The Opening Belle - Yelling About Yellen

Yellen said a key metric to watch is the cost of debt interest payments relative to the size of gross domestic product. It’s now below where it was in 2008 during the financial crisis, she said.

That reinforces the argument for using deficit financing to help the pandemic-battered economy, she said.

“To avoid doing what we need to do now to address the pandemic and the economic damage it’s causing would likely leave us in a worse place fiscally and with respect to our debt situation,” Yellen said.

“...it’s essential that we put the federal budget on a path that’s sustainable.”

She nodded elsewhere in the hearing to Biden’s plans to boost some taxes in time.

“The Treasury has delved into this topic several times before and concluded that the demand dynamics do not support ultra-long bond issuance,”

- Subadra Rajappa, head of U.S. rates strategy at Societe Generale SA

“Climate change is an existential threat,” Yellen said. “Both the impact of climate change itself, and policies to address it, could have major impacts creating stranded assets, generating large changes in asset prices, credit risks and so forth that could affect the financial system.”

“The United States does not seek a weaker currency to gain competitive advantage and we should oppose attempts by other countries to do so”

Yellen also said she would work “to oppose any and all attempts by foreign countries to artificially manipulate currency values to gain advantage in trade.”

Yellen pointed to a “large economics literature” that examines minimum wage increases in individual states, saying

“The findings are that the job loss is very minimal, if anything.”

“many cryptocurrencies are used, at least in a transaction sense, mainly for illicit financing and I think we really need to examine ways in which we can curtail their use and make sure that anti-money laundering doesn’t occur through those channels,”

“China is undercutting American companies by dumping products, erecting trade barriers and giving illegal subsidies to corporations,”

China is an “important strategic competitor.”

China also has been “stealing intellectual property and engaging in practices that give it an unfair technological advantage, including forced technology transfers,” “These practices, including China’s low labor and environmental standards, are practices that we’re prepared to use the full array of tools to address.”

 I have determined that the People’s Republic of China is committing genocide and crimes against humanity in Xinjiang, China, targeting Uyghur Muslims and members of other ethnic and religious minority groups.— Secretary Pompeo (@SecPompeo) January 19, 2021 

The ECB is buying bonds to limit the differences between yields for the strongest and weakest economies in the euro zone, according to officials familiar with the matter, with one person saying the central bank has specific ideas on what spreads are appropriate.

An ECB spokesman declined to comment.

While that strategy is similar to yield curve control, “they’re calling it something different,” said Christoph Rieger, head of fixed-rate strategy at Commerzbank AG.

“My feeling is that this is an important thing for the ECB, they’re looking at it and they’re actually envious of the BOJ.

They would love to have something like that.”

Explicit yield goals also make exiting the policy a challenge. Investors are likely to dump bonds, driving up borrowing costs, the moment they perceive the target is about to be dropped.

That may ultimately mean the ECB has an edge with what Lagarde has described as an “holistic” approach to maintaining favorable financing conditions.

“It’s not as explicit as the Japanese do it, but broader,” said Florian Hense, European economist at Berenberg. “Once it’s out that you explicitly control the yield curve, this commitment can be very expensive.”

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