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 first that you should get life insurance in as little as five minutes link down below by going to metkevin.com life. Uh there's also a new coupon code for the programs coming out. I think it's diamond hands, but anyway the prices have gone up, but anyway, i don't know that that's even gon na be in the description.

Yet, 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 gon na 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 below check out the uh 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.