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    SVB Collapse Upsets Expectations for Federal Reserve’s Rate Decision

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    Listen to This ArticleThe Federal Reserve’s hotly anticipated March 22 interest rate decision is just a week and a half away, and the drama that swept the banking and financial sector over the weekend is drastically shaking up expectations for what the central bank will deliver.The Fed had been raising interest rates rapidly to try to contain the most painful burst of inflation since the 1980s, lifting them to above 4.5 percent from near zero a year ago. Concern about rapid inflation prompted the central bank to make four consecutive 0.75-point increases last year before slowing to a half point in December and a quarter point in February.Before this weekend, investors believed there was a substantial chance that the Fed would make a half-point increase at its meeting next week. That step up was seen as an option because job growth and consumer spending have proved surprisingly resilient to higher rates — prompting Jerome H. Powell, the Fed chair, to signal just last week that the Fed would consider a bigger move.But investors and economists no longer see that as a likely possibility.Three notable banks have failed in the past week alone as Fed interest rate increases ricochet through the technology sector and cryptocurrency markets and upend even usually staid bank business models.Regulators unveiled a sweeping intervention on Sunday evening to try to prevent panic from coursing across the broader financial system, with the Treasury, Federal Deposit Insurance Corporation and Fed saying depositors at the failed banks will be paid back in full. The Fed announced an emergency lending program to help funnel cash to banks facing steep losses on their holdings because of the change in interest rates.The Downfall of Silicon Valley BankOne of the most prominent lenders in the world of technology start-ups collapsed on March 10, forcing the U.S. government to step in.A Rapid Fall: The collapse of Silicon Valley Bank, the biggest U.S. bank failure since the 2008 financial crisis, was caused by a run on the bank. But will the turmoil prove to be fleeting — or turn into a true crisis?The Fallout: The bank’s implosion rattled a start-up industry already on edge, and some of the worst casualties of the collapse were companies developing solutions for the climate crisis.Signature Bank: The New York financial institution closed its doors abruptly after regulators said it could threaten the entire financial system. To some extent, it is a victim of the panic around Silicon Valley Bank.The Fed’s Next Move: The Federal Reserve has been rapidly raising interest rates to fight inflation, but making big moves could be trickier after Silicon Valley Bank’s blowup.The tumult — and the risks that it exposed — could make the central bank more cautious as it pushes forward.Investors have abruptly downgraded how many interest rate moves they expect this year. After Mr. Powell’s speech last week opened the door to a large rate change at the next meeting, investors had sharply marked up their 2023 forecasts, even penciling in a tiny chance that rates would rise above 6 percent this year. But after the wild weekend in finance, they see just a small move this month and expect the Fed to cut rates to just above 4.25 percent by the end of the year.Economists at J.P. Morgan said the situation bolstered the case for a smaller, quarter-point move this month.“I don’t hold that view with tons of confidence,” said Michael Feroli, chief U.S. economist at J.P. Morgan, explaining that a move this month was conditional on the banking system’s functioning smoothly. “We’ll see if these backstops have been enough to quell concerns. If they are successful, I think the Fed wants to continue on the path to tightening policy.”Goldman Sachs economists no longer expect a rate move at all. While Goldman analysts still think the Fed will raise rates to above 5.25 percent this year, they wrote on Sunday evening that they “see considerable uncertainty” about the path.“I think the Fed is going to want to wait awhile to see how this plays out,” said William English, a former director of the monetary affairs division at the Fed who is now at Yale. He explained that tremors in the banking system could spook lenders, consumers and businesses — slowing the economy and meaning that the Fed had to do less to cool the economy and lower inflation.“If it were me, I’d be inclined to pause,” Mr. English said.Other economists went even further: Nomura, saying it was unclear whether the government’s relief program was enough to stop problems in the banking sector, is now calling for a quarter-point rate cut at the coming meeting.The Fed will receive fresh information on inflation on Tuesday, when the Consumer Price Index is released. That measure is likely to have climbed 6 percent over the year through February, economists in a Bloomberg forecast expected. That would be down slightly from 6.4 percent in a previous reading.But economists expected prices to climb 0.4 percent from January after food and fuel prices, which jump around a lot, are stripped out. That pace would be quick enough to suggest that inflation pressures were still unusually stubborn — which would typically argue for a forceful Fed response.The data could underline why this moment poses a major challenge for the Fed. The central bank is in charge of fostering stable inflation, which is why it has been raising interest rates to slow spending and business expansions, hoping to rein in growth and cool price increases.But it also charged with maintaining financial system stability, and higher interest rates can reveal weaknesses in the financial system — as the blowup of Silicon Valley Bank on Friday and the towering risks for the rest of the banking sector illustrated. That means those goals can come into conflict.Subadra Rajappa, head of U.S. rates strategy at Société Générale, said on Sunday afternoon that she thought the unfolding banking situation would be a caution against moving rates quickly and drastically — and she said instability in banking would make the Fed’s task “trickier,” forcing it to balance the two jobs.“On the one hand, they are going to have to raise rates: That’s the only tool they have at their disposal” to control inflation, she said. On the other, “it’s going to expose the frailty of the system.”Ms. Rajappa likened it to the old saying about the beach at low tide: “You’re going to see, when the tide runs out, who has been swimming naked.”Some saw the Fed’s new lending program — which will allow banks that are suffering in the high-rate environment to temporarily move to the Fed a chunk of the risk they are facing from higher interest rates — as a sort of insurance policy that could allow the central bank to continue raising rates without causing further ruptures.“The Fed has basically just written insurance on interest-rate risk for the whole banking system,” said Steven Kelly, senior research associate at Yale’s program on financial stability. “They’ve basically underwritten the banking system, and that gives them more room to tighten monetary policy.”Joe Rennison More

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    Rules to Curb Illicit Dollar Flows Create Hardships for Iraqis

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    The regulations were meant to prevent dollar transfers to those targeted by U.S. sanctions on Iran, Syria and Russia. But they have ended up harming ordinary Iraqis who need U.S. currency for business or travel.BAGHDAD — When the United States and Iraq put tough new currency rules into effect recently, the intent was to stem the illicit flow of dollars to those targeted by U.S. sanctions on Iran, Syria and Russia, as well as to terrorist organizations and money launderers.But in a country with a primarily cash economy, the changes created unintended hardships for ordinary Iraqis who need dollars for legitimate business purposes or travel abroad. Dollars have run short, and the cost in Iraqi dinars at some local currency traders has surged.Long lines are forming early in the day outside money changers’ shops, where Iraqis planning to travel outside the country often turn up grasping plastic bags stuffed with dinars, which banks outside the country do not accept. These days, it’s not easy to find a money changer who still has dollars. And those who do run out early.“I don’t have any dollars left,” one currency trader, Abu Ali, said last week at his shop in Baghdad’s Karrada neighborhood.The new currency rules, worked out in an agreement between the United States and Iraq, require greater transparency surrounding the transfers of dollars held as foreign currency reserves for Iraq in an account at the Federal Reserve Bank of New York. They went into effect late last year.The agreement was part of a long-delayed modernization of Iraq’s financial system as it begins to conform to the rules that most countries follow and adapts to requirements for more transparency in international financial transactions.U.S. dollars being counted at an authorized currency dealer in Baghdad.Joao Silva/The New York TimesEvery day, the Central Bank of Iraq facilitates the withdrawal of a large sum of dollars from its account at the New York Fed. The transfers are critical because, in Iraq’s largely cash economy, only a few businesses accept credit cards and almost no ordinary Iraqis have one. Even bank accounts are a rarity.Some of the money is wired on behalf of Iraqi businesses to pay for goods from outside Iraq. Some of it is designated for currency exchanges and banks to distribute to Iraqis traveling abroad.But there has been little in the way of electronic footprints to help U.S. officials trace whether some of the transfers were ending up in the hands of parties targeted by U.S. sanctions.A dollar shortage affecting ordinary Iraqis is one of the unintended consequences of new and tougher rules worked out by Iraq’s central bank in concert with the U.S. Treasury and the Federal Reserve Bank of New York.Joao Silva/The New York TimesThe concerns date back to soon after the 2003 U.S. invasion of Iraq.At that time, American authorities tried unsuccessfully to document the chain of custody for billions of dollars transported to the country in cash over a period of years. In one instance, $1.2 billion from Iraq was found in a Lebanese bunker with no record of how it got there, according to a New York Times investigation in 2014.The U.S. Treasury wanted to ensure that dollars were not being sent in violation of U.S. law to fronts or agents for parties under sanctions or terrorist entities. In congressional testimony in 2016, for example, a top Treasury official noted three groups targeted by sanctions that were known to be active in Iraq: Al Qaeda, the Islamic State and the Iran-backed Lebanese militia Hezbollah.With the Islamic State’s takeover of northern Iraq in 2014, it seized of a branch of Iraq’s central bank and those worries became more urgent.The situation underscored the need for more transparency in dollar transfers to Iraq, according to a U.S. Treasury official, who asked not to be named because he is not authorized to speak with reporters.An authorized currency exchange. Joao Silva/The New York TimesAfter the Iraqis finally defeated the Islamic State in 2018, Iraqi and U.S. bankers and the Treasury began to discuss a new system for money transfers.Under the new regulations, both individuals and companies requesting wire transfers of dollars must disclose their own identity, and the identity of whoever is ultimately getting the money. That information is then reviewed by an electronic system as well as by experts at Iraq’s central bank and the New York Fed, before payment is made.The new system allows banks around the world to conduct automatic checks on transfers of money from Iraq to other countries, said Ahmed Tabaqchali, the chief strategist for Asia Frontier Capital’s Iraq fund.“In short, the system heightens the visibility of red flags,” he said.Waiting at a currency exchange in Baghdad.Joao Silva/The New York TimesNow, many requests are being rejected, said Mudher Salih, a former deputy head of Iraq’s central bank and now a financial policy adviser to Iraq’s new prime minister, Mohammed Shia al-Sudani. Sometimes, he said, that is because of suspect identities but other times it is because many Iraqi businesses do not have the requisite licenses to import goods or are not properly registered as commercial entities and therefore are in violation of Iraqi law.The rejections have created a shortage of dollars, which has sharply increased their cost for Iraqis with legitimate needs, he added.Since 2003, there have been two Iraqi dinar rates for buying dollars; an official rate established by Iraq’s central bank and an unofficial street rate, which is higher. And when dollars are scarce, the street price goes up.The difference between the two is creating hardships for Iraqis like Janna, a mother of four. She said she had been saving up to buy a refrigerator and had her eye on a German model that cost about $250. In October, that was the equivalent of 320,000 dinars. Today, because of the scarcity of dollars, the refrigerator would cost 375,000 dinars.“It’s more than I can afford,” she said.Shoppers in Baghdad’s busy Karrada neighborhood.Joao Silva/The New York TimesAfter the new currency rules took effect, the quantity of dollars flowing daily into Iraq fell sharply — on some days down by nearly 65 percent from $180 million to $67 million — compared with the period before the rules were implemented, according to daily cash flow numbers released by Iraq’s central bank.The influx of dollars has since picked up, but it is still often less than half of what it was before the new system was put in place.It is not clear exactly how much of the drop in dollars reflects illicit recipients who have now either stopped requesting money because they do not want to make the disclosures required by the new rules or because the Iraqi central bank or the New York Fed rejected their requests.“I would not put down to fraud the almost 90 percent drop,” said Douglas Silliman, president of the Arab Gulf States Institute in Washington and a former U.S. ambassador to Iraq. “Maybe it’s 45 percent fraud and 45 percent incompetence or just not knowing how to deal with the new regulations.”Iraq’s financial system is going through a long-delayed modernization as it begins to conform to the rules followed in many other countries.Joao Silva/The New York TimesYasmine Mosimann More

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    War in Ukraine Deepens Divide Among Major Economies at G20 Gathering

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    Treasury Secretary Janet L. Yellen urged her counterparts at a summit in India to condemn Russia’s actions, and she defended the cost of supplying aid to Kyiv.A year after Russia’s invasion of Ukraine, the war is deepening the division among the world’s major economies, threatening fragile recoveries by disrupting food and energy supply chains and distracting from plans to combat poverty and restructure debt in poor countries.Those fissures were evident this past week as top economic policymakers from the Group of 20 nations gathered for two days at a resort in Bengaluru, a city in southern India, where efforts to demonstrate unity were overshadowed by flaring tensions over Russia. During the summit, Western nations imposed a barrage of new sanctions on Moscow and unveiled more economic support for Ukraine, while developing countries like India, which have been reaping the benefits of cheap Russian oil, resisted expressing criticism.The differing views left officials struggling to cobble together the traditional joint statement, or communiqué, on Saturday, forcing senior representatives from the Group of 7 nations, the world’s most advanced economies, to try to convince reluctant counterparts that defending Ukraine was worth the cost.“Ukraine is fighting not only for their country, but for the preservation of democracy and peaceful conditions in Europe,” Treasury Secretary Janet L. Yellen said on Saturday in an interview, explaining the case that she had made to the more reluctant countries. “It’s an assault on democracy and on territorial integrity that should concern all of us,” she added.The summit took place at a pivotal moment for the global economy. The International Monetary Fund last month upgraded its global output projections but warned that Russia’s war in Ukraine continued to cast a cloud of uncertainty. The fund also noted that increasing “fragmentation” in the world could be a drag on growth in the future.Ms. Yellen was among the most forceful critics of Russia during the two-day meeting. At one point, she directly confronted senior Russian officials in a private session and called them “complicit” in the Kremlin’s atrocities.The grappling over how to characterize Russia’s actions led Bruno Le Maire, the French finance minister, to publicly vent his frustration with some countries that would not assail Russia in writing. He noted that when the leaders of the Group of 20 nations met in November, in Bali, Indonesia, their statement had asserted that most members strongly condemned the war, and he said on Friday that he was opposed to watering down that sentiment.“I want to make it very clear that we will oppose any step back from the statement of the leaders in Bali on this question of the war in Ukraine,” Mr. Le Maire, who declined to name the holdouts, said at a news conference. “We strongly condemn this illegal and brutal attack against Ukraine.”India’s close economic ties with Russia have made its role as the host of the Group of 20 this year especially challenging. Moscow is a major supplier of energy and military equipment to India, while the United States is India’s largest trading partner.To remain neutral, India has tried to avoid describing the conflict as a “war” and instead focused on other issues. In an opening address to the summit, Prime Minister Narendra Modi laid out the threats facing the global economy, but he made no mention of Russia, pointing instead to “rising geopolitical tensions in many parts of the world.”Some of the resistance to condemning Russia is because of concern about the United States’ use of its economic might to isolate a member of the Group of 20.“The fact that the U.S. clearly has so much power to take action against a geopolitical rival is a significant concern,” said Eswar Prasad, a trade policy professor at Cornell University who speaks to both American and Indian officials. “There’s clearly been a splintering of the G20.”Mr. Prasad added that the aggressive use of sanctions by the United States had raised anxiety among other nations — even if they disagreed with Russia’s actions — that they could someday be exposed to Washington’s wrath.That use of economic warfare was on display on Friday, when the United States imposed sanctions on more than 200 individuals and entities in Russia and other countries that are helping to financially support Moscow’s invasion of Ukraine. Sanctions were also placed on Russia’s metals and mining sector and on energy companies.The war in Ukraine was not the only matter this past week that consumed finance ministers in India.The United States and Europe continued to hash out differences over American subsidies for electric vehicles that European countries believe will harm their economies. A global tax agreement that was struck in 2021 continues to flounder, raising the prospect that it could unravel. And talks over restructuring debt burdens facing poor countries to avoid a cascade of defaults failed to bear fruit, largely because of resistance from China.“There hasn’t been a significant change that I see,” said Ms. Yellen, who expressed frustration at China’s role as a roadblock this past week.But it is the war in Ukraine that has left the world’s economic leaders most divided. In many cases, resistance to supporting Ukraine and confronting Russia is the result of complicated domestic politics in many countries, and the United States is no exception.A growing number of Republicans, including former President Donald J. Trump, have been arguing in recent weeks that the United States cannot afford to endlessly support Kyiv. They contend that at a time when the United States is burdened by record levels of debt and a weakening economy, that money would be better spent on domestic problems.In the past year, the United States has directed more than $100 billion dollars of humanitarian, financial and military aid to Ukraine. The Congressional Budget Office projected last week that the United States was on track to add nearly $19 trillion to its national debt over the next decade, $3 trillion more than previously forecast.For the Biden administration, scaling back aid to Ukraine does not appear to be an option.In the interview, Ms. Yellen argued that the United States can afford to bear the costs and that supporting Ukraine was a priority for national security and economic reasons.“The war is having an adverse effect on the entire global economy,” Ms. Yellen said, “and providing the support that’s necessary for Ukraine to win this and bring it to an end is certainly something that we really can’t afford not to do.” More

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    U.S. Could Default on Debt as Early as Summer, New Estimate Says

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    The Bipartisan Policy Center said the nation could run out of cash this summer or early fall if Congress did not raise the debt limit.WASHINGTON — The United States faces a default sometime this summer or early fall if Congress does not raise or suspend the debt ceiling, a Washington think tank warned on Wednesday.The projection from the Bipartisan Policy Center is the latest estimate of when the government could run out of cash to pay its bills. The nation, which borrows huge sums to help pay for everything from military salaries to Social Security benefits, hit its $31.4 trillion borrowing cap on Jan. 19. Since then, the Treasury Department has been employing what are known as extraordinary measures to ensure that the government has enough to pay what it owes, including payments to bondholders.“We anticipate that those emergency measures, as well as the cash that Treasury has on hand, will most likely be exhausted at some point during the summer or early fall,” Shai Akabas, the center’s director of economic policy, said during a briefing on Wednesday morning.Last week, the nonpartisan Congressional Budget Office projected that the department’s ability to prevent the United States from defaulting on its debt could be exhausted between July and September. That estimate was slightly more favorable than what Treasury Secretary Janet L. Yellen suggested when she told Congress last month that her department’s ability to keep financing the country’s obligations could be exhausted in June.The day when the United States runs out of cash — known as the X date — depends largely on how much the Treasury Department collects in 2022 tax revenue, the Bipartisan Policy Center said. The group warned that moment could be “too close for comfort” given the vagaries around tax receipts.“There is a possibility that the cash balance in early to mid-June will be so low that it will necessitate action,” Mr. Akabas said. He added that given “the considerable uncertainty in our nation’s current economic outlook,” it was impossible to know for certain when the X date might happen.“Policymakers have an opportunity now to inject certainty into the U.S. and global economy by beginning, in earnest, bipartisan negotiations around our nation’s fiscal health and taking action to uphold the full faith and credit of the United States well before the X date,” he said.Ms. Yellen’s extraordinary measures to keep the government running have included redeeming some existing investments and suspending new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund. Once those measures are exhausted, the United States will need to borrow more money or face default. She has urged Congress to raise or suspend the debt limit.It remains unclear how quick or easy it would be to do that. Republican lawmakers have insisted that President Biden agree to undefined spending cuts to win their votes to raise the cap, arguing that the borrowing binge is putting the United States on a path to fiscal disaster. Mr. Biden has insisted that he will not negotiate spending cuts as part of any debt limit legislation, saying that the cap has to be raised to fund obligations that Congress — including Republicans — have already approved. More

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    China’s Economic Support for Russia Could Elicit More Sanctions

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    U.S. officials pledged to crack down on shipments to Russia that can be used for both civilian and military purposes, but that has proved hard to police.WASHINGTON — President Biden and his top officials vowed this week to introduce additional sanctions aimed at impeding Russia’s war efforts against Ukraine. But the administration’s focus is increasingly shifting to the role that China has played in supplying Russia with goods that have both civilian and military uses.As one of the world’s biggest manufacturers of products like electronics, drones and vehicle parts, China has proved to be a particularly crucial economic partner for Russia.Beijing has remained officially unaligned in the war. Yet China, along with countries like Turkey and some former Soviet republics, has stepped in to supply Russia with large volumes of products that either civilians or armed forces could use, including raw materials, smartphones, vehicles and computer chips, trade data shows.Administration officials are now expressing concern that China could further aid Russia’s incursion by providing Moscow with lethal weapons. While there is no clear evidence that China has given weapons and ammunition to Russia, Secretary of State Antony J. Blinken warned in recent days that China may be preparing to do so.President Biden, speaking in Kyiv on Monday, said the United States and its partners would announce new measures targeting sanctions evasion this week. He did not specify whether those actions would be directed at Moscow or its trading partners.“Together we have made sure that Russia is paying the price for its abuses,” he said the next day in Warsaw.And in a speech on Tuesday at the Council on Foreign Relations, Wally Adeyemo, the deputy Treasury secretary, said the United States would be working “to identify and shut down the specific channels through which Russia attempts to equip and fund its military.”“Our counterevasion efforts will deny Russia access to the dual-use goods being used for the war and cut off these repurposed manufacturing facilities from the inputs needed to fill Russia’s production gaps,” he said.The comments came on the same day that Wang Yi, China’s top diplomat, visited Moscow.The actions that the United States has taken against Russia in partnership with more than 30 countries constitute the broadest set of sanctions and export controls ever imposed against a major economy. But this regime still has its limits.One year into the war, the Russian economy is stagnant, but not crippled. The country has lost direct access to coveted Western consumer brands and imports of the most advanced technology, like semiconductors. But individuals and companies around the world have stepped in to provide Russia with black market versions of these same products, or cheaper alternatives made in China or other countries.Russia is unable to produce precision missiles today because the country no longer has access to leading-edge semiconductors, a U.S. official said.Maxim Shipenkov/EPA, via ShutterstockIn particular, the United States and its allies appear to have had limited success in stopping the trade of so-called dual-use technologies that can be used in both military equipment and consumer goods.The United States included many types of dual-use goods in the export controls it issued against Russia last February, because the goods can be repurposed for military uses. Aircraft parts that civilian airlines can use, for example, may be repurposed by the Russian Air Force, while semiconductors in washing machines and electronics might be used for tanks or other weaponry.The Chinese Spy Balloon ShowdownThe discovery of a Chinese surveillance balloon floating over the United States has added to the rising tensions between the two superpowers.Tensions Rise: In the aftermath of the U.S. downing of a Chinese spy balloon on Feb. 4 and three unidentified flying objects a week later, the nations have traded accusations over their spying programs.U.S.-China Meeting: Secretary of State Antony Blinken held a confrontational meeting with his Chinese counterpart on Feb. 18 in Munich, resuming diplomatic contact between Washington and Beijing.A ‘Military-Civil Fusion’: The international fracas over China’s spy balloon program has thrown a light on Beijing’s efforts to recruit commercial businesses to help strengthen the Chinese military.Unidentified Objects: As more objects were shot down after the balloon incident, experts warned that there was an “endless” array of potential targets crowding America’s skies. Here’s a look at some of them.Top U.S. officials warned their Chinese counterparts against supporting Russia’s war effort after the invasion of Ukraine last year, saying there would be firm consequences. While China has been careful not to cross that line, it has provided support for Russia in other ways, including through active trade in certain goods..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.The United States has cracked down on some of the companies and organizations providing goods and services to Russia. In January, it imposed sanctions on a Chinese company that had provided satellite imagery to the Wagner mercenary group, which has played a large role in the battle for eastern Ukraine. In December, it added two Chinese research institutes to a list of entities that supply the Russian military, which will restrict their access to U.S. technology.But tracking by research firms shows that trade in goods that the Russian military effort can use has flourished. According to the Observatory of Economic Complexity, an online data platform, shipments from China to Russia of aluminum oxide, a metal that can be used in armored vehicles, personal protective equipment and ballistic shields, soared by more than 25 times from 2021 to 2022.Shipments of minerals and chemicals used in the production of missile casings, bullets, explosives and propellants have also increased, according to the Observatory of Economic Complexity. And China shipped $23 million worth of drones and $33 million worth of certain aircraft and spacecraft parts to Russia last year, up from zero the prior year, according to the group’s data.Data from Silverado Policy Accelerator, a Washington nonprofit, shows that Russian imports of integrated circuits, or chips, which are crucial in rebuilding tanks, aircraft, communications devices and weaponry, plummeted immediately after the invasion but crept up over the past year.In December, Russia’s imports of chips had recovered to more than two-thirds of their value last February, just before the war began, according to Silverado. China and Hong Kong, in particular, together accounted for nearly 90 percent of global chip exports to Russia by value from March to December.Shipments from China to Russia of smart cards, light-emitting diodes, polysilicon, semiconductor manufacturing equipment and other goods have also risen, the firm said.Secretary of State Antony J. Blinken said he had shared concerns with Wang Yi, China’s top diplomat, that Beijing was considering providing weapons and ammunition to aid Russia’s campaign in Ukraine.Pool photo by Stefani ReynoldsRelations between the United States and China have soured in recent weeks after the flight of a Chinese surveillance balloon across the United States early this month. But divisions over Russia are further straining geopolitical ties. A meeting between Mr. Blinken and Mr. Wang, his Chinese counterpart, on the sidelines of the Munich Security Conference on Saturday night was particularly tense.U.S. officials have been sharing information on China’s activities with allies and partners in their meetings in Munich, a person familiar with the matter said.On “Face the Nation” on Sunday, Mr. Blinken said he had shared concerns with Mr. Wang that China was considering providing weapons and ammunition to aid Russia’s campaign in Ukraine, and that such an action would have “serious consequences” for the U.S.-Chinese relationship.“To date, we have seen Chinese companies — and, of course, in China, there’s really no distinction between private companies and the state — we have seen them provide nonlethal support to Russia for use in Ukraine,” Mr. Blinken said.“The concern that we have now is, based on information we have, that they’re considering providing lethal support,” he added. “And we’ve made very clear to them that that would cause a serious problem for us and in our relationship.”U.S. officials have emphasized that China by itself is limited in its ability to supply Russia with all the goods it needs. China does not produce the most advanced types of semiconductors, for example, and restrictions imposed by the United States in October will prevent Beijing from buying some of the most advanced types of chips, and the equipment used to make them, from other parts of the world.Russia is unable to produce precision missiles today because the country no longer has access to leading-edge semiconductors made by the United States, Taiwan, South Korea and other allied sources, a senior administration official said on Monday.“While we are concerned about Russia’s deepening ties with them, Beijing cannot give the Kremlin what it does not have, because China does not produce the advanced semiconductors Russia needs,” Mr. Adeyemo said during his remarks. “And nearly 40 percent of the less advanced microchips Russia is receiving from China are defective.”But Ivan Kanapathy, a former China director for the National Security Council, said that most of what Russia needed for its weapons were less advanced chips, which are manufactured in plenty in China.“The U.S. government is very well aware that our export control system is designed in a way that really relies on a cooperative host government, which we don’t have in this case,” Mr. Kanapathy said.He added that it was “quite easy” for parties to circumvent export control through the use of front companies, or by altering the names and addresses of entities. “China is quite adept at that.” More

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    U.S. Could Default on Its Debt Between July and September, C.B.O. Says

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    The nonpartisan budget office also said that if tax receipts fall short of projections, and Congress fails to act on the debt limit, the U.S. could run out of cash before July.WASHINGTON — The Treasury Department’s ability to continue paying its bills and prevent the United States from defaulting on its debt could be exhausted sometime between July and September if Congress does not raise or suspend the cap on how much the nation can borrow, the nonpartisan Congressional Budget Office said on Wednesday.The estimate suggests that lawmakers could have slightly more leeway than Treasury Secretary Janet L. Yellen estimated last month, when she told Congress that her department’s ability to keep financing America’s obligations could be exhausted in June.The United States borrows huge sums of money by selling Treasury securities to investors across the globe. That funding helps pay for military salaries, retiree benefits and interest payments to bondholders who own U.S. debt. The nation hit its statutory $31.4 trillion borrowing cap last month, forcing the Treasury Department to employ a series of accounting maneuvers to help ensure the government can continue paying its bills without breaching the debt limit.“If the debt limit is not raised or suspended before the extraordinary measures are exhausted, the government would be unable to pay its obligations,” the C.B.O. said in the report on Wednesday. “As a result, the government would have to delay making payments for some activities, default on its debt obligations or both.”However, the budget office noted that the timing of the so-called X-date is uncertain because it depends on how much tax revenue comes into the federal government over the coming months. The office said that if receipts fall short of its estimates, the Treasury could run out of funds before July.Ms. Yellen has been employing extraordinary measures since January to keep the government running. Those have included redeeming some existing investments and suspending new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund.In a speech on Tuesday, Ms. Yellen warned that a default would be catastrophic.“In my assessment — and that of economists across the board — a default on our debt would produce an economic and financial catastrophe,” Ms. Yellen said at the National Association of Counties Legislative Conference. “Household payments on mortgages, auto loans and credit cards would rise, and American businesses would see credit markets deteriorate.”Calling on Congress to act, she added: “This economic catastrophe is preventable.”It remains unclear how quick or easy it will be to raise or suspend the debt cap. Republican lawmakers have insisted that President Biden agree to undefined spending cuts in order to win their vote to raise the cap. Mr. Biden has insisted he will not negotiate spending cuts as part of any debt limit legislation, arguing that the cap has to be raised to fund obligations that Congress — including Republicans — already approved.A separate C.B.O. report out on Wednesday showing the federal government will add $19 trillion in debt over the next decade and run $2 trillion annual deficits is likely to inflame those tensions.In a tweet on Wednesday, Speaker Kevin McCarthy once again called for pairing discussions about spending cuts to raising the borrowing cap. More

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    Can A Trillion Dollar Coin Resolve the Debt Ceiling Crisis?

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    The latest standoff over raising the nation’s debt ceiling is giving new life to an old theory about how to avoid a default.WASHINGTON — The debt limit standoff between Republicans and Democrats has elevated questions about creative solutions for averting a crisis, including one that at first blush might seem unthinkable: Could minting a $1 trillion platinum coin make the whole problem go away?What was once a fringe idea is now being presented to top economic policymakers as a serious remedy.Asked on Wednesday about the notion that there might be another option if Congress failed to lift the borrowing cap, Jerome H. Powell, the Federal Reserve chair, said there was not.“There’s only one way forward here, and that is for Congress to raise the debt ceiling so that the United States government can pay all of its obligations when due,” Mr. Powell said. “Any deviations from that path would be highly risky.”Treasury Secretary Janet L. Yellen was unable to avoid the debt limit crisis brewing back in the United States as she crisscrossed Africa last week and fielded queries about the coin, which she dismissed as a “gimmick.”Instead, Ms. Yellen sent two stern letters to Speaker Kevin McCarthy outlining the “extraordinary measures” she was taking to ensure the United States can keep paying its bills and urged Congress to “act promptly” to protect the nation’s full faith and credit by lifting the debt limit.President Biden told Mr. McCarthy on Wednesday that while there was room for discussion about addressing the deficit, Congress would have to pass a debt limit increase with no strings attached to avoid a financial cataclysm. Mr. Biden and Mr. McCarthy met at the White House for more than an hour in a discussion that carried high stakes, with the federal government set to exhaust its ability to pay its bills on time as early as June.But the idea of a coin still has its fair share of supporters, and they are not giving up.As political gridlock over the borrowing cap has hardened, the notion that the Treasury secretary could defuse the debt limit drama with her currency minting powers has re-emerged, including on Twitter, where the hashtag #MintTheCoin is again buzzing.Still, the feasibility of averting America’s debt crisis by minting a valuable piece of currency is far from clear. Here’s a look at origins of the coin, how it might be used and the potential consequences.A Most Extraordinary MeasureIf Congress cannot reach an agreement by early June to increase the debt limit, which was capped at $31.4 trillion in late 2021, Ms. Yellen’s ability to use government accounting tools to delay a default could soon be exhausted, and the United States would be unable to pay all of its bills on time.Treasury Secretary Janet L. Yellen in Zambia last month. She urged Congress to “act promptly” to protect the nation’s full faith and credit by lifting the debt limit.Fatima Hussein/Associated PressThis could cause a deep recession and potentially a financial crisis, shutting down large swaths of the economy and preventing beneficiaries of Social Security and Medicare from receiving their money. Although Ms. Yellen has the power to move funds around government accounts to delay a default, eventually the government’s coffers will run dry without the ability to raise more tax revenue or borrow more money.That’s where the coin comes in. Proponents of the idea believe Ms. Yellen could use her authority to instruct the U.S. Mint to produce a platinum coin valued at $1 trillion — or another large denomination — and deposit it with the Federal Reserve, the government’s banker, which manages the Treasury Department’s “general account.”Understand the U.S. Debt CeilingCard 1 of 5What is the debt ceiling? More

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    Wall St. Is Counting on a Debt Limit Trick That Could Entail Trouble

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    If the debt limit is breached, investors expect Treasury to put bond payments first. It’d be politically and practically fraught.Washington’s debt limit drama has Wall Street betting that the United States will employ a fallback option to ensure it can make good on payments to its lenders even if Congress doesn’t raise the nation’s borrowing limit before America runs out of cash.But that untested idea has significant flaws and has been ruled out by the Biden administration, which could make it less of a bulwark against disaster than many investors and politicians are counting on.Many on Wall Street believe that the Treasury Department, in order to avoid defaulting on U.S. debt, would “prioritize” payments on its bonds if it could no longer borrow funds to cover all its expenses. They expect that America’s lenders — the bondholders who own U.S. Treasury debt — would be first in line to receive interest and other payments, even if it meant delaying other obligations like government salaries or retirement benefits.Those assumptions are rooted in history. Records from 2011 and 2013 — the last time the U.S. tipped dangerously close to a debt limit crisis — suggested that officials at the Treasury had laid at least some groundwork to pay investors first, and that policymakers at the Federal Reserve assumed that such an approach was likely. Some Republicans in the House and Senate have painted prioritization as a fallback option that could make failure to raise the borrowing cap less of a disaster, arguing that as long as bondholders get paid, the U.S. will not experience a true default.But the Biden administration is not doing prioritization planning this time around because officials don’t think it would prevent an economic crisis and are unsure whether such a plan is even feasible. The White House has not asked Treasury to prepare for a scenario in which it pays back investors first, according to multiple officials. Janet L. Yellen, the Treasury secretary, has said such an approach would not avoid a debt “default” in the eyes of markets.“Treasury systems have all been built to pay all of our bills when they’re due and on time, and not to prioritize one form of spending over another,” Ms. Yellen told reporters this month.Perhaps more worrisome is that, even if the White House ultimately succumbed to pressure to prioritize payments, experts from both political parties who have studied the temporary fix say it might not be enough to avert a financial catastrophe.Senator Ted Cruz, center, and other Republicans during a news conference on debt ceiling on Capitol Hill last week.Haiyun Jiang/The New York Times“Prioritization is really default by another name,” said Brian Riedl, formerly chief economist to former Republican Senator Rob Portman and now an economist at the Manhattan Institute. “It’s not defaulting on the government’s debt, but it’s defaulting on its obligations.”Congress must periodically raise the nation’s debt ceiling to authorize the Treasury to borrow to cover America’s commitments. Raising the limit does not entail any new spending — it is more like paying a credit-card bill for spending the nation has already incurred — and it is often completed without incident. But Republicans have occasionally attempted to attach future spending cuts or other legislative goals to debt limit increases, plunging the United States into partisan brinkmanship.Understand the U.S. Debt CeilingCard 1 of 5What is the debt ceiling? More