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The World
Is the Debt Limit Constitutional? Biden Aides Are Debating It. As the government heads toward a possible default on its debt as soon as next month, officials are entertaining a legal theory that previous administrations ruled out. That option is effectively a constitutional challenge to the debt limit. Under the theory, the government would be required by the 14th Amendment to continue issuing new debt to pay bondholders, Social Security recipients, government employees and others, even if Congress fails to lift the limit before the so-called X-date. That theory rests on the 14th Amendment clause stating that “the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” (New York Times)
A Short-Term Fix Looks More Likely as US Debt-Limit Deadline Looms: Democrats want a two-track deal that McCarthy digs in against; Biden sets high-stakes May 9 White House meeting with leaders. (Bloomberg)
Democrats begin process to bypass GOP House leaders and raise debt limit: The use of a so-called “discharge petition” is cumbersome, time-consuming and rarely successful. But Democrats are getting the ball rolling. (Washington Post)
‘No solution in the Senate’: Both parties dig in on debt. As top lawmakers prepare to meet with President Joe Biden, they stayed entrenched in their positions on how to steer the nation away from default. (Politico)
What Is the Debt Ceiling and How Does It Work? The U.S. routinely spends more money than it collects in revenue. These shortfalls are called deficits. To cover these deficits the Treasury Department borrows money by issuing new debt in the form of government securities. This debt is like a loan: Investors trade cash for a promise that the government will pay them back with interest. That loan is added to the total national debt. Congress has imposed a limit on the amount that the Treasury can borrow, known as the debt ceiling. When lawmakers authorize new spending, the ceiling isn’t automatically increased. (Wall Street Journal)
U.S. job openings dropped to their lowest level in nearly two years in March and layoffs rose sharply, in signs that demand for workers is cooling a year after the Federal Reserve began lifting interest rates to combat inflation. Layoffs rose to a seasonally adjusted 1.8 million in March from the prior month, up from a revised 1.6 million in February, the Labor Department. The increase was led by job losses in construction, leisure and hospitality and healthcare industries—sectors that have driven job growth in recent months as tech, finance and other white-collar industries cooled. Employers also reported a seasonally adjusted 9.6 million job openings in March, the Labor Department said, a decrease from a revised 10 million openings in February. (Wall Street Journal)
China is increasingly barring people from leaving the country, including foreign executives, a jarring message as the authorities say the country is open for business after three years of tight COVID-19 restrictions. Scores of Chinese and foreigners have been ensnared by exit bans, according to a new report by the rights group Safeguard Defenders, while a Reuters analysis has found an apparent surge of court cases involving such bans in recent years, and foreign business lobbies are voicing concern about the trend. (Reuters)
China revises conscription law, eyeing Taiwan conflict: Veteran soldiers, tech-savvy students expected to play key roles. (Nikkei Asia Review)
U.S., Japan and South Korea plan three-way summit in Hiroshima: President Joe Biden will meet with Japanese Prime Minister Fumio Kishida and South Korean President Yoon Suk Yeol on the sidelines of the Group of Seven summit in Japan later this month. In addition to the three-way talks, Biden is also scheduled to hold a bilateral meeting with Kishida on the sidelines of the Hiroshima gathering, to be held from May 19 to 21. Biden, Kishida and Yoon last met in Cambodia in November. (Nikkei Asia Review)
The Israeli Air Force carried out airstrikes in the Gaza Strip on Tuesday night in response to 37 rockets launched from the Palestinian enclave at southern Israel earlier in the day. In a statement, the Israel Defense Forces said IAF jets targeted a number of sites belonging to the Hamas terror group. The targets included a Hamas training camp; another base that housed a weapons production site, a concrete production plant, and a training site; a site belonging to the terror group’s naval commandos; and a tunnel used by Hamas in southern Gaza. (Times of Israel)
Earthquake Barely Shakes Erdoğan’s Support Weeks Before Key Turkish Elections: The election still hinges on economic sentiment as investors wait in the wings. Political commentators have described the tragic Feb. 6 earthquake — and the ensuing revelations of graft and mismanagement in construction permitting — as a watershed political event that shifted voters’ political calculus shortly before the elections. But Morning Consult data shows that Erdoğan hasn’t lost much ground overall since the earthquake, and has even gained support among his base. His approval rating, as well as the share of Turkish adults saying the country is headed in the right direction, continue to track closely with consumer sentiment, which has been improving as inflation has somewhat receded from highs in the second half of 2022. If consumer confidence continues to trend upward, it will play into Erdoğan’s hand in the crucial final weeks of campaigning. (Morning Consult)
DeSantis signs sweeping anti-ESG legislation in Florida: Florida governor Ron DeSantis signed into law a bill barring state officials from investing public money to promote environmental, social and governance goals, and prohibiting ESG bond sales. The bill is one of the furthest-reaching efforts yet by U.S. Republicans against sustainable investing efforts, and a clear political message from DeSantis, a likely presidential candidate. (Reuters)
Economy
The rescue of First Republic this week has failed to arrest a sell-off in regional bank shares, which plunged as investors digested JPMorgan’s takeover of the troubled Californian lender. Trading in PacWest, seen as one of the weakest of the midsized regional banks, was briefly halted for volatility and closed down 27.8 per cent. The fall marked PacWest’s worst daily decline since March 10, when Silicon Valley Bank’s collapse heaped pressure on the entire sector. Western Alliance fell 15.1 per cent. Both banks have drawn scrutiny because of their similarities to SVB and First Republic, which were taken over by the Federal Deposit Insurance Corporation after they suffered huge deposit outflows and large paper losses on long-dated assets. (Financial Times)
Why Washington Let JPMorgan Buy First Republic: A regulatory official defended selling the firm to JPMorgan, saying regulators were hamstrung by legal requirements that the winning bank provide the lowest-cost bid. Deviating would have cost the fund an additional, not insignificant, amount of money borne by all banks, including small community lenders, the official said. (Wall Street Journal)
New York and California lost over $90 billion in income to low-tax states during Covid. It accelerated the trend of high-earners relocating to lower-tax states like Florida and Texas. The income losses for California and New York in 2021 were more than three-times their combined losses in 2019, before the pandemic took hold in the U.S. (CNBC)
Eurozone Inflation Rises as Policymakers Weigh a Rate Increase: The eurozone’s overall rate of inflation ticked up in April, with the cost of food remaining high. But there was a bit of good news: After subtracting prices for food and energy, which tend to be volatile, the underlying inflation rate eased for the first time in 10 months. Inflation across the 20 countries using Europe’s common currency increased at an annual rate of 7% in April, from 6.9% in March, data released on Tuesday by the European Union’s statistics office showed. Prices for food, which rose 13.6 percent, were the main factor. So-called core inflation, when food and energy prices are stripped out, inched lower to 5.6 percent, from 5.7 percent in March. (New York Times)
Investment in developing nations may hit 20-year low: Plunging investment in developing countries could lead to lower growth in the long term and exacerbate problems, said Hiroshi Matano, executive vice president at the World Bank Group's Multilateral Investment Guarantee Agency. "If the economic slowdown further intensifies, we believe that foreign direct investment into developing countries may fall to its lowest level in 20 years in 2023," Matano told Nikkei. (Nikkei Asia Review)
China and India to drive half of 2023's global economic growth: IMF. (Nikkei Asia Review)
Technology
The co-founders of Google DeepMind and LinkedIn have launched an artificial intelligence chatbot called Pi, adding to the flood of similar products rolled out publicly this year by the likes of OpenAI, Google and Snap. The first product from the year-old AI start-up behind Pi, Inflection AI, comes as the growing hype around generative AI drives a surge of investor and consumer interest. Users of Pi can have personal conversations with the chatbot, either directly via an app, or through text, WhatsApp, Instagram and Facebook. (Financial Times)
Amnesty International criticized for using AI-generated images: Group has removed AI images used to promote their reports on social media, including fake photos of Colombia’s 2021 protests. (The Guardian)
Apple and Google submit a proposed industry specification to help combat unwanted location tracking by Bluetooth devices and ask for input from other companies. (CNBC)
Online study company Chegg suspends its full-year outlook, saying ChatGPT's popularity is pressuring its subscriber growth; CHGG drops ~50%, now down 64%+ YTD. (Reuters)
The Writers Guild of America strikes after negotiations over pay and AI issues with Netflix, Disney, Apple, Amazon, Sony, and others failed; nearly 12K may join. (Gizmodo)
So what are the main sticking points for writers? In short, writers argue that their pay hasn’t kept up with the rapid pace of technological change. They say they are working for shorter periods of time and having to find several gigs a year to make ends meet. Typically, broadcast networks would order about 20 episodes for shows that would be worked on over 10 months. But in recent years, studios have more often focused on streaming short-order series with eight to 10 episodes. In particular, writers have complained that residuals —the royalties they collect when the shows they create are re-aired — are much lower in the age of streaming than they were when they were working for broadcast networks, when successful shows would run for years in syndication. (Los Angeles Times)
Smart Links
Goldman Sachs Descends on Dallas in Wall Street's Latest Move West. (Bloomberg)
Japan-South Korea thaw spreads to economy as finance chiefs meet. (Nikkei Asia Review)
European carmakers play catch-up in China with record investment. (Financial Times)
Starbucks warns of uncertainties around its near-term China outlook. (Financial Times)
Poland and Germany: the feud at the heart of Europe. (Financial Times)