The 10-year estimates do contain positive news as this year’s annual budget deficit will be $118 billion lower than forecast last year. That’s a byproduct of the end of pandemic-related spending and the solid job growth it helped to spur. As a share of the total economy, publicly held debt will drop through 2023. Still, the accumulated federal debt will likely continue to grow over the next decade to be equal to roughly 110% of U.S. gross domestic product.
The Federal Reserve has been trying to reduce inflation by raising its benchmark interest rates, causing the interest charged on 10-year U.S. Treasury notes to increase substantially in recent months. One consequence is that the government will be spending more money this year to service its debt. By 2032, the yearly interest payments will nearly be $1.2 trillion, or more than what the federal government spends on defense.
Still, the CBO cautions that its numbers “are subject to considerable uncertainty, in part because of the ongoing pandemic and other world events,” including Russia’s ongoing war in Ukraine. The report accounts at least for the first few months of the war, according to CBO.
Economists have said coronavirus relief programs issued by both the Biden and Trump administrations have contributed to higher inflation levels. But high prices have also been fueled by a delay in action by the Fed, supply chain disruptions and the tumult produced after Russia invaded Ukraine in February.
Ben Harris, the Treasury Department’s assistant secretary for economic policy, tweeted on Tuesday that the factors driving inflation also include soaring corporate profits, driven by a lack of business competition — as well as business not being fully prepared for the reopening of the economy as pandemic restrictions were lifted. The administration has emphasized that its plan put the U.S. economy into a stronger place relative to the rest of the world because unemployment is a low 3.6%.
“The American Rescue Plan has fostered an extraordinarily fast recovery and leaves us in a strong position to address the global challenges posed from supply chains and the economic fallout from Russia’s invasion of Ukraine,” he tweeted.
The report says beyond 2032, “if current laws remained generally unchanged, deficits would continue to grow relative to the size of the economy over the following 20 years, keeping debt measured as a percentage of GDP on an upward trajectory throughout that period.”
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told The Associated Press ahead of the release that the pandemic, war in Ukraine and other factors point to the importance of reducing the annual deficit.
“Unfortunately, the underlying story here is one of fiscally unsustainable positions and on top of that, we have this added challenge of inflation and a reminder that external shocks continue to come at us,” she said.
Fatima Hussein, The Associated Press
RBC climate action mild enough to pass Texas fossil fuel test
TORONTO — RBC’s climate policies have been deemed mild enough to pass a Texas test on whether banks are boycotting oil and gas companies.
State Comptroller Glenn Hegar last week named 10 financial institutions including BlackRock Inc., Credit Suisse Group AG and UBS Group AG that it deems to be boycotting fossil fuels, which under a law passed last year means they are barred from participating in the state’s sizable bond market.
“The environmental, social and corporate governance (ESG) movement has produced an opaque and perverse system in which some financial companies no longer make decisions in the best interest of their shareholders or their clients, but instead use their financial clout to push a social and political agenda shrouded in secrecy,” said Hegar in a statement.
He said that while the state’s investigation focused on boycotts rather than the wider movement, it found a systemic lack of transparency.
“Especially the use of doublespeak by some financial institutions as they engage in anti-oil and gas rhetoric publicly yet present a much different story behind closed doors.”
The state’s definition of boycotting energy companies includes any action, without ordinary business purpose, taken to limit a bank’s commercial relations with an oil and gas company because it does not go beyond minimum environmental requirements.
RBC was one of 19 financial institutions that Texas flagged for further investigation, in part because of the bank’s commitment to net-zero lending by 2050. Such commitments could lead banks to have to make tough decisions about what companies they lend to based on their environmental performance, while the state said it also factored in wider ESG ratings when trying to narrow down the list.
In a written response to the state’s inquiry, RBC said it greatly values its relationship with Texas and asserts it does not boycott energy firms.
“RBC provides a wide range of financial services — including financing, underwriting, and advisory services — to many companies in the oil and gas industry, including those located in Texas.”
The bank notes it has a credit risk exposure to the oil and gas sector of about $25 billion.
“RBC engages in billions of dollars of financial activity with energy companies and counts many energy companies among its clients.”
Indeed, the bank’s substantial funding of fossil fuel projects has been criticized by environmental groups that have pushed Canadian banks to limit their funding to the sector.
“We’ve seen no evidence that RBC is curtailing its massive fossil fuel financing or even setting credible climate targets, so it’s not surprising they didn’t end up on the Texas list, inaccurate though it may be,” said Matt Price, director of corporate engagement at Investors for Paris Compliance.
A July report on bank climate action by the Transition Pathway Initiative found that RBC lagged banks like UBS and Credit Suisse on its decarbonization strategy, while also highlighting how most banks are still falling short on setting targets.
RBC said in its letter to Texas that along with funding fossil fuel companies it is, at the same time, committed to addressing climate change. It cites as examples its net-zero commitments, including setting interim financed emission reduction targets by 2023, and its $500 million sustainable financing target.
It also says that in the ordinary course of business it may decline to provide financial services that expose it to undue risk, noting its limits on greenfield coal-fired power plants and funding oil and gas exploration in the Arctic National Wildlife Refuge.
The Texas energy boycott law, along with a similar one targeting banks that boycott gun manufacturers and associations, pushed several major U.S. banks including Citigroup, Goldman Sachs, Bank of America and JPMorgan Chase out of the market last year, according to a research paper by University of Pennsylvania professor Daniel Garrett published in June.
His paper, written with Ivan Ivanov, a principal economist at the U.S. Federal Reserve Board, found that the Texas laws would mean citizens of the state would likely have to pay between about $300 million and $500 million in added interest costs because of the reduced competition in the state.
The paper also noted that TD Securities had submitted a letter last year attesting that it, too, was in compliance with the energy and gun laws, but withdrew the letter in March to potentially signal it was withdrawing from the market.
TD did not respond to a request for clarification.
While the withdrawal by several banks from the market might not be great for Texas taxpayers, it has likely benefited RBC. According to Bloomberg, the bank was able to jump up last year to become the No. 1 bond issuer in the state.
This report by The Canadian Press was first published Aug. 29, 2022.
Companies in this story: (TSX:RBC)
Ian Bickis, The Canadian Press
Armed man demanding savings takes Beirut bank staff hostage
BEIRUT (AP) — A Lebanese man with a shotgun took up to 10 employees and customers hostage at a Beirut bank Thursday and threatened to set himself on fire with gasoline unless he was allowed to withdraw some of his trapped savings to pay his father’s medical bills.
Soldiers and police converged on the area and sought to negotiate an end to the standoff.
The hostage drama in Beirut’s bustling Hamra district was the latest painful episode in Lebanon’s economic free-fall, now in its third year. Lebanon’s cash-strapped banks since 2019 have put strict limits on withdrawals of foreign currency assets, effectively trapping the savings of millions of people.
The gunman, identified as 42 year-old Bassam al-Sheikh Hussein, entered a branch of the Federal Bank carrying a canister of gasoline, said a security official who spoke on condition of anonymity in line with regulations. The man fired three warning shots, the official said.
George al-Haj, head of the Bank Employees Syndicate, told local media that seven or eight bank employees were taken hostage along with two customers. The gunman released one hostage, who was taken away by ambulance.
A bank customer who fled the building told local media that the gunman was demanding to withdraw $2,000 to pay his hospitalized father’s medical bills. Local media reported that he had about $200,000 stuck in the bank.
Hussein’s brother Atef, standing outside the bank, told The Associated Press that his brother would be willing to turn himself in if the bank gave him money to help with his father’s medical bills and family expenses.
“My brother is not a scoundrel. He is a decent man,” Atef al-Sheikh Hussein said. “He takes what he has from his own pocket to give to others.”
Lebanese army soldiers, police officers from the country’s Internal Security Forces and intelligence agents surrounded the area.
Cellphone video showed the man with his shotgun, demanding his money. In another video, two police officers outside the locked bank entrance asked him to release at least one of the hostages, but he refused.
Lebanon is suffering from the worst economic crisis in its modern history. Three-quarters of the population has plunged into poverty, and the Lebanese pound has declined in value by more than 90% against the U.S. dollar.
Dozens of protesters gathered in the area during the standoff, chanting slogans against the Lebanese government and banks, hoping that the gunman would receive his savings. Some bystanders hailed him as a hero.
“What led us to this situation is the state’s failure to resolve this economic crisis and the banks’ and Central Bank’s actions, where people can only retrieve some of their own money as if it’s a weekly allowance,” said Dina Abou Zor, a lawyer with the advocacy group Depositors’ Union who was among the protesters. “And this has led to people taking matters into their own hands.”
Abou Zor said Hussein’s wife told her the family is heavily indebted and struggling to make ends meet.
Dania Sharif said her sister, who serves coffee and tea at the bank, was among the hostages and had not been harmed by the gunman. “He just wants his money,” Sharif said, standing outside the bank. “I will not leave until my sister comes out.”
In January, a coffee shop owner withdrew $50,000 trapped in a bank in Lebanon after taking employees hostage and threatening to kill them.
Kareem Chehayeb And Fay Abuelgasim, The Associated Press
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