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‘Heads we win, tails you lose’: how America’s rich have turned pandemic into profit – The Guardian

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Never let a good crisis go to waste: as the coronavirus pandemic sweeps the world, America’s 1% have taken profitable advantage of the old saying.

Some of the richest people in the US have been at the front of the queue as the government has handed out trillions of dollars to prop up an economy it shuttered amid the coronavirus pandemic. At the same time, the billionaire class has added $308bn to its wealth in four weeks – even as a record 26 million people lost their jobs.

According to a new report from the Institute for Policy Studies, a progressive thinktank, between 18 March and 22 April the wealth of America’s plutocrats grew 10.5%. After the last recession, it took over two years for total billionaire wealth to get back to the levels they enjoyed in 2007.

Eight of those billionaires have seen their net worth surge by over $1bn each, including the Amazon boss, Jeff Bezos, and his ex-wife MacKenzie Bezos; Eric Yuan, founder of Zoom; the former Microsoft chief Steve Ballmer; and Elon Musk, the Tesla and SpaceX technocrat.

The billionaire bonanza comes as a flotilla of big businesses, millionaires and billionaires sail through loopholes in a $349bn bailout meant to save hard-hit small businesses. About 150 public companies managed to bag more than $600m in forgivable loans before the funds ran out. Among them was Shake Shack, a company with 6,000 employees valued at $2bn. It has since given the cash back but others have not.

Fisher Island, a members-only location off the coast of Miami where the average income of residents is $2.2m and the beaches are made from imported Bahamian sand, has received $2m in aid.

Its residents seemed to be doing fine even before the bailout. This month, the island purchased thousands of rapid Covid-19 blood test kits for all residents and workers. The rest of Florida is struggling. About 1% of Florida’s population has been tested for the coronavirus, behind the national figure of 4%. The state is also in the midst of an unemployment claims crisis, with its underfunded benefits system unable to cope with the volume of people filing.

The banks that were the largest recipients of bailout cash in the last recession have also done well, raking in $10bn in fees from the government loans, according to an analysis by National Public Radio.

“Heads we win, tails you lose,” said Chuck Collins, director of the program on inequality and the common good at the Institute for Policy Studies and co-author of the new report.

Collins said the pandemic had further exposed fault lines in the US body politic that have been widening the gap between the really rich and the rest over decades.

“The rules of the economy have been tipped in favor of asset owners against everyone else,” said Collins.

By 2016 – seven years after the end of the last recession – the bottom 90% of households in the US had still not recovered from the last downturn while the top 10% had more wealth than they had in 2007.

Throughout the recovery, stock market gains disproportionately favored the wealthy. The top 1% of households own nearly 38% of all stock, according to research by the New York University economist Edward Wolff. Even before the coronavirus hit, homeownership in the US – a traditional source of wealth growth – was well below its 2004 peak.

Nor did Americans earn more. Wage growth remained sluggish during the decade-long record-breaking growth in the jobs market that came after the last recession.

For black and Latinx Americans, the situation is worse. The black-white wage gaps are larger today than they were in 1979.

Meanwhile, billionaires have been unable to put a well-heeled foot wrong. Billionaire wealth soared 1,130% in 2020 dollars between 1990 and 2020, according to the Institute for Policy Studies. That increase is more than 200 times greater than the 5.37% growth of median wealth in the US over this same period. And the tax obligations of America’s billionaires, measured as a percentage of their wealth, decreased 79% between 1980 and 2018.

So when the pandemic struck, those at the apex of the wealth pyramid were better positioned than ever to take advantage of the chaos. The rest, not so much.

Collins has been studying income inequality for 25 years and has seen the really rich win victory after victory. But even he was surprised by how quickly America’s billionaires have turned pandemic into profit. “I still get shocked,” he said.

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Economy

The US will need to spend trillions more as economy takes until 2022 to fully recover: CNBC survey – CNBC

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The economy could take one to two years to rebound to full strength and the Federal Reserve and Congress, having already committed historic sums to fight the coronavirus pandemic, will have to commit trillions more, according to respondents to the CNBC Fed Survey.

With the Federal Reserve’s balance sheet already at an unprecedented $6.45 trillion, the 36 respondents see it rising on average to $9.8 trillion. The additional trillions will be added by the end of the current quarter, the respondents expect. Congress, having already committed about $2.5 trillion, is seen putting in an additional $2 trillion.

“My guess is that the virus itself will largely disappear within a year, but that the structural social and economic impacts will be with us much longer,” John Kattar, chief investment officer at Ardent Asset Management, wrote in response to the survey.

Jack Kleinhenz, chief economist for the National Retail Federation, said, “The policy response has been appropriate, but policy takes time to work its way into the economy and targeted sectors. … Many small businesses stand at risk.”

Despite the massive relief, respondents still see the unemployment rate rising to 19%, hitting that level in August. It’s expected to decline only gradually, to 11% by December and to 7% by the end of 2021. That would leave it at about double the rate before the crisis.

Second quarter of 2022

“With spiking unemployment and rising business closures … the prospects of a sharp rebound (is) far outweighed by the more realistic prospect of a longer-term structural disruption,” said Lindsey Piegza, chief economist at Stifel.

A 33% plurality believes the economy won’t be fully restored until the second quarter of 2022. But 19% believe it will be back by year-end and another 19% believe it can happen even earlier, highlighting a wide range of views about the speed and strength of a recovery.

“During the pandemic, production and consumption have been largely deferred and not lost,” wrote Rob Morgan, director of market strategy at US Energy Advisors. “This leads me to believe the economy will experience a V-shaped recovery beginning in the third quarter 2020.”

On average, respondents see gross domestic product falling by 24% this quarter, followed by a rebound of 4.7% in the third quarter and another strong quarter in the fourth. It won’t be enough to make back the losses in the first half. For the full year, GDP is forecast to decline by 5%.

Mark Zandi, chief economist at Moody’s Analytics, said a vaccine is essential for the economy to gain traction. “Until then, any recovery will remain something of a slog, characterized by halting growth and high single-digit unemployment. And even then, the economy won’t be in full swing and fully recovered until mid-decade.”

The Fed funds rate is seen remaining at zero for the rest of the year and rise to 1.9% in 2021. The Federal Reserve concludes its two-day policy meeting on Wednesday. Answers for CNBC’s Fed Survey from investors and economists were collected Thursday to Saturday. 

The S&P is forecast to finish lower on the year at 2,844 than Monday’s close, and rise to 3,141 next year for a 9% gain by the end of 2021.

 “I think the risk markets are anticipating a faster return to normalized economic conditions than we are likely to see,” says John Ryding, chief economic advisor at Brean Capital LLC.

Among the risks: Respondents place a 61% probability on a second round of contagion in the fall and winter.

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White House reportedly considering another round of stimulus checks – Atlanta Journal Constitution

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As the U.S. economy slowly reopens, Americans across the country are still grappling with job loss, furloughs and economic uncertainty. To combat the continued financial struggles some are facing, a White House official says the administration is “studying carefully” another $1,200 payment to citizens.

White House economic adviser Kevin Hassett told the media the administration is determining whether to provide those who qualify another round of stimulus checks, according to NBC News reporter Geoff Bennett. The additional financial support could be included in a phase 4 deal.

 

No word on when the package would be presented the House, but, with the virus still looming, House Majority Leader Steny Hoyer told the media Tuesday that the House will no longer come back next week after speaking to House physician, according to a tweet by Politico congressional reporter Sarah Ferris

 “We made a judgment that we will not come back next week,” Hoyer told reporters.

While the new stimulus checks are being considered, some Americans have not yet received the first round of checks. The IRS began cutting stimulus checks in mid-April. As of this week, about 90 million people have seen the economic bump in their accounts, according to economic news site Market Watch

 The hope is that the checks, which average about $1,200 a piece, will encourage spending and quell the financial pressure to pay essential bills as the COVID-19’s impact has shuttered manufacturing plants, retail stores and limited business hours for dozens of companies.

»MORE: The US is reopening but ‘normal’ is still a ways off

The IRS had distributed about 88.1 million stimulus checks as of April 17 and paid out $157.96 billion, according to statistics released April 24. That’s more than half of the $290 billion put aside for direct payments to individuals in the $2.2 trillion bill called the CARES Act.

Consumer confidence is still low

The Conference Board Tuesday reported that its consumer confidence index tumbled in the month of April, as millions lost their jobs and others feared for the current and future work conditions. 

The Conference Board said Tuesday that its confidence index plunged to a reading of 86.9, down from 118.8 in March. The index is composed of consumers’ assessment of present conditions and expectations about the future. 

 The present conditions index dropped from 166.7, to 76.4, a 90-point drop that was the largest on record. The expectations index, based on the future outlook, improved slightly from 86.8 in March to 93.8 in April.

The numbers in the present conditions index “reflects the sharp contraction in economic activity and surge in unemployment claims,” said Lynn Franco, senior director of economic indicators at the Conference Board.

Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, said the confidence declines were worrisome because “consumers’ downbeat views about future income prospects can restrain consumer spending and the overall economy.”

Consumers drive about 70% of all economic activity in the U.S.

Many economists believe the country has already entered a recession that will be the largest economic disruption since the Great Depression of the 1930s.

The Associated Press contributed to this report.


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Economy

Goldman Sachs explains why stocks can keep rising even as a record-sized recession beckons – Business Insider

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  • Markets may continue to look past negative coronavirus news, especially if projections continue to show that the economy is expected to rebound after the pandemic, a Monday note from Goldman Sachs said.
  • An analysis of GDP forecasts from the bank found that investors tended to discount the next two years of macroeconomic performance.
  • Thus, metrics that focus only on growth over the next year “will overstate current valuations, given the large rebound expected beyond this year,” Zach Pandl, a cohead of global FX and EM strategy, wrote in the note.
  • Read more on Business Insider.

Markets may continue to look past negative coronavirus news, especially if projections continue to show that the economy is expected to rebound after the pandemic, according to Goldman Sachs.

An analysis by the bank using changes to gross-domestic-product forecasts found that investors typically discounted at least the next two years of macroeconomic performance, a Monday note said.

That means that metrics that focus only on growth over the next year — such as multiples based on 12-month earnings expectations — “will overstate current valuations, given the large rebound expected beyond this year,” Zach Pandl, a cohead of global foreign-exchange and emerging-markets strategy, wrote in the note.

While the coronavirus-induced recession is set to be the deepest contraction in modern history, it’s also likely to be the shortest, Pandl said. Many economists expect that, after a dip in 2020, GDP will rebound in 2021 and 2022. By early April, consensus GDP forecasts incorporated a virus hit, down 4% this year. But forecasts are for 4% growth in 2021 and 3% in 2022 — an unusual pattern, Pandl said.

Read more: Goldman Sachs recommends investors buy ‘quality at a reasonable price.’ Here’s are the firm’s top 10 stock picks that fit the bill.

That means that more disappointing data in the near term may not weigh heavily on markets, as activity is expected to snap back “relatively quickly,” Pandl wrote. “The depth of the downturn matters much less than the duration of the recovery,” he said.

Goldman’s analysis came amid a stock-market recovery from March 23 lows. As US states weigh relaxing strict lockdown measures designed to curb the spread of COVID-19, stocks have slowly gained on optimism that the economy will soon reopen. From March 23 to Monday’s close, the S&P 500 gained about 29%, but it was down about 15% from all-time highs in February.

Still, many economists disagree that any rebound after the coronavirus pandemic will be a quick one. Instead of the sharp V-shaped recovery that Goldman is suggesting, many expect a rebound to take a softer U shape.

Read more: The manager of the best small-cap fund of the past 20 years explains why he’s betting big on a consumer recovery — and shares his top 4 stock picks in the struggling sector

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