Coronavirus Spending Pushes U.S. Budget Deficit to $3 Trillion for 12 Months Through June

Kate Davidson, Wall Street Journal
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The US budget deficit has soared in the months since the pandemic began, and is projected to reach $3.7 trillion by September. While much of this spending has gone towards shoring up the economy against the effects of the coronavirus-induced recession, the drawback is a record borrowing level compounded by already-high levels of government expenditures and tax cuts. Uncertainty pervades as encouraging decreases in unemployment are mirrored by a return to lockdowns in some areas. The CBO has estimated that the jobless rate will settle at 10.5% for the year, while outlays for jobless benefits have increased under the Cares Act, necessitating an additional $114 billion in aid compared to the same period last year.  With a quick recovery an increasingly distant possibility, the old battle over the size of the federal deficit has resurfaced, with concerns for the long-term health of the budget weighed against the short-term needs of American families and businesses.

Defying U.S., China and Iran Near Trade and Military Partnership 

Farnaz Fassihi and Steven Lee Myers, The New York Times
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A sweeping economic and security partnership between China and Iran has been flying under the radar – until now. An 18-page document obtained by The New York Times reveals a proposed agreement between the two countries that would greatly expand Chinese presence in telecommunications, banking, ports, railways, and many other investment projects. Additionally, the document describes a deeper military partnership between the two countries. In exchange for China’s investment, Iran would, supposedly, supply discounted oil to China for the next 25 years. 
A trade and military agreement between Iran and China would undoubtedly seek to undermine the US and strengthen China’s influence in the Middle East. Considering the crippling economic sanctions the US has placed on Iran, a China-Iran agreement would create a new and dangerous flashpoint in the relationship between the US and China. Tehran’s economy has been decimated by the sanctions. Their desperation is now pushing them into the hands of China. Ali Gholizadeh, an Iranian energy researcher at the University of Science and Technology of China in Beijing, said “Iran and China both view this deal as a strategic partnership in not just expanding their own interests but confronting the U.S….It is the first of its kind for Iran keen on having a world power as an ally”. 

Putin delays $360bn spending plan as Covid-19 batters economy 

Henry Foy, Financial Times

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Russian President Vladimir Putin has delayed his flagship national investment plan called National Projects. The plan to inject $362 billion in the Russian economy promised to lift stagnant living standards and increase GDP growth to exceed the global average by 2024. The decision to delay the initiative suggests the pandemic is devastating the Russian economy. Postponing the investment will delay Russia’s revival from a 6-year “economic funk” which could deepen public discontent and fuel the series of protests against Putin that have been happening over the last year. According to World Bank projections, the Russian economy is expected to contract by 6 percent this year and will not begin recovery until 2022. 

China Renews Push for Increased Global Role for the Yuan

Bloomberg
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Rising tensions between the US and China have pushed the latter to promote more international usage of the yuan. The recent Hong Kong security law and ensuing threat of US retaliation has jeopardized China’s $1.1 trillion in state-owned bank liabilities, moving the internationalization of the yuan (currently about 2% of global central banks’ reserves) from a desirable to an indispensable goal for Beijing. Currently, significant capital controls on cash flows hinder the renminbi’s ability to reach par with counterparts such as the yen or euro, and the policy shifts necessary to strengthen the yuan’s position seem unlikely in the current climate. While Beijing can continue to take certain measures to strengthen the renminbi (such as paying for imports in yuan and increasing loan activities), the entrenchment of the dollar in Chinese banks and the uncertainty surrounding US-China relations indicate that China is still many years away from tendering a significant global currency.