As Washington dickers over raising the debt limit, the White House is offering a sober take on the real-world impact of default.
If lawmakers fail to raise the federal debt limit before the government runs out of money to cover its bills, it could set off a global financial crisis that the United States would be powerless to confront, White House economists warn in a report released on Wednesday.
“A default would send shock waves through global financial markets and would likely cause credit markets worldwide to freeze up and stock markets to plunge,” officials at the White House Council of Economic Advisers warned. “Employers around the world would likely have to begin laying off workers.”
The potential for an ensuing global recession, they wrote, could be worse than the 2008 financial crisis, because it would come as countries continue to struggle to escape the Covid-19 pandemic. Adding to the burden, Congress and President Biden would be unable to spend money to prop up the economy until the debt limit, which caps the amount that America can borrow, is raised.
“The federal government could only stand back,” they wrote, “helpless to address the economic maelstrom.”
Mr. Biden and Democratic leaders in Congress are engaged in an escalating standoff with Senate Republicans, who agree the debt limit must be raised in the coming weeks to avoid default, but who are blocking an up-or-down vote to do so. The Republicans want Democrats to use a special process in the Senate to bypass their filibuster, which Democrats have resisted. Mr. Biden has called the Republicans’ actions irresponsible and tried, and failed, to shame them into allowing a vote.
The report released on Wednesday offered a detailed and near-apocalyptic rundown of White House fears of how a default on the debt — which would come when the government is unable to pay everyone it owes money to at once — would ripple through the economy.
The officials warn that even the threat of a default in 2011 pushed up mortgage rates for home buyers for months, and that an actual default could elevate them even further this time. They also say retirees, Medicare beneficiaries, members of the military and millions of other people who depend on federal payments could see their means of support cut off “quickly, even overnight in some cases.”
They also say some critical federal services — like forecasts from the National Weather Service or time keeping from the National Institute of Standards and Technology — could be disrupted for lack of funds.
Mr. Biden is continuing to press Republicans to allow Democrats to approve a debt-limit increase along party lines in the Senate. Barring that, Democrats in Congress will be forced to move the increase through the budget reconciliation process that bypasses a filibuster, or move to eliminate the filibuster for the vote.
The administration has ruled out unilateral efforts to bypass the limit, like minting a $1 trillion coin, saying such efforts would sow uncertainty that would damage the economy.
The hearing with Frances Haugen, the Facebook whistle-blower, covered plenty of ground — and in a more in-depth way than at previous congressional hearings with executives of the social network. That may be because Ms. Haugen, 37, a product manager who worked at Facebook for two years before leaving in May, appeared to speak more freely.
Here are three main takeaways from the day:
Republican and Democratic lawmakers are united on taking action to stop the harms caused to teenagers on Facebook. Citing internal research brought to light by Ms. Haugen, lawmakers discussed how Facebook knew the harm that apps such as Instagram were causing to teens. Several senators discussed bills they have proposed that would add safety provisions for young users.
At one point, Ms. Haugen suggested something even more radical: Increasing the minimum age for any person using social media to 17 years old from 13 years old.
Lawmakers have gotten smarter about tech. Lawmakers in the hearing explored the role that Facebook’s algorithms play in amplifying problematic content, and the way in which the company consistently tweaks its algorithm to choose one type of content over another.
That’s far more sophisticated than the kinds of questions lawmakers have previously asked about Facebook. (Remember when, a few years ago, some lawmakers didn’t know how the company made money?) And while past hearings have focused on specific issues such as speech online or whether a certain individual or idea should be banned from the platforms, the discussion in Tuesday’s hearing was broader and touched on many facets of the active role that Facebook plays in the pieces of content that it promotes.
That was buttressed by Ms. Haugen’s candor. She used knowledge of Facebook’s technology to explain how the algorithms work in layman’s language, and started a nuanced discussion on what lawmakers could do going forward.
Facebook is sitting on an even larger mountain of internal research. The thousands of documents provided by Ms. Haugen to lawmakers are likely just the tip of the iceberg. In her testimony, she encouraged lawmakers to demand more documents and internal research from Facebook, stating that it was only through complete transparency that Congress could hope to understand and eventually regulate social media.
Ms. Haugen also hinted that there was more to come from her. During the hearing, she mentioned that she was speaking to a separate congressional committee on how Facebook has understaffed critical security teams that monitor whether countries were using the platform to spy on one another and run disinformation campaigns. She said the company was failing to adequately protect against threats emerging from China, Iran, Russia and other countries.
Workers who make Kellogg cereals including Corn Flakes, Frosted Flakes and Froot Loops went on strike on Tuesday at factories in Michigan, Nebraska, Pennsylvania and Tennessee.
“For more than a year throughout the Covid-19 pandemic, Kellogg workers around the country have been working long, hard hours, day in and day out, to produce Kellogg ready-to-eat cereals for American families,” said Anthony Shelton, president of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, which represents the striking workers.
His statement added, “We are proud of our Kellogg members for taking a strong stand against this company’s greed and we will support them for as long as it takes to force Kellogg to negotiate a fair contract that rewards them for their hard work and dedication and protects the future of all Kellogg workers.”
The issues being negotiated include job protections, vacation and holiday pay, and health care. The plants are in Battle Creek, Mich., the headquarters of Kellogg and its home since the company’s founding in 1906; Omaha; Lancaster, Pa.; and Memphis. About 1,400 workers are on strike.
“We are disappointed by the union’s decision to strike,” said Kris Bahner, a press officer for the company. The workers’ pay and benefits “are among the industry’s best,” Ms. Bahner said in a statement, adding that “our offer includes increases to pay and benefits for our employees, while helping us meet the challenges of the changing cereal business.”
Her statement added: “We remain committed to achieving a fair and competitive contract that recognizes the important work of our employees and helps ensure the long-term success of our plants and the company. We remain ready, willing and able to continue negotiations and hope we can reach an agreement soon.”
Mr. Shelton said in his statement that his union “stands in unwavering solidarity with our courageous brothers and sisters who are on strike.”
The same union recently ended a weekslong strike at Nabisco, after clashing with its owner, Mondelez International, over proposed changes to shift lengths and overtime rules. The strike, by roughly a thousand workers, affected three bakeries and three small sales distribution facilities, according to Mondelez, which is based in Chicago.
As Jerome H. Powell’s term as the chair of the Federal Reserve nears its expiration, President Biden’s decision over whether to keep him in the job has grown more complicated amid Senator Elizabeth Warren’s vocal opposition to his leadership and an ethics scandal that has engulfed his central bank.
Mr. Powell continues to have a good chance of being reappointed because he has earned respect within the White House, people familiar with the administration’s internal discussions said.
But Ms. Warren has blasted his track record on big bank regulation and last week called him a “dangerous man” to lead the central bank. She has also taken aim at Mr. Powell for not preventing top Fed officials from trading securities in 2020, a year in which the central bank rescued markets, potentially giving the officials privileged information.
The administration is under pressure to make a prompt decision, in part because the Fed’s seven-person Board of Governors in Washington will soon face a spate of openings.
Critics say reappointing Mr. Powell amounts to retaining that more hands-off regulatory approach. And some progressive groups suggest that if Mr. Powell stays in place, Randal K. Quarles, the board’s vice chair for supervision, might feel emboldened to stick around as a Fed governor once his leadership term ends. That would mean four of seven Fed Board officials would remain Republican-appointed.
The uncertainty also reflects growing complications around Mr. Powell’s renomination. READ THE ARTICLE →
For many Chinese businesses, the guidelines were once clear: Pay lip service to the government, make money and go global if possible, with foreign listings and acquisitions.
While China’s billionaires always felt vulnerable — the country’s list of richest individuals is often joked about as a catalog of targets — they also had a cozy relationship with officials that allowed for flouting the rules and influencing policy.
Success is no longer a guarantee of safety. As China’s leader, Xi Jinping, reshapes how business works and limits executives’ power, the big-name casualties are piling up, and there is little sign that Mr. Xi and the regulators he has empowered are daunted by the carnage. Since February, investors have erased more than $1 trillion from the market value of China’s largest listed tech firms.
Long in coming, but rapid in execution, the policies are driven by a desire for state control and self-reliance as well as concerns about debt, inequality and influence by foreign countries, including the United States.
The goal is to fix structural problems, like excess debt and inequality, and generate more balanced growth. Taken together, the measures mark the end of a Gilded Age for private business that made China into a manufacturing powerhouse and a nexus of innovation.
“The very definition of what development means in China is changing,” said Yuen Yuen Ang, a political science professor at the University of Michigan. “In the past decades, the model was straightforward: It was one that prioritized the speed of growth over all other matters.”
“It is clear by now that Mr. Xi wants to end the Gilded Age and move toward a Chinese version of the Progressive Era, with growth that is more equitable and less corrupt,” she added.
Economists warn that authoritarian governments have a shaky record with this type of transformation, though they acknowledge that few have brought such resources and planning to the effort. READ THE ARTICLE →
A Facebook whistle-blower told lawmakers at a hearing on Tuesday that the company can effectively police at most about a fifth of the vaccine misinformation that appears on its platform.
Frances Haugen, a former Facebook product manager for the company’s civic misinformation team who released a trove of internal documents demonstrating the social media company’s negative impacts, testified on Capitol Hill about a wide range of issues, briefly touching on the problem of virus misinformation.
Facebook and other online platforms like YouTube and Twitter have helped turbocharge the spread of false information about the coronavirus, vaccines and supposed cures, like the livestock deworming drug Ivermectin. The company said in February that it planned to remove posts that contained inaccurate statements about vaccines from its platform and has since last year been vocal about removing coronavirus misinformation.
But posts and groups spreading false information related to the coronavirus continued to appear. In July President Biden said Facebook was “killing people” through the inaccurate information it spread, though he walked the comment back after the company objected.
On Tuesday, Senator Amy Klobuchar of Minnesota asked Ms. Haugen whether Facebook had dedicated enough resources to removing coronavirus falsehoods, noting that YouTube said last week that it would ban all anti-vaccine misinformation.
“I do not believe Facebook, as currently structured, has the capability to stop vaccine misinformation,” Ms. Haugen said.
She added that Facebook said that its efforts were only likely to remove “10 to 20 percent of content.”
Facebook did not immediately respond to requests for comment.