The U.S. economy grew slowly over the summer, adding to fears of a looming recession — but also keeping alive the hope that one might be avoided.
Gross domestic product, adjusted for inflation, returned to growth in the third quarter after two consecutive quarterly contractions, according to government data released Thursday. But consumer spending slowed as inflation ate away at households’ buying power, and the sharp rise in interest rates led to the steepest contraction in the housing sector since the first months of the pandemic.
The report underscored the delicate balance facing the Federal Reserve as it tries to rein in the fastest inflation in four decades. Policymakers have aggressively raised interest rates in recent months — and are expected to do so again at their meeting next week — in an effort to cool off red-hot demand, which they believe has contributed to the rapid increase in prices. But they are trying to do so without snuffing out the recovery entirely.
The third-quarter data — G.D.P. rose 0.6 percent, the Commerce Department said, a 2.6 percent annual rate of growth — suggested that the path to such a “soft landing” remained open, but narrow.
loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
President Biden cheered the report in a statement Thursday morning. “For months, doomsayers have been arguing that the U.S. economy is in a recession, and congressional Republicans have been rooting for a downturn,” he said. “But today we got further evidence that our economic recovery is continuing to power forward.”
By one common definition, the U.S. economy entered a recession when it experienced two straight quarters of shrinking G.D.P. at the start of the year. Officially, however, recessions are determined by a group of researchers at the National Bureau of Economic Research, who look at a broader array of indicators, including employment, income and spending.
Most analysts don’t believe the economy meets that more formal definition, and the third-quarter numbers — which slightly exceeded forecasters’ expectations — provided further evidence that a recession had not yet begun.
But the overall G.D.P. figures were skewed by the international trade component, which often exhibits big swings from one period to the next. Economists tend to focus on less volatile components, which have showed the recovery steadily losing momentum as the year has progressed. One closely watched measure suggested that private-sector demand stalled out almost completely in the third quarter.
Mortgage rates passed 7 percent on Thursday, their highest level since 2002.
“Housing is just the single largest trigger to additional spending, and it’s not there anymore; it’s going in reverse,” said Diane Swonk, chief economist at the accounting firm KPMG. “This has been a stunning turnaround in housing, and when things start to go really quickly, you start to wonder, what are the knock-on effects, what are the spillover effects?”
The third quarter was in some sense a mirror image of the first quarter, when G.D.P. shrank but consumer spending was strong. In both cases, the swings were driven by international trade. Imports, which don’t count toward domestic production figures, soared early this year as the strong economic recovery led Americans to buy more goods from overseas. Exports slumped as the rest of the world recovered more slowly from the pandemic.
Both trends have begun to reverse as American consumers have shifted more of their spending toward services and away from imported goods, and as foreign demand for American-made goods has recovered. Supply-chain disruptions have added to the volatility, leading to big swings in the data from quarter to quarter.
Few economists expect the strong trade figures from the third quarter to continue, especially because the strong dollar will make American goods less attractive overseas.
It was Saturday, Oct. 1, and Jim Lewis, who frequently posts on Twitter under the moniker Wall Street Silver, made that assertion to his more than 300,000 followers. “Markets are saying it’s insolvent and probably bust. 2008 moment soon?”
Mr. Lewis was among hundreds of people — many of them amateur investors — who had been speculating about the fate of Credit Suisse, the Swiss bank. It was in the middle of a restructuring and had become an easy target after decades of scandals, failed attempts at reform and management upheavals.
There seemed to be no immediate provocation for Mr. Lewis’s weekend tweet other than a memo that Ulrich Körner, the chief executive of Credit Suisse, had sent employees the day before, reassuring them that the bank was in good financial health.
But the tweet, which has been liked more than 11,000 times and retweeted more than 3,000 times, was one of many that helped ignite a firestorm on social media forums like Twitter and Reddit. The rumor that Credit Suisse was in trouble ricocheted around the world, stumping bank executives and forcing them to call shareholders, trading partners and analysts to reassure them that everything was fine before markets reopened on Monday.
prop up the shares of GameStop, the video game retailer, determined to outsmart hedge funds that had bet the company’s shares would fall.
Our Coverage of the Investment World
The decline of the stock and bond markets this year has been painful, and it remains difficult to predict what is in store for the future.
A Bad Year for Bonds: This has been the most devastating time for bonds since at least 1926 — and maybe in centuries. But much of the damage is already behind us.
Discordant Views: Some investors just don’t see how the Federal Reserve can lower inflation without risking high unemployment. The Fed appears more optimistic.
Weathering the Storm: The rout in the stock and bond markets has been especially rough on people paying for college, retirement or a new home. Here is some advice.
College Savings: As the stock and bond markets wobble, 529 plans are taking a tumble. What’s a family to do? There’s no one-size-fits-all answer, but you have options.
But what started as a spontaneous effort to take down Wall Street has since become an established presence in the market. Millions of amateur investors have embraced trading, including more sophisticated strategies such as shorting. As the Credit Suisse incident shows, their actions highlight a new source of peril for troubled companies.
Founded in Switzerland in 1856 to help finance the expansion of railroads in the tiny European nation, Credit Suisse has two main units — a private wealth management business and an investment bank. However, the bank has often struggled to maintain a pristine reputation.
It has been the repository of funds from businesspeople who are under sanctions, human rights abusers and intelligence officials. The U.S. government has fined it billions of dollars for its role in helping Americans file false tax returns, marketing mortgage-backed securities tied to the 2008 financial crisis and helping customers in Iran, Sudan and elsewhere breach U.S. sanctions.
In the United States, Credit Suisse built its investment banking business through acquisitions, starting with the 1990 purchase of First Boston. But without a core focus, the bank — whose top bosses sit in Switzerland — has often allowed mavericks to pursue new revenue streams and take outsize risks without adequate supervision.
collapsed. Credit Suisse was one of many Wall Street banks that traded with Archegos, the private investment firm of Bill Hwang, a former star money manager. Yet it lost $5.5 billion, far more than its rivals. The bank later admitted that a “fundamental failure of management and controls” had led to the debacle.
surveillance of Credit Suisse executives under his watch. He left the bank in a stable and profitable condition and invested appropriately across its various divisions, his spokesman, Andy Smith, said.
Credit Suisse replaced Mr. Thiam with Thomas Gottstein, a longtime bank executive. When Archegos collapsed, the bank kept Mr. Gottstein on the job, but he started working with a new chairman, António Horta-Osório, who had been appointed a few months earlier to restructure the bank.
resigned after an inquiry into whether he had broken quarantine rules during the pandemic. But he made swift changes in his short tenure. To reduce risk taking, Mr. Horta-Osório said, the bank would close most of its prime brokerage businesses, which involve lending to big trading firms like Archegos. Credit Suisse also lost a big source of revenue as the market for special purpose acquisition companies, or SPACs, cooled.
By July, Credit Suisse had announced its third consecutive quarterly loss. Mr. Gottstein was replaced by Mr. Körner, a veteran of the rival Swiss bank UBS.
Mr. Körner and the chairman, Axel Lehmann, who replaced Mr. Horta-Osório, are expected to unveil a new restructuring plan on Oct. 27 in an effort to convince investors of the bank’s long-term viability and profitability. The stock of Credit Suisse has dipped so much in the past year that its market value — which stood around $12 billion — is comparable to that of a regional U.S. bank, smaller than Fifth Third or Citizens Financial Group.
appeared on Reddit.
Mr. Macleod said he had decided that Credit Suisse was in bad shape after looking at what he deemed the best measure of a bank’s value — the price of its stock relative to its “book value,” or assets minus liabilities. Most Wall Street analysts factor in a broader set of measures.
But “bearing in mind that most followers on Twitter and Reddit are not financial professionals,” he said, “it would have been a wake-up call for them.”
The timing puzzled the bank’s analysts, major investors and risk managers. Credit Suisse had longstanding problems, but no sudden crisis or looming bankruptcy.
Some investors said the Sept. 30 memo sent by Mr. Körner, the bank’s chief executive, reassuring staff that Credit Suisse stood on a “strong capital base and liquidity position” despite recent market gyrations had the opposite effect on stock watchers.
Credit Suisse took the matter seriously. Over the weekend of Oct. 1, bank executives called clients to reassure them that the bank had more than the amount of capital required by regulators. The bigger worry was that talk of a liquidity crisis would become a self-fulfilling prophecy, prompting lenders to pull credit lines and depositors to pull cash, which could drain money from the bank quickly — an extreme and even unlikely scenario given the bank’s strong financial position.
“Banks rely on sentiment,” Mr. Scholtz, the Morningstar analyst, said. “If all depositors want their money back tomorrow, the money isn’t there. It’s the reality of banking. These things can snowball.”
What had snowballed was the volume of trading in Credit Suisse’s stock by small investors, which had roughly doubled from Friday to Monday, according to a gauge of retail activity from Nasdaq Data Link.
Amateur traders who gather on social media can’t trade sophisticated products like credit-default swaps — products that protect against companies’ reneging on their debts. But their speculation drove the price of these swaps past levels reached during the 2008 financial crisis.
Some asset managers said they had discussed the fate of the bank at internal meetings after the meme stock mania that was unleashed in early October. While they saw no immediate risk to Credit Suisse’s solvency, some decided to cut trading with the bank anyway until risks subsided.
In another private message on Twitter, Mr. Lewis declined to speak further about why he had predicted that Credit Suisse would collapse.
“The math and evidence is fairly obvious at this point,” he wrote. “If you disagree, the burden is really on you to support that position.”
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At a Communist Party congress starting in Beijing on Oct. 16, Xi Jinping is expected to be named to a third five-year term as the country’s top leader, paving the way for him to consolidate power to an extent not seen in decades.
Under Mr. Xi, China has become the world’s dominant manufacturer of everything from cement to solar panels, as well as the main trading partner and dominant lender for most of the developing world. It has built the world’s largest navy, developed some of the world’s most advanced ballistic missiles and constructed air bases on artificial islands strewn across the South China Sea.
in a tailspin. Its property market, which over the last ten years contributed about a quarter of the country’s economic output, is melting down. Foreign investment has faltered. And widespread lockdowns and mass quarantines, part of China’s zero-tolerance approach to Covid-19, have hurt consumer demand and stalled businesses.
At the same time, Mr. Xi has worked to turn China into a more state-led society that often puts national security and ideology before economic growth. He has cracked down on Chinese companies and limited their executives’ power. Some of China’s best-known entrepreneurs have left the country and others, such as Alibaba co-founder Jack Ma, have largely disappeared from public view.
All of this has hurt China’s economy, which was just 0.4 percent larger from April through June than during the same period last year. The growth was far below the government’s initial target for growth of about 5.5 percent this year. For the first year since the 1990s, China’s economic growth is expected to fall below the rest of Asia’s.
at the start of the last party congress, in 2017, lasted more than three hours. But buried in that jargon are likely to be some important messages. Here’s what finance leaders and corporate executives around the world want to know.
Domestic Ideology: ‘Common Prosperity’
One of Mr. Xi’s favorite economic policy initiatives in recent months has a simple, innocuous-sounding name: “common prosperity.” The big question lies in what it means.
Common prosperity, a longtime goal of the Communist Party, has been defined by Mr. Xi as reining in private capital and narrowing China’s huge disparities in wealth. Regulators and tax investigators cracked down last year on tech giants and wealthy celebrities. Beijing demanded that tycoons give back to society. And Mr. Xi has strongly discouraged speculation in housing, pushing instead for government subsidies for the construction of more rental apartments.
A regulatory crackdown on tech companies and after-school education companies contributed to a wave of layoffs that left one in five young Chinese city dwellers unemployed by August. Lending limits on China’s highly inflated housing sector have triggered a nosedive in the number of fresh construction projects being started and a wave of insolvencies among real estate developers. Many Western hedge funds that bet heavily on the real estate developers’ overseas bond issues incurred considerable losses.
The term “common prosperity” was seldom used by top officialslast spring during those setbacks. But Mr. Xi conspicuously revived it during a tour of northeastern China in mid-August. The Politburo subsequently mentioned common prosperity when it announced on Aug. 30 the starting date and agenda for the party congress.
first put forward in May 2020, is a theory of what he calls “dual circulation.” The concept involves relying primarily on domestic demand and innovation to propel the Chinese economy, while maintaining foreign markets and investors as a backup engine for growth.
Mr. Xi has pushed ahead with lavish subsidies to develop Chinese manufacturers, especially of semiconductors. But the slogan has attracted considerable skepticism from foreign investors in China and from foreign governments. They worry that the policy is a recipe for replacing imports with Chinese-made goods.
China’s imports have indeed stagnated this year while its exports have soared, producing the largest trade surpluses the world has ever seen. Those surpluses, not domestic demand, have sustained China’s economic growth this year.
Chinese officials deny that they are trying to discourage imports, and contend that China remains eager to welcome foreign companies and products. When the Politburo scheduled the party congress for Oct. 16, it did not mention dual circulation, so the term might be left aside. If it goes unmentioned, that could be a conciliatory gesture as foreign investment in China is already weakening, mainly because of the country’s draconian pandemic policies.
Pandemic: ‘Covid Zero’
China’s zero-tolerance approach to Covid-19 has prevented a lot of deaths and long-term infections, but at a high and growing cost to the economy. The question now lies in when Mr. Xi will shift to a less restrictive stance toward controlling the virus.
in Tiananmen Square, on the 100th anniversary of the founding of the Chinese Communist Party, when he reiterated China’s claim to Taiwan, a self-ruled island democracy. President Biden has mentioned four times that the United States is prepared to help Taiwan resist aggression. Each time his aides have walked back his comments somewhat, however, emphasizing that the United States retains a policy of “strategic ambiguity” regarding its support for the island.
Even a vague mention by Mr. Xi at the party congress of a timeline for trying to bring Taiwan under the mainland’s political control could damage financial confidence in both Taiwan and the mainland.
New Leaders
The most important task of the ruling elite at the congress is to confirm the party’s leadership.
Particularly important to business is who in the lineup will become the new premier. The premier leads the cabinet but not the military, which is directly under Mr. Xi. The position oversees the finance ministry, commerce ministry and other government agencies that make many crucial decisions affecting banks, insurers and other businesses. Whoever is chosen will not be announced until a separate session of the National People’s Congress next March, but the day after the congress formally ends, members of the new Politburo Standing Committee — the highest body of political power in China — will walk on a stage in order of rank. The order in which the new leadership team walks may make clear who will become premier next year.
a leading hub of entrepreneurship and foreign investment in China. Neither has given many clues about their economic thinking since taking posts in Beijing. Mr. Wang had more of a reputation for pursuing free-market policies while in Guangdong.
Mr. Hu is seen as having a stronger political base than Mr. Wang because he is still young enough, 59, to be a potential successor to Mr. Xi. That political strength could give him the clout to push back a little against Mr. Xi’s recent tendency to lean in favor of greater government and Communist Party control of the private sector.
Precisely because Mr. Hu is young enough to be a possible successor, however, many businesspeople and experts think Mr. Xi is more likely to choose Mr. Wang or a dark horse candidate who poses no potential political threat to him.
In any case, the power of the premier has diminished as Mr. Xi has created a series of Communist Party commissions to draft policies for ministries, including a commission that dictates many financial policies.
What do you think? Let us know: dealbook@nytimes.com.
The Federal Reserve has embarked on an aggressive campaign to raise interest rates as it tries to tame the most rapid inflation in decades, an effort the central bank sees as necessary to restore price stability in the United States.
But what the Fed does at home reverberates across the globe, and its actions are raising the risks of a global recession while causing economic and financial pain in many developing countries.
Other central banks in advanced economies, from Australia to the eurozone, are also lifting rates rapidly to fight their inflation. And as the Fed’s higher interest rates attract money to the United States — pumping up the value of the dollar — emerging-market economies are being forced to raise their own borrowing costs to try to stabilize their currencies to the extent possible.
Altogether, it is a worldwide push toward more expensive money unlike anything seen before in the 21st century, one that is likely to have serious ramifications.
warned the damage could be particularly acute in poorer nations. Developing economies had already been dealing with a cost-of-living crisis because of soaring food and fuel prices, and now their American imports are growing steadily more expensive as the dollar marches higher.
The Fed’s moves have spurred market volatility and worries about financial stability, as higher rates elevate the value of the U.S. dollar, making it harder for emerging-market borrowers to pay back their dollar-denominated debt.
It is a recipe for globe-spanning turmoil and even recession. Despite that, the Fed is poised to continue raising interest rates. That’s because the Fed, like central banks around the world, is in charge of domestic economy goals: It’s supposed to keep inflation slow and steady while fostering maximum employment. While occasionally called “central banker to the world” because of the dollar’s foremost position, the Fed goes about its day-to-day business with its eye squarely on America.
loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
The threat facing the global economy — including the Fed’s role in it — is expected to dominate the conversation next week as economists and government officials convene in Washington for the annual meeting of the International Monetary Fund and World Bank.
In a speech at Georgetown University on Thursday, Kristalina Georgieva, the managing director of the I.M.F., offered a grim assessment of the world economy and the tightrope that central banks are walking.
“Not tightening enough would cause inflation to become de-anchored and entrenched — which would require future interest rates to be much higher and more sustained, causing massive harm on growth and massive harm on people,” Ms. Georgieva said. “On the other hand, tightening monetary policy too much and too fast — and doing so in a synchronized manner across countries — could push many economies into prolonged recession.”
Noting that inflation remains stubbornly high and broad-based, she added: “Central banks have to continue to respond.”
The World Bank warned last month that simultaneous interest-rate increases around the world could trigger a global recession next year, causing financial crises in developing economies. It urged central banks in advanced economies to be mindful of the cross-border “spillover effects.”
“To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production,” David Malpass, the World Bank president, said.
Trade and Development Report said.
So far, major central banks have shown little appetite for stopping their inflation-busting campaigns. The Fed, which has made five rate increases this year, has signaled that it plans to raise borrowing costs even higher. Most officials expect to increase rates by at least another 1.25 percentage points this year, taking the policy rate to a range of 4.25 to 4.5 percent from the current 3 to 3.25 percent.
Even economies that are facing a pronounced slowdown have been lifting borrowing costs. The European Central Bank raised rates three-quarters of a point last month, even though the continent is approaching a dark winter of slowing growth and crushing energy costs.
according to the World Bank. Food costs in particular have driven millions further into extreme poverty, exacerbating hunger and malnutrition. As the dollar surge makes a range of imports pricier for emerging markets, that situation could worsen, even as the possibility of financial upheaval increases.
“Low-income developing countries in particular face serious risks from food insecurity and debt distress,” Ngozi Okonjo-Iweala, director-general of the World Trade Organization, said during a news conference this week.
Understand Inflation and How It Affects You
In Africa, officials have been urging the I.M.F. and Group of 20 nations to provide more emergency assistance and debt relief amid inflation and rising interest rates.
“This unprecedented shock further destabilizes the weakest economies and makes their need for liquidity even more pressing, to mitigate the effects of widespread inflation and to support the most vulnerable households and social strata, especially young people and women,” Macky Sall, chairman of the African Union, told leaders at the United Nations General Assembly in September.
To be sure, central bankers in big developed economies like the United States are aware that they are barreling over other economies with their policies. And although they are focused on domestic goals, a severe weakening abroad could pave the way for less aggressive policy because of its implications for their own economic outlooks.
Waning demand from abroad could ease pressure on supply chains and reduce prices. If central bankers decide that such a chain reaction is likely to weigh on their own business activity and inflation, it may give them more room to slow their policy changes.
“The global tightening cycle is something that the Fed has to take into account,” said Megan Greene, global chief economist for the Kroll consulting firm. “They’re interested in what is going on in the rest of the world, inasmuch as it affects their ability to achieve their targets.”
his statement.
But many global economic officials — including those at the Fed — remain focused on very high inflation. Investors expect them to make another large rate increase when they meet on Nov. 1-2.
“We’re very attentive” to international spillovers to both emerging markets and advanced economies, Lisa D. Cook, a Fed governor, said during a question-and-answer session on Thursday. “But our mandate is domestic. So we’re very focused on inflation as it evolves in this country.”
Raghuram Rajan, a former head of India’s central bank and now an economist at the University of Chicago, has in the past pushed the Fed to take foreign conditions into account as it sets policy. He still thinks that measures like bond-buying should be pursued with an eye on global spillovers.
But amid high inflation, he said, central banks are required to pay attention to their own mandates to achieve price stability — even if that makes for a stronger dollar, weaker currencies and more pain abroad.
“The basic problem is that the world of monetary policy dances to the Fed’s tune,” Mr. Rajan said, later adding: “This is a problem with no easy solutions.”
The average household in Ghana is paying two-thirds more than it did last year for diesel, flour and other necessities. In Egypt, wheat is so expensive that the government has fallen half a billion dollars short of its budget for a bread subsidy it provides to its citizens. And Sri Lanka, already struggling to control a political crisis, is running out of fuel, food and medical supplies.
A strong dollar is making the problems worse.
Compared with other currencies, the U.S. dollar is the strongest it has been in two decades. It is rising because the Federal Reserve has increased interest rates sharply to combat inflation and because America’s economic health is better than most. Together, these factors have attracted investors from all over the world. Sometimes they simply buy dollars, but even if investors buy other assets, like government bonds, they need dollars to do so — in each case pushing up the currency’s value.
That strength has become much of the world’s weakness. The dollar is the de facto currency for global trade, and its steep rise is squeezing dozens of lower-income nations, chiefly those that rely heavily on imports of food and oil and borrow in dollars to fund them.
But much of the damage is already behind us.
Discordant Views: Some investors just don’t see how the Federal Reserve can lower inflation without risking high unemployment. The Fed appears more optimistic.
Weathering the Storm: The rout in the stock and bond markets has been especially rough on people paying for college, retirement or a new home. Here is some advice.
College Savings: As the stock and bond markets wobble, 529 plans are taking a tumble. What’s a family to do? There’s no one-size-fits-all answer, but you have options.
“We are in a fragile situation,” Mr. El-Erian said. “Country after country is flashing amber, and some are already flashing red.”
Many lower-income countries were already struggling during the pandemic.
Roughly 22 million people in Ghana, or a third of its population, reported a decline in their income between April 2020 and May 2021, according to a survey from the World Bank and Unicef. Adults in almost half of the households with children surveyed said they were skipping a meal because they didn’t have enough money. Almost three-quarters said the prices of major food items had increased.
Then came Russia’s invasion of Ukraine. The war between two of the world’s largest exporters of food and energy led to a big surge in prices, especially for importers like Ghana. Consumer prices have gone up 30 percent for the year through June, according to data from the research firm Moody’s Analytics. For household essentials, annual inflation has reached 60 percent or more this year, the S&P data shows.
To illustrate this, consider the price of a barrel of oil in dollars versus the Ghanaian cedi. At the beginning of October last year, the price of oil stood at $78.52 per barrel, rising to nearly $130 per barrel in March before falling back to $87.96 at the beginning of this month, a one-year increase of 12 percent in dollar terms. Over the same period, the Ghanaian cedi has weakened over 40 percent against the dollar, meaning that the same barrel of oil that cost roughly 475 cedi a year ago now costs over 900 cedi, almost twice as much.
Adding to the problem are large state-funded subsidies, some taken on or increased through the pandemic, that are now weighing on government finances.
Ghana’s president cut fuel taxes in November 2021, losing roughly $22 million in projected revenue for the government — the latest available numbers.
In Egypt, spending on what the government refers to as “supply commodities,” almost all of which is wheat for its long-running bread subsidy, is expected to come in at around 7 percent of all government spending this year, 12 percent higher — or more than half a billion dollars — than the government budgeted.
As costs ballooned throughout the pandemic, governments took on more debt. Ghana’s public debt grew to nearly $60 billion from roughly $40 billion at the end of 2019, or to nearly 80 percent of its gross domestic product from around 63 percent, according to Moody’s.
It’s one of four countries listed by S&P, alongside Pakistan, Nigeria and Sri Lanka, where interest payments alone account for more than half of the government’s revenues.
“We can’t forget that this is happening on the back end of a once-in-a-century pandemic in which governments, to try and support families as best they could, did borrow more,” said Frank Gill, an analyst at S&P. “This is a shock following up on another shock.”
In May, Sri Lanka defaulted on its government debt for the first time in its history. Over the past month, the governments of Egypt, Pakistan and Ghana have all reached out to the International Monetary Fund for a bailout as they struggle to meet their debt financing needs, no longer able to turn to international investors for more money.
“I don’t think there is a lot of appetite to lend money to some of these countries,” said Brian Weinstein, co-head of credit trading at Bank of America. “They are incredibly vulnerable at the moment.”
That vulnerability is already reflected in the bond market.
In 2016, Ghana borrowed $1 billion for 10 years, paying an interest rate of just over 8 percent. As the country’s financial position has worsened and investors have backed away, the yield — indicative of what it would now cost Ghana to borrow money until 2026 — has risen to above 35 percent.
It’s an untenable cost of debt for a country in Ghana’s situation. And Ghana is not alone. For bonds that also mature in 2026, yields for Pakistan have reached almost 40 percent.
“We have concerns where any country has yields that calls into question their ability to refinance in public markets,” said Charles Cohen, deputy division chief of monetary and capital market departments at IMF.
The risk of a sovereign debt crisis in some emerging markets is “very, very high,” said Jesse Rogers, an economist at Moody’s Analytics. Mr. Rogers likened the current situation to the debt crises that crushed Latin America in the 1980s — the last time the Fed sought to quell soaring inflation.
Already this year, more than $80 billion has been withdrawn from mutual funds and exchange-traded funds — two popular types of investment products — that buy emerging market bonds, according to EPFR Global, a data provider. As investors sell, the United States is often the beneficiary, further strengthening the dollar.
“It’s by far the worst year for outflows the market has ever seen,” said Pramol Dhawan, head of emerging markets at Pimco.
Even citizens in some of these countries are trying to exchange their money for dollars, fearful of what’s to come and of further currency depreciation — yet inadvertently also contributing to it.
“For pockets of emerging markets, this is a really challenging backdrop and one of the most challenging backdrops we have faced for many years,” Mr. Dhawan said.
Israel and Lebanon have been at war since 1948, but the countries are close to an agreement that could increase production of natural gas, helping energy-starved Europe.
Officials from the two countries have said they are close to resolving long-running disputes over their maritime borders, which would allow energy companies to extract more fossil fuels from offshore fields in the Mediterranean Sea.
The increased production won’t make up for the gas that Europe is no longer getting from Russia. But energy experts say an Israel-Lebanon agreement should give a vital push to efforts to produce more gas in that part of the world. Over the last four years, energy production in the eastern Mediterranean has been growing as Israel, Egypt, Jordan and Cyprus have worked together to take advantage of oil and gas buried under the sea.
“This is a very important step for the region to come into its own,” said Charif Souki, the Lebanese-American executive chairman of Tellurian, a liquefied natural gas company based in Houston. “Players are finally realizing that it’s better to cooperate than to continuously fight.”
The Israel-Lebanon negotiations will most directly affect the Karish field, which is set to produce gas for Israel’s domestic use. That fuel is expected to displace gas produced from other fields, which can then be exported. The new field is also expected to produce a small amount of oil.
Chevron, the second-largest U.S. oil and gas company, and several smaller businesses are already producing gas from two larger fields off Israel’s coast. That fuel has increasingly replaced coal in the country’s power plants and factories. Israel now has so much gas that it has become a net exporter of energy, sending fuel to neighbors like Jordan and Egypt. Some of that gas has also found its way to Europe and other parts of the world from L.N.G. export terminals in Egypt.
The U.S. government, across several administrations, has encouraged the growth of the gas trade in the region by helping to negotiate deals between countries that have long had tense relations. The Ukraine crisis has accelerated efforts to explore and produce natural gas because of the soaring cost of the fuel in Europe, where countries are desperate to end their dependence on Russian gas.
Chevron and its Israeli partners are discussing the possibility of building a floating liquefied natural gas platform in the Leviathan gas field, Israel’s largest. The companies are expected to make a decision on the project in a few months.
But getting the gas out of the region will not be easy. Floating export terminals are vulnerable to terrorist attack. And, even if they could be adequately secured, the terminals will not be able to process as much gas as the larger coastal facilities used in major gas producers like the United States, Qatar and Australia. Building terminals on land can take several years, if not often longer, because of opposition from environmental and other groups.
“Energy infrastructure offshore is very volatile and vulnerable,” said Gal Luft, a former Israeli military officer who is the co-director of the Institute for the Analysis of Global Security in Washington. “You have to manage risk.”
Theoretically, transporting gas by pipelines would be easier than liquefying natural gas for export before converting it back into gas at its destination. But building long-distance pipelines is expensive and difficult. A long-running conflict between Turkey, Cyprus and Greece, for example, has made constructing a pipeline from Israel to southern Europe incredibly challenging, if not impossible.
Even an Israel-Lebanon border agreement faces risks. Hezbollah has threatened to attack the Karish field, and it sent unarmed drones over it in July; Israeli officials said they had shot down the aircraft.
Still, Israeli and Lebanese officials have said in recent days that they are pressing on with the negotiations, with officials from the Biden administration acting as a go-between, and are close to a deal. The talks gathered momentum during the United Nations General Assembly last week.
Prime Minister Najib Mikati of Lebanon said on Thursday at the United Nations that he was confident about reaching an agreement with Israel. “Lebanon is well aware of the importance of the promising energy market in the eastern Mediterranean for the prosperity of all countries in the region,” he said, “but also to meet the needs of importing nations.”
U.S. and other Western oil companies have long shied away from Israel, in part because they do not want to alienate Arab countries. But, as relations between Israel and countries like Egypt, Jordan and, more recently, the United Arab Emirates have improved more companies have expressed interest in the eastern Mediterranean.
An agreement between Israel and Lebanon could accelerate that trend.
“I think it will appease many minds,” said Leslie Palti-Guzman, chief executive of Gas Vista, a consulting firm. “Companies that have been reluctant to invest could be more incentivized to develop additional projects.”
Gas fields in the Mediterranean are one of several new suppliers that Europe will need as it seeks a long-term replacement for Russian gas. Other suppliers include energy companies operating in the United States, Qatar, Africa, the Caspian Sea and the North Sea.
“There is no silver bullet,” said Paddy Blewer, spokesman for Energean, a London-based exploration company that hopes to begin producing gas in the Karish field. “The East Mediterranean is one of a series of marginal gains that Europe has to look at.”
Energean plans to begin production in the next few weeks, and has said it expects to produce up to 8 billion cubic meters of gas a year by 2025. If it is successful, the company could significantly add to Israel’s output. The country will produce roughly 22 billion cubic meters this year. Once an importer of almost all of its energy, Israel increased gas production by 22 percent in the first half of the year compared with the same period in 2021. It exported roughly 40 percent of its gas, earning the government royalties of $250 million.
The agreement between Israel and Lebanon will also open the way to drilling in Lebanese waters by a consortium led by Eni of Italy and TotalEnergies of France. Lebanese officials view natural gas as a critical financial tool in its attempts to revive the country’s depressed economy. The government has wanted to drill offshore since at least 2014, but disputes with Israel over the border have delayed exploration.
“It’s not for sure Lebanon will find gas,” said Chakib Khelil, a former president of the Organization of the Petroleum Exporting Countries. “But, if they do, Lebanon will get a big boost.”
The Federal Reserve’s determination to crush inflation at home by raising interest rates is inflicting profound pain in other countries — pushing up prices, ballooning the size of debt payments and increasing the risk of a deep recession.
Those interest rate increases are pumping up the value of the dollar — the go-to currency for much of the world’s trade and transactions — and causing economic turmoil in both rich and poor nations. In Britain and across much of the European continent, the dollar’s acceleration is helping feed stinging inflation.
On Monday, the British pound touched a record low against the dollar as investors balked at a government tax cut and spending plan. And China, which tightly controls its currency, fixed the renminbi at its lowest level in two years while taking steps to manage its decline.
Somalia, where the risk of starvation already lurks, the strong dollar is pushing up the price of imported food, fuel and medicine. The strong dollar is nudging debt-ridden Argentina, Egypt and Kenya closer to default and threatening to discourage foreign investment in emerging markets like India and South Korea.
the International Monetary Fund.
Japanese yen has reached a decades-long high. The euro, used by 19 nations across Europe, reached 1-to-1 parity with the dollar in June for the first time since 2002. The dollar is clobbering other currencies as well, including the Brazilian real, the South Korean won and the Tunisian dinar.
the economic outlook in the United States, however cloudy, is still better than in most other regions.
loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
A fragile currency can sometimes work as “a buffering mechanism,” causing nations to import less and export more, Mr. Prasad said. But today, many “are not seeing the benefits of stronger growth.”
Still, they must pay more for essential imports like oil, wheat or pharmaceuticals as well as for loan bills due from billion-dollar debts.
debt crisis in Latin America in the 1980s.
The situation is particularly fraught because so many countries ran up above-average debts to deal with the fallout from the pandemic. And now they are facing renewed pressure to offer public support as food and energy prices soar.
Indonesia this month, thousands of protesters, angry over a 30 percent price increase on subsidized fuel, clashed with the police. In Tunisia, a shortage of subsidized food items like sugar, coffee, flour and eggs has shuttered cafes and emptied market shelves.
New research on the impact of a strong dollar on emerging nations found that it drags down economic progress across the board.
“You can see these very pronounced negative effects of a stronger dollar,” said Maurice Obstfeld, an economics professor at the University of California, Berkeley, and an author of the study.
central banks feel pressure to raise interest rates to bolster their currencies and prevent import prices from skyrocketing. Last week, Argentina, the Philippines, Brazil, Indonesia, South Africa, the United Arab Emirates, Sweden, Switzerland, Saudi Arabia, Britain and Norway raised interest rates.
World Bank warned this month that simultaneous interest rate increases are pushing the world toward a recession and developing nations toward a string of financial crises that would inflict “lasting harm.”
Clearly, the Fed’s mandate is to look after the American economy, but some economists and foreign policymakers argue it should pay more attention to the fallout its decisions have on the rest of the world.
In 1998, Alan Greenspan, a five-term Fed chair, argued that “it is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress.”
The United States is now facing a slowing economy, but the essential dilemma is the same.
“Central banks have purely domestic mandates,” said Mr. Obstfeld, the U.C. Berkeley economist, but financial and trade globalization have made economies more interdependent than they have ever been and so closer cooperation is needed. “I don’t think central banks can have the luxury of not thinking about what’s happening abroad.”
Flávia Milhorance contributed reporting from Rio de Janeiro.
Bespoke suit-making for men is a dying art form — thanks to fast fashion, most men don’t wear such clothes to work anymore.
Leonard Logsdail is a one-of-a-kind craftsman, like the suits he makes.
“When I have the fabric on my board, I can see in my mind’s eye what it’s going to look like on the on the client,” said Logsdail.
A bespoke tailor by trade, Logsdail has spent over 50 years creating custom clothes based on each customer’s unique request and body measurements.
“Bespoke tailoring comes from the word bespoken. Somebody walks in and talks an order. They say, ‘I would like such and such a blue.’ And I go to the fabrics and show them the fabrics. And they talk their way through,” said Logsdail.
It’s an artform considered the highest level of tailoring.
“I make a suit particular for one person and it only fits one person. And I fit it to that body,” he said.
It requires meticulous attention to detail.
“Somebody walks through the door, and I stand up the front here and watch them as they come from the elevator to me. So, I’ve got their body figuration in their stance, because as soon as you get the tape measure out, they remember everything their mother ever told them about standing up straight and holding in their stomach, which is not how you make the suit. You’ve got to be the body that they are,” said Logsdail.
Logsdail’s Manhattan shop in midtown is tucked above the bustling streets on a quiet, but busy floor, with fabrics and finished suits on display. But his career began along Savile Row, the section of London famous for producing the best bespoke tailors.
“So, I come from one of the poorest areas of London where, you know, we were taught to be fodders for industry. It’s the best way to describe it. Trash collectors, road sweepers, work in factories. I didn’t know what I wanted to do. I knew everything I didn’t want to do. I had no idea. So, I went to a tailoring school as a stopgap. And it’s like I was home when I went there,” he said.
But learning the trade didn’t come without hurdles.
“I had about seven or eight suits that were thrown back at me. I’d paid for the cloth, I’d paid for the making, and then I had to give the deposit back and it really hurt. And that’s when I learned it’s not my suit, it’s your suit. I think that was one of the real pivotal moments, because I learned if I needed to earn money and feed myself at the time, that I had to get paid for what I did,” said Logsdail.
Logsdail says that lesson proved invaluable in helping him hone a skill that ultimately caught the attention of Hollywood.
“I was sitting on one of those chairs out the front one day, talking to a friend of mine from San Francisco, the phone rang and when I picked it up there was this lady on the phone, and she said, my name is Michelle and we’re working on this movie called The Good Shepherd. And we wondered if you be interested in making a suit for Robert De Niro,” said Logsdail.
Since that call, Logsdail has gone on to tailor suits for dozens of movies, some of which have led to incredible encounters.
“One of them was “Wall Street 2,” because I really enjoyed working with Michael Douglas. I thought he was a sweetheart and the other one was “Mary Poppins 2,” because I got to make a suit for Dick Van Dike. I mean, I’ve worked with DiCaprio, Denzel Washington, you name them, I’ve worked with them. He’s the only person I was interested in having to photograph,” he said.
But despite how popular Logsdail’s work is with clients in Hollywood, New York and abroad, he says it’s an art form with an uncertain future. It’s a labor of love in desperate need of a new generation of tailors with the patience and fortitude to quite literally stitch on.
“It’s been a challenge to keep business going. And now it’s been difficult to get workers because it’s much easier to go and start earning money sitting at the computer than it is learning how to sew with a needle and thread,” he said.
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Joining this fraternity of bespoke tailors would be membership in a very small club
“I believe I’m the only person that does exactly what I do in New York. And I think there’s only four or five in the whole United States now. It’s a dying breed. So, anybody who is looking, needs to start coming round and seeing all these guys because they ain’t going to be around for much longer,” said Logsdail.
Logsdail cites growing competition from companies making “made to measure” suits that cost less, and take far less time to produce.
“For a bespoke suit, pretty much all the fabrics I get out there are $1,800-$1,900 for a two-piece suit. But as I said, I’ve got some other ones [that] will cost you $35-$40,000 for a bespoke suit,” he said.
And his cheaper competitors can deliver their suits quicker.
“When somebody comes in now, I’m telling them to probably three months at least before they’ll see the suit, because, you know, I have one pair of hands… I’m sitting talking with you now, which means I’m not cutting my suits out. And so, the tailors have got one pair of hands. I can only work on one suit at a time. So, you know, it’s finite the amount of clothes we can make on any given week.”
While a bespoke suit is steep in price and time commitment, Logsdail swears it’s an investment customers you can truly wear for decades to come.
“You know, I say this all the time, that fashion goes out of style, but style does not go out of fashion. So, if you have something made here and if you want a fashion forward, yeah, I’ll do it. But when the fashion changes, that suit’s old. But if you have something that’s made with style, you can wear it and it’s relevant from 1993 up to here,” said Logsdail.
The Ohio Senate race is an expensive one — with $65 million spent in the general election according to AdImpact.
Nestled between Dayton and Cincinnati is the small city of Middletown, Ohio.
It’s the birthplace and childhood home of Republican U.S. Senate candidate J.D. Vance.
Vance gained national recognition for his bestselling memoir Hillbilly Elegy, detailing his upbringing here. And as he runs for Senate, it’s Ohio voters like these that he’ll need to win over in November.
“Unfortunately, people thought that that was our story,” said Adriane Scherrer. “That was his story, not my story.”
“I just more closely aligned to Tim Ryan,” said Heather Gibson, a registered independent & small business owner. “J.D. Vance became a Trumper. There’s in it to win over the hearts of probably the Middletonians. And I’m not one of those.”
Gibson has supported Republicans before but isn’t hesitating about voting for representative Tim Ryan to become Ohio’s next senator, replacing retiring Republican Rob Portman.
“After January 6, our democracy is fragile,” Gibson said. “And I want people up there who are going to take that to heart and swear by their oath and stand by it.”
Since winning the Republican nomination in May, Vance has attacked Congressman Ryan over his voting record, siding with President Biden 100% of the time according to FiveThirtyEight.
But in the Buckeye State, where President Biden remains unpopular, Ryan urges voters to look past the things that come up for a vote in Congress.
“The point is I think for voters is Tim Ryan has agreed with Donald Trump on trade, on China, on the military, on the Space Force; and I’ve disagreed with Democrats on trade and on other issues,” Ryan said.
According to the latest public polls, Ryan and Vance are neck and neck. One poll in early September conducted by Suffolk University and USA Today shows Ryan leading Vance by 1 point, well within the margin of error.
But another poll conducted just five days later by Emerson College Polling and The Hill shows Vance leading Ryan by 4 points.
Already the Ohio Senate race is an expensive one — with $65 million spent in the general election according to AdImpact — and some voters have seen enough.
“It is a lot of mudslinging,” says Janet Hydeman, a registered Republican. “And that does not make me happy. I would rather know what those candidates are standing for, rather than what they’re trying to stamp on in the other candidate.”
About 350 miles northwest of Montreal, amid a vast pine forest, is a deep mining pit with walls of mottled rock. The pit has changed hands repeatedly and been mired in bankruptcy, but now it could help determine the future of electric vehicles.
The mine contains lithium, an indispensable ingredient in electric car batteries that is in short supply. If it opens on schedule early next year, it will be the second North American source of that metal, offering hope that badly needed raw materials can be extracted and refined close to Canadian, U.S. and Mexican auto factories, in line with Biden administration policies that aim to break China’s dominance of the battery supply chain.
Having more mines will also help contain the price of lithium, which has soared fivefold since mid-2021, pushing the cost of electric vehicles so high that they are out of reach for many drivers. The average new electric car in the United States costs about $66,000, just a few thousand dollars short of the median household income last year.
lithium mines are in various stages of development in Canada and the United States. Canada has made it a mission to become a major source of raw materials and components for electric vehicles. But most of these projects are years away from production. Even if they are able to raise the billions of dollars needed to get going, there is no guarantee they will yield enough lithium to meet the continent’s needs.
eliminate this cap and extend the tax credit until 2032; used cars will also qualify for a credit of up to $4,000.
Tax code. The law introduces a new 15 percent corporate minimum tax on the profits companies report to shareholders, applying to companies that report more than $1 billion in annual income but are able to use credits, deductions and other tax treatments to lower their effective tax rates. The legislation will bolster the I.R.S. with an investment of about $80 billion.
Low-income communities. The package includes over $60 billion in support of low-income communities and communities of color that are disproportionately burdened by climate change. Among the provisions are grants for zero-emissions technology and money to mitigate the negative effects of highways and other transportation facilities.
Fossil fuels industry. The legislation requires the federal government to auction off more public space for oil drilling and expand tax credits for coal and gas-burning plants that rely on carbon capture technology. These provisions are among those that were added to gain the support of Senator Joe Manchin III, Democrat of West Virginia.
West Virginia. The law is expected to bring big benefits to Mr. Manchin’s state, the nation’s second-largest producer of coal, making permanent a federal trust fund to support miners with black lung disease and offering new incentives to build wind and solar farms in areas where coal mines or coal plants have recently closed.
For many people in government and the auto industry, the main concern is whether there will be enough lithium to meet soaring demand for electric vehicles.
The Inflation Reduction Act, which President Biden signed in August, has raised the stakes for the auto industry. To qualify for several incentives and subsidies in the law, which go to car buyers and automakers and are worth a total of $10,000 or more per electric vehicle, battery makers must use raw materials from North America or a country with which the United States has a trade agreement.
rising fast.
California and other states move to ban internal combustion engines. “It’s going to take everything we can do and our competitors can do over the next five years to keep up,” Mr. Norris said.
One of the first things that Sayona had to do when it took over the La Corne mine was pump out water that had filled the pit, exposing terraced walls of dark and pale stone from previous excavations. Lighter rock contains lithium.
After being blasted loose and crushed, the rock is processed in several stages to remove waste material. A short drive from the mine, inside a large building with walls of corrugated blue metal, a laser scanner uses jets of compressed air to separate light-colored lithium ore. The ore is then refined in vats filled with detergent and water, where the lithium floats to the surface and is skimmed away.
The end product looks like fine white sand but it is still only about 6 percent lithium. The rest includes aluminum, silicon and other substances. The material is sent to refineries, most of them in China, to be further purified.
Yves Desrosiers, an engineer and a senior adviser at Sayona, began working at the La Corne mine in 2012. During a tour, he expressed satisfaction at what he said were improvements made by Sayona and Piedmont. Those include better control of dust, and a plan to restore the site once the lithium runs out in a few decades.
“The productivity will be a lot better because we are correcting everything,” Mr. Desrosiers said. In a few years, the company plans to upgrade the facility to produce lithium carbonate, which contains a much higher concentration of lithium than the raw metal extracted from the ground.
The operation will get its electricity from Quebec’s abundant hydropower plants, and will use only recycled water in the separation process, Mr. Desrosiers said. Still, environmental activists are watching the project warily.
Mining is a pillar of the Quebec economy, and the area around La Corne is populated with people whose livelihoods depend on extraction of iron, nickel, copper, zinc and other metals. There is an active gold mine near the largest city in the area, Val-d’Or, or Valley of Gold.
Mining “is our life,” said Sébastien D’Astous, a metallurgist turned politician who is the mayor of Amos, a small city north of La Corne. “Everybody knows, or has in the near family, people who work in mining or for contractors.”
Most people support the lithium mine, but a significant minority oppose it, Mr. D’Astous said. Opponents fear that another lithium mine being developed by Sayona in nearby La Motte, Quebec, could contaminate an underground river.
Rodrigue Turgeon, a local lawyer and program co-leader for MiningWatch Canada, a watchdog group, has pushed to make sure the Sayona mines undergo rigorous environmental reviews. Long Point First Nation, an Indigenous group that says the mines are on its ancestral territory, wants to conduct its own environmental impact study.
Sébastien Lemire, who represents the region around La Corne in the Canadian Parliament, said he wanted to make sure that the wealth created by lithium mining flowed to the people of Quebec rather than to outside investors.
Mr. Lemire praised activists for being “vigilant” about environmental standards, but he favors the mine and drives an electric car, a Chevrolet Bolt.
“If we don’t do it,” he said at a cafe in La Corne, “we’re missing the opportunity of the electrification of transport.”
Retail Sales Up 0.3% In August From July Amid Inflation
