Yellen Warns of 'Global Financial Crisis'

Yellen Warns of 'Global Financial Crisis'

Chairman of the Joint Chiefs of Staff Mark Milley (r) and Defense Secretary Lloyd Austin (l) at U.S. Airbase Ramstein.
DPA / Picture Alliance
By Yuval Rosenberg and Michael Rainey
Friday, January 20, 2023

Happy Friday! President Joe Biden celebrated two years in office today and previewed part of his possible reelection message, telling a bipartisan gathering of mayors at the White House that his administration’s agenda is working. Biden pointed to the passage of an infrastructure law, the Inflation Reduction Act, the CHIPS and Science Act to boost the domestic semiconductor industry. “I’m really optimistic in the year ahead that we’re implementing the laws we’ve already passed that will deliver real benefits, and people are going to feel them in their everyday lives,” Biden said.

He’s expected to announce his reelection bid sometime after the State of the Union address on February 7.

Here’s what else we’re watching.

New $2.5 Billion Aid Package for Ukraine Includes Armored Combat Vehicles

The U.S. is sending another $2.5 billion worth of military equipment and supplies to Ukraine, the State Department announced Thursday.

“Pursuant to a delegation of authority from the President, I am authorizing our 30th drawdown of U.S. arms and equipment for Ukraine since August 2021,” Secretary of State Anthony Blinken said in a statement. “This assistance package will provide Ukraine with hundreds of additional armored vehicles, including Stryker armored personnel carriers, Bradley infantry fighting vehicles, Mine-Resistant Ambush Protected vehicles, and High Mobility Multipurpose Wheeled vehicles.”

The list of arms and equipment provided by the Pentagon includes:

* 59 Bradley Infantry Fighting Vehicles (IFVs) with 590 TOW anti-tank missiles and 295,000 rounds of 25mm ammunition;

* 90 Stryker Armored Personnel Carriers (APCs) with 20 mine rollers;

* 53 Mine Resistant Ambush Protected Vehicles (MRAPs);

* 350 High Mobility Multipurpose Wheeled Vehicles (HMMWVs);

* 20,000 155mm artillery rounds;

* Approximately 600 precision-guided 155mm artillery rounds;

* 95,000 105mm artillery rounds;

* Approximately 11,800 120mm mortar rounds;

* Additional ammunition for High Mobility Artillery Rocket Systems (HIMARS);

* 12 ammunition support vehicles;

* 6 command post vehicles;

* 22 tactical vehicles to tow weapons;

* Eight Avenger air defense systems; 

* High-speed Anti-radiation missiles (HARMs);

* Approximately 2,000 anti-armor rockets;

* Over 3,000,000 rounds of small arms ammunition;

* Claymore anti-personnel munitions;

* Night vision devices;

* Spare parts and other field equipment.

No tanks – yet: The package does not include heavy armor, though military and political leaders within NATO are debating whether to provide main battle tanks for Ukraine. Great Britain has announced that it plans to send a squadron of Challenger 2 tanks, but talks in Europe Friday on whether to provide German Leopard 2 tanks failed to reach a consensus, with German Chancellor Olaf Scholz resisting pressure from multiple allies to provide more extensive support in Ukraine’s war with Russia. Scholz reportedly wants the U.S. to make its own heavy armor available to Ukrainian forces before committing German tanks. “We are never going alone, because this is necessary in a very difficult situation like this,” Scholz said.

The bottom line: U.S. military aid to Ukraine is growing in both quantity and lethality. Secretary of State Blinken said the package will bring the total of military aid provided by the U.S. to Ukraine to $27.5 billion.

Quotes of the Day: A 'Global Financial Crisis' Ahead?

“We would certainly experience, at a minimum, a downgrading of our debt. If that happened, our borrowing costs would increase and every American would see that their borrowing costs would increase as well. On top of that, a failure to make payments that are due, whether it’s the bondholders or to Social Security recipients or to our military, would undoubtedly cause a recession in the U.S. economy and could cause a global financial crisis. It would certainly undermine the role of the dollar as a reserve currency that is used in transactions all over the world. And Americans – many people would lose their jobs and certainly their borrowing costs would rise.”

Treasury Secretary Janet Yellen, in an interview with CNN, on how average American households might feel the effects of a failure to raise the debt limit and a U.S. default on its debt.

“Under no circumstances should Republicans vote to cut a single penny from Medicare or Social Security to help pay for Joe Biden’s reckless spending spree, which is more reckless than anybody’s ever done or had in the history of our country.”

Former President Donald Trump, in a video released by his 2024 re-election campaign, warning his fellow Republicans to stay away from cuts to entitlement programs as they look to force federal spending cuts in exchange for raising the nation’s debt limit. Trump argued that cuts can be made to funding for “corrupt foreign countries,” “left-wing gender programs from our military” and “climate extremism.”

“Cut waste, fraud and abuse everywhere that we can find it — and there’s plenty of it,” Trump says. “But do not cut the benefits our seniors worked for and paid for their entire lives. Save Social Security, don’t destroy it.”

Treasury Has About $500 Billion of Headroom: Report

Now that the U.S. has bumped against the federal debt limit, the Treasury Department is taking “extraordinary measures” to keep paying its bills — basically shuffling funds and delaying payments in some non-essential areas to make sure it can meet its obligations. Per Bloomberg, an analysis by the financial services firm Jefferies Group finds that those measures will provide the Treasury with a cushion of about $500 billion through early summer.

Treasury Secretary Yellen informed congressional leaders Thursday that she is suspending investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund in order to free up cash for other essential uses. According to Jefferies, those moves will provide headroom of about $350 billion through early June. Another opportunity to suspend reinvestment in the civil service fund will occur in June, potentially providing another $143 billion in headroom.

Analysts are still debating when the day of potential default — the so-called X-date — will arrive, with some banks saying the U.S. could make it through the summer, though much depends on the strength of the economy over the next two quarters. “The big question, of course, is what tax revenues look like in the coming months as the economy slows,” Gennadiy Goldberg, a senior U.S. rates strategist at TD, told Bloomberg. “A slowing in tax revenues may pull estimates for the X-date forward.”

Numbers of the Day: 24 and 20

The Washington Post’s Aaron Blake breaks down how congressional Republicans’ approach to the debt ceiling varies under GOP and Democratic presidents. Looking at the 20 times Congress has raised or suspended the debt ceiling this century, Blake says that “GOP votes fall off a cliff when there’s a Democrat in the White House.” More specifically: “In the 10 debt ceiling votes under a Republican administration, an average of 65 percent of House Republicans and 74 percent of Senate Republicans voted in favor of adjusting or suspending it. But in Democratic administrations, those numbers decline to 24 percent and 20 percent, respectively.”

Blake says those numbers under Democrats include two cases in which Republicans provided a strong number of votes, but only after some extreme brinkmanship. “If you exclude those two votes,” he writes, “the average percentages of Republicans voting to adjust the debt ceiling under a Democratic president drop to 16 percent in the House and just 9 percent in the Senate.”

What about the other side? The swing for Democratic lawmakers isn’t as large, and a majority of the party’s lawmakers have still backed increases no matter who has been in the White House, but there is still a difference to be found in the data:

“Under Democratic presidents, an average of 86 percent of House Democrats and 98 percent of Senate Democrats voted for debt ceiling increases. Under Republican presidents, those numbers drop to 51 percent and 58 percent, respectively. … Virtually no House Democrats voted for raising the debt ceiling in 2002, 2003 and 2004, when they cried foul over the cost of the Iraq War and the Bush tax cuts. And Senate Democrats were united in opposition in 2003, 2004 and 2006.”

Blake notes that those Democratic votes against raising the limit were largely symbolic, as it was clear there were enough votes to approve a suspension or increase.


Send your feedback to yrosenberg@thefiscaltimes.com. And please encourage your friends to sign up here for their own copy of this newsletter.

News

Views and Analysis