Janet Yellen's Debt Bomb Just Got Armed

How Will Trump Resolve The Debt Ceiling Dilemma Biden's People Left Him?

As Donald Trump commences his first full day as President of the United States, outgoing Treasury Secretary Janet Yellen has left him a small token of her incompetence:

The US government has officially run headlong into the debt ceiling, which recently came back into force.

Yellen formally notified Congress of this bit of fiscal unpleasantness last Friday, and that the Treasury would begin under Trump Administration leadership relying on accounting gimmicks and “extraordinary measures” to keep the government funded.

Yellen told congressional leadership in a letter that the Treasury Department will begin the measures Tuesday after a previous roughly 20-month suspension of the debt limit expired earlier this month.

Whatever else Congress and President Trump had on their legislative agenda, the debt limit must now be pushed ahead of most if not all other priorities, so that the government does not run out of borrowed money while Congress presumably attempts to corral spending and advance the President’s Agenda 47.

Welcome to the Oval Office, Mr. President.

Debt Ceiling Reached Despite Trump’s Pre-Inaugural Efforts

There is a perverse irony in the Treasury Department hitting the debt ceiling the day after Trump’s inauguration.

We should remember that it was just last month that Congress was embroiled in a budget fight after Speaker Mike Johnson’s lamentable and pork-laden Continuing Resolution bill completely collapsed in the House of Representatives, leading to yet another display of Congress’ chaotic budget Kabuki dance around a potential “shutdown”.

Congress Performs Shutdown Kabuki Yet Again

One of the many sideshows to that circus was then President-elect Trump’s insistence that a resolution to the debt ceiling be made a part of the CR negotiations—a proposal that was soundly rejected by House Minority Leader Hakeem Jeffries and the rest of the Congressional Democrats.

Donald Trump was quite aware of the debt ceiling and its implications for his incoming Administration, and wanted very much for Congress to get in front of it. Hakeem Jeffries, the Democrats, and even a few Republicans rejected that proposal.

Even then, it was apparent that Jeffries was engaged in some extremely short-term thinking, as it was right after the budget battle that Janet Yellen reminded the Congress that the debt ceiling was about to become a real headache for them.

As it turned out, Yellen’s December estimate was off by an entire week. However, there is no denying that Congress was well aware of the debt ceiling issue in December, as both Trump and Yellen specifically and publicly raised that issue.

Congress, as has been their pattern particularly when it comes to matters of public finance, dug in their heels and stuck doggedly to their time-honored political tradition of not dealing today with anything that can be punted until tomorrow without regard for consequences.

Donald Trump wanted to resolve the debt ceiling issue, and tasked Congress with resolving the debt ceiling issue. Congress has not done so—a search of pending legislation before the 119th Congress for bills referencing the term “debt ceiling” shows no such legislation has yet been taken up.

The result: Donald Trump begins his term of office shackled with the Treasury’s credit card maxed out.

Yellen’s Debt Management Practices Led Us Here

While it has been common among corporate media to deride Donald Trump’s Agenda 47 as adding grotesquely to the national debt, it would be a mistake to conclude that the now-discarded (Biden-)Harris Administration was a model of fiscal rectitude, or that Janet Yellen herself has been a decent steward of the public fisc.

If we extrapolate the trend of Donald Trump’s first Administration’s pre-COVID issuance of US debt through the end of 2024, we arrive at a total debt level far below the current debt ceiling—$7.3 Trillion below, in fact.

But for the COVID Pandemic Panic, which has to be counted as a “whole of government”, if not “whole of society”, fiasco, Donald Trump’s spending habits would have gotten us nowhere near the current $36Trillion debt ceiling.

If we extrapolate Janet Yellen’s debt issuance from 2021 and 2022 through the end of 2024, however, we arrive very nearly at the current debt ceiling.

The spending pace of the early (Biden-)Harris Administration was demonstrably greater than Donald Trump was pre-COVID.

“Ah, but Biden was dealing with the consequences of Trump mis-managing the Pandemic!” comes the Democrat/corporate media/Never Trump refrain.

That logic, however, fails to explain how Janet Yellen’s debt issuance trend in 2023 and 2024 was on an even faster pace than in 2021 and 2022.

We must not forget that by 2023 the (Biden-)Harris Administration was scaling back its COVID programs, and the stage was already being set for HHS Secretary Xavier Becerra to end the Public Health Emergency Declaration originally issued by the first Trump Administration in early 2020.

Sic Transit Gloria COVID

If dealing with the COVID Pandemic Panic or any presumed Trump maladministration thereof, was the impetus for (Biden-)Harris spending levels, then 2023 and 2024 should have seen a reduction in the pace of spending and debt issuance. Instead we got an increase.

The differentials are not insignificant. If we overlay the trends on the same chart, we can see directly that the (Biden-)Harris Administration’s debt issuance has been far more profligate than Trump’s pre-COVID debt issuance.

The steeper the trend line, the faster the pace of debt issuance.

If the job of the Treasury Secretary is to manage and conserve the public fisc, Yellen has been a demonstrable failure as Treasury Secretary.

Yellen’s Debt Issuance Policies Made Things Worse

A major contributing factor to the debt ceiling dilemma now facing Donald Trump is the way in which Janet Yellen chose to issue US debt.

Invariably—and inexplicably—Yellen opted to issue shorter-term Treasuries even when yields were low, rather than going long to lock in the lower interest burden. This is intuitively a poor debt management practice, as it fails to account for interest rates eventually rising.

When interest rates inevitably rose in 2022, the U.S. government was forced to refinance at significantly higher rates, which cost taxpayers hundreds of billions of dollars. It was an error of judgment that most of us cannot even comprehend—if interest rates are close to zero, you lock them in for as long as possible. It's no different than refinancing your mortgage at 2.5 percent, as millions of homeowners did during that time period. It's common sense.

Yellen was quickly caught out by her mistake, as interest rates would more than double in 2022.

To add insult to injury, yields on the shorter-term debt Yellen preferred rose higher than the yields on the longer-term debt she perhaps should have issued. That greater interest burden is a recursive factor that only increases government spending. While a superficial survey of US debt does not quantify how much Yellen’s debt management style contributed to her pace of debt issuance vs the fiscal incontinence of the rest of the (Biden-)Harris Administration, there is little doubt that her debt management style was a significant contributing factor to her pace of debt issuance.

When your Treasury Secretary is a source of excessive wasteful spending in the form of reckless incursion of interest expense, that’s never a good thing!

And that recklessly incurred interest expense is something that is going to continue to not be a good thing for the nascent second Trump Administration. While corporate media and the Federal Reserve love to crow about “cutting interest rates”, Wall Street has yet to get the memo, with the 10-Year and 30-Year Treasury yields remaining at or near their post-COVID peaks.

Only the shorter-term 1-Year and 2-Year yields have come down noticeably, and even they remain several orders of magnitude above where they were in 2021.

Not only does the Trump Administration have to contend with a maxed-out credit limit, but it has to contend with a much tighter and more expensive debt market.

Thanks, Janet!

Did Yellen Delay Notifying Congress?

Janet Yellen’s personal contributions to the present unfolding debt ceiling dilemma do not end with her bizarre inability to balance the federal checkbook. We have to wonder also to what extent an apparent unwillingness to grab the debt limit bull by the proverbial horns caused her to delay apprising Congress of looming a looming debt crisis.

A search of press releases and news announcements by the US Treasury on statements pertaining to the debt limit shows that the Treasury had no comments regarding the debt limit between June, 2023—when Congress suspended the debt ceiling—and December 27, 2024.

At a minimum, we can infer from this lack of comment that Yellen does not know how to read a calendar, for it was always a given that the debt ceiling suspension was going to end at the end of 2024. That was set in stone.

But when we look at patterns of debt issuance in 2024, particularly towards the end of 2024, we notice something remarkable: debt issuance plateaued at the end of November, 2024—well before her notice to Congress that the debt ceiling was an issue.

Trend analysis is the most basic of analytical techniques, and in all spreadsheet applications is a common statistical function to apply to a range of data. That is a four-dollar way of saying that Yellen herself could see the same trends and make the same extrapolations I am making here.

That is also a four-dollar way of saying that she should have been making the same extrapolations I am making here.

It would have been obvious in early 2024 that the debt ceiling was going to be reached around the end of either December 2024 or January 2023—right around the time the debt ceiling came back into force, it was sure to be reached.

Yet Janet Yellen said nothing.

While it would be borderline delusional to argue that Congress would have adroitly dealt with the matter given timely advance warning, there is no denying that it is for Congress to deal with such matters, adroitly or otherwise.

What is the consequence of the delay?

The most obvious consequence is one that arises from what Janet Yellen has now stated is necessary for her to do: pause debt issuance and delay various payments to conserve cash on hand.

However, the Treasury can only delay payments. It cannot cancel them. Contributions to pension funds and other obligations must eventually be met—and to meet them, the Treasury is going to be compelled to issue more debt, something that Yellen has put on hold at least for now.

That means that once the debt ceiling is resolved, the Treasury is going to have a number of pending payments it will have to make in fairly short order. We can get a thumbnail estimate of how much that “catch-up” payment is going to be if we compare Yellen’s debt issuance trend from the start of 2023 through November of 2024 to where the current plateau for US debt is—and where Yellen says it will remain through March 14.

A six week pause in debt issuance means that once the debt ceiling is resolved, the Treasury will have to immediately issue a flood of debt—potentially $676.4 Billion—just to catch up on outstanding bills. Having to issue a larger-than-normal level of debt at a single debt auction is will push yields even higher, adding ever more to the US Treasury’s interest burden.

That ~$676.4 Billion flood of debt likely to be necessary after March 14 is going to command a greater yield (meaning a higher cost and a lower price) than would otherwise bee the case if the debt had been issued in the normal course of Treasury debt auctions.

Arguably, that added interest burden is a direct consequence of Janet Yellen not informing Congress of the Debt ceiling sooner.

Now It Is Trump’s Problem

I should not need to say that, as all of this occurred before January 20, 2025, and thus before Donald Trump was officially made President of the United States, none of these recent convolutions are Donald Trump’s fault. We should not presume that they are.

Yet because Donald Trump is now President, these issues surrounding the US debt are very much his problem. Donald Trump and his incoming Treasury Secretary Scott Bessent are the ones who will have to navigate the minefield of public debt, debt yields, and interest expense Janet Yellen has left behind.

Was this deliberate politics on Yellen’s part? We cannot say that just off the available known facts. With what is publicly known, the simpler and less complicated hypothesis of stupidity—innocent or malicious— remains by far the more compelling argument.

Yet within that hypothesis lies also one of reluctance to weather public criticism, and thus a reluctance by Janet Yellen to provide timely notice to Congress becomes also a question of just how rapidly the US was due to hit its debt limit and be statutorily unable to issue more debt until Congress takes action to raise or suspend the debt limit. As we question Yellen’s intellect and competence we must also question her integrity.

Regardless of why Janet Yellen chose the course she did in her final days as Treasury Secretary will be forever a question of speculation. Short of a public statement by her, we are not likely to ever know with certainty.

Still, we do not need to know the “why” of Janet Yellen’s choices to understand the consequence of Janet Yellen’s choices: The incoming Trump Administration Redux begins its first full day of operations with no capacity for financing and funding much of anything not already planned, and the likely obligation to delay an increasing amount of even that until Congress decides to do something about the debt limit.

Whether intentional or accidental, Janet Yellen’s parting gift to the Trump Administration is a debt time bomb that she discretely armed just as she was walking out the door.