Connect with us

World

Goldman Sachs warns US spending could push up rates and debt levels

Published

on

Goldman Sachs sees a tidal wave of red ink — and it may drag the U.S. economy into its undertow.

Federal deficit spending is headed toward “uncharted territory,” the firm said on Sunday, suggesting that the Trump administration and Congressional Republicans may not be able to count on the economic boost of tax reform for very longer.

In the wake of an ambitious infrastructure plan and a budget that drew fire from virtually all sides, Goldman Sachs said in a note to clients that the federal deficit would reach 5.2 percent of U.S. growth by 2019, and would “continue climbing gradually from there.”

The GOP is counting heavily on the fiscal stimulus provided by tax reform—many companies have announced investment plans and doled out bonuses, even as the majority of taxpayers enjoy lower rates—to insulate them from a restive public in November. Polls suggest that Republicans may lose control of Congress, and President Donald Trump’s own poll numbers hover below 50 percent in most polls.

Yet Goldman Sachs warned that the economic impetus from tax reform may have diminishing returns after this year. “The fiscal expansion should boost growth by around 0.7pp in 2018 and 0.6pp in 2019, but will likely come to an end after that”—listing a litany of reasons why spending and debt would conspire to undermine the world’s largest economy.

While tax cuts are partly responsible, Goldman stated that “projected increases in mandatory spending—this includes Social Security, Medicare, Medicaid, and income support programs—are primarily responsible” for an unsustainable surge in spending.

The dire fiscal backdrop comes against Trump’s spending plans, which have created plenty of critics on the right and left. In a weekly podcast, Caleb Brown, a scholar at the libertarian Cato Institute, branded the Trump administration spending and infrastructure spending “budget buster[s]” saying that overall spending was “very likely” to rise in the coming years despite isolated cuts.

The Congressional Budget Office estimates the level of U.S. debt to gross domestic product (GDP) is currently around 77 percent. If current imbalances hold, Goldman Sachs expects the ratio to hit 85 percent of GDP by 2021. Last year, the CBO issued a dire forecast that the U.S. debt/GDP could skyrocket to 150 percent by 2047, if the trend was left unchecked.

Goldman’s analysts wrote that the “growth effect comes from the change in the deficit, not the level, and further expansion would put the U.S. onto an even less sustainable long-term trend. Second, some of the recent deficit expansion relates to changes unlikely to be repeated, such as the temporarily large effect of certain tax provisions.”

Lastly, “there is a good chance that control of Congress will change after this year’s midterm election, likely making it more difficult to further expand the deficit,” Goldman added.

Recently, the Treasury projected a virtual sea of red government ink, saying it would have to borrow close to $1 trillion this year, and above that level in the years to come. Goldman underscored that fact by saying the Treasury is borrowing at record low rates, but couldn’t expect to do so indefinitely.

The Treasury’s need for more debt is inauspicious, given the recent surge in U.S. yields and a Federal Reserve that’s expected to begin a campaign to hike borrowing costs and withdraw liquidity.

“We expect rising interest rates and a rising debt level to lead to a meaningful increase in interest expense,” Goldman said. “On our current projections, federal interest expense will rise to 2.3 percent of GDP by 2021,” and could hit 3.5 percent by 2027.

Source link

World

WHO warns of uptick in Covid cases globally after weeks of decline

Published

on

Medical workers move a patient at the intensive care unit (ICU) of the Sotiria hospital, amid the coronavirus disease (COVID-19) pandemic, in Athens, Greece, March 1, 2021.

Giorgos Moutafis | Reuters

World Health Organization officials said Wednesday that scientists are trying to understand why Covid-19 cases are suddenly ticking up across much of the world after weeks of falling numbers.

There were 2.6 million new cases reported across the world last week, up 7% from the prior week, the WHO said in its weekly epidemiological update that reflects data received as of Sunday morning. That follows six consecutive weeks of declining new cases all over the world.

The reversal could be caused by the emergence of several new, more contagious variants of the coronavirus, relaxing public measures and so-called pandemic fatigue, in which people become tired of following precautions, the WHO said in its weekly report. Maria Van Kerkhove, head of the WHO’s emerging diseases and zoonosis unit, said during a Q&A event at the organization’s headquarters in Geneva on Wednesday that the global health agency is trying to better understand what’s causing the reversal in trends in each region and country.

“I can tell you what we’re worried about is with the introduction of vaccines and vaccination in a number of countries, we still need people to carry out their individual-level measures,” she said, urging people to practice physical distancing and continue to wear masks when around others.

“By seeing this one week of increase in trends, it’s a pretty stern warning to all of us that we need to stay the course,” Van Kerkhove said. “We need to keep adhering to these measures at hand.”

Dr. Mike Ryan, executive director of the WHO’s health emergencies program, suggested that the uptick could be because “we may be relaxing a little before we’ve got the full impact of vaccination.” He added that he understands the temptation to socialize more and to revert to more normal behavior, but “the problem is every time we’ve done that before the virus has exploited that.”

Ryan reiterated that the cause of the uptick in cases remains unclear, but added that the tried-and-true public health measures that have been emphasized throughout the pandemic are still effective.

“When cases are decreasing it’s never everything we do and when they’re increasing it’s never all out fault,” he said.

Ryan noted that deaths have not yet risen with cases, but that could change in the coming weeks. Hopefully, he said, a rise in deaths can be avoided due to the vaccination of those most vulnerable to the disease.

While the rollout of vaccines is cause for optimism in some countries, Ryan noted that many nations across the world have not yet received doses. He said that 80% of doses have been administered in just 10 countries.

The WHO remarks echo those made recently by federal officials in the United States. Dr. Rochelle Walensky, director of the Centers for Disease Control and Prevention, has been warning for days that the decline in daily new cases in the U.S. has stalled out and ticked upward.

Over the past seven days, the U.S. reported an average of more than 65,400 daily new cases, according to data compiled by Johns Hopkins University. That’s far below the peak of about 250,000 new cases every day that the country was reporting in early January, but it’s still well above the rate of infection the U.S. saw over the summer when the virus swept across the Sun Belt.

“At this level of cases, with variants spreading, we stand to completely lose the hard-earned ground we have gained,” Walensky said Monday. “With these statistics, I am really worried about more states rolling back the exact public health measures we have recommended to protect people from Covid-19.”

“Please hear me clearly: At this level of cases with variants spreading, we stand to completely lose the hard-earned ground we have gained,” she said.

Source link

Continue Reading

World

Department of Defense confirms rockets struck Ain al-Asad airbase

Published

on

Iraqi Air Force helicopters land at Ain al-Asad airbase in the Anbar province, Iraq December 29, 2019.

Thaier Al-Sudani | Reuters

The Pentagon on Wednesday confirmed that nearly a dozen rockets struck an Iraqi base hosting U.S. troops.

The initial report, tweeted by Army spokesman Col. Wayne Marotto, said 10 “indirect fire” rockets hit Ain al-Asad airbase in Anbar province, where some of the 2,500 U.S. forces in Iraq are based.

Pentagon press secretary John Kirby said no U.S service members were injured in the attack. He added that “a U.S. civilian contractor suffered a cardiac episode while sheltering and sadly passed away shortly after.”

The Pentagon said the Iraqi military is handling the investigation.

“Iraqi security forces are on scene and investigating. We cannot attribute responsibility at this time, and we do not have a complete picture of the extent of the damage. We stand by as needed to assist our Iraqi partners as they investigate,” the statement said.

The Biden administration was briefed on the attack overnight and has “reached out to field and military to assess the damage and check on personnel,” a White House official told NBC News.

Wednesday’s attack on Ain al-Asad comes on the heels of Biden’s decision to strike Iran-aligned militia targets in Syria.

Those strikes in Syria were seen as a retaliatory effort against the Feb. 15 rocket attack in Erbil. Two days later, the Biden administration had hinted at retaliation.

“It is fair to say that there will be consequences for any group responsible for this attack,” State Department spokesman Ned Price told reporters at the time.

The skirmishes could upset what the Biden administration considers a foreign policy priority: a return to the Iranian nuclear deal reached during the Obama administration with several world powers. The agreement lifted economic sanctions on Iran in exchange for curbs to its nuclear program.  

The deal has all but collapsed since the Trump administration unilaterally ditched it in 2018 and reimposed sweeping sanctions on Iran that have crippled its economy.  

-CNBC’s Natasha Turak and Amanda Macias contributed to this report.

Source link

Continue Reading

World

Aston Martin launches AMR21 F1 car, to be driven by Vettel and Stroll

Published

on

LONDON — British luxury carmaker Aston Martin on Wednesday launched a new Formula One car ahead of its return to the most famous motor racing event in the world.

The Aston Martin Cognizant F1 team revealed the “AMR21” car at a virtual event that was broadcast from London. The AMR21 will compete in the 2021 Formula One World Championship, which gets underway on March 28 in Bahrain.

Formula One is watched by millions of fans around the world and everyone from Ferrari to BMW to Mercedes has used the sport to promote the strength of their brand.

Aston Martin has been struggling financially and its share price on the London Stock Exchange fell sharply in 2020. The company is hoping that Formula One will boost sales of Aston Martin road cars like the DB11, the Vanquish and the Vantage.

“To have a platform such as Formula One to market our initiatives, show our technology, and ultimately bring that technology into our road cars … is a huge game changer,” said Aston Martin Executive Chairman Lawrence Stroll, adding that it’s a “monumental” moment.

Stroll acquired the Formula One team two-and-a-half years ago and became executive chairman of Aston Martin last April, taking a majority shareholding in the company in the process.

“The first step was to raise the financing to see our business plan through for the next five years,” he told CNBC’s Julianna Tatelbaum. “We raised $800 million in equity, with the majority of that coming from myself and my consortium. That was for a business plan that brings us to 10,000 cars, $2 billion of volume and $500 million EBITDA in the next four years.”

Stroll said Aston Martin has a fantastic order book going forward on its sports cars and the new DBX, which is Aston Martin’s first SUV. He added that variants of the DBX will be coming in the near future and that a hybrid will be launching in the fourth quarter of 2021.

Aston Martin’s last Grand Prix car was the DBR5, which was driven by Roy Salvadori and Maurice Trintignant in the 1960 British Grand Prix.

The new car will be driven by Germany’s Sebastian Vettel and Canada’s Lance Stroll.

“Even though I have raced for four Formula One teams and for many years, starting a new season with a new team still gives me a sense of excitement,” said Vettel in a statement.

“I have always kept my eye on the competition and this team has consistently impressed me with what they have been able to do without the biggest of budgets.”

Vettel said he was immediately motivated to join the team when he was approached by Stroll, and Otmar Szafnauer, the CEO of the Aston Martin Formula One team.

The AMR21 will make its track debut on Thursday before traveling to Bahrain next week ahead of the Bahrain Grand Prix.

The team’s main sponsor is IT giant Cognizant. Other sponsors include beer maker Peroni, cryptocurrency website Crypto.com, and cybersecurity firm SentinelOne.

Owned by Liberty Media, Formula One’s revenues took an $877 million hit last year, falling 43% as a result of the Covid-19 pandemic.

Source link

Continue Reading

Trending