Said Yellen: “The long-run deficit probably needs to be kept in mind.”
“In addition, with the debt-to-GDP ratio at around 77 percent there is not a lot of fiscal space should a shock to the economy occur, an adverse shock that did require fiscal stimulus,” she said.
Feb 25, 2015:
Importantly, that rise in debt over the long term could mean that policymakers would have more limited options in needing to stimulate the economy if it fell into another deep recession.
I also worry that if we were to again be hit by an adverse shock, that there’s not much scope to use fiscal policy. It was used in the early years after the financial crisis — we ran large deficits — but in the course of doing that, the debt-to-GDP ratio rose. And were another negative shock to come along, it’s questionable how much scope we would now have to put in place even on a temporary multiyear basis expansionary fiscal policy, and I think it’s important to deal with these issues — for the Congress to do so.
This is a key point we have made as to why current projections are problematic and stabilizing debt is an insufficient goal. The high level of debt may constrain our ability to respond as necessary to emergencies, whether they be recessions, natural disasters, or conflicts. Lawmakers should not get complacent about debt stabilizing over the next few years as it could become a greater problem beyond then.
Nov 29, 2011:
“It is crucial that the federal budget be put on a sustainable long-run trajectory, and we should not postpone charting that course. A failure to put in place a credible plan to address our long-run budget imbalance would expose the United States to serious economic costs and risks in the long term and possibly sooner. Timely enactment of a plan to put the federal budget onto a sustainable trajectory will make it easier for individuals and businesses to prepare for these adjustments. In addition, the sooner our longer-term budget problems are addressed, the less wrenching the adjustment will have to be and the more control that policymakers – rather than market forces or international creditors – will have over the timing, size, and composition of the necessary adjustments.”
June 22, 2016:
“I feel the consequences for the United States and the global economy of defaulting on Treasury debt would be very severe,” Yellen said. “U.S. Treasury securities are the safest and most liquid benchmark security in the global financial system. They play a critical role in financial markets, and the consequences of such a default, while they’re uncertain, I think there could be no doubt that it would be long-run harmful to the U.S. interests and, at a minimum, result in much higher borrowing costs for American households and businesses.”