Saturday, 20 July 2024

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Why Janet Yellen isn’t worried about the national debt

Why Janet Yellen isn't worried about the national debt

The U.S. national debt is nearing $33 trillion, but Janet Yellen isn’t worried just yet. The Treasury Secretary pointed to a key statistic on Monday that, she believes, illustrates that the federal government’s growing debt burden remains under control.

“The statistic or metric that I look at most often to judge our fiscal course is net interest as a share of GDP,” she told CNBC Monday, referring to the net payments the federal government makes on its debt relative to U.S. gross domestic product. “And even with the rise we have seen in interest rates that remains at a very reasonable level.”

To Yellen’s point, the federal government’s interest payments represented 1.86% of GDP in 2022, according to Federal Reserve data. That’s in line with the historical average since 1960 of just under 2%.

Yellen said she is still “not really concerned about the impact” that recent federal spending programs—including the CHIPS and Science Act that subsidizes semiconductor production and research and the Infrastructure Investment and Jobs Act that authorizes spending on roads, bridges, and other infrastructure projects—will have on the national deficit, arguing the federal government just needs “to make sure that we stay on a sustainable course.”

Still, the Congressional Budget Office warned in a June report that higher interest rates and the mounting national debt could lead the federal government’s net interest payments to spike to 6.7% of GDP by 2053.

“Such high and rising debt would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook; it could also cause lawmakers to feel more constrained in their policy choices,” the report’s authors explained.

Some critics have gone a step further in their warnings about the potential impact of an increasingly indebted U.S. government. Mark Spitznagel, founder of the hedge fund Universa Investments, told Fortune in August that we’re living through the “greatest credit bubble in human history.”

“We’ve never seen anything like this level of total debt and leverage in the system. It’s an experiment,” he said. “But we know that credit bubbles have to pop. We don’t know when, but we know they have to.”

Spitznagel pointed out that total public household debt hit a record $17 trillion in the second quarter, with non-housing debt hitting an all-time high $4.7…

Click Here to Read the Full Original Article at Fortune | FORTUNE…