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

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.

Comments

nope-1004 Wed, 07/12/2017 - 11:45 Permalink

The very same debt that the private institution called the Fed created by its ruinous money policies?Way to go Feral Reserve.  Destroy a currency, create asset bubbles that force people to borrow in order to afford, then call debt too high.Lamp posts anyone? 

Manthong Stackers Wed, 07/12/2017 - 11:54 Permalink

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  Great Headline.   I could not do better except maybe…   Pusher warns druggie :”You can’t be doing all that crack if I’m gwine to keep you as a customer”. Bartender advises stool warmer before flashing 2 a.m. lights.. “Two more doubles for the road?”. Doctor in hospital tells nurse “Just shoot him up with the good stuff, he’s dead already”.

In reply to by Stackers

macholatte Richard Chesler Wed, 07/12/2017 - 12:01 Permalink

 Fed Chair Janet Yellen urged Congress to take into account the growth trajectory of the federal debt when making decisions about spending and taxation. 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? Obviously Yellen is a duplicitous scoundrel and not to be trusted on any level. Odds are good she’s just using that line to fertilize the Stop Trump movement and assist in the total collapse of the country. 

In reply to by Richard Chesler

Creative_Destruct LargeHardonCollider Wed, 07/12/2017 - 14:06 Permalink

This obvious statement by Yellen is so obvious the only reason to comment on it is it's obviousness.Another thing equally obvious is how Trump's being set up like a bowling pin to take the fall for the inevitable collpase of the multi-decade debt bubble.Then the globalist-socialists will have free rein to turn us all into zoo animals... we will be fed and given medicine and effectively caged, ostensibly for  our own good.And the fact that wealth disparity under a socialist regime is MUCH larger than the current dispatity will be papered over with cooperative propaganda announced continually by the MSM shills.The socialist-gloablist elite .01% will control virtually ALL of the liquid global wealth, which they will deal among each other.And we will all be equal.... equally miserable. 

In reply to by LargeHardonCollider

SDShack macholatte Wed, 07/12/2017 - 13:03 Permalink

Yep, all according to plan. Trump beat the odds and swept into office on a nationalist tide, and the globalists have been fighting back since before he even got the GOP nomination. They will not stop until the nationalist wave is eliminated, and if that means deliberately imploding the system ala 2008, they will do it in a heartbeat. Right now they are trying to stop Trump by death by a 1000 cuts, but you can be sure they have the nuclear option ready and waiting in the wings to use as a last resort. This is a Barter Town Cage Death Match that the Globalists are determined to win.If they implode this sucker, the carnage will be so severe and the sheeple so frightened they will dump Trump and the nationalist order, and gladly embrace the globalist plan. The result will be bi-partisan support of the complete reorder of entitlements and retirement plans. MyRA was just a test case. Medicare/Medicaid/0zer0care, Social Security, Pensions (all hemoraging red ink now will be on life support after a crash), plus IRA's, 401k's will collapse once Money Market Funds freeze up like 2008. So all these will be eliminated in favor of a guaranteed welfare support plan, and they will use the 0zer0care tax mandate to justify it. This way the banks will complete their confiscation of assets of the middle class. Welcome to the New Feudal World Order.

In reply to by macholatte

GUS100CORRINA BullyBearish Wed, 07/12/2017 - 12:12 Permalink

Fed Chair Janet Yellen Warns Congress: US Debt Trajectory Is UnsustainableMy response: This message is 20+ years too late. As they say, THE COWS ARE ALREADY OUT OF THE BARN.Under"OBOZO" alone, America tacted on a COOL 10 Trillion Dollars of debt without even breaking a sweat!!!!! BUSH wasn't much better.Over the last 28 years of presidents (BUSH I (4), CLINTON (8), BUSH II, OBAMA (8)), America must have been under the CURSE of GOD.  There is just NO OTHER EXPLANATION when one looks into just how much damage was done to the REPUBLIC.The DAMAGE may be irreversible as we are seeing with continued attacks on President TRUMP.

In reply to by BullyBearish

Countrybunkererd EmmittFitzhume Wed, 07/12/2017 - 12:12 Permalink

If you step into a casino to play, you need to know how the games work.  It doesn't matter who the dealer is or who owns the casino.  If people can't see the inflation year after year it is their own fault in not crashing the system.  I sell good rope if you need some.  People didn't mind their mortgages being backstopped but complain about the banks unfair lending practices forced upon them by the .gov everyone needs a home ideas.  It is a BIG GAME and you either play or you don't.  Some people need to be liked by having the large new house with a pool, 4 new cars in their garage, and so on.  Others want those things and play for that reason never getting close.  Of course there are very few who don't play at all, people like the unibomber or those from the 60's who held to their beliefs.on a side note...KILL THE FED!!!!

In reply to by EmmittFitzhume

realmoney2015 Stackers Wed, 07/12/2017 - 11:57 Permalink

Captain obvious.  But she's still being dishonest. The whole Federal Reserve system was created out of debt. It can never be repaid. The federal reserve has been stealing from us since 1913. That's the same year the federal income tax started. They charge interest on the funny money they create. Plus we lose out to inflation (an increase in the money supply) year after year. We price our candles with silver coin prices at $19.13 to help raise awareness on these issues. We are also giving away a free American Gold Eagle this month. Every candle you buy gets you an entry into the contest. www.scentsaverscandles.comWe also run educational campaigns through our Facebook page to help educate people on real money. https://m.facebook.com/SaversScent/?ref=bookmarksIt's amazing how little people know about this whole bank cartel. Most of problems stem from the fed. End the Fed!

In reply to by Stackers

wisehiney Wed, 07/12/2017 - 11:44 Permalink

I was drunk the day janet got out of prison.And I went to pick her up in the rain.But before I could get to the station in my pickup truck,She got runned over by the damned ol train.

Anteater Wed, 07/12/2017 - 11:44 Permalink

"... living standards of Americans." - (noun) A term used to describe NIRP clawback and 95% Federal income taxation rate, lol.It's a comin'!!

Thebighouse Wed, 07/12/2017 - 11:45 Permalink

Then why did she let obummer add 10 trillion....she could have been scrrrrrrreeeeeaaaaammmmming loud and long.....But she gave the mulatto all the jive cash he wanted.    And what did it buy?  obummerphones ? Texas trucks for isis?  oh yes...billions to Iran...our good buddies and stauch allies............yellen and obummer need to personally pay that money back.

LawsofPhysics Wed, 07/12/2017 - 11:46 Permalink

Indeed, but don't count on the criminal fucks in banking, finance, and government to indict themselves..."Full Faith and Credit" same as it ever was, tick tock motherfuckers.