Janet Yellen Warns of Institutional Decline Threatening U.S. Economic Foundations
November 15, 202587 VistasTiempo de lectura: 3 minutos
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In a significant warning from a prominent economic figure, former Treasury Secretary Janet Yellen stated that the United States is facing increasing dangers that threaten its economic foundations. She highlighted that political pressures on the rule of law, the independence of the Federal Reserve, and universities represent an "institutional decline" that could hinder economic growth, as reported by Bloomberg.
Yellen emphasized that her remarks in July 2024 about the need to uphold democratic values were not merely symbolic. She noted that the threats to American democracy are now more pronounced, describing it as being in a state of "existential danger."
Political Threats to the Economy
Yellen referenced economic studies, including those by Daron Acemoglu and James Robinson, which confirm the strong link between institutional strength, the rule of law, and GDP growth. She warned that "economic policies driven by whims and grievances" undermine investor confidence and prompt businesses and investors to reconsider their decisions.
She cautioned that the politicization of regulatory decisions or interference in the independence of economic institutions could deter both domestic and foreign capital from the U.S. market.
Criticism of Trump’s Policies and Federal Reserve Interference
Bloomberg noted that Yellen, who has held top economic positions in the country, has previously criticized President Donald Trump's policies, but her current warnings carry a sharper tone. She argued that Trump's repeated pressures on the Federal Reserve to lower interest rates for political reasons represent a "serious collapse" of the central bank's independence.
She added, "If what is happening now occurred in a developing country, capital would have fled immediately, the currency would have collapsed, and long-term interest rates would have surged," warning that the U.S. could be "on the path to becoming a banana republic."
Yellen also cautioned that attempts to remove Federal Reserve officials, such as Lisa Cook, effectively threaten the independence of the Fed, as the potential to dismiss any member makes the institution vulnerable to political pressures.
Implications for Universities, Technology, and the Dollar
Yellen pointed out that political intervention in universities and restrictions on foreign students jeopardize one of the United States' most powerful growth engines: innovation and technological progress. She stated, "We are beginning to lose scientists and researchers... and there is explicit harassment of anyone who expresses an idea that the president may dislike."
She believes this could weaken the U.S.'s ability to lead in technological and artificial intelligence sectors, which are critical for future growth.
Despite robust performance in financial markets—evidenced by an 18% rise in the S&P 500 since the elections—Yellen indicated that this increase conceals an underlying "institutional fragility." She also noted that the dollar has depreciated by 4% since the announcement of tariffs in April, indicating unexpected pressures on the currency.
Are American Voters Paying Attention?
Yellen acknowledged that institutional issues do not directly reflect in everyday living costs, such as "the price of a gallon of milk," but they accumulate risks that threaten long-term economic stability. She remarked, "Ultimately, it is up to Americans to recognize the impact of these changes on their daily lives."
She hopes that voters will express their disapproval of this trajectory at the appropriate time, as they did when inflation rose, but questioned, "How long will that take?"
Yellen emphasized that her remarks in July 2024 about the need to uphold democratic values were not merely symbolic. She noted that the threats to American democracy are now more pronounced, describing it as being in a state of "existential danger."
Political Threats to the Economy
Yellen referenced economic studies, including those by Daron Acemoglu and James Robinson, which confirm the strong link between institutional strength, the rule of law, and GDP growth. She warned that "economic policies driven by whims and grievances" undermine investor confidence and prompt businesses and investors to reconsider their decisions.
She cautioned that the politicization of regulatory decisions or interference in the independence of economic institutions could deter both domestic and foreign capital from the U.S. market.
Criticism of Trump’s Policies and Federal Reserve Interference
Bloomberg noted that Yellen, who has held top economic positions in the country, has previously criticized President Donald Trump's policies, but her current warnings carry a sharper tone. She argued that Trump's repeated pressures on the Federal Reserve to lower interest rates for political reasons represent a "serious collapse" of the central bank's independence.
She added, "If what is happening now occurred in a developing country, capital would have fled immediately, the currency would have collapsed, and long-term interest rates would have surged," warning that the U.S. could be "on the path to becoming a banana republic."
Yellen also cautioned that attempts to remove Federal Reserve officials, such as Lisa Cook, effectively threaten the independence of the Fed, as the potential to dismiss any member makes the institution vulnerable to political pressures.
Implications for Universities, Technology, and the Dollar
Yellen pointed out that political intervention in universities and restrictions on foreign students jeopardize one of the United States' most powerful growth engines: innovation and technological progress. She stated, "We are beginning to lose scientists and researchers... and there is explicit harassment of anyone who expresses an idea that the president may dislike."
She believes this could weaken the U.S.'s ability to lead in technological and artificial intelligence sectors, which are critical for future growth.
Despite robust performance in financial markets—evidenced by an 18% rise in the S&P 500 since the elections—Yellen indicated that this increase conceals an underlying "institutional fragility." She also noted that the dollar has depreciated by 4% since the announcement of tariffs in April, indicating unexpected pressures on the currency.
Are American Voters Paying Attention?
Yellen acknowledged that institutional issues do not directly reflect in everyday living costs, such as "the price of a gallon of milk," but they accumulate risks that threaten long-term economic stability. She remarked, "Ultimately, it is up to Americans to recognize the impact of these changes on their daily lives."
She hopes that voters will express their disapproval of this trajectory at the appropriate time, as they did when inflation rose, but questioned, "How long will that take?"
