The USA is in a debt spiral. Federal Debt has cranked up to nearly 130% of GDP.
When you max out your credit card, you could either:
1. Pay it back with cash or
2. Take out another credit card, at a higher rate because your creditworthiness is now lower. (Your Debt to Income ratio is higher)
The United States Treasury has been choosing Option 2 for over 50 years now (through issuing new debt rather than practicing austerity).
The interest rate on that debt is rising fast…as US Treasury rates are rising across the curve.
It is growing TOO EXPENSIVE for the US Government to repay its debt obligations!
The United States government is in a debt spiral.
The interest expense on debt issued to pay down our $30 trillion deficit would EXCEED current tax revenue.
So, what now?
Option 1: Lower the number of reserves the bank must keep on hand to encourage lending and lower rates, or…
Option 2: Monetize the debt, i.e. printing money (pay back debt with cheaper dollars). Money printer go brrr?
This would entail directly injecting banks with reserves to encourage lending.
Direct fiscal stimulus to mailboxes, pushing dollars to become cheaper, thus making US government debt cheaper to pay down!
Instead of an explicit default on debt, this is an implicit default on debt, essentially passing off the debt burden to US citizens.
One caveat: This will not be on the table until CPI inflation is back down to normal, 2-3% levels.
Watch until the end of the video and click the like button if you haven’t already!
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⏰ Timestamps ⏰:
0:00 – Intro
0:35 – Debt is Spiraling Out of Control
2:07 – Creditworthiness And Austerity
3:08 – Interest Rates Are Rising
4:45 – Is There A Way Out?
7:01 – Global Central Bank Balance Sheets
8:08 – How To Position Yourself
9:19 – My Thoughts
12:20 – LOL
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Hey everybody welcome back to whiteboard Finance my name is marco and i’m here to Help you master your money and build Your wealth in today’s video we’re going To be talking about how the us Government is essentially in the in a Debt spiral and it has been for Essentially the past 50 years or so so This video was inspired by james lavish He has an excellent thread on the debt Spiral and he’s also been featured on a Couple of podcasts that i regularly Listen to talking about this idea so my Research analyst joe consorti and i Decided to make a slide deck about it so This is going to be called the debt Spiral of 2022 the only way out is Printing money so let’s lay the Groundwork here so debt is spiraling out Of control so you can see these two Lines right here the blue one is the Federal debt the total public debt uh With a starting point of quarter one 1966 we can see that the red line is Gross domestic product uh gdp of the Country starting at the same time frame So we’re looking at the same starting Points where the values are 100 or equal So you can see right around here Everything was fine up until the mid 80s And this is where these two lines Started to split apart you can see the Blue line which is the total public debt Absolutely exploded this typically
Happens after recessions which are the Gray columns which you can see here Happening all throughout history but the Biggest one was 2008 when they decided To implement quantitative easing one and Then quantitative easing two and then Quantitative easing 3 and then Quantitative easing infinity Because that seems to be the trend so if We look at the most recent recession Other than this one that we’re currently In right now by definition that was in March of 2020 and you can see it’s Almost like a hockey stick right here But you can see that gdp has been Growing steadily which is typically a Sign of a healthy economy And for those of you that don’t know What gdp is this is your gross domestic Product in super layman terms in a small Nutshell this is basically the value of Your economy it’s the combination of all The goods and services that your country Produces essentially so it’s been Growing steadily however look at the Debt this is due to money printing this Is due to stimulus so let’s get to the Next slide here So a quick analogy would be when you max Out your credit card you can either do One of two things you can either pay it Back with cash so that you have no debt And don’t owe anybody anything or you Can continue to max out those credit
Cards take out another credit card However your debt to income ratio is Going to be much higher because you Still haven’t paid back the first credit Card so you’re going to be taking out This credit card at a higher rate Because your credit worthiness is now Lower your credit score is most likely Going to be impacted if you have Lingering debts we’re not talking about Personal finance here we’re talking About uh sovereign debt and we’re Talking about governments this is just a Simple analogy that the everyday person Can understand we’re not talking about Zero percent transfer balances and Things like that we’re talking about Credit worthiness people aka not paying Back your debt and continuing to take Out more debt this is essentially what The united states treasury has been Doing uh for over 50 years now through Issuing new debt rather than being Austere or practicing austerity so let’s Get into some numbers here so the Interest rate on that debt is rising Fast so you can see in this chart here We have u.s treasury yields You can see the yellow one is the three Month uh the orange one is the ten year Not the two year and the blue one is the Two year which is currently higher we Have an inverted yield curve here people Which is typically one of the best
Indicators of a recession which again we Are currently in by definition so these U.s treasury rates are rising across the Curve this is happening now because Treasury demand is barren and it is Growing too expensive for the us Government to repay their debt Obligations so we’ll zoom in a little Bit on this chart here in the next slide You can see here that the borrowing Costs for housing vehicles credit cards And also the us government is soaring Basically since 2020. you can see that They’re all basically flatlined except The 10-year which was sitting at Basically 50 basis points aka 15.5 Percent these two down here were very Low almost at zero and then you see Things like mortgage rates typically Following these trends right now if You’ve been following the 30-year fixed Mortgage rates we’re sitting at roughly Six percent just two years ago when i Bought my house i got a 2.49 percent 30-year fixed that’s crazy you can buy So much less house now for the same Exact amount of money So if we look at this let me move my big Uh big head over here i’ll make myself Invisible You can see that the three month is Sitting at 2.9 the 10 year is sitting at 3.19 and the two year is sitting at 3.39 At the time of this recording so let’s
Get into the next slide here so what Does this mean there’s only one way out So what is happening as we mentioned Repeatedly in this video the united States government is in a debt spiral The interest expense on the debt issue To pay down our 30 trillion dollar Deficit would exceed our current tax Revenue let me repeat that for the People in the back the interest expense On the 30 trillion dollars that we Currently hold or owe would exceed Current tax revenue so what can we do Now so option one is to lower the amount Of reserves that banks must keep on hand To encourage lending and lower rates or We can monetize the debt through money Printing aka paying back that debt with Cheaper dollars so you inflate the Currency this is why governments like Inflation because it allows them to keep Spending money like crazy this is why Real estate developers love inflation Because they take out Debt fixed rate debt x in year zero they Pay it back with uh rents or the Revenues from the property or the income From the property in the meantime that Currency is being inflated away or that Debt is being inflated away excuse me So let’s take a look at this slide so This is a famous picture from 2020 we Got jiggety jerome just money printing Like crazy uh this is actually an
Animated gif where the dollars are just Flying out of this machine here Just so you know when people say money Printing it’s not literally printing Money uh over 90 percent of dollars are Digital uh which will only be Exacerbated with cbdc central bank Digital currencies which are on their Way also i’ve been talking about this For about two years now people so what’s Going on right now so banks um Or excuse me the fed is injecting banks Directly with reserves to encourage Lending this is going to huge commercial Banks like jp morgan for example they All have relationships with the federal Reserve number two is direct fiscal Stimulus which we’ve seen through uh ppp Loans uh we’re getting rid of student Debt uh you know all this stuff very Loose unemployment rules these are all Forms of stimulus people So dollars are becoming cheaper us Government debt is cheaper to pay down So instead of an explicit default this Is an implicit default there is one Caveat however this will not be on the Table until cpi is back down which i Will have a video on that later next Week most likely So this slide i decided to throw in here Because a lot of people don’t really Follow this stuff this is the total Assets of major central banks these are
Central banks balance sheets essentially Okay so you can see here in 2007 Red is the fed united states federal Reserve green is the bank of japan blue Is the european central bank uh orange Or yellow depending on what you see on Your screen is the people’s bank of China after 2008 look at what happened Red Hockey stick blue hockey stick China and japan Increase increase increase They tried debasing right around here 2018 this is when um the markets crashed The last time united states other than 2020 and then right back up with cerveza Hockey stick hockey stick hockey stick And we’re trying to come back down as You can see here european central bank Deleveraging fed going back down Slightly uh bank of japan sharp decline People’s bank of china sharp decline We’re trying to go back to quantitative Tightening is what that slide is trying To show so how can you position yourself People so the classic financial advisor Route is have a 60 40 portfolio 60 Equities 40 percent bonds yields topping Out means that bonds are bottoming out Having exposure to both bonds and Equities is beneficial this has Typically been a safety net throughout History number two is having a position In speculative assets especially if
You’re younger not if you’re older a Small position in speculative risk Assets to make outsize returns in times Of monetary easing or stimulus One small enough it wouldn’t matter if You lost it But don’t bet the farm okay but again Only risk what you are willing to lose That’s what this italicized font is Trying to tell you and then finally as Always educate yourself on how money Works By watching this channel high signal Channel high signal research uh Financial literacy is the biggest Problem facing our world today and it’s Why the treasury and the fed can do so Much damage uh because you’re more Concerned about what’s on netflix you’re More concerned about who’s playing Football on sunday you’re more concerned About bread and circus putting food in Your stomach and being entertained Arm yourself with knowledge to master Your money and build your wealth So let’s get into my thoughts as always Okay let me make the font a little bit Bigger here uh so i can see what i’m Talking about so how have we not seen Hyperinflation with all the stuff that We’re seeing on the balance sheets all The money printing all the stimulus all That stuff we’re having we haven’t seen Hyperinflation in the united states
Because the u.s exports inflation okay There’s a lot of international demand For dollars to this day the dollar is Super strong right now i’m going to Europe uh literally in a week right now The euro to dollar is basically one to One can’t wait to ball out in europe Okay Specifically in uh Never mind i’m not going to say where I’m going number two is the petro dollar Saudis and most oil is traded in dollars If someone tries to sell their oil and Other types of currency or other types Of precious metals or outside of the Petro dollar we export freedom to their Country in the form of Bombs okay i’m just going to say it That’s iraq libya et cetera et cetera Number three we are the world reserve Currency research bretton woods if you Haven’t already after world war ii Europe was a parking lot uh same thing With japan same thing with most other Countries maybe south america i guess Wasn’t which is a continent obviously But we were the huge industrial power Who didn’t become a parking lot after World war ii this allowed the united States to become the world’s reserve Currency the number four most most Central banks have ridiculous balance Sheets as we just saw but emerging Markets and middle middling powers such
As turkey lebanon argentina et cetera They can’t just print their way you know Out of trouble such as zimbabwe Venezuela things like that turkey has Like 33 percent inflation this year Argentina’s inflation is crazy Lebanon you got people in the banks Literally holding up banks with ak-47s With a cigarette in their mouth trying To get their money out of the banks to Pay for their dad’s medical procedure uh That’s a real that’s a true story so This is why we haven’t seen Hyperinflation the dollar is still Strong our economy is still Relatively doing well uh but most Importantly we’re the world’s reserve Currency there’s international demand For dollars and then also the petro Dollar if you don’t understand the petro Dollar you don’t understand finance Hopefully you got value out of this Video i will be posting this video maybe A week or two from when you’re actually Or recording this video a week or two Before you’re actually seeing it because I will be sunning my buns on the Adriatic sea so hopefully a lot of this Stuff doesn’t become out of date by the Time you see it as always share the Video high signal content we’re not Regurgitating cnbc headlines on this Channel we’re trying to Provide you with value ahead of the
Curve uh thank you so much share the Video on social media give it a like Subscribe hit the bell notification if You haven’t already uh and also check Out the link down below for my school Whiteboard finance university it’s going To be a ton of value live streams every Week with me with multiple professors Teaching uh real estate stocks options Macro et cetera et cetera it’s gonna be A ton of value thank you so much and Have a prosperous day Hey saddam gaddafi i heard you’re trying To trade uh oil and euros Gold Dinars Yeah we’re gonna have to pay you a Little visit there buddy