What Jerome Powell and Janet Yellen JUST Said

hey everyone me kevin here janet yellen

and jerome powell of the federal reserve

secretary yellen of course from the

treasury department i just spoke before

congress testified before congress uh i

covered this i just completed a three

and a half hour live stream uh and uh

let's go through just the gist of what

was said by yelen uh then we'll talk

about what powell said so we'll just

break them down like that so first uh

yellen starts by saying it would be

devastating to not raise the debt

ceiling she says the debt ceiling is

really just like paying bills that we've

already incurred she says it's kind of

like ordering at a restaurant uh and

then if we don't raise our debt ceiling

it's kind of like saying yeah we don't

want to pay we just don't feel like it's

like you already ordered you already

signed up for the debt and now you don't

want to pay like it doesn't make sense

not to raise the debt ceiling she says

she says if we fail okay if congress

fails to raise the debt ceiling we will

have a financial crisis

interest rates will skyrocket and we

will face financial calamity uh then she

was asked is it correct that once the

genie is out of the bottle it doesn't go

back in that is once we screw up and we

mess up the debt ceiling that uh now the

calamity is unleashed so to speak she

says that's correct it would be a

manufactured crisis a self-inflicted

wound of enormous proportions

of course she had these pre-prepared but

the lines are pretty damning uh and i

think the point is really just to convey

the message to congress like let's go

raise the debt ceiling anyway she says

nothing would be more harmful than

failing to raise the debt ceiling

then she moved on to answer questions

about the stepped-up tax basis

so i just a quick explanation what the

heck that is basically i'm going to keep

this very very simple on a stepped up

basis because it can be very complicated

let's say you bought a house

for a 300 000 and let's say nothing

changes to that tax basis basically

three hundred thousand dollars is your

tax base it goes up to a million dollars

in value well now you have seven hundred

thousand dollars in gain

you can now

sell that house do a 1031 exchange if

it's a rental property buy another house

take that 700 thousand dollar gain move

it into the second property through an

exchange so you never paid taxes even

though you sold you can't do that in

stocks you can do it in real estate

now let's say that million dollar

property goes up to two million dollars

now you have a million dollars in gains

and i'm oversimplifying here i know

they're selling costs and all this other

stuff uh depreciation stuff i'm

simplifying

now you have a million dollars in gains

plus seven hundred thousand dollars in

gains in the other one you've really got

1.7 million dollars in untaxed gains the

stepped up tax basis says if you now get

hit by a bus because let's say you were

supposed to pay taxes on that 1.7

million dollars which just for reference

taxes on 1.7 million dollars that kind

of long-term capital gains would

probably be somewhere around four

hundred thousand dollars so let's say

you have to pay four 400 000 in taxes

and you're about to sell that property

and pay 400 000 in taxes but then you

get hit by a bus and die the united

states government says just kidding you

don't have to pay us that 400 000 aka

your children don't have to pay that 400

000 so your basis goes up that's called

the stepped-up tax basis now your

children the very next day could sell

the property and not pay any taxes on

that 1.7 million dollars in gains this

is one of the big core tenants of the

real estate investing course where we

talk about investing in real estate and

taking advantage of the fact that you

can build this insane long-term wealth

and basically never pay taxes uh now

currently there's a discussion about

potentially removing the stepped-up tax

basis which says okay there are plenty

of other ways to make money with real

estate investing and doesn't really

benefit you until you die anyway it's

more of a family thing

but that's the stepped-up tax basis she

says she's in support of eliminating the

stepped-up tax basis that uh some income

is just never taxed the wealthy like

this basically what i just described uh

and she argues that there are two things

you can do you can tax those gains at

the moment of death rather than giving

that stepped-up basis or

you can do things like uh just basically

let the heirs carry that 1.7 uh

million in gains let's say in this

example

not pay taxes at the time of death and

whenever the air sells

then pay taxes she sees this as a

loophole and so she wants to close this

loophole and congress has discussed

potentially closing that stepped up tax

basis loophole

so

then she mentions that clearly inflation

this year is going to be above two

percent we are seeing it taper off but

it will probably end the year around

four percent

then uh there was a question i'm going

to keep this one brief because i really

want to get to what powell said she

mentions she was asked by senator loomis

hey what's up with these new irs

disclosure requirements basically janet

yellen is saying look banks already

report when you earn interest what we

just want banks to do now is report on

that same kind of 1099-t form the

aggregate inflows to a bank account and

outflows the reason for that is they're

trying to say hey look if a million

dollars went into an account

500k went out of an account

like hey did we get taxation

on that extra 500k like did we actually

see taxes uh on on on that money because

presumably if 500k was expenses like hey

was the other 500k taxable and she goes

into talking about how we have a tax gap

senator loomis said hey this is a

violation of privacy uh senator uh or

sorry uh

yellen janet yellen says hey look we

need to be taxing

we we need more audits we need to make

sure people are paying their fair share

then uh mr rounds senator uh rounds

asked what what if we become the next

greece how can we keep spending uh at

unreasonable levels and uh in creating

these social welfare programs like the

three and a half trillion dollar

infrastructure package she responded in

sort of a two-fold answer and i'm

combining responses here because she's

responded this multiple times she says

look you could look at our levels of

debt in two ways one is debt to gdp in

which case it's high but if you look at

debt to payments we're at a super low

level interest rates are super low now

separately i've done research on this

and i've noticed that even if our

interest payments doubled we would still

be at a lower

a payment

to income level in the united states

compared to where we were in the 1990s

so we've got a lot of capacity to

support these debt payments obviously

unless interest rates just sort of

skyrocket in the longer term but then of

course she mentions that

this uh three and a half trillion dollar

infrastructure package proposed by joe

biden and democrats in congress will be

fully paid for by higher taxation uh in

uh then this of course led to a lot of

challenges like hey well aren't these

programs inflationary for example tim

scott was trying to get drone powell to

comment on them saying hey yeah these

programs create inflation this is bad of

course jerome powell punted on that

which we'll talk more about jerome

powell in a moment but he just says he

doesn't talk about uh fiscal policy so

totally punted on that yellen again says

hey look it's paid for by increasing

taxes tim scott says hey well wait a

minute how are you supposed to make an

economy in a marketplace more efficient

if you're taxing capital gains

instead of at 23 but at 43 or you're

raising the corporate tax rate which

corporate taxes are usually paid by

employees or consumers aren't you taxing

away any potential gains to the

marketplace

janet yellen took the counter approach

here because usually usually like just

zooming out for a moment here usually

when you tax you create a deadweight

loss in society and you you you end up

hurting economies generally is what

taxes do that's sort of textbook

economics right janet yellen however

takes the counter approach and says well

wait a minute we cut taxes like crazy in

2017 under trump especially corporate

taxes and we didn't see higher

investment instead what we saw is more

hoarding of stocks and higher wealth for

richer people and so she's kind of

countering with the opposite argument

that well when we lowered taxes we

didn't see more investment so if we

raise taxes why would we potentially see

lower investment that's sort of the

argument that she's making here

in terms of the biggest risk in the

economy she believes that shadow banking

is the biggest risk that could trigger

sudden fire sales in the economy she

mentions that the national economic

council is working on estimating when

supply chain issues will be resolved and

wants to this was a big one wants to

find a way to make the child tax credit

permanent she says after just one

payment of families uh receiving the

child's tax credit that's three hundred

dollars for children under six years old

uh 250 dollars for children under 18

years old per month we only have that

for one year right now in the uh three

and a half trillion dollar package

there's a proposal to extend this for

four to five years janet yellen saying

she wants to potentially make this

permanent she mentions that after just

one payment uh individuals who were food

insecure

dropped or who reported they were food

insecure their families dropped by 24

and that really the child tax credit is

a way of helping people pay for food and

clothing she also says she's not in

favor of mandatory work requirements to

receive the child tax credit because

there are a vast majority of individuals

already working who are receiving them

their income thresholds obviously for

this and some people who receive this

are a disabled

or are grandparents who are retired who

are also getting the support they need

to help children

uh now let's uh let's jump on over to

powell so that was a full summary of

what the heck janet yellen just said now

let's talk about what jerome powell just

said so jerome powell says

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okay what dronepal actually said jerome

powell said number one it's essential to

raise the debt ceiling potential effects

could be severe of not raising the debt

ceiling he says we have not yet met the

need for or have not yet met the

criteria for maximum employment but he

says that we're still going to be

accommodative

for the economy throughout mid next year

and so basically what he's saying is

just because we're tapering does not

mean we're at max employment we're going

to taper

but still accommodate the economy by

still printing money basically

buying bonds essentially printing money

and

in doing so until at least mid next year

then and he put emphasis on this word he

said

i'm going to emphasize it the way he did

however the test for raising rates is

substantially higher

he said that i actually saw some tweets

go out after he said that and they

forgot the word substantially and i

thought that was

very very important especially since he

put emphasis on that so he's saying look

we're gonna taper but the test for

raising rates is substantially higher

which is really good now the fed's

already given us a forecast that they

want to raise rates one time in the

second half of 2022 uh two times in 2023

and three times in 2024

and these are quarter percent bumps

right so that's the tentative trajectory

when asked about inflation

uh he mentions that he does see that

inflation is much more structural now

than what we saw with used car prices

and he says this is because of the

supply chain issues

that supply chain issues have not

necessarily gotten better but they've

actually potentially gotten worse look

at port congestion look at shipping look

at issues in china look at issues at our

ports you've even got i think it was the

port of long beach just put out an alert

that they're starting to do 24-hour

shifts in some cases well

24-hour openings in certain parts of the

poor not individuals doing 24-hour

shifts but anyway

he mentions that we believe inflation

will come down but you look at measured

inflation most of it at the moment

that's high is still coming from a small

category of items and we expect that to

be transitory all right

he's mentioned that a lot and obviously

he's gotten a lot of heat for this

transitory inflation being quite

persistent

then uh he talked about getting a

central bank digital currency he

mentions uh getting this done is is

important but uh you know even pat

toomey was pushing for this saying hey

we want to make sure that we use this

that it's not something that's used to

spy on americans it's not something that

becomes a retail bank but it's something

that creates huge competitive

opportunities and we should really have

a digital dollar so let's get going on

the central bank digital currency that

way the private sector could start

operating with it and joan powell agreed

with this

elizabeth warren

came out with uh i think really she was

trying to just zinger jerome powell she

asked him about the volcker rule with uh

private funds uh like uh to

sort of cast out on some changes that

led to potentially how archagos collapse

jerome powell kind of dodged answering

this question but most importantly from

what elizabeth warren said she basically

tried to slam him she mentioned that

there are too many republicans in

positions of power especially at the

federal reserve keep in mind jerome

powell is a republican and she says that

it's people like jerome powell that

basically planted the seeds for the 2008

financial crisis and therefore jerome

powell is a dangerous man and she will

not support his renomination

that was like a slam like that literally

got news coverage instantly i mean it

was popping off

uh so uh that's obviously i'm sure what

she was expecting that's it's a very

aoc-esque

style statement

uh very populist and and uh potentially

some would say progressive you know

looking out for the little guy

uh anyway then uh when asked about the

biggest risk for the economy jerome

powell and he's mentioned this before

although it never gets as much press as

i think it deserves he says the biggest

risk to our economy is actually cyber he

says with banking we have very good

stress tests

against the potential for collapses or a

collapse but what we have not yet

really fully faced is is a serious cyber

risk

and so these are these are the updates

on exactly what jerome powell said on

what janet yellen said i think they're

insightful the market was selling off

during their discussion and testimony

throughout the day volatility index

jumped

stocks fell

a little bit of a mess a lot of

uncertainty in the marketplace right now

and i'm sure later we'll have a thorough

update on my thoughts on what's going on

in the stock market volatility index

right now up 25.3 on the day uh that is

not as high as it was earlier when we

peaked around a 30

all right folks i thank you very much

for being here really appreciate it as

always check out the programs link down

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life insurance you can get at uh

ladderlife by going to mechanic.com life

and folks we'll see in the next one

thanks so much bye

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