Jerome Powell Says $34 Trillion National Debt Is Ready For An ‘Adult Conversation’ — Janet Yellen Calls Sustainable Fiscal Path ‘Critically Important’

Feb 15, 2024

Most everyone understands the U.S. national debt is not on a long-term sustainable path, but no one seems sure when the breaking point might be for real-world consequences.

In a recent “60 Minutes” interview, Federal Reserve Chairman Jerome Powell brought up the elephant in the room, stressing that it’s now “time, or past time, to get back to an adult conversation among elected officials about getting the federal government back on a sustainable fiscal path.”

Frustration and worry were visibly apparent in the usually poker-faced Powell, who said that we’re “borrowing from future generations.” Taking on more debt is just another word for borrowing, and with the massive size of the debt, it won’t be paid back overnight.

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What’s most troubling is not the absolute number of the $34 trillion debt but the pace at which it’s increasing and the rising cost of interest payments to service it.

The U.S. spends more in gross interest payments on its debt than on national defense, at a time when America’s military strength is especially crucial with increased tensions in the Middle East, the Russian invasion of Ukraine and China’s continued threats toward Taiwan.

With the Fed maintaining high interest rates as part of its effort to completely stamp out inflation, it makes both new borrowing and interest payments on that money borrowed even more expensive for the U.S. government.

U.S. Secretary of the Treasury Janet Yellen also highlighted the importance of fiscal responsibility, telling lawmakers during a hearing before the House Financial Services Committee, “It’s critically important that the U.S. be on a fiscally sustainable path.”

While the situation seems dire, not all investors are overly concerned about the state of the U.S. government’s debt load.

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Famous “Big Short” investor Steve Eisman, who profited heavily from his bet against the housing market in 2008 and is now a portfolio manager at Neuberger Berman Group, cites the amount of time investors have been worried about the debt as a reason to not worry.

“This argument about the deficit has been going on for 40 years,” Eisman has said.

Of course, sitting out from the market over the past 40 years would not have been a prudent investment decision.

For those with fear of missing out on market returns but scared of the government’s seemingly endless printing of U.S. dollars, hard assets have come into increased focus.

The SPDR Gold Trust (NYSE:GLD), an exchange-traded fund (ETF) tracking the price of gold, has risen in value by over 8% in the past year.

Bonds, meanwhile, whose payments are fixed, have not had the same success, especially those with increased duration. Take long-term government bonds, tracked by the iShares 20 Plus Year Treasury Bond ETF (NASDAQ:TLT), which is down over 9% in the past year.

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