On December 7th, US Secretary of Treasury Ms. Janet Yellen explicitly told the nation that labor shortages within the country were not going to be solved anytime soon.
In fact, during her talk with the Financial Times’s Chief Economics Commentator Martin Wolf, she expressed her bafflement at the labor supply condition, saying, “A high quit rate signals a tight labor market; low labor supply is a mystery”.
Yet, she agrees that the high inflation being witnessed throughout the country is the biggest “concern of the day”.
Inflation Rates Soaring High
Yellen confirmed that a few years will be required to overcome the labor supply crisis.
Furthermore, she dispersed fears regarding the growth of a wage-price spiral. Janet Yellen laid emphasis on the fact that no economic evidence is present to suggest that inflation will spike due to a spiral effect caused by the scarcity of labor and surging prices.
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“I don’t see any evidence that that is happening,” Yellen said on Tuesday. “But it would be appropriate for the Fed to take actions to make sure that doesn’t happen,” she added.
The Global Boardroom
Her talk was part of a series of discussions and interviews, organized online by the Financial Times. ‘The Global Boardroom’, as the event is called, is in it’s fourth edition spanning over 3 days from December 7th to the 9th.
It gives an opportunity for leading intellectuals to come together to discuss and propose solutions to existing problems. Issues like climate change, geopolitics, economics, technology, etcetera are highlighted through this platform.
Pandemic’s Impact on the US Economy
What Yellen brought into focus was the ‘precarious’ situation of the US economy. Although she does agree that the pandemic has affected the economy negatively, she feels that the Biden administration’s super-spending as part of the American Rescue Plan will not damage the economy.
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Her take on the federal fiscal stimulus packages is this: No concerns of a downturn in the US economy as rising demand will boost economic growth. However, she acknowledges that a fiscal drag will be seen in the future years after the financial jolts of 2021 stimulus and spending.
It is imperative that inflation is controlled by the Federal Government because it is making the life of a common citizen harder. Of course, this will eventually impact President Biden’s popularity within the American people.
The polls have already begun to reflect the sentiments of the general public. Conducted by the Washington Post and ABC News, numbers indicate that Biden’s overall approval rating has dropped. B
iden’s approval rating for last month was 41%, which is a significant fall when compared to September’s 44% and June’s 50%. The result of the survey suggested that Americans believe Biden is responsible for the inflation spike.
According to the US Bureau of Labor Statistics, the consumer price index has jumped up to 6.2% in October, which is the fastest rise of inflation since 1990. It is also troubling to see the debt situation the US is going through.
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Yellen had also warned that unless the debt limit date is extended again from December 15th, the country will face the dire consequences of default.
The Looming Danger of Defaulting
US has borrowed a huge sum of money from banks to compensate for the lack of money collected as tax. US is not able to fully collect taxes due to various constraints in the existing financial system.
Bonds or US treasuries are one way of earning money for the State, mutual funds are another. All of these investments made into the US fiscal system are possible because of the USA’s credibility.
The USA has never defaulted once in its entire history, hence, unless the Congress comes together to vote for an extension of the date, the credibility of the country would be ruined.
Moreover, the dollar will depreciate against other international currencies, creating financial trouble for all Americans. Joblessness will prevail, pushing back the efforts of recent 5 month job creation initiatives.
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Plus, all the countries which have kept dollars as financial reserves will convert their savings into other forms, making the dollar even weaker.
These are only some of the dire outcomes which the US will have to face if it gets defaulted, even for a short period of time. So, what is the hurdle in the path to salvation? The answer is Republican policy of non-cooperation.
Prior to this, the Democrats had convinced the Republicans in the House to vote for an extension. The Republicans had agreed to vote but for a very short extension period. And now that time is nearly up.
