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Biden Will Need to Get Creative to Save the Economy – BNN

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(Bloomberg Opinion) — Joe Biden has been elected to be the next President of the United States. Now he’ll have to get creative.

When the President-elect takes office, he’ll confront the country’s two most acute challenges: an  ongoing Covid-19 pandemic and the economic damage it’s wrought. But he’ll have an uphill battle to enact the sort of bold policy agenda that many supporters were hoping for.

Barring a January surprise in Georgia’s runoff election, Republicans are likely to retain control of the Senate, denying Biden the unified control of government that his predecessors enjoyed when they came into office.  With traditional relief and stimulus measures limited by opposition party intransigence, Biden might still be able to pass policies designed to resuscitate the stricken service sector directly.

The U.S. economy has bounced rapidly back since April, but only partially. Employment has only recovered about halfway to where it was before Covid-19 struck, giving it the shape of a reverse square-root sign:

Lower-wage employees, who tend to work at the local services businesses most deeply impacted by the virus, are suffering more.

The economy is being afflicted by two simultaneous maladies. The first is continued fear of the virus, now in the middle of a devastating third wave. Fear, more than lockdowns, has kept Americans shut inside their homes, reluctant to take the risk of going out to shop or eat. That in turn gives rise to the second problem of decreased demand, which filters through the entire economy.

Fear of the virus will eventually be reduced by vaccines, which may become available in early 2021. A national program of testing and contact tracing — which President Donald Trump long resisted — would also help speed Covid-19 on its way, and should be a priority for the incoming administration. But even when the virus is gone, the economy is likely to remain depressed for awhile, as the overhang of unemployment works its way out of the system.

Bold relief measures, of the type that sustained Americans through the pandemic’s dark early days, probably won’t be forthcoming given the GOP Senate’s inevitable turn towards austerity. The same is true of traditional fiscal stimulus, such as a burst of infrastructure spending, that might help boost demand back to normal levels. But there might be a chance for more targeted measures to help the sectors of the economy that Covid-19 has hurt the most — local services.

Restaurants, shops, and other establishments that cater in person to customers have gone bust in large numbers. After the threat of the virus has passed, the U.S. government might try to resuscitate local economies by subsidizing new shops to fill the empty storefronts that now dot America’s urban landscape. Some of these new establishments would be run by the same owners whose businesses went under during the pandemic, while others would be run by enterprising newcomers. But all would be able to draw on the local pool of unemployed, most of whom were working in these same types of businesses in 2019.

Subsidizing new local businesses would accomplish several goals at once. It would put people back to work at jobs they know how to do, and start pumping demand through the ecosystems of local economies. It would help prevent cities’ commercial retail space from being riddled with unsightly boarded-up vacancies — a blight that hurts viable businesses next door. And it would help sustain and preserve the small business class.

This last aspect might make local business formation subsidies attractive to Republicans in the Senate; small businesspeople are a reliable Republican constituency. Additionally, this policy would be highly targeted; the subsidies could last only until a town’s existing commercial vacancies had been mostly filled, limiting the cost of the program and avoiding the appearance of handing out money at random.

Strict free-market adherents might worry that this plan would delay or prevent needed transformation in the U.S.’s industrial mix. The pandemic has shifted demand from local services to e-commerce; people are watching Netflix instead of going to movie theaters, and ordering things off of Amazon instead of buying them in stores. Some will question whether reversing that shift should be an economic priority.

But the benefit of quickly and cheaply resuscitating local U.S. economies far outweighs the danger of slightly delaying the evolution to a more online future. In fact, local business formation subsidies will simply accelerate a move that’s already in place; new business filings have been above trend since August, as entrepreneurs take advantage of cheap rents and labor. The local economy is restoring itself already — it could just use a push to get the job done faster.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

©2020 Bloomberg L.P.

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Economy

Canadian dollar moves to extend weekly win streak as oil rebounds

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Canadian dollar

The Canadian dollar strengthened against its U.S. counterpart on Friday and was on track for its seventh straight weekly gain as oil prices rose and domestic data added to evidence of robust economic growth in the first quarter.

Canadian factory sales rose 3.5% in March from February, led by the motor vehicle, petroleum and coal, and food product industries, while wholesale trade was up 2.8%, Statistics Canada said.

The price of oil, one of Canada‘s major exports, reversed some of the previous day’s sharp losses as stock markets strengthened, though gains were capped by the coronavirus situation in major oil consumer India and the restart of a fuel pipeline in the United States.

U.S. crude prices rose 1.2% to $64.61 a barrel, while the Canadian dollar was trading 0.6% higher at 1.2093 to the greenback, or 82.69 U.S. cents, moving back in reach of Wednesday’s 6-year peak at 1.2042.

For the week, the loonie was on track to gain 0.3%. It has climbed more than 5% since the start of the year, the biggest gain among G10 currencies, supported by surging commodity prices and a shift last month to a more hawkish stance by the Bank of Canada.

Still, BoC Governor Tiff Macklem said on Thursday if the currency continues to rise, it could create headwinds for exports and business investment as well as affecting monetary policy.

The U.S. dollar fell against a basket of major currencies, pressured by a recovery in risk appetite across markets after Federal Reserve officials helped calm concerns about a quick policy tightening in response to accelerating U.S. inflation.

Canadian government bond yields were lower across much of a flatter curve, with the 10-year down 2 basis points at 1.549%. On Thursday, it touched its highest intraday in eight weeks at 1.624%.

 

(Reporting by Fergal Smith; Editing by Nick Zieminski)

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Toronto Stock Exchange rises 1.21% to 19,366.69

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Toronto Stock Exchange

* The Toronto Stock Exchange‘s TSX rises 1.21 percent to 19,366.69

* Leading the index were SNC-Lavalin Group Inc <SNC.TO​>, up 16.0%, Village Farms International Inc​, up 9.8%, and Denison Mines Corp​, higher by 9.4%.

* Lagging shares were Aurora Cannabis Inc​​, down 7.2%, Centerra Gold Inc​, down 3.8%, and Canadian National Railway Co​, lower by 3.7%.

* On the TSX 194 issues rose and 35 fell as a 5.5-to-1 ratio favored advancers. There were 25 new highs and no new lows, with total volume of 225.7 million shares.

* The most heavily traded shares by volume were Enbridge Inc, Manulife Financial Corp and Cenovus Energy Inc.

* The TSX’s energy group rose 3.32 points, or 2.7%, while the financials sector climbed 4.80 points, or 1.3%.

* West Texas Intermediate crude futures rose 2.65%, or $1.69, to $65.51 a barrel. Brent crude  rose 2.68%, or $1.8, to $68.85 [O/R]

* The TSX is up 11.1% for the year.

This summary was machine generated May 14 at 21:03 GMT.

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Economy

U.S., Mexico, Canada to hold ‘robust’ talks on trade deal

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The United States, Mexico and Canada will next week hold their first formal talks on their continental trade deal, with particular focus on labor and environmental obligations, the U.S. government said on Friday.

Trade ministers from the three nations are set to meet virtually on Monday and Tuesday to discuss the U.S.-Mexico-Canada (USMCA) deal, which took effect in July 2020.

“The ministers will receive updates about work already underway to advance cooperation … and will hold robust discussions about USMCA’s landmark labor and environmental obligations,” the office of U.S. Trade Representative Katherine Tai said in a statement.

The United States is also reviewing tariffs which may be leading to inflation in the country, economic adviser Cecilia Rouse told reporters at the White House on Friday, a move that could affect hundreds of billions of dollars in trade.

The United States, testing provisions in the new deal aimed at strengthening Mexican unions, this week asked Mexico to investigate alleged abuses at a General Motors Co factory.

(Reporting by David Ljunggren; Editing by Hugh Lawson and Jonathan Oatis)

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