Yellen Warns $38-T Debt Could Zap US Economy With Hyperinflation

Two thousand years before U.S. federal debt crossed the $38 trillion mark, the Roman Empire faced a similar dilemma: a state burdened by costly obligations and a limited willingness to raise taxes.

As 2026 begins with the U.S. facing a debt-to-GDP ratio of roughly 120%, top economists — including former Federal Reserve chair Janet Yellen — fear a different form of debasement may emerge: fiscal dominance. (Photo: U.S. Federal Reserve)

To bridge the gap, emperors pursued a policy known as “debasement,” gradually reducing the silver content of coins until their value depended more on symbolism than on precious metal, Eva Roytburg reported for Fortune.

The modern equivalent does not involve shaving coins. But as 2026 begins with the U.S. facing a debt-to-GDP ratio of roughly 120%, top economists — including former Federal Reserve chair Janet Yellen — fear a different form of debasement may emerge: fiscal dominance.

Fiscal dominance occurs when government financing needs constrain the central bank’s ability to fight inflation, forcing adjustment through reduced purchasing power rather than higher taxes or spending cuts.

Imagine the U.S. economy as a car, with the Treasury as the driver and the Federal Reserve as the brake.

The Treasury spends, while the Fed raises interest rates to slow inflation if spending runs too hot. The problem, Yellen and others warn, is that the car is now towing a $38 trillion trailer.

The load is so heavy that if the Fed slams on the brakes, the system could fail — interest payments would become unsustainable, potentially triggering a default. To avoid that outcome, the Fed may be forced to ease off the brake even as the car speeds toward a cliff. The result: inflation spiraling out of control.

At a panel hosted by the American Economic Association recently, Yellen said she worries the U.S. is nearing the point where the brakes no longer work.

“The preconditions for fiscal dominance are clearly strengthening,” she warned, noting that federal debt is projected to rise toward 150% of GDP over the next three decades.

While this definition focuses on monetary policy, other economists frame fiscal dominance differently.

Eric Leeper, a University of Virginia professor and former Federal Reserve economist, told Fortune that the problem is fundamentally behavioral.

For most of U.S. history, he said, policymakers operated under the “Hamilton Norm” — the expectation that any debt issued today would ultimately be financed by future tax surpluses.