Income inequality reform that threatens the US credit profile: Atl Fed, Moody’s

By David Pendered

Income and racial disparities could undermine the credit profile of the United States, an eminent Wall Street analyst warns in its sharpest formulation so far in a series dating back to 2018.

protest, capitalism, homepage

Complaints about the American economic system persisted during the summer protests. The unrest was predicted in reports dating back to 2018 by William Foster, chief analyst at Moody’s Investors Service. Credit: Kelly Jordan

Meanwhile, the Atlanta Fed President / CEO continues his request to the central bank to conduct economic reforms aimed at promoting an inclusive economy.

Raphael Bostic and William Foster are becoming bright lights in the nation’s emerging conversation about the role of economic policy in creating and addressing systemic inequality. Bostic heads the Federal Reserve of Atlanta. Foster is vice president and senior credit officer of the sovereign risk group of Moody’s Investors Service.

Bostic explored the problems in his essay, A moral and economic imperative to end racism. Bostic elaborated recently in his July 9 conversation with Howard Gleckman, a senior member of the Urban-Brookings Tax Policy Center:

  • “If you are an African American whose family has been unable to own houses, do business or do those things for generations, you will have less wealth. The field [economics] in reality it does not recognize and speak of those institutional constraints that have historical arches that, over time, disadvantage people.
  • “We look for many explanations that have a contemporary element. But this causes the field to somehow turn its back on many of the more institutional factors that actually make groups of crickets and prevent them from being competitive today. “
Raphael Bostic

Raphael Bostic

Bostic predicted that solutions will emerge if the nation realizes a greater understanding of the history that created the current economic structure:

  • “In terms of correction … in the essay, I spent the first part talking about historical events and historical practices. I think we actually need to know them a lot more. This is true of African Americans. I think there is a huge story around Native American mistreatment. There is a Supreme Court ruling this morning on the state of Oklahoma and how the land that should have been for Native Americans has been improperly reclassified.
  • “There is a lot of history that we don’t know, and since we don’t know, it makes us not really understand the burdens that people are carrying out and the challenges they face. And, without that understanding, it is difficult to imagine that we will find solutions that they face in appropriately the real problem. “

Wall Street analyst Foster has warned since 2018 that income and racial inequality could lead to growing social tensions that will affect many types of political discussions.

William foster, moody

William Foster

Foster oversees a supranational portfolio for Moody’s Investors Service – the claims from the United States, Canada, India, Bolivia and the World Bank Group.

Strong language was contained in the Issuer’s Commentary of 14 July on the United States government, of which Foster was the principal analyst. But a more convincing view was in a related document.

The issuer’s commentary on July 14 concluded:

  • “While there are indeed many social and economic issues that have contributed to the growing political polarization of the United States in recent years, looking to the future, the combination of income and racial inequality is bound to be a powerful force for further potential polarization and inertia. . “

The announcement of the research accompanying the observed comment:

  • “Although several issues have contributed to increasing political polarization in recent years, looking ahead, racial and income disparities are powerful forces that can contribute to further polarization and increase social risks, which could ultimately undermine the credit profile of the United States.” [Emphasis supplied.]
family wealth, moody

Since the Great Recession, the growth of household wealth among whites has increased at higher rates than blacks. Credit: Moody’s Investors Service

A country’s credit profile is similar to that of a consumer’s credit profile. The rating provides investors with detailed information on the probability of being repaid on a loan, which has an influence on the interest charged on the loan.

Foster raised flags of caution in two previous broadcasters’ comments on the U.S. government:

September 27, 2019

  • “On Thursday, the United States Census Bureau published the 2018 American Community Survey’s findings, which revealed that income inequality has risen to its highest level in over 50 years. Without a clear policy response to reduce the growing inequality, we expect this trend to persist, ultimately contributing to higher tax costs and potentially higher political risk in the United States …
  • “If inequality is not addressed, social tensions will continue to rise, leading to an even more controversial political landscape that increases political risk in the United States and with it a less predictable political environment.”

October 8, 2018

income inequality, moody

A measure of income inequality, the Gini index, shows a steady increase in the United States, where income inequality exceeds that of other developing nations. Credit: Moody’s Investors Service

  • “Over the past two decades, the disparity in income and wealth has increased in the United States as high and very high income families have commanded increasing shares of income and wealth. The top 10% of income earners have seen their overall median net worth increase by almost 200% since 1995, while the bottom 40% of income earners have experienced a decline in median net worth over the same period….
  • “If inequality is not addressed, social tensions will continue to rise, leading to a more fragmented political landscape that increases political risk and with it a less predictable political environment.”

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