‘Do great now’ to save the economy, worry about debt later, Yellen says in Treasury testimony

By David Lawder and Andrea Shalal

WASHINGTON (Reuters) – Janet Yellen, US President Joe Biden’s nominee for Treasury Secretary, urged lawmakers on Tuesday to “act big” on coronavirus spending, arguing that the economic benefits far outweigh against the risks of a higher debt burden.

In more than three hours after confirming the testimony, the former Federal Reserve chairman outlined a vision of a more muscular treasury that would act aggressively to reduce economic inequality, fight climate change and counter China’s unfair trade and subsidy practices.

Taxes on corporations and the wealthy will eventually need to be raised to help fund Biden’s ambitious plans for infrastructure investment, research and development, and employee training to improve the competitiveness of the U.S. economy, she told members of the Senate Finance Committee. .

But that would come after curbing the coronavirus pandemic, which killed more than 400,000 people in the United States, and the economic devastation it caused.

Yellen, speaking via video link, said her job as Treasury chief will be to help Americans weather the final months of the pandemic while the population is vaccinated, and to rebuild the economy to make it more competitive. and create more wealth and more jobs.

“Without further action, we now risk a longer, more painful recession and longer-term scars of the economy,” she said.

Yellen said pandemic relief would take precedence over tax increases, but businesses and the wealthy, both benefiting from the 2017 Republican tax cuts, “have to pay their fair share.”

She raised the eyebrows of some senators and Wall Street when she said the Treasury would consider the possibility of taxing unrealized capital gains – through a “mark-to-market” mechanism – as well as other approaches to increase revenues.


She also said the dollar’s value should be determined by the markets, a break from President Donald Trump’s desire for a weaker US currency.

“The United States is not looking for a weaker currency to gain competitive advantage and we must resist attempts by other countries to do so,” she said.

Wall Street shares rose Tuesday in response to Yellen’s call for a hefty stimulus package, as well as positive updates in bank earnings. Oil prices also rose, while Treasury yields fell slightly following its comment that parts of the 2017 tax reform should be withdrawn.

Biden, due to be sworn in on Wednesday, outlined a proposed $ 1.9 trillion stimulus package last week and said bold investment was needed to jump-start the economy and speed up vaccine distribution to keep the virus under control. to get.

When asked which expenditures would bring the greatest “bang for your buck,” Yellen said public health spending and widespread vaccinations were the first step. Extended unemployment and nutritional assistance, known as food stamps, should be next, she said.

“Neither the president-elect nor I are proposing this aid package without appreciating the country’s indebtedness. But right now, with interest rates at historic lows, the smartest thing we can do is act big,” Yellen said.

She said that while the amount of debt to the economy has increased, the interest burden – the amount the Treasury pays to pay off its debt – has not done so because of lower interest rates. She said she will keep a close eye on that statistic as the economy recovers.


Yellen also called climate change an “existential threat” to the US economy and said she would appoint a senior official in the Treasury Department to oversee the issue and assess systemic risks to the financial system.

She added to investment in clean technologies and needed electric vehicles to cut CO2 emissions, keep the US economy competitive and provide good jobs for American workers.

Yellen said China was the United States’ main strategic competitor and underlined the Biden administration’s determination to work hard on what it called China’s “abusive, unfair and illegal practices.”

When asked whether China had committed “genocide” in the treatment of Muslim Uyghurs, as the Trump administration stated in a last-minute proclamation, Yellen said China is “guilty of horrific human rights violations, yes.”

Biden’s transition team urged the Senate to act quickly to confirm Yellen. Democratic Senator Ron Wyden, who will head the finance committee after Biden’s inauguration on Wednesday, said he would push for a confirmation vote on Thursday. Republican Senator Mike Crapo said he would work towards “quick” confirmation for Yellen.

She also received the approval of all the former Treasury secretaries, from George Schultz to Jack Lew, who wrote to senators urging senators to quickly confirm Yellen’s nomination to avoid “ delaying recovery efforts. ” A spokeswoman for Treasury Secretary Steven Mnuchin, who is stepping down on Wednesday, did not respond to a request for comment.

(Reporting by David Lawder, Andrea Shalal, Ann Saphir, and David Shepardson; Additional reporting by Trevor Hunnicutt; Editing by Heather Timmons, Andrea Ricci, and Kim Coghill)

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