Warren's problematic warning Presented by U.S. Bank

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Quick Fix

Warren’s problematic warning — Sen. Elizabeth Warren (D-Mass.) warned that the economy is ripe for a major crash, citing high household and corporate debt, the trade war with China and a possible hard Brexit, among other scary risks. She used the warning to push many of her policy prescriptions including canceling student loan debt and investing in green manufacturing.

But the picture she paints doesn’t exactly match what is actually happening and it risks looking foolish if none of the doom and gloom arrives. Credit card debt may be as high as 2008 but that’s in non-adjusted numbers.

A progressive economist emails: “[T]aken as a whole it’s hard to say that the household debt situation looks very much like what she was warning about from 2003-07, the attached chart is overall debt (mortgage, student loan, credit card, auto, etc.) relative to income. Also this is debt/income. If you looked at debt service/income you would see an even more reassuring picture.” (More below)

Budget deal reached — The White House and congressional leadership struck a budget deal that would lift spending and raise the debt limit until after the 2020 election. President Trump tweeted it out. Fiscal hawks are freaking out about the deficit numbers and House conservatives wanted Trump to reject it. But Wall Street will dig it. Seems unlikely unhappy conservatives will be enough to bust it up. But it's not done till it's done. (More below).

A message from U.S. Bank Banks must do more and better to reverse systemic inequality. At U.S. Bank, that starts by committing $116 million to address social and economic inequities and elevating Black voices and Black-owned businesses. Because we’re small enough to care – and big enough to make a difference. Learn more.

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Driving the Day

Senate Banking has a hearing at 10:00 a.m. on 10 a.m. on “Challenges for Cannabis and Banking: Outside Perspectives” … Sen. Bob Menendez (D-NJ) is introducing legislating this morning to insure cannabis-related business can access insurance … Sen. Warren and House Majority Whip Jim Clyburn (D-S.C.) are introducing legislation to cancel student loan debt …

The Federal Housing Finance Agency releases its House Price Index for the month of May at 9:00 a.m. … Existing Home Sales at 10:00 a.m. expected to dip to 5.30M from 5.35M

POT PREP — ABA has a new white paper out on “the public benefits” of banking cannabis businesses.

MORE ON WARREN — Former CEA Chair Austan Goolsbee: “In fairness, she should get credit that she was ahead of most everybody in warning about the last crisis. She talked to me about subprime and the dangers of it spreading in 2007 when even Bernanke was saying it was going to be contained.

“The rest, though, seems like info from the FSOC systemic risk report. It’s good to pay attention to it but it seems less serious than the tinder laying around in 2007. The title makes it seem overly prophetic I think.”

Budget

DETAILS — Via POLITICO: “The compromise would increase fiscal 2020 spending limits on non-defense programs by $24.5 billion over current levels, to $621.5 billion. … Under the deal, defense spending caps for fiscal 2020 would be increased by $19.5 billion over current levels, to $666.5 billion.”

NOT A HUGE BOOST — Pantheon’s Ian Shepherdson: “We have long expected a deal to raise the debt ceiling and increase spending, so our forecasts for growth, employment and inflation have never incorporated the CBO's baseline forecasts for fiscal 2020 and beyond”

WHEN THE HAWKS CRY — Committee for a Responsible Federal Budget President Maya MacGuineas: “It may end up being the worst budget agreement in our nation's history.”

DEFICIT DON? — Our John Bresnahan and Burgess Everett: “Trump may have to hand out some new nicknames — for himself — after endorsing a bipartisan budget deal with Congress: ‘Trillion Dollar Trump?’ ‘Deficit Don?’

“With a new bipartisan budget deal that does nothing to cut federal spending, Trump is on track for another $1 trillion-dollar deficit this year. And there’s no reason to believe the following fiscal year will be any different, with ballooning deficits from higher spending, the 2017 tax cuts … and none of the entitlement reforms long preached by Republican leaders on Capitol Hill.”

WYDEN DINGS CROWLEY — Senate Finance ranking member Ron Wyden (D-Ore.), on the appointment of Monica Crowley to be the Treasury Department’s assistant secretary for public affairs:

“Credibility is non-negotiable for an agency spokesperson and Ms. Crowley simply does not have any. As a network commentator, she has dabbled in the racist birther conspiracy theory, pushed propaganda about refugees and disparaged the press.”

NEW MISSION TO CHINA — Via South China Morning Posts’s Zhou Xin and Catherine Wong: “U.S. negotiators led by trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are likely to fly to China next week for the first face-to-face talks since President Xi Jinping and … Trump agreed to a trade war ceasefire at the end of June, according to a source who is familiar with the matter.”

TRUMP HUDDLES WITH TECH CEOS ON HUAWEI — Our Steven Overly: “Trump huddled with the chief executives of seven technology companies, including Google CEO Sundar Pichai, at the White House Monday as his administration delivers wildly mixed messages on Chinese telecom company Huawei amid preparations for the next round of trade talks with China.

“National Economic Council Director Larry Kudlow convened the meeting to discuss a range of economic issues, but the guest list was entirely composed of semiconductor and software companies that count Huawei, the world's largest telecom equipment maker, as one of their customers.”

Markets

TECH SHINES ON OTHERWISE SLUGGISH DAY FOR STOCKS — AP's Stan Choe and Damian Troise: "Tech stocks were the standouts in an otherwise sluggish day of trading on Monday, as investors gear up for the arrival of the heart of earnings reporting season. Apple, Intel and several chip makers jumped more than 2 percent, and technology stocks in the S&P 500 climbed 1.2 percent”

And China's exchange had a solid first day — WSJ's Shen Hong: "China’s new market for homegrown technology companies opened with a bang, with stocks doubling, tripling or more than quadrupling in value on its first day.

Fly Around

EQUIFAX TO PAY $700M — Our Zachary Warmbrodt: “Credit reporting company Equifax will pay up to $700 million to resolve investigations into a 2017 data breach that affected about 147 million consumers, according to a settlement that federal regulators and state officials unveiled …

“The penalties announced by the Consumer Financial Protection Bureau, Federal Trade Commission and 48 states include up to $425 million for consumers and a $100 million civil money penalty. The CFPB alleged that Equifax violated the law before and after the breach by failing to provide reasonable security”

DeVOS GETS BIG BUMP FROM TAX REFORM — CNBC’s Brian Schwartz and John W. Schoen: “Secretary of Education Betsy DeVos and her family have seen their investments skyrocket since … Trump started enacting business policies that have helped corporate leaders.

HUAWEI BAN COULD COST U.S. $240B — Our Shawna Chen: “The economic toll of banning Huawei networking equipment from the American market could reach $240 billion, an economist said … Debra Aron, the vice president of global consulting firm Charles River Associates and an expert on regulatory economics, based the figure on projected losses if the U.S. blocks Huawei radio access network components, a key part of building out 5G networks.

“While Huawei commissioned Aron's research, she maintained her findings were not influenced by the firm. Primarily, she said, excluding Huawei components would increase prices that U.S. telecoms pay for similar equipment by 12 to 14 percent.”

FACEBOOK BOOSTS LOBBYING — Our Zachary Warmbrodt: “Facebook has expanded its lobbying operation to help pitch its upcoming Libra digital currency, which policymakers are threatening to derail amid growing distrust of the social media giant.

“In addition to its in-house lobbying team, sources familiar with the matter said Facebook has hired a pair of lobby shops with deep experience in Washington's financial services arena to work on Libra issues — the Sternhell Group and the Cypress Group. It has tapped the law firm Davis Polk to help handle regulatory concerns, another source familiar with the matter said.”

TRUMP'S FED PICK WOULD FAVOR HALF-POINT RATE CUT — Bloomberg's Alister Bull: "Judy Shelton, who … Trump has said he plans to nominate to the Federal Reserve Board in Washington, backs a half percentage-point rate cut when the central bank meets next week and said she would have pushed for a sooner move.”

EPSTEIN'S DEEP TIES TO TOP WALL STREET FIGURES — NYT's Kate Kelly, Matthew Goldstein, Jessica Silver-Greenberg and James B. Stewart: "When Jeffrey Epstein was serving time in Florida for soliciting prostitution from a minor, he got a surprising visitor: James E. Staley, a top JPMorgan Chase executive and one of the highest-ranking figures on Wall Street.”

A message from U.S. Bank: It’s time for banks to acknowledge the racial wealth gap and work to reduce it. Our headquarters market of Minneapolis was the epicenter of recent social justice activism, forcing us all to reckon with the glaring disparities caused by systemic racism. At U.S. Bank, we’re making an immediate impact by advancing Black leaders in our organization, developing meaningful business relationships with Black-owned businesses and customers, and denouncing systemic racism. To reinforce our commitment, we are making an initial investment of $116 million to address social and economic inequities, and our senior management team has elevated our diversity office to the corporate Managing Committee. Chipping away at systemic racism is not the job of one person, one company, or one industry. But that is how it starts, with each of us. One by one, each of us becomes all of us. Learn more.

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