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Why restoring US leadership at the multilaterals is an important step for addressing COVID-19

Why restoring US leadership at the multilaterals is an important step for addressing COVID-19

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By George Ingram

A range of recent articles and analyses have exposed the inadequacy of the U.S. international response to COVID-19 and made the case for a reassertion of U.S. global leadership. What has received insufficient attention is how with one stroke the U.S. can both promote our health security and assert our international leadership. That stroke is to make good on a decade of growing arrears—obligations that are past due—to the multilateral development banks (MDBs). This action would restore U.S. moral and financial leadership to organizations that are providing critical levels of funding and technical knowledge to help developing countries bolster their defenses against the pandemic.

Political context

On May 8, Senate Democrats introduced legislation that would authorize a holistic and extensive U.S. international response to the COVID-19 pandemic. Section 218 of the bill acknowledges the U.S. shortfall to the MDBs by directing the Secretary of the Treasury to clear arrears to the World Bank Group from fiscal years 2019 and 2020. But this is an authorization bill so it does not provide the required funding.

Separately, Republicans and Democrats are developing plans for a fifth CARES Act. But the focus appears to be almost solely on the domestic, not international side.

A group of 26 former members of congress yesterday sent to congressional leaders a letter urging them to “support robust resources for the International Affairs Budget dedicated to America’s leadership in battling this pandemic around the world—to keep us safe and to protect our economic recovery at home.”

A group of civil society organizations has also sought to correct the oversight by joining their technical and policy knowledge, and advocacy capabilities, to outline a constructive $12 billion international program for this expected legislation.

What needs to be brought into this mix of efforts is a fix to the damage being done both to U.S. leadership and the programmatic efforts of multilateral development banks.

Arrears

U.S. arrears to MDBs jeopardize both their effectiveness and our influence in their governance. The MDBs provide two types of finance—non-concessional (at market lending rates) and concessional (grant assistance). All of these arrears are in the concessional category. It is this grant assistance that poor countries—plagued by inadequate domestic resources and often high debt burden—find of greatest value as they often cannot qualify for market lending and definitely cannot afford it. Voting in the concessional windows of MDBs is keyed to contributions, so not only are we undercutting the ability of these institutions to assist the neediest countries, but we are also short-circuiting our own leadership. Beyond that, failure to honor our financial commitment undermines our moral suasion and voice.

Through fiscal year 2020, U.S. arrears to MDBs are just shy of $2.5 billion

In addition to these current funding arrears, the administration’s fiscal year 2021 budget request would add a further shortfall of $267.520 million for the International Development Association and $24.697 million for the African Development Fund, so the fiscal year 2021 appropriations bill should make that up.

MDB COVID-19 actions

These organizations are at the forefront of confronting the challenge of the pandemic. The World Bank Group has committed to over $160 billion of funding over the next 15 months to help countries respond to immediate health consequences of the pandemic and to bolster economic recovery, and it has already allocated $12 billion to 132 projects in 92 countries, mainly through its core institutions (International Bank for Reconstruction and Development or IBRD, and the International Development Association or IDA). It is establishing a new Health Emergency Preparedness and Response Multilateral Fund. Also within the World Bank Group, the International Finance Corporation (IFC)—the private sector window of the World Bank Group—has committed to fast tracking $8 billion to support its investor clients in sustaining employment, and the Multilateral Investment Guaranty Agency (MIGA) is fast tracking $6.5 billion for governments and investors to tackle COVID-19. Every dollar the U.S. has pledged in the most recent replenishment of IDA (IDA-19) garners $27.30 in new commitments for the world’s poorest countries. How otherwise would the U.S. garner such levels and leverage of funding to help the poorest developing countries attack their poverty and stem the pandemic?

Further, the Asian Development Bank has committed to $20 billion and a more flexible and streamlined process for a COVID-19 Response Package. The Inter-American Development Bank has authorized the reprogramming of existing resources to health emergencies and an additional $3.2 billion for 2020—for a total funding level for this year of $12 billion to respond to the health crisis and its consequences. Its private sector arm, IDB Invest, has committed $5 billion.

Why this matters

Why does the U.S. arrearage matter? Because the U.S. brings to the table expertise that is grounded in decades of knowledge and experience in development that can guide the policies and programs of these organizations, and the U.S. arrears deprive these organizations of resources they need to carry out their missions.

The less able these organizations are to carry out their functions, the less impactful their programs will be in stemming COVID-19 in developing countries, and the more likely it will end up back here. The U.S. will enjoy health security—besides our own domestic efforts—only when COVID-19 is stopped globally, and part of that solution is multilateral organizations operating at their full capacity and with U.S. leadership.

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Coronavirus dashboard for October 5: an autumn lull as COVID-19 evolves towards seasonal endemicity

  – by New Deal democratBack in August I highlighted some epidemiological work by Trevor Bedford about what endemic COVID is likely to look like, based…

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 - by New Deal democrat

Back in August I highlighted some epidemiological work by Trevor Bedford about what endemic COVID is likely to look like, based on the rate of mutations and the period of time that previous infection makes a recovered person resistant to re-infection. Here’s his graph:




He indicated that it “illustrate[s] a scenario where we end up in a regime of year-round variant-driven circulation with more circulation in the winter than summer, but not flu-like winter seasons and summer troughs.”

In other words, we could expect higher caseloads during regular seasonal waves, but unlike influenza, the virus would never entirely recede into the background during the “off” seasons.

That is what we are seeing so far this autumn.

Confirmed cases have continued to decline, presently just under 45,000/day, a little under 1/3rd of their recent summer peak in mid-June. Deaths have been hovering between 400 and 450/day, about in the middle of their 350-550 range since the beginning of this past spring:



The longer-term graph of each since the beginning of the pandemic shows that, at their present level cases are at their lowest point since summer 2020, with the exception of a brief period during September 2020, the May-July lull in 2021, and the springtime lull this year. Deaths since spring remain lower than at any point except the May-July lull of 2021:



Because so many cases are asymptomatic, or people confirm their cases via home testing but do not get confirmation by “official” tests, we know that the confirmed cases indicated above are lower than the “real” number. For that, here is the long-term look from Biobot, which measures COVID concentrations in wastewater:



The likelihood is that there are about 200,000 “actual” new cases each day at present. But even so, this level is below any time since Delta first hit in summer 2021, with the exception of last autumn and this spring’s lulls.

Hospitalizations show a similar pattern. They are currently down 50% since their summer peak, at about 25,000/day:



This is also below any point in the pandemic except for briefly during September 2020, the May-July 2021 low, and this past spring’s lull.

The CDC’s most recent update of variants shows that BA.5 is still dominant, causing about 81% of cases, while more recent offshoots of BA.2, BA.4, and BA.5 are causing the rest. BA’s share is down from 89% in late August:



But this does not mean that the other variants are surging, because cases have declined from roughly 90,000 to 45,000 during that time. Here’s how the math works out:

89% of 90k=80k (remaining variants cause 10k cases)
81% of 45k=36k (remaining variants cause 9k cases)

The batch of new variants have been dubbed the “Pentagon” by epidmiologist JP Weiland, and have caused a sharp increase in cases in several countries in Europe and elsewhere. Here’s what she thinks that means for the US:


But even she is not sure that any wave generated by the new variants will exceed summer’s BA.5 peak, let alone approach last winter’s horrible wave:



In summary, we have having an autumn lull as predicted by the seasonal model. There will probably be a winter wave, but the size of that wave is completely unknown, primarily due to the fact that probably 90%+ of the population has been vaccinated and/or previously infected, giving rise to at least some level of resistance - a disease on its way to seasonal endemicity.

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JOLTs jolted: Did the Fed break the labour market?

In the Bureau of Labor Statistics (BLS) August release of the Job Openings and Labor Turnover Survey (JOLTS) report, the number of job openings, a measure…

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In the Bureau of Labor Statistics (BLS) August release of the Job Openings and Labor Turnover Survey (JOLTS) report, the number of job openings, a measure of demand for labour, fell to 10.1 million. This was short of market estimates of 11 million and lower than last month’s level of 11.2 million.

It also marked the fifth consecutive month of decreases in job openings this year, while the August unemployment rate had ticked higher to 3.7%, near a five-decade low.

In the latest numbers, the total job openings were the lowest reported since June 2021, while incredibly, the decline in vacancies of 1.1 million was the sharpest in two decades save for the extraordinary circumstances in April 2020. 

Healthcare services, other services and retail saw the deepest declines in job openings of 236,000, 183,000, and 143,000, respectively.

With total jobs in some of these sectors settling below pre-pandemic levels, the Fed’s push for higher borrowing costs may finally be restricting demand for workers in these areas.

The levels of hires, quits and layoffs (collectively known as separations) were little changed from July.

The quits rate (a percentage of total employment in the month), a proxy for confidence in the market was steady at 2.8%.

Source: US BLS

From a bird’s eye view, 1.7 openings were available for each unemployed person, cooling from 2.0 in the month prior but still above the historic average. 

The market still appears favourable for workers but seems to have begun showing signs of fatigue.

Ian Shepherdson, Economist at Pantheon Macroeconomics noted that it was too soon to suggest if a new trend had started to emerge, and said,

…this is the first official indicator to point unambiguously, if not necessarily reliably, to a clear slowing in labour demand.

Nick Bunker, Head of Economic Research at Indeed, also stated,

The heat of the labour market is slowly coming down to a slow boil as demand for hiring new workers fades.

Ironically, equities surged as investors pinned their hopes on weakness in headline jobs numbers being the sign of breakage the Fed needed to pull back on its tightening.

Kristen Bitterly, Citi Global Wealth’s head of North American investments added,

(In the past, in) 8 out of the 10 bear markets, we have seen bounces off the lows of 10%…and not just one but several, this is very common in this type of environment.

The worst may be yet to come

As for the health of the economy, after much seesawing in its projections, which swung between 0.3% as recently as September 27 and as high as 2.7% just a couple of weeks earlier, the Atlanta Fed GDPNow estimate was finalized at a sharply rebounding 2.3% for Q3, earlier in the week.

Rod Von Lipsey, Managing Director, UBS Private Wealth Management was optimistic and stated,

…looking for a stronger fourth quarter, and traditionally, the fourth quarter is a good part of the year for stocks.

As I reported in a piece last week, a crucial consideration that has been brought up many a time is the unknown around policy lags.

Cathie Wood, Ark Invest CEO and CIO noted that the Fed has increased rates an incredible 13-fold in a span of just a few months, which is in stark contrast to the rate doubling engineered by Governor Volcker over the span of a decade.

Pedro da Costa, a veteran Fed reporter and previously a fellow at the Peterson Institute for International Economics, emphasized that once the Fed tightens policy, there is no way to know when this may be fully transmitted to the economy, which could lie anywhere between 6 to 18 months.

The JOLTs report reflects August data while the Fed has continued to tighten. This raises the probability that the Fed may have already done too much, and the environment may be primed to send the jobs market into a tailspin.

Several recent indicators suggest that the labour market is getting ready for a significant deceleration.

For instance, new orders contracted aggressively to 47.1. Although still expansionary, ISM manufacturing data fell sharply to 50.9 global, factory employment plummeted to 48.7, global PMI receded into contractionary territory at 49.8, its lowest level since June 2020 while durable goods declined 0.2%.

Moreover, transpacific shipping rates, a leading indicator absolutely crashed, falling 75% Y-o-Y on weaker demand and overbought inventories.

Steven van Metre, a certified financial planner and frequent collaborator at Eurodollar University, argued

“…the next thing to go is the job market.“

A recent study by KPMG which collated opinions of over 400 CEOs and business leaders at top US companies, found that a startling 91% of respondents expect a recession within the next 12 months. Only 34% of these think that it would be “mild and short.”

More than half of the CEOs interviewed are looking to slash jobs and cut headcount.

Similarly, a report by Marcum LLP in collaboration with Hofstra University found that 90% of surveyed CEOs were fearful of a recession in the near future.

It also found that over a quarter of company heads had already begun layoffs or planned to do so in the next twelve months.

Simply put, American enterprises are not buying the Fed’s soft-landing plans.

A slew of mass layoffs amid overwhelming inventories and a weak consumer impulse will result in a rapid decline in price pressures, exacerbating the threat of too much tightening.

Upcoming data

On Friday, the markets will be focused on the BLS’s non-farm payrolls data. Economists anticipate a comparatively small addition of jobs, likely to be near 250,000, which would mark the smallest monthly increase this year.

In a world where interest rates are still rising, demand is giving way, the prevailing sentiment is weak and companies are burdened by excessive inventories, can job cuts be far behind?

The post JOLTs jolted: Did the Fed break the labour market? appeared first on Invezz.

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International

Trade Deficit decreased to $67.4 Billion in August

From the Department of Commerce reported:The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $67.4 billion in August, down $3.1 billion from $70.5 billion in July, revised.August exp…

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From the Department of Commerce reported:
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $67.4 billion in August, down $3.1 billion from $70.5 billion in July, revised.

August exports were $258.9 billion, $0.7 billion less than July exports. August imports were $326.3 billion, $3.7 billion less than July imports.
emphasis added
Click on graph for larger image.

Exports increased and imports decreased in August.

Exports are up 20% year-over-year; imports are up 14% year-over-year.

Both imports and exports decreased sharply due to COVID-19 and have now bounced back.

The second graph shows the U.S. trade deficit, with and without petroleum.

U.S. Trade Deficit The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Note that net, imports and exports of petroleum products are close to zero.

The trade deficit with China increased to $37.4 billion in August, from $21.7 billion a year ago.

The trade deficit was slightly lower than the consensus forecast.

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