Blog PostMay 9, 2014

Fed Chair: ‘Deficits Will Rise to Unsustainable Levels’

Author: Terence P. Jeffrey



( – Federal Reserve Chairman Janet Yellen, referencing the Congressional Budget Office’slong-term budget projections, told the Joint Economic Committee of Congress today that under current policies the federal government’s deficits “will rise to unsustainable levels.”

In the 10-year budget projections it released in April, the CBO estimated that the federal government will run $7.618 trillion in deficits from 2015 through 2024. At the same time, the CBO projected that the federal government’s debt held by the public would rise from $11.983 trillion at the end of fiscal 2013 to $20.947 trillion by the end of 2024.

The debt held by the public is the part of the U.S. government debt that is not held by the federal government itself. It primarily consists of marketable Treasury securities, including bills, notes and bonds. It does not include what the government calls “intragovernmental debt,” which is the money the Treasury has borrowed out of the Social Security Trust Fund and other government trust funds to pay current expenses.

The total debt of the federal government at the end of fiscal 2013–including both the debt held by the public and the intragovernmental debt–was $16.719 trillion. The CBO estimates that by 2024, the total debt of the federal government will be $27.159 trillion—of which $20.947 trillion will be debt held by the public.

If that projection holds up, the federal debt held by the public in 2024 would be more than four times the $5.035 trillion federal debt held by the public at the end of 2007.

Yellen made her statement about unsustainable deficits when she was questioned by Sen. Dan Coats (R.-Ind.). Coats remarked that businessmen in Indiana told him that their businesses were underperforming at this time because of the uncertainty they felt as result of federal taxation and regulatory policies.

Debt Held by Public in 2024

“What recommendations would you give to us in terms of dealing with this uncertainty that is basically causing a lot of these businesses to underperform?” Coats asked.

“So, I agree with you,” said Yellen. “My own discussions with businesses, I hear exactly the same things that you are citing: concerns with regulations, about taxation, about uncertainty about fiscal policy.

“I guess one recommendation that I would give you is that long-term budget deficits, we can see in, for example, CBO’s very long-term projections, that they remain,” said Yellen. “There is more work to do to put fiscal policy on a sustainable course. That progress has been made over the last several years, in bringing down deficits in the short term, but that a combination of demographics, the structure of entitlement programs, and historic trends in health-care costs, we can see that over the long-term deficits will rise to unsustainable levels relative to the economy.

“And,” she said, “putting in place a package of reforms—ones, I know these are very controversial matters–but that would probably help confidence.”

Coats later said to Yellen: “You join a long list of very responsible Americans who have the experience and the expertise to give us some warnings about what may happen in the future and our inability to act over the last several years now in addressing these major problems that are going to have significant consequences on the economy of this country and on future generations.

“I don’t know what it is going to take for us to summon the will to do what we all know that we need to do,” said Coats. “But I appreciate your adding your name to that long list saying you have a responsibility up here and you’re not fulfilling that responsibility.”

According to the CBO, “mandatory” federal spending will increase approximately 58 percent over the next ten years, rising from $2.32 trillion in 2015 to $3.664 trillion in 2024. Over that decade, total federal “mandatory” spending will be $29.737 trillion.

That will include $8.25 trillion on Medicare, $4.55 trillion on Medicaid, $9.9 trillion on Social Security, $1.78 trillion on disability insurance, and $728 billion on food stamps.