Default Crisis Dodged — for Now — with Dem/GOP Debt Accord​​​​​​

Senate leaders announced an agreement today to extend the government’s borrowing authority into December, temporarily averting an unprecedented federal default that experts say would have devastated the economy, the Associated Press reported. “Our hope is to get this done as soon as today,” Senate Majority Leader Chuck Schumer (D-N.Y.) declared as he opened the Senate. In their agreement, Republican and Democratic leaders edged back from a perilous standoff over lifting the nation’s borrowing cap, with Democratic senators accepting an offer from Senate GOP leader Mitch McConnell (R-Ky.). McConnell made the offer a day earlier just before Republicans were prepared to block longer-term legislation to suspend the debt limit and as President Joe Biden and business leaders ramped up their concerns that a default would disrupt government payments to millions of people and throw the nation into recession. The agreement sets the stage for a sequel of sorts in December, when Congress will again face pressing deadlines to fund the government and raise the debt limit before heading home for the holidays. The agreement will allow for raising the debt ceiling by about $480 billion, according to a Senate aide familiar with the negotiations who spoke on condition of anonymity to discuss them. That is the level that the Treasury Department has said is needed to get to Dec. 3. ​​

Weekly Jobless Claims Decline to 326,000​​​​​​

The total of Americans submitting jobless claims fell sharply last week as enhanced federal unemployment benefits wound down, the Labor Department reported today, according to CNBC.com. Initial filings for unemployment benefits totaled a seasonally adjusted 326,000 for the week ended Oct. 2, below the 345,000 Dow Jones estimate and a drop from the previous week’s 364,000 total. The weekly total was the lowest level since Sept. 4 and reverses a trend of rising claims over the past three weeks. However, the four-week moving average, which smooths weekly volatility in the numbers, edged higher to 344,000. Continuing claims, which run a week behind and total those who have filed for at least two weeks of benefits, also posted a healthy decline, dropping 97,000 to 2.71 million. ​​

Supply Crunch Hits Would-Be Homebuyers, Makes Renting Cheaper​​​​​​

Young workers flocking to America’s fastest-growing metropolitan areas in search of good jobs are finding it increasingly difficult to buy homes as decades of public policy decisions collide with a shorter-term supply-chain crisis, The Hill reported. The result is that for millions of Americans who live in the nation’s economic powerhouses, renting is now cheaper than buying a home: In about half of the country’s largest cities, median rent is less than the average monthly mortgage of a starter home. “Home prices are rising at double-digit growth in 90 percent of metro areas,” said Gay Cororaton, director of housing and commercial research at the National Association of Realtors. “It’s really the supply that’s constraining homeownership, not the desire to rent.” In cities like Austin, San Francisco, Seattle, Boston and Los Angeles, median rents are 40 percent or more lower than the monthly cost of buying a starter home, according to data from Realtor.com. Real estate firm Zillow, which monitors both home and rental costs, found that renting is cheaper than monthly mortgage payments in 22 of the top 100 metro areas. The higher costs of buying a home come from an overall shortage in inventory that has sent home prices soaring in recent years. Home builders are constructing fewer new homes than they were before the great recession more than a decade ago. The millennial generation is entering prime homebuying ages, and more older Americans are looking for second homes, adding to an increase in demand. ​​

Commentary: Pension Funds’ Silver Lining Has a Touch of Gray​​​​​​

There has been an unusual burst of good news for state pension plans in the past week, according to a Washington Post commentary. New Jersey, one of the shakiest plans in the country, reported a 28.6% return for the fiscal year ended June 30, the highest in more than 20 years. Other funds have reported or are estimated to have returns around 25%. The Pew Charitable Trust estimates that State and local pension funds have finally recovered from the 2008 market crash and are back up to 80% funded, meaning that assets currently in the fund could cover 80% of the benefits owed under optimistic assumptions about investment returns. Moreover, reforms adopted in the last decade, such as increasing taxpayer and employee contributions and limiting benefits for new hires, mean that funds as a group are now in “positive amortization,” with more cash being collected net of benefits than the present value of new benefits added, shrinking the funding gap. This proves many forecasters wrong when they predicted back in the depths of the March 2020 market crash that state pension fund systems might have been at the tipping point from which recovery would be impossible for the most troubled plans. A 65% gain in the S&P 500 Index while interest rates fell (meaning bond prices rose) moved funds from the critical list to, if not the full health of 100% funded under realistic assumptions, at least the walking-wounded state that has been the norm since the 2000 stock market crash. But every silver lining has a touch of gray. The bad news about the stock market rally is that it is only in stock prices; corporate revenues, profits and book values have not kept pace. As a result, the cyclically adjusted price earnings ratio (the best well-known measure of stock valuations) stands at 37.2 — far above the high of 31.3 just before the Black Friday stock market crash that was the harbinger of the Great Depression, and only exceeded by the 43.8 in 1999 that marked the top of the dot-com bubble. Unless there is a miracle recovery in actual business profits and economic growth, it seems inevitable that there will either be a major stock market crash, or at least a period of many years of mediocre stock market returns rather than the robust gains necessary to maintain pension plan funding levels. ​​

SEC’s Gensler Aims to Save Investors Money by Squeezing Wall Street​​​​​​

Wall Street’s new overseer has outlined an aggressive regulatory agenda that threatens to squeeze the financial industry’s profit margins, the Wall Street Journal reported. Securities and Exchange Commission Chairman Gary Gensler is working on tougher rules for high-speed trading firms, private-equity managers, mutual funds and online brokerages. Mr. Gensler, less than six months on the job, says he wants to make the capital markets less costly for companies raising money as well as for ordinary investors saving for retirement. His main targets are what he says are profits and salaries earned above what a purely competitive market would allow, known as economic rents. “I hope that we address, and try to lower, the economic rents in our capital markets,” Mr. Gensler said. He noted that finance as a share of U.S. economic output had more than doubled since the 1950s to roughly 8% of today’s gross domestic product. “If we ever got back to what it was,” he said, “that’s a lot of savings.” The regulatory push risks shaking up some of Wall Street’s most lucrative business models. Some Republicans accuse him of overreach. People close to the industry say Mr. Gensler’s plans are likely to spark opposition. But because the SEC hasn’t issued formal proposals for most of the items on his agenda, few industry representatives have been willing to publicly criticize it. (Subscription required.) ​​

Justice Department Sets Up National Cryptocurrency Enforcement Team​​​​​​

The U.S. Justice Department is creating a national cryptocurrency enforcement team to tackle investigations and prosecutions of criminal misuses of cryptocurrency and to recover the illicit proceeds from these crimes, Deputy Attorney General Lisa Monaco said yesterday, the Wall Street Journal reported. The creation of the National Cryptocurrency Enforcement Team, which would be under the supervision of Assistant Attorney General Kenneth Polite Jr., will focus on crimes committed by virtual currency exchanges and mixing and tumbling services, the DOJ said in a statement. The team also would help trace and recover assets lost to fraud and extortion, the DOJ said. A virtual currency “mixer” or “tumbler” charges customers a fee to send cryptocurrencies to a designated address in a manner designed to conceal the source or owner of the currency. NCET would strengthen the DOJ’s capacity “to dismantle the financial entities that enable criminal actors to flourish — and quite frankly to profit — from abusing cryptocurrency platforms,” Monaco said. “As the technology advances, so too must the department evolve with it so that we’re poised to root out abuse on these platforms and ensure user confidence in these systems,” she said. (Subscription required.) ​​

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