On 3/22/2023, Senator Kennedy questions Treasury Sec. Yellen on bank bailouts, Biden budget. Kennedy asks Yellen whether she’s a Keynesian, and the answer is a yes. But Yellen doesn’t even know her John Maynard Keynes because when the patron saint of deficit spending wrote his exhortations for governments to borrow money to stimulate a recessionary economy, he also included the caveat that such borrowing must be paid off when the recession is over.
Kennedy: What, what debt as a percentage of our GDP is too much?
Yellen: So, it depends on what interest rates are, and real interest rates have been extremely low. This budget and previous budgets have projected that they would move up toward more normal levels over time, but certainly not the levels that we saw several decades ago.
Kennedy: could you just answer my question, Madam Secretary? What percentage of our debt of our GDP is too much?
Yellen: Well, this budget has debt held by the public moving up to around 109% of GDP, and that’s not too much in your opinion. Historically, it’s a high level, but on the other hand, interest rates, real interest rates have moved down substantially in recent decades, and so higher levels of debt to GDP are sustainable with lower real interest.
Kennedy: Madam Secretary, you’re a Keynesian?
Yellen: Well, I don’t quite know what you mean by that, but I’ve certainly… Do you believe it’s acceptable, indeed, it’s admirable for government when you’re in a slow period, a recession or boarding a recession, to stimulate the economy by spending, by borrowing money and spending it? Certainly, it can be. I certainly…
Kennedy: Um, that’s really different. That’s what I mean by Keynesian. Do you support that?
Yellen: Well, there are different tools that can be used to stimulate an economy that’s in the downturn, and it’s monetary policy is an alternative tool. But let me go back to my question. Keynes said that when you’re in a recession, you can borrow money and spend it. Government can stimulate the economy and get you out of the recession. Well, I’m not going to make a blanket statement that I agree with that.
Kennedy: Well, let me ask you if you agree with this. A lot of people who say they’re Keynesians, and based on what I’ve read of your writings, you are a Keynesian, but they forget the second part of what Keynes said. He said after you got out of the recession, you pay the money back, did he not?
Yellen: I don’t recall that he said that.
Kennedy: He said it. I can show you that one too.
Yellen: Well, you’ve shown that to me. I promised the chairman I wouldn’t go over, and I want to yield back two seconds. I think, thank you Senator Kennedy.
Kennedy: But you’re in charge of the banking bailouts and the crisis, right?
Yellen: I am not involved in banking supervision, and I don’t have access to any information about the supervision of Silicon Valley Bank.
Kennedy: Okay, so you don’t know whether or not the FED issued a warning four years ago to the bank over its risk management systems.
Yellen: That’s not public information, and it’s not information that I have access to.
Kennedy: Well, I’ll give you a copy of this article. I’ve read the article, but the Fed issued a matter requiring attention, and it said, “Your risk management practices are terrible, and you need to improve them.”
Yellen: That is what the article says.
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Kennedy: you’re a Keynesian? Debt/GDP is too much? Yellen: Historically high level but sustainable with lower interest