Yellen, Janet L

Latest story

113 Shares99 Views

U.S. National Debt Tops $33 Trillion for First Time

by

The fiscal milestone comes as Congress is facing a new spending fight with a government shutdown looming.America’s gross national debt exceeded $33 trillion for the first time on Monday, providing a stark reminder of the country’s shaky fiscal trajectory at a moment when Washington faces the prospect of a government shutdown this month amid another fight over federal spending.The Treasury Department noted the milestone in its daily report detailing the nation’s balance sheet. It came as Congress appeared to be faltering in its efforts to fund the government ahead of a Sept. 30 deadline. Unless Congress can pass a dozen appropriations bills or agree to a short-term extension of federal funding at existing levels, the United States will face its first government shutdown since 2019.Over the weekend, House Republicans considered a short-term proposal that would slash spending for most federal agencies and resurrect tough Trump-era border initiatives to extend funding through the end of October. But the plan had little hope of breaking the impasse on Capitol Hill, with Republicans still divided on their demands and Democrats unlikely to support whatever compromise they reach among themselves.The debate over the debt has grown louder this year, punctuated by an extended standoff over raising the nation’s borrowing cap.That fight ended with a bipartisan agreement to suspend the debt limit for two years and cut federal spending by $1.5 trillion over a decade by essentially freezing some funding that had been projected to increase next year and then limiting spending to 1 percent growth in 2025. But the debt is on track to top $50 trillion by the end of the decade, even after newly passed spending cuts are taken into account, as interest on the debt mounts and the cost of the nation’s social safety net programs keeps growing.But slowing the growth of the national debt continues to be daunting.Some federal spending programs that passed during the Biden administration are expected to be more costly than previously projected. The Inflation Reduction Act of 2022 was previously estimated to cost about $400 billion over a decade, but according to estimates by the University of Pennsylvania’s Penn Wharton Budget Model it could cost more than $1 trillion thanks to strong demand for the law’s generous clean energy tax credits.Pandemic-era relief programs are still costing the federal government money. The Internal Revenue Service said last week that claims for the Employee Retention Credit, a tax benefit that was originally projected to cost about $55 billion, have so far cost the federal government $230 billion. The I.R.S. is freezing the program because of fears about fraud and abuse.At the same time, several of President Biden’s attempts to raise more revenue through tax changes have been met with resistance.In late 2022, the I.R.S. delayed by one year a new tax policy that would require users of digital wallets and e-commerce platforms to start reporting small transactions to the agency. The policy was projected to raise about $8 billion in additional tax revenue over a decade.Last month, the I.R.S. delayed by two years a new provision that will stop high earners from being able to funnel extra money into their 401(k) retirement accounts. The agency described the delay as an “administrative transition period.”Meanwhile, lobbyists are pressing for loopholes in new taxes that have been enacted. The 15 percent corporate alternative minimum tax was devised to ensure that rich companies could no longer get away with paying single-digit tax rates because of creative use of deductions. However, many of these companies have been pushing the Treasury Department, which is currently writing the rules that will govern the tax, to create exceptions to preserve their most prized deductions. That tax is different from the global minimum tax that most countries, except the United States, are working to adopt.The pushback against efforts to raise revenue and cut spending has heightened the sense of alarm among budget watchdog groups that fear that a fiscal crisis is approaching.“As we have seen with recent growth in inflation and interest rates, the cost of debt can mount suddenly and rapidly,” said Michael A. Peterson, the chief executive of the Peter G. Peterson Foundation, which promotes fiscal restraint. “With more than $10 trillion of interest costs over the next decade, this compounding fiscal cycle will only continue to do damage to our kids and grandkids.”Republicans and Democrats in the House and the Senate continue to be divided on a path forward to avoid the near-term problem of a shutdown, and lawmakers have started pressing for leaders to begin focusing on a stopgap bill to keep the government operating past Sept. 30.But the red ink continues to mount.A Treasury Department report last week showed that the deficit — the gap between what the United States spends and what it collects through taxes and other revenue — was $1.5 trillion for the first 11 months of the fiscal year, a 61 percent increase from the same period a year ago.In an interview with CNBC on Monday, Treasury Secretary Janet L. Yellen said she was comfortable with the nation’s fiscal course because interest costs as a share of the economy remained manageable. However, she suggested that it was important to be mindful of future spending.“The president has proposed a series of measures that would reduce our deficits over time while investing in the economy,” Ms. Yellen said, “and this is something we need to do going forward.” More

More stories

  • 125 Shares149 Views

    in Economy

    Yellen’s China Visit Aims to Ease Tensions Amid Deep Divisions

    by

    Mutual skepticism between the United States and China over a wide range of economic and security issues has festered in recent years.The last time a U.S. Treasury secretary visited China, Washington and Beijing were locked in a trade war, the Trump administration was preparing to label China a currency manipulator, and fraying relations between the two countries were roiling global markets.Four years later, as Treasury Secretary Janet L. Yellen prepares to arrive in Beijing, many of the economic policy concerns that have been festering between the United States and China remain — or have even intensified — despite the Biden administration’s less antagonistic tone.The tariffs that President Donald J. Trump imposed on Chinese goods are still in effect. President Biden has been working to restrict China’s access to critical technology such as semiconductors. And new restrictions curbing American investment in China are looming.Treasury Department officials have downplayed expectations for major breakthroughs on Ms. Yellen’s four-day trip, which begins when she arrives in Beijing on Thursday. They suggest instead that her meetings with senior Chinese officials are intended to improve communication between the world’s two largest economies. But tensions between United States and China remain high, and conversations between Ms. Yellen and her counterparts are likely to be difficult. She met in Washington with Xie Feng, China’s ambassador, on Monday, and the two officials had a “frank and productive discussion,” according to the Treasury.Here are some of the most contentious issues that have sown divisions between the United States and China.Technology and trade controlsChinese officials are still smarting at the Biden administration’s 2022 decision to place significant limitations on the kinds of advanced semiconductors and chip-making machinery that can be sent to China. Those limits have hampered China’s efforts to develop artificial intelligence and other kinds of advanced computing that are expected to help power each country’s economy and military going forward.The government of the Netherlands, which is home to semiconductor machinery maker ASML, on Friday announced new restrictions on machinery exports to China. On Monday, China placed restrictions on exports of germanium and gallium, two metals used to make chips.The Biden administration is mulling further controls on advanced chips and on American investment into cutting-edge Chinese technology.Semiconductors have always been one of the biggest and most valuable categories of U.S. exports to China, and while the Chinese government is investing heavily in its domestic capacity, it remains many years behind the United States.The Biden administration’s subsidy program to strengthen the U.S. semiconductor industry has also rankled Chinese officials, especially since it includes restrictions on investing in China. Companies that accept U.S. government money to build new chip facilities in the United States are forbidden to make new, high-tech investments in China. And while Chinese officials — and some American manufacturers — were hopeful that the Biden administration would lift tariffs on hundreds of billions of dollars of Chinese imports, that does not seem to be in the offing. While Ms. Yellen has questioned the efficacy of tariffs, other top officials within the administration see the levies as helpful for encouraging supply chains to move out of China.The administration is employing both carrots and sticks to carry out a policy of “de-risking” or “friend-shoring” — that is, enticing supply chains for crucial products like electric vehicle batteries, semiconductors and solar panels out of China.President Biden during a visit to a Taiwan Semiconductor Manufacturing Company plant under construction in Phoenix. The Biden administration’s efforts to assist the U.S. semiconductor industry has rankled Chinese officials.T.J. Kirkpatrick for The New York TimesDeteriorating business environmentsCompanies doing business in China are increasingly worried about attracting negative attention from the government. The most recent target was Micron Technology, a U.S. memory chip maker that failed a Chinese security review in May. The move could cut Micron off from selling to Chinese companies that operate key infrastructure, putting roughly an eighth of the company’s global revenue at risk. In recent months, consulting and advisory firms in China with foreign ties have faced a crackdown.American officials are growing more concerned with the Chinese government’s use of economic coercion against countries like Lithuania and Australia, and they are working with European officials and other governments to coordinate their responses.Businesses are also alarmed by China’s ever-tightening national security laws, which include a stringent counterespionage law that took effect on Saturday. Foreign businesses in China are reassessing their activities and the market information they gather because the law is vague about what is prohibited. “We think this is very ill advised, and we’ve made that point to several members of the government here,” said R. Nicholas Burns, the U.S. ambassador to China, in an interview in Beijing.In the United States, companies with ties to China, like the social media app TikTok, the shopping app Temu and the clothing retailer Shein, are facing increasing scrutiny over their labor practices, their use of American customer data and the ways they import products into the United States.CurrencyChina’s currency, the renminbi, has often been a source of concern for American officials, who have at times accused Beijing of artificially weakening its currency to make its products cheaper to sell abroad.The renminbi’s recent weakness may pose the most difficult issue for Ms. Yellen. The currency is down more than 7 percent against the dollar in the past 12 months and down nearly 13 percent against the euro. That decline makes China’s exports more competitive in the United States. China’s trade surplus in manufactured goods already represents a tenth of the entire economy’s output.The renminbi is not alone in falling against the dollar lately — the Japanese yen has tumbled for various reasons, including rising interest rates in the United States as the Federal Reserve tries to tamp down inflation.Chinese economists have blamed that factor for the renminbi’s weakness as well. Zhan Yubo, a senior economist at the Shanghai Academy of Social Sciences, said the decline in the renminbi was the direct result of the Fed’s recent increases in interest rates.At the same time, China has been cutting interest rates to help its flagging economy. The interest rate that banks charge one another for overnight loans — a benchmark that tends to influence all other interest rates — is now a little over 5 percent in New York and barely 1 percent in Shanghai. That reverses a longstanding pattern in which interest rates were usually higher in China.The Fed’s rate increases have made it more attractive for companies and households to send money out of China and invest it in the United States, in defiance of Beijing’s stringent limits on overseas money movements.China pledged as part of the Phase 1 trade agreement with the United States three years ago not to seek an advantage in trade by pushing down the value of its currency. But the Biden administration’s options may be limited if China lets its currency weaken anyway.Global debtChina has provided more than $500 billion to developing countries through its lending program, making it one of the world’s largest creditors. Many of those borrowers, including several African nations, have struggled economically since the pandemic and face the possibility of defaulting on their debt payments.The United States, along with other Western nations, has been pressing China to allow some of those countries to restructure their debt and reduce the amount that they owe. But for more than two years, China has insisted that other creditors and multilateral lenders absorb financial losses as part of any restructuring, bogging down the loan relief process and threatening to push millions of people in developing countries deeper into poverty.In June, international creditors including China agreed to a debt relief plan with Zambia that would provide a grace period on its interest payments and extend the dates when its loans are due. The arrangement did not require that the World Bank or International Monetary Fund write off any debts, offering global policymakers like Ms. Yellen hope for similar debt restructuring in poorer countries.Human rights and national security issuesTensions over national security and human rights have created an atmosphere of mutual distrust and spilled over into economic relations. The flight of a Chinese surveillance balloon across the United States this year deeply unsettled the American public, and members of Congress have been pressing the administration to reveal more of what it knows about the balloon. Mr. Biden’s recent labeling of China’s leader, Xi Jinping, as a “dictator” also rankled Chinese officials and state-run media.American officials continue to be concerned about China’s human rights violations, including the suppression of the democracy movement in Hong Kong and the detention of mainly Muslim ethnic minorities in the Xinjiang region of northwestern China. A senior Treasury Department official, speaking on the condition of anonymity before Ms. Yellen’s trip, said the United States had no intention of shying away from its views on human rights during the meetings in China.Chinese officials continue to protest the various sanctions that the United States has issued against Chinese companies, organizations and individuals for national security threats and human rights violations — including sanctions against Li Shangfu, China’s defense minister. The Chinese government has cited those sanctions as a reason for its rejection of high-level military dialogues. More

  • 138 Shares169 Views

    in Economy

    Chinese Firm Sent Large Shipments of Gunpowder to Russian Munitions Factory

    by

    The previously unreported shipments between a state-owned Chinese company and a Russian munitions factory last year raise new questions about Beijing’s role in Russia’s war against Ukraine.On two separate occasions last year, railroad cars carrying tens of thousands of kilograms of smokeless powder — enough propellant to collectively make at least 80 million rounds of ammunition — rumbled across the China-Russia border at the remote town of Zabaykalsk.The powder had been shipped by Poly Technologies, a state-owned Chinese company on which the United States had previously imposed sanctions for its global sales of missile technology and providing support to Iran. Its destination was Barnaul Cartridge Plant, an ammunition factory in central Russia with a history of supplying the Russian government.These previously unreported shipments, which were identified by Import Genius, a U.S.-based trade data aggregator, raise new questions about the role China has played in supporting Russia as it fights to capture Ukrainian territory. U.S. officials have expressed concerns that China could funnel products to Russia that would help in its war effort — what is known as “lethal aid” — though they have not said outright that China has made such shipments.Speaking from Beijing on Monday, Antony J. Blinken, the U.S. secretary of state, said China had assured the United States that it was not providing lethal assistance to Russia for use in Ukraine, and that the U.S. government had “not seen anything right now to contradict that.”“But what we are concerned about is private companies in China that may be providing assistance,” Mr. Blinken said.Some experts said the shipments Poly Technologies had made to Barnaul Cartridge Plant since the invasion, which totaled nearly $2 million, according to customs records, constituted such lethal assistance. According to the customs records, Poly Technology intended its shipments to be used in the kinds of ammunition fired by Russian Kalashnikov assault rifles and sniper rifles.William George, the director of research at Import Genius, said that Poly Technologies “may be toeing the line on exactly what constitutes lethal aid to Russia,” but that the implications of the shipments were clear.“When shipping large quantities of gunpowder intended for the creation of military cartridges to a country at war, it’s unreasonable to imagine that the finished product won’t be used to lethal effect on the battlefield,” Mr. George said.“It is lethal support,” said Alexander Gabuev, director of the Carnegie Russia Eurasia Center. “The question is, how impactful and large scale is that?”Spent Russian ammunition casings near a destroyed Russian armored vehicle at a frontline position in the northern region of Kyiv in March 2022.Mr. Gabuev said that China had generally refrained from any actions that would “in a visible, forceful way” cross red lines the U.S. government had detailed at the beginning of the war about what would constitute a violation of Western sanctions. Since Poly Technologies has a history of shipments to the Barnaul plant before the war though, China might see those shipments as part of regular trade flows.“By and large, China tries to stick to those red lines,” he said. “Having said that, we see that there are some contracts and transactions going on.”Poly Technologies is a subsidiary of China Poly Group Corporation, which is owned by the Chinese government. Previous reports by The Wall Street Journal and CNN documented shipments of navigation equipment and helicopter parts from Poly Technologies to Russian state-backed firms.Barnaul Cartridge Plant, the recipient of the powder shipments, is privately owned. But Russian procurement records provided to The New York Times by C4ADS, a Washington, D.C.-based global security nonprofit, show the company had numerous contracts with divisions of the Russian government and military over the past decade, including the Russian Ministry of Defense.Barnaul Cartridge Plant was added to a list of companies sanctioned by the European Union in December. Open source information suggests the plant may have served as a training camp linked with the Wagner Group, a private Russian military force with ties to Russian President Vladimir V. Putin.There is no known direct link between these particular shipments of smokeless powder and the Ukrainian battlefield, and in customs paperwork Poly Technologies described the powder as being “for assembly of foreign-style hunting cartridges.”But Brian Carlson, a China-Russia expert and the head of the global security team of the think tank at the Center for Security Studies, said that while such cartridges could be used for hunting, this was rare. “These are military cartridges,” he said.Most modern firearms and other weapons used by soldiers and civilians alike rely on smokeless powder to propel a bullet to its target. When the trigger is pulled, a firing pin strikes the rear of the ammunition cartridge, igniting the powder, which burns extremely fast and forces the bullet down the barrel of a firearm.This kind of powder is also used by militaries as the propellant for mortar ammunition, launching explosive-laden projectiles weighing from four pounds to 30 pounds or more.Poly Technologies and Barnaul Cartridge Plant did not respond to requests for comment.The war in Ukraine, now in its 17th month, has intensified in recent weeks. The ability of both militaries to obtain munitions and equipment has become a crucial factor that could influence the war’s outcome.Ukrainian soldiers after firing a rocket-propelled grenade at Russian troops. The type of powder sent by a Chinese company to a Russian ammunition factory is used as the propellant for mortar ammunition.Tyler Hicks/The New York TimesWestern countries clamped down on their trade with Russia following the invasion, to try to starve the country of military goods as well as supplies that feed their economy and help the government generate revenue.But countries like China, India, the United Arab Emirates, Kyrgyzstan and Turkey stepped in to provide Russia with goods ranging from mundane products like smartphones and cars to aircraft parts and ammunition.Both state-owned and private Chinese companies have sold Russia products that could plausibly be used by either civilians or the military — including drones, semiconductors, hunting rifles, navigation equipment and airplane parts.China has remained officially unaligned in the war. Officials there argue Beijing is a neutral party and a peacemaker. In practice, however, China has become an important diplomatic, economic and security partner for Russia, after proclaiming a “no limits” partnership early last year.In a speech in April in Washington, Treasury Secretary Janet L. Yellen called that partnership a “worrisome indication” that China is not serious about ending the war. And she warned that the consequences for China of providing Russia with material support or assisting in evading sanctions “would be severe.”In recent months, U.S. officials have also privately reached out directly to Chinese financial institutions to discuss the risks of facilitating the evasion or circumvention of sanctions and export controls.Chinese companies “have a choice to make,” Wally Adeyemo, the deputy Treasury secretary, said in an interview on Fox Business TV earlier this month. “They can provide Russia with material support for their military and continue to do business with an economy that represents maybe $1.5 trillion and is getting smaller, or you can continue to do business with the rest of the world.”Poly Technologies is one of China’s largest arms exporters. It produces equipment for police and military forces, including weapons, personal protective gear, explosives and missile systems. It attracted censure in past decades for shipping small arms to Zimbabwe. In the last few years, it has sent weapons shipments to Pakistan, Sri Lanka and Nigeria, according to records accessed through Sayari Graph, a mapping tool for corporate ownership and commercial relationships.Barnaul products have been common on American shelves in recent years, including ammunition for military-style rifles, hunting rifles and American handguns. The goods came to America through several importers, including MKS Supply, LLC, a wholesale ammunition distributor in Dayton, Ohio.According to an MKS Supply official, the company stopped working with Barnaul Cartridge Plant early last year following a U.S. government ban on imports of Russian ammunition.Edward Wong More

  • 125 Shares149 Views

    in Economy

    Yellen Says Bid to Decouple From China Would Be ‘Disastrous’

    by

    The Treasury secretary, speaking to a House committee, said trade and investment were crucial in U.S.-Chinese relations.Treasury Secretary Janet L. Yellen said on Tuesday that it would be a mistake for the United States to try to “decouple” from China and called for deepening economic ties between the world’s two largest economies.The comments came as the Biden administration has been seeking to improve relations with China, which faced a setback this year when a Chinese surveillance balloon was found flying across the United States. Secretary of State Antony J. Blinken is planning to travel to Beijing next week, and Ms. Yellen hopes to make a trip there soon.Speaking at a House Financial Services Committee hearing on Tuesday, Ms. Yellen made clear that she believes the economic relationship with China is critical.“I think we gain and China gains from trade and investment that is as open as possible, and it would be disastrous for us to attempt to decouple from China,” Ms. Yellen said.The United States maintains tariffs that the Trump administration imposed on billions of dollars’ worth of Chinese imports, and the Biden administration is developing new restrictions on how U.S. companies can invest in China. But Ms. Yellen said that the United States intended only to “de-risk” the relationship and that it had no intention of inflicting economic harm on China.“I certainly do not think it is in our interest to stifle the economic progress of the Chinese people,” Ms. Yellen said. “China has succeeded in lifting hundreds of millions of people out of poverty, and I think that’s something that we should applaud.”Although she struck an accommodating tone, Ms. Yellen also laid out concerns likely to arise in meetings with her Chinese counterparts.Because of national security concerns, she said, the administration is considering restrictions on American private equity firms’ investments in Chinese firms that have connections with China’s military. She also said the Treasury Department was examining additional sanctions on China in response to human rights abuses against Uyghurs in Xinjiang.In recent months, the United States has been ratcheting up pressure on China to provide debt relief to Zambia and other developing countries. Ms. Yellen lamented that despite some signs of a willingness to cooperate and help poor countries avoid defaults, China had not done enough. She emphasized a growing need for international financial institutions like the World Bank and the International Monetary Fund to help the most vulnerable economies.“These institutions reflect American values,” Ms. Yellen said. “It serves as an important counterweight to nontransparent, unsustainable lending from others like China.”Asked about Ms. Yellen’s comments on Tuesday, Wang Wenbin, a spokesman for China’s Foreign Ministry, rejected the idea that the I.M.F. or the World Bank is meant to further American interests.“The I.M.F. is not the I.M.F. of the United States, nor is the World Bank for that matter,” he said. More

  • 138 Shares129 Views

    in Economy

    Yellen’s Debt Limit Warnings Went Unheeded, Leaving Her to Face Fallout

    by

    The Treasury secretary, who considered ways to contain the fallout of a default when she was a Fed official in 2011, had urged Democrats to raise the limit while they still had control of Congress.In the days after November’s midterm elections, Treasury Secretary Janet L. Yellen was feeling upbeat about the fact that Democrats had performed better than expected and maintained control of the Senate.But as she traveled to the Group of 20 leaders summit in Indonesia that month, she said Republicans taking control of the House posed a new threat to the U.S. economy.“I always worry about the debt ceiling,” Ms. Yellen told The New York Times in an interview on her flight from New Delhi to Bali, Indonesia, in which she urged Democrats to use their remaining time in control of Washington to lift the debt limit beyond the 2024 elections. “Any way that Congress can find to get it done, I’m all for.”Democrats did not heed Ms. Yellen’s advice. Instead, the United States has spent most of this year inching toward the brink of default as Republicans refused to raise or suspend the nation’s $31.4 trillion borrowing limit without capping spending and rolling back parts of President Biden’s agenda.Now the federal government’s cash balance has fallen below $40 billion. And on Friday, Ms. Yellen told lawmakers that the X-date — the point at which the Treasury Department runs out of enough money to pay all its bills on time — will arrive by June 5.Ms. Yellen has held her contingency plans close to the vest but signaled this week that she had been thinking about how to prepare for the worst. Speaking at a WSJ CEO Council event, the Treasury secretary laid out the difficult decisions she would face if the Treasury was forced to choose which bills to prioritize.Most market watchers expect that the Treasury Department would opt to make interest and principal payments to bondholders before paying other bills, yet Ms. Yellen would say only that she would face “very tough choices.”White House officials have refused to say if any contingency planning is underway. Early this year, Biden administration officials said they were not planning for how to prioritize payments. As the U.S. edges closer to default, the Treasury Department declined to say whether that has changed.Yet former Treasury and Federal Reserve officials said it was nearly certain that emergency plans were being devised.Christopher Campbell, who served as assistant Treasury secretary for financial institutions from 2017 to 2018, said that given the rapidly approaching X-date, “one would expect” that “there would be quiet conversations between the Treasury Department and the White House around how they would manage a technical default and perhaps prioritization of payments.”The Treasury Department has developed a default playbook from previous debt limit standoffs in 2011 and 2013. And Ms. Yellen has become quite familiar with those: During the last two significant standoffs — in 2011 and 2013 — she was a top Federal Reserve official contemplating how the central bank would try to contain fallout from a default.Ms. Yellen was briefed on the Treasury’s plans during those debates and engaged in her own contingency discussions about how to stabilize the financial system in the event that the United States could not pay all of its bills on time.According to the Fed’s transcripts, the Treasury Department did in fact plan to prioritize principal and interest payments to bondholders in the event that the X-date was breached. Although Treasury Department officials had trepidations about the idea, they had expressed to Fed officials that it could ultimately be done.Fed officials also discussed steps that they could take to stabilize money markets and to prevent failed Treasury auctions from prompting a default even if the Treasury Department was successfully paying creditors. Ms. Yellen said in both 2011 and 2013 that she was on board with plans to protect the financial system.“I expect that actions of this type might well prove unnecessary after the Treasury finally states that they do intend to pay principal and interest on time and we have finally issued our own set of policy statements,” Ms. Yellen said in 2011. “But if the stress nevertheless escalates, I’d support interventions to alleviate pressures on money market funds.”Ms. Yellen added that she was concerned about how vulnerable market infrastructure was in the event of a default and said officials should be thinking about ways to plan for a default in the future.Despite Ms. Yellen’s efforts to steer clear of the politics surrounding the debt limit, Republicans have been expressing doubts about her credibility. Haiyun Jiang/The New York Times“Given that we could face a similar situation somewhere down the road, I think it’s important for us to think about lessons learned so that we and markets will be better prepared if we face such a situation again,” Ms. Yellen said.Eric Rosengren, who was the president of the Federal Reserve Bank of Boston in 2011, said in an interview that he expected that Ms. Yellen, who is known for being rigorously prepared, was busy considering contingency plans as she did at the Fed more than a decade ago.“It would be irrational not to do some planning,” said Mr. Rosengren, adding that Ms. Yellen’s background of dealing with financial stability matters makes her well placed to be as ready as possible for the fallout of a default. “The last thing you want is to be completely unprepared and have the worst outcome.”As the debt ceiling standoff has intensified, Ms. Yellen has not been as involved in negotiations with lawmakers as her some of her predecessors.Mr. Biden tapped Shalanda Young, his budget director, and Steven J. Ricchetti, White House counselor, to lead the negotiations with House Republicans. Ms. Yellen has not attended the Oval Office meetings between Mr. Biden and Republicans.“It doesn’t look from the outside like Yellen is playing an active role in the budget negotiations,” said David Wessel, a senior economic fellow at the Brookings Institution who worked with Ms. Yellen at Brookings. “That may be that it’s not her comparative advantage, it may be that the White House wants to do it themselves, and it may be that they want to protect the credibility of Treasury predicting the X-date.”Ms. Yellen has taken a more behind the scenes role, briefing the White House on the nation’s cash reserves, calling business leaders and asking them to urge Republicans to lift the debt limit and sending increasingly regular letters to Congress warning when the federal government will be unable to pay all its bills.A White House official pointed out that Ms. Yellen has been the Biden administration’s primary messenger on the debt limit on the Sunday morning talk shows, and that she is coordinating on a daily basis with Jeffrey D. Zients, the White House chief of staff, and Lael Brainard, the director of the National Economic Council, to plot the administration’s strategy. Other officials have participated in the Oval Office meetings because the White House continues to view them as budget negotiations, the official added.The Treasury secretary also cut short a recent trip to Japan for a meeting of the Group of 7 finance ministers so she could return to Washington to deal with the debt limit.Despite Ms. Yellen’s efforts to steer clear of the politics surrounding the debt limit, Republicans have been expressing doubts about her credibility.Members of the House Freedom Caucus wrote a letter to Speaker Kevin McCarthy recently urging Republican leaders to demand that Ms. Yellen “furnish a complete justification” of her earlier projection that the U.S. could run out of cash as soon as June 1. In the letter, they accused her of “manipulative timing” and suggested that her forecasts should not be trusted because she was wrong about how hot inflation would get.The letter that Ms. Yellen sent on Friday provided a specific deadline — June 5 — and listed the upcoming payments that the federal government is required to make and explained why the Treasury Department would be unable to cover its debts beyond that date.Representative Patrick T. McHenry, a North Carolina Republican helping to lead the negotiations, said on Friday that there have been doubts about the X-date because it has been offered as a range. That, he said, is not what Americans experience when they do not have money to pay their mortgage bills on the day that they are due.“There was some skepticism of a date range — that you can pick whatever you want,” he said. “That is not how this works.”Republicans have also been targeting some of Ms. Yellen’s most prized policy priorities in the negotiations, such as rolling back some of the $80 billion that the Internal Revenue Service received as part of last year’s Inflation Reduction Act.The White House appears prepared to return $10 billion of those funds, which are intended to bolster the agency’s ability to catch tax cheats, in exchange for preserving other programs.In an interview on NBC’s Meet the Press this week, Ms. Yellen lamented that Republicans were targeting the money.“Something that greatly concerns me is that they have even been in favor of removing funding that’s been provided to the Internal Revenue Service to crack down on tax fraud,” she said.Whenever the debt limit standoff does subside, Democrats will most likely come under renewed pressure to overhaul the laws that govern the nation’s borrowing the next time they control the White House and Congress. Fearing that a fight over the debt limit would put her in the precarious position that she now faces, Ms. Yellen said in 2021 that she supported abolishing the borrowing cap.“I believe when Congress legislates expenditures and puts in place tax policy that determines taxes, those are the crucial decisions Congress is making,” Ms. Yellen said at a House Financial Services Committee hearing. “And if to finance those spending and tax decisions it is necessary to issue additional debt, I believe it is very destructive to put the president and myself, as Treasury secretary, in a situation where we might be unable to pay the bills that result from those past decisions.” More

  • 138 Shares99 Views

    in Economy

    Yellen Warns of Missed Payments if Debt Limit Is Not Lifted

    by

    The Treasury secretary said the Biden administration would face “very tough choices” if Congress did not act.Treasury Secretary Janet L. Yellen said on Wednesday that it was “almost certain” that the United States would not have enough cash to continue to pay all of its bills on time beyond early June and that she would soon provide Congress with a more precise update about when the nation could default if the debt limit was not raised.The comments, made at a WSJ CEO Council event, came as negotiators for the White House and House Republicans raced to reach a deal to raise the debt limit and reduce government spending that Congress can pass before June 1. The Treasury secretary reiterated her warning that a default would inflict severe damage on the U.S. economy and made the case that she would be left with no good options to contain the fallout.“Treasury and President Biden will face very tough choices if Congress doesn’t act to raise the debt ceiling and if we hit the so-called X-date without that occurring,” Ms. Yellen said. “There will be some obligations that we will be unable to pay.”Ms. Yellen declined to elaborate on how exactly she would proceed if the debt limit was not lifted, but she dismissed the idea that “prioritizing” certain payments that the government was required to make would be an easy solution. She noted that government payment systems were devised to pay bills on time, not to decide which ones to pay.“Prioritization is not really something that is operationally feasible,” she said.This week, Ms. Yellen notified Congress that the federal government could run out of cash as soon as June 1. Her projections have been met with skepticism by some House Republicans, who have been calling on her to produce an analysis that details the Treasury Department’s cash reserves to prove that the deadline is real.Ms. Yellen said on Wednesday that there was considerable uncertainty associated with tracking government payments and receipts but that she planned to provide as much clarity as possible in her next update.The Treasury secretary said she was already seeing “the beginnings” of stress in financial markets due to the brinkmanship. However, she said she had not been engaging with investors about what would happen if the debt limit was not lifted.“We are committed to not having missed payments and raising the debt ceiling,” Ms. Yellen said. “We are not involved in planning for what happens if there is a default.”Despite her concerns, she said that she was hopeful the negotiations would be successful and that the Biden administration had been committed to policies that would reduce deficits.“I think a deal is possible,” Ms. Yellen said. “They’re working toward an agreement that could command bipartisan support.” More

  • 163 Shares169 Views

    in Economy

    U.S. Faces ‘Elevated Risk’ of Default in Early June, a New Report Warns

    by

    The Bipartisan Policy Center said the government would be operating on “dangerously low” cash reserves after Memorial Day in its estimate of the so-called X-date.The United States faces an “elevated risk” of running out of cash to pay its bills between June 2 and 13 if Congress does not raise or suspend the nation’s debt limit, according to an analysis released on Tuesday by the Bipartisan Policy Center, an influential think tank that carefully tracks federal spending.The analysis underscores the growing possibility that the United States will default on its debt as soon as next week. It comes amid negotiations between the White House and Republicans in Congress to reach an agreement that would also lift the $31.4 trillion borrowing cap.“Come early June, Treasury will be skating on very thin ice that will only get thinner with each passing day,” said Shai Akabas, the center’s director of economic policy. “Of course, the problem with skating on thin ice is that sometimes you fall through.”The center said that the Treasury Department would be operating on “dangerously low” cash reserves after Memorial Day and that each day in June would come with increasing risk. The department has been using accounting maneuvers known as extraordinary measures to delay a default since the United States technically hit the debt limit in January, but those are expected to be exhausted soon.The center noted that the federal government could get a reprieve if it mustered sufficient revenue to make it to June 15, when quarterly tax payments are due. That could push a default, the so-called X-date, into July.However, Treasury Secretary Janet L. Yellen said this week that she thought it was unlikely that the federal government would have enough cash on hand to make it to mid-June.In a letter to Congress on Monday, Ms. Yellen reiterated her estimate that the X-date could arrive as soon as June 1. Her warning did not come with the caveats included in her previous updates, which had suggested that the government’s cash reserves could potentially last for a few additional weeks. Instead, she emphasized the urgency of the situation.“If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position and raise questions about our ability to defend our national security interests,” Ms. Yellen said.As the X-date approaches, the Treasury Department has been checking with federal agencies about the timing of upcoming expenditures. Treasury recently sent a memo to agencies to inquire if any scheduled payments could be delayed. The Washington Post reported earlier on the memo.The communication is similar to what the Treasury Department conveyed during the 2021 debt limit standoff and is part of how it manages its cash reserves.“To produce an accurate forecast around the debt limit, it’s critical that Treasury have updated information on the magnitude and timing of agency payments,” Lily Adams, a Treasury spokeswoman, said. “As in prior debt limit episodes, Treasury will continue to regularly communicate with all aspects of the federal government on their planned expenditures.” More

  • 138 Shares149 Views

    in Economy

    Yellen Warns the U.S. Could Default as Soon as June 1

    by

    Treasury Secretary Janet L. Yellen reiterated on Monday that the United States could be unable to pay its bills as soon as June 1, an announcement that maintains pressure on the White House and congressional leaders as they negotiate how to raise the nation’s debt limit.The warning to Congress comes as President Biden and Speaker Kevin McCarthy are set to meet on Monday afternoon at the White House to try and resolve the impasse. Representatives for Mr. Biden and Mr. McCarthy have been engaged in talks over the past week to devise a plan that would cap federal spending and reduce the deficit while raising the $31.4 trillion borrowing cap.Ms. Yellen warned that the nation’s finances remain in a precarious state, saying that it was “highly likely” the United States would run out of cash by early June, rather than her previous letters, which called that time-frame “likely.”“With an additional week of information now available, I am writing to note that we estimate that it is highly likely that Treasury will no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1,” Ms. Yellen wrote.In her previous letter, issued a week ago, Ms. Yellen offered the caveat that her estimates could be off because of the unpredictability of incoming government tax revenue. She said that the actual date that Treasury will exhaust the so-called extraordinary measures that she is using to delay a default “could be a number of days or weeks later.”On Monday, Ms. Yellen did not suggest that there might be more time and she warned that failing to lift the debt limit would be disastrous for the economy.“If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests,” Ms. Yellen said.The nation’s cash balance has been running perilously low. On Sunday, Ms. Yellen dismissed hopes that the so-called extraordinary measures that she has been using to delay a default would be sufficient to maintain normal government operations beyond mid-June.Republicans have refused to raise the debt limit without spending cuts, forcing Democrats to the negotiating table to avoid a default that could cause a recession and financial crisis. The two sides remain far apart on key issues, including on caps for federal spending, new work requirements for some recipients of federal antipoverty assistance and funding meant to help the Internal Revenue Service crack down on tax evasion by high earners and corporations.The Treasury secretary said over the weekend that a failure to raise the debt limit would force the government to confront difficult choices about how to meet the nation’s financial obligations. Benefits payments to retirees and veterans are likely to be disrupted, and the uncertainty could cause interest rates to surge and stock prices to plunge.The Biden administration has downplayed the idea that it could essentially ignore the debt limit and continue borrowing by invoking the 14th Amendment, which says that the validity of U.S. debt shall not be questioned. Although the administration’s lawyers have studied the idea, officials believe that the expected legal challenges and uncertainty would destabilize markets.“There can be no acceptable outcomes if the debt ceiling isn’t raised,” Ms. Yellen said on “Meet the Press” on NBC. More

  • 175 Shares169 Views

    in Economy

    In a Sharp Reversal, Biden Opens a Path for Ukraine to Get Fighter Jets

    by

    The president told allied leaders that he would allow Ukrainian pilots to be trained on American-made F-16s, and is prepared to approve other countries’ transferring the jets to Ukraine.President Biden told U.S. allies on Friday that he would allow Ukrainian pilots to be trained on American-made F-16 fighter jets, several U.S. officials said, adding that the president is prepared to let other countries give F-16s to Ukraine — a major upgrade of the Ukrainian military and a sharp reversal.Since Russia launched its full-scale invasion of Ukraine 15 months ago, officials in Kyiv have pleaded for advanced warplanes to overcome Russian air superiority. But Mr. Biden has resisted, concerned that the jets could be used to hit targets deep inside Russia, and prompt the Kremlin to escalate the conflict. Pentagon officials have said that other weapons, especially air defenses, were needed more urgently, and the high cost of the F-16s could squeeze out other matériel.But several European countries that belong to the NATO alliance and have F-16s in their arsenals have called for an international effort to provide the training and transfer of their jets to Ukraine. Doing so would require American permission, because the weapons were first sold to them by the United States. Though not the most advanced U.S. fighter, the F-16 carries powerful radar that can spot targets from hundreds of miles away and modern missiles and other technology that American officials do not want duplicated or falling into hostile hands.Mr. Biden told other leaders of the Group of 7 nations, the world’s wealthiest democracies, of his decision on pilot training, opening a path to supplying Ukraine with fighter jets, at their summit meeting in Hiroshima, Japan, according to several officials who requested anonymity to speak candidly about sensitive deliberations.They said the United States and its allies would discuss in the coming months how to supply Kyiv with the jets themselves, and one senior administration official said the White House was prepared to approve that step. The United States is not expected, at least under current plans, to send its own F-16s.A group of F-16s flying over Washington, in March. Ukraine has said it needs the jets to compete effectively with Russia’s air force.Andrew Caballero-Reynolds/Agence France-Presse — Getty Images“I welcome the historic decision of the United States and @POTUS to support an international fighter jet coalition. This will greatly enhance our army in the sky,” President Volodymyr Zelensky of Ukraine, who is expected to address the Group of 7 this weekend, wrote on Twitter.In a joint statement, the allied leaders said they were committed “to continuing our security assistance to Ukraine as it defends itself against Russia’s aggression, tailoring our support to Ukraine’s needs.” The group vowed to provide “financial, humanitarian, military and diplomatic support Ukraine requires for as long as it takes.”Earlier on Friday, Mr. Zelensky had addressed an Arab League summit in Jeddah, Saudi Arabia, where he challenged the neutral stance many Arab countries have adopted on the war and implored them to help save Ukrainians “from the cages of Russian prisons.” “Unfortunately there are some in the world, and here among you, who turn a blind eye to those cages and illegal annexations,” he said. “I am here so that everyone can take an honest look, no matter how hard the Russians try to influence.”Western officials said Mr. Zelensky planned to travel to Hiroshima this weekend to attend the summit meeting. Ukrainian officials gave conflicting accounts, however, with some saying he would appear in person and others saying he would speak to the leaders by video link. The vagueness appears to reflect security concerns as Mr. Zelensky moves across the globe seeking aid and arms; he was in several European countries last week, as well as Saudi Arabia on Friday.Ukraine is expected to launch a major counteroffensive soon, hoping to retake more territory seized by Russia in the war’s early days. Any delivery of fighter jets would be months away, too late to affect that plan.The Group of 7 leaders in Hiroshima spent much of the day discussing the coming counteroffensive and its chances of forcing Russia to the negotiating table to discuss some form of an armistice that would stop the fighting, even if it did not resolve the central issues of the war.They are also poised to unveil a slew of new sanctions and export controls to clamp down further on the Kremlin’s ability to fund the war, and to crack down on third-party nations that have been secretly providing Russia with banned technologies that can be used in weapons systems.Earlier on Friday, President Volodymyr Zelensky of Ukraine told a gathering of the Arab League not to “turn a blind eye” to the atrocities committed by the Russian forces.Saudi Press Agency/EPA, via ShutterstockThe allies appear determined to demonstrate unified resolve to support Ukraine at a time when President Vladimir V. Putin of Russia seems to be betting that their interest and commitment will wane.Mr. Biden’s changed stance on F-16s is his latest about-face on allowing Ukraine to field advanced weapons, including HIMARS rocket launchers, Patriot air defense missile systems and Abrams tanks. In each case, the president at first refused, only to change his mind under pressure from European allies.Top Pentagon officials have consistently said that they do not believe Ukraine needs F-16s at this stage of the conflict.Celeste A. Wallander, the assistant secretary of defense for international security affairs, told the House Armed Services Committee last month that advanced Western fighter aircraft ranked only “about eighth” on Ukraine’s priority list. She said officials have focused on resources with the “highest priority capabilities, and that has been air defense, artillery and armor.”But the push for F-16s by Ukraine and its supporters in Congress was reinforced this week when Yahoo News reported that an internal U.S. Air Force assessment concluded it would take only four months to train Ukrainian pilots to operate the fighters, a far shorter time frame than Pentagon officials had cited previously.The document, which a senior Air Force official confirmed and said was shared with several NATO allies who fly F-16s, contained a detailed assessment undertaken in late February and early March at Morris Air National Guard Base in Tucson, Ariz. Two Ukrainian pilots were given “no formal training” on the F-16, according to the assessment, other than a brief familiarization, and then were tested on a flight simulator for several hours.A Ukrainian soldier passes a crater caused by Russian bombardment in the village of Heorhiivka in eastern Ukraine. Kyiv says F-16s would greatly increase their forces’ ability to defend against aerial attacks.Finbarr O’Reilly for The New York TimesAn appearance by Mr. Zelensky at the Group of 7 would be a strong rebuff to Mr. Putin and a reminder of how thoroughly relations with Russia have deteriorated. Thirty years ago, President Clinton met with Boris Yeltsin, then the president of Russia, in Japan to begin to map the integration of a post-Soviet Russia into the world economy, as Mr. Clinton promised to seek the repeal of Cold War sanctions. Five years later, Russia joined what became the Group of 8.Now all that has been reversed. After Russia annexed Crimea in 2014, it was suspended from the group, and left it entirely three years later. Russia’s economy is struggling under sanctions imposed since the invasion last year, particularly the price cap on its oil sales, and more are coming.Britain on Friday said it was implementing a ban on Russian diamonds, copper, aluminum and nickel. Australia also said on Friday it was imposing new financial sanctions targeting 21 entities and three individuals, including Russia’s largest gold company, petroleum and steel companies and defense entities.The United States also rolled out a “substantial package” of restrictions, including cutting off 70 more firms from American exports and adding more than 200 individuals and entities to its sanctions list. The measures are meant to crack down on people or companies that are helping Moscow to evade existing sanctions.The fresh round of penalties “will further tighten the vise on Putin’s ability to wage his barbaric invasion and will advance our global efforts to cut off Russian attempts to evade sanctions,” Treasury Secretary Janet L. Yellen said in a statement on Friday.Until now, the Ukraine war has seemed far away from daily life in Moscow, but Russian leaders are growing increasingly nervous about the repercussions of a promised Ukrainian counteroffensive.Natalia Kolesnikova/Agence France-Presse — Getty ImagesThe United States will broaden sanctions to cover more corners of the Russian economy, striking at its avenues to acquire semiconductors and other high-tech goods from Group of 7 nations, which American officials said Friday are critical to Russia’s ability to build weapons. Antony J. Blinken, the secretary of state, said in a release that the new sanctions would take aim at components Russia needs to build a drone that is currently being deployed in Ukraine.The new penalties also seek to squeeze Russia’s ability to drill for oil and gas, and to crimp venture capitalists and financial services firms that American officials said were aiding sanctioned Russian businesses.Goods that Western businesses are now prohibited from selling to Russian buyers often reach them through middlemen — changing hands, legal jurisdictions and free-trade zones multiple times. The trade is hard to track and harder to enforce, especially for “dual use” goods that have both civilian and military applications.With many of Russia’s other revenue streams squeezed by previous rounds of sanctions, officials have homed in on diamonds as a lucrative trade still providing Moscow with funding for its war. Russia is the world’s largest supplier of small diamonds, exporting more than $4.5 billion in 2021, making the gem its top non-energy export by value. More