Economy

U.S. debt from coronavirus pandemic will soon exceed size of entire economy

Published

4 years ago

September 5, 2020

The U.S. government’s war against the coronavirus is imposing the heaviest strain on the Treasury since America’s drive to defeat Nazi Germany and imperial Japan three-quarters of a century ago.

The Congressional Budget Office has warned that the government this year will run the largest budget deficit, as a share of the economy, since 1945, when World War II ended. Next year, the federal debt — the sum of the year-after-year gush of annual deficits — is forecast to exceed the size of the entire American economy for the first time since 1946. Within a few years, it’s on track to set a new high.

It might be surprising to hear that most economists consider the money well-spent — or at least necessary. Few think it’s wise to quibble with the amount of borrowing deemed necessary to sustain American households and businesses through the gravest public health crisis in more than 100 years. That’s especially true, economists say, when the government’s borrowing costs are super-low and investors still seem eager to buy its debt as fast as the Treasury issues it.

Here’s a closer look at the federal debt and the government’s use of it to combat the pandemic and the economic pain it’s inflicted.

Just how much money are we talking about?

The annual deficit — the gap between what the government spends and what it collects in taxes _ will hit $3.3 trillion in the budget year that ends Sept. 30, the CBO projects. That amounts to 16 per cent of America’s gross domestic product, which is the broadest measure of economic output. Not in 75 years has a deficit been that wide.

The federal debt, reflecting the accumulated deficits and the occasion surplus, is forecast to reach 100 per cent of GDP next year. Then it is predicted to keep climbing to $24.5 trillion — 107 per cent of GDP — in 2023. That would snap the record of 106 per cent of GDP set in 1946. (The percentage does not include debts that the government agencies owe one another, including the Social Security trust fund.)

Why is the budget so lopsided?

The U.S. government was already deeply in debt even before the virus struck in March. The budget had absorbed the expenses of the 2007-2009 Great Recession, the federal benefits for the retirements of the vast baby boom generation and the cost of President Donald Trump’s 2017 tax cut. Last year, the debt burden reached 79 per cent of GDP, the highest share since 1948.

Then came the pandemic. The economy tumbled into a sickening free-fall as businesses shut down and millions of Americans hunkered down at home to avoid infection. GDP collapsed at a 31.7 per cent annual rate from April through June, the worst three months on records dating to 1947. In March and April combined, employers slashed a record 22 million jobs.

To help Americans to endure the crisis, Congress passed a $2 trillion relief bill in March. Among other things, the package sent Americans one-time checks of up to $1,200 and temporarily offered the unemployed $600 a week on top of their state jobless benefits.

Economists say that the rescue probably helped keep the economy from sinking into a depression but also that much more assistance is needed.

Can the U.S. repay all that money?

After World War II, the United States paid down the federal debt with surprising speed. By 1961, the debt had dropped to 44 per cent of GDP, the same level as in the prewar year of 1940.

Behind that success was a fast-growing economy that delivered rising revenue to the government and erased the debt. From 1947 through 1961 the economy grew at a 3.3 per cent annual rate. The financial system was tightly regulated by the government. This allowed policymakers to keep interest rates artificially low and minimize the cost of repaying the debt.

Circumstances are somewhat different now. The economy doesn’t grow as fast as it did in the postwar boom years. Since 2010, GDP growth has averaged just 2.3 per cent, even excluding this year’s economic implosion. And the government doesn’t control interest rates as it used to, not after the financial deregulation of the 1980’s.

Still, the Federal Reserve is helping keep government borrowing rates ultra-low by buying up huge volumes of Treasury debt.

Does the debt carry economic consequences?

Economists have long warned that too much government borrowing risks hobbling the economy. When the government takes on excessive debt, the argument goes, it competes with businesses and consumers for loans, thereby forcing borrowing rates prohibitively high and imperilling growth.

Another concern is that investors will demand ever-higher interest rates for accepting the risk that governments could default on their debts.

Some economists and budget watchers still warn that a day of reckoning will come and that the United States will have to curb spending, raise taxes or both.

But after the Great Recession, many economists began to rethink their view of debt. The recovery in the United States and especially in Europe was sluggish in part because policymakers were too reluctant to stimulate growth with debt.

In the United States, rates didn’t rise even though government debts were high. Investors, it turned out, had a near-insatiable appetite for U.S. Treasurys, still considered the world’s safest investment. Their rush to buy federal debt helped keep rates low and limited the government’s borrowing costs. So did persistently low inflation.

In such a low-rate, low-inflation environment, the risk of piling on more debt seems more manageable, at least for countries like the United States and Japan that borrow in their own currencies.

In a speech last year, Olivier Blanchard, a former chief economist of the International Monetary Fund, declared:

“Put bluntly, public debt may have no fiscal cost … The probability that the U.S. government can do a debt rollover, that it can issue debt and achieve a decreasing debt-to-GDP ratio without ever having to raise taxes later, is high.”

Source:- Global News

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Business

A timeline of events in the bread price-fixing scandal

Published

11 hours ago

September 19, 2024

Anne Joseph

Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.

Here’s a timeline of key events in the bread price-fixing case.

Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.

Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.

Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.

Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).

Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.

June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.

Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”

Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.

July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.

Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)

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Economy

S&P/TSX composite up more than 250 points, U.S. stock markets also higher

Published

11 hours ago

September 19, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.

The S&P/TSX composite index was up 254.62 points at 23,847.22.

In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.

The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.

The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.

The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

Published

1 day ago

September 18, 2024

Anne Joseph

VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

This report by The Canadian Press was first published Sept. 18, 2024.

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