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    So what if Biden trips up? On the political stage his footwork is the fanciest seen in decades | Will Hutton

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    He stumbles when coming down the stairs of Air Force One; he trips over a sandbag on stage to fall flat on his face when handing out diplomas at the US air force academy; he muddles his words with alarming regularity. It is easy to write off President Joe Biden as a senile, 80-year-old duffer. Yet he is already being regarded by many Democrats, and some Republicans, as significant a Democrat president as Franklin Roosevelt or Lyndon Johnson. He is dramatically changing the face of the US around Democrat priorities – reindustrialisation to support blue-collar jobs and wages, wholeheartedly fighting climate change, investing massively in science and education, doing more for the poorest and, not least, rejuvenating the US’s decaying public infrastructure.But, unlike his famous predecessors, he has never had their big majorities in Congress, and after November’s midterm elections he does not even control the House of Representatives. He has had to rely on guile, sheer political craft and reading the Washington runes better than any alive. For the last few months we were being warned of financial Armageddon, as an implacable Republican party forced the US to default on its debts, only to be avoided if the administration agreed to its demands for swingeing public spending cuts to avoid going through an artificial debt ceiling limit. Tomorrow was to be the witching day when default occurred and a financial crisis engulfed the world. Instead, last week the wily Biden again outfoxed his opponents, and struck a deal massively weighted in his favour that was voted for by overwhelming majorities. It was an extraordinary victory and, when invited to claim it as such, he replied: “You think that’s going to help me get it passed?” First rule in Washington politics, from which the affable Biden has never deviated: always allow the defeated to save face because you’re soon going to have to cut another deal with them.Yet what lay behind the Republican retreat is important not just for US politics but our own. The ever more ideological US right, so influential among British Tories, has been abandoning fiscal conservatism as a dead end for some time. It goes through the motions of bloodcurdling threats to cuts in public spending, but it does not have the bottle to face the political consequences – the decimation of social programmes beloved of its own base and which any Republican presidential nominee needs preserved to have a hope in 2024. Instead, the new terrain is the fight against “the woke” – from banning drag queen reading hours to penalising investment companies that invest on “environmental, societal and governance” principles – laced with traditional social conservatism fighting against abortion along with a dose of America-first nationalism. It is, in effect, Donald Trump’s politics. The ghastly cocktail might work in the US, although I doubt not enough to win national presidential elections. It certainly won’t work in Britain.Biden’s negotiating tactics were textbook. Publicly, he took seriously the threats of Kevin McCarthy, leader of the House of Representatives, to cut $4.5tn of spending over a decade, talking up the threat and flying back early from the G7 summit to negotiate, showing the depth of his concern. Privately, he knew the Republican would back off: cuts of that scale would mean that social programmes would be decimated, given that so much federal spending is on defence, which the Republicans did not want to touch. This was not 2011, when the Republicans used the same tactic and meant it, when their libertarian tax-cutting right were in control; now they are big spenders too.Biden read the mood swing well: he knows his opponents better than they know themselves. Taking over the key negotiations himself, I am told, he forced the realities home on McCarthy, who successively scaled back his demand to a headline cuts figure of $1.5tn, which helped him save face. But even that was vastly overstated because of a series of side, off-balance-sheet deals. Federal spending will end up by being reduced by 0.2%, if that, over the next 10 years, while all the huge spending programmes on chips, infrastructure and green investment that Biden has negotiated through are intact. A stunning victory.There are problems ahead: the US, accounting for 15% of world GDP, can comfortably afford spending on this scale, but it will just have to increase its tax base. The Internal Revenue Service has been hollowed out over the years. As a first step, Biden wants to build up its capacity to go after the scarcely taxed US super-rich – one area where McCarthy did get a spending cut, if not decisive. But before 2030 the US will have to raise taxes. This will not lower its growth: as the Institute of Government recently reported, there is little or no evidence that tax cuts have any impact on growth. But it will force a huge political battle into the open.Meanwhile, Bidenomics defines the new consensus, what US treasury secretary Janet Yellen describes as “modern supply side” economics, set out in perhaps the best statement of social democratic economic analysis ever to come out of Washington, the 2022 Economic Report of the President. In her recent trip to Washington, the shadow chancellor, Rachel Reeves, met the principal architects, including Yellen, all endorsing her own version of modern supply side economics she has been developing since getting the job in 2021. At its simplest, this is a commitment to ambitious public investment, particularly over net zero, in a deliberative partnership with business as the foundation for economic growth. It is working in the US. It will work in the UK.British Tories are in a parallel position to McCarthy’s Republicans. They may deplore public spending and the big state in principle, but they shrink from the consequences of putting their ideology into action. They find themselves giving aid to new technologies and supporting the green transition as political and economic necessities without believing in either – so their approach is tepid, ad hoc, unconvinced. They are tempted to follow the US right into the poisonous thickets of being anti-woke – but Britain is a much more liberal, easygoing society than the heartlands of the US midwest. And round the corner comes the spectre of having to raise, not cut, taxes. It may be that both Britain and the US will be in the throes of national elections in autumn 2024. For the first time in 40 years, not only does the liberal left have the better argument; with a following wind, they can go all the way. More

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      US banking system 'remains sound' despite bank collapses, says treasury secretary Yellen – video

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      Janet Yellen, the Treasury secretary, informed Congress that the recent collapses of two US banks, Silicon Valley Bank and Signature Bank, does not reflect on the overall strength of the US banking system. Yellen told Congress the US banking system ‘remains sound,’ claiming that the government’s swift response to the failures helped to restore public confidence in the banking system. ‘I can reassure the members of the committee that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them,’ she said More

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      US banking system 'remains sound' despite bank collapses, says Janet Yellen – video

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      Janet Yellen, the US treasury secretary, told Congress that the recent collapses of two US banks, Silicon Valley Bank and Signature Bank, does not reflect on the overall strength of the US banking system. She told Congress the US banking system ‘remains sound’, claiming that the government’s swift response to the failures helped to restore public confidence in the banking system. ‘I can reassure the members of the committee that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them,’ she said More

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      Biggest US banks weigh rescuing First Republic as its shares tumble – report

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      Some of the US’s biggest banks are weighing a rescue bid for First Republic, a mid-sized bank whose shares have been pummeled amid a wider banking turmoil.Citigroup, Goldman Sachs, JP Morgan and Wells Fargo are among the banks discussing a lifeline for the San Francisco-based lender, according to the Wall Street Journal.The Journal also reported that top executives at the bank had sold millions of dollars in shares in the bank in the two months leading up to its share price collapse. In total insiders have sold $11.8m worth of stock so far this year.First Republic’s shares fell 22% on Thursday morning but bounced back after the news of a possible deal broke. They are down close to 70% over the last five trading days and the bank’s market capitalization has fallen from $21bn on 8 March, when the Silicon Valley Bank ( SVB) crisis began, to less than $5bn.Any deal would need to be passed by regulators and the Journal said the situation was highly uncertain.First Republic, known for its affluent customer base, has been hit hard following the collapse of SVB, which was seized by federal regulators over the weekend.First Republic, like some other regional banks, has a large amounts of uninsured deposits above the $250,000 government insured limit. SVB’s uninsured deposits accounted for 94% of its total. Some 68% of First Republic deposits are uninsured, according to S&P Global, far lower than SVB but high enough to worry investors and depositors.Customers have pulled billions in deposits from the bank and S&P Global Rating downgraded the bank’s credit rating to junk on Tuesday.Over the weekend the bank announced it had secured another $70bn in financing from the Federal Reserve and JP Morgan.“First Republic’s capital and liquidity positions are very strong, and its capital remains well above the regulatory threshold for well-capitalized banks,” Jim Herbert, founder and executive chairman, and Mike Roffler, CEO and president of First Republic, said in a statement.But the announcement appears to have done little to assuage investor and customer fears.SVB’s collapse was the second largest since the collapse of Washington Mutual in 2008, at the height of the global financial crisis. It was accompanied by the failure of New York-based Signature, which also failed after fears about its finances led customers to yank their funds.Speaking to Congress on Thursday, the treasury secretary, Janet Yellen, said the US banking system remained “sound”.“I can reassure the members of the committee that our banking system is sound, and that Americans can feel confident that their deposits will be there when they need them,” she said.The Fed’s intervention has drawn parallels to the unpopular bailout of Wall Street banks after the 2008 financial crisis. Yellen said the latest rescue efforts were markedly different.“Shareholders and debt holders are not being protected by the government,” she said. “Importantly, no taxpayer money is being used or put at risk with this action.” More

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      US government hits debt ceiling as Biden and House Republicans face off

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      US government hits debt ceiling as Biden and House Republicans face offTreasury secretary says department will take ‘extraordinary measures’ to skirt default while also urging Congress to act The US government has hit the ceiling on its debt, brushing up against its legal limit of $38.381tn and piling pressure on Congress to approve an increase to avoid a debt default in the coming months that would send a shock wave through the global economy.In a letter to congressional leaders, the treasury secretary, Janet Yellen, said it would begin taking “extraordinary measures” to make the government’s cash on hand last until Congress acts. These include a “debt issuance suspension period” lasting from today until 5 June, as well as suspending investments into two government employee retirement funds.JP Morgan chief says US should not be ‘playing games’ with debt ceilingRead more“As I stated in my January 13 letter, the period of time that extraordinary measures may last is subject to considerable uncertainty, including the challenges of forecasting the payments and receipts of the US government months into the future. I respectfully urge Congress to act promptly to protect the full faith and credit of the United States,” Yellen wrote.The countdown toward a possible US government default puts the spotlight on frictions between President Joe Biden and House Republicans, raising alarms about whether the US can sidestep a potential economic crisis.An artificially imposed cap, the debt ceiling has been increased roughly 80 times since the 1960s. The government can temporarily rely on accounting tweaks to stay open. Any major threats to the economy would be several months away.But with the House speaker, Kevin McCarthy, presiding over a restive Republican caucus, there are concerns that the government could default on its obligations for political reasons.Biden insists on a “clean” increase to the debt limit so that existing financial commitments can be sustained and is refusing to even start talks with Republicans. McCarthy is calling for negotiations that he believes will lead to spending cuts. It’s unclear whether enough fellow Republicans would support any deal after a testy start to the new Congress that required 15 rounds of voting to elect McCarthy as speaker.The White House press secretary, Karine Jean-Pierre, said it was the “constitutional responsibility” of Congress to protect the full faith and credit of the United States.McCarthy said Biden needs to recognize the political realities that come with a divided government. The speaker has called for spending cuts of a kind that did not occur under President Donald Trump, a Republican who in 2019 signed a bipartisan suspension of the debt ceiling.The Senate Republican leader, Mitch McConnell, said on Thursday in Louisville, Kentucky, that he was unconcerned about the situation because debt ceiling increases are “always a rather contentious effort”.“America must never default on its debt,” McConnell said. “We’ll end up in some kind of negotiation with the administration over what are the circumstances or conditions under which the debts are going to be raised.”Any deal would need to pass the Democratic-run Senate. “There should be no political brinkmanship with the debt limit,” said the Senate majority leader, Chuck Schumer, a Democrat from New York. “It’s reckless for Speaker McCarthy and Maga Republicans to try and use the full faith and credit of the United States as a political bargaining chip.”In order to keep the government open, the treasury department on Thursday was making a series of accounting maneuvers that would put a hold on contributions and investment redemptions for government workers’ retirement and healthcare funds, giving the government enough financial space to handle its day-to-day expenses until roughly June.What happens if these measures are exhausted without a debt limit deal is unknown. A prolonged default could be devastating, with crashing markets and panic-driven layoffs if confidence evaporates in a cornerstone of the global economy, the US treasury notes.The government would have to balance its books on a daily basis if it lacks the ability to issue debt, and it would have to impose cuts equal in size on an annual basis to 5% of the total US economy.Analysts at Bank of America cautioned in a report last week that “there is a high degree of uncertainty about the speed and magnitude of the damage the US economy would incur”.Markets so far remain relatively calm, given that the government can temporarily rely on accounting tweaks to stay open and any threats to the economy would be several months away. Even many worried analysts assume there will be a deal.TopicsUS economyJanet YellenEconomicsUS politicsRepublicansDemocratsnewsReuse this content More

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      Treasury secretary: US to reach debt ceiling on Thursday

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      Treasury secretary: US to reach debt ceiling on ThursdayJanet Yellen told Congress that ‘extraordinary measures’ would be taken to avoid default until legislation is passed to raise ceiling Janet Yellen, the US treasury secretary, has notified Congress that the US is projected to reach its debt limit on Thursday, 19 January, and will then resort to “extraordinary measures” to avoid default.In a letter to House and Senate leaders on Friday, Yellen said her actions will buy time until Congress can pass legislation that will either raise the nation’s $31.4tn borrowing authority or suspend it again for a period of time.US prices drop for first time since May 2020 as inflation rate falls to 6.5%Read moreShe urged lawmakers to act quickly to raise the debt ceiling to “protect the full faith and credit of the United States”.“Failure to meet the government’s obligations would cause irreparable harm to the US economy, the livelihoods of all Americans and global financial stability,” she said.Republicans now in control of the House have threatened to use the debt ceiling as leverage to demand spending cuts from Democrats and the Biden administration. This has raised concerns in Washington and on Wall Street about a bruising fight over the debt ceiling this year that could be at least as disruptive as the protracted battle of 2011, which prompted the brief downgrade of the US credit rating and years of forced domestic and military spending cuts.The Washington Post reported late on Friday that House Republicans had prepared an emergency plan for breaching the debt limit. The proposal, which was in the preliminary stages of being drafted, would direct the treasury department to prioritize certain payments if the US hits the debt ceiling, according to the newspaper.The White House said on Friday after Yellen’s letter that it will not negotiate over raising the debt ceiling.“This should be done without conditions,” White House spokesperson Karine Jean-Pierre told reporters. “There’s going to be no negotiation over it.”The new House speaker, Kevin McCarthy, told reporters in his first press conference that he had a “very good conversation” with Biden about the coming debt ceiling debate. “We don’t want to put any fiscal problems to our economy and we won’t, but fiscal problems would be continuing to do business as usual,” he said.“We’ve got to change the way we are spending money.”The proposal from House Republicans reported by the Washington Post would call on the Biden administration to make only the most critical federal payments if the treasury department comes up against the statutory limit on what it can legally borrow. The plan will call on the department to keep making interest payments on the debt, the newspaper reported, citing sources.House Republicans’ payment prioritization plan may also stipulate that the treasury department should continue making payments on social security, Medicare and veterans benefits, as well as funding the military, the newspaper added.Yellen said that while the treasury can’t estimate how long the extraordinary measures will allow the US to continue to pay the government’s obligations, “it is unlikely that cash and extraordinary measures will be exhausted before early June.”The treasury department first used extraordinary measures in 1985 and at least 16 times since, according to the Committee for a Responsible Federal Budget, a fiscal watchdog. Those measures include divesting some payments, such as contributions to federal employees’ retirement plans, in order to provide some headroom to make other payments that are deemed essential.Past forecasts suggest a default could instantly bury the country in a deep recession, right at a moment of slowing global growth as the US and much of the world face high inflation because of the pandemic and Russia’s invasion of Ukraine. The financial markets could crash and several million workers could be laid off, and the aftershocks would be felt for years.Shai Akabas, director of economic policy at the Bipartisan Policy Center, told reporters Friday: “This is not the time for panic, but it’s certainly a time for policymakers to begin negotiations in earnest.”“Most policymakers agree that we have a major fiscal challenge as a country, our debt is unsustainable,” he said. “There’s no reason why we couldn’t agree on measures to improve our fiscal outcome, and also ensure that we are paying all of our bills in full and on time.”TopicsJanet YellenUS economyUS CongressUS politicsEconomicsnewsReuse this content More

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      Janet Yellen tells Congress US faces ‘unacceptable levels of inflation’

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      Janet Yellen tells Congress US faces ‘unacceptable levels of inflation’Treasury secretary admits she regrets describing inflation as ‘transitory’ and says it is ‘top economic problem at this point’ Janet Yellen told Congress that the US is facing “unacceptable levels of inflation” on Tuesday as the treasury secretary defended herself from criticism of her previous comments that rising prices were “transitory”.Although the hearing with the Senate finance committee was centered on Joe Biden’s budget for 2023, Yellen was forced to answer questions on inflation, including some on how she once said that inflation would be “transitory”, or temporary.In response to a question about how she had initially framed inflation, Yellen said: “When I said that inflation would be transitory, what I was not anticipating was a scenario in which we would end up contending with multiple variants of Covid that would be scrambling our economy and global supply chains.“I was not envisioning impacts on food and energy prices we’ve seen from Russia’s invasion of Ukraine.”Yellen said she and the Federal Reserve chair, Jerome Powell, “could have used a better term than transitory”.She said: “There’s no question that we have huge inflation pressures, that inflation is really our top economic problem at this point and that it’s critical that we address it. I do expect inflation to remain high, although I very much hope that it will be coming down now.”Last week, Yellen drew headlines for making similar comments to CNN, during an interview in which she had been “wrong then about the path inflation would take”.At the hearing on Tuesday, Yellen said: “We currently face macroeconomic challenges, including unacceptable levels of inflation, as well as the headwinds associated with the disruptions caused by the pandemic’s effect on supply chain and the effects of supply-side disturbances to oil and food market.”‘We’re still struggling’: low unemployment can’t hide impact of low wages and rising inflationRead moreThe Biden administration has been delicately walking the inflation tightrope over the last few months as they try to push an aggressive response while also emphasizing other indicators that prove the economy is still improving, particularly in the jobs market.Biden celebrated the figures shown in May’s jobs report, released last Friday, which showed that 390,000 new jobs were created that month.“Because of the enormous progress we’ve made on the economy, Americans can tackle inflation from a position of strength,” Biden said in remarks following the release of the jobs report.Republicans in Tuesday’s hearing repeatedly pointed to the passing of the $1.9bn American Rescue Plan, which was passed in March last year and delivered further coronavirus aid, as a key driver of inflation.In response, Yellen noted that Biden “inherited an economy with very high unemployment”.“We had to address the possibility that this could be the downturn that could match the Great Recession,” she said. “In the policy, there were various risks taken into account. Of course, inflation was one of them. But the overwhelming risk was that America would be marred by a deep and long recession.”Yellen pointed to the expansion of child tax credit, which gave extra assistance to families, in the stimulus package that “resulted in a dramatic reduction in childhood poverty and financial insecurity for American families and contributed little to nothing to inflation”.She also said the US is “not the only country that’s experiencing inflation – you can see that in virtually every developed country around the world”.TopicsInflationJanet YellenEconomicsUS politicsBiden administrationnewsReuse this content More

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      Yellen seeks to tamp down concern over US government spending under Biden

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      The US treasury secretary, Janet Yellen, on Sunday sought to tamp down concerns that Joe Biden’s plans on infrastructure, jobs and families will cause inflation, saying spending will be phased in over a decade.“It’s spread out quite evenly over eight to 10 years,” the former chair of the Federal Reserve told NBC’s Meet the Press.She said the Fed would monitor inflation carefully.“I don’t believe that inflation will be an issue but if it becomes an issue, we have tools to address it,” Yellen said. “These are historic investments that we need to make our economy productive and fair.”Addressing Congress on Wednesday, Biden said his “American Jobs Plan is a blue collar blueprint to build America. That’s what it is.”He has said his plans will be paid for by a series of tax increases on the wealthiest Americans, less than 1% of the population, and by raising corporate taxes. Some Democrats have expressed concerns such increases will slow economic growth.“We’re proposing changes to the corporate tax system that would close loopholes,” Yellen said.“This comes also in the context of global negotiations to try to stop the decades-long race to the bottom among countries in competing for business by lowering their corporate tax rates. And we feel that will be successful.The president has pledged that no family earning under $400,000 will pay a penny more in taxes“The president has pledged that no family earning under $400,000 will pay a penny more in taxes. And we’ve been assiduous in sticking to that pledge.”Republicans oppose corporate tax increases. The Louisiana senator Bill Cassidy told Fox News Sunday: “Academics would say if you raise taxes on corporations, you have lower wages, you have less investment, and you hurt shareholders. Think pension funds.“Now, if it’s OK to have lower wages for working people, it’s a blue collar thing. If it’s OK to have less investment, it’s a blue collar thing. But if you want higher wages, if you want more investment, if you want more efficient deployment of capital, than it’s anti-blue collar.”Speaking to CBS’s Face the Nation, the White House chief of staff, Ron Klain, countered Cassidy’s claims.Corporations, he said, “got that giant tax cut in 2017 [under Donald Trump]. What we’re talking about is just rolling some of that tax cut back. So we’re talking about putting the rate back up to 28%. It was 35% before that tax cut came. So corporates would still have a lower tax rate than the rate they had prior to 2017.“We think that 2017 tax cut didn’t meet its promise. You didn’t see massive investments in [research and development], you didn’t see wages go up. What you saw was CEO pay go up … So we think we can raise those taxes on corporations and fund the things that make the economy grow. Bridges, roads, airports, rail.”Republicans also oppose the scope of Biden’s infrastructure proposals, contending priorities such as expanding green energy, electric cars and elder and child care should not be pursued.“The administration needs to kind of be honest with the American people,” Cassidy said. “If you really want roads and bridges, come where Republicans already are. If you want to … do a lot of other stuff, well that’s a different story. Roads and bridges, we’re a lot closer than you might think.”Yellen would not speculate on whether Biden would accept a bill from Congress that does not include a way to pay for the spending increases he wants.“He has made clear that he believes that permanent increase in spending should be paid for and I agree,” she said. More