2024 Stephen C. Freidheim Symposium on Global Economics

This symposium was created to address the broad spectrum of issues affecting Wall Street and international economics. It was established through the generous support of Council board member Stephen C. Freidheim and is copresented by the Maurice R. Greenberg Center for Geoeconomic Studies and RealEcon: Reimagining American Economic Leadership. 

Session One: Keynote With Secretary Janet Yellen

A Conversation With Janet Yellen on U.S. Economic Outlook

A Conversation With Janet Yellen on U.S. Economic Outlook

 

Session Two: Defining Economic Security

Session Two Defining Economic Security

Session Two Defining Economic Security

 

Transcript: Session One

FROMAN: Well, good afternoon, everybody, and welcome. My name is Mike Froman. I’m president of the Council on Foreign Relations.

And it’s great to be able to welcome Janet Yellen, the U.S. secretary of treasury, to be here for the Stephen C. Friedheim Symposium on Global Economics. Secretary Yellen is the 78th Treasury secretary. She’s also served as the chairman of the Federal Reserve and as the chair of the White House Council on Economic Advisers. So it’s a great honor to have you here.

We’re also honored to have Steve Friedheim here, who the symposium is supported by. Steve is a longtime member of the Council, a member of the Council board, and chair of our investment committee. And so we are very grateful to Steve, not only for support of his symposium but we’re keeping our endowment growing year on year and supporting the activities of the Council.

This is on the record. What we’re going to do is have the secretary give some remarks initially, then she and I will have a conversation for about thirty minutes or so, and then we’ll open it up to questions from people here in the audience, as well as people online. We have about 120 people here and about 250 or so who are participating virtually as well.

And with that, let me welcome the secretary of the treasury. (Applause.)

YELLEN: Thank you. And before our discussion, I’d like to speak to the Biden-Harris administration’s international economic policy, which will continue to move forward next week at the IMF and World Bank annual meetings. Our international economic policy has many objectives, including addressing critical challenges facing the entire globe, but I’d like to especially focus today on how it complements our domestic economic agenda to benefit American businesses and families.

At home, our administration has driven an historic economic recovery. U.S. GDP growth is strong. Our unemployment rate is near historic lows. And inflation has declined significantly. We’re now doing everything we can to lower costs for American families and pursuing a strategy I’ve called modern supply-side economics, which aims to expand our economy’s capacity to produce while reducing inequality.

We’ve seen record small business growth and an historic boom in factory construction led by facilities producing semiconductors and electric vehicle batteries. Productivity growth has been strong. More prime-age Americans are participating in our labor force than at any point over the past two decades and we’re reaching people in places that historically had not benefited from enough investment supporting well-paying jobs for Americans without college degrees.

America’s strong economic performance is helping power the global economy which remains resilient, though progress across economies has been uneven. And it’s not just our actions at home that are supporting the global economy but from the start of this administration President Biden and Vice President Harris have also charted a new course for America’s international economic policy.

We’re focused on stabilizing and strengthening relationships and working multilaterally including because we believe that America’s economic well-being depends on a global economy that’s growing and secure.

American businesses and families have a tremendous amount to gain from our connections to the global economy and from U.S. global economic leadership. We need to promote policies, investments, and institutions that support global growth, protect financial stability, and avoid economic instability.

This includes tackling challenges like climate change, pandemics, and conflict and fragility that threaten to hold back global growth, and it will be high on the agenda at next week’s meetings.

Calls for walling America off with high tariffs on friends and competitors alike or by treating even our closest allies as transactional partners are deeply misguided. Sweeping untargeted tariffs would raise prices for American families and make our businesses less competitive, and we cannot even hope to advance our economic and security interests such as opposing Russia’s illegal invasion of Ukraine if we go it alone.

But the issues we face today, from broken supply chains to climate change and global pandemic preparedness to China’s industrial overcapacity, also mean we cannot simply draw from an old playbook. Let me explain how our approach is delivering the benefits of global growth to Americans, tackling global challenges, and countering threats to our competitiveness and national security.

Let me start with how our work helps Americans realize the benefits of global growth including through trade and investment. Trade expands the market for our exports from services to goods like transportation equipment and electronics. It helps our producers efficiently source key inputs and enables American consumers to access more goods at lower prices.

The U.S. Chamber of Commerce estimates that more than 41 million American jobs depend on trade. American businesses also grow from investing abroad and recent research finds that over 10 percent of U.S. employment could be directly or indirectly attributable to foreign direct investment in the United States.

Trade and investment also offer crucial pathways to greater economic security. During the COVID-19 pandemic we saw American consumers and businesses pay the price of broken or over concentrated supply chains. When the chip shortage forced temporary plant closures, companies lost revenue, workers lost wages, and families faced higher prices.

Our work to reinvigorate American manufacturing, including through the CHIPS and Science Act, is necessary, but it’s not sufficient to realize the promise of trade and investment, and to confront supply chain challenges. This requires strategic global engagement.

So we led efforts to put in place a global minimum tax that will prevent a race to the bottom. It will also level the playing field for American businesses, providing us with more resources to invest at home.

We’re strengthening our supply chains through an approach I’ve called friendshoring, which aims to bolster ties with a wide range of trusted allies and partners. We and partners launched the Minerals Security Partnership to accelerate the development of critical minerals supply chains. We negotiated a critical minerals agreement with Japan and a supply chain agreement with Indo-Pacific Economic Framework for Prosperity partner countries. We’re supporting the Partnership for Resilient and Inclusive Supply Chain Enhancement, and working with the Inter-American Development Bank to find opportunities to enhance competitiveness and support key supply chains in Americas Partnership for Economic Prosperity, or APEF, countries. We’re leveraging the CHIPS and Science Act to pursue partnerships to diversify the global semiconductor ecosystem. And last May, we took another step forward by launching the Nairobi-Washington Vision to accelerate investments toward clean and resilient economies and supply chains.

I’ve seen the fruits of our engagement in my travels as treasury secretary, from American company—an American company processing lithium in Chile to a U.S.-funded job-training facility in South Africa, among many other examples. Through our global engagements we’re strengthening economies around the world, and we’re growing American businesses and creating American jobs, supporting American consumers, and increasing our country’s economic security.

America’s economic future, however, also depends on tackling challenges that cross borders to affect people and economies around the world, including the American people and the U.S. economy.

I’ll start with pandemics. No matter what we do at home, without addressing critical gaps in the global health infrastructure to strengthen global preparedness, preparation, and response, a future pandemic could negatively impact many economies with significant spillovers to ours. So in the aftermath of the COVID-19 pandemic, I worked with fellow finance and health ministers to take actions like launching the Pandemic Fund. It was set up and scaled in record time, and it’s now allocating desperately needed resources in response to its second call for proposals to support countries across the globe, in turn making Americans safer and more secure.

Climate change is another powerful example. The destruction we’ve seen this hurricane season in the United States is the latest reminder of the need for bold action. At home our actions include fueling the transition to clean energy through the Inflation Reduction Act, developing principles for net-zero financing and investment to affirm the importance of credible net-zero commitments, and addressing the risks climate change poses to U.S. financial stability. But emissions everywhere around the globe contribute to climate change, and we’re impacted by increasingly severe and frequent climate-related events wherever they occur. Damage to infrastructure abroad affects the availability and prices of energy and agricultural goods, like coffee and cacao. We suffer from smoke from wildfires in Canada and from precarious shared water resources with Mexico. And the potential risks climate change poses to global financial stability are increasingly widely recognized as well. This means that helping countries around the world mitigate and adapt, and financial institutions globally pursue transition finance, is crucial, including to protect American businesses and families.

So we’ve made a massive push as part of our multilateral development bank evolution agenda to better equip the MDBs to help countries address climate change, including through increasing climate financing. We’ve worked with partners to launch just energy transition partnerships to help countries accelerate their transitions and strengthen their economies. We’ve pursued bilateral efforts, like a partnership we launched with Brazil’s Fazenda in July. And we’re working multilaterally, such as through the G-20 Sustainable Finance Working Group. And we’ve been focused on harnessing the private sector, including through the Partnership for Global Infrastructure and Investment and the Global Agriculture and Food Security Program.

Alongside pandemics and climate change, conflict and fragility abroad, also pose risks to countries around the world and to America’s economy and national security. So we’re engaging on these challenges as well, including through the MDB evolution agenda. Nor do risks to financial stability respect national borders, making the work of the Financial Stability Board and other global collaboration critical to ensuring a safe, stable, effective financial system, and protecting the global and U.S. economy. Put simply, in engaging to support countries around the world in tackling today’s greatest challenges we also lowered the likelihood of negative spillovers to the U.S. economy, like weakened markets for our exports and increased instability. The scale and nature of these challenges mean there is no alternative but to engage.

Let me end by emphasizing a third way in which our global engagement supports Americans, bolstering our competitiveness and national security, including through our approach to China. Trade and investment with China can bring significant gains to American firms and workers and must be maintained. But we must also have a healthy economic relationship based on a level playing field. China’s barriers to market access and unfair trade practices currently cause challenges for American firms and workers, and for other businesses looking to operate in China. China’s policies are also leading to industrial overcapacity in critical industries, threatening the viability of American and other firms, and increasing the risk of overconcentrated supply chains that undermine global economic resilience.

No matter how much we invest to strengthen our manufacturing at home, we cannot support American businesses and families without also engaging to address these challenges. The United States announced strategic and targeted steps in key sectors as a result of the Section 301 review to respond to unfair trade practices by the PRC. The European Union and emerging market countries have also taken, or are exploring, actions. I’ve raised concerns about overcapacity frequently and directly with my Chinese counterparts, including on multiple trips to China, and with America’s allies and partners who share these concerns and are also responding. This growing international consensus is a powerful indication to China that it must shift its practices.

Russia’s war on Ukraine has also revealed the necessity of strategic global engagement. Russia’s invasion caused immediate economic shocks like record gas prices in June of 2022. At home, releasing barrels from the Strategic Petroleum Reserve and record domestic oil and gas production helped address our short-term needs. But this would not have been enough to keep global energy markets well-supplied nor to oppose the threat Putin’s actions pose to the rules-based international order that underlies the strength of the global economy and the international financial system. So we formed a strong coalition and put in place a novel price cap, helping keep prices lower for American and global consumers than many economists forecast following the invasion. We’ve continued to strengthen sanctions to constrict Russia’s ability to wage war. We’re working toward unlocking the value of Russian sovereign assets to support Ukraine. This sustained global action allows us to accomplish what we could not alone, delivering immediate results and sending the clear message that dictators like Putin do not operate with impunity. Failing to engage or not engaging strategically would have disastrous effects, enabling Putin to destabilize Europe and undermine our collective security and the global economy.

In the coming months, we will continue to be focused on these and other priorities, including using all the tools at our disposal in response to the ongoing conflict in the Middle East. We’ve imposed sanctions on terrorist actors, including Hamas, the Houthis, and Hezbollah. And we’re also working to increase stability in the region by ensuring that legitimate aid flows reach Gaza and pressing for measures to support the West Bank economy.

Over the past four years, the world has been through a lot—from a once-in-a-century pandemic, to the largest land war in Europe since World War II, to increasingly frequent and severe climate disasters. This is only underlined that we’re all in it together. America’s well-being depends on the world’s, and America’s economic leadership is key to global prosperity and security. American isolationism and retrenchment will leave all of us worse off. I’m convinced that there is simply no other path forward than the one we will continue pursuing next week and in the months ahead: strategic international economic policy that delivers for American families and businesses, and others around the world.

Let me stop there, and I now look forward to our discussion. (Applause.)

FROMAN: Well, thank you very much for those remarks, and it’s great—it’s great to have you here.

Let’s start—let’s start with the macroeconomy. It appears that we are still in for a soft landing, despite the predictions of some. Inflation is coming down. And yet, the concerns about the cost of living are still very much top of mind for most Americans. Some have described the Biden-Harris administration’s approach to economics as shifting from being—it was traditionally perhaps consumer-oriented, to more production-oriented. Maybe that’s consistent with your supply new—modern supply-side economics. We had Lina Khan here recently. She certainly talked about focusing less on consumer welfare, more on competitive market structures and the production side of things.

How do you address the questions of high cost of living? And where do—you warned of broad-based tariffs and the effect that they could have on consumers. How do you think about the administration’s tariff and trade policy in that context? Vice President Harris has criticized the proposal by former President Trump as being a sales tax on the American people, but the administration did not eliminate any of the tariffs that they inherited from the Trump administration, including on nonstrategic goods from China. Why not?

YELLEN: Well, do you want to start with the high cost of living and go—(laughter)—

FROMAN: Sure. You can take any of that.

YELLEN: So let me just say, American families for a very long time have faced burdens that have raised the cost of living and made aspects of it increasingly unaffordable for middle class American families. The surge in inflation we saw during the pandemic highlighted that, but this really is something that dates well before that. And I’m thinking of an inadequate housing supply, high housing costs. And, of course, we had higher interest rates and a big increase in housing prices during the pandemic that made a bad situation worse. Childcare, increasingly unaffordable, a system that isn’t workable, high health care costs, energy prices.

And so we recognize that these are—even with inflation now down almost to the Fed’s objective—these are still burdens that face American families. And so this is a key focus of the Biden administration. And we’re working in a whole variety of ways. I think we’ve had some successes capping insulin prices, bringing down and stabilizing health insurance costs, getting an agreement to allow Medicare to negotiate drug prices, which saves money for the government and for households. We have proposals. Want to work with Congress on housing. And have had a lot of success on energy that will pay off over time.

But you asked about tariffs. And so let’s talk about how tariffs fit into that. So the idea of broad-based tariffs that I criticized in my remarks, this is not something that the Biden-Harris administration is supportive of at all. And I think the evidence, from many research studies over decades, is very clear that the burden of tariffs, it does operate like a sales tax—broad-based high tariffs will raise the cost of the goods that we import and produce competing goods domestically in the United States.

This includes intermediate goods that are critical to domestic firms producing in the United States that will make them less competitive, that will raise the cost of toys and other consumer goods that we really don’t produce in meaningful quantities in the United States, and raise the cost of living particularly for low-income households. And it will diminish our competitiveness and raise inflation. And so I think these are a very bad idea. They would meaningfully raise the cost of living.

Now, you mentioned the Biden administration’s tariffs. And it is true that President Trump put in place significant tariffs against a pretty wide range of imports from China. And the Biden administration didn’t get rid of them. And I think the main reason for that is that we look to China to address the practices that were emphasized in the 301 action, which went to issues of unfair competition. And China really did not address any of those issues. And until China made a meaningful attempt to respond to the 301 unfair trade practices, President Biden felt we should not—we should not reward China by lowering the tariffs.

So we have put in place some additional tariffs, but it’s on a narrow range of goods where we’ve decided that we want the United States consciously—sectors like semiconductors, renewables, clean energy, electric vehicles—where we really think it’s important for the United States to have some production capacity, partly for supply chain resilience that we don’t want to be completely dependent on China and partly because these are dynamic sectors where over time production leads to technological changes that reduce costs.

We’ve certainly seen that with renewables, with solar power, with wind. We’ll see technological changes. These industries will promote that over time and we want to have a presence in it.

That doesn’t mean that—I mentioned friend shoring. It doesn’t mean that we’re trying to dominate these industries globally or not to work with partners. We have strong partnerships with many countries around the world and are looking to work with them to enhance supply chain resilience.

And in line with this idea of modern supply side economics, the way I see that is over the medium term to promote growth medium and longer term one needs to be focused on the supply side of the economy, and traditional supply side economics that I would contrast my modern supply side economics with as an approach is always focused on kind of trickledown economics. Let’s give tax breaks to corporations and to the richest individuals and try to stimulate their private investment with the hope it will trickle down through the economy.

And I would contrast that with modern supply side economics, which really focuses on a much wider range of investments, infrastructure which—public infrastructure which was all but ignored in the United States for way too long. To have a competitive economy we have to promote our infrastructure.

Boosting labor supply and creating conditions that enable people to work, this would include something like childcare to boost labor force participation. Training—workforce training is really critical to be able to fill the jobs that are going to be created by these investments in research and development.

And the focus has been on this wider range of investments and trying to make them in ways that will bring opportunity to parts of the country that really have been suffering and really places that lost jobs, I’d say, between 1980 and the 2010s, partly because of China’s entry into the WTO and our massive imports from China but also broader forces including technological change.

We want to make sure that the investments that are being promoted go in an equitable way to parts of the country that haven’t had the opportunities they should have, and what we’re seeing in terms of the early returns on the hundreds of billions of dollars in investment that’s been promoted by the CHIPS and Science Act, the Inflation Reduction Act in clean energy, the investments are going disproportionately to counties with lower than average education, lower than average wages and incomes, and places that really need the good jobs and opportunity.

FROMAN: Embedded in the Biden administration’s approach, particularly the supply chains and China, is the recognition that while efficiency has been sort of the watchword of economics and international economics for a long time now issues like redundancy and diversification, national security, these are also important values.

But everything we do to reduce our dependence on China, on strategic or nonstrategic goods, does raise the cost in some way or another and I guess my question is you cross the street and go over to the Oval Office and have these conversations.

How do you weigh the tradeoffs between efficiency and redundancy and national security? How much should we be willing to pay more in order to have peace of mind that we’re not overly dependent on China?

YELLEN: So I think that’s a—that’s a great question.

FROMAN: I finally had a good question in, huh? (Laughter.)

YELLEN: No, all your questions have been good. (Laughs.) But I think that’s a really critical question. And I’d say I agree with you that there are tradeoffs. I mean, if you just take, for example, the Inflation Reduction Act, certainly it is the most important piece of climate legislation ever enacted in the United States, and arguably anywhere in the world. And reduction of greenhouse gas emissions is a key objective. But it’s not the only objective. And another objective is, as I said, to promote domestic industry supply chain resilience to reduce our dependence on China. I mean, right now China is producing, at extremely low cost, probably enough solar panels to supply China, the United States, the entire globe, and for a long time to come. This is an industry where there is huge overcapacity.

And if we simply only cared about efficiency—at least in the short run because this kind of dependence is dangerous, and later we could face higher prices and other problems and be vulnerable to cutoffs—we would buy a lot more from China and reduce costs and make faster progress on emissions reductions. So it is a balancing act. But the other goals are important too and can have substantial payoffs over time. So I can’t—

FROMAN: That’s a trick one, though, because you’re absolutely right. Take chips, for example. We want to have a domestic chip industry so we’re not overly dependent on one supplier. But climate change, there’s also an issue of urgency. And us putting higher costs on will make it less likely the people will adopt green technology, or buy a cheap electric vehicle from China, or deploy a cheap solar panel array from China. There, there’s an urgency issue, not just an efficiency issue. Are we willing to trade off climate change for that?

YELLEN: Well, we have a rich program of tax credits that go to—start with households that invest in energy efficiency equipment, in putting solar panels on their roof, for investing in a heat pump for their home. Tax credits to buy an electric vehicle. A significant array of tax incentives for firms. So perhaps we could lower the cost of some of the inputs somewhat, but we are counteracting that through subsidies to promote adoption. So, you know, it focuses on both things. I can’t give you a mathematical formula to tell you exactly how goals are being managed and tradeoffs are being called. But I think the administration is very aware of the tradeoffs, and has multiple goals in mind here, including supply chain resilience.

FROMAN: And when it comes to industrial policy, which used to be sort of, you know, a pejorative or a bad word, now it’s become very much part of—central to our economic approach, the administration’s been pretty targeted. Chips, electric vehicles, other clean energy technologies. How do you make sure that it’s not a slippery slope for whatever the squeakiest wheel is in Washington? That whatever other industry wants to come forward and say, we’re strategic, we need a $600 billion program too? This administration has been targeted, but how do you make sure that it doesn’t open a Pandora’s box to future administrations that may be less disciplined?

YELLEN: Well, I think you’re pointing to what is a danger. It’s always a danger, even outside of industrial policy. But, look, the chips and semiconductor act was passed with a bipartisan majority. This is something that many in Congress on both sides of the aisle have recognized has become a U.S. vulnerability. You know, we have always been the dominant country in semiconductors, in terms of designing semiconductors and the intellectual input involved in doing that, software to design them. But gradually, and I think mainly allowed subsidies from other countries to erode our manufacturing ability.

But there, there is a long-term cost. It’s not only supply chain resilience; it’s that technological change and advance comes in the process of manufacturing. And if you give up manufacturing entirely, you can lose the technological lead in what is a critical both economic sector and area that’s critical to national security. So there is a supply chain resilience, but I think it’s also important to our technological leadership and innovation in this sector.

FROMAN: Let’s shift the focus to China, if we can, for a moment.

YELLEN: Sure.

FROMAN: You have been deeply and personally engaged in managing the U.S. relationship with China. What do you see—well, first of all, how do you assess what’s going on there economically and this new stimulus plan that President Xi recently announced? And what do you see as the potential and the limits of cooperation with China when it comes to economics?

YELLEN: Well, I’d say we’ve tried to strengthen our relationship to create a dialogue in which we can honestly and frankly discuss our differences and grievances with one another, but also at the same time to find areas where we need to cooperate and can cooperate. And I think we’re on a better footing with China because of the work the Treasury and other parts of the administration have done to promote greater dialogue in these areas.

I mean, you—and I would say there are areas where we clearly are cooperating. In my remarks, I mentioned financial stability and global financial stability risk. This is an area where we have an overlap of interest. We’ve formed a financial working group, and the group has conducted exercises. What would happen if there is, for example, a problem with a globally systemically important bank operating in both of our countries? How would we work together to try to address and stabilize the situation? This is the kind of thing the United States has done with the United Kingdom, with Europe ever since the financial crisis. It’s important to work with China, as well, in similar things. We are cooperating in a number of areas.

But you asked about China’s economy. And I guess the way—the way I’d describe the Chinese economy and the fundamental problem, to me, is that we have an economy where the savings rate is over 40 percent. You really can’t find other economies at this stage of development with a national saving rate that is over 40 percent of GDP. Another way of saying that is that domestic spending is just an unusually small fraction of GDP. In the United States, consumer spending is two-thirds of GDP; in China, it is just a fraction of that.

Now, having a high savings rate like that is very valuable at an early stage of development when there are a huge range of investments with high returns. And it—you know, investment in infrastructure produced decades of really rapid growth in China. The returns from that began to peter out, and then real estate began to replace that; huge amount of investment in property. Well, that created a bubble and all the problems that are associated with problems in the real-estate and property sector. So that isn’t an area where those savings can go.

So what about those savings, and where are they going to go? And the decision that Xi has made is to try to channel that—those savings into investment in a set of advanced manufacturing sectors, and that includes clean energy, semiconductors, and other advanced manufacturing. And the level of subsidies has been utterly enormous, and every province in China competes to try to do more to invest in these sectors. So the level of subsidization is utterly enormous. There are many profit-losing firms that are kept in existence. And so there is a gigantic amount of overcapacity that is threatening our own attempts to build in these areas. And not just the United States, but Europe has the same concern. Mexico, Brazil, India. There are developing countries that are also seeing global markets just flooded with goods that none of us can compete with on normal commercial terms. And so this is a concern, discussions we’ve had with our partners. There is a great deal of concern about this around the world.

The natural strategy—and this is what economists have said for a very long time about China—is they need to boost consumer spending. And not by having one-time rebate checks, but by having a larger share of Chinese income go to households or reducing household saving by building a stronger safety net. These are things on which there are sort of global consensus. But it’s not what China is doing or says that they will do. So it’s the China sort of macro situation, with a decision to target certain sectors and subsidize investment to the point of global overcapacity, that’s really of concern to us. You know, you mentioned the announcements. We haven’t really seen meaningful figures yet. I think we have to wait to see what this is going to amount to.

FROMAN: I have a lot more questions, but I want to be able to open it up to the audience here. But I want to ask one last question that I know is on everyone’s mind. You have been the chairman of the Council of Economic Advisers, the chairman of the Federal Reserve, and the secretary of the treasury. Which is the most important economic job? (Laughter.) And which have you enjoyed the most?

YELLEN: (Laughs.) They’re all very important. And it’s been a tremendous honor and privilege to have—

FROMAN: You are a diplomat. You should be secretary of state as well, how about that? (Laughter.) Let’s open it up to two questions. Yes, this gentleman here in the third row. Wait for a microphone that’s coming your way.

Q: Madam Secretary, thank you for joining us today.

Vice President Harris last week said that Iran was the primary enemy of the United States. Last week you also announced sanctions on Iran. Yet, in the last three years, as you know, they’ve generated around $150 billion of oil revenues. Was it a mistake to relax the Iran oil sanctions? And what impact do you think the sanctions you’ve announced, which I’m very grateful that you did, are going to have on the Iran oil revenues going forward?

YELLEN: So I wouldn’t say that we have relaxed sanctions on Iran. But Iran has found ways to evade the sanctions that we put in place. And certainly, their oil revenues did go up. Over the last several years, we have put in place hundreds and hundreds of sanctions on an ongoing basis against Iran. But it is true that we have recently ramped up our sanctions significantly. I signed an action that allows us to target Iran’s energy sector broadly. And that could be a prelude to a set of steps that would really curtail Iran’s ability to gain revenue from exports. And Iran, I believe, is a significant sponsor of all the terrorist groups—Houthis, Hezbollah, Hamas—and is really a significant problem with respect to the Middle East.

FROMAN: Next question. Let’s go somewhere in the back. Yes, the last row.

Q: Thanks. Hi, Secretary Yellen. I’m Matt Peterson from Barron’s.

I’ve spoken to a lot of people on Wall Street who are concerned that if President Trump wins there may be an immediate bond riot because of concerns—a bond riot, a spike in long-term Treasury yields because of concerns about the deficit and tariffs that you’re talking about. Is that something you’re concerned about, too? (Laughter.)

YELLEN: Well—

FROMAN: I thought my questions were tough. (Laughter.)

YELLEN: Well, look, I believe it’s important for our nation to have a responsible fiscal policy and to be on a sustainable fiscal path, and some of the proposals that have been put forward on the Republican side—and I should say I’m covered by the Hatch Act and want to be careful not to comment on electoral politics. But for example, the proposal to simply extend all of the tax breaks that were in JCTA, the 2017 tax act, many of which will be expiring at the end of next year, CBO has said that that would result in $5 trillion of additional deficits over the next ten years. And I believe unless that’s paid for in some way, that’s something that we just can’t afford.

President Biden’s most recent budget proposes $3 trillion of deficit reduction over the next ten years in addition to the trillion that’s already been put in place. And we think that’s what’s necessary to keep American fiscal policy on a stable and sustainable path. So it would—it would be a problem, and eventually markets might look at plans like that and respond. That’s certainly a possibility.

FROMAN: Yes, this woman here on the fourth row.

Q: Hi. Donna Redel of Fordham Law.

I’d like to ask a different kind of question. Could you talk a little bit about central bank digital currency? We know that China has one and they don’t have privacy. We also know that stablecoins in the United States are now becoming quickly one of the largest holders of U.S. Treasurys, and that’s very beneficial for our country in terms of being able to have a global dollar as the reserve currency. Could you talk a little bit about the Treasury and both of those issues, and whether you see them—they can live side by side? Thank you.

YELLEN: OK. So, I mean, in terms of a central bank digital currency, that’s something that many countries, including the United States, are exploring. You know, what we want is a fast, safe payments system. There are innovations that are taking place that are not a central bank digital currency but nevertheless very significant payments innovations like the Fed’s introduction of FedNow that will lead to 24/7 real-time settlement, which is an important innovation. And so there’s a lot going on beyond central bank digital currency. But it is something that we’re examining and there is a lot of interest in worldwide.

You asked about stablecoins. I am concerned about stablecoins. They could play a positive role in our financial system, although at this point stablecoins are mainly used to engage in trading on crypto platforms. But a stablecoin is very similar to a bank deposit in that it promises that you can have a dollar for the equivalent stablecoin with certainty any time that you want. And in order to make good on such a pledge, it needs to be backed by absolutely safe assets. I don’t think all stablecoins at this point do have that kind of backing. We have proposed regulations and have been working with Congress to try to put in effect a regulatory framework that, among other things, would require that any stablecoin issuer hold absolutely safe liquid assets a hundred percent to back stablecoins.

So they could be a significant demander of Treasuries. I think with the proper regulatory environment, you know, I think we’re—there is bipartisan legislation that’s been considered in past Financial Services Committee that I think comes close to what we would want to see.

You know, they could play a positive role in our financial system, but without adequate regulation they can suffer from runs akin to a bank run that can create a panic, and we’ve seen that with a number of stablecoins that have failed and sort of broken the buck, so to speak.

And, fortunately, the connections between stablecoins and our banking system are—there are some—and some have been problematic, but they’re not very extensive at this point so the problems haven’t really spilled over to the broader banking system but without proper regulation they could one day.

FROMAN: Let’s take our next question from our virtual audience.

OPERATOR: We’ll take our next question from Mahesh Kotecha.

Q: Thank you very much.

Madam Secretary, it is a great honor to ask—

FROMAN: Can you speak up, Mahesh?

YELLEN: I can’t hear you.

Q: Can you hear me? Can you hear me OK?

YELLEN: It’s too low.

Q: Can you hear me all right?

YELLEN: No, it’s too—it’s not loud—

Q: Sorry. Is it—can you hear me now? Hello? Hello? Can you hear me?

Hello. Can you hear me?

FROMAN: Yell at us, Mahesh. I’ll move on. Is there another—

Q: Hello. Can you hear me? Can you hear me now?

FROMAN: Yeah, there you go. There you go.

Q: OK. Thank you very much.

Madam Secretary, you talked about the World Bank meetings next week. I’ll be attending, and last year in Marrakesh there was a major focus on climate and also a focus on reform of the MDBs that you have talked about and have asked for acceleration on.

One of the challenges is attracting capital to carry out climate reforms in mitigation and adaptation and the big problem has been lack of funding from the public sector, which is not enough, and the need for private sector funding. But the private sector funding is very difficult to get because of risk.

So I would like to ask you what you will be recommending to the World Bank and the others that are attending the meetings next week about facilitating private investment in climate to mitigate and adapt more effectively for the long run problems that we face in a major way today.

FROMAN: Thank you.

YELLEN: Well, thanks for that question, and for the last couple of years very high on my agenda has been what we call MDB—multilateral development bank—evolution, starting with the World Bank.

We are looking to the World Bank and the other multilateral development banks to focus much more than they have in the past on global public goods and climate change is key among them.

I also mentioned pandemics and the consequences of fragility and conflict, and so there needs to be more investment by the MDBs for their part in climate investments. The World Bank and the other MDBs have put in place recommendations from a report done on capital adequacy that suggested ways in which the existing capital base of the World Bank could support a great deal more lending, and we’ve freed up over the next decade something like $200 billion of additional capacity to lend by putting in place some of the reforms that were recommended by the CAF).

The IMF has created a resiliency and sustainability trust that can provide fiscal—backing for fiscal policies that are focused on climate, and the IMF and World Bank are now working together with countries to try to coordinate their financing. And we’ve seen a very substantial increase in World Bank and MDB funding for climate finance, I think on the order of around 45 percent over the last couple of years. And there’s more that can be done, and we’re urging be done.

We’re also working with the MDBs to try to enhance their mobilization of private capital. And we’re seeing some success in that front as well. The Inter-American Development Bank has innovated something they call—something, like, originate to distribute, that they’re originating loans and then packaging them together, and raising funds by selling these in the private market. The World Bank is engaging in experimentation with ways to create something similar. But a substantial increase in mobilization of private capital. So really, this is an area we’re all over. It is very important. And we’ve already seen a lot happening, and there’s more to come.

FROMAN: I’m going to give our last question to Matt Goodman, who’s director of our Reimagining American Economic Leadership Initiative, of which this symposium is a part.

Q: Thanks, Mike. Thank you, Madam Secretary. Fantastic speech, which is very helpful to our initiative on Reimagining American Economic Leadership.

Most of the discussion about trade policy, including in your speech today, is about tariffs these days. But is there a role for affirmative trade policy, of the kind that the gentleman to your left used to work on, where we sought lower tariffs in other countries and changes—regulatory changes, and we were willing to offer more access to our market, or something, to our trading partners to get them to do the things that would help give us more opportunities? Is there a place for that still in the United States today?

YELLEN: Well, I think there should be a place for it. And I would say, although the focus has not been so much on lowering tariffs, certainly deepening our ties, working together on supply chains to deepen investment and engagement—President Biden created a group I referred to called APEP, America’s Partnership for Economic Prosperity, the Indo-Pacific Framework, which I guess is a successor to the TPP effort, where we do have groupings where the objective really is to strengthen trade and investment ties.

FROMAN: Just I was so grateful to have not only one of the great economic thinkers of our generation, but also a public servant who has served across all the great institutions. Thank you for joining us.

YELLEN: Thank you so much. (Applause.)

(END)

This is an uncorrected transcript.