Yellen Discusses Fiscal Sustainability and the Need for Balanced Budgets
Treasury Secretary Janet Yellen recently appeared before the House Financial Services Committee to discuss fiscal sustainability and the need for balanced budgets in the United States. During the hearing, Yellen expressed her belief that the federal government does not need to balance the budget to ensure fiscal sustainability.
Yellen’s comments came in response to a question from Rep. Pete Sessions, who asked if the U.S. budget would ever be balanced over the next 50 years. Yellen responded, “I don’t think the budget needs to be balanced… The U.S. budget does not need to be balanced to be on a fiscally sustainable path.” She emphasized that President Joe Biden’s deficit-reduction economic policy proposals would help guarantee that the government is on a sustainable path by ensuring economic growth.
Yellen’s statements align with those of former House Budget Committee Chair John Yarmuth, who argued that the U.S. government never has to pay off the national debt. Yarmuth stated that because the U.S. issues its own currency and borrows and spends in its own currency, it can pay for whatever it wants to pay for.
These comments from Yellen and Yarmuth come in response to House Republicans’ budget blueprint, which pledges to balance the books in a decade through reductions in discretionary spending and restrictions on social expenditures. Democrats have opposed this proposal, accusing it of relying on cuts and budget gimmicks.
The Congressional Budget Office (CBO) has released a list of tactics that could be employed to bring the budget into balance by 2033, including gradually reducing non-interest spending and diminishing federal borrowing. However, the CBO also predicts that the deficit as a share of gross domestic product will reach 10 percent by 2053 due to faster growth in spending than in revenues.
The issue of borrowing trends was also discussed during the hearing. Rep. Sessions noted that the Treasury is flooding the financial markets with government bonds, which has led to local banks allocating less capital for small business loans, mortgages, and agricultural financial products. Yellen agreed with this assessment.
According to the Monthly Treasury Statement, the federal government is already facing a budget shortfall of $510 billion in the first three months of the fiscal year. The cost of covering the gross interest on the national debt is projected to be north of $1 trillion. The Treasury has been accelerating borrowing over the past year to manage these deficits and growing interest costs.
Despite these concerns, a recent poll conducted by Main Street Economics found that 91 percent of U.S. voters believe neglecting to tackle the national debt will have long-lasting financial effects on their lives. 84 percent of voters believe that interest rates will continue to climb if elected officials fail to address the debt issue.
Federal Reserve Chair Jerome Powell also weighed in on the issue, stating during a recent interview that it is time for policymakers to address the $34 trillion national debt. Powell emphasized that while the government needed to spend during the pandemic, it is crucial to start working towards fiscal sustainability because the debt is a long-term threat to the economy.
In conclusion, the discussion surrounding fiscal sustainability and balanced budgets continues to be a topic of debate among lawmakers and experts. While some argue that balancing the budget is necessary for long-term stability, others believe that it is not essential as long as economic growth is prioritized. The challenge lies in finding a balance between addressing the national debt and ensuring economic prosperity for all Americans.
