Treasury Sec. Yellen Worried About Fiscal Sustainability, ‘Sorry’ She Didn’t Do More on Deficit

Treasury Sec. Yellen Worried About Fiscal Sustainability, ‘Sorry’ She Didn’t Do More on Deficit

According to the Treasury Department’s real-time debt clock, as of noon on December 12, the U.S. national debt stood at $36,163,442,396,226. This amount is $8.4 trillion higher than when President Joe Biden assumed the presidency in January 2021.

Speaking at The Wall Street Journal’s CEO Summit on Tuesday, Biden’s outgoing Treasury Secretary Janet Yellen said:

WSJ: One not-so-great aspect of the legacy you and President Biden leave behind is a very large budget deficit, roughly 6% of GDP. Are you sorry you couldn’t make any progress on that, and how much of a risk does that pose to the economy?

YELLEN: I am concerned about fiscal sustainability, and I am sorry that we haven’t made more progress. I believe that the deficit needs to be brought down, especially now that we’re in an environment of higher interest rates. Over the past year, the interest cost of the debt has increased by several hundred billion. It’s one of the largest items responsible for the increase in the budget deficit, so we do need to bring it down.

Janet Yellen: “I am concerned about fiscal sustainability and I am sorry we haven’t made more progress.”

Under her watch, the US debt ballooned to over $36 TRILLION, inflation spiked, and your family suffered from higher costs.

She made YOU poorer. But she is “sorry.”

— Rep. Richard Hudson (@RepRichHudson) December 12, 2024

The federal funds rate hovered near zero when Biden took office, and managing our debt was sustainable. Still, every economist knew the party (0% interest rates) couldn’t last forever. No economy stays the same. It was inevitable that rates would increase and with it the cost of servicing our growing national debt.

But after the Biden administration’s reckless spending drove inflation to its highest levels in 40 years, the Federal Reserve’s Open Market Committee was forced to take drastic action. Between March 2022 and July 2023, the committee raised the federal funds target rate by 525 basis points, dramatically escalating the amount the U.S. government owes on its debt and exploding the budget deficit.

Even though Yellen once argued that inflation was transitory before it spiked to 9%, she is an intelligent woman who appears to understand the very straightforward relationship between government overspending, inflation, and interest rates.

[Note: At the time of Yellen’s testimony, the federal funds rate was at 4.58%. The committee was close to the end of their tightening cycle.]

In the exchange below from a March 2023 Senate hearing, Sen. John Kennedy (R-LA) asked her, “So $51 trillion of debt, up from $33 trillion doesn’t bother you?”

She replied, “I think the path that’s set out in the president’s budget is fiscally sustainable.”

He then asked, “How much debt is too much?” Well, she didn’t quite understand what he meant.

Kennedy rephrased his question, “What debt as a percentage of our GDP is too much?”

She explained that it depended on where interest rates are and they have been extremely low.

Finally, she said that the current budget that showed the national debt at 109% of GDP was “quite reasonable in historic terms.”

KENNEDY "So $51 trillion of debt, up from $33 trillion doesn't bother you?"

YELLEN: "I think the path that's set out in the President's budget is fiscally sustainable."

Yellen also argues that the national debt being 109% of GDP is no big deal. 🙃🙃🙃 pic.twitter.com/ybaRT9Dwki

— Young Americans for Liberty (@YALiberty) March 24, 2023

Well, the rainy day is here. While it’s difficult to find the exact amount the U.S. pays annually on interest, finance website ZeroHedge currently pegs the number at nearly $1.2 trillion, making it “the second largest government outlay surpassing defense and health spending, and is just one debt crisis and/or interest rate spike away from exceeding Social Security spending as the largest government outlay for the world’s most indebted government.”

ZeroHedge can’t be too far off, because a September report from CNBC reports that the government had spent “$1.049 trillion on debt service, up 30% from the same period a year ago.”

CNBC added that, “the U.S. budget deficit surged in August, edging closer to $2 trillion for the full year.”

Today, the U.S. economy is in strong shape, with a robust labor market and solid economic growth. Tune in as I join @Greg_Ip at the @WSJ CEO Council Summit to discuss the economic progress we have made under the leadership of @POTUS and @VP. https://t.co/K0ZRuMIK6E

— Secretary Janet Yellen (@SecYellen) December 10, 2024

President-elect Donald Trump has nominated veteran hedge fund manager Scott Bessent to replace Yellen as Treasury Secretary. Bessent comes to the job with strong real world experience in the economy, which is a vast improvement over Yellen who has spent her entire life in government and academia.

Elizabeth writes commentary for The Washington Examiner. She is an academy fellow at The Heritage Foundation and a member of the Editorial Board at The Sixteenth Council, a London think tank. Please follow Elizabeth on X or LinkedIn.

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