🏦 Phase three of the 2023 crisis is a US government debt crisis

“I think that the government debt crisis, assuming the government wants to inflate and monetize the debt as a way to solve that problem, that will be highly inflationary. But when these things play out, we can't know. I think that's what makes this really hard. I think jumping all the way to the sort of finish line and saying we're going to have a million dollar Bitcoin in 90 days because the US dollar is worthless, I think that's premature. I think this could play out over the next couple of years.”

“And it does beg the question, you know, would you want to buy bonds from an entity that's generating $4 trillion in revenue and spending $6 trillion and has a plan to do that for the foreseeable future?”

“I mean, the inflation is here and the crowding out of private investment and private borrowing is now occurring because the government borrowing is so big.”

“But if you flip them around, I'm just telling you, it's not like I want any of this to happen, but I'm telling you, nothing will change and you guys will still be crying wolf in five years. It'll still be the same. It'll just be a different debt-to-GDP number that gives you anxiety.”

“The debt is getting bigger and bigger at the same time that foreign governments and investors in general don't want to fund our debt. So therefore, interest rates will rise. Our interest costs will keep going up.”

“That's not why interest rates are going up.”

“At the end of the day, the market's probably going to impose discipline on us.”

“So if I can get my 5% to 7% from a risk-free US government bond, of course I'm going to do that. So the discount rate on equities will go up.”

“there were two prominent economists who shared that they think we're going to be facing long-term rates in the 5 to 7% range, very long-term rates for a very long period of time, that it is a new fiscal regime.”

“These 2 trillion of bonds that these guys will issue between the strip will trade from 5% all the way down to 3%. There'll be a line out the door, I guarantee you.”

“The last piece of it is government debt. So at the rate that the government is racking up deficits, the Treasury is going to have to float something like $3 trillion of new T-bills by the end of the year. And we're rolling something like $9 trillion of old government debt over the next 18 months at new higher interest rates.”

“The 10-year rate is, what is it now, at like 4.5 percent, something like that? And that rate may not come down. A lot of economists are worrying about this. Some are worried about this because the federal government has such huge financing needs... just because short rates come down, there's no guarantee that the long rates are going to come down. And so, there may not be this relief that real estate developers are looking for next year. And again, there's this wall of debt that has to be refinanced.”

“the forcing function will be the debt service costs, which has just crossed a trillion dollars a year just to pay the interest and it's mounting. 30% of our debt, I think, is coming up for refinancing in the next 12 months. And it's going to refinance at a 5% rate”

“we're running almost $2 trillion deficits in peacetime ... Do long-term rates keep going up based on the debt financing needs of the federal government?”

“The federal budget will get naturally constrained at some point here.”

“Now, we're seeing a separate problem, which is long rates are going up, and the long rates are going up because of this concern that the federal government has too much debt. Bondholders are starting to demand a higher long-term premium to hold that debt. ... Unless the political system gets serious about reducing deficits, even if inflation comes down, and even if the Fed cuts short-term rates, you're going to have a problem with long-term rates remaining high, and that is going to keep the cost of capital high”

“National debt reported by the Treasury Department increased by $275 billion in a one-day report yesterday, $275 billion in a day. The entire TARP program during 2008 was $400 billion. That's how out of control our fiscal condition is. ... there's an arithmetic to this that at some point it becomes ever-escalating until you step in and do something dramatic about it.”

“You balloon the deficit, you balloon the debt, you have all kinds of pork barrel spending, there's zero accountability, the bullets cost $6,000, the umbrella holders cost $15,000. All of this nonsense that just brings us closer and closer to some sort of default or economic contagion.”

“And unfortunately, the few things that if he could have just pushed through, would have really saved America. The biggest one being these 100-year bonds. It would have kept America from getting to the precipice of fiscal ruin. And we'd be in a highly different situation.”

“Eventually, the Fed monetizes all this stuff. It's the only path, which, by the way, will inflate a lot of financial assets”

“There's gonna be a huge budget shortfall over the next year and next couple of years, because there's no activity. I mean, a third of the economic activity of the city has just dried up.”

“counties and municipalities and cities that are in much worse fiscal shape than San Francisco was able to stay incompetent for a lot longer. And so that delta T of incompetence tends to be about five to ten years. I would say the midpoint is eight.”

“I think you guys will like my worst trend. It is the metastasizing national debt. ... And it is a bipartisan problem. It's been going on for really 20-plus years. ... But it is getting worse and worse under Biden.”

“I'm going to go with the normalization of spending. I think it's probably the worst trend. ... It's like we've normalized spending and COVID just made it worse. ... And suddenly it becomes normal. And this normalization catches up to us.”

“every day that interest rates are off, are 1% higher, based on the current federal debt level, we're paying an incremental billion dollars in interest payments per day”

“So there's still room for that number to move up, even with rate cuts on the front end of the curve.”

“I remain steadfast in my commitment to there being only one major issue facing this country, and that is the federal debt and the deficit. We are increasing the federal debt by a trillion dollars every hundred days. That number is not slowing down. ... I think that the necessity of raising tax rates, the necessity ultimately of cutting entitlement programs, the necessary inflation that will arise because of the condition of the federal government's debt level, because we're going to have to keep printing money.”

“The hard part is that our interest expense keeps growing because as our debt rolls onto more expensive, higher interest bonds, then our interest expenses increasing. Just a few years ago, our interest expense was only 300 billion a year. Now it's over a trillion a year. ... And that's just going to keep growing and growing. And then the other thing that's going to grow is all the entitlements related to demographics.”

“The first is that our debt to GDP either historically, but also in relation to other countries is still relatively reasonable. And what that basically shows is we have a lot more debt that we can issue, which means that there's a lot more deficits to run. ... the problem is politicians will use this as a reason to continue spending, because they won't be forced to. And that's not a great thing, but this is probably why the status quo will go on for a very long time.”

“he points out that the era of prosperity that over the last 500 years, we've seen six major empires go through is followed by a debt bubble, which drives a wealth gap, which ultimately leads to economic challenges, which means printing more money, which is the cycle we are going through right now with a, as you guys know, $2 to $3 trillion annual deficit and explosion in federal debt levels. And that ultimately leads inevitably to external conflict, to war.”

“What's going to allow us to pay off this enormous national debt that seems to be so large that it's unrepayable? We need the productivity gains that AI is going to unlock. Without them, we're definitely toast.”

“We're basically in a classic debt spiral where we're borrowing... We're not even paying back the interest on the debt. We're borrowing money to pay off all the interest and then some on top of that”

“7.6 is sitting around 2% and now it's going to get bumped up to close to 5%, which adds an incremental $210 billion a year of debt service expense just on the debt that's getting refinanced in the next 12 months”

“the Trump tax cut that he put in place in 2017 added one and a half trillion dollars to the federal deficit... it does highlight just how much we are spending at the federal level and the demand for tax revenue... which is now we're going to eat into innovation, which is supposed to drive, get us out of the problem, the spiral that results from this debt.”

“people like this see the $160 trillion of private wealth as being on the balance sheet of the federal government and being used to offset the $175 trillion of liabilities. In other words, all it takes is all you got. That's the trajectory we're on.”

“So we've been able to accumulate more and more debt, but it's reaching a point where it's unsustainable. And what we've already seen is that the feds had to jack up interest rates from very low, practically nothing to 5.5%.”

“And so the thing we need to take away is if we don't get our together, that's probably what we're gonna have to do.”

“it should limit the approval or action of certain programs that you might otherwise wanna do in a normal environment, but in an inflationary environment, you don't have the flexibility to do them.”

“But the truth is, we're funding that growth with leverage at the national level, the federal level and at the household and domestic level. We are borrowing money to inflate the revenue numbers. And so the GDP goes up, but the debt is going up higher. And so the ability for folks to support themselves and buy things that they want to buy and continue to improve their condition in life has declined. Things are getting worse.”

“So there are subsidies, there are kickbacks, there are government programs that now number in the trillions of dollars a year, incremental to what we were going to spend if things were the status quo.”

“That is true for consumers, that is true for enterprises, and it is true for the federal government.”

“You had 1.3% GDP growth rate with a 6% of GDP deficit by the government.”

“it took us 200 years as a country to add a trillion dollars to our federal debt, to go from zero to a trillion. And now we're adding a trillion every hundred days.”

“The cost to service the interest alone on our federal debt is now greater than a trillion dollars per year. This already exceeds the discretionary defense budget.”

“So the only reason why we're in positive GDP growth territory is because of massive government spending that we know is not sustainable. And at some point, the bill is going to come due for that.”

“And unfortunately, the action that will be taken to resolve this isn't necessarily a free market action. It's going to end up being some sort of government intervention, which furthers the government's involvement in the economy and furthers the tentacles that make it much harder to ultimately pull out of this spiral and this problem.”

“As all of the low interest bonds mature and we issue new debt at a higher interest rate, our debt service cost is going to continue to climb. It's already higher than discretionary military spending at over a trillion a year.”

“I tend to agree with Friedberg here that when you have massive amounts of debt, it definitely limits your flexibility.”

“We're running unsustainably high levels of deficit and debt. We're running, what, $2 trillion a year deficits right now. And what are we getting for that? We're not getting a super robust economy. We're getting an economy that's narrowly staying out of recession.”

“On the first day of the new fiscal year, federal debt jumped by $204 billion in one day. Federal debt now stands at $35.7 trillion. And the biggest challenge we have in the year ahead is that $10 trillion of the outstanding debt comes up for refinance. It's going to refinance at around 4%. So we're going to be adding another $300 billion in new interest expense next fiscal year, plus the Biden administration has proposed a $7.2 trillion budget for next year, which will inevitably lead to another $2 trillion of deficit spending, which means that by the end of 2025, we could be staring at $40 trillion of federal debt. And if you do the math on that at 4% interest, it's $1.6 trillion a year of interest expense a year just on interest expense on the outstanding debt, which effectively begins to eclipse the entire federal budget very quickly”

“we normalized emergency conditions and consequence-free spending by the US government”

“I think it is inevitable that the federal reserve in the United States is going to need to buy the debt”

“How can you get 4.25% when you have all of these risks looming over the next 10 years?”

“a little bit of austerity measures coming at some point”

“we have this real issue where as the Fed is cutting short rates, long rates are not going down. And I think that is because of the government deficit and the government debt”

“this becomes the compounding problem when your debt to GDP reaches a certain level and you don't reduce federal spending fast enough, it becomes a compounding problem you cannot get away from”

“You cannot have a nonprofit entity representing the plurality of the economic activity of a country and expect the capital markets to function properly.”

“if you're going to run 8% of GDP level deficits for the next four or five or six years, you're going to have the 10 year at 7 to 8%. That's just mathematical.”

“Right now, we're unsustainable. The bond markets know it. Inflation remains persistently high, around 3%.”

“If it doesn't get fixed, as I've said countless times before, we are in an arithmetic debt-depth spiral.”

“And that leads to excessive spending, and that leads to the debt problem. And the debt problem creates this kind of arithmetic debt, debt spiral, which is something you don't want to find yourself in”

“Watch the D'Aulio interview because this is exactly the topic he covers. As we end up needing to refinance this debt, the rates climb, the appetite isn't there, and it becomes a spiral. That's why we have to cut fast in terms of the deficit to basically attract the market.”

“So we don't have a lot of room here where you can walk rates up to 5.5%, 6% without a lot of things starting to break.”

“There's two deflationary things that we need. One is DOGE, and two is where AI is going to take us if it really does its thing, and that will keep us in an okay spot economically. But this spend has to go or we're in Greek territory, if that makes sense.”

“And we plundered and we wasted them by adding 16 trillion to the debt during a good time. Like, what's going to happen during a bad time? Just absolutely brutal.”

“One of the biggest mistakes that I think Janet Yellen affected was this continued issuance of money on the short end of the curve to finance these deficits, which gives you, you inherit, an incredibly difficult challenge, I think, over the next nine months. I think there's like nine or 10 trillion that has to get refinanced.”