Speaker 1: We're pleased to be joined by US Treasury Secretary Janet Yellen.
Speaker 2: Thank you so much for joining Bloomberg TV here in Japan.
Speaker 3: Thanks for the invitation.
Speaker 2: Excellent.
Speaker 1: So unfortunately for you in a way, what is looming
Speaker 1: over this G seven meeting is these concerns coming out
Speaker 1: of Washington, the debt ceiling negotiations, as well as still
Speaker 1: tremors in the banking industry.
Speaker 2: I want to start with the debt sailing.
Speaker 1: Sure, of course Wall Street is very concerned about this.
Speaker 1: There is that X state approaching that you laid out
Speaker 1: potentially as soon as June first, But there's an assumption
Speaker 1: on Wall Street that if there's no negotiated deal after
Speaker 1: June first, Treasury will still maintain payments on securities.
Speaker 2: Is that assumption correct? Look, you know, all I.
Speaker 3: Can say is that there is no satisfactory solution for
Speaker 3: the United States, a solution that will be good for
Speaker 3: the economy and financial markets other than con gris acting
Speaker 3: to raise the debt ceiling. There are potential different paths
Speaker 3: that could be taken if it doesn't happen, but there
Speaker 3: is not a single thing that can be done that
Speaker 3: will save the United States from considerable economic and financial damage.
Speaker 1: But this plan was outlined back in twenty eleven, and
Speaker 1: you were there at the FMC meeting about it, and
Speaker 1: it said that treasury principles and securities would be paid.
Speaker 1: Is this something that at least for contingency plan has
Speaker 1: been discussed with the president.
Speaker 3: So my understanding I was at the FED in twenty
Speaker 3: eleven is that this plan was never presented to the
Speaker 3: President and never approved.
Speaker 2: And would you present it now? Look, we would.
Speaker 3: We were working full time to work with Congress to
Speaker 3: raise the debt ceiling. That's where our focus is. We
Speaker 3: know that the only good outcome is one in which
Speaker 3: Congress act acts, as it has many times, almost eighty
Speaker 3: times since nineteen sixty, to raise the debt ceiling. What
Speaker 3: global markets and American households and businesses need to see
Speaker 3: is that we have a Congress that's committed to paying
Speaker 3: the bills that we have incurred as a consequence of
Speaker 3: our legislation. That we're not a dead beat country, and
Speaker 3: if Congress fails to do that, it really impairs our
Speaker 3: credit rating. We have to default on some obligation, whether
Speaker 3: it's treasuries or payments to Social Security recipients. That's something
Speaker 3: America hasn't done since seventeen eighty nine, and we shouldn't
Speaker 3: start now. We've not discussed what to do if that
Speaker 3: doesn't occur with the president. Our focus is on getting
Speaker 3: it done because, as.
Speaker 1: You know, treasuries are the bedrock of a global financial system,
Speaker 1: and the asset managers I speak to the investors, they
Speaker 1: don't have the luxury of not contingency planning, So at
Speaker 1: this point should they assume that debt may not be
Speaker 1: serviced if there's no deal.
Speaker 3: Look, if Congress doesn't raise the debt ceiling, we face
Speaker 3: economic and financial catastrophe one way or the other. And
Speaker 3: that's why our focus is on making sure that Congress
Speaker 3: does raise the debt sealing. I feel that that's something
Speaker 3: we're going to succeed at doing, and we're working hard
Speaker 3: to make sure that gets done.
Speaker 1: As we get closer to June first, will you alert
Speaker 1: Congress on a more precise date?
Speaker 3: Yes, I will update Congress as we have available information, But.
Speaker 2: Anything new now or still June first, Well.
Speaker 3: What I've said is early June, and potentially as early
Speaker 3: as June one. As we get closer, I may be
Speaker 3: able to provide more refined guidance. But you know, there
Speaker 3: is a lot of uncertainty about the exact level of
Speaker 3: cash balances and payments that we have to make from
Speaker 3: day to day, and so there remains a level of
Speaker 3: uncertainty about precisely when we would run out of cash
Speaker 3: to be able to pay the government's bills.
Speaker 1: Jamie Diamond was on Boomberg TV yesterday and he said
Speaker 1: he set up a war room for contingency planning.
Speaker 2: Are you actively speaking to executives?
Speaker 3: I have talked, not within the last few weeks, but
Speaker 3: earlier around the time in January when I sent my
Speaker 3: first letter, I talked to a number of bank executives.
Speaker 3: More recently, I've talked to leaders of business businesses in
Speaker 3: different sectors of the economy, and I will be meeting
Speaker 3: with senior bankers next week when I get back. But
Speaker 3: I want to understand how they're thinking about the debt ceiling,
Speaker 3: and what I'm hearing is that it is a grave
Speaker 3: source of uncertainty. That is one of the things that
Speaker 3: businesses are really concerned about, one of the biggest sources
Speaker 3: of uncertainty in terms of many big American businesses.
Speaker 2: That's where we're hearing too at Bloomberg.
Speaker 1: How frustrat Are you potentially that these bank executives are
Speaker 1: speaking to are not putting pressure on Congress, particularly Republicans.
Speaker 3: Well, you know, Wall Street executives and American business people
Speaker 3: have always spoken out about their concerns about the debt ceiling,
Speaker 3: and I think it's appropriate for them to talk about
Speaker 3: how they see the debt ceiling is impacting the American
Speaker 3: economy and the global economy. So those voices, we want
Speaker 3: to hear voices of people who will be affected by this.
Speaker 1: On top of all this, there's still some tremors in
Speaker 1: the banking system. In two months almost to the date,
Speaker 1: we've had four US lenders fail, But the administration continuously
Speaker 1: says that the banking sector is sound and resilient. Is
Speaker 1: that a fair assessment when you look at the regional
Speaker 1: banking sector, Well.
Speaker 3: The regional banks have been under some stress, but I
Speaker 3: think the banks that have failed have had some very
Speaker 3: unique characteristics that have made them vulnerable. The banks that
Speaker 3: failed tended to have substantial losses marked to market losses
Speaker 3: on their whole to maturity portfolios. So although they're regulatory
Speaker 3: capital wasn't impaired, their tangible equity was diminished and they
Speaker 3: simultaneously had a very high proportion of uninsured deposits, and
Speaker 3: that profile is.
Speaker 2: Not very common.
Speaker 3: But look, a lot of banks, particularly regional banks, are
Speaker 3: seeing their earnings come under pressure. The amount that they're
Speaker 3: having to pay for deposits is rising, and in many
Speaker 3: cases their investments are at lower interest and their stock
Speaker 3: prices are coming under pressure. But most banks now, even
Speaker 3: including the ones that are seeing pressure on their stock prices,
Speaker 3: have solid liquidity, would be able to manage paying off
Speaker 3: uninsured depositors if they were to flee.
Speaker 2: Are you confident no other regional or small lenders will fail.
Speaker 3: I don't want to talk about the situations of individual banks,
Speaker 3: but what I see is a banking system that overall
Speaker 3: is well capitalized, still has very solid earnings, and we've
Speaker 3: improved the available liquidity to the banking system and think
Speaker 3: that banks are going to be able to survive this.
Speaker 3: But we're monitoring this situation very, very carefully.
Speaker 1: The other big elephant in the room at this G
Speaker 1: seven meeting is, of course China, and you spoke about
Speaker 1: this yesterday, how you're working with your peers to look
Speaker 1: out outbound investment. Potentially when it comes to China, this
Speaker 1: would add on to what the United States has already
Speaker 1: done with export.
Speaker 2: Controls and sanctions.
Speaker 1: And you recently gave this speech about China and how
Speaker 1: the US views economic policy, and what you made clear
Speaker 1: is that national security concerns will be paramount even if
Speaker 1: it becomes to economic concerns.
Speaker 2: That's right.
Speaker 1: I'm curious why the US still has tariffs on China
Speaker 1: if that is an economic benefit to many US consumers.
Speaker 3: Well, look, you know there was a so called three
Speaker 3: oh one action that was filed against China for unfair
Speaker 3: trade practices, and China was found guilty of three oh
Speaker 3: one violations, and those tariffs were put on place as
Speaker 3: retaliation for unfair trade practices. The Trump administration arrived at
Speaker 3: an agreement with China that might have led to lowering them.
Speaker 3: China didn't carry out their part.
Speaker 2: But are there any national security concerns about No.
Speaker 3: That's upholster that's not a national security concern. That's unfair
Speaker 3: trade practices, so that's not national secure already related, we
Speaker 3: do have concerns with some of the practices that China
Speaker 3: is engaged in with respect to trade and investment, whether
Speaker 3: it's forced technology transfer, massive subsidies to industries, that really
Speaker 3: distort patterns of international trade.
Speaker 1: Yeah, and that'll be a big topic as well when
Speaker 1: President Biden meets with the other leaders in Hiroshima, but
Speaker 1: also on China. I know that you're looking forward to
Speaker 1: potentially going to Beijing, you said at the appropriate time.
Speaker 1: We now have your counterpart in place, Holy Fong. He's
Speaker 1: been there for several weeks, So are there any plans
Speaker 1: in the works.
Speaker 3: I expect to travel there. I can't tell you what
Speaker 3: the date is. We have a number of senior American
Speaker 3: officials that are likely to go. We need to sequence
Speaker 3: them appropriately, and well, you'll be there. I don't know
Speaker 3: who will be the first, but we're working with the
Speaker 3: Chinese and discussing among ourselves with.
Speaker 1: The appropriate So yes, though with Hulifong or you're just
Speaker 1: going to wait too seem in person.
Speaker 3: I haven't had contact yet with my new counterpart.
Speaker 1: And if I could ask one final question, Madam Secretary,
Speaker 1: I know you're staying on for the remainder of the
Speaker 1: Biden administration, but President Biden also announced he's running for
Speaker 1: twenty twenty four. Would you consider another four years at Treasury?
Speaker 3: Well, look, I was really thrilled to be asked to serve.
Speaker 3: I've really enjoyed the position I have. I have a
Speaker 3: lot of work to do, and that's a topic I
Speaker 3: have not yet given any thought to. But I would
Speaker 3: like to stay until the end of his first term
Speaker 3: and continue on the important agenda of work that we
Speaker 3: have at Treasury.
Speaker 2: Okay, so not to know yet, maybe twenty twenty four
Speaker 2: and beyond.
Speaker 1: Janna Allen, US Treasury Secretary, thank you so much for
Speaker 1: your time.
Speaker 3: Pleasure.
Speaker 2: That was the US Treasury Secretary.
Speaker 1: Of course, Janet Yellen here at the G seven meeting,
Speaker 1: And of course what's overshadowing all the work her and
Speaker 1: her peers are talking about is what's emanating out of Washington,
Speaker 1: and that is still this overhang on the debt ceiling.
Speaker 1: As we are now just three weeks away from as
Speaker 1: soon as we can hit that X state June first,