US Treasury Secretary Janet Yellen. Olivier Douliery—AFP/Getty Images
The US national debt is approaching $33 trillion, but Janet Yellen isn’t worried yet. The Treasury secretary highlighted a key statistic Monday that she said 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 direction is net interest as a percentage of GDP,” she told CNBC on Monday, referring to the net payments the federal government makes on its debt relative to American gross domestic product. “And even with the increase that we’ve seen, interest rates remain at a very reasonable level.”
Coming back to Yellen, interest payments from the federal government were 1.86% of GDP in 2022, according to Federal Reserve data. This matches the historical average since 1960, of just under 2%.
Yellen said she was still “not really concerned about the impact” of recent federal spending programs, including the CHIPS and Science Act that subsidizes semiconductor production and research and the Investment in Semiconductor Act. Infrastructure and Jobs which authorizes spending on roads, bridges and other infrastructure projects. …will have on the national deficit, arguing that the federal government simply needs to “ensure we maintain a sustainable trajectory.”
Still, the Congressional Budget Office warned in a June report that higher interest rates and a growing national debt could lead the federal government’s net interest payments to climb to 6.7% of GDP by 2053 .
“Such high and growing debt would slow economic growth, increase interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook; it could also lead lawmakers to feel more limited in their policy choices,” the report’s authors explain.
Some critics have gone further in their warnings about the potential impact of an increasingly indebted U.S. government. Mark Spitznagel, founder of hedge fund Universa Investments, said Fortune in August, we are experiencing “the largest credit bubble in the history of humanity”.
“We have never seen this level of total debt and indebtedness in the system. It’s an experiment,” he said. “But we know that credit bubbles have to burst. We don’t know when, but we know they have to.
Spitznagel pointed out that total government household debt hit a record $17 trillion in the second quarter, with non-housing debt hitting a record high of $4.7 trillion, and the U.S. debt-to-GDP ratio was 120%. , according to Federal Reserve data.
Yellen admitted Monday that going forward, the federal government will have to “make sure” to keep deficits under control or the national debt could become a problem.
“Further deficit reduction is certainly possible,” she added. “The president has proposed a series of measures that would reduce our deficits over time while investing in the economy and that is something we need to do going forward.”
The United Auto Workers strike
The Treasury secretary was also asked about the United Auto Workers (UAW) strike that has affected Detroit’s Big Three – Ford, GM and Stellantis – and has begun to worry economists and investors. She said she hoped the UAW and Big Three would reach a “win-win” agreement as soon as possible and declined to discuss any potential impact on the economy at this point.
“I think it’s premature to make any predictions about what this means for the economy. “A lot will depend on how long the strike lasts and exactly who will be affected,” she said.
After years of almost unprecedented strength in the job market during the pandemic, in which companies struggled to find talent, Yellen admitted that hiring was slowing on Monday. But overall, despite the threat of worker strikes and the rising national debt, she believes the economy remains strong.
“Look, we still have a good, healthy job market. Consumer spending remains quite robust. We have seen strong industrial production. I don’t see any signs that the economy is likely to experience a slowdown,” she said. “It’s the best of all worlds to see a continued strong economy, a strong job market and falling inflation, and that’s what we’re seeing.”
