Treasury Sec. Yellen Worried About Fiscal Sustainability, ‘Sorry’ She Didn’t Do More on Deficit
“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.”
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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Comments
Time for the real adults in the room, to show some fiscal responsibility.
Do y0ur thing, DOGE
I am not going to defend Yellen, but the real problem is Congress with the deficit spending.
The democrat party has never been cared & the republicans have been too lax in letting the democrat party behave irresponsible
I don’t understand the problem with being in an environment of higher interest rates when they are transitory. /sarc
Too busy giving American taxpayers money away
By the hundreds of billions and trillions
It’s just insane we haven’t burnt the town down
In past times, people stood up tyrants….1776 comes to mind
I got an undergraduate degree in agricultural economics forty plus years ago and I am dead certain I could have done a better job than this woman working one day a week stoned and drunk trying to get over my frontal lobotomy.
Incompetent doesn’t even come close to describing Yellen.
Her real job was to make sure the money kept flowing to the “right” people. At that, she was quite good.
This incompetent DOPE (who sounds “slow” when speaking) couldn’t manage a dog walker.
She seems to be unusually normal and knowledgeable compared to the other Biden appointees.
Reminder: the GOPe losers that are “very concerned” about Pete Hegseth had no problem voting to confirm this little bridge troll. It was 85-15.
So principled!
https://www.senate.gov/legislative/LIS/roll_call_votes/vote1171/vote_117_1_00006.htm?congress=117&session=1&vote=00006
I’m irritated about the increase in the deficit, obviously. I’m even more irritated about what retarded communist garbage they spend it on
“she is an intelligent woman who appears to understand the very straightforward relationship between government overspending, inflation, and interest rates.”
I beg to differ.
No she is an intelligent woman and knows exactly what she is doing by putting this out right before Trump takes office.
I don’t remember who said it, “Ronald Reagan showed us deficits don’t matter. At one time the deficit and national debt were an issue. Reagan opted for guns and butter and ran up the debt. Politicians realized that deficits are abstraction, and the voters don’t care. Voters do care about prices and unemployment.
The central banks in Europe are even more insane than ours. A few years ago some had negative interest rates. Yikes one could get a mortgage in Denmark with negative interest. Supposed to be impossible because of the time value on money. A dollar you get a year from now should be worth less than a dollar you get today. The whole theory of modern finance rests on this assumption. Even an interest very near zero distorts the economy and we had that for years. Of course we have effectively negative rates because of inflation.
All fiat currencies eventually fail and ours will too. Buy gold and real assets. I just bought more paper gold today. I have the real stuff too.
ARREST Yellen NOW.
For what? You can’t arrest someone for being incompetent.
” Sorry ” seems to be a lonely word.
Oh, the hardest word.
IMO experience only in government and acedemia should be disqualifying for any senior position.
What a hack.
The regime she was part of did quite a lot on the deficit, they enlarged the hell out of it!
The deficit isn’t in the Fed’s control. That’s Congress and the idiot voters. Then there’s idiot scapegoating in the form of clickbaiting.
A refusal by the Fed Reserve to increase money supply limits the ability of the Federal govt to borrow due to increased interest costs. ‘Raising rates’ does the same. Both are indirect but monetary policy at Fed is at least as important as Fiscal policy in the trajectory of govt deficit spending and the accumulation of debt over time though obviously less so for a particular year.
Correct – the deficit is the fault of the extremely Irresponsible Congress. The feds job is to control the money supply and control inflation. One item to note is the primary cause of the 2008 financial crisis was the cheap money due to Greenspans management of the money supply starting in the late 1990’s. Lots a false blame on banks predatory lending practices which were not the primary cause.
Inflation will definitely be a problem during the Trump administration due to the huge deficits and the higher interest rates. Of course trump will get blamed for it.
Which agency is the one responsible for pumping paper dollars into the economy? What mechanism causes inflation?
She failed on financial sustainability as well.
“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.”
So, we’re borrowing to pay the interest on the money we already borrowed. No, interest payments come off the top. all the other spending is causing the deficit to grow. She may have been uneasy, but she did not appear to push back against the spending that got us here.
I expect DOGE will be able to help there.
The federal budget is about $6.1 Trillion with Federal revenues of about $4.4 Trillion. That’s an annual shortfall of $1.7 Trillion. So just to get to a balanced budget and not add to existing Federal debt (on the books) of a little over $36 Trillion we gotta cut $1.7 Trillion. Lots of people, even many MAGA people, are gonna equal like stuck pigs when programs are cut. Remember that these # don’t include the off the books ‘debt’ of future spending shortfalls on things like SSA or Medicare/Medicaid
Just paying the interest costs on Federal debt is costing us $1.2 Trillion. If interest rates rise from current levels the financing cost rises as well. For some perspective the interest cost paid last year was greater than the sum total for entire DoD budget.
Will DOGE help? Absolutely and especially with reducing regulation and increasing operational efficiency of the Federal gov’t. Those recommendations and those for spending cuts are gonna be a report back to WH and to Congress of spending items ID to cut. Congress is gonna have to be convinced to go along with the cuts…which means the public is gonna have to be willing to see some of the programs they benefit from be reduced or eliminated. There’s not $2 Trillion in ‘waste’ or ‘foreign aid’ we can cut that will get us to a balanced budget. There IS a lot of those, $ multiple billions in fact, but not $1.7 Trillion …. so everyone is gonna need to be ready to see programs they like or view as necessary be subjected to cuts or elimination.
Hellen must go. She has done nothing to bring the deficit down.