In Janet Yellen’s most recent testimony before Congress, a little-covered comment gives us a sense of warning about where Washington’s fiscal policies are leading us. Here’s the exchange:
Unfortunately, Ms. Yellen’s comments are cut off before they are complete. As such, here’s the transcript of the exchange:
Mr. Steven Pearce (R – NM 2nd District): I’m going though the Monetary Policy Report here and I’m going through your comments and I almost don’t see anything about that number on the screen behind you that’s just constantly rolling there and it’s the debt . Maybe it does not mean anything and sorta maybe it does. Do you all ever talk about that in your committee? Do you ever contemplate that in your position?
Ms. Yellen: Well, I’ve discussed this previously with this committee and know there’s….
Ms. Yellen: Well, let me state in the strongest possible terms I agree that what you’re showing here represents a trend that given current spending and taxation decisions is going to lead to an unsustainable debt situation with rising interest rates and declining investment in the United States that will further harm productivity growth and living standards. I believe key thing that Congress should be taking into account in designing fiscal policy is the need to achieve sustainability of this debt path over time. This is something I’m not just saying today but have been emphasizing for some time in my testimony. (my bold)
You can find the remainder of Ms. Yellen’s comments that are not included in the first video at the 52 minute 50 second mark here.
Let’s look at what has happened to the total federal debt since 1976:
Here is what has happened to the federal debt held by the public (marketable debt) since 1970:
This debt excludes the debt that the federal government owes to itself (i.e. intergovernmental debt that is owed to government departments – non-marketable debt)
Here is a graphic from the Treasury showing the amounts of both marketable and non-marketable debt effective June 30, 2017:
Here is a table showing annual federal government spending on interest payments going back to 1988 along with a breakdown of the interest expense on a monthly basis for the first nine months of fiscal 2017:
Notice how the interest owing on the federal debt has not grown significantly over the past decade? That’s a direct result of this:
If we go back one decade to June 2007, a few months prior to the Federal Reserve’s now long-term experiment with near-zero interest rates, we find this:
While the U.S. dollar is the presently the global currency of choice, any number of factors could change this perception, including a war with Russia or China or both. In large part, thanks to the beneficence of the Federal Reserve, Washington’s power base is living in a false reality where overspending is never punished and ever-mounting levels of debt are considered a normal part of doing business. We shall see.
One wonders – how does the braintrust at the Federal Reserve sleep at night given the fiscal mess that they are helping to create? While Ms. Yellen may say that she’s brought this to the attention of Congress in the past, her voice (and that of her predecessors at the helm of the Fed) have actually been quite silent when it comes to Washington and its unsustainable debt situation.
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