Thursday, December 1 2022

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(Bloomberg) – Janet Yellen denied advocating a US bailout smaller than the $1.9 trillion package proposed by the Biden administration and passed by Congress in early 2021, after an advance copy of a book on the Treasury Secretary showed she initially urged to cut it by a third.

His statement — released, uncharacteristically, on Saturday following a Friday Bloomberg News report on excerpts from the book — illustrates the administration’s struggles to pull together as the fastest inflation in 40 years threatens. seriously hurt the Democrats’ chances of keeping their narrow congressional majorities in November’s midterm elections.

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“When President Biden took office, the nation faced acute economic challenges. It was a time of great economic uncertainty, with legitimate downside risks that could amount to the Great Depression,” Yellen said in the statement. “I never called for the passage of a smaller US bailout, and I believe ARP has been pivotal in driving strong growth through 2021 and beyond.”

The book, “Empathy Economics” by veteran Washington journalist Owen Ullmann, is due out September 27. He says Yellen privately agreed with former Treasury Secretary Lawrence Summers – who harshly criticized the size of the aid package – “that too much government money was pouring too quickly into the economy.

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Ullmann’s account sheds new light on a political debate that preceded the eruption of inflation, which now poses a major political threat to Biden and congressional Democrats.

Overheating fears have since proven justified as price hikes surged and badly damaged Biden’s standing among voters. Democrats blamed the spike in costs on supply chain bottlenecks caused by the pandemic and soaring energy prices after Russia invaded Ukraine. They also pointed to measures taken by companies in certain sectors to increase their profits. But most economists cite bloated demand — fueled in part by Biden’s spending plan — as having been a major factor.

Yellen’s concern about inflation “is why she had unsuccessfully sought to cut the $1.9 trillion relief package by a third in early 2021 before Congress passed the huge program,” wrote Ullmann, who had “unfiltered access” to Yellen as he researched the book, according to publisher PublicAffairs.

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Ullmann wrote: “She was concerned that so much money in the pockets of consumers and businesses was driving up prices at a time when the pandemic had caused severe shortages of goods that were in unprecedented demand. »

“Best course”

The ARP was passed in March 2021 after Congress had already approved two giant pandemic relief packages totaling nearly $3 trillion, enacted under the previous Trump administration.

It is not clear from the book how hard Yellen lobbied to reduce the size of Third Wave Aid or with whom she engaged in administration. And Ullmann goes on to point out that Yellen put his full weight behind the bill as he advanced into his largest size.

The Treasury chief endorsed the package in front of US lawmakers, telling them that historically low interest costs on the federal debt had given the government leeway for fiscal expansion. She continued to defend the ARP even though high inflation proved persistent. In an April 28 speech, she said it had helped push unemployment up to 3.6%, nearly a 50-year low, and prevented the pandemic from causing a much greater degree of suffering for Americans.

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Still, Yellen “would have preferred something closer to $1.3 trillion, according to his colleagues,” Ullmann wrote. “But given the choice between Biden’s full $1.9 trillion package and the less than $1 trillion that some in Congress preferred, Yellen thought going big was the best path.”

Yellen also felt that even if the bill injected too much money into the economy, the resulting spike in inflation would be “transient”, a term she used until 2021.

War in Ukraine

In a June 1 television interview, Yellen said, “I was wrong about the path inflation would take.” Although she added that much of the failure was due to unforeseen shocks, including the emergence of new variants of Covid-19 and the war in Ukraine.

“High inflation is now the administration’s top economic priority. We are committed to addressing this by respecting the independence of the Federal Reserve and giving it the space to act,” Yellen said in the statement on Saturday. “We are also using the policy tools at our disposal to address supply-side bottlenecks and urging Congress to act to reduce some of the high costs that Americans face, in areas such as prescription drugs. . We also support deficit reduction to mitigate inflationary pressures.

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According to Ullmann, Yellen was angered by Summers’ attacks on the stimulus package, although she shared some of his concerns.

“Yellen was irritated that he would cause his own party so much heartbreak by arming Republicans and some Democrats — like Senator Joe Manchin of West Virginia, a conservative by Democratic standards — with a rationale to oppose the bill’s proposals. further spending on Biden’s agenda,” Ullmann wrote.

Manchin cited rising inflation, as well as long-term debt issues, when he later opposed Biden’s 10-year, $3.5 trillion economic development proposal known as the name of Build Back Better.

Ullmann has covered economics and politics in Washington since 1983, with stints at Knight Ridder, BusinessWeek and USA Today.

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