Category: Politics

Choosing Investments While Government Spending Levels Grow

Posted on by phoffman@channelchek.com
Image: US Debt Clock in NYC

The US Budget Office Just Laid Out its Ten-Year Forecast – What Investors Should Know

The US National Debt Clock app might be useful for those that suffer from low blood pressure. I’m being facetious – the app and website provide a visual of the current estimated overall national debt. It breaks out what each citizen’s theoretical share is, and then divides it up in dozens f other categories. The clock is an estimate of real-time. For a future projection, the better place to turn is the just-released forecast from the Congressional Budget Office (CBO). The CBO’s website can be insightful and idea-provoking for investors as it includes a 10-year forecast for government spending, which is broken down by industry type.

Source: USdebtclock.org (February 17, 2023)

Direction of Overall US Debt

The US is on track to accumulate more than $19 trillion in additional debt over the next decade, according to a CBO document released on February 15.

This new expectation is $3 trillion more than previously forecast. Coming at a time when there is headbutting and chest pounding going on in Washington surrounding the debt ceiling (US Treasury borrowing cap), the significantly larger 10-year budget may additionally stress the governments ability to pay its bills. Phillip Swagel, a director at the CBO expressed his concern saying, “The warning is that the fiscal trajectory is unsustainable.”

The federal government is expected to collect $65 trillion in revenue over the next ten years. More than half is expected to come from individual income taxes, and another third comes from payroll taxes. Individually, we can’t change what may be higher taxes, or a weakened government financial situation, which, separate from the Federal Reserve, puts upward pressure on interest rate levels.

Source: CBO

Drilling down deeper into where the funding is expected to flow from, individual income taxes are planned to remain level through 2025, then ramp up at a pace quicker than payroll taxes and corporate taxes.

But the country will spend much more than what it collects. Rising interest payments, large federal stimulus bills, and the growing costs of Social Security and Medicare benefits for retiring baby boomers are some of the government’s largest spending items.

Source: CBO (Data excludes offsetting receipts)

Of the Federal agencies budgeted to spend the highest amount, health and human services top the list. Small percentage increases are a lot in actual dollar amounts when trillions are involved. Social Security is the agency consuming the second most amount, followed by the Treasury, which is experiencing growing interest expenses.

Source: CBO

Looking at a broader swath of areas that should benefit as a result of government budget expansion, we see in the graph above the top three areas already mentioned, followed by at least a trillion spent over ten years in defense, veterans affairs, agriculture, transportation, personnel, education, and homeland security.

For Investors to Think About

Short-term investors tend to ignore some approaching realities while overly focusing on others. Long-term, investors may find that the cost and expansion of public debt will eventually have the US responsible to pay more in interest over the next decade. By 2033, the net interest on public debt is expected to make up 14% of the federal government’s total spending.

There was another period in US history when net interest made up such a large slice of Federal spending, this was in the mid-to-late 1980s. Eventually, Congress did pay some attention to deficit reduction; it took years to taper the growth. The resurgence of the expanding debt trend in recent years has been explosive.

Interest rates on bonds could have built upward pressure as more debt would need to be issued to refinance at higher rates and pay for additional spending. A greater supply of debt without a growing supply of buyers is a recipe for higher bond yields. Are higher yields attractive? In bond markets, the value of a fixed bond goes down when rates rise. Floating rate bonds tend to approximate par throughout their life, but the Treasury and Wall Street have not been quick to issue these in the face of rising coupon rates.

Stock market investors may find value in investing in companies that receive 25% or more of their revenue from government contracts, particularly those agencies on the chart above that are budgeted to grow by billions or trillions. This could include smaller companies where the impact is greater. Within this category are aerospace contractors like Kratos (KTOS), communications companies like Comtech (CMTL), or transportation-related spending that could benefit dredging from companies like Great Lakes Dredge and Dock (GLDD).

The smaller companies mentioned may benefit from the massive budget growth. But they are not alone, Channelchek is a great source of data and discovery of many companies doing great things that are destined to become even greater. Be sure to sign-up for all the free resources available to investors by going here.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.cbo.gov/

https://www.cbo.gov/publication/58848

https://www.cbo.gov/data/budget-economic-data#11

https://www.cbo.gov/data/estimate-presidents-budget-proposals

https://www.usdebtclock.org/

Assessing Five Risks of the Rail Disaster in Ohio

Posted on by phoffman@channelchek.com
Source: EPA.gov

How Dangerous Was the Ohio Chemical Train Derailment? An Environmental Engineer Assesses the Long-Term Risks

State officials offered more details of the cleanup process and a timeline of the environmental disaster during a news conference on Feb. 14, 2023. Nearly a dozen cars carrying chemicals, including vinyl chloride, a carcinogen, derailed on the evening of Feb. 3, and fire from the site sent up acrid black smoke. Officials said they were testing over 400 nearby homes for contamination and tracking a plume of spilled chemicals that had killed 3,500 fish in streams and reached the Ohio River.

However, the slow release of information after the derailment has left many questions unanswered about the risks and longer-term impact. We discussed the chemical release with Andrew Whelton, an environmental engineer who investigates chemical risks during disasters.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of, Andrew J. Whelton, Professor of Civil, Environmental & Ecological Engineering, Director of the Healthy Plumbing Consortium and Center for Plumbing Safety, Purdue University.

Let’s start with what was in the train cars. What are the most concerning chemicals for human health and the environment long term, and what’s known so far about the impact?

The main concerns now are the contamination of homes, soil and water, primarily from volatile organic compounds and semivolatile organic compounds, known as VOCs and SVOCs.

The train had nearly a dozen cars with vinyl chloride and other materials, such as ethylhexyl acrylate and butyl acrylate. These chemicals have varying levels of toxicity and different fates in soil and groundwater. Officials have detected some of those chemicals in the nearby waterway and particulate matter in the air from the fire. But so far, the fate of many of the chemicals is not known. A variety of other materials were also released, but discussion about those chemicals has been limited.

State officials disclosed that a plume of contamination released into the nearby creek had made its way into the Ohio River. Other cities get their drinking water from the river, and were warned about the risk. The farther this plume moves downstream, the less concentrated the chemical will be in water, posing less of a risk.

Long term, the greatest risk is closest to the derailment location. And again, there’s limited information about what chemicals are present – or were created through chemical reactions during the fire.

It isn’t clear yet how much went into storm drains, was flushed down the streams or may have settled to the bottom of waterways.

There was also a lot of combusted particulate matter. The black smoke is a clear indication. It’s unclear how much was diluted in the air or fell to the ground.

How long can these chemicals linger in soil and water, and what’s their potential long-term risk to humans and wildlife?

The heavier the chemical, often the slower it degrades and the more likely it is to stick to soil. These compounds can remain for years if left unaddressed.

After the Kalamazoo River oil pipeline break in Michigan in 2010, the U.S. Environmental Protection Agency excavated a tributary where the oil settled. We’ve also seen from oil spills on the coasts of Alaska and Alabama that oil chemicals can find their way into soil if it isn’t remediated.

The long-term impact in Ohio will depend in part on how fast – and thoroughly – cleanup occurs.

If the heavily contaminated soils and liquids are excavated and removed, the long-term impacts can be reduced. But the longer removal takes, the farther the contamination can spread. It’s in everyone’s best interest to clean this up as soon as possible and before the region gets rain.

Air-stripping devices, like this one used after the derailment, can help separate chemicals from water. U.S. EPA

Booms in a nearby stream have been deployed to capture chemicals. Air-stripping devices have been deployed to remove chemicals from the waterways. Air stripping causes the light chemicals to leave the water and enter air. This is a common treatment technique and was used after an 2015 oil spill in the Yellowstone River near Glendive, Montana.

At the derailment site in Ohio, workers are already removing contaminated soil as deep as 7 feet (about 2 meters) near where the rail cars burned.

Some of the train cars were intentionally drained and the chemicals set on fire to eliminate them. That fire had thick black smoke. What does that tell you about the chemicals and longer-term risks?

Incineration is one way we dispose of hazardous chemicals, but incomplete chemical destruction creates a host of byproducts. Chemicals can be destroyed when heated to extremely high temperatures so they burn thoroughly.

The black smoke plume you saw on TV was incomplete combustion. A number of other chemicals were created. Officials don’t necessarily know what these were or where they went until they test for them.

We know ash can post health risks, which is why we test inside homes after wildfires where structures burn. This is one reason the state’s health director told residents with private wells near and downwind of the derailment to use bottled water until they can have their wells tested.

The EPA has been screening homes near the derailment for indoor air-quality concerns. How do these chemicals get into homes and what happens to them in enclosed spaces?

Homes are not airtight, and sometimes dust and other materials get in. It might be through an open door or a window sill. Sometimes people track it in.

So far, the U.S. EPA has reported no evidence of high levels of vinyl chloride or hydrogen chloride in the 400 or so homes tested. But full transparency has been lacking. Just because an agency is doing testing doesn’t mean it is testing for what it needs to test for. Media reports talk about four or five chemicals, but the manifest from Norfolk Southern also listed a bunch of other materials in tanks that burned. All those materials create potentially hundreds to thousands of VOCs and SVOCs.

Are Government Officials Testing for Everything they Should?

People in the community have reported headaches, which can be caused by VOCs and other chemicals. They’re understandably concerned.

Ohio and federal officials need to better communicate what they’re doing, why, and what they plan to do. It’s unclear what questions they are trying to answer. For a disaster this serious, little testing information has been shared.

In the absence of this transparency, misinformation is filling that void. From a homeowner’s perspective, it’s hard to understand the true risk if the data is not shared.

FDA Says Congress Needs to Act on Cannabidiol (CBD) Before it Can

Posted on by phoffman@channelchek.com
Image Credit: Elsa Olofsson (Flickr)

Cannabidiol (CBD) not Covered Under any Existing FDA Regulatory Framework – Ball Now In the Hands of Congress

The U.S. Food & Drug Administration (FDA) called on Congress to set a new regulatory pathway for cannabidiol, or CBD, the non-psychoactive ingredient in cannabis plants. The FDA said it is willing to work with Congress to create one. The regulatory body said the same is true for CBD in animal products. CBD has been in a form of regulatory limbo since the passage of the 2018 Farm Bill that legalized hemp, the base ingredient to make CBD. The extract is now found in many wellness products and is widely used in all 50 states. The FDA says it is not a food or a supplement, it may now be up to Congress to define its niche.  

According to an FDA press release, the use of CBD raises safety concerns, in particular regarding its long-term use. It cited the potential harm to the liver, interactions with some medications and possible harm to the male reproductive system.

The FDA’s Reasoning

A high-level FDA working group that was to decide which FDA framework CBD products fall under, and related regulatory pathways, announced that it doesn’t easily fit within a regulatory framework that exists at the agency. On January 26 the FDA announced, “that after careful review, the FDA has concluded that a new regulatory pathway for CBD is needed that balances individuals’ desire for access to CBD products with the regulatory oversight needed to manage risks.” They said the FDA is prepared to work with Congress to create a legal, workable framework.

At the same time the FDA also denied three citizen petitions that had asked the agency to conduct rulemaking to allow the marketing of CBD products as dietary supplements. 

The FDA listed safety concerns surrounding CBD use. “The use of CBD raises various safety concerns, especially with long-term use. Studies have shown the potential for harm to the liver, interactions with certain medications and possible harm to the male reproductive system.” They were also concerned about children and CBD exposure, and women who are pregnant.

The reason for a new regulatory pathway, according to the FDA, is that it would “benefit consumers by providing safeguards and oversight to manage and minimize risks related to CBD products.” The FDA said these may include clear labels, prevention of contaminants, CBD content limits, and measures, such as minimum purchase age. “In addition, a new pathway could provide access and oversight for certain CBD-containing products for animals,” the FDA said.

According to the FDA, existing foods and dietary supplement authorities provide only limited tools for managing risks associated with CBD products. Under the law, any substance, including CBD, must meet specific safety standards to be lawfully marketed as a dietary supplement or food additive.  The FDA said “we have not found adequate evidence to determine how much CBD can be consumed, and for how long, before causing harm. Therefore, we do not intend to pursue rulemaking allowing the use of CBD in dietary supplements or conventional foods.”

The FDA said CBD also poses risks to animals, and people could be unknowingly exposed to CBD through meat, milk and eggs from animals fed CBD. Therefore, it is not apparent how CBD products could meet the safety standard for substances in animal food.  “A new regulatory pathway could provide access and oversight for certain CBD-containing products for animals,” according to the release.

The FDA said it “will remain diligent in monitoring the marketplace, identifying products that pose risks and acting within our authorities. The FDA looks forward to working with Congress to develop a cross-agency strategy for the regulation of these products to protect the public’s health and safety.”

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.marketwatch.com/story/fda-says-it-will-not-regulate-cbd-and-calls-on-congress-to-act-11674759895

https://www.fda.gov/news-events/press-announcements/fda-concludes-existing-regulatory-frameworks-foods-and-supplements-are-not-appropriate-cannabidiol

The Current Debt Ceiling Austerity Plan

Posted on by phoffman@channelchek.com
World Bank Photo Collection (Flickr)

Extraordinary Measures as Outlined by US Treasurer Janet Yellen

There’s no doubt, the US Secretary of the Treasury, Janet Yellen, has been working overtime to provide an austerity plan as the US debt ceiling has just been reached. In the absence of the legal ability to sell debt in excess of the current outstanding, going to the bond markets and issuing Treasury Bills/Notes/Bonds is off-limits to the US government. So what’s a Treasury Secretary to do? The government has bills and other liabilities that are coming due, and today’s higher interest rates create a larger discount and nets less for the Treasury when rolling over some securities. This can be very problematic if the US stops paying bills on time or if there is a risk of default on debt; the US dollar can tumble, interest rates can skyrocket, and faith in our economic engine can unravel. You can imagine what this has the potential to do to equity markets.

In a letter, Yellen wrote to Congress dated January 19, she outlines the Treasury Department’s contingency plan, while Congress is expected to develop its own more permanent financial solution.

In the letter, she says the Treasury will cease adding to the Civil Service Retirement and Disability Fund (CSRDF) for those values not currently required to pay beneficiaries. Under ongoing business practices the CSRDF invests in special-issue Treasury securities specifically for its use. These securities count against the debt limit.

Similarly, the Postal Accountability and Enhancement Act of 2006 provides that investments in the Postal Service Retiree Health Benefits Fund (PSRHBF) are made in the same manner as investments for the CSRDF. The treasury will suspend additional investments of amounts credited to the PSRHBF.

It is expected that the CSRDF and the  PSRHBF will be made whole as part of the eventual solution.

She ends the letter by urging Congress to act swiftly as her measures will not provide a solution beyond late Spring.

Letter Dated January 19, 2023

Take Away

When the US bumps up against its debt limit it creates many problems. From a macro approach, if they raise the debt limit automatically may only serve to kick the spending can down the road. To have no upper limit long term can come back to hurt the US dollar and those that use it for purchases. Creating a strict upper limit serves to provide fiscal restraint but may stand in the way of economic stimulation. A government with its spending hands tied may find it problematic in times of war or other crises.

As the Secretary of the Treasury postpones payments or debt issuance, this has in the past not saved money, it has only delayed acquiring it through borrowing.

Depending on how intense the game of chicken becomes in the halls of Congress, the debt, equity, and Forex markets could become tumultuous.

Paul Hoffman

Managing Editor, Channelchek

Understanding the Debt Ceiling Enough to Survive this Week

Posted on by phoffman@channelchek.com
Image Credit: Jeremy (Flickr)

Why America Has a Debt Ceiling: Five Questions Answered

The Treasury Department on Jan. 13, 2023, said it expects the U.S. to hit the current debt limit of $31.38 trillion on Jan. 19. After that, the government would take “extraordinary measures” – which could extend the deadline until May or June – to avoid default. A default, even a risk of default would drive bond prices (interest rates) much higher than they currently are.

Is the debt ceiling still a good idea?

Economist Steve Pressman is a professor at The New School in Manhattan, below he explains the debt ceiling is and why we have it – and then shares his opinion on its usefulness.

What is the Debt Ceiling?

Like the rest of us, governments must borrow when they spend more money than they receive. They do so by issuing bonds, which are IOUs that promise to repay the money in the future and make regular interest payments. Government debt is the total sum of all this borrowed money.

The debt ceiling, which Congress established a century ago, is the maximum amount the government can borrow. It’s a limit on the national debt.

What’s the National Debt?

On Jan. 10, 2023, U.S. government debt was $30.92 trillion, about 22% more than the value of all goods and services that will be produced in the U.S. economy this year.

Around one-quarter of this money the government actually owes itself. The Social Security Administration has accumulated a surplus and invests the extra money, currently $2.8 trillion, in government bonds. And the Federal Reserve holds $5.5 trillion in U.S. Treasurys.

The rest is public debt. As of October 2022, foreign countries, companies and individuals owned $7.2 trillion of U.S. government debt. Japan and China are the largest holders, with around $1 trillion each. The rest is owed to U.S. citizens and businesses, as well as state and local governments.

Source: FRED/Datawrapper

Why is There a Borrowing Limit

Before 1917, Congress would authorize the government to borrow a fixed sum of money for a specified term. When loans were repaid, the government could not borrow again without asking Congress for approval.

The Second Liberty Bond Act of 1917, which created the debt ceiling, changed this. It allowed a continual rollover of debt without congressional approval.

Congress enacted this measure to let then-President Woodrow Wilson spend the money he deemed necessary to fight World War I without waiting for often-absent lawmakers to act. Congress, however, did not want to write the president a blank check, so it limited borrowing to $11.5 billion and required legislation for any increase.

The debt ceiling has been increased dozens of times since then and suspended on several occasions. The last change occurred in December 2021, when it was raised to $31.38 trillion.

Source: Congressional Research Service/Datawrapper

What Happens When the US Hits the Ceiling?

Currently, the U.S. Treasury has under $400 billion cash on hand, and the U.S. government expects to borrow around $100 billion each month this year.

When the U.S. nears its debt limit, the Treasury secretary – currently Janet Yellen – can use “extraordinary measures” to conserve cash, which she indicated would begin on Jan. 19. One such measure is temporarily not funding retirement programs for government employees. The expectation will be that once the ceiling is raised, the government would make up the difference. But this will buy only a small amount of time.

If the debt ceiling isn’t raised before the Treasury Department exhausts its options, decisions will have to be made about who gets paid with daily tax revenues. Further borrowing will not be possible. Government employees or contractors may not be paid in full. Loans to small businesses or college students may stop.

When the government can’t pay all its bills, it is technically in default. Policymakers, economists and Wall Street are concerned about a calamitous financial and economic crisis. Many fear that a government default would have dire economic consequences – soaring interest rates, financial markets in panic and maybe an economic depression.

Under normal circumstances, once markets start panicking, Congress and the president usually act. This is what happened in 2013 when Republicans sought to use the debt ceiling to defund the Affordable Care Act.

But we no longer live in normal political times. The major political parties are more polarized than ever, and the concessions McCarthy gave Republicans may make it impossible to get a deal on the debt ceiling.

Is There a Better Way?

One possible solution is a legal loophole allowing the U.S. Treasury to mint platinum coins of any denomination. If the U.S. Treasury were to mint a $1 trillion coin and deposit it into its bank account at the Federal Reserve, the money could be used to pay for government programs or repay government bondholders. This could even be justified by appealing to Section 4 of the 14th Amendment to the U.S. Constitution: “The validity of the public debt of the United States … shall not be questioned.”

Few countries even have a debt ceiling. Other governments operate effectively without it. America could too. A debt ceiling is dysfunctional and periodically puts the U.S. economy in jeopardy because of political grandstanding.

The best solution would be to scrap the debt ceiling altogether. Congress already approved the spending and the tax laws that require more debt. Why should it also have to approve the additional borrowing?

It should be remembered that the original debt ceiling was put in place because Congress couldn’t meet quickly and approve needed spending to fight a war. In 1917 cross-country travel was by rail, requiring days to get to Washington. This made some sense then. Today, when Congress can vote online from home, this is no longer the case.

Powell Just Insisted, “We are not, and will not be, a climate policymaker”

Posted on by phoffman@channelchek.com
Source: Riksbank Sweden (Bloomberg)

Fed Chair Jerome Powell made three strong points during the panel on “Central Bank Independence and the Mandate—Evolving Views,” which just took place in Stockholm. These points include the role of elected representatives and unelected agency officials, the transparency of a central bank’s intents and actions while remaining independent of political agendas, and not becoming sidetracked from the established mandates.

Continued Independence and Transparency

Powell reminded the international audience, which included central bankers, that the purpose of monetary policy independence is the benefits allowed the policymakers. This independence can insulate policy decisions from short-term political considerations. “Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time. But restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy,” said Powell. The head of the US central bank then explained the absence of politics over central bank decisions provides for less conflicted decision-making in light of short-lived political considerations.

While speaking from a US point of view, Powell said that in a “well-functioning democracy, important public policy decisions should be made, in almost all cases, by the elected branches of government.”  He explained that agencies trusted to act independently, such as the Federal Reserve, should have a narrow and explicitly defined mission that protects the agency from fleeting political considerations.

Within this kind of independence in a representative democracy, including transparency that allows for oversight, the Fed and other agencies find legitimacy. Powell said about of the current makeup of the Fed, “We are tightly focused on achieving our statutory mandate and on providing useful and appropriate transparency.”

Focus on Mandates

Climate change is not part of the US central bank’s statutory goals and authority. On the subject of climate, Powell added, “we resist the temptation to broaden our scope to address other important social issues of the day. Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence.”

In the area of bank regulation, Powell told the audience that independence helps ensure that the public can be confident that the overseer’s supervisory decisions are not influenced by political considerations. In response to his own hypothetical question about whether it is wise to incorporate into bank supervision the perceived risks associated with climate change, consistent with existing mandates, Powell sounded strongly opposed. “Addressing climate change seems likely to require policies that would have significant distributional and other effects on companies, industries, regions, and nations. Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public’s will as expressed through elections.”

He did, however, share his view that any climate-related financial risks that pose material risks to the banking system are the Fed’s responsibility and under their supervision. “But without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals. We are not, and will not be, a “climate policymaker.”

Take Away

On January 10th, the head of the US central bank participated in an international symposium to mark the end of Stefan Ingves’ time as governor of Sweden’s central bank. Senior central bank officials and prominent academics participate in four panels that address central bank independence from various angles – climate, payments, mandates, and global policy coordination. Fed Chair Powell stood determined and resolute that the Fed’s mandate is narrow, well-defined, and should not be clouded with short-term political goals.

There has been pressure on the Fed to adopt additional mandates that include social reforms and climate concerns. His talk before a world audience may be the first time Jerome Powell has publicly addressed this pressure. The US House of Representatives has just shifted its balance to a more conservative power base; this may have had an empowering impact on Powell’s open remarks.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.federalreserve.gov/newsevents/speech/powell20230110a.htm

https://www.riksbank.se/globalassets/media/konferenser/2022/riksbank-organises-international-symposium-on-central-bank-independence.pdf

https://www.reuters.com/markets/us/powell-fed-needs-independence-fight-inflation-should-avoid-climate-policy-2023-01-10/

The Pros, Cons, and Many Definitions of ‘Gig’ Work

Posted on by phoffman@channelchek.com
Image Credit: Stock Catalog

What’s a ‘Gig’ Job? How it’s Legally Defined Affects Workers’ Rights and Protections

The “gig” economy has captured the attention of technology futurists, journalists, academics and policymakers.

“Future of work” discussions tend toward two extremes: breathless excitement at the brave new world that provides greater flexibility, mobility and entrepreneurial energy, or dire accounts of its immiserating impacts on the workers who labor beneath the gig economy’s yoke.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of David Weil, Visiting Senior Faculty Fellow, Ash Center for Democracy Harvard Kennedy School / Professor, Heller School for Social Policy and Management, Brandeis University.

These widely diverging views may be partly due to the many definitions of what constitutes “gig work” and the resulting difficulties in measuring its prevalence. As an academic who has studied workplace laws for decades and ran the federal agency that enforces workplace protections during the Obama administration, I know the way we define, measure and treat gig workers under the law has significant consequences for workers. That’s particularly true for those lacking leverage in the labor market.

While there are benefits for workers for this emerging model of employment, there are pitfalls as well. Confusion over the meaning and size of the gig workforce – at times the intentional work of companies with a vested economic interest – can obscure the problems gig status can have on workers’ earnings, workplace conditions and opportunities.

Defining Gig Work

Many trace the phrase “gig economy” to a 2009 essay in which editor and author Tina Brown proclaimed: “No one I know has a job anymore. They’ve got Gigs.”

Although Brown focused on professional and semiprofessional workers chasing short-term work, the term soon applied to a variety of jobs in low-paid occupations and industries. Several years later, the rapid ascent of Uber, Lyft and DoorDash led the term gig to be associated with platform and digital business models. More recently, the pandemic linked gig work to a broader set of jobs associated with high turnover, limited career prospects, volatile wages and exposure to COVID-19 uncertainties.

The imprecision of gig, therefore, connotes different things: Some uses focus on the temporary or “contingent” nature of the work, such as jobs that may be terminated at any time, usually at the discretion of the employer. Other definitions focus on the unpredictability of work in terms of earnings, scheduling, hours provided in a workweek or location. Still other depictions focus on the business structure through which work is engaged – a staffing agency, digital platform, contractor or other intermediary. Further complicating the definition of gig is whether the focus is on a worker’s primary source of income or on side work meant to supplement income.

Measuring Gig Work

These differing definitions of gig work have led to widely varying estimates of its prevalence.

A conservative estimate from the Bureau of Labor Statistics household-based survey of “alternative work arrangements” suggests that gig workers “in non-standard categories” account for about 10% of employment. Alternatively, other researchers estimate the prevalence as three times as common, or 32.5%, using a Federal Reserve survey that broadly defines gig work to include any work that is temporary and variable in nature as either a primary or secondary source of earnings. And when freelancing platform Upworks and consulting firm McKinsey & Co. use a broader concept of “independent work,” they report rates as high as 36% of employed respondents.

No consensus definition or measurement approach has emerged, despite many attempts, including a 2020 panel report by the National Academies of Sciences, Engineering, and Medicine. Various estimates do suggest several common themes, however: Gig work is sizable, present in both traditional and digital workplaces, and draws upon workers across the age, education, demographic and skill spectrum.

Why it Matters

As the above indicates, gig workers can range from high-paid professionals working on a project-to-project basis to low-wage workers whose earnings are highly variable, who work in nonprofessional or semiprofessional occupations and who accept – by choice or necessity – volatile hours and a short-term time commitment from the organization paying for that work.

Regardless of their professional status, many workers operating in gig arrangements are classified as independent contractors rather than employees. As independent contractors, workers lose rights to a minimum wage, overtime and a safe and healthy work environment as well as protections against discrimination and harassment. Independent contractors also lose access to unemployment insurance, workers’ compensation and paid sick leave now required in many states.

Federal and state laws differ in the factors they draw on to make that call. A key concept underlying that determination is how “economically dependent” the worker is on the employer or contracting party. Greater economic independence – for example, the ability to determine price of service, how and where tasks are done and opportunities for expanding or contracting that work based on the individual’s own skills, abilities and enterprise – suggest a role as an independent contractor.

In contrast, if the hiring party basically calls the shots – for example, controlling what the individual does, how they do their work and when they do it, what they are permitted to do and not do, and what performance is deemed acceptable – this suggests employee status. That’s because workplace laws are generally geared toward employees and seek to protect workers who have unequal bargaining leverage in the labor market, a concept based on long-standing Supreme Court precedent.

Making Work More Precarious

Over the past few decades, a growing number of low-wage workers find themselves in gig work situations – everything from platform drivers and delivery personnel to construction laborers, distribution workers, short-haul truck drivers and home health aides. Taken together, the grouping could easily exceed 20 million workers.

Many companies have incentives to classify these workers as independent contractors in order to reduce costs and risks, not because of a truly transformed nature of work where those so classified are real entrepreneurs or self-standing businesses.

Since gig work tends to be volatile and contingent, losing employment protections amplifies the precariousness of work. A business using misclassified workers can gain cost advantages over competitors who treat their workers as employees as required by the law. This competitive dynamic can spread misclassification to new companies, industries and occupations – a problem we addressed directly, for example, in construction cases when I led the Wage and Hour Division and more recently in several health care cases.

The future of work is not governed by immutable technological forces but involves volitional private and public choices. Navigating to that future requires weighing the benefits gig work can provide some workers with greater economic independence against the continuing need to protect and bestow rights for the many workers who will continue to play on a very uneven playing field in the labor market.

Vanguard Drops Net Zero Pledge – Will Others Follow?

Posted on by phoffman@channelchek.com
Image Credit: Jim Surkamp (Flickr)

Will Asset Managers Start Stepping Back from ESG Pledges?

The Net Zero Asset Managers (NAZM) initiative is an international group of 291 asset managers with 66 trillion in combined AUM. They all signed that they are committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner. This week the number of asset managers was reduced by one as Vanguard, with $8.1 trillion AUM left the agreement. Vanguard said it made the decision in an effort to better speak for itself on its views and to be certain to balance client’s needs and returns along with climate impact in its funds’ investments.

“Industry initiatives like NZAM can advance constructive dialogue, but they can also create confusion about the views of individual firms. We want to provide greater clarity that Vanguard speaks freely on important matters such as climate risk. After a considerable period of review, we have decided to withdraw from the NZAM in order to provide clarity on what our investors want about the role of index funds and how we think about material risks, including climate-related risk,” said Alyssa Thornton, a spokesperson for Vanguard.

Firms that have signed the NAZM agreement are coming under a lot of pressure from states, pension funds, and others to defend how this is measurably best for the assets left in the care of the manager.

Vanguard, the world’s top mutual fund manager, official statement read, “We have decided to withdraw from NZAM so that we can provide the clarity our investors desire about the role of index funds and about how we think about material risks, including climate-related risks—and to make clear that Vanguard speaks independently on matters of importance to our investors.” Again, the themes are to not be beholden to outside control over its decisions and the company developing its own measurements of material risks from world energy-related moves.

Vanguard, said the change “will not affect our commitment to helping our investors navigate the risks that climate change can pose to their long-term returns.”

Is This Going to Be a Trend?

There is a movement growing with large clients asking investment firms to explain how their energy-investment-related decision is in line with their fiduciary role. Roughly a week ago, Consumers’ Research and 13 state attorneys general asked the Federal Energy Regulatory Commission to review Vanguard’s request to own energy company stocks. “Americans are paying sky-high electricity rates and companies like Vanguard are making the problem worse,” Will Hild, executive director of Consumers’ Research, wrote in an op-ed for the Wall Street Journal.

Another issue Hild has with Vanguard is its meddling with strategic decisions and corporate governance at energy firms. Hild wrote, “With more than $7 trillion in assets under management, the Pennsylvania-based investment firm has publicly committed to pressuring utilities to lower their emissions.” Hild then accused, “Vanguard appears to be not only putting America’s critical infrastructure at risk but violating its agreement only to control utility company shares passively. To protect U.S. consumers and safeguard national security, FERC should investigate the company’s conduct.”

Vanguard isn’t the only firm of the 291 that are being questioned by their largest customers.

Today North Carolina State Treasurer Dale Folwell sent a letter to BlackRock’s board of directors calling for Fink to step aside because the CEO’s “pursuit of a political agenda has gotten in the way of BlackRock’s same fiduciary duty” to its investors. “A focus on ESG is not a focus on returns and could potentially force us to violate our fiduciary duty,” Folwell wrote. North Carolina has approximately $14 billion with Blackrock, and $111 billion under management.

But the fiduciary knife can be cut both ways. Those that are more concerned with any impact that continued fossil-fuel use would have on climate and economies stand behind the argument that it is not in anyone’s best interest not to follow a net zero 2050 goal. “It is unfortunate that political pressure is impacting this crucial economic imperative and attempting to block companies from effectively managing risks — a crucial part of their fiduciary duty,” said Kirsten Snow Spalding, a vice president at sustainability nonprofit Ceres and a NZAM founding partner.

Meanwhile in order to be able to best decipher how to view concepts like net zero investing, the Texas Senate Committee on State Affairs will hold a hearing on December 15 to discuss the impacts of environmental social governance (ESG) policies on state pensions. The panel has asked Vanguard, BlackRock, StateStreet and ISS to appear and answer questions about their ESG practices. Texas previously asked the four firms to turn over documents in August. The Lone Star state had subpoenaed BlackRock to provide additional documents in person after the firm failed to comply with certain aspects of the initial request.

Take Away

All trends, whether investment related or not go through a vetting period, followed by a continued push and pull to seek balance. Firms that have signed on to NAZM can do their own analysis and develop their own plans that best serve their customers. The NZAM may only get in the way. Yet, they don’t have to back-off of caring about and keeping in mind environmental principles, they can just better tailor them to those they are contracted to invest for. An outside global organization is less likely to understand how to be a fiduciary for a Vanguard fund that may be used in the Louisiana state pension system. And with more investment firms acting independently, more and better opportunities will grow from the competition.

ESG, which is in a related family, will also develop and evolve over time. Down the road, investors, analysts, and organizations providing ESG scoring can get revised measures on impact and adjust scoring based on effectiveness.

Paul Hoffman

Managing Editor, Channelchek

Sources

NetZeroAssetMgars (NZAM)

VanguardLeavesNZAM

VanguardPullsOut

VanguardAntiWoke

Four Reasons Oil Prices Could Gain Upward Momentum

Posted on by phoffman@channelchek.com
Image Credit: Phillip Pessar (Image Credit)

The Odds May Again be Stacked on the Side of a Prolonged Oil Price Rally

Oil markets and the related energy industry have been cheered this year as the one clear winner, yet within the past few days, crude has brushed up against its low recorded at the start of 2022. The commodity has since bounced, and there are at least four reasons to believe that it will continue to rally.

On Wednesday, November 30, news that China will take steps to ease lockdown restrictions, a drop in U.S. oil supplies, a weaker U.S. dollar, and a signal of OPEC+’s intentions helped push crude prices up by more than 3.5%.

China

Major Chinese manufacturing cities are lifting Covid lockdowns, including the financial hub Shanghai and Zhengzhou (the location of the world’s largest iPhone factory). Renewed expectations that China’s economy may strengthen after being held back by restrictions on movement to contain Covid-19 helped lift prices. After lockdown protests last weekend, Chinese authorities reported fewer cases of the virus on Tuesday. Guangzhou, a city in the south of the country, relaxed some rules on Wednesday. Increased economic activity in China could come at a pace that dramatically increases the demand for oil and related products.

US Supply

U.S. petroleum stockpiles declined by 7.9 million barrels last week, according to reports from the American Petroleum Institute. Official figures from the U.S. Energy Information Administration (EIA) shown below indicate a declining trend that is unsustainable and will soon need to be turned around.

Source: EIA

The decline in the days supply is effectively borrowing against future stockpiles as there will need to be a time when this reverses, and more output-increasing stockpiles will add to demand on production.

U.S. Dollar

A weakening dollar has also helped enhance demand globally for crude by making contracts priced in the U.S. currency more affordable for overseas buyers. The dollar index, a measure of strength against a basket of six other major trading currencies, slipped 0.3% on Wednesday. It’s down about 5% in the past month.

While the effect of this FX change may not be felt by U.S. buyers, the added demand by requiring less local currency to translate into dollars effectively creates demand by virtue of its lower cost.

Source: Koyfin

OPEC+

The Saudis had been considering increasing their output to help soften price pressures and increase availability. This would occur when the cartel meets this weekend to decide output levels. It is reported that the meeting will not be in-person. When OPEC+ agrees to meet virtually, it tends to indicate they are not discussing any major changes to output targets.

Expectations of an increase in output had been built into the price; the new expectations are putting upward pressure on crude.

 Take Away

A number of factors have caused crude to trade off since late Spring. A number of forces are now stacked up that could push crude levels back upward. These include fewer lockdowns in China, a declining U.S. supply, the added global demand that will be attracted by a weakening dollar, and the new realization that members of OPEC+ are not likely to increase output limits. Additionally, there has been a looming concern as to how much supply will be taken offline with price limits that are to be placed on purchases of Russian oil early next week.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.marketwatch.com/articles/oil-demand-dollar-china-crude-51669810965?mod=markets

https://oilprice.com/Energy/Crude-Oil/Source-Dont-Expect-Any-Oil-Supply-Surprises-From-The-Sunday-OPEC-Meeting.html

https://www.eia.gov/petroleum/weekly/crude.php

Scoring Geopolitical Points at World Cup 2022

Posted on by phoffman@channelchek.com
Image Credit: Diego Sideburns (Flickr)

World Cup 2022: How Sponsorship has Become Less About Selling Drinks and More About Geopolitics

The Fifa men’s World Cup 2022 in Qatar is arguably the most political in history.

Even during the seemingly innocuous performance of South Korean pop star Jung Kook at the tournament’s opening ceremony, geopolitics were center stage. For Kook, 25, is not just a good-looking young man with a global fan base and a multi-million dollar fortune. In addition, he has a lucrative endorsement deal with the South Korean car maker Hyundai-Kia, which also happens to be a major Fifa sponsor.

This kind of relationship is neither an accident nor a simple business arrangement. For years, the South Korean government has been pursuing a strategy aimed at building and projecting “soft power”, developing its engagement with target audiences around the world. This has happened not just through football, music and cars, but also through Oscar winning films like Parasite and the massively popular TV series Squid Games.

And it’s not just South Korea taking advantage of the audiences that Fifa can provide. For while sellers of soft drinks and burgers are still part of the sponsorship roster, Fifa’s key partners are increasingly big corporations from countries keen to benefit from the global reach of football.

State-owned Qatar Airways for example, is busy selling plane tickets as Fifa’s official airline partner, but also plays a pivotal role in attempts by the Qatari government to establish Hamad International Airport as a major hub of global travel.

The award winning airline is an effective instrument of soft power, transmitting signals to global audiences about what Qatar is and what it aspires to be. In turn, the airline, and the very act of hosting the 2022 World Cup, are both illustrations of a nation intent on telling the world a particular story about itself – that it is a legitimate, trustworthy and important member of the international community.

The same applies to China, even though sporting and industrial progress have stalled somewhat since the pandemic. Its roster of four key World Cup sponsors featuring electronics (Hisense), mobile phones (Vivo), dairy products (Mengiu) and everything from property to media (Wanda) remains significant for a country hopeful of one day staging the tournament itself and a government keen to spread China’s influence around the world.

Rebels With a Cause

Alongside the World Cup’s main sponsors, a tradition has emerged of business competitors during tournament engaging in “ambush” marketing. This involves brands using the mega-event as a marketing tool without the considerable expense of an official link (Fifa is reportedly charging around US$100 million (£82 million) for a four-year sponsorship deal).

One notably successful ambush was perpetrated by Bavaria Beer’s provocative campaigns at the 2006 World Cup in Germany and again in 2010 in South Africa. These stunts involved equipping spectators with branded clothing, which was smuggled into stadiums. This gained huge global attention which was no doubt frustrating for the tournaments’ “official” beer, Budweiser.

Brightly colored ambush in 2010. EPA/STR

Yet even ambush marketing now appears to have become geopoliticised. For instance, during this World Cup, the authorities in nearby Dubai have been trying to draw attention away from Qatar with a tourism campaign featuring international football stars. The rival emirate will also be staging its own football tournament at the same time as the World Cup, featuring the likes of Liverpool, AC Milan and Arsenal.

And while in 2010, Bavaria Beer used women wearing orange dresses in its ambush, the UK-based brewer and pub chain BrewDog is trying to get in on this year’s action with its strident anti-World Cup marketing campaign.

Through a series of provocative billboards (in the UK), BrewDog is using references to autocracy, human rights abuses and corruption, all targeted at beer drinkers perturbed about Qatar’s staging of football’s biggest global event. While the bottom-line remains the same for BrewDog – to make a profit by selling beer – it is nevertheless contributing to the transformation of advertising and sponsorship from simple marketing to geopolitical posturing.

In a similar way, apparel brand Hummel has decided to hide its name and logos and the Danish football association’s badge from its kit. This is in protest against the treatment of migrant workers in Qatar and in support of LGBTQ+ communities.

In the company’s mission statement, Hummel emphasises its commitment to “Danishness” – and indeed, Denmark has been highly vocal in its condemnation of Qatar. Whenever the national team takes to the field, it will be in shirts that directly challenge the World Cup hosts.

So Qatar’s expensive ambitions in staging this tournament have come up against criticism and protest from countries and corporations alike. In 2022 it seems that football sponsorship is no longer just for kicks, or even customers. Everywhere you look, there are geopolitical points to be scored.

This article was republished with permission from The Conversation, a news site dedicated to sharing ideas from academic experts. It represents the research-based findings and thoughts of Simon Chadwick, Professor of Sport and Geopolitical Economy, SKEMA Business School.

When Will Monetary Policy Finally Score?

Posted on by phoffman@channelchek.com
Image Credit: Pixabay (Pexels)

Why the Fed Needs to Gain Trust, Gain Momentum, and Gain More Yards

Monetary policy and its implementation is as much sport as science. Economics is actually a social science, so it relies on human behavior to mimic past behaviors as its prediction guide. But as in sports, victory is difficult if there is distrust in the coach that’s calling the shots (in this case Powell), or if there are people on your side that have reason to work against you, (an example would be Yellen). Consistency in blocking and tackling (doing the right thing) and not giving up, over time, wins games. Knowing what to expect from the opposing team (consumers) wins a healthy economy.

One repeated trait in monetary policy is that there is a lag between implementation (easing or tightening) and a change in economic conditions. It isn’t a short lag, and the impact varies. Since it could take more than a year for a policy change to begin to impact the economy, the Fed usually moves at a slow and measured pace in order to not overdo it.

The slow pace allows policymakers to observe the impact of their moves and change tactics (positions on the playing field) mid-game.  

Federal-Funds Rate During Tightening Cycles

Note: From December 2008, midpoint of target range. December 2015 hike excluded from 2016-18 cycle

Source: Federal Reserve

Over the past nine months, we have been in a tightening cycle. During this period, the Fed has raised rates by 3.75%. On average (since 1975), when the Fed has tightened rates, they are notched up by 5.00% over 20 months.

The Fed’s current pace is faster than average. This is because inflation took them by surprise, and rose rapidly. Putting up a strong defense against inflation that has been rampant is necessary to not be shut out and allow the Fed to gain control over the outcome.

Because one has to be able to reflect back more than 40 years to have experienced the Fed raising rates this fast. Many have lost confidence in its ability, and are in their own way working against a winning outcome.

Pace of Fed Hiking Cycles

Note: From December 2008, the midpoint of target range

Source: Federal Reserve

The stock and bond markets move in group anticipation of expected policy moves by the Fed. This has been more pronounced in recent years as the Fed has basically shared its expectations after each meeting, setting up for the next. Higher rates make bonds and bank deposits more attractive. Higher rates also weaken the economy and corporate profits, and that induces investors to move away from stocks and even real estate.

Bonds now offer the highest yields since 2007. The stock market may have anticipated what was to come as it peaked in early January of this year, more than two months before the Fed began hiking in March.

Fed Hikes and S&P 500 Bear Markets

Sources: Federal Reserve; Dow Jones Market Data

Sources: Federal Reserve; Dow Jones Market Data

Employment

The Fed is concerned with a wage-price spiral feeding on itself. It likely won’t be  satisfied that its tightening has been sufficient until it can be confident that it has avoided a wage-price storm on the economy.

Ideally, this would happen without unemployment rising. Soft landings took place in 1983-84 and 1994-95. But when inflation starts out too high, as it is now, unemployment usually rises notably, and a recession occurs.

Historically, this doesn’t happen until several years after the first increase. This time it is hoped it will be different, since the Fed is playing more aggressively.

Periods of Fed Hiking and Rising Unemployment

Note: The unemployment rate rose to 3.7% in October, up from the pandemic low of 3.5% a month earlier.
Sources: Federal Reserve; Labor Department

Inflation

Historically, inflation has only fallen to acceptable levels after unemployment has increased, and long after the first rate increase – the exact timing has varied. If the fall in core inflation (which excludes the volatile food and energy components) between September and October continues, and September proves to be the peak, the time between the first Fed increase and the high point of inflation will be one of the shortest of any Fed hiking cycle.

Often, the break in inflation has been accompanied by a recession. The economy receded in each of the first two quarters and then grew in the third. The changes in the inflation component in Gross Domestic Product may have borrowed from one quarter and have been additive to the next. The fourth quarter reading should help level the growth averages out to see if we were indeed in a shallow recession.

Proximity of Peak Inflation and Recessions to Initial Rate Hikes, from Year Hiking Cycle Began

Note: Inflation refers to core CPI.

Sources: Federal Reserve; Labor Department

Take  Away

As in many team sports, once one side gets momentum, they are difficult to stop . The Fed needs to gain the trust of the individual players in the economy in order to be successful. Saying one thing, then doing another, would undermine this trust. So far, despite the Fed originally being wrong about inflation, the Fed has done what it has said it would do. Stock and bond markets, which are a considerable part of the economy, have been slow to understand the Fed’s resolve.

It has been implementing the balance sheet run-off plan and raising rates toward a level it believes would equate to a future 2% inflation rate. Like so many other things in the social sciences, widely held expectations of the future become self-fulfilling.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.wsj.com/articles/move-over-inflation-here-comes-the-earnings-crunch-11668300124?mod=article_inline

https://www.wsj.com/articles/fed-raises-interest-rates-for-first-time-since-2018-11647453603?mod=article_inline

https://www.wsj.com/articles/feds-aggressive-rate-hikes-are-a-game-changer-11669006579?mod=economy_lead_pos5

www.BLS.gov

Has Saudi Arabia Become Europe’s Secret Santa?

Posted on by phoffman@channelchek.com
Image Credit: Gunter Henschel (Flickr)

Europe May Be Saved from the December Planned Oil Embargo in a Nick of Time

On December 5, the European Union plans to cap oil prices at levels where EU nations would then be permitted to buy oil from Russia. This would significantly reduce the petroleum supply of the region going into winter. The day before this goes into effect, (December 4), OPEC+ will meet to set output levels. Saudi Arabia and other OPEC producers are expected to discuss an output increase, according to emissaries from the group. The 11th hour move could keep much needed petroleum flowing into the region at a time that weather-related demand would naturally grow, holiday driving would be expected to increase, and war-related strategies would have reduced oil coming out of Russia. While western news has verified their sources as actual delegates of OPEC+, the Saudi’s are now saying that their plans are always secret.  

About the New Expectations

A production increase of up to 500,000 barrels a day is now expected to be the discussion at OPEC+’s December 4 meeting, delegates said. Any output increase would mark a partial reversal of a controversial decision last month to cut production by 2 million barrels a day. This was agreed upon at the most recent meeting of the Organization of the Petroleum Exporting Countries and their Russia-led allies, a group known collectively as OPEC+.

The White House had said the production cut undermined global efforts to negatively impact Russia’s war in Ukraine. Saudi-U.S. relations have hit a low point over oil-production disagreements this year; if the December 4 OPEC+ meeting leads to increased oil, this may warm the cooled Saudi-U.S. relations.  

About the EU December 5th Plan

The European Union has agreed to stop all oil imports from Russia on December 5. The plan is to cap the prices at which EU nations would buy oil from Russia, that price is expected to be near $60 per barrel. Russia has reacted by increasing exports to Asia, but the price cap is expected to reduce its exports and lower total supply by up to one million barrels per day.

About the OPEC+ December 4th Expectations

A production increase of up to 500,000 barrels a day is now under discussion for OPEC+’s December 4 meeting, emissaries said.

Any increase in OPEC+ output will partially undo the decision made at OPEC+’s its last monthly meeting. In October the cartel voted to cut production by 2 million barrels per day. The decision by the Organization of the Petroleum Exporting Countries and their Russia-led allies, (OPEC+) was a disappointment to the White House and NATO nations that saw reduced production as strengthening Russia’s ability to fund its war with higher priced exports.  

Under normal production discussions by OPEC+ production increases, with oil prices falling more than 10% since the first week of November, one might not expect an increase. Brent crude traded at about $87 a barrel on Monday, while WTI, the U.S. benchmark, fell below $80 a barrel for the first time since September. Production increases could cause prices to fall further.  

Emissaries say, a production increase would be to respond to expectations that oil consumption will rise in the winter. Oil demand is expected to increase by 1.69 million barrels a day to 101.3 million barrels a day in the first quarter next year, compared with the average level in 2022.

OPEC and its allies say they have been carefully studying the G-7 plans to impose a price cap on Russian oil, conceding privately that they see any such move by crude consumers to control the market as a threat. Russia has said it wouldn’t sell oil to any country participating in the price cap, potentially resulting in another effective production cut from Moscow—one of the world’s top three oil producers.

Source: Koyfin

What Else?

Raising oil production ahead of the December 5 EU embargo would give the Saudis another argument that they are acting in their own interests, and not is support of Russia’s.

Talk of the production increase emerged after the Biden administration told a federal court judge that Saudi Crown Prince Mohammed bin Salman should have sovereign immunity from a U.S. federal lawsuit related to the killing of Saudi journalist Jamal Khashoggi. The immunity decision is seen by some as a concession to Prince Mohammed, and heighten his standing as the kingdom’s de facto ruler. The move comes after the Biden administration tried for months to isolate him.

Another factor that helps account for the timing of OPEC+’s discussion to raise output is the two large OPEC members, Iraq and the United Arab Emirates that want to pump more oil. Both countries are pushing the oil-producing nations to allow them a higher daily-production ceiling, which would lead to more oil produced globally.

Saudi officials late Monday denied reports the kingdom is reversing course and helping the West with added production.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://www.wsj.com/articles/saudi-arabia-eyes-opec-production-increase-ahead-of-embargo-price-cap-on-russian-oil-11669040336

https://finance.yahoo.com/news/oil-sinks-china-struggle-covid-024416236.html

https://www.reuters.com/business/energy/saudi-arabia-eyes-opec-production-increase-wsj-2022-11-21/

Debt Ceiling Season Could Derail Market Momentum

Posted on by aweinsoff@channelchek.com
Image Credit: Gotta Be Worth It (Pexels)

The Old Congress May Rush to Push Through a Debt Ceiling Agreement

Will there be a government shutdown as Congress grapples with debt ceiling issues?

Only Congress can spend money, so it is the job of Congress to set the upper limit if the nation may decide to go into debt. It is tricky most years, as the process often threatens the government shutdown of non-essential workers. Emergency spending measures often are used before an agreement is passed, before doing any further damage. The most damaging would be to the global faith in the U.S. Government to make do on its debts. Most U.S. Treasury securities are refinanced by reissuing new debt issues. If new debt issues can not be increased to cover today’s higher interest rates, or other increased levels of budgeted spending, the nation faces severe economic trouble.

Treasury Secretary Janet Yellen warned this weekend that lawmakers’ failure to raise the statutory limit on U.S. debt posed a “huge threat” to America’s credit rating and the functioning of U.S. financial markets.

Yellen said that cooperation is still possible between the two major political parties on other financial priorities, but lifting the debt ceiling is a non-negotiable item on the list.

Both parties always jockey for position to get funding for their projects as the country and government workers reel from the negotiation process each year. Currently, U.S. public debt stands at $31.2 trillion. Without an increase, it’s expected that there will be a default crisis by the third quarter of 2023.

Republicans tend to pay more lip service to making spending cuts. In 2010, a Republican lead Congress tried to hold the line on raising the budget risking a possible default on U.S. Government backed securities. The uncertainty over whether the U.S. could fund maturing U.S. Treasuries prompted a first-ever ratings cut on Treasury debt by Standard and Poor’s.

Yellen was asked whether Democrats, who will be in a weakened state after the new Congressional leaders take office in January,  should pass legislation in the post-election session, while they still hold a majority.  “I think it’s irresponsible not to raise the debt ceiling. It’s always been raised,” Yellen said. “It would be a huge threat to the country not to do it, and completely irresponsible to threaten the credit rating of America and the functioning of the single most important financial market.”

One of the higher priorities that Republicans would want to chop from the budget is the $87 billion in new funds the President wants for the IRS.

Yellen reminded that some Republicans backed last year’s infrastructure act and this year’s investments in semiconductors and research, she suggested the administration would look for measures that could draw further bipartisan support.

Take Away

Each year the U.S. Congress grapples with spending and financing the spending. The financed part, involves Congress providing enough money for the budgeted items. As interest rates rise, they become one more expense to be budgeted for and generally financed.

Janet Yellen, speaking at a G20 meeting in Indonesia warned of the need to lift the debt ceiling, as not doing so would have devastating economic impacts.

Paul Hoffman

Managing Editor, Channelchek

Sources

https://budget.house.gov/publications/fact-sheet/debt-ceiling-explainer#:

https://www.g20.org/about-the-g20/

https://www.reuters.com/world/us/exclusive-split-congress-odds-increase-yellen-warns-need-lift-debt-ceiling-2022-11-12/