Yellen, Casten Agree Debt Ceiling Should be Eliminated
Washington DC — Today, during a House Financial Service Committee Hearing on Oversight of Treasury Department's and Federal Reserve's Pandemic Response, U.S. Representative Sean Casten (D-IL) asked Secretary Yellen about eliminating the debt ceiling and the systemic risk climate change poses to the financial system—and questioned Powell on the country's low workforce participation.
In response to Casten's question on addressing the debt ceiling and avoiding default, Secretary Yellen agreed that the debt ceiling should be eliminated. In her opening testimony she highlighted how it is imperative that Congress address the debt limit to avoid defaulting for the first time in history. Casten discussed that the debt ceiling is a manufactured crisis - Republicans and Democrats have repeatedly voted to raise the debt limit and failure to do so now could result in 50 million seniors not receiving Social Security, delays in payments to US Service Members, 30 million families not receiving Child Tax Credit payments on time, and rising unemployment.
During his exchange with Secretary Yellen, Casten - who has fought tirelessly for federal action on climate risk since he came to Congress - asked for an update on the work Treasury is doing to mitigate the risk climate change poses to the financial system following the President's May Executive Order on climate financial risk. Yellen announced that the Treasury is working on a climate risk report that will be released in late October or early November.
DEBT CEILING
You can watch Rep. Casten's questioning of Yellen on the debt ceiling by clicking here.
Casten co-sponsored the "End the Threat of Default Act of 2021", which would repeal the federal debt limit. If the limit were exceeded, the United States would enter default, causing widespread and severe effects on our capital markets and economy. The threat of default causes stock prices to fall, increases measures of volatility, and makes domestic and foreign investors perceive the United States as a riskier investment.
CLIMATE RISK
You can watch Rep. Casten's questioning of Yellen on climate risk by clicking here. Yellen said a Treasury climate risk report will come out by late October or early November, following President Biden's May 21 Executive Order to Safeguard the U.S. Financial System against Climate Change Risk.
In March, Rep. Casten and Senator Dianne Feinstein (D-Calif.) introduced the Addressing Climate Financial Risk Act, a bill that would improve the ability of federal regulators to understand and mitigate risks from climate change within the financial system.
WORKFORCE PARTICIPATION
You can watch Rep. Casten's questioning of Chair Powell on workforce participation by clicking here.
Casten questioned Powell on why workforce participation is falling short. Powell highlighted that a lack of caretakers, retirees, and fears of returning to work is slowing the return of workforce participation and reiterated that the U.S. does have a low workforce participation and it does not have to be that way.
You can find Rep. Casten's full questioning here, and the transcript below:
Rep. Casten
Thank you Madam Chair, and thank you so much to our witnesses, we are truly fortunate to have you steering us through some past and future crises. I want to talk about those, but before that I want to just talk about manufactured crises which I'd like to avoid. Congress and everybody on this call in some fashion has voted to approve our spending. Congress and everybody on this call in some fashion has voted to decide how much of that spending would be paid with tax revenues, and then somewhat uniquely we give ourselves the authority to decide how much of the residual which is paid with that we are going to pay for its political suicide. I am a cosponsor and supporter of my friend, Mr. Foster's bill HR 3305 To End the Default Act and take that tool away from Congress, because Congress has proven that we cannot be trusted with that responsibility.
Secretary Yellen, without getting into the specifics of Mr. Foster's bill, would you support simply eliminating the debt ceiling, so that we don't have to deal with this in the future and to focus on real crisis.
Sec. Yellen
Yes I would. Because I believe when Congress legislates expenditure expenditures and puts in place, tax policy that determines taxes, those are the crucial decisions Congress is making. And if to finance those spending and tax decisions, it's necessary to issue additional debt. I believe it's very destructive to put the President and myself, the Treasury Secretary, in a situation where we might be unable to pay the bills that result from those past decisions.
Rep. Casten
Thank you. I'm glad to hear it and we'll hopefully try to get that through Congress.
Rep. Casten
Going back to you, Secretary Yellen, I think subsequent to your first FSOC hearing when you identified climate change as an emerging threat, President Biden issued an emergency order on climate financial risk, directing agencies including yours, to analyze and mitigate risks that climate change poses to the financial system. In the little time we've got left, can you give us any updates on status, milestones, and deliverables that the Treasury Department has in response to that executive order?
Sec. Yellen
Yes, we're in the process of completing the report, and we expect to issue it in late October or early November within the 180 day time frame, and what we'll be doing is looking at the work of individual regulators to incorporate climate change risks into their regulatory and supervisory activities and describing some of the challenges that they face in carrying that out.
Rep. Casten
Chair Powell, I think all of us and all of our districts are hearing about labor market tightness, and I think a lot of people are explaining that labor market tightness to justify pre-existing political biases as you know, and we've talked about we saw unemployment go from three and a half percent, almost 10 percent and back down to 5.2 percent. But I'm much more concerned that workforce participation went from sixty three to sixty one and has stayed low. Can you just explain for the committee briefly what is driving the reduction in workforce participation and what, if anything, we can do to get that number back up to make sure that employers have access to the folks who are ready and able to work?
Chair Powell
I'd be glad to. So the two biggest parts of that are caretakers and retirees, so that that makes up a lot of the shortfall from where we were with labor force participation before the pandemic crisis and within caretakers. Some of that is going to be connected to schools not being opened or people who are afraid to go into an unvaccinated workplace or afraid of COVID and things like that and other reasons. So that's a part of that. And that should abate over time.
In terms of the retiree piece of it. It's not clear about that. I would say the lure is that people don't come out of retirement, except I would say all during the last few years of the very long expansion that ended with the pandemic, we were constantly surprised to the upside on participation, including older people staying in the workforce longer. So I think my prior would be that we will get back a big chunk of the so-called retirees and that we should be very open minded about how much labor force participation could go up. The United States has low labor force participation compared to our advanced economy peers. And this is not something that has to be that way. It's not something that's that good.
Rep. Casten
Thank you for that. Certainly when I talk to folks in the district, everybody kind of acknowledges that it's the boomers who are retired who are creating a lot of their skills gap. And that's a harder challenge.
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