Janet Yellen warns the $38 trillion national debt is testing a red line economists have feared for decades.

The article discusses the concept of fiscal dominance in the context of the U.S. federal debt, which has surpassed $38 trillion and is projected to reach 150% of GDP in the coming decades. Economists, including former Federal Reserve Chair Janet Yellen, express concern that the government's financing needs may hinder the central bank's ability to control inflation, potentially leading to hyperinflation. The article highlights a shift from the historical "Hamilton Norm," where debt was expected to be financed by future tax surpluses, to a perception of government debt as a permanent gift, which could undermine public trust and economic stability. The implications of this shift are already visible in the bond market, affecting borrowing costs for households and raising concerns about the future of fiscal policy in the U.S. [Extracted from the article]