Review the following articles and describe how they relate to stimulus payments, banking, or exchange rates.

Treasury Nominee Yellen Says Markets Should Determine Value of Dollar (Chapter 9)

By Reuters(Links to an external site.), Wire Service Content. Jan. 19, 2021

By Andrea Shalal and David Lawder

WASHINGTON (Reuters) - Janet Yellen, U.S. President-elect Joe Biden's nominee for Treasury Secretary, said the value of the dollar should be determined by markets, and the targeting of exchange rates for commercial advantage by other countries was "unacceptable."

Yellen told Senate lawmakers at her confirmation hearing on Tuesday that the United States should oppose attempts by other countries to artificially manipulate currency values to gain trade advantage. "I believe in market-determined exchange rates. The value of the U.S. dollar and other currencies should be determined by markets," said Yellen, former chair of the Federal Reserve.

"The United States does not seek a weaker currency to gain competitive advantage and we should oppose attempts by other countries to do so," she told members of the Senate Finance Committee. "The intentional targeting of exchange rates to gain commercial advantage is unacceptable." If confirmed, Yellen said she would work to implement Biden's promise to "oppose any and all the attempts by foreign countries to artificially manipulate currency values to gain an unfair advantage in trade."

Previous Treasury secretaries have also affirmed their commitment to a market-determined exchange rate, and some in recent years have said that a strong dollar is in U.S. interests. Yellen did not endorse a strong dollar on Tuesday. Yellen also gave no examples of countries that she believed were manipulating their currencies.

The Treasury Department last month issued a long-delayed report on foreign exchange rates, labeling Switzerland and Vietnam as currency manipulators, a parting shot that could complicate matters for Yellen if she is confirmed to the post, as expected. The Treasury also added India, Thailand and Taiwan to a list of trading partners it says may be deliberately devaluing their currencies against the dollar.

The COVID-19 pandemic has skewed trade flows and widened U.S. deficits with trading partners, an irritant to outgoing President Donald Trump, who won office in 2016 partly on a promise to close the U.S. trade gap. Yellen told lawmakers she viewed China as the most important strategic competitor of the United States and underscored the determination of the Biden administration to crack down on what she called China's "abusive, unfair and illegal practices."

(Reporting by Andrea Shalal and David Lawder; Editing by Chizu Nomiyama and Sonya Hepinstall)

After-tax incomes and spending show big gains

By MARTIN CRUTSINGER, AP Economics June 27, 2008

WASHINGTON - The millions of economic stimulus payments gave a massive jolt to household finances in May, sending after-tax incomes up by the largest amount in 33 years.

The payments helped boost consumer spending by the largest amount in six months.

The Commerce Department reported that disposable incomes, the amount left after paying taxes, surged by 5.7 percent last month. It was the biggest increase since May 1975, reflecting $48.1 billion in rebate payments made last month. The surge in incomes helped boost consumer spending by 0.8 percent, the biggest gain since last November.

The administration is hoping that the $106.7 billion in stimulus payments being made this year to 130 million households will be enough to offset serious drags on the economy at the moment from a prolonged housing slump, a severe credit crisis and soaring energy bills.

However, economists are worried that the boost from the stimulus checks will be only temporary and once the checks are spent, the risks of the economy falling into a deep recession will increase.

A separate survey of consumer confidence released Friday gave support to those concerns. The University of Michigan Index of Consumer Sentiment dropped to 56.4 in June, the lowest reading in 28 years and a stark reflection of all the problems facing the economy at the moment.

"Surging gas prices, high food prices, disappearing jobs, declining home values and record foreclosures were cited by consumers as the basis for their pessimism and most consumers expected each of these problems to continue to worsen in the months ahead," said Richard Curtin, director of the survey.

Worries about the economy showed up in turbulent financial markets this week with the Dow Jones industrial average plunging by nearly 360 points on Thursday to the lowest level in almost two years. Investors were concerned over the impact soaring energy prices and a slumping financial sector will have on future growth. Oil prices continued to trade on Friday above the $140 per barrel mark.

The rebate checks are part of a $168 billion package of tax relief for individuals and businesses that Congress passed in February at the urging of the administration in an effort to give the economy a boost and ward off the threat of a deep recession. The payments began on April 28 and are scheduled to be completed by mid-July.

The Bush administration currently is resisting Democratic calls for a second stimulus package even though economists are worried that the effects of the boost will prove temporary at best. They fear the stimulus will fail to prevent a serious slump in the second half of this year as the economy's troubles from housing, a severe credit sqeeze and soaring energy prices mount.

For May, overall incomes rose by 1.9 percent after a 0.3 percent rise in April. Part of that increase reflected the portion of the stimulus payments that are going to low-income individuals. But the bigger impact showed up in after-tax incomes, which shot up by 5.7 percent in May after a 0.4 percent rise in the month before, reflecting the bulk of the stimulus payments, which represent a tax break for most households.

The hope is that the stimulus payments will do the trick to bolster consumer spending, which accounts for two-thirds of total economic output.

For May, consumer spending jumped by 0.8 percent, double the 0.4 percent gain in April. Excluding the effect of rising gasoline and other price increases, inflation-adjusted spending rose by 0.4 percent in May, the biggest one-month increase since last August.

A closely watched inflation gauge tied to consumer spending was up 0.4 percent in May but excluding energy and food, the increase was a much smaller 0.1 percent. Over the past 12 months, core inflation excluding food and energy is up 2.1 percent, just above the Federal Reserve's comfort zone.

The Fed earlier this week brought an end to an aggressive string of interest rate cuts designed to protect the economy from toppling into a deep recession, citing increased worries about inflation pressures coming from surging energy prices.

The big increase in after-tax incomes based on the surge in stimulus payments pushed the personal savings rate to 5 percent, the highest level since May 1995. Personal savings represent the amount of after-tax income consumers have left after deducting their spending for the month.

Critics lambast Home Depot banking foray

By Shaheen Pasha, CNNMoney.com staff writer, June 1, 2006

NEW YORK (CNNMoney.com) - First came Wal-Mart. Now Home Depot? The home improvement giant became the latest retailer to file a bank charter application, and that has community bankers seeing red.

The home improvement giant became the latest retailer to enter the world of banking when the company announced its acquisition of EnerBank, a Utah-based industrial provider of home construction loans early last month. But Home Depot(Links to an external site.)(Links to an external site.)(Research(Links to an external site.)(Links to an external site.))'s application to take over the industrial bank has some community bankers seeing red.

In the wake of Wal-Mart(Links to an external site.)(Links to an external site.)(Research(Links to an external site.)(Links to an external site.))'s highly contested application to charter a bank in Utah, critics are concerned that the retail industry is looking to blur the line between commerce and banking. Now one community banking group is challenging Home Depot's foray into banking, actively lobbying the government to curb retailers' abilities to operate banks and have their deposits backed by the Federal Deposit Insurance Corp.

"When you get more and more commercial companies into banking, it's going to change the landscape of the financial system," said Karen Thomas, executive vice president for government relations at the Independent Community Bankers Association (ICBA). "Financial and economic success is based on a system that maintains the separation of banking and commerce."

Home Depot, for its part, insists that the company has no intention of operating a full-fledged retail bank. In a press release, the company said the acquisition was undertaken solely in order to provide Home Depot's professional contracting customers with speedy construction loans. The company has denied that it will offer credit cards or take deposits.

But retail giant Wal-Mart has also publicly denied that it has plans to create branches or provide lending services to consumers -- an assertion critics reject. They point out that the company, which has attempted to buy banks twice before, is already morphing into a financial services provider by cashing checks, issuing money orders, credit cards and ATM debit cards.

Wal-Mart and Home Depot are waiting on both the FDIC and Utah Department of Financial Institutions for charter approval, and representatives from both agencies said the applications are still being analyzed.

Critics contend that big box retailers would be able to offer banking products at much lower prices, crushing competition from local community banks.

The FDIC received over 4,000 comments related to the Wal-Mart application, and most asked the government to reject the application, according to FDIC spokesman David Barr. But he said the FDIC has received no comments related to Home Depot's application, and the deadline to submit comment is Monday, June 5.

Thomas, however, said the ICBA is in the process of readying its comments to the FDIC asking them to hold public hearings - similar to the hearings held for Wal-Mart in April - before deciding on whether to approve Home Depot's application.

Home Depot not a threat Still, some analysts feel that the ICBA's stance on Home Depot's application may be overblown. Bart Narter, a senior analyst at Celent LLC, said Wal-Mart heightened the sensitivity towards retailers operating banking institutions, but that Home Depot doesn't present the same kind of threat. "It only gets threatening when you have an organization that has such a frequency of visits that it can become a retail bank," he said. "Most people don't visit the Home Depot once or twice a week," unlike Wal-Mart stores or Wal-Mart supercenters that attract a large number of daily consumers.

He said that even Target(Links to an external site.)(Links to an external site.)(Research(Links to an external site.)(Links to an external site.)), which actually operates an industrial loan charter (ILC) in Utah, didn't receive the same type of scrutiny or outrage because it doesn't receive the same level of traffic Wal-Mart does.

"The only competitors ICBA needs to worry about are those with high frequency visits, such as big supermarket chains, of which Wal-Mart is now one," he added.

Still, Thomas said that Home Depot's application indicates that the flood gates are opening among retailers -- and Congress will have to act in order to prevent retailers from taking advantage of ILCs, since these charters can give merchants a back-door entry into retail banking.

An ILC isn't a traditional bank and can't accept general deposits, open branches or make loans, said the FDIC's Barr.

When a company is approved for this kind of banking charter, it is restricted from providing any banking services beyond debit and credit card transactions for 3 to 5 years. But after that period, a company wouldn't have to come back to the FDIC for approval to change its business plan.

And that is what concerns critics, who fear that once the blackout period is complete, retailers will move in on community banking business.

Industrial loan charters growing assets

ILC's have already gained in popularity. From 1987 to 2004, industrial bank assets jumped to $108.9 billion from $171 million, said Michael Jones, chief examiner at the Utah Department of Financial Institutions -- one of the government organizations that has to approve a charter application. Currently, there are 34 industrial banks operating in Utah, he added.

And Thomas fears that number will grow rapidly if Wal-Mart and Home Depot's applications are approved. "There is growing concern in Congress," she said, but she added that the legislative process is slow to make any changes.

In fact, the House of Representatives passed a broad relief package for the banking industry that contained a ban disallowing commercial firms from obtaining ILCs and having their deposits backed by the Federal Deposit Insurance Corp. But last month the Senate Banking Committee passed a version of the relief package that removed that language under pressure from Utah-based Sen. Robert Bennett. The Senate has yet to vote on the bill and it's unclear whether the final bill, if passed, would contain the ban on ILCs.