Yellen warns: The American political system faces "mortal danger" and is eroding the foundation of economic prosperity.

Former U.S. Treasury Secretary Janet Yellen has issued a stern warning, saying that America's democratic system is facing a "mortal danger," and this institutional crisis is threatening the fundamental basis of U.S. economic prosperity.

On November 14, in a media interview, Yellen stated that she sees U.S. economic policy decisions being made based on personal will rather than rules. She pointed out that the Trump administration's attacks on the rule of law, threats to the Federal Reserve's independence, and suppression of universities are undermining the institutional foundations of American economic success.

The veteran policymaker, who previously served as both Treasury Secretary and Chair of the Federal Reserve, believes that businesses and individuals are staying silent out of fear of political retaliation, and this atmosphere of fear is harming investment confidence. She also warned that if Trump succeeds in removing Federal Reserve Governor Lisa Cook, "it will be the end of the Fed's independence."

Although the U.S. stock market has risen 15% this year, Yellen believes the artificial intelligence investment boom has concealed the real economic risks. She emphasized that the consequences of institutional erosion will ultimately be reflected in Americans' daily lives.

The Foundation of Rule of Law is Under Attack

Yellen's concerns stem from a deep understanding of the core principle that capitalist systems rely on the rule of law. She cited research by Nobel Economics laureates Daron Acemoglu and James Robinson, which demonstrates that "societies with weak rule of law" find it difficult to achieve economic growth.

Yellen said: In 2025, what she sees are "economic policy decisions made based on personal will and resentment." She said:

"You want to know that you will be treated fairly, that there are rules to the game, and that laws will be enforced impartially and without politicization."

The Business World is Trapped in Fearful Silence

Yellen pointed out that the response of the business community to these policy changes reveals a worrying phenomenon: fear is suppressing normal policy debate. She said:

"From my personal observation, I see an immense fear among people to express negative views about what is happening and about the president. Businesses and individuals seem intimidated. They feel afraid because they know that if they cross the line, it could be their turn next."

In response to Yellen's arguments, White House spokesperson Kush Desai replied that Yellen should "remember it is the Biden administration that has completely ignored immigration laws, forced social media companies to censor Americans’ free speech, and overseen the worst inflation crisis in decades."

The Federal Reserve's Independence is in Jeopardy

As a former Fed Chair, Yellen expressed particular concern about the unprecedented pressure the central bank faces this year. Trump has repeatedly called for rate cuts, considered firing current Fed Chair Jerome Powell, and has tried to fire Biden-appointed Governor Lisa Cook on alleged mortgage fraud charges.

Yellen noted that Trump is not only demanding rate cuts, but is doing so to reduce the government's debt burden, which she considers a double taboo. The president has not only broken the longstanding norm that elected officials do not interfere in monetary policy, but also explicitly called for the Fed to disregard its legal mandate to pursue maximum employment and stable, low inflation. She said:

"If this happened in any developing country—if a leader said such things—there would be immediate capital flight. The currency would come under instant pressure. Long-term interest rates would soar."

Economic Performance Masks Underlying Risks

Despite Yellen’s warnings, the current U.S. economic fundamentals remain solid. Consumer spending is robust, the labor market is slowing in hiring but has not destabilized, and economic growth is showing a rebound. The stock market has performed well, with the S&P 500 index up nearly 15% year-to-date.

Yellen acknowledged this positive performance, but pointed out that the artificial intelligence investment boom may be obscuring underlying risks. She is particularly concerned about suppressive policies facing academia, and the negative impacts from restrictions imposed on foreign students and workers.

"We are losing scientists and research talent," Yellen said. "When scholars are targeted for expressing unpopular opinions and face blatant intimidation, this will undermine the innovation ecosystem." She warned that the core drivers of U.S. economic growth come from technological leadership and entrepreneurial vitality, and current trends may pose a long-term threat to these advantages.

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