Yellen: Trading in Bitcoin is an "extremely inefficient way."
On Monday, February 22nd, U.S. Treasury Secretary Yellen attended an online event organized by the new york Times. In this informative discussion, she mentioned the U.S. debt problem, her views on Bitcoin, and the corporate tax issue which is highly concerned by the market.
Yellen believes that in the current low interest rate environment, the traditional indicator of debt-to-GDP ratio is not very important. The more important indicator is the ratio of federal debt interest to GDP, which is about 2% at present, not higher than the level in 2007. Yellen said that the debt cost can be partially recovered through stronger economic growth.
She is in favor of raising corporate tax to pay for the Biden administration's long-term economic reconstruction plan and help solve Congress's concerns about debt sustainability. She also said that she is willing to consider raising the capital gains rate while avoiding the wealth tax.
Yellen believes that trading in bitcoin is an "extremely inefficient way", and the energy consumption in dealing with these transactions is staggering. Bitcoin is also a "highly speculative asset", and digital cash may bring a faster and cheaper payment experience, "but there are many problems to be studied, including consumer protection and anti-money laundering".
This criticism caused Bitcoin to drop by more than 17% and fall below $48,000 at the beginning of the US stock market.
At the same time, she said that it is meaningful for the Federal Reserve to study the issue of digital dollar currency, and the digital dollar maintained by the Federal Reserve and based on blockchain "may lead to faster, safer and cheaper payment methods".
The White House said earlier that US President Biden would listen to Yellen's briefing on Friday.
- Don't look at the proportion of debt to GDP
Yellen said that her criterion for judging the success of economic recovery is the speed at which the unemployment rate returns to the pre-epidemic level, especially the degree of reemployment of people who have lost their jobs in the service industry. "We need to ensure that those who have been hurt the most in this crisis will not suffer permanent harm.".
In agreement with Federal Reserve Chairman Powell's point of view, Yellen also believes that the current effective unemployment rate in the United States is close to 10%, mainly because 4 million people quit the labor market due to childcare responsibilities during the epidemic.
Of course, if we only look at the nominal data, the non-agricultural unemployment rate in January was 6.3%, which is approaching the level of full employment before the epidemic of 3.5%.
She said that one of the key tasks of the Treasury Secretary is to ensure the good financial situation of the United States. However, in view of the long-term slow recovery of the United States from the subprime mortgage crisis in 2008, "if the federal government fails to spend the necessary funds to get the economy back on track quickly, it will damage the financial stability of the United States and generate financial costs", and the effect of issuing cash checks to the public is better than that of implementing fiscal policies during economic recession.
She believes that in the current very low interest rate environment, the traditional indicators for assessing debt (such as the proportion of public debt to GDP in the United States) are not very important. The more important indicator is the proportion of federal debt interest to GDP, which is about 2% at present, not higher than the level in 2007. Yellen said that the debt cost can be partially recovered by having a stronger economy:
Because of the interest rate environment, I think we have more financial space than before, and we should consider using it.
- In favor of raising corporate tax, I don't agree with rich tax
Yellen said last week that tax measures were needed to pay for the Biden administration's long-term economic reconstruction plan and help solve Congress's concerns about debt sustainability.
On Monday, she said that the Biden administration advocated raising the corporate tax rate to 28%, and was willing to consider raising the capital gains rate while avoiding collecting wealth tax. "Property tax has been discussed, but President Biden does not approve of it." Such tax will face serious implementation problems.
Yellen also said that the financial transaction tax is also worth studying, but it has to carefully examine the impact on ordinary investors, and there may be some disadvantages.
When asked whether the United States would use the low interest rate environment to issue 100-year "Century Bonds", Yellen said that the market demand for 100-year U.S. government bonds might be small and the liquidity would be very light, and at the same time, she did not rule out the issue of such securities. "It certainly seems reasonable to issue long-term securities." The U.S. Treasury Department may study the potential of ultra-long bonds again. At present, the longest national debt is 30 years.
- Bitcoin is an extremely inefficient way to trade
Yellen said that she doesn't think Bitcoin is being widely used as a trading mechanism, and that trading with Bitcoin is an "extremely inefficient way", and the energy consumption in dealing with these transactions is amazing.
She believes that Bitcoin is still a "highly speculative asset", and digital cash may bring a faster and cheaper payment experience, "but there are many problems to be studied, including consumer protection and anti-money laundering".
She said that it is meaningful for the Federal Reserve to study and issue digital dollar currency, and the digital dollar maintained by the Federal Reserve and based on blockchain "may lead to faster, safer and cheaper payment methods".
Of course, there are still some problems that need to be solved first, such as what impact will it have on the banking system? Does it lead to a large amount of deposits flowing from banks to the Federal Reserve? Does the Fed deal directly with retail customers, or does it try to do so in a wholesale way? Is there a financial stability problem? How to deal with money laundering and illegal financing? She said: "There are many things to consider, but it is worth seeing."
It is worth noting that European Central Bank President Lagarde holds a similar negative attitude towards Bitcoin. Two weeks ago, on February 11th, she publicly stated that it is very unlikely that the world's major central banks will hold Bitcoin as a reserve currency in the near future, and Bitcoin is not a real currency. She also called for more regulation of cryptocurrency in January, saying that Bitcoin had been used in illegal businesses such as money laundering.
At the same time, Lagarde also hinted at the possibility of introducing digital euro. She said that the COVID-19 outbreak has prompted the economy to speed up the adoption of digitalization, and may prepare digital euro currency in about four years.
- Pay attention to the stir-fry of GME
When talking about retail investors smashing stocks such as GME, Yellen said that he needs to know the details of this matter. The US Securities and Exchange Commission (SEC) is preparing a report that can provide a basis for potential regulatory actions:
A very important question is whether investors are fully aware of the situation and protected. It's too early to draw conclusions. It is important to treat retail investors fairly and give them the opportunity to trade in the market.
She also said that climate change will become a new focus of the U.S. Treasury Department, which may take the lead through the Federal Reserve or other regulatory agencies to help coordinate climate-related stress tests for banks and insurance companies. However, any climate-related stress test will not have the same status of restricting the expenditure and capital of financial institutions as the conventional assessment.
In addition, she also mentioned the diversity of personnel structure in American companies, and held that the current employment situation is unfair between ethnic minorities and different genders. "As far as organizational performance is concerned, a large number of studies have shown that diversified organizations perform better in all aspects. Within the Ministry of Finance, promoting diversity and inclusiveness will be a key goal and my top priority. "
During Yellen's speech, spot gold rose by US$ 5 in the short term, reaching a new daily high of US$ 1,808.43/oz, and the overall increase in the day expanded to over 1.2%, following the performance of European and American national debt prices generally rising.
Spot silver also reached a daily high of $27.7908/oz, with an overall increase of over 1.5% during the day.
The Dow maintained a decline of more than 100 points.
The 10-year US bond yield fell by about 2.50 basis points in the short-term, and it turned down as a whole during the day, and it was as low as 1.3313%; The yield of 30-year U.S. bonds was as low as 2.1262%.