Janet Yellen Warns Of ‘Debt Crisis’, Blasts Trump Tax Cuts In Op-Ed

Oh, boy.

Here’s a thought experiment. If you had to conjure up an hypothetical Op-Ed that would drive fringe financial bloggers even more insane than their unhinged ranting missives already suggest they are, what would that Op-Ed be about, who would be the author, and where would it be published?

One possibility for that hypothetical is an Op-Ed about a debt crisis published in the Washington Post and written by Janet Yellen, who the fringe blogs swear is not a dedicated public servant but in fact a nefarious dark wizard-ess hell bent on impoverishing the masses with black magic she learned from every permabear’s arch nemesis, Ben Bernanke.


“Who is Janet Yellen to talk about debt?!,” the tinfoil hatters will scream, before reminding you that she monetized trillions of it in what amounts to a giant ponzi scheme between Treasury and the Fed (they’re right, but contrary to what you might have read, there is no “conspiracy” – there is just misguided policy).

And do you know what would drive the fringe blogs even crazier? Let me tell you: it would drive them even crazier if she pinned the blame for said debt crisis in part on tax cuts and specifically, on Trump’s tax cuts.

Well guess what?! That Op-Ed now exists, and although Yellen isn’t the sole author, she’s in there and you can read it in full below.

A debt crisis is coming. But don’t blame entitlements.

By Martin Neil Baily, Jason Furman, Alan B. Krueger, Laura D’Andrea Tyson and Janet Yellen, as published in The Washington Post.

The U.S. unemployment rate is down to 4.1 percent, and economic growth could well increase in 2018. Consumer and business confidence is high. What could go wrong?

A group of distinguished economists from the Hoover Institution, a public-policy think tank at Stanford University, identifies a serious problem. The federal budget deficit is on track to exceed $1 trillion next year and get worse over time. Eventually, ever-rising debt and deficits will cause interest rates to rise, and the portion of tax revenue needed to service the growing debt will take an increasing toll on the ability of government to provide for its citizens and to respond to recessions and emergencies.

None of that is in dispute. But the Hoover economists then go wrong by arguing that entitlements are the sole cause of the problem, while the budget-busting tax bill that was passed last year is described as a “good first step.”

Entitlement programs support older Americans and those with low incomes or disabilities. Program costs are growing largely because of the aging of the population. This demographic problem is faced by almost all advanced economies and cannot be solved by a vague call to cut “entitlements” – terminology that dehumanizes the value of these programs to millions of Americans.

The deficit, of course, reflects the gap between spending and revenue. It is dishonest to single out entitlements for blame. The federal budget was in surplus from 1998 through 2001, but large tax cuts and unfunded wars have been huge contributors to our current deficit problem. The primary reason the deficit in coming years will now be higher than had been expected is the reduction in tax revenue from last year’s tax cuts, not an increase in spending. This year, revenue is expected to fall below 17 percent of gross domestic product – the lowest it has been in the past 50 years with the exception of the aftermath of the past two recessions.

All of us have supported corporate tax reform. The statutory tax rate was too high, much higher than in other Organization for Economic Cooperation and Development economies. However, because of deductions and breaks in the tax code, the effective marginal tax rate was similar to the average among competitor economies. The right way to do reform was to follow the model of the bipartisan tax reform of 1986, when rates were lowered while deductions were eliminated.

Instead, the tax cuts passed last year actually added an amount to America’s long-run fiscal challenge that is roughly the same size as the preexisting shortfalls in Social Security and Medicare. The tax cuts are reducing revenue by an average of 1.1 percent of GDP over the next four years. The Hoover authors minimized the cost of the tax cuts by noting that if major provisions are allowed to expire on schedule – certainly an open question, given political realities – they would amount to “only” 0.4 percent of GDP. Even this magnitude exceeds the Medicare Trustees’ projections of a 0.3 percent of GDP shortfall in Medicare hospital insurance over the next 75 years.

Just as entitlements are not the primary cause of the recent jump in the deficit, they also should not be the sole solution. It is important to use the right wording: The main entitlement programs are Social Security, Medicare, veterans benefits and Medicaid. These widely popular programs are indeed large and projected to grow as a share of the economy, not because of increased generosity of benefits but because of the aging of the population and the increase in economywide health costs.

There is some room for additional spending reductions in these programs, but not to an extent large enough to solve the long-run debt problem. The Social Security program needs only modest reforms to restore its 75-year solvency, and these should include adjustments in both spending and revenue. Additional revenue is critical because Social Security has become even more vital as fewer and fewer people have defined-benefit pensions. Medicare has been a leader in bending the health-care cost curve. Reforms to payments and reformed benefit structures in Medicare could do more to hold down its future costs.

As we focus on the long-run fiscal situation, our goal should be to put the debt on a declining path as a share of the economy. That will require running smaller deficits in strong economic periods – such as the present – to offset the larger deficits that are needed in recessions to restore demand and avoid deeper crises. Last year’s Tax Cuts and Jobs Act turned that economic logic on its head. The economy was already at or close to full employment and did not need a boost. This year’s bipartisan spending agreement contributed further to the ill-timed stimulus. The Federal Reserve will have to act to make sure the economy does not overheat.

Several years ago, there was broad agreement that responding to the looming fiscal challenge required a balanced approach that combined increased revenue with reduced spending. Two bipartisan commissions, Simpson-Bowles and Domenici-Rivlin, proposed such approaches that called for tax reform to raise revenue as a percent of GDP and judicious spending cuts. Without necessarily agreeing with these specific plans, we believe a balanced approach is the correct one. Start with spending goals based on the priorities of the American people and then set tax policy to realize adequate revenue. The Hoover economists’ advocacy of paying for large tax cuts with entitlement reductions would take the United States in the wrong direction.

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20 thoughts on “Janet Yellen Warns Of ‘Debt Crisis’, Blasts Trump Tax Cuts In Op-Ed

  1. Okay but this incompetent, clueless, markets-ignorant, never worked a day in her life, foolish woman did as much as anyone in human history to create humanity’s hugest debt bubble. And by holding interest rates at a weighted-average of 0.5% over her tenure, the lowest in history, as asset prices were in hyper-inflationary mode and stocks were quadrupling, Yellen did more than anyone in history to exacerbate wealth inequality. And don’t forget the US dollar crashed by almost one-third against a GLOBAL currency basket in the final year of her gross incompetence, thereby crushing the purchasing power and future standard of living of the average working American.

    Accordingly, Yellen deserves to be the centerpiece at the Hall of Shame and in the Smithsonian History of Bubble Blowing.

    And her picture should be featured in the American English Dictionary for the word “failure”.

    Obama’s pick for Fed vice chair and chair. Nuff said.

        1. No I’m a professional trader, more than “12 hours a day” actually. Obviously you aren’t or you wouldn’t be as ignorant in your posts here & below about the real world as her – who indeed never worked a single day in her life in markets in any practical capacity. An academic putz – like a man theorizing on what it’s like to give childbirth. She and the bernank were clueless about markets. Can’t learn it from a textbook, you gotta live it.

          Anonymous… no wonder with some of the ignorant shit rolling off your fingertips.

          1. Got it. You are a trader. You don’t make anything. You buy and sell stuff. That’s “real” work.

    1. The two goals of the Fed are employment and inflation. By those standards she is the Michael Jordan of bankers, but that doesn’t fit with your far right narrative.

      1. You missed pumping up equities. Oh, that’s right, not their mandate, but the one that she and bernank adopted as job one. Look at some shit they said and their actions which spoke even louder than the words.

        They sucked on inflation cuz they caused debt & asset hyper-inflation and the biggest wealth gap ever.

        And if you think monetary policy/expansion is particularly germane to employment then you’re as cluess as their Philips curve and other theories discredited by markets and the real world. Correlation is not causation bud.

        To hell with “right narratives” and left narratives. I’m a trader and care about the money.

  2. That’s a curious way to start a post, that Yellen “never worked a day in her life.” I suspect your definition of “work” is quite unseal, but It did cause me to wonder what moved you to inject those emotive words into your already hair on fire post accusing Yellen to be personally responsible “as anyone in human history to create humanity’s hugest debt bubble,” and “Yellen did more than anyone in history to exacerbate wealth inequality,” which is quite an insurmountable bar to have met! Then I realized that you must “work,” unlike Yellen, and you who work, could have done an exceedingly better job post the mini-depression in chairing the Fed and navigating the US economy through the lousy recovery that was handed to Trump? So tell us, how pray tell, would we be that much better off under your leadership?

    1. “Curious”… are you really so ignorant of the facts & history to think that the Fed actually halted that waterfall like they take credit for, while simultaneously shirking responsibility for the debt & asset bubbles they’ve blown?

    2. > So tell us, how pray tell, would we be that much better off under your leadership?

      I never took the job so it’s irrelevant whether I’d do it better. Same as if you criticize a ball player for shitty base running or if you criticize a presidential policy, just hypothetically speaking of course.

  3. Where was Yellen’s concern about government debt growth during her Fed tenure? How hard did she pitch the “balanced approach”, fiscal discipline, entitlement reform, etc. when she had the world’s foremost position in economics? She turned a blind eye to the doubling of the national debt and the uncontrolled growth of the medicare and social security debts. Now she is pulling a Greenspan, going on record for a more sane fiscal policy.

    1. There are 4 (four) other people on the author list. 1+1+1+1+Yellen= 5 people on the author list.
      Just a reminder.

      Care do delve into the actual content, rather the massive hate-on the ol’ gal inspires?

      1. Good luck with that Fox!! If bunny had a policy or merit based analysis or argument we certainly would have read it within her eight posts and the conclusory opinion of worst in “human history,” as if bunny has an earthly idea whether, relatively speaking, that too is an accurate statement, as opposed to the worst use of hyperbole any real working person might use to make a point.

        The interesting thing about all of the critical posts of Yellen is that they speak of Yellen as if she constituted the entirety of Fed Reserve Board or the entirety of the Federal Open Markets Committee such that when H would examine the minutes each month he’d be examining the minutes of Yellen recording her own thinking since she was the only one involved.

        Funny stiff.

        1. NO, I also criticized bernank. And the entire FED, in my question/reply to you above…

          …which instead of answering me directly (presumably cuz you can’t), you wussied out by referencing me in this response to someone else, with some misrepresentation and obfuscation.

          Well, obfuscate this: 混蛋

          The quantifiable and verifiable fact remains per my FIRST line first post, hyperbole notwithstanding, that they and she indeed “did as much as anyone in human history to create humanity’s hugest debt bubble”. Debt & asset bubbles. Common knowledge among traders, else google is your friend.

        2. One of Yellen’s greatest hits – FOMC meeting 12/12/2012: :0 !!!!

          “We do not intend to take the punch bowl away just as the party is getting going. We will at least keep refilling the punch bowl until all the guests have arrived.”

          (S&P had approx doubled from 3 yrs earlier, yet Fed was still QE’ing and ZIRPing aggressively, even with US already the biggest debtor ever)


          In contrast to accomplished central banker William McChesney Martin Jr 10/19/1955:

          “The Federal Reserve is in the position of the chaperone who has ordered the punch bowl removed just when the party was warming up. If we fail to apply the brakes sufficiently and in time, of course, we shall go over the cliff.”


          1. Yellen encore 27/06/2017 (wait for the punch line yet to come):

            “There will not be another financial crisis in our lifetime”.

  4. Democracy in the United States is failing, which is scary. Because the alternative likely makes things much worse for the USA, and the world. The failed Fed money printing, trickle down economics, shrinking middle class, aging population, growing skills gap and dumbing down of main street work-force, deficit spending out of control, debt levels, and lobbyists running DC – all of these trends are just depressing! I’m almost at the point where I may actually disagree with Buffet now and bet against America long term. At the very least cash is king until people with some brains are running the show.

    1. > Democracy in the United States is failing … The failed Fed money printing…

      Yep but some ppl above don’t get it.

      “it seems to me that the most analogous period to now is the mid/late 1930s, which was similar because of … large wealth gaps that were increased by the monetizations”

      – Ray Dalio, Bridgewater CIO
      April 9, 2018


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