's better off.

I get the point about living wages, and yet we live in a world where people are paid minimum wage, and it has nothing at all to do with inflation.

[JRT]

"Atlanta Fed’s GDPNow estimate for 2Q22 has faded and is now at 0% (q/q annualized)" - Liz Ann Sonders (today, 15 June 2022), Chief Investment Strategist, Charles Schwab & Co., Inc.

And it seems that zeroed recent growth in GDP isn't slow enough to arrest excessive rise in inflation, so the Fed is expected to further tighten monetary policy today, unwinding some of their balance sheet and increasing interest rates 50-100 basis points, with approximately 75 reportedly dialed into current market trading. The FOMC's announcement is due out very soon.


https://www.atlantafed.org/-/media/d...kingSlides.pdf

[JRT]

FOMC has announced their decision.

15 June 2022
Fed unveils biggest rate hike since 1994
(2 min, 25 sec)

The Federal Reserve raised its target interest rate by three-quarters of a percentage point to stem a disruptive surge in inflation and projected a slowing economy and rising unemployment in the months to come.

15 June 2022

FOMC Press Conference Introductory Statement
(9 min, 8 sec)

FOMC Press Conference
(56 min, 23 sec)

Federal Reserve issues FOMC statement
For release at 2:00 p.m. EDT

Overall economic activity appears to have picked up after edging down in the first quarter. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.

The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The invasion and related events are creating additional upward pressure on inflation and are weighing on global economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 1‑1/2 to 1-3/4 percent and anticipates that ongoing increases in the target range will be appropriate. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Lisa D. Cook; Patrick Harker; Philip N. Jefferson; Loretta J. Mester; and Christopher J. Waller. Voting against this action was Esther L. George, who preferred at this meeting to raise the target range for the federal funds rate by 0.5 percentage point to 1-1/4 percent to 1-1/2 percent. Patrick Harker voted as an alternate member at this meeting.

[Albany Rifles]

Heard an analysis on Marketplace last night Wall Street was glad to see this. If the Fed had only done a .5 instead of .75 change Wall Street would have reacted negatively as it would see it as an insufficient move on the part of the Fed. As a result the Market went up.

[Albany Rifles]

And just like that Wall Street loses it's mind and understandably so...since this new rate is in effect for more than 12 hours and they are proceeding to say it may not work!!!

Glad they gave it time to work before reacting.

[TopHatter]

The US economy will grind to a halt in the second half of 2023 and the following year won't be much better, BofA says as it slashes its growth forecast

Bank of America has sounded the alarm on the US economy, predicting growth will stall next year and that the likelihood of a recession will surge.

In a note published on Friday — two days after the Federal Reserve hiked interest rates by 75 basis points — analysts said the Fed was too slow to aggressively tackle inflation, which is currently running at a 40-year high, and is abruptly scrambling to get on top of it.

Now BofA sees GDP growth slowing to near zero by the second half of 2023 due to the impact of tighter financial conditions. So while the risk of recession this year is low, BofA sees a 40% probability starting next year. And 2024 isn't looking much better as analysts see only "a modest rebound" by then.

"Our worst fears around the Fed have been confirmed: they fell way behind the curve and are now playing a dangerous game of catch up," according to the note.

Despite the Fed's more hawkish stance, BofA doesn't see inflation cooling enough to get down to the central bank's 2% target. Instead, it will persist around 3%. While supply problems and demand for goods will ease, inflation expectations are anchoring at higher levels and wage pressures will be tough to reverse.

But the Fed is perhaps finally catching up to properly attack inflation, BofA said, and Wednesday's rate hike was a strong step in the right direction.

Still, analysts aren't confident the Fed will know what to do after it completes its tightening cycle. While policymakers' forecasts suggest a rate cut in 2024, BofA doesn't think so: "our baseline forecast assumes the Fed will be like a deer in the headlights: unsure over whether to react to very weak growth or still high inflation."

Even with its gloomy outlook, BofA warned it's vulnerable to downside risk, noting potential external shocks from the Ukraine war, energy prices, and sanctions extending to Russian supporters like China. The main domestic risk to the forecast is if the Fed is committed to lowering inflation to its 2% target, because getting to there would require policy that's so tight that it would trigger a recession.

For his part, Fed Chair Jerome Powell reiterated the central bank's posture Friday, telling conference attendees that "my colleagues and I are acutely focused on returning inflation to our 2% objective."

If the Fed does induce a recession, there is one bright spot: "it is easier for the Fed to manage a sharp slowdown if Fed policy is the cause of the slowdown. For the same reasons we think that if there is a recession it will be mild."
___________

[Monash]

The US economy will grind to a halt in the second half of 2023 and the following year won't be much better, BofA says as it slashes its growth forecast ..... If the Fed does induce a recession, there is one bright spot: "it is easier for the Fed to manage a sharp slowdown if Fed policy is the cause of the slowdown. For the same reasons we think that if there is a recession it will be mild."

Really? The Feds interest rate hikes is the cause of the impending recession? The chip shortage, post COVID labor, raw material and logistic snarl ups play no role? China's ongoing lock down plays no role? The war, no role?

This last paragraph strikes me as being shall we say 'overly optimistic'. The Feds interest rate hikes are largely a response to, not the cause of any near future recession.

[DOR]

Much, much too slow raising the unemployment rate from the historic low …

*sigh*