In the days following the November midterm elections, Treasury Secretary Janet L. Yellen was optimistic about the fact that the Democrats performed better than expected and retained the majority in the Senate.
But when he attended the Group of 20 (G20) summit in Indonesia that month, he said the Republican Party’s control of the House of Representatives posed a new threat to the U.S. economy.
“I’ve always been worried about the debt ceiling,” Yellen told the New York Times in an interview on a flight from New Delhi to Bali, Indonesia, telling Democrats that the time remaining in the Washington administration would be for debt forgiveness. urged to fill Restricted after the 2024 election. “I am all for whatever method Congress can find to get it done.”
Democrats didn’t heed Yellen’s advice. Rather, the U.S. spent most of this year on the brink of default as Republicans refused to raise or suspend the country’s $31.4 trillion borrowing limit without rolling back spending caps or some of President Biden’s policies. I kept walking slowly.
Currently, the federal government’s cash balance is below $40 billion. And on Friday, Yellen told lawmakers that the X-Date — the point at which the Treasury Department no longer has enough money to pay all its bills on time — will come by June 5.
Ms. Yellen has left her contingency plans in place until the last minute, but this week she suggested she was considering how to prepare for the worst. Speaking at the WSJ CEO Council event, the Treasury Secretary described the difficult decisions the Treasury Department would face if forced to choose which bill to prioritize.
Most market players expect the Treasury to choose to pay interest and principal to bondholders before paying other bills, but Yellen faces a “very tough choice.” I just said yes.
White House officials declined to say whether a contingency plan is underway. Earlier this year, Biden administration officials said they had no plans to prioritize payments. With the U.S. nearing default, the Treasury Department declined to say whether the situation had changed.
But former Treasury Department and Federal Reserve officials said they were almost certain contingency plans were in place.
Christopher Campbell, who served as the financial institutions’ assistant secretary of the “There will be private discussions about how to deal with ,” he said. You could manage technical defaults and perhaps payment prioritization. “
The Treasury Department developed its default strategy out of past disputes over the 2011 and 2013 debt ceilings. And Yellen knows those conflicts well. During the last two high-profile confrontations in 2011 and 2013, she pondered how she, as a top Federal Reserve official, would go head-to-head over debt limits. Central banks will try to limit the impact of defaults.
During these rounds, Yellen was briefed on the Treasury Department’s plans and engaged in its own contingency debate on how to stabilize the financial system if the United States fails to pay all its bills on time.
According to Fed recordsThe Treasury Department actually had plans to prioritize paying principal and interest to bondholders in the event of a breach of the X-Date. Treasury officials had reservations about the idea, but eventually told Fed officials that it was doable.
Fed officials also discussed steps taken to stabilize money markets and prevent defaults from being triggered by failed Treasury auctions, even if the Treasury succeeds in paying creditors. Yellen said in both 2011 and 2013 that he supports plans to protect the financial system.
Yellen said in 2011, “After the Treasury Department finally announced that it intended to pay the principal and interest on time, and we also finally issued a series of policy statements, this kind of action was taken. is likely to prove unnecessary,” he said in 2011. If stress still increases, I would support interventions to relieve pressure on money market funds. “
Yellen added she was concerned about how vulnerable market infrastructures would be in the event of a default, and officials should consider how to plan for future defaults. said.
“Given that we may face a similar situation at some point in the future, we are taking lessons learned so that we and the market are better prepared should we face such a situation again,” Yellen said. I think it’s important to think about it,” he said.
Eric Rosengren, who was president of the Federal Reserve Bank of Boston in 2011, said in an interview that he expects Yellen, who is known for her meticulous preparations, to be even more busy considering contingency plans than she was at the Fed. rice field. Ten years ago.
“It would be irrational not to have some kind of plan,” Rosengren said, adding that Yellen’s history of dealing with financial stability issues would make her well-suited to prepare as much as possible for the aftermath of a default. He added that he was in a position to “I definitely don’t want to be completely unprepared and let the worst happen,” he said.
Ms Yellen has not been as involved in negotiations with lawmakers as some of her predecessors as the dispute over the debt ceiling escalates.
Biden has appointed Budget Director Shalanda Young and White House Counselor Stephen J. Ricketty to lead negotiations with House Republicans. Yellen did not attend the Oval Office meeting between Biden and Republican lawmakers.
“From the outside, it doesn’t look like Yellen is taking an active role in the budget negotiations,” said David Wessel, a senior economics fellow at the Brookings Institution who has worked with Yellen at the Brookings Institution. Stated. “Maybe it’s not her comparative advantage, maybe the White House wants to do it themselves, maybe they want to protect the credibility of the Treasury Department predicting X dates. ”
Yellen briefed the White House on the nation’s cash reserves, called business leaders to urge Republicans to raise the debt ceiling, and wrote a letter to Congress warning of when the federal government would go bankrupt. Sending more and more regularly, playing more behind-the-scenes roles. Unable to pay all bills.
A White House official noted that Yellen was the Biden administration’s primary messenger on debt limits on Sunday morning talk shows and routinely coordinates with White House Chief of Staff Jeffrey D. Zientz. And Rael Brainerd, director of the National Economic Council, formulates the government’s strategy. Other officials are also attending the Oval Office meetings because the White House continues to view them as budget negotiations, the official added.
The Treasury secretary also canceled a recent trip to Japan for the G7 finance ministers’ meeting so he could return to Washington to deal with the debt limit.
Yellen has tried to avoid debt ceiling politics, but Republicans have questioned her credibility.
In a recent letter to Speaker Kevin McCarthy, members of the House Liberties Party called Yellen’s earlier prediction that U.S. funding could run out as early as June 1 as “fully justified.” urged Republican leaders to demand that , they accused her of “timing being manipulated” and suggested that she shouldn’t trust her predictions because she was wrong about how wild inflation would be.
The letter, sent by Yellen on Friday, specified a specific deadline (June 5), listed upcoming payments the federal government would have to pay, and why the Treasury Department could not repay the debt beyond that date. explained.
Rep. Patrick T. McHenry of the North Carolina Republican who led the negotiations Friday said X-Date is being presented as a range, so there are questions about its dates. That’s not what Americans experience when they don’t have the money to pay their mortgage when it’s due, he said.
“There was some skepticism about the date range, that you can pick whatever you want,” he says. “That’s not how it works.”
Republicans have also targeted some of Ms. Yellen’s most important policy priorities in the negotiations, including canceling some of the $80 billion the Internal Revenue Service received as part of last year’s Inflation Control Act.
The White House appears ready to return $10 billion of those funds aimed at boosting the agency’s ability to crack down on tax fraud, in exchange for maintaining other programs.
In an interview with NBC’s Meet the Press this week, Yellen lamented that the Republicans are after the money.
“What I am very concerned about is that they are even in favor of abolishing the funds provided to the Internal Revenue Service to combat tax fraud,” she said.
If the debt limit conflict subsides, the next time Democrats take control of the White House and Congress, they will likely come under renewed pressure to overhaul the laws governing the nation’s debt. Yellen said she would support lifting the borrowing limit in 2021, fearing the precarious position she now faces in the debt-ceiling battle.
“I believe that’s an important decision that Congress will take when it introduces tax policies that legislate spending and determine taxes,” Yellen said at a House Financial Services Committee hearing. . “And if additional debt needs to be issued to fund these spending and tax decisions, I, the President and Secretary of the Treasury, may not be able to pay the resulting bills. I believe it is very destructive to put in a situation’ those past decisions. “
