America’s ruling class lives in a fantasy world. Treasury Secretary Janet Yellen recently said the United States economy is not only “doing very well,” but that the nation can “certainly afford” to pay for two wars at the same time: Ukraine and Israel. It’s distressing to realize that the woman ostensibly in charge of the nation’s finances knows nothing about them—and the Treasury’s data prove it.
First, the idea that the economy is doing well is laughable. Inflation has become embedded and is running about twice the Federal Reserve’s 2% target, as well as two and a half times the rate it was when President Joe Biden took office. Last year, inflation reached 40-year highs as prices throughout the economy set record after record.
Under the leadership of Mr. Biden and Ms. Yellen, prices have risen more than 17%, and they continue rising. Inflation has outpaced earnings growth so rapidly that the average worker has lost the equivalent of about 5% of his annual income from the dollar’s reduced purchasing power.
The persistent inflation has now led to higher interest rates, which have raised borrowing costs on everything from mortgages to credit cards—and those cards currently have record-high interest rates. An American family trying to buy a median price home today will pay about $13,800 more per year—for the same house—compared to January 2021 because of inflated home prices and higher interest rates.
For the typical American family, today’s higher prices and higher inflation are the equivalent of losing about $7,300 in annual pay. It’s no wonder that roughly half of Americans think we’re already in a recession when their personal finances have deteriorated so much so quickly. Families are drowning in over $1 trillion of credit card debt, and 60 percent of them are living paycheck to paycheck.
Federal finances, overseen by Ms. Yellen, are doing even worse. The federal government ran up a deficit of almost $1.7 trillion in the last fiscal year. The Treasury announced it expects to borrow $1.6 trillion in just the first half of the current fiscal year—on track to almost double the deficit. This is causing the federal debt to explode, having grown about $2 trillion just since the debt ceiling was suspended in June.
On a single day in October, the Treasury went on a borrowing spree, issuing $275 billion of debt. That’s more than was issued in the prior month and about 16% of the debt issued in the entire previous fiscal year. By the end of the month, the Treasury borrowed over $500 billion.
On top of the runaway government spending fueling growth of the debt, higher interest rates are causing the borrowing costs on that debt to skyrocket, exactly as borrowing costs for individuals have gone through the roof. Because of the sheer size of the federal debt, however, these financing costs are becoming stratospheric.
The Treasury paid almost $900 billion in interest on the debt during the last fiscal year. That’s more than only two line-items in the entire monthly Treasury report: the Social Security Administration and the Department of Health and Human Services. The latest report from the Bureau of Economic Analysis shows financing costs on the debt are already an annualized $1 trillion—and rising fast.
The situation with interest rates will likely get worse. More investors are realizing just how unsustainable the federal budget is, and that one day the Treasury will be unable to pay its debt obligations. Consequently, the Treasury is being forced to offer higher interest rates on its debt to compensate for this increased risk. That only exacerbates the downward spiral as borrowing costs rise further.
Not only is this entirely unsustainable, it also means the federal government cannot afford to pay its current bills, let alone pay for one war, and certainly not two—not to mention three if China invades Taiwan. Yet Ms. Yellen seems blissfully unaware of these facts which come from her own department. It’s distressing, to say the least, that the woman at the helm has no idea where the ship is headed.
The alternative assessment of Ms. Yellen’s words is equally troubling: she is well aware of the problem and is simply lying to the American people. But the motivation has little impact—the ship is sinking in the storm either way. Let’s hope the next Treasury secretary is not only cognizant of the problem, but works to fix it before we capsize.
This piece originally appeared in the Daily Caller