BONUS EPISODE: Janet Yellen Speaks To Bloomberg

We're pleased to be joined by US Treasury Secretary Janet Yellen.

Thank you so much for joining Bloomberg TV here in Japan.

Thanks for the invitation.

Excellent.

So unfortunately for you in a way, what is looming over this G seven meeting is these concerns coming out of Washington, the debt ceiling negotiations, as well as still tremors in the banking industry.

I want to start with the debt sailing.

Sure, of course Wall Street is very concerned about this. There is that X state approaching that you laid out potentially as soon as June first, But there's an assumption on Wall Street that if there's no negotiated deal after June first, Treasury will still maintain payments on securities.

Is that assumption correct? Look, you know, all I.

Can say is that there is no satisfactory solution for the United States, a solution that will be good for the economy and financial markets other than con gris acting to raise the debt ceiling. There are potential different paths that could be taken if it doesn't happen, but there is not a single thing that can be done that will save the United States from considerable economic and financial damage.

But this plan was outlined back in twenty eleven, and you were there at the FMC meeting about it, and it said that treasury principles and securities would be paid. Is this something that at least for contingency plan has been discussed with the president.

So my understanding I was at the FED in twenty eleven is that this plan was never presented to the President and never approved.

And would you present it now? Look, we would.

We were working full time to work with Congress to raise the debt ceiling. That's where our focus is. We know that the only good outcome is one in which Congress act acts, as it has many times, almost eighty times since nineteen sixty, to raise the debt ceiling. What global markets and American households and businesses need to see is that we have a Congress that's committed to paying the bills that we have incurred as a consequence of

You know, treasuries are the bedrock of a global financial system, and the asset managers I speak to the investors, they don't have the luxury of not contingency planning, So at this point should they assume that debt may not be serviced if there's no deal.

Look, if Congress doesn't raise the debt ceiling, we face economic and financial catastrophe one way or the other. And that's why our focus is on making sure that Congress does raise the debt sealing. I feel that that's something we're going to succeed at doing, and we're working hard to make sure that gets done.

As we get closer to June first, will you alert Congress on a more precise date?

Yes, I will update Congress as we have available information, But.

Anything new now or still June first, Well.

What I've said is early June, and potentially as early as June one. As we get closer, I may be able to provide more refined guidance. But you know, there is a lot of uncertainty about the exact level of cash balances and payments that we have to make from day to day, and so there remains a level of uncertainty about precisely when we would run out of cash to be able to pay the government's bills.

Jamie Diamond was on Boomberg TV yesterday and he said he set up a war room for contingency planning.

Are you actively speaking to executives?

I have talked, not within the last few weeks, but earlier around the time in January when I sent my first letter, I talked to a number of bank executives. More recently, I've talked to leaders of business businesses in different sectors of the economy, and I will be meeting with senior bankers next week when I get back. But I want to understand how they're thinking about the debt ceiling, and what I'm hearing is that it is a grave

That's where we're hearing too at Bloomberg.

How frustrat Are you potentially that these bank executives are speaking to are not putting pressure on Congress, particularly Republicans.

Well, you know, Wall Street executives and American business people have always spoken out about their concerns about the debt ceiling, and I think it's appropriate for them to talk about how they see the debt ceiling is impacting the American economy and the global economy. So those voices, we want to hear voices of people who will be affected by this.

On top of all this, there's still some tremors in the banking system. In two months almost to the date, we've had four US lenders fail, But the administration continuously says that the banking sector is sound and resilient. Is that a fair assessment when you look at the regional banking sector, Well.

The regional banks have been under some stress, but I think the banks that have failed have had some very unique characteristics that have made them vulnerable. The banks that failed tended to have substantial losses marked to market losses on their whole to maturity portfolios. So although they're regulatory capital wasn't impaired, their tangible equity was diminished and they simultaneously had a very high proportion of uninsured deposits, and that profile is.

Not very common.

But look, a lot of banks, particularly regional banks, are seeing their earnings come under pressure. The amount that they're having to pay for deposits is rising, and in many cases their investments are at lower interest and their stock prices are coming under pressure. But most banks now, even including the ones that are seeing pressure on their stock prices, have solid liquidity, would be able to manage paying off uninsured depositors if they were to flee.

Are you confident no other regional or small lenders will fail.

I don't want to talk about the situations of individual banks, but what I see is a banking system that overall is well capitalized, still has very solid earnings, and we've improved the available liquidity to the banking system and think that banks are going to be able to survive this. But we're monitoring this situation very, very carefully.

The other big elephant in the room at this G seven meeting is, of course China, and you spoke about this yesterday, how you're working with your peers to look out outbound investment. Potentially when it comes to China, this would add on to what the United States has already done with export.

Controls and sanctions.

And you recently gave this speech about China and how the US views economic policy, and what you made clear is that national security concerns will be paramount even if it becomes to economic concerns.

That's right.

I'm curious why the US still has tariffs on China if that is an economic benefit to many US consumers.

Well, look, you know there was a so called three oh one action that was filed against China for unfair trade practices, and China was found guilty of three oh one violations, and those tariffs were put on place as retaliation for unfair trade practices. The Trump administration arrived at an agreement with China that might have led to lowering them. China didn't carry out their part.

But are there any national security concerns about No.

That's upholster that's not a national security concern. That's unfair trade practices, so that's not national secure already related, we do have concerns with some of the practices that China is engaged in with respect to trade and investment, whether it's forced technology transfer, massive subsidies to industries, that really distort patterns of international trade.

Yeah, and that'll be a big topic as well when President Biden meets with the other leaders in Hiroshima, but also on China. I know that you're looking forward to potentially going to Beijing, you said at the appropriate time. We now have your counterpart in place, Holy Fong. He's been there for several weeks, So are there any plans in the works.

I expect to travel there. I can't tell you what the date is. We have a number of senior American officials that are likely to go. We need to sequence them appropriately, and well, you'll be there. I don't know who will be the first, but we're working with the Chinese and discussing among ourselves with.

The appropriate So yes, though with Hulifong or you're just going to wait too seem in person.

I haven't had contact yet with my new counterpart.

And if I could ask one final question, Madam Secretary, I know you're staying on for the remainder of the Biden administration, but President Biden also announced he's running for twenty twenty four. Would you consider another four years at Treasury?

Well, look, I was really thrilled to be asked to serve. I've really enjoyed the position I have. I have a lot of work to do, and that's a topic I have not yet given any thought to. But I would like to stay until the end of his first term and continue on the important agenda of work that we have at Treasury.

Okay, so not to know yet, maybe twenty twenty four and beyond.

Janna Allen, US Treasury Secretary, thank you so much for your time.

Pleasure.

That was the US Treasury Secretary.

Of course, Janet Yellen here at the G seven meeting, And of course what's overshadowing all the work her and her peers are talking about is what's emanating out of Washington, and that is still this overhang on the debt ceiling. As we are now just three weeks away from as soon as we can hit that X state June first,