Well, hey everyone Me: Kevin Here in this video, we've got to talk about what Jeff is concerned about for a dead Le recession, jobs L recession and an explosion in debt in the United States causing even the US government to potentially be well, having to print money in order to pay its debts off. Uh, this post here is inspired by Jeffes, which we broke down some of the aspects of what we're going to talk about here on Ec.com as I always like to and uh, what? I want to start with is right here on eack I Want to start with this chart. So what this chart here is uh, is it shows us the lack of private sector hiring that we're starting to get in various different jobs reports including June September October and this chart doesn't even yet show December But December's private sector hiring the exception of leisure and Hospitality was also exceptionally low Leisure Hospitality did did have a rebound though in December once we show that number. Uh, However, the point is, a lot of the foundation of these job gains.

Uh, In fact, just the health care, social assistance, and government sector sectors are a lot larger than what we've previously seen. This is very common of a late cycle economy that could potentially be trending towards a recession, so people fear that once this segment is done acquiring jobs, there's really little left to prop up the economy. Uh, in terms of hiring and as we've talked about before, jobs are would keep the economy going I Think the most practical way to think about this is always look if you're in an expensive area like LA or San Diego or Manhattan Why is housing so expensive? Why is rent so expensive was because there's job availability. People are there who have the incomes to be able to afford those payments so that creates more demand.

Which when you have more demand in like an island, what is it a peninsula Manhattan that's got to be an island I Don't know. Whatever it is, Um, you have a limited supply of housing. Same is true in areas like California uh in other parts of the United States. But the point is once you start getting a self-fulfilling Vortex of unemployment going where companies start laying off and you have a lack of hiring.

That's all of a sudden when you very quickly get Negative year-over-year comps at not only revenues for companies but also Us output combination of services and goods produced and sold. Remember, the consumer makes up about 70 to 72% of the economy depending on the year we actually take that measurement. But look at another concern. So something that at the end of this post on Jeff that I didn't like seeing at all was look at this: US Federal Government annualized net interest payments as a percentage of government receipts.

Okay, so we have to understand this a little bit. This is government receipts are basically the tax revenues that the government takes in. Now there isn't a perfect proxy for this But what we can do is we could take uh, the St Louis Fed chart on federal government net interest payments as a percentage of GDP and we'll see a somewhat similar increase here in a moment. But there's something special about what this chart isn't showing us.

But first, let's consider the risks of this. The risks of this chart are that at some point the US government may just because we're spending so much money on not only things we've committed to like Social, Security and Medicare, but we have lower tax revenues. As people make less money, companies make less money, and eventually with higher interest rates, we keep refinancing lower interest rate treasury bills and notes into higher interest rate ones. The amount of money we're spending on interest goes up to the point where we have to print money just to be able to pay our interest.

Jeffrey says we are not far away from that point now. I Want to know what's the implication of that? What does that mean when our debt payments go so high? Well, there are a few initial things that we think of. Of course we think about the potential collapse of the US dollar and the collapse of uh, uh, trust in the American currency which then eventually turns into uh, this potential inflationary disaster where you turn into like a Venezuela right Where when people don't trust your currency anymore, what happens? People dump your currency and people don't want to accept your currency anymore, they start using maybe a currency like gold or maybe something that could be more functional than gold. Quite frankly, a cryptocurrency.

And so, maybe a lot of people speculate. That's why you have Folks at the Uh SEC potentially like Gary Gendler saying what do we need a digital cryptocurrency for We already have a digital dollar And perhaps that's also why you see people like Jamie Diamond over at JP Morgan suggesting hey, if I were the government, I would kill cryptocurrencies Interesting, There is quite literally an interest in preserving the US dollar and the existing system because it presently does enable us to print money to pay the interest on the debt that we printed to pay for the things that we can't afford to pay for. And the sort of system kind of keeps cycling. So the question is, until it becomes a problem.

Is it a problem? Well, what I wanted to do as a proxy for this is look at the Uh St Louis Fred Uh Federal Reserve This is their like Educational Department But anyway, I Like this chart, this I thought was very interesting. So this is the Federal government's current expenditures: Interest payments divided by GDP Now note this is the interest payments divided by GDP rather than government. Uh, uh um, how should I say revenues? Uh, However, they they tend to correlate because obviously as GDP goes up there, there, is more generally more tax revenue for the government unless they're substantially lowering taxes, right? So assuming taxes are equal, this should be a roughly equal proxy. But what I wanted to do is look at this chart compared to the Jeffre chart and you'll see something really interesting in the Jeffre chart.

They cut their chart off here in 1994. Uh, and so I thought Hm interesting, that was a previous. High Why did they cut off in 1994 to kind of show that we were about to Barrel past 1994? Well, I think the reason is when you actually extend the chart further back all the way back to 1947, their argument becomes less desirable because 1994 sits about here. We actually had two prior Peaks We had a peak over here in 8485 and 9091 during the uh, early 90s recession.

So we had these two peaks here. Now keep in mind their chart goes up a little higher to around here, and that's because they're annualizing uh, the latest data on the right here. They're basically taking the last six months and multiplying it by two for example. And that's going to exacerbate how high this line looks fine.

Those are two little adjustments that I actually think are kind of a big deal for understanding. mostly because now what I want to do is I want to see? Well, what did the stock market do during this environment over here between the 80s and '90s what happened? Well take a look at this. Here's 82 the end of sort of the Paul Vulker hikes and over here is the '90s recession and and if you draw a line between 92 and or sorry 82, let's say, and 92, you can basically see it's you know, volatile but kind of straight up almost dare I say like a Nike SW Oh, not that again, by the way. Side note: I'm really excited that I was able to actually like Spike my hair again.

that's kind of cool. A B Remember, you can see my research over at Ec.com totally for free including my tank on coinbase I got to make a video on that one I haven't done that yet. but yeah, yeah, I did some numbers over there on coinbase so check that out. So okay.

so but bottom line on this: this debt crisis I Want to be exceptionally clear: The amount of spending our government does is unsustainable and there are ways you can solve it. The best case scenario way to solve it is the economy explodes with growth and we keep maintaining jobs. That's why, in my opinion, it is exceptionally critical that the Federal Reserve wake up to the fact that we're starting to weaken the jobs Market a lot and we've talked about this quite a bit as well. We talked about this yesterday on the channel.

It's very important that we heed the warnings, the early warnings of breaking the jobs Market because if we don't, we overtip now. I think the FED is aware of this and I think trome Powell's flip in December which is basically the opposite flip from December of two years before. That is indicative of him being aware of this because again, if we can keep jobs and potentially lower low rates to where we get real jobs growth again like private sector jobs growth again, then the economy can actually strengthen. When the economy strengthens, then all of a sudden, what happens? Well, our interest payments as a percentage of GDP go down.

we start refinancing at lower rates anyway, So that line goes down anyway, and the outstanding debt burden that we have becomes smaller anyway. So the best case scenario across all angles is that the Federal Reserve does everything in its power to encourage a prosperous economy. And they will do exactly that. Unless of course, inflation rears its ugly head, which we think is unlikely, But that's obviously the biggest bear argument.

That's the Achilles heal to everything because they would rather put us through a recession than have inflation. and they would rather not put us through a recession to save jobs if inflation is low. Hopefully that makes sense. So what does this mean? Bottom Line: Out of everything.

Well, bottom line out of everything. I Maintain that as long as inflation is gone, the Federal Reserve is going straight back to money printing, because ironically, going back to money Printing and actually increasing the amount of debts will help lower interest rates, strengthen the economy, lead to more jobs growth, and yes, the debt number will increase in size over time. but the basically unsustainability of government debts will just continue to be okay until it's not. And when it's not, you have to solve it through kind of what.

Like the European countries during the Eurozone debt crisis had experience in 2013. Remember: uh, austerity, fiscal austerity? Uh, they basically stopped collecting trash and Athens just as an extreme example: Uh, they cut service substantially Cut: J It's a it's a miserable time. That's a deflationary recessionary, miserable period of time. Austerity sucks.

The road sucks. Nobody fixes graffiti and ambulance police response times, plummet road conditions. Uh, tatter up. It actually becomes harder to operate businesses and a strong economy.

Uh, in in those times. So uh, again, your choices are spend less. It's not likely. okay, not likely because Democrats will spend more and Republicans won't undo that because undoing that amounts to a tax increase.

So ironically, the best thing that we have is the founding fathers making it hard to pass legislation in the first place. That's the best thing yet. So cutting spending? Unlikely, it needs to be done, but it's unlikely. Uh.

two economy grows. Uh or three. Uh, and then you have more revenues to kind of pay it down, right? So spend less, make more uh, or you just inflate it away. Okay, so this is the hardest one for folks to understand.

but it's the reason why we have a 2% inflation. Target If you make I don't know $50,000 a year and you have $11,000 of debt, you have debt To the tune of you know, 150th or 2% of your income, right? Let's say your income 10x to $500,000 a year. Well, that same $1,000 in debt that you have is now just a 20 bip. You know, 1if of 1% of your actual income.

So that's why if you have debt, one of the most glorious things to do is make more money. Of course that's easier said than done. but if you have a money printer, it's not that hard. It's crazy.

and I know what people hear this is like Kevin This is this is all crazy Ponzi Yes, but just know the rules of the game and play the game in the meantime. Now it's raining instead of snowing. All right I Actually kind of prefer the snow anyway. Thanks so much for watching.

We'll see you in the next one. Goodbye.