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Aviation contractors axed jobs as U.S. delayed aid, House panel finds By Reuters

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© Reuters. FILE PHOTO: An empty International Terminal of San Francisco International Airport is pictured after the U.S. air travel ban, in San Francisco

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By Tracy Rucinski

CHICAGO (Reuters) – U.S. aviation contractors laid off thousands of workers due to delays in payroll aid from the U.S. Treasury that was meant to protect jobs, an investigation by a U.S. House of Representatives subcommittee found.

Under the Coronavirus Aid, Relief and Economic Security Act (CARES Act), companies in the aviation sector were granted funds to cover six months of their payroll as the COVID-19 pandemic prompted a precipitous decline in air travel.

The legislation banned any job cuts through September, and requires the U.S. Department of the Treasury to begin distributing funds to eligible companies within 10 days of the law’s approval on March 27.

But an investigation by the House Select Subcommittee on the Coronavirus Crisis found that top contractors did not receive the money until months later, resulting in more than 16,500 layoffs and furloughs at 15 companies, more than 15% of the aviation contractor workforce.

“Had Treasury met the deadline set by Congress, many of these jobs would have been preserved,” the report said.

Treasury did not immediately comment.

Among the top seven contractors, Swissport waited 99 days before its payroll support agreement with Treasury was finalized, Gate Gourmet 78 days and Flying Food Fare 74 days, leading to nearly 12,000 layoffs and furloughs at those three companies alone.

The companies still received the full amount of federal aid based on their pre-pandemic workforce, even though they had laid off many of those workers, the report said.

Swissport, Gate Gourmet and Flying Food Fare did not immediately comment.

Aviation contractors were awarded $3 billion under the first CARES Act and could see those funds extended for another six months if Congress passes a second stimulus package.

The report recommends another round of aid but said layoffs should be prohibited until a company uses all of its funds and urges Treasury to expedite funds to ensure that job retention is the top priority.

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Economy

central bank governor By Reuters

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© Reuters.

BEIJING (Reuters) – China will strike a balance between stabilising economic growth and preventing risks, even as debt was allowed to temporarily rise this year to support the coronavirus-hit economy, central bank governor Yi Gang said on Wednesday.

Yi told a financial forum in Beijing that he expected China’s macro leverage ratio to stabilise next year as the economy expands, after the debt gauge rose in 2020.

Bank lending in the first nine months totalled 16.26 trillion yuan ($2.44 trillion) as policymakers looked to reboot economic activity, beating a previous peak of 13.63 trillion yuan in the same period last year.

“Monetary policy needs to guard the ‘gates’ of money supply, and properly smooth out fluctuations in the macro leverage ratio, and keep it on a reasonable track in the long run,” Yi said.

Ruan Jianhong, head of the statistics department at the People’s Bank of China (PBOC), said in July that the country’s macro leverage ratio jumped 14.5 percentage points in the first quarter and climbed further in the second quarter.

The central bank has not given further details.

The Institute for International Finance (IIF) said in July that China’s debt-to-GDP ratio was on track to hit 335%, from nearly 318% in the first quarter.

At the same forum, Vice Premier Liu He earlier said the economy will very likely grow this year, adding that prudent monetary policy should be kept appropriate and flexible, and liquidity reasonably ample.

On Monday, China reported gross domestic product grew 0.7% in January to September from a year earlier, versus a contraction of 1.6% in the first half following the outbreak of the novel coronavirus.

On Sunday, Yi said full-year GDP will likely grow by about 2%.

That would make China the only major economy expected to report growth in 2020, though it would be the country’s weakest annual expansion since 1976.

 

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Column: Savings stash squares brutal second-wave rescue costs

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© Reuters. FILE PHOTO: The Federal Reserve in Washington

By Mike Dolan

LONDON (Reuters) – The public’s financial caution around lockdowns continues to give governments and central banks both the reason and room for open-ended support of their economies through another looming wave of this year’s devastating pandemic.

With a second surge of the COVID-19 virus in full swing in Europe at least and no effective vaccine on the table yet, questions about how governments can afford the blinding costs of economic support through the Northern winter are resurfacing.

The unprecedented numbers being clocked up worldwide are daunting. Estimating a global tally for this year’s fiscal rescues so far, the International Monetary Fund last week pinned it at $11.7 trillion, or almost 12% of world output.

And that was before the latest resurgence of the virus and renewed clampdowns on mass gatherings, socialising and travel.

The IMF reckons developed economy governments are likely to have exploded annual budget gaps by about 11% of gross domestic product (GDP) by the end of the year, lifting debt-to-GDP ratios by almost a fifth to 125%.

This year’s deficit in the United States is set to jump more than 12 percentage points to almost 19% and the euro zone budget shortfall is due to balloon 9 points to more than 10% – or almost a trillion euros ($1.2 trillion).

The commensurate surge in central bank bond buying is clearly the main reason financial markets haven’t run scared and benchmark 10-year borrowing rates remain near record lows of less than 1% stateside and below zero in much of the euro zone.

And on that, the IMF estimates the European Central Bank (ECB) has bought as much as 71% of all euro government debt sold since February while the U.S. Federal Reserve has snapped up 57% of all Treasury debt issued since then.

The question for the public at large, however, is how long can governments keep this up and what’s the payback?

Part of the answer lies in a circular flow involving the mass build-up of precautionary household savings during pandemic lockdowns and beyond, and whether, or how quickly, they get run down and spent.

Unlike the money supply implosion that accompanied the banking crash and credit crunch 12 years ago, the opposite happened this year as governments pre-empted their own shutdowns with a flood of income support, lending and credit guarantees while firms rushed to borrow and build cash buffers.

Yet without households running down those savings fully, its unlikely the money supply surge from government and central bank largesse will spur any significant inflation – in itself the only significant reason central banks would rethink underwriting the government bond boom and keeping debt costs affordable.

“If more fiscal stimulus is needed, the ECB will buy it,” said UniCredit chief economist Erik Nielsen. “So long as this debt is parked on the central bank’s balance sheet, it’ll be de facto cost-free for governments and taxpayers.”

Money printing is only inflationary if people and companies spend it, Nielsen wrote, and there’s really no realistic prospect of the private savings glut becoming inflationary even if spent in a very short period.

“It’s an output gap story. The huge expansion in private savings in recent months illustrates this, so the fiscal expansion is basically no more than an exercise in propping up demand as the private sector retrenches.”

SAVING THE WORLD

U.S. household savings quintupled from January to more than $6.3 trillion in April, with the savings rate as a share of income quadrupling to a record of more than 33% as most people continued getting paid, or received additional benefits, but had little to spend it on during lockdowns.

The savings rate has more than halved since to 14% – or $2.4 trillion – in August. But it remains more than twice as high as in January.

While Europe only publishes savings data on a quarterly basis, it paints a similar picture. Eurostat shows the euro zone savings rate more than doubled to a record of almost 25% by the middle of the year.

That’s why TS Lombard economist Shweta Singh describes the money growth surge back to World War Two peaks in the United States as a “false positive” and no precursor to inflation.

What’s more, if the virus dissipates, consumer spending re-emerges and those precautionary savings are run down quickly, it will most likely be an environment where deficits and debt sales shrink too and central bank balance sheets flatten out.

Myriad questions and longer-term conundrums persist.

Can debts rise endlessly if inflation never emerges? What happens to sovereign credit ratings in that scenario? What happens if, or when, inflation does re-emerge?

Investors at Columbia Threadneedle, for example, think caution is still warranted over the “political will” in the euro zone to manage the rising debt stock of countries such as Italy and Spain which have debt-to-GDP ratios above 100% but no domestic central bank.

Pan-European borrowing helps, they say, but it may have political limits too.

Yet on the issue of “exit policies” and inflation in a recovery, UniCredit’s Nielsen is adamant: “If I were a central banker, I would be much happier navigating those future challenges than those that they have been facing these past few years.”

(The author is editor-at-large for finance and markets at Reuters News. Any views expressed here are his own)

(by Mike Dolan, Twitter: @reutersMikeD; Editing by David Clarke)





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things could have been far worse By Reuters

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© Reuters. Britain’s Chancellor of the Exchequer Rishi Sunak leaves Downing Street, in London

LONDON (Reuters) – After statistics showed state borrowing had soared while tax receipts had fallen, British finance minister Rishi Sunak said on Wednesday that things could have been far worse had the government not acted to protect livelihoods.

“Whilst it’s clear that the coronavirus pandemic has had a significant impact on our public finances, things would have been far worse had we not acted in the way we did to protect millions of livelihoods,” Sunak said.

“Over time and as the economy recovers, the government will take the necessary steps to ensure the long-term health of the public finances,” he said.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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