US Treasury Secretary expresses optimism about public debt situation

"The metric I look at to assess the fiscal path is net interest rates as a share of GDP. Even as the debt has increased, we have seen interest rates remain at very reasonable levels," Ms. Yellen said.

According to the head of the US Treasury , the government's interest payments will account for 1.86% of GDP in 2022 (data from the Fed) - in line with the average (less than 2%) since 1960.

Ms. Yellen said she was “not really concerned about the impact” of recent spending programs such as the CHIPS and Science Act (which subsidizes semiconductor research and manufacturing) and the Jobs and Infrastructure Investment Act (which authorizes spending on roads, bridges and other infrastructure projects). Everything remains on a sustainable path.

However, high interest rates and rising US public debt could cause the federal government's net interest payments to skyrocket to 6.7% of GDP by 2053, the Congressional Budget Office warned in June.

Other experts continue to warn of the potential dangers to the US public debt. Mark Spitznagel, founder of hedge fund Universa Investments, described it to Fortune magazine as “the biggest credit bubble in human history.”

“We have never seen anything like this level of total debt and leverage in the system. It is a test. But we know that the credit bubble will burst. We don’t know when, but we know it will,” Spitznagel said.

According to Federal Reserve data, Spitznagel pointed out: Total US household debt hit a record $17 trillion in the second quarter of 2023. Of which, non-residential debt peaked at $4.7 trillion and the US debt-to-GDP ratio was 120%.

Earlier this week, Secretary Yellen admitted that in the future, the US government will need to “make sure” that deficits are under control, otherwise public debt could become a problem.

“There is certainly room for more deficit reduction,” she added. “The president has proposed a series of measures to reduce the deficit over time while investing in the economy. That is what we need to do going forward.”

Ms. Yellen also put her faith in the upcoming US economy with an optimistic attitude: “We still have a good and healthy labor market. Consumer spending, industrial production are still strong. This is a good thing to see the US economy going up, the labor market is strong and inflation is down.”

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