|Sen. Ron Johnson (R-WI)|
“The federal government can actually run even higher deficits - $1.81 trillion for the next decade - and the debt-to-GDP ratio will remain unchanged at 120.7%.”
-Cautious Optimism, February 15, 2023
The math is simple: between real economic growth and the Fed’s deliberate price inflation politicians and policymakers expect nominal GDP and tax revenues to grow significantly in the future, thereby allowing them to run bigger and bigger deficits forever.
Therefore the debt-to-nominal GDP ratio will remain fairly stable or rise slowly, enabled by both the U.S. economy producing more stuff and the central bank printing enough excess money every year to continuously drive up prices.
What the Economics Correspondent didn’t know was that a month later Treasury Secretary Janet Yellen would not only publicly confirm this prediction, but do it so openly and unabashedly.
From her Senate Finance Committee testimony of March 16, 2023:
Senator Ron Johnson (R-WI): So now you’re here to testify about the president’s budget. How much are the total deficits over that ten-year period according to the president’s budget?
Treasury Secretary Janet Yellen: (silent as she flips through pages of documents)
Johnson: You don’t know that off the top of your head?
Yellen: Umm (keeps checking documents)
Johnson: I’m running out of time. It’s $17 trillion, OK?
Johnson: You’re going to drive the debt from somewhere around $32 trillion up to about $50 trillion, correct?
Yellen: Yes, but what I believe is the single most important metric for judging the fiscal stance of the country is real net interest as a share of GDP. We have a large GDP.
Johnson: So are you concerned when you take the debt from $32 trillion to $50 trillion, are you concerned who’s going to buy that debt? And also at what rate they’ll expect to be compensated for buying riskier and riskier debt? Are you concerned about that?
Yellen: Well, if the net interest… real net interest costs of the debt remains low relative to GDP and we’re on a sustainable fiscal course…
Johnson: Well we’re not on a sustainable path.
Yes, you heard it from Yellen herself folks. The Biden budget is designed to deliberately accumulate a national debt of $50 trillion by 2033.
ps. The New York Times headlines Biden’s very same budget with “Biden Is Set to Detail Nearly $3 Trillion in Measures to Reduce Deficits.”
NPR: “Biden budget proposal to show nearly $3 trillion in deficit reduction over 10 years.”
Los Angeles Times: “Biden budget aims to cut deficits nearly $3 trillion over 10 years.”
ABC News: “Biden budget aims to cut deficits nearly $3T over 10 years.”
CBS News: “Biden's budget plan aims to cut federal deficit by $3 trillion.”
CNN: “Biden to propose cutting the deficits by nearly $3 trillion.”