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Yellen's Phony Math

Yellen Phony

Janet Yellen has served as both Chair of the Fed and U.S. Treasury Secretary. During her time on the job, she has muttered some doozies that leave you scratching your head. Her latest, from an appearance last week, might be one of her craziest yet.

I suppose I could spend most of this column adding text and screenshots from some of Yellen's most outrageous statements, but we'd be here all day and who has time for that? Instead, here are just two of my favorites:

janet yellen news

janet yellen news

But she really outdid herself last week. Check this one out. It might be her best yet:

janet yellen news

My apologies in advance for this, but for context, we're going to have to do some math. Please bear with me...

The current total debt of the United States is about $33.5 TRILLION.

us national debt

The current annual cost of servicing that debt is approaching $900 BILLION.

annual cost of servicing chart

That means, as of right now, the average interest cost on the accumulated debt is about 2.5%.

However, in Yellen's quote from last week, she equated debt service with total GDP, which at last count was about $27 TRILLION.

gross domestic products

So let's now do Yellen's math. If the total GDP is $27T and the current annual debt service cost is $900B, then the debt service relative to GDP is 3.3%.

But Yellen says this number is going to average just "1% for the next decade". Hmmm. Sorry, but we must do even more math...

The Congressional Budget Office has projected that the total U.S. debt could reach $50T as soon as 2030. If the U.S. economy manages to grow at 3% per year over the next seven years, total GDP will reach $35T by 2030. Using Yellen's math, this assumption places debt-to-GDP at nearly 150%.

But again, Yellen was talking about DEBT SERVICE COSTS, so let's reverse engineer the math on her statement.

If the total U.S. GDP is at $35T in 2030 and the total debt is $50T, then the average interest rate on that accumulated debt would have to be 0.7%. Again, it is currently 2.5%. So, to make Yellen's statement rational and reasonable, one has to assume one of two things—or both:

  1. The total U.S. GDP is going to soar much faster than the 3% per year I assumed in growing it from $27T today to $35T in 2030.
  2. That interest rates and the total interest paid to service the existing debt are both going to be sharply lower than where they are at present.


And neither of those scenarios are likely to be true. It's far more likely that the total U.S. GDP grows to just $33T by 2030 and that the service on the accumulated $50T in debt is near $1.5T. That places total debt service to GDP at 4.5%, not Yellen's expectation of 1.0%.

So what's going on here? You're really left with just two choices. Which one do you choose?

  1. The current Treasury Secretary is prone to hyperbole and lies. She's muttered some outrageous falsehoods in the past, and this latest statement is just another in her long line of absurdities. 
  2. The current Treasury Secretary just let it be known that the ultimate policy for funding the U.S. government and its debt service is a very low interest rate policy, ultimately enforced by some measure of Yield Curve Control from the Federal Reserve.


Actually, that last question was a trick. You don't have to choose #1 or #2. The correct answer is BOTH. Over time, Yellen has proven herself to be both incompetent and a liar. Additionally, as U.S. deficits and debt continue to soar in the years ahead, the only option for servicing the debt will be some sort of interest rate cap scheme from the Federal Reserve.

And this leads, finally, to the point of this post. Buy some gold. Buy some silver. Take delivery or store it with a trusted dealer. Physical precious metal is your only true source of protection against the worsening monetary madness at the end of The Great Keynesian Experiment.

Don’t miss a golden opportunity.

Now that you’ve gained a deeper understanding about gold, it’s time to browse our selection of gold bars, coins, or exclusive Sprott Gold wafers.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.


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