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How Parler deplatforming shows power of Amazon, cloud providers

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Andy Jassy, CEO of Amazon Web Services.

CNBC

Getting kicked off Amazon Web Services is rare, but it has enormous consequences.

It happened this week, when Amazon dropped Parler, a social network that gained traction from conservatives after Twitter banned President Donald Trump and housed content that encouraged violence. Parler filed suit against Amazon in federal district court in an attempt to stop Amazon from suspending Parler’s account, and Amazon pushed back, requesting that the court deny Parler’s motion.

The incident demonstrates a type of power that Amazon wields almost uniquely because so many companies rely on it to deliver computing and data storage. Amazon controlled 45% of the cloud infrastructure in 2019, more than any other company, according to estimates from technology research company Gartner. The app survived without being listed in Apple and Google’s app stores, but getting sent away from Amazon’s cloud has left Parler absent from the internet for days.

Parler’s engineering team had built software that drew on computing resources from Amazon Web Services, and the company had been in talks with Amazon about adopting proprietary AWS database and artificial intelligence services, the company said in a district court filing on Wednesday.

It would take time to figure out how to perform similar functions on Parler’s own servers or a cloud other than AWS. And in the case of Parler, time is critical, because it came as the service was gaining attention and new users following Twitter’s Trump ban.

Parler’s engineers could learn to use other computing infrastructure, or the company could hire developers who already have that knowledge. But because no cloud provider is as popular as Amazon, people skilled in, say, Oracle’s cloud aren’t as as easy to find as those who know how to build on AWS.

The warnings were there

The swiftness with which Amazon acted shouldn’t come as a shock. Companies have been disclosing details about their deals with Amazon that warn of these kinds of sudden discontinuations for years.

In 2010, DNA sequencing company Complete Genomics said that “an interruption of services by Amazon Web Services, on whom we rely to deliver finished genomic data to our customers, would result in our customers not receiving their data on time.”

Gaming company Zynga warned about how its AWS foundation could quickly vanish when it filed the prospectus for its initial public offering in 2011. At the time, AWS hosted half of the traffic for Zynga’s games, such as FarmVille and Words with Friends, the company said.

“AWS may terminate the agreement without cause by providing 180 days prior written notice, and may terminate the agreement with 30 days prior written notice for cause, including any material default or breach of the agreement by us that we do not cure within the 30-day period,” Zynga said.

AWS can even terminate or suspend its agreement with a customer immediately under certain circumstances as it did in 2010 with Wikileaks, pointing to violations of AWS’ terms of service.

Parler started using AWS in 2018, long after the Wikileaks incident and the first corporate disclosures about the possibility of cloud interruptions.

When AWS told Parler it planned to suspend Parler’s AWS account, it said Parler had violated the terms repeatedly, including by not owning or controlling the rights to its content.

Over the course of several weeks, AWS alerted Parler to instances of user content that encouraged violence, Amazon said in a court filing. More of that content surfaced after protesters stormed the Capitol building in Washington on Jan. 6, interrupting Congress’ confirmation of the Electoral College results from the 2020 presidential election. AWS conveyed that Parler wasn’t doing enough to speedily remove that sort of information from its social network.

Parler could have protected itself more. Large AWS customers can sign up for more extensive agreements, which allow more customers time to get into compliance if they wind up breaking rules.

Gartner analyst Lydia Leong spelled out this difference in a blog post: “Thirty days is a common timeframe specified as a cure period in contracts (and is the cure period in the AWS standard Enterprise Agreement), but cloud provider click-through agreements (such as the AWS Customer Agreement) do not normally have a cure period, allowing immediate action to be taken at the provider’s discretion,” she wrote.

Other cloud providers have their own terms their customers must follow. AWS now has millions of customers, though, and it holds more of the cloud infrastructure market than any other provider. As a result, many organizations could be exposed to the sort of treatment Parler received, rare as it is, if they don’t behave in accordance with Amazon’s standards.

Parler recognized the drawbacks of being beholden to a cloud provider, but ultimately, the flexibility clouds offer was too appealing to ignore. “I’m personally very anti-cloud and anti-centralization, though AWS has its place for high-burst traffic,” Alexander Blair, Parler’s technology chief, wrote in a post on the service.

Parler and Amazon did not immediately respond to requests for comment.

WATCH: Apple pulls Parler from App Store amid crackdown on violent posts



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House to pass $1.9 trillion Biden relief bill

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The House is expected to pass a $1.9 trillion Covid-19 stimulus package later Friday and send President Joe Biden‘s relief plan to the Senate.

Both chambers aim to approve the bill and send it to Biden’s desk before March 14, when key programs buoying millions of jobless Americans expire. Pitfalls await in the Senate, where a single Democratic vote against the plan would sink it and a decision barring lawmakers from including a $15 per hour minimum wage threw a wrench in the process.

Democrats, wielding narrow control of Congress, opted to pass the legislation through budget reconciliation. The process enables them to approve the bill without Republican votes in the Senate but also restricts what lawmakers can include in it. 

The plan contains: 

  • A $400 per week unemployment insurance supplement and an extension of programs expanding jobless benefits to millions more Americans through Aug. 29 
  • $1,400 direct payments to most Americans and the same sum for dependents 
  • $20 billion for a national Covid-19 vaccination program and $50 billion for testing
  • $350 billion for state, local and tribal government relief 
  • Payments to families of up to $3,600 per child over a year 
  • $170 billion to K-12 schools and higher education institutions to cover reopening costs and student aid 
  • An increase in the federal minimum wage to $15 an hour by 2025

While economists tend to agree that additional stimulus would provide workers with a robust safety net as the economy recovers — not to mention accelerate GDP growth — they disagree over the necessity of a bill as large as $1.9 trillion.

The case for going big

Those in favor of the spending argue the U.S. economy is still in a precarious place with millions of Americans still out of work thanks to pandemic-era layoffs and forced government closures. 

While the Labor Department’s most recent report on jobless claims showed a decline in first-time applicants for unemployment benefits, it also found that more than 19 million Americans were still enrolled in some form of assistance as of Feb. 6.

Earlier this month, Treasury Secretary Janet Yellen told CNBC that Biden’s plan could push the economy back to full employment before the end of 2021.

She underscored the human toll the virus has taken over the past year on households that are still struggling to buy groceries and stay ahead of rent payments.

“We think it’s very important to have a big package [that] addresses the pain this has caused – 15 million Americans behind on their rent, 24 million adults and 12 million children who don’t have enough to eat, small businesses failing,” Yellen said on Feb. 18.

The potential risks

Economists critical of the plan tend to focus on the size of the legislation and the potential benefits of a bill better tailored to meet the needs of businesses and workers in industries that continue to suffer the most due to Covid-19, like airlines, food service and hospitality.

The most head-turning critique came from Biden’s fellow Democrat and former Treasury Secretary Larry Summers, who in a Feb. 4 op-ed warned that the bill could spark a rebound in inflation after a decade of mostly stagnant prices.

“Given the commitments the Fed has made, administration officials’ dismissal of even the possibility of inflation, and the difficulties in mobilizing congressional support for tax increases or spending cuts, there is the risk of inflation expectations rising sharply,” he wrote in The Washington Post.

Though economywide inflation has missed the Federal Reserve’s 2% target for the vast majority of the last decade, investors are starting to grow uneasy about the potential for a jump in prices.

Nathan Sheets, chief economist at PGIM Fixed Income, said that while he appreciates those worries, he is not all too concerned.

“While I see a real risk of rising inflation through the summer and fall as surging demand outstrips the recovery in supply, I’d expect that this rise will be transitory,” he wrote in an email Wednesday. 

Sheets, who also served as undersecretary of the Treasury for international affairs under former President Barack Obama, added that the potential economic pros of more stimulus seem to outweigh the potential risks.

“The labor market remains mired in a deep hole,” he wrote. “Getting those 10 million jobs back will require sustained economic growth, especially given that roughly half of the job loss corresponds to folks who have left the labor force.”

Many Republicans have questioned the need to send more help beyond the money needed to speed up the Covid-19 vaccination effort and bolster the health-care system. 

On Wednesday, House Minority Leader Kevin McCarthy, R-Calif., characterized much of the spending as “waste or a wish list from progressives.” 

A group of the most centrist Senate Republicans previously offered Biden a $600 billion plan that included vaccine distribution funds, smaller direct payments to fewer people than Democrats sought and an unemployment supplement that expired sooner than their counterparts wanted. The president said he would rather pass the sprawling package with only Democratic votes than spend weeks negotiating a smaller bill with the GOP. 

Benefits cliff and minimum wage

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South Africa says it’s not fixated on austerity. Analysts unconvinced

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PRETORIA, SOUTH AFRICA – MARCH 16: Finance minister, Tito Mboweni briefs the media on the details of government interventions in various sectors of the departmental portfolios on COVID-19 at DIRCO Media Centre.

Phill Magakoe/Gallo Images via Getty Images

In what was tipped as the most crucial budget statement in the history of a democratic South Africa, Finance Minister Tito Mboweni insisted that austerity was not on the government’s agenda.

As the country looks to emerge from the economic chaos wreaked by the coronavirus pandemic and a pre-existing quandary of debt and structural weakness, Mboweni said his plan was on target to return South Africa to a primary surplus on the government’s main budget in 2024/25.

Despite Mboweni’s assertions that this was “not an austerity budget,” experts are not entirely convinced, and worry that the finance minister may have been overly optimistic in his prognosis for the country’s economic overhaul.

Virag Forizs, Africa economist at Capital Economics, noted that despite the increased revenue expectations, bolstered further by increased duties on alcohol, tobacco and fuel, the government did not seem to be using the headroom to water down its fiscal tightening.

“On the expenditure side, restraint seems to be the order of the day. Allocations to fund the country’s vaccination campaign, up to ZAR19bn (19 billion South African rand), were below earlier Treasury estimates,” she said in a note Wednesday.

South Africa’s fiscal position for the last financial year is looking slightly rosier than expected, with government revenues projected to be 1.4% of GDP higher than expected in October. Looking ahead, revenues for 2021/22 are predicted to come in at 1.35 trillion South African rand ($90.46 billion), rising to 1.52 trillion rand in 2023/24, with stronger revenues and cash balances enabling the government to fund deficit reduction.

‘Dangerously overstretched’

Mboweni also announced that the government will scrap a planned 40 billion rand in tax increases, instead raising tax revenues by closing corporate sector loopholes and broadening the tax base. It has also allocated an extra 10 billion rand to the purchase and distribution of Covid-19 vaccines over the next two years.

“We owe a lot of people a lot of money.” – Tito Mboweni, South African finance minister

Annual deficits are now projected to be much lower than previously estimated over the next three years. However, gross loan debt is expected to increase from 3.95 trillion rand in the current fiscal year to 5.2 trillion rand during the 2023/24 fiscal year.

Mboweni highlighted that despite the revenue windfall and a more optimistic fiscal position compared to October’s statement, public finances are still “dangerously overstretched.”

“We owe a lot of people a lot of money,” he said. “These include foreign investors, pension funds, local and foreign banks, unit trusts, financial corporations, insurance companies, the Public Investment Corporation and ordinary South African bondholders.”

The government hopes that its structural reform agenda, aimed at “lowering barriers to entry, raising productivity and lowering the cost of doing business,” will help recalibrate the South African economy.

GDP is expected to grow by 3.3% this year after a 7.2% contraction in 2020, averaging out at 1.9% over the following two years, according to the country’s Treasury.

South African Health Minister Zweli Mkhize receives the Johnson and Johnson coronavirus disease (COVID-19) vaccination at the Khayelitsha Hospital near Cape Town, South Africa, February 17, 2021.

Gianluigi Guercia | Pool | Reuters

Forizs added that the implementation of the ruling ANC’s fiscal consolidation plans faces serious risks, with the government embroiled in a long-running dispute with unions over a contentious public sector pay freeze, a key target for expenditure restraint.

“It will remain politically challenging to maintain expenditure restraint given the weak economic backdrop. Indeed, data published yesterday showed that the unemployment rate hit 32.5% in the final quarter of last year,” Forizs said, noting that the GDP growth projected by the government would mean activity remaining 1.8% below its pre-Covid levels in 2022.

“Against that backdrop, there remains a significant risk that the government won’t be able to live up to investors’ hopes, which could put the rand under pressure and cause bond yields to rise.”

‘Union pushback’

Bank of America said the Treasury had presented a best-case scenario that relied on stronger medium-term growth, with South African growth persistently weak in recent years. Public sector wage reductions and structural reforms of the country’s ailing and debt-ridden state-owned enterprises (SOEs) will also be crucial, with analysts cautious on the prospects for all three.

“Our base case is for the (full-year 2020) R37bn wage freeze to be upheld but assume 3-4% inflation-linked increases from (full-year 2021),” they said in a note Thursday.

“We see union pushback in the coming months with the government likely to make some concessions amid possible strike action and local elections. SOE risks persist with overall contingent liabilities estimated at c.20% of GDP.”

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Bank of England’s Haldane warns on inflation; bond yields move higher

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Andrew Haldane, the Bank of England’s Chief Economist and Executive Director, Monetary Analysis & Statistics

Chris Ratcliffe | Bloomberg via Getty Images

U.K. bond yields rose on Friday after Bank of England Chief Economist Andy Haldane warned that inflation may become difficult to tame, prompting more assertive policy action.

In a recorded lecture published Friday, Haldane noted that there were both upside and downside risks to the inflation outlook, but cautioned that an inflationary “tiger” had awoken.

“The combined effects of unprecedentedly large shocks, and unprecedentedly high degrees of policy support, have stirred it from its slumber. In this environment, the tiger-taming act facing central banks is a difficult and dangerous one,” Haldane said.

Global markets have been jittery over the past week due to a spike in the U.S. 10-year Treasury yield, driven in part by rising expectations for inflation and economic growth as Covid-19 vaccines are rolled out and pent up consumer demand is potentially unleashed.

Earlier this week, U.S. Federal Reserve Chairman Jerome Powell sought to temper concerns that the Fed would tighten monetary policy conditions in the face of rising inflation. Powell vowed it would maintain its unprecedented accommodative stance, adopted in order to usher the economy out of the coronavirus crisis, projecting that inflation and employment would remain below target.

Haldane, considered the most hawkish member of the Bank of England’s Monetary Policy Committee (MPC), acknowledged the possibility that as vaccines are rolled out and normality returns, inflation will stabilize. He added that disinflationary forces could even return if the pandemic risks endure.

“But, for me, there is a tangible risk inflation proves more difficult to tame, requiring monetary policymakers to act more assertively than is currently priced into financial markets,” he said.

“People are right to caution about the risks of central banks acting too conservatively by tightening policy prematurely. But, for me, the greater risk at present is of central bank complacency allowing the inflationary (big) cat out of the bag.”

The yield on the British 10-year Gilt rose to 0.816% following the speech’s release, while the 5-year and 2-year Gilt rates climbed to 0.396% and 0.121% respectively.

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