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The Half-Century Student Loan
What happens when borrowers take longer than expected to pay off student loans? First, there’s a risk the bonds backed by the loans won’t be paid off in time. That would lead to downgrades and losses for investors. One solution: Make sure the bonds are paid off in time by extending their maturity dates by decades. Altogether, issuers have extended maturities on about $11.5 billion of outstanding bonds backed by mostly older-vintage student loans, extending maturity dates by as much as 54 years. The development shows how long it will take some borrowers to pay off their debt. It also shows the potential burden faced by the federal government, which guarantees most of the investor-held loans and owns the majority of the remainder, Cezary Podkul reports.
WHAT TO WATCH TODAY
The U.S. trade deficit for November is expected to narrow to $43.6 billion from $47.2 billion a month earlier. (8:30 a.m. ET)
The Institute for Supply Management’s nonmanufacturing index for December is expected to rise to 54.5 from 53.9 a month earlier. (10 a.m. ET)
U.S. factory orders for November are expected to fall 0.8% from the prior month. (10 a.m. ET)
TOP STORIES
Iran and the Economy
Gold jumped to its highest level in almost seven years with tensions between the U.S. and Iran escalating, the latest example of investors favoring the safe-haven metal to protect against a market downturn. A recent advance for bullion extends a booming rally that began last year, when uncertainty about global trade policy and fears about an economic slowdown propelled gold to its best annual performance since 2010, Joe Wallace and Amrith Ramkumar report.
Unsurprisingly, oil prices have also climbed. Solely from an economic perspective, an oil-price shock isn’t the bad news it used to be for the U.S. “Consumer spending on gasoline is historically low and savings rates are elevated, which should help accommodate higher prices. Meanwhile, the growth of the domestic energy sector means the U.S. is no longer a net importer of petroleum products, and higher prices may actually boost investment,” Credit Suisse economists James Sweeney, Jeremy Schwartz and Xiao Cui write.
“The uncertainty that the crisis imparts could potentially be more meaningful,” Wells Fargo economist Jay Bryson said. Financial market conditions have tightened a little, businesses could get even more cautious and consumers a bit more wary about the economy’s prospects.
Already, fears of Iranian retaliation have sparked concern that U.S. wheat growers will lose access to Middle Eastern markets—a growing destination for U.S. grain exports. Without continued demand from the Middle East, wheat farmers already struggling following the U.S.-China trade war and the tough weather of last year may face more difficulties in 2020, Kirk Maltais reports.
Render Unto Caesar
Tax enforcement by the Internal Revenue Service fell to the lowest level in at least four decades last year. The IRS audited 0.45% of personal income-tax returns in fiscal 2019, down from 0.59% in 2018 and marking the eighth straight year of decline. The steady erosion has been driven by years of cuts in the agency’s budget along with a heavier workload. The result, according to tax experts, is that the Treasury is letting billions of dollars annually go uncollected, even as budget deficits rise. The government estimates that each additional dollar spent on tax enforcement could yield more than $4 in revenue, Richard Rubin reports.
Also on the tax front: State and local governments across the U.S. spend at least $30 billion a year to attract and keep companies, but the biggest deals generate little in the way of economic benefits in return, a new study shows. The research calls into question the common practice of using narrow, firm-specific tax breaks to attract businesses and boost employment, Richard Rubin reports.
It’s a Girl, My Lord, in a Flatbed Ford Slowin’ Down to Take a Look at Me
Ford Motor’s U.S. sales fell 3.2% in 2019, reflecting cooling demand in the U.S. auto market. The No. 2 U.S. auto maker by sales said it sold about 2.41 million vehicles last year, down from around 2.49 million in 2018. Overall, U.S. vehicle sales fell 1.6% last year, to 17.1 million vehicles, research site Edmunds.com said. It marked a fifth straight year the industry topped 17 million vehicles sold, though the car business faces potential headwinds in the U.S. in 2020, Dave Sebastian and Mike Colias report.
Milk Shakeup
Borden Dairy, a 163-year-old milk producer known for its spokes-cow Elsie, has filed for bankruptcy. The Dallas-based company in its chapter 11 petition blamed falling milk consumption, rising raw-milk costs, increasing freight costs due to driver shortages pressuring wages, and the growing clout of retailers consolidating with other merchants or beginning to develop their own milk-processing operations. Borden, with $1.18 billion in 2018 sales, is one of the U.S.’s largest milk producers. The nation’s largest, Dean Foods, filed for bankruptcy in November, Becky Yerak reports.
WHAT ELSE WE’RE READING
This week we’ll highlight research presented at the American Economic Association’s annual meeting, via the WSJ’s Greg Ip.
Racial quotas on immigration from southern and eastern Europe in the 1920s left the U.S. with about 1,200 fewer scientists than if the quotas had never existed, conclude Petra Moser and Shmuel San of New York University.
Internal migration by people displaced by civil war in the early 2000s did not affect how Colombians in the recipient municipalities voted, whereas an influx of Venezuelan immigrants in recent years boosted turnout and support for right wing parties, suggesting social and cultural differences, not economic pressures, explain the political backlash to immigration, say JuanVargas of Del Rosario University and Sandra Rozo of the University of Southern California.
Poles uprooted at the end of World War Two learned it was better to invest in education than material possessions, according to Sascha Becker ofthe University of Warwick and four co-authors. They found Poles forced to leave territories absorbed into the Soviet Union are more educated than other Poles.
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