As US debt default looms, Yellen faces her biggest test yet

As US debt default looms, Yellen faces her biggest test yet

WASHINGTON (NYTIMES) – When Janet Yellen was Federal Reserve chair in 2014, she faced a grilling from Republicans about whether the federal government had a plan if the nation’s borrowing limit was breached and measures to keep paying the country’s bills were exhausted.

Ms Yellen, appearing at a congressional hearing, outlined a dire scenario in which financial institutions might try to make payments that they could not cover, because the Treasury Department was out of money, leading to a cascade of bounced checks. She pushed back against the notion held by some Republicans that an economic meltdown could be averted, warning that there was no secret contingency plan.

“To the best of my knowledge, there is no written-down plan,” Ms Yellen said at the time, adding that it was beyond her remit at the Fed. “That’s a matter that is entirely up to the Treasury.”

Fending off such a calamity is now squarely the responsibility of Ms Yellen, who is confronting the biggest test she has faced in her eight months as US President Joe Biden’s treasury secretary. Mr Biden chose Ms Yellen to help steer the economy out of the pandemic downturn. But in the face of congressional dysfunction, she has been thrust into a political role, trying to convince reticent Republican lawmakers that their refusal to lift the debt cap – which limits the government’s ability to borrow money – could lead to a financial collapse.

It is not a comfortable spot for Ms Yellen, an economist by training who is now trying to navigate the rough political waters that she tends to avoid by countering legislative gamesmanship with economic logic.

Over the past month, Ms Yellen has reached out to Democrats and top Republican leaders, including Sen. Mitch McConnell of Kentucky, the minority leader, and Rep. Kevin Brady of Texas, the top Republican on the Ways and Means Committee. She has used those calls to convey the economic risks, warning that Treasury’s ability to stave off default is limited and that failure to lift or suspend the debt cap by sometime next month would be “catastrophic.”

Ms Yellen has reminded Republicans in the calls that they have been willing to join Democrats in lifting the debt ceiling in the past, and that raising the cap allows the US to pay its existing bills and does not authorize new spending.

Thus far, Republicans seem unmoved by Ms Yellen’s overtures.

In a call with Ms Yellen last week, Mr Brady said he told the secretary that he would be happy to work with her on a bipartisan framework focused on financial stability and curbing government spending but, barring that, Democrats should not expect Republicans to help them address the debt limit.

“They are playing a dangerous political game with our economy and it’s absolutely unnecessary,” Mr Brady said Wednesday.

Mr McConnell conveyed a similar message during a telephone conversation with Ms Yellen last week, his spokesman said. Mr McConnell’s former chief of staff, Brian McGuire, said the Kentucky Republican would not be persuaded by pressure tactics and suggested that the Treasury secretary should direct her economic warnings at Democrats.

On Thursday, Ms Yellen appeared at a news conference with Speaker Nancy Pelosi of California and Senate majority leader Chuck Schumer of New York. Ms Pelosi assailed Republicans for refusing to join Democrats in covering costs that both parties have incurred, including the US$1.5 trillion (S$2 trillion) tax cuts that Republicans passed during the Trump administration.

“This is a credit-card bill that we owe,” Ms Pelosi said.

Democrats wanted to pair the federal debt limit increase with legislation to keep the government funded through early December, which would require Republican support in the Senate. With no such agreement in sight, the White House’s Office of Management and Budget on Thursday alerted federal agencies to review their shutdown plans, given funding is scheduled to lapse next week.

Democrats do have another legislative option for raising the borrowing cap – they could pair it with the US$3.5 trillion spending bill that they are aiming to pass along party lines using a fast-track process known as budget reconciliation. However, that would impose procedural hurdles they are trying to avoid, and Democrats have yet to agree on what the spending bill should include or how to pay for it. Party leaders claimed progress toward a deal on Thursday, saying they had agreed upon an array of possible ways to pay for it. But they offered no details about what programmes would be included or what the total cost would eventually be, and what they called a “framework agreement” appeared to be modest.

Ms Yellen, who has kept a low public profile in the last month, did not make a statement at the news conference and took no questions.

In private, she has tried to amp up the pressure. Ms Yellen has personally warned the chief executives of the nation’s largest banks and financial institutions about the very real risk of default. Over the past several days she has spoken to Jamie Dimon of JPMorgan Chase, David Solomon of Goldman Sachs, Brian Moynihan of Bank of America and Laurence Fink of BlackRock, telling them about the disastrous impact a default would have, according to people familiar with the calls.

The banking industry traditionally wields significant influence with Republicans; the biggest financial services lobbying groups wrote a letter to top lawmakers earlier this month urging them to take action.

“Any default would negatively impact the general economy, disrupt the operations of our financial markets, undermine confidence, and raise funding costs in the future,” they wrote.

Republicans, including Mr McConnell, have insisted that if Democrats want to pass a big spending bill, then they should bear responsibility for raising the borrowing limit. Democrats call that position nonsense, noting that the debt limit needs to be raised because of spending that lawmakers, including Republicans, have already approved.

“This seems to be some sort of high-stakes partisan poker on Capitol Hill, and that’s not what her background is,” said David Wessel, a senior economic fellow at the Brookings Institution who worked with Ms Yellen at Brookings.

A new report from the Bipartisan Policy Center underscored the fact that if Congress fails to address the debt limit, Ms Yellen will be left with no good options. If the true deadline is Oct 15, for example, the Treasury Department would be approximately US$265 billion short of paying all of its bills through mid-November. About 40 per cent of the funds that are owed would go unpaid.

“Realistically, on a day-to-day basis, fulfilling all payments for important and popular programmes would quickly become impossible,” the report said, pointing to Social Security, Medicare, Medicaid, defense and military active duty pay.

Tony Fratto, a Treasury official during the Bush administration, lamented that Ms Yellen is operating without any leverage. Democrats, he said, appeared to have miscalculated when they thought that Republicans would be too ashamed to block a debt limit vote after supporting a suspension of the borrowing cap when former President Donald Trump was in office.

“I think that was in the ‘hope’ category,” Mr Fratto said. “This is Washington in 2021 – your hopes will be dashed.”

Internet Explorer Channel Network
News Related

OTHER NEWS

Russia's non-resource non-energy exports may set a record with $180 bln in 2021

According to Head of the Russian Export Center Veronika Nikishina, Russia's non-resource non-energy exports will surpass $141 bln - the figure for the entire 2020 already this month Read more »

Russia, Germany discuss new transit contract with Ukraine — Deputy PM

The agreement on the supply and transit of gas, which Russia and Ukraine signed in 2019, expires in 2024 Read more »

Russian Arctic zone may grow into new energy generation center — senator

The Arctic regions may develop into centers to produce and export hydrogen energy and new types of fuel, Konstantin Dolgov said Read more »

Analysts list Arctic cities liable for state support

According to the expert, absolute leaders in terms of functions are Arkhangelsk, Murmansk, Nadym, Naryan-Mar, Norilsk, Noyabrsk, Novy Urengoi and Tarko-Sale Read more »

Aluminum up over $3,200/tonne on London Metal Exchange first time since July 2008

According to analysts, the rise in the cost of aluminum is caused by a shortage of thermal coal in China and a general increase in energy prices Read more »

Amazon seeks to invest in SK Telecom spun-off unit, SK Square

Amazon is in negotiations with South Korea's SK Telecom Co. to invest in the mobile carrier's non-telecom operations unit SK Square, a to be hived off next month. Amazon, the ... Read more »

Russian official does not exclude spot sales restart by Gazprom in November-December

The company is now selling gas on its platform only with delivery in the third quarter of 2022 and in 2023 Read more »

Russian crude production to total 9.8 mln barrels per day in October, Novak specifies

Russian Deputy Prime Minister said earlier that Russia might produce more than 522 mln tonnes of oil and gas condensate in 2021 Read more »

China's first smart oil platform starts operations — TV

The platform is located in the Bohai Sea and fitted with a smart safety system using artificial intelligence technology Read more »

Brent oil price on the ICE exchange up over $ 85/barrel

The cost of a WTI crude oil futures also rose to $ 81.36 per barrel Read more »

(2nd LD) BOK continues to normalize monetary policy to ease 'financial imbalances'

(ATTN: UPDATES with more remarks in paras 12-15; ADDS photo) SEOUL, Oct. 15 (Yonhap) — The Bank of Korea will continue adjusting its accommodative monetary policy and determine the timing ... Read more »

Daewoo Shipbuilding wins 640.8 bln won order for 4 container carriers

By Nam Kwang-sik SEOUL, Oct. 15 (Yonhap) — Daewoo Shipbuilding & Marine Engineering Co. (DSME) said Friday that it has signed a 640.8 billion won (US$542 million) deal to build ... Read more »

India has faced COVID-19 crisis with resilience and fortitude: Nirmala Sitharaman

Finance Minister Nirmala Sitaraman. India has not only faced the COVID-19 crisis with great resilience and fortitude but has also played a major role and “walked the talk” on the ... Read more »

Israeli companies getting increasingly interested in Russian market — Lavrov

Despite the aftermath of the coronavirus pandemic, trade between Russia and Israel declined by a modest 3.9% in 2020, while in January-July of this year it grew by 51.8% year-on-year, the minister stressed Read more »

Korea faces continued economic uncertainty: finance ministry

This Oct. 8 file photo shows closed stores in the shopping district of Myeongdong in downtown Seoul amid the COVID-19 pandemic. Yonhap The South Korean economy is facing continued uncertainty ... Read more »

Metals head for record, zinc spikes as energy crisis hits supply

LONDON (BLOOMBERG) – Base metals soared, led by zinc’s surge to its highest price since 2007 after European smelters became the latest casualties in a global energy crisis that’s knocking ... Read more »

'Unleash American shale' to end energy crisis, gas driller says

NEW YORK (BLOOMBERG) – The largest U.S. natural gas driller is using the global energy crisis to renew its call for more investment in domestic infrastructure such as pipelines, which ... Read more »

Aluminum makers sould alarm about US magnesium shortage

NEW YORK (BLOOMBERG) – There’s a widening scarcity of essential raw materials for aluminum used to make automobiles and building supplies that threatens to worsen a supply squeeze that already ... Read more »

Petrol, diesel prices on October 15: Fuel rates at record highs after fresh hike

Representative Image Petrol, diesel prices were hiked for the second straight day across metros on October 15, according to a price notification of state-owned fuel retailers. With the latest hike, ... Read more »

(LEAD) BOK continues to normalize monetary policy to ease 'financial imbalances'

(ATTN: ADDS more comments in paras 9-11; REPLACES photo) SEOUL, Oct. 15 (Yonhap) — The Bank of Korea will continue adjusting its accommodative monetary policy and determine the timing of ... Read more »

(LEAD) S. Korea faces continued economic uncertainty: finance ministry

(ATTN: UPDATES with more details in paras 2, 13-16; ADDS photo)By Kim Soo-yeon SEOUL, Oct. 15 (Yonhap) — The South Korean economy is facing continued uncertainty as slumps in person-to-person ... Read more »

S. Korea's finance chief voices concerns over U.S. info-sharing request for chipmakers

WASHINGTON, Oct. 14 (Yonhap) — South Korea’s finance minister on Thursday voiced concerns about the U.S.’s request for Korean chipmakers to share information on their supply chains. Finance Minister Hong ... Read more »

NH All One REIT pushing for stock market listing in Nov.

SEOUL, Oct. 15 (Yonhap) — The real estate investment trust (REIT) unit of major bank holding firm NH Financial Group Inc. said Friday it is seeking to get listed on ... Read more »

BOK continues to normalize monetary policy to ease 'financial imbalances'

SEOUL, Oct. 15 (Yonhap) — The Bank of Korea will continue adjusting its accommodative monetary policy and determine the timing of another rate hike in a way that could ease ... Read more »

(Yonhap Feature) Craft beer market sees big growth potential in S. Korea

By Choi Kyong-ae SEOUL, Oct. 15 (Yonhap) — Beer has long been a key ingredient of mixed drinks in South Korea, but changing appetites and the extended coronavirus pandemic have ... Read more »

United Aircraft Corporation ready to build Be-200 squadron to put of fires world over

According to the corporation, it expands the batch production with a glance to the current and future orders Read more »

User reports indicate problems with Instagram in some countries

Most complaints come from the US, Germany, the UK and the Netherlands Read more »

Oil market volatility remains low - Russian deputy prime minister

This volatility that we are witnessing in the gas market is not possible in the oil market, Alexander Novak said Read more »

Russia to overfulfill contractual obligations for gas transit through Ukraine in 2021

The contract includes the transit of 65 bln cubic meters of gas in 2020 and 40 bln cubic meters annually from 2021 to 2024 Read more »

Asia grabbing more European fuel oil to ease energy crisis

LONDON (BLOOMBERG) – Asia is taking more fuel oil from Europe to help deal with the energy crisis, according to a company that manages hundreds of ocean-going tankers. There’s been ... Read more »

Starbucks Korea sets restrictions on the number of purchases for Halloween goods

Many consumers began purchasing the Halloween specials early in the morning, causing items with buying restrictions to run out rapidly. Starbucks Korea stores have set restrictions on how many of ... Read more »

Saudi Arabia proposes Russia to consider gas market cooperation — Novak

Saudi Arabian Energy Minister Prince Abdulaziz bin Salman Al Saud and the Russian Deputy Prime Minister Alexander Novak discussed this issue at the bilateral meeting Read more »

Hungary in talks with Russia on technology transfer to produce Sputnik V vaccine

"Today we are discussing what preparations are needed and what timetable is possible for our National Vaccine Plant, which is currently under construction, to receive the technology required for the production of Sputnik," Hungarian Foreign Minister Peter Szijjarto noted Read more »

Russia needs to restructure all industries to reach carbon neutrality — envoy

According to Anatoly Chubais, the climate sphere should be completely excluded from any restrictions Read more »

Transition to carbon neutrality will allow Russia to master other industries — envoy

"We have an absolutely unique opportunity to offer the world, the global investment community, the business community, completely new types of projects that will be implemented in Russia much more efficiently than anywhere else," Anatoly Chubais pointed out Read more »

Novak lambasts EU's ‘counting-on-a-miracle' gas policy line that sparked energy crisis

The Moscow-hosted Russian Energy Week International Forum is being held on October 13-15 Read more »

Russia to multiply cargo traffic along Northern Sea Route — Putin

"We intend to increase freight traffic along the Northern Sea Route many times over its entire length of 10,500 kilometres, build infrastructure facilities, including those that ensure reliable communications and navigation, and improve port facilities" the Russian President noted Read more »

Kamchatka intends to abandon profitable projects in favor of environment

"We believe it is important to reject them absolutely when the environmental harm caused by them is greater than the benefits,” Governor of Kamchatka Krai Vladimir Solodov noted Read more »

Tighter Singdollar policy helps offset rising costs for local consumers

SINGAPORE – The move by the central bank to tighten monetary policy is a “macro” decision that will have practical effects on the price of goods for a typical Singaporean. ... Read more »

Putin recognizes development of integration in EAEU

The Russian leader noted that "such an important joint project as the Strategic Directions for the Development of Economic Integration until 2025 was being successfully implemented Read more »