Fed Chair Janet Yellen Warns Congress: US Debt Trajectory Is Unsustainable

Tyler Durden's picture

During her tesimony this morning, Fed Chair Janet Yellen urged Congress to take into account the growth trajectory of the federal debt when making decisions about spending and taxation.

She said lawmakers need to work toward achieving "sustainability of this debt path over time," ...

"Let me state in the strongest possible terms that I agree" the U.S. federal debt trend is unsustainable, may hurt productivity, and living standards of Americans.

Of course she is correct, but we do not remember her being so forthright during the last few years of President Obama's reign as he doubled the national debt?

As a reminder, the Congressional Budget Office estimated last month the national debt could reach 91% of gross domestic product by 2027. Lawmakers are weighing major fiscal policy changes, including tax cuts, changes to health care and infrastructure spending, that could drive deficits higher in the coming years. Furthermore, at the cuirrent spending/taxation rates, debt/GDP expected to hit 150% by 2047 if the current government spending picture remains unchanged.

The CBO's revision from the last, 2016 projection, shows a marked deterioration in both total debt and budget deficits, with the former increasing by 5% to 146%, while the latter rising by almost 1% from 8.8% of GDP to 9.6% by 2017.

According to the CBO, "at 77 percent of gross domestic product (GDP), federal debt held by the public is now at its highest level since shortly after World War II. If current laws generally remained unchanged, the Congressional Budget Office projects, growing budget deficits would boost that debt sharply over the next 30 years; it would reach 150 percent of GDP in 2047."

In addition to the booming debts, the office expects the deficit to more than triple from the projected 2.9% of GDP in 2017 to 9.8% in 2047. The deficit at the end of fiscal year 2016 stood at $587 billion.

A comaprison of government spending and revenues in 2017 vs 2047 shows the following picture:

The CBO also mentions rising rates as another key reason for the increasing debt burden. The Federal Reserve has kept rates low since the financial crisis but is on track to gradually hike rates in the coming year.

On the growth side, the CBO expects 2% or less GDP growth over the next three decades, far below the number proposed by the Trump administration.

The budget office breaks down the primary causes of projected growth in US spending as follows: not surprisingly, it is all about unsustainable social security and health care program outlays.

The CBO's troubling conclusion:

Greater Chance of a Fiscal Crisis. A large and continuously growing federal debt would increase the chance of a fiscal crisis in the United States. Specifically, investors might become less willing to finance federal borrowing unless they were compensated with high returns. If so, interest rates on federal debt would rise abruptly, dramatically increasing the cost of government borrowing. That increase would reduce the market value of outstanding government securities, and investors could lose money. The resulting losses for mutual funds, pension funds, insurance companies, banks, and other holders of government debt might be large enough to cause some financial institutions to fail, creating a fiscal crisis. An additional result would be a higher cost for private-sector borrowing because uncertainty about the government’s responses could reduce confidence in the viability of private-sector enterprises.

 

It is impossible for anyone to accurately predict whether or when such a fiscal crisis might occur in the United States. In particular, the debt-to-GDP ratio has no identifiable tipping point to indicate that a crisis is likely or imminent. All else being equal, however, the larger a government’s debt, the greater the risk of a fiscal crisis.

 

The likelihood of such a crisis also depends on conditions in the economy. If investors expect continued growth, they are generally less concerned about the government’s debt burden. Conversely, substantial debt can reinforce more generalized concern about an economy. Thus, fiscal crises around the world often have begun during recessions and, in turn, have exacerbated them.

 

If a fiscal crisis occurred in the United States, policymakers would have only limited—and unattractive—options for responding. The government would need to undertake some combination of three approaches: restructure the debt (that is, seek to modify the contractual terms of existing obligations), use monetary policy to raise inflation above expectations, or adopt large and abrupt spending cuts or tax increases.

Then again, as the past 8 years have shown, only debt cures more debt, so expect nothing to change.

Also, we find it just a little confusing why the CBO never warned of an imminent "fiscal crisis" over the past 8 years when total US debt doubled, increasing by $10 trillion under the previous administration.

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Homie's picture

This from the Fuking enabling crack dealer herself?

buzzsaw99's picture

her job is to print as much money as congress wants to spend and stfu about it.

LawsofPhysics's picture

exactly, so why the fuck is anybody paying taxes at all?

Homie's picture

I ask myself that all the time

Start calling them knee smashers instead of taxes and it starts to make sense

Thebighouse's picture

obummer spent a lot of money defending Libya ambassadors and buying blackberries for his girlfriend Billary.

If you own stocks...............you gonna get HOSED.............LIKE A WATER-CANNON...

djrichard's picture

Regarding federal debt "held by the public".  Here's a graphic of who who actually holds that debt: http://www.businessinsider.com/who-we-owe-federal-debt-to-2013-10

You know why they hold that federal debt?  It's for the yield.  /sarc

Sid Davis's picture

The bitch must be reading ZeroHedge. But don't worry, she has no choice but to keep forcing debt up to yet even greater unsustainability in yet another desperate effort to outrun the cascade of defaults that will characterize financial collapse.

Isn't saying that the debt is unsustainable the same thing as saying it is already worthless, and will eventually default.

small axe's picture

Janet should open a string of payday loan stores, she's got the bullshit down pat.

BurningFuld's picture

She is already running the biggest payday loan store on the planet many small locations would just add to the overhead.

shizzledizzle's picture

If only there was some way to know this could happen. You know like grade school arithmetic? Also stop hitting yourself. 

besnook's picture

let's follow this logic. the fed's purpose is to create an economy dependent wholly on new debt issuance. the fed chair warns the fed's biggest customer that more debt is not good for the economy. you can be as crazy as you want, old yellen, but you have to make sense.

cognitive dissident's picture

Yellen and co. make QUADRILLIONS of cents, right out of thin air...

Dumpster Elite's picture

So NOW she figures out that we have a spending problem. Oddly, it didn't seem to bother her too much when the Magic Negro was spending like he was N-rich for the past 8 years.

shizzledizzle's picture

It's like the scene in Tommy Boy where Spade goes to open the door on the GTX, it falls off and Farley says "What did you do?!"

moorewasthebestbond's picture

Schlonged today, schlonged tomorrow.

Stan Smith's picture

Define Irony.   Truth is stranger than fiction.

0hedgehog's picture

"...the U.S. federal debt trend is unsustainable, may hurt productivity, and living standards of Americans."

And what? You are jusn now noticing this? These jokers are the best we can do?

 

I think this is Fed speak for "haircuts are coming!"

JackMeOff's picture

Did Janet do a "mic drop" like Obama at his last WHCD while Rome was burning?

Librarian's picture

That's in very poor taste.  But I'll allow it.

CHoward's picture

The U.S. has obviously ONLY had an unstainable debt trajectory since January 20, 2017. 

 

Okey dokey then.

bunkers's picture

I hope, but do not expect, Americans will hang banksters and the politicians they own.

bornlastnight's picture

"Fed Chair Janet Yellen Warns Congress: US Debt Trajectory Is Unsustainable"

No problemo.  Buy moar printing presses.  Easy peezy.  Sic 'em Jellin.

No Time for Fishing's picture

I'm sure Congress will hear her this time and committ to doing something about it right after the election.

Herdee's picture

Remember, any American equity drawdown will favour Gold and Silver:

http://www.kitco.com/news/2017-07-12/This-Is-Still-An-Attractive-Environ...

CompassionateConservative's picture

It's a good thing that she's Jewish because congress always does what the Jews tell them to do.  To not do so would be anti-semitic and thus make one a serious hate criminal.

Solio's picture

Too bad about your homes and jobs, but the little people haven't paid enough.

Batman11's picture

The FED are always looking in the wrong place.

If you plot the private debt to GDP ratio on a computer and get a child to look at the output they will do better than the FED.

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png

We tell the teenage child to look for when the graph’s gradient gets much steeper.

The teenage child spots 1929, the 1980s S&L crisis and 2008 while they are occurring and before they blow up.

It’s not hard.

Get rid of those PhDs, get someone to write the program, input the data and get a child to monitor the output. 

Not My Real Name's picture

Danger, danger ... Shlepwave dick sucking contest ahead.

Old Guy Trader's picture

This is priceless. Tell us something we don't know Mizz Yelling!

Once again the guys at Shepwave called the buy signal last friday and took some more short term profits TODAY!  Dude, life is good. You all keep trying to sell into a big downward move 8 years later and the markets are up triple. I laugh.  SERIOUSLY!Their charts on one of their FB pages contains past charts that prove their correctness with market calls.

 

https://t.co/f3mU9N8rc4         

Virginia Wooolf's picture

stay with what ever analyst is making the right calls. Right now that is SW.  But that could change soon you never know. . ZH and the bears  on here have been fleeced. Nice call

casfoto's picture

She has destroyed the middle class. It started with Greenspan, carried by Bernanke and then finished with Yellen. And now we are thinking about another Hebrew in charge to help themselves out with the tax payers of the US....."Cohn". I vote no.

 

Chris88's picture

Well, Janet, stop being an accomodating fiscal instrument.

micksavage2010's picture

and the trillion $ war racket budget is still not open for change - they get allocated another 50+ billion. gee big surprise the budget deficit is blamed on health care or social security. well dipshits in congress how about the military entitlement budget getting cut? assholes.

scoutshonor's picture

I'm sick of looking at this hobbit, Marko Kolanovic needs to whip out his staff and banish her back to middle earth.

Herdee's picture

It's kinda like what James Rickards says. He says that most economists believe that since we are no longer on the Gold Standard that they can print currency infinitely. He disagrees and says that there is an invisible confidence barrier and when you break it then that confidence is lost forever in the current reserve currency status. That lack of trust is what is being warned about in Yellon's message and warning. Nobody actually knows where it is and what the series of events are that will take place when the moron politicians in Washington lose the trust factor forever. My own guess is that it is happening slowly right now and it is a steady dripping which has now become a stream of running water causing constant erosion and the wearing down of the whole economic system because of endless war which stops any attempts at restructuring the economy. It fits right in with the thinking of terrorists who believe that engaging the American NeoCon Empire slowly around the globe will eventually bankrupt the greed and hegemony through its' corrupt belief in exceptionalism and the desire for world economic and military empire building.

WillyGroper's picture

these parasites have stolen $40T.

 

is it a coincidence, the & financial, infrastructure, water supply, medical systems are in ICU along with the deployment of genocidal 5G?

was the 2014 cube replaced with 2018 on the georgia guidestones?

http://www.odwyerpr.com/story/public/9054/2017-07-11/wi-fi-health-advocates-fight-save-copper-phone-lines.html

how about a head spin on net neutrality, eh?  AT&T joins net neutrality protest—despite suing to block neutrality rules | Ars Technica

CAF.  https://www.youtube.com/watch?v=0TkYa34hEpk

 

two hoots's picture

Until  we all, Washington and citizens, have the courage to talk openly about sensitive causes and solutions we will continue on the course to monetary/debt destruction.  We have trapped ourselves for votes, protection and niceities into saying and doing the politically, socially, religiously and personally safe things.   We are not "promoting the general welfare" but are slowly and blindly doing the reverse (for votes, protection and niceities).

Does it matter what Janet Yellen looks like?  Yes the Fed is in cohoots with Washington/Treasury propping up the system but the cause/reasons of what we are propping up is what requires address.  

 

 

AKKadian's picture

No shit sherlock.!!!

Able Ape's picture

Yep, when you're playing with garbage, it's GONNA stink....

cstu7011's picture

Someone tell Yellen being impaled by pitchforks hurts too.

Everyone is lying's picture

Really?

 

Yellen has been riding this shitstorm for years, and now she has the gall to say it could go bad?

 

The bitch needs to be carved and her organs sold on the black market.

 

 

rejected's picture

Boy, these people are a real work.

They created this debt shit, now they're acting,,, like oooops,,, too much is bad.

This is the best PhD's our POS univeristies can produce?

silverer's picture

That's why the US is ranked 15th in economic freedom. They've been working on it.

Ajax-1's picture

Old Yeller says that the "U.S. Debt Trajectory is Unsustainable". Really, it took an Ivy League, piece of shit, bankster globalist, to declare the obvious. 

silverer's picture

"US Debt Trajectory Is Unsustainable"

OK, so when are you starting up the big QE again?

Pvt Joker's picture

Yellen has gone full Peter Schiff

khakuda's picture

"Let me state in the strongest possible terms that I agree"

Now let me go before the printer runs out of ink.

falak pema's picture

Well, when things get serious you either lie-- like that empty suit of Luxembourg laundry tax evasion-- or when others have done it before you to the point of no return, you  have no option but to tell the truth; now that your goose is cooked, your life work in that FED hot seat, an empty shell.

What has Yellen got to lose?

Her boss-man Obama is now stale news and #MAGA destroys her mission statement now looking like the remains of the day of a bygone age...

Time to bring the curtain down on 20 TRILLION of CB easy money print having attained its point of no return; with boomerang mayhem, like a Nemesis call,  to make the Friedmanite mantra of Reaganomics' "greed is good" now a thing of the past. 

The Duck is the Alcibiades of this reset, having tried to play at Nero in the first instance, and having lost his bacon in the revolt of the Preatorian guards of Deep state, he now plays at the man who invaded Syracuse.