Shooting suspect in standoff at Los Angeles supermarket

LOS ANGELES (AP) – A man who in a standoff with police inside a Los Angeles supermarket is suspected of shooting his grandmother and girlfriend earlier Saturday and led police on a pursuit through the city – at times shooting at officers – before he crashed outside the busy supermarket and ran inside, officials said.

A large number of police and rescue personnel swarmed the Trader Joe’s in the Silver Lake area Saturday afternoon and at least one person was injured but expected to survive. Police said it wasn’t clear whether there were any employees or others still inside the store.

Investigators believe the suspect, whose name hasn’t been released, had shot his grandmother and girlfriend around 1:30 p.m. in South Los Angeles and then fled in a 2015 Toyota Camry, said Officer Mike Lopez, a Los Angeles police spokesman.

Officers spotted the suspect’s car near Hollywood and tried to pull him over, but the man refused to stop and led officers on a pursuit, Lopez said. During the chase, the suspect shot “multiple rounds” at officers, though no officers were struck by the gunfire, he said.

At least one officer is believed to have returned fire during the pursuit, Lopez said.

The suspect eventually crashed his car outside of the Trader Joe’s supermarket and then ran into the store. An Associated Press employee who lives in the area reported seeing a car crashed into a utility pole outside the store.

The woman who was injured was taken to the hospital in stable condition, according to David Ortiz, a fire department spokesman, though it was unclear how she was injured. Officials said they had 18 ambulances and 100 firefighters staged at the scene.

Don Kohles, 91, was walking into the supermarket when he saw a car being chased police crash into a pole just outside. Police fired at the driver, shattering the store’s glass doors and Kohles and others inside took cover and laid on the floor as the suspect ran into the store, he said.

He could hear others around him sobbing as the man ran toward the back of the store and yell at people, but Kohles said he never heard any more gunshots. After about 30 minutes, police came inside and rushed some of the customers out, he said.

Sgt. Barry Montgomery said the situation was still unfolding but officers were communicating with the suspect. It wasn’t clear if employees or customers were still inside the store.

Officers are “trying to get the suspect to surrender and bring this to a peaceful conclusion,” he said.

Photos posted on social media showed people trying to exit the supermarket through a window and video from television news helicopters showed others leaving through the front door with their hands up.

President Donald Trump tweeted that he is “Watching Los Angeles possible hostage situation very closely” and that Los Angeles police officers were working with federal law enforcement.

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As inequality grows, so does the political influence of the rich

SQUEEZING the top 1% ought to be the most natural thing in the world for politicians seeking to please the masses. Yet, with few exceptions, today’s populist insurgents are more concerned with immigration and sovereignty than with the top rate of income tax. This disconnect may be more than an oddity. It may be a sign of the corrupting influence of inequality on democracy.

You might reasonably suppose that the more democratic a country’s institutions, the less inequality it should support. Rising inequality means that resources are concentrated in the hands of a few; they should be ever more easily outvoted by the majority who are left with a shrinking share of national income.

Indeed, some social scientists think that historical expansions of the franchise came as governments sought credible ways to assure voters that resources would be distributed more equitably. Daron Acemoglu and James Robinson argue that in the 19th century governments across the West faced the threat of socialist revolution. Mere promises of greater redistribution were insufficient to eliminate such threats; institutional guarantees were needed. Giving credible guarantees, they reckon, meant increasing the share of the population allowed to vote. Other researchers argue that anti-majoritarian institutions embedded within democratic systems, such as Britain’s House of Lords and America’s electoral college, were prized by elites not because they seemed likely to lead to better policies but because they served as a check on the egalitarian tendencies of the masses.

But studies of the relation between democracy and levels of inequality point in conflicting directions. Mr Acemoglu and Mr Robinson tackle the question in another paper, co-written with Suresh Naidu and Pascual Restrepo. They conclude that democracies raise more taxes than non-democracies do. But this does not translate reliably into lower levels of income inequality.

One possible reason for this disconnect is that people do not care much about inequality, or want their politicians to do anything about it. The results of surveys suggest otherwise, however. When asked by pollsters, more than two-thirds of Americans and Europeans express concern about current levels of inequality. Alternatively, the creaky wheels of Western democracies might have become too jammed to make progress on any issue of substance, whether inequality or some other persistent problem.

But this answer is also unsatisfying. The rich world has seen big policy shifts over the past decade. Last year America’s government managed to make a sweeping change to taxes—one that tilts the distribution of income even more in favour of the rich. And in a recent study of European politics, Derek Epp and Enrico Borghetto find that political agendas in Europe have become less focused on redistribution even as inequality has risen. Though both inequality and public concern about it are increasing, politicians seem less interested in grappling with the problem.

Mr Epp and Mr Borghetto think another possible explanation should be considered. Rather than straightforwardly increasing pressure on politicians to do something about skewed income distributions, they suggest, rising inequality might instead boost the power of the rich, thus enabling them to counter the popular will. Research in political science gives substance to the impression that America’s rich wield outsize influence. An examination of the political preferences of those with $40m or more in net worth by Benjamin Page, Larry Bartels and Jason Seawright found that they overwhelmingly favour cutting spending on major social-safety-net programmes. (The general public wants it increased.) They are also more politically engaged than typical Americans: much more likely to have regular personal contact with elected officials, for example, and to give money to political campaigns. An analysis of campaign donations by Lee Drutman found that fewer than 30,000 people account for a quarter of all national political donations from individuals and for more than 80% of the money raised by political parties.

The relation between concentrated wealth and the political power of the rich is scarcely limited to political spending, or to America. The rich have many means to shape public opinion: financing nominally apolitical think-tanks, for instance, or buying media outlets. Although their power may sometimes be used to influence the result of a particular vote, it is often deployed more subtly, to shape public narratives about which problems deserve attention. Mr Epp and Mr Borghetto analysed bills brought before the parliaments of nine European countries between 1941 and 2014. Rising inequality, they found, is associated with political agendas more focused on matters related to “social order”, such as crime and immigration. Issues such as economic justice are crowded out. They attribute this to the “negative agenda power” of the rich. As their wealth increases, they have a greater ability to press politicians to emphasise some topics rather than others.

A rising tide lifts all votes

The evidence that concentrated wealth contributes to concentrated power is troubling. It suggests that reducing inequality becomes less likely even as it becomes more urgent. It implies that a vicious cycle of rising inequality may be developing, with a loss of democratic accountability as a nasty side-effect. Some social scientists argue that this is, indeed, the way of things. In “The Great Leveler”, published last year, Walter Scheidel writes that, across human history, inequality inevitably rises until checked by disasters like wars or revolutions.

This is excessively pessimistic. The rich are powerful, but not all-powerful, or uniform in their determination to keep distributional policies off the agenda. And Western democracies still function. If political leaders tried it, they might well find that redistribution is a winner at the ballot box.

Sources cited in this article

“Why did the West extend the franchise?: democracy, inequality and growth in historical perspective”, Daron Acemoglu and James Robinson, Quarterly Journal of Economics, 2000.

“Democracy, redistribution and inequality”, Daron Acemoglu, Suresh Naidu, Pascual Restrepo and James Robinson, Handbook of Income Distribution, 2015.

“Economic inequality and legislative agendas in Europe”, Derek Epp and Enrico Borghetto, 2018.

“Democracy and the policy preferences of wealthy Americans”, Benjamin Page, Larry Bartels and Jason Seawright, Perspectives on Politics, 2013.

“The political one percent of the one percent”, Lee Drutman, Sunlight Foundation, 2011.

 

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Manley role at Fiat Chrysler a turning point for carmaker

The nomination of Mike Manley as CEO of Fiat Chrysler marks a turning point for the carmaker, putting a brand with historic Italian roots in the hands of someone with no ties to Italy – a Brit who showed his mettle by growing the quintessentially American Jeep into a global brand.

Manley has been one of the closest collaborators with the company’s longtime leader Sergio Marchionne and had been seen as a possible successor since Marchionne announced in January that he planned to step down next year. Those plans were pushed up Saturday after Marchionne’s health deteriorated following surgery.

The 54-year-old Manley also headed the Ram truck brand, which together with Jeep have been the focus of Fiat Chrysler’s growth strategy in North America, whose market represents two-thirds of Fiat Chrysler’s earnings.

“The success of the Jeep brand under Mike Manley and his global background make him the smart choice to be the new head of FCA,” said Karl Brauer, executive publisher of Autotrader and Kelley Blue Book. “His international experience in growing that brand will play a key role as he applies those techniques to all of the Fiat Chrysler divisions.”

Manley had joined the company in 2000. He took over management of the Jeep brand in 2009, just after Chrysler emerged from bankruptcy protection funded by the U.S. government. At the time, the all-SUV Jeep mainly was a U.S. brand, where sales languished at around 232,000 for the year.

By 2017, though, sales had nearly quadrupled to more than 828,000 as Americans snapped up all-wheel-drive SUVs. The brand also grew internationally, especially in China, under Manley, and has a difficult goal of hitting 2 million in sales worldwide this year.

Manley stayed at the company through tumultuous times when other executives were ousted, and his roles were expanded because he performed, said Autotrader.com analyst Michelle Krebs.

“He’s low-key and the opposite of Sergio,” she said. “He just went about his business.”

Krebs attended Fiat Chrysler’s five-year business plan unveiling in Italy earlier this year. “A large part of it was the Mike Manley show,” Krebs said. “My sense is he helped develop the plan.”

Krebs doesn’t see any major changes in the way FCA is run under Manley, but says the company does face challenges as the U.S. auto market cools down a bit after record sales.

The company also will have to deal with possible tariffs imposed on vehicles and parts both by the U.S. and in retaliation from other countries. Fiat Chrysler exports Jeeps and other vehicles from the U.S., and it also imports some of its models from Italy and Mexico, especially the growing Alfa Romeo sport luxury brand, she said.

Manley has a master’s degree in business administration from Ashridge Management College. He was born in Edenbridge, Great Britain.

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Income-share agreements are a novel way to pay tuition fees

TO PAY for his professional flight degree at Purdue University in Indiana, Andrew Hoyler had two choices. He could rely on loans and scholarships. Or he could cover some of the cost with an “income-share agreement” (ISA), a contract with Purdue to pay it a percentage of his earnings for a fixed period after graduation.

Salaries for new pilots are low. Mr Hoyler made $1,900 per month in his first year of work. Without the ISA, monthly loan payments would have been more than $1,300. Instead, for the next eight-and-a-half years he will pay 7.83% of his income. He thinks that, as his pay accelerates, he will end up paying $300-400 more each month than with a loan. But low early payments, and the certainty that they would stay low if his earnings did, made an ISA the better option, he says. “I’ve been able to pay what I could afford.”

Most American students take out low-interest, federally backed loans, the stock of which has grown steeply in recent years (see chart). Balances are usually written off after 20 years. That is the only insurance built into most students’ debt. Though repayments can be linked to future income, only 29% of borrowers opt for this. And total loans are generally capped at $31,000. In 2016-17, 6% of undergraduates topped up with private loans, which have higher interest rates and no debt forgiveness.

ISAs, by contrast, act as equity, not debt, with investors taking a share in a future income stream. Risk is shifted from students to investors, who can pool and diversify it. Graduates who fail to land steady or lucrative work will pay less than the cost of their tuition. Caps on repayment mean high-fliers do not end up paying back fortunes. ISAs also align the interests of borrower and lender, since investor returns are tied to a student’s career progress. Investors will offer better terms to students at universities whose graduates earn well.

ISAs have been mooted before as a way to spare American graduates from mountains of debt. In 2014 bills were introduced in Congress that would have put them on a firm legal footing—setting maximum loan terms, for example, and ruling that, like ordinary student debt, they would not be dischargeable by declaring bankruptcy. One firm, Upstart, briefly marketed them directly to consumers. But the bills went nowhere and the idea fizzled.

Similar proposals are once more being considered in Congress, but that is not the main reason why ISAs are attracting attention again. What has put them back on the agenda is the involvement of universities, which are starting to offer ISAs through their financial-aid offices, with outside investors providing some of the capital. Universities spy a way to lower their students’ debt burden and spare them from having to take out private loans. Investors regard this as a sign that an institution is confident in its graduates’ earning power, which reassures them about the extra risk in an equity arrangement, compared with conventional student debt.

Purdue introduced ISAs in 2016. The first participants graduated last year, having used ISAs to cover fees of $12,000 on average. Funding came from its endowment, which saw returns of 5-7%. Now it is raising capital from outside investors. Two other universities, Clarkson University in New York and Lackawanna College in Pennsylvania, have recently begun ISA schemes. One investor expects that another dozen will follow this autumn. The share of income signed over ranges from 2% to 17%, with students in high-earning fields, such as medicine or engineering, usually paying a smaller share of earnings for a shorter time than students of literature or fine art.

For investors, the safest bets are students on vocational courses—nurses, plumbers, computer programmers and the like—where postgraduate employment is the express aim and wages are predictable. The difficulty with less vocational subjects is in assessing whether a course will boost salaries sufficiently for the deal to make sense. Most universities rely on alumni surveys to find out how much their graduates earn, so data are patchy.

The stock of ISAs is tiny. Some 3,000-5,000 American students have used them to cover $40m in tuition costs, estimates Charles Trafton of FlowPoint Education Management, which creates and invests in ISAs. For comparison, in the 2016-17 academic year, private student loans totalled $11.6bn. Mr Trafton says he is buying ISAs for their combination of social impact and an investment return that he believes will match or exceed those for private loans, which are in the range of 4-15%.

Only universities that are confident of their courses’ value on the jobs market will be interested in partnering with investors, says Mr Trafton. “Those that know their tuition is overpriced and unconnected to the economic value of their degrees will never have ISAs.” He puts the latter cohort at 70% of four-year universities.

Universities that do take the plunge will be tracking their graduates closely. That in turn will make pricing easier and help expand the market. Over time they will get fine-grained data on their graduates’ employment and salaries, says Tonio DeSorrento of Vemo Education, which operates ISAs for several institutions. Some may even adjust their educational offerings to protect their investments.

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Mnuchin: Overall US economy not harmed by trade battles

BUENOS AIRES, Argentina (AP) – U.S. Treasury Secretary Steven Mnuchin said Saturday that the overall U.S. economy has not been harmed by the trade battles set off by President Donald Trump’s get-tough policies although some individual sectors have been hurt. He said the administration was exploring ways to help farmers and other specific industries that have been affected.

Mnuchin spoke to reporters on the sidelines of meetings of finance ministers and central bank presidents from the Group of 20 nations, composed of traditional economic powers such as the United States, Japan and Germany and emerging economic powers including China, Brazil, India and Argentina.

Mnuchin said that there had not been an adverse effect on overall growth from the tariffs but that certain industries were being harmed because other countries were retaliating by targeting specific industries.

“Certain countries have targeted very specific levels of things that are not coincidental,” Mnuchin told reporters. “So if you are looking at lobsters in Maine or you are looking at bourbon in Kentucky or you are looking at soybeans, there are clearly markets being followed.”

Mnuchin said that the administration would be “looking at different opportunities to help the farmers” and provide assistance to other sectors being “unfairly targeted” by tariffs from other nations.

“But I still think from a macro basis, we do not see yet any impact on what’s a very positive growth” performance for the U.S. economy this year, Mnuchin said.

At a briefing before the G-20 meetings began, U.S. Treasury officials told reporters that Mnuchin would be prepared to respond to concerns being raised by other countries about the Trump administration’s trade policies.

Also speaking in Buenos Aires at the G-20 summit, International Monetary Fund Managing Director Christine Lagarde said the recent series of trade tariffs would significantly harm the global economy.

“In the worst case scenario under current measures” the impact on the global economy “is in the range of 0.5 percent” of gross domestic product on a global basis, Lagarde said.

The United States and China are now in a full-blown trade war with both nations imposing tariffs on billions of dollars of each other’s goods with even bigger tariffs being threatened. Despite the standoff, U.S. officials said Mnuchin had no individual meetings scheduled with China during the G-20 meetings. Mnuchin did have about a dozen one-on-one sessions scheduled with other countries.

In a recent appearance before the House Financial Services Committee, Mnuchin said that the talks with China had broken down and indicated that the United States was waiting for China to come up with concessions to break the impasse.

The United States and China have hit each other with tariffs on $34 billion goods with another $16 billion in penalty tariffs in the pipeline. The Trump administration is preparing to impose tariffs on another $200 billion and Trump has threaten4ed to add $300 billion more to that figure.

On Saturday, the Treasury Secretary said the U.S. administration has been very clear that the objective is to have a more balanced trading relationship with China.

“We purchased about $500 billion of goods from them; they purchased about $130 billion of goods from us. We share a desire to have a more balanced relationship. And the balanced relationship is by us selling more goods,” Mnuchin said.

In addition to the sessions of the G-20, there will be an hour-long meeting among G-7 finance ministers and central bank officials. Treasury officials said part of this meeting would be to allow G-7 officials to discuss China’s unfair trade practices

___

AP Economics Writer Martin Crutsinger in Washington contributed to this story.

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Mario Draghi’s replacement is already being discussed

A LOT rests on the shoulders of the euro zone’s top central banker. The president of the European Central Bank (ECB) is not just in charge of ensuring monetary and financial stability in one of the world’s largest economies. In the absence of a single European fiscal authority, it also falls to the ECB to act as a backstop for the currency bloc. In times of crisis, the very survival of the monetary union seems to depend on the president’s words and actions. Central-bank bosses in America, Japan or Britain bear no burden as great.

With such demands, though, comes great influence. Those in need of convincing need only cast their minds back to July 2012. Greek interest rates were soaring and investors were entertaining the possibility that the euro zone would break up. But Mario Draghi, the ECB’s boss, soothed markets with a promise to do “whatever it takes” to save the euro. Six years on, that commitment still helps to contain Italy’s sovereign-bond yields, despite unease about its new government’s economic policies.

Mr Draghi’s term does not end until October 2019. But the jostling to replace him has already started. His successor will be chosen after much horse-trading between the 19 euro-zone members. By comparison, last year’s choice of Jerome Powell to lead America’s Federal Reserve looks a breeze.

Political jockeying has been a feature of the ECB’s presidency ever since it was set up 20 years ago. Its mandate followed that of the German Bundesbank in enshrining price stability and independence. Even so the Germans, doubtful of southerners’ commitment to low inflation, insisted on Wim Duisenberg, a Dutchman they saw as a kindred spirit, as president. The French wanted one of their own. The fudge was that Mr Duisenberg would step down halfway through his term to make way for Jean-Claude Trichet, a Frenchman who was Mr Draghi’s predecessor.

Complicating the negotiations over the next presidency is the fact that other big jobs are at stake, too. Vacancies at the top of the European Commission and European Council will also open up next year. And there are other spots at the bank that need filling. This week it began its search for a chief bank supervisor to replace Danièle Nouy, a Frenchwoman. Peter Praet, a Belgian member of the bank’s executive board, will leave in May.

Member states need to decide which roles they want and what to concede to get them. At the ECB, a balance between northerners and southerners is considered essential. The choice in March of Luis de Guindos, a Spaniard, as its vice-president, for example, is thought to leave the field open for a northern president.

With the euro area’s largest and most populous economy yet to hold the post, most observers agree that it is Germany’s turn. The obvious candidate would be the boss of the Bundesbank, Jens Weidmann. A survey last month of economists by Bloomberg, a news agency, put him as the most likely choice.

But the job is not in the bag. An advocate of a minimalist role for the ECB, Mr Weidmann has often been in the dissenting minority on big policy decisions. In 2013 he testified in Germany’s constitutional court against the bond-purchase scheme that gave substance to Mr Draghi’s promise to save the euro. Some reckon he has toned down his criticism of the bank recently, perhaps to position himself for the top job. Even so, he is unlikely to have many southern European supporters. Insiders also wonder if he is too orthodox to dream up unconventional solutions in a crisis.

Political capital

Angela Merkel, Germany’s chancellor, could probably ensure his elevation. But other countries’ leaders would demand big concessions in return. And she may not, after the past difficult decade, see much to gain from having a German at the bank’s helm. Teutonic zeal for price stability and fiscal discipline has not been popular in crisis-stricken countries. It might be safer to back a candidate from another northern European country, who shares German views but is less divisive.

Erkki Liikanen, the boss of Finland’s central bank, is moderately hawkish and seen in Frankfurt as a constructive contributor to policy debates. Though he is 67 and stepped down from the Bank of Finland this month, he has reportedly said that he would consider the ECB role. His successor, Olli Rehn, could also be in the running, as could Klass Knot, the boss of the Dutch National Bank. Philip Lane, who heads Ireland’s central bank and has an impressive academic background, is widely considered the front-runner to replace Mr Praet.

The twists and turns of backroom deals mean that a “grand bargain” between Germany and France encompassing other top EU jobs could yet put a Frenchman at the top again. François Villeroy de Galhau, the governor of France’s central bank, is thought to have good relations with Emmanuel Macron, the president. Another runner could be Benoît Coeuré, who is already on the ECB’s board. Though he is well-regarded, his promotion would depend on lawyers finding a way round rules that seem to ban repeat terms.

A surprise cannot be ruled out. Mr Draghi, an Italian, was appointed after a German, Axel Weber, dropped out of the race; he was chosen even though another southerner, Vítor Constâncio, was vice-president. But the risk is that the successful candidate is the least objectionable, rather than the ablest. That would damage the ECB’s hard-won credibility.

The fallout from such an intensely political selection process could start to be felt even before Mr Draghi departs. As asset purchases wind down, the ECB’s main policy tool is its guidance on interest rates. It expects rates to stay unchanged “at least through the summer of 2019”. But uncertainty over Mr Draghi’s successor could undermine that guidance, says Huw Pill of Goldman Sachs, an investment bank. It could even shake confidence in the bank’s willingness to act in another crisis. As the euro zone’s leaders gear up for the horse-trading, they would do well to consider the impact on the markets.

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Colleges ask for a share of future salary in lieu of loans

MONTPELIER, Vt. (AP) – As more students balk at the debt loads they face after graduation, some colleges are offering an alternative: We’ll pay your tuition if you offer us a percentage of your future salary.

Norwich University announced Tuesday that it will become the latest school to offer this type of contract, known as an income share agreement. Norwich’s program is starting out on a small scale, mainly for students who do not have access to other types of loans or those who are taking longer than the traditional eight semesters to finish their degree.

“Norwich University is committed to offering this new way to help pay for college in a way that aligns incentives and helps reduce financial barriers to degree completion,” said Lauren Wobby, the school’s chief financial officer and treasurer.

In contrast with traditional loans, in which students will simply pay down the principal and interest until there is nothing left, students with income share agreements pay back a percentage of their salary for a set period of time. Those touting the programs say they give colleges greater incentive to help students find high-earning jobs after graduation, because a higher salary means the school may recoup its investment in a shorter period of time.

For some students, income share agreements are seen as less risky, especially if they end up in a lower-paying job or struggle to find work after graduation. While students are unemployed or earning below a certain threshold they don’t have to pay anything back.

“Taking on the debt through a contract, where you don’t take on a debt per se but instead will repay a portion of your future income, has a certain appeal to students when the concept is fully explained to them,” said Clare McCann, deputy director for education policy at the New America Foundation.

But because employment and salary determine repayment, it’s possible providers could be seen as discriminating against recipients who choose lower-paying professions.

“If income share agreement providers aren’t careful, they can definitely see unintended consequences in discriminatory terms toward students. This is one of the biggest differences between income share agreements and federal student loans,” McCann said. “Federals loans offer the same terms to all borrowers.”

Income share agreements were first proposed by Milton Friedman in 1955, and Yale University briefly experimented with the idea in the 1970s. In the past decade, technical training programs, such as coding boot camps, have used this type of funding largely because participants do not have access to federal student loans.

In 2015, Oakton, Virginia-based Vemo Education began working with accredited colleges and universities. The company now works with nearly 30 public and private colleges and universities across the country, including Norwich University.

Vemo’s first partnership was with Purdue University. It began financing the school’s “Back a Boiler” income share agreement program in 2016.

Andrew Hoyler, 22, graduated from Purdue last year with a degree in professional flight with the goal of becoming a pilot. Now he is working as a pilot for American Airlines regional carrier PSA Airlines.

“One of the biggest pros for the income share agreement was the fact that out-of-college pilots do not make a lot of money, especially looking at the costs for an educational program,” Hoyler said.

The terms can vary, notably the length of the agreement and they salary percentage. Since future salary is generally unpredictable, it can be difficult to forecast how much a student will pay back over time, although most agreements do place a cap on the amount paid back.

Hoyler took out federal loans but said the income share agreement helped him avoid working multiple jobs while starting out last year as a flight instructor. Hoyler said he may end up paying more for the income share agreement in the long run as his salary rises, but deemed it a worthy trade-off.

For students who can’t make ends meet with scholarships, grants and federal loans, income share agreements can meet that need for students who otherwise would turn to federal loans to parents or private loans.

“The schools are doing it now because they want alternate financing models,” said Vemo CEO Tonio DeSorrento.

Copyright © 2018 The Washington Times, LLC.

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Trump breaks taboo on Fed, says ‘not thrilled’ about rate hikes


Donald Trump is pictured. | Getty Images

“I don’t like all of this work that we’re putting into the economy and then I see rates going up,” President Donald Trump said. | Mark Wilson/Getty Images

Updated


President Donald Trump broke a traditional taboo Thursday by openly criticizing the Federal Reserve for its campaign of gradual interest rate hikes, arguing that the central bank could counteract the positive effects of his economic policies.

“I don’t like all of this work that we’re putting into the economy and then I see rates going up,” Trump told CNBC, in his first critical remarks on the Fed since becoming president.

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The president tempered his criticism by saying that Chairman Jerome Powell — his own appointee — is a “very good man.” He also stopped short of directly calling on the Fed to stop raising interest rates.

“I’m not thrilled,” he said. “Because we go up and every time you go up they want to raise rates again. I don’t really — I am not happy about it. But at the same time, I’m letting them do what they feel is best.”

Shortly afterward, the White House issued a statement saying Trump’s comments were merely a “reiteration” of his “long-held positions,” and that his “views on interest rates are well known.”

“Of course the President respects the independence of the Fed,” it said. “He is not interfering with Fed policy decisions.“

The dollar dropped and interest rates on U.S. government debt moved down after the president’s comments.

The Fed zealously guards its ability to make monetary policy decisions free from short-term political pressures, a key feature of its structure. But economic experts have long been anticipating a time when Trump — who was not shy about criticizing the Fed on the campaign trail — would butt heads with the central bank, particularly given his stated preference for low rates.

“I’m just saying the same thing that I would have said as a private citizen,” Trump told CNBC. “So somebody would say, ‘Oh, maybe you shouldn’t say that as president.’ I couldn’t care less what they say, because my views haven’t changed.”

Apart from the president’s opinions, the Fed faces a complex balancing act. If it raises rates too quickly, without being warranted by strong growth, it could strangle the expansion. But leaving rates low could spur out-of-control inflation. Or it could spark stability concerns by encouraging financial institutions to make riskier investments to turn a profit, since they earn less interest on loans.

Powell has generally been upbeat about the economy under Trump and has cautiously avoided any direct criticism of the president’s trade policies, though he has warned of the potential consequences if it leads to prolonged economic warfare.

But the Fed chairman has also made clear on multiple occasions that political interference has historically led to poor long-term results for the economy.

Asked by Marketplace last week about Trump’s penchant for politicizing the economy, Powell emphasized that the Fed will always be “strictly nonpolitical.”

“I had a great colleague and mentor back in the day who used to bring meetings into focus by saying, ‘Let’s control the controllable,’” he said.

The Fed has already raised rates twice this year and is projecting to do so twice more.

Michael Feroli, chief economist for JPMorgan Chase, downplayed worries that Trump’s remarks would make the Fed more hesitant to continue hiking rates.

“Given what we know about Powell, we see little chance the President has gotten in his head,” Feroli said in a note to clients. “In fact, an argument can be made that the President’s comments may skew the [Fed] in a hawkish direction: if a decision is a close call then the appearance of kowtowing to the President may bias them toward raising rates.“

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In China, a rare public spat between officials as debt pressures build

LIKE other countries, China has bureaucratic infighting. But it does better than most at keeping tussles hidden from outside view, especially under Xi Jinping, a president who brooks no dissent. So it has been highly unusual to see a spat between the central bank and finance ministry spill into the open. It reveals cracks in the government’s façade of unity as a campaign to control debt exacts a toll on the economy.

The disagreement started on July 13th when Xu Zhong, head of the central bank’s research department, spoke at a forum in Beijing. Officially, China is committed to a “proactive fiscal policy”, meaning that the government will spend to prop up growth. But Mr Xu argued that the finance ministry was not delivering what it had promised, thus making deleveraging more painful.

China, he noted, is aiming for a 2.6% deficit in 2018, tighter than last year’s 3%. What’s more, many companies face rising taxes despite pledges of tax cuts. As evidence, he pointed out that fiscal revenues are growing more quickly than GDP (see chart). The finance ministry was “acting indecently”. Compared with politics in the West, that might sound rather mild. But for China, it was a harsh public rebuke. Mr Xu’s words spread quickly online.

The rebuttal came on July 16th on the website of Caixin, a respected financial magazine, written under a pseudonym, Qingchi. The author claimed to be a finance official; the article’s detail lent credibility to that claim. Qingchi started with a clarification: focusing on the deficit is simplistic, because the government has other tools, such as the budgets of state-owned firms, to support growth. Fiscal policy is stronger and more co-ordinated, Qingchi asserted, than it used to be.

The argument then took a nastier turn. Mr Xu had faulted the finance ministry for its hand in China’s debt mess, saying it was pushing the problem onto banks rather than fixing the fiscal system. Qingchi countered that financial institutions have been accomplices, structuring complex loans for local governments. All the while, Qingchi wrote, the central bank has moved too slowly in liberalising interest rates, which would have bolstered market discipline. Hence the most cutting line of the rebuttal: “officials act as if they were managing a small country’s central bank.”

It is not the first time that the central bank and the finance ministry have been at loggerheads. In 2007 the central bank lost a battle for Huijin, a vehicle that holds stakes in China’s main commercial lenders. The sovereign-wealth fund, under the finance ministry, took control. But that was a mere turf battle, and was waged behind closed doors.

The dispute of the past week cuts to the heart of economic policy. Both authors said they were expressing personal opinions, but their articles underscored China’s conundrums. The economy has held up well, growing by 6.7% year on year in the second quarter. But decelerations in credit and investment suggest that a sharper slowdown lies ahead. The trade war with America only adds to the headwinds.

The deleveraging campaign is also starting to claim more victims. China had a record number of bond defaults in the first half of the year. Stocks are in a bear market, down by more than 20% since January. No regulator wants to take the blame for this distress. Tough new asset-management rules have been delayed as a result. But at the same time no regulator wants to be seen as the one that gives up on the fight against debt. Better to pass the buck.

Institutionally, the debate is intriguing. Neither the central bank nor the finance ministry is independent; each answers to the State Council, China’s cabinet. Larry Hu, an economist with Macquarie Securities, says the solution must come from a higher level. These days, that is a euphemism for Mr Xi and his senior advisers.

One concern about Mr Xi is that he is stifling debate. In that respect, it might be seen as heartening for the central bank and the finance ministry to battle it out. But as the dispute breaks into the open it raises another fear—that internal channels have become blocked, at a delicate time.

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Cape-to-Connecticut ride shows progress, bumps on Greenway

BRISTOL, R.I. (AP) – After a white-knuckle trip over a bridge from Portsmouth into Bristol, which involved lifting our bicycles over concrete barriers and construction equipment, the police officer who pulled us over told us something we had already figured out.

“You shouldn’t try to cross that bridge on a bicycle,” he told my friend and me. “It’s dangerous.”

What he could not tell me was a better way, other than taking a bus, to get to the East Bay Bike Path, a safe, multi-use paved trail that runs along Narragansett Bay from Bristol to Providence.

It was second day of a four-day ride to explore by bicycle the southern New England portion of the East Coast Greenway, a planned 3,000-mile route of connected trails from Maine to Florida. More than a quarter-century into the project, long swaths are now on protected, safe trails. Others are not.

There are 386 miles of Greenway planned in southern New England, and that section is about 41 percent complete, according to Lisa Watts, a spokeswoman for the East Coast Greenway. The rest is on everything from quiet back roads to very busy four-lane thoroughfares.

“We always caution long-distance cyclists that this is a route in development,” Watts said.

I rode with Lori Riley, of the Hartford Courant, 212 miles from Cape Cod to eastern Connecticut. More than 96 miles of it was on rail trails and other bike paths featuring views of the water, old railroad bridges, ice cream shops, joggers and bicyclists. Our one flat tire came two miles from a bike shop that was adjacent to the path in Dennis, Massachusetts.

In between the trails, the riding was often on heavily trafficked roads, such as the Old Kings Highway on Cape Cod, with no shoulder. That meant cars screaming by inches from us, honking, with people yelling, “Get off the road,” ”This isn’t the Tour de France” and worse.

Leaving the Cape meant traveling the pedestrian walkway on the Bourne Bridge over the Cape Cod Canal, and then trying to negotiate Cape-bound Friday traffic on a heavily traveled rotary.

Then came the searching. We used the mapping tool on the East Coast Greenway website to stay on course, but that’s hard to do while riding. Signs pointing the way were few and usually small and hard to spot.

We passed salt marshes and windmills as we explored new bike paths on what is to become the 50-mile South Coast Bikeway system in Massachusetts.

But the GPS then took us through the heart of New Bedford, Massachusetts. Confronted with a highway on-ramp at the end of a bridge, we were forced to walk the saddlebag-laden bikes down a long flight of stairs. That was followed by a teeth-jarring trip over downtown cobblestones and more traffic past a mall, before we figured out some back roads into Rhode Island.

While some renovated bridges have bike lanes, on the Mount Hope bridge from Portsmouth we had to lift our bikes as we squeezed past equipment and construction barriers. The police officer, who did not ticket us, said someone called because they thought we were getting ready to jump.

Once on the East Bay path, the stress disappeared with sunset views of Narragansett Bay.

The next morning, a short ride downtown from where the East Bay path ends in Providence, we found the 19-mile Washington Secondary path, which runs through Cranston, Warwick and Coventry and ends a few miles short of the Connecticut border.

Our fourth day took us home in Connecticut, mostly along the Air Line Trail from Pomfret, an unpaved stone-dust path that runs past East Hampton.

It costs an average of $1 million per mile to build the Greenway and can take up to 20 years to complete a segment, but officials say it is worth the investment. A recent study by the planning and design firm Alta in North Carolina showed the East Coast Greenway generates over $90 million in total benefits annually in the Raleigh-Durham-Chapel Hill triangle.

In Connecticut, where 48 percent of the Greenway is done, several projects are have just been completed or are in the final stages, including key segments in Cheshire on the Farmington Canal trail and in Bolton, where two bridges connecting the Hop River to the Charter Oak trail are scheduled to open in September.

Connecticut spends about $15 million a year on its rails-to-trails program, including $5 million in federal funds, said Thomas Maziarz, the chief of policy and planning for the state Department of Transportation.

“I’d much rather spend my tax money on this than on other things,” said Dale Griffith, of Essex, who was riding with her boyfriend on the Airline Trail in Colchester, Connecticut. “I haven’t ridden in a long time and don’t want to ride on the road, it’s just too scary. For me, it’s the perfect way to get started again, be in a beautiful spot and not feel like I’m going to get run over by a tractor-trailer.”

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If you go…

EAST COAST GREENWAY: Riding or walking the trails is free. A complete interactive map that shows access points and parking and that will provide routes between destinations is at https://map.greenway.org

Copyright © 2018 The Washington Times, LLC.

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