Now we've got to talk about the debt ceiling. and boy, there is a lot of fear that the United States is going to default on its obligations. Specifically, treasuries. The way that works is when we stop paying our bills and we start defaulting on the debts that we owe because our debt ceiling has been broached and we can no longer play accounting tricks to extend how long we have until that debt ceiling expires.

And then we say we start calling up people with treasury bonds and say, hey, sorry, you know we can't pay you even though that's not directly how treasury bonds work once, mostly because they're paid at, um, uh, you receive them at a discounted valuation is why treasuries work. Just to make a simple example, though, the argument is when the United States starts defaulting on its debt, the stock market could crash over 40 percent by some estimates, and the bond market could see a massive sell-off with a massive increase in interest rates. Massive increase in interest rates could drive our economy into a substantially deeper recession, if not even depression, Because we could end up being in a situation where hey, by July or or September somewhere in that range. when we hit the debt ceiling, maybe inflation will be conquered.

But if we then refuse to pass the debt ceiling increase and negotiate some kind of debt ceiling limit increase, then all of a sudden we default on our obligations. We have the worst financial crisis that we've ever experienced in the history of America. That is what some economists are calling for. Now, if we look at what the Federal Reserve tells us about the history of the debt ceiling, we can get a little bit more insight.

And of course we're going to throw up that Banner again to remind you that we're just two days away from the price going up for those programs on building your wealth whether it's stocks and psychology of money zero to millionaire real estate investing, do-it-yourself Property Management Rental Renovations becoming a real estate agent, building your wealth with real estate, selling real estate making YouTube videos and YouTube YouTube content the way I do you learn all about that via the links down below For those programs on building your wealthy coupon expiring in two days and price is guaranteed to go up. So the United States has once again reached its debt ceiling in the first month of 2023, a limit that Congress set at 31.4 trillion in 2021. If no action is taken, Estimates are that the United States could face another debt sailing crisis between the X state which is expected to be somewhere between July 1st and September 30th now since 1960, 1960. So think about that.

that is 73 years ago Congress has acted 78 times to deal with the debt ceiling. Not once has America defaulted at all, not once. However, people say this time is different and now with Kevin McCarthy in control of the Republican-led house, we could actually end up defaulting on our obligations. Measuring the debt burden? Arguably Okay, Now this is where we get interesting about debt.

This is where we start talking a little bit more granularly about debt. and then we'll talk about what we think is likely to happen. So first, Allah people will make what I think is Uh is is the very simplistic argument of simply saying oh my gosh, we have 31 trillion dollars of debt. This is ridiculous.

And don't get me wrong, the fiscal path that we're on right now is unsustainable. We need to fix Uh, the path that we're on. We're spending too much money for how relatively inefficient we are compared to how much money we're spending. So I want to be clear? We have to either become a lot more productive or we have to spend less money.

It's very simple, but what I do think is very important is that when we talk about the national debt, we talk about the national debt relative to how much our economy is growing. And that's actually what the St Louis Fed says here that look, the national debt. The best way to measure it in their mind is to measure the national debt as a percentage of GDP Something that you can do is you can also measure uh, the national debt as a percentage of the interest payments on the national debt. Uh, and the way the reason you might want to do that is because it could give you a little bit of look into even more recent history to show.

Okay, hey, uh, as a percentage of GDP Maybe maybe we're not actually spending that much money even as our debt is going up. So if you look at the St Louis uh, Federal Reserve and you look at the Federal outlays chart of Interest as a percentage of gross Domestic product, what you're going to find is uh, this screen that we're going to pull up here. Let's go grab this window. St Louis Fed There we go.

Take a look at this particular chart here. This chart will show you that back in the 90s, we were spending somewhere between 2 to 3.1 2.8 to 3.1 percent of our GDP on the national debt. Right now that number is going up, but we're spending around 1.86 percent, so we could still roughly double and be roughly at where we were at spending levels in about 1991.. Now that's remarkable because it's somewhat move some of that pain that people have when it comes to looking at that nominal debt number.

but there are other ways to look at the debt as well. So what I like to do is I Wrote some notes Here I Go and I say that purely nominal figures don't actually mean anything and debt to GDP helps. But what I like is the interest payments as a percentage of GDP I call that our burden I Wrote this down right and that's what I just showed us now as our GDP grows Maybe through an AI boom, an artificial intelligence boom I Write that that is optimistic. Today's debt could actually become irrelevant.

And so I make an example here. Imagine this: Imagine that our debt today is uh, 31 trillion dollars and our economy is 23 trillion dollars in size. In other words, it takes us about 1.48 years of productivity to pay off our debt if we were to throw everything at paying off our debt, right. So think about that very simply for a moment.

Let's say you owe Thirty one thousand dollars and you may make twenty four thousand dollars. Let's assume you have no expenses and you just throw everything at paying off your debt including no taxes. It would take you about 1.48 years to pay that off right now. What would happen if for example, these levels tripled Uh, so.

or one of the levels the triple and the other one doubled. So for example, let's say your productivity tripled and now all of a sudden you had income of instead of 23 000, you had income of sixty nine thousand dollars and your debt doubled. Well, Now all of a sudden, you have reduced your debt to GDP by about 36.5 percent because you actually owe less than you're creating in that year. So there is a way of Escaping The Debt that we have today by becoming substantially more productive.

Let's say over the next 10 years, just to be extreme, we're able to 10x our economy and our economy goes from about 23 trillion dollars to 230 trillion dollars, and our debt four X's from 31 to 124.. Well, all of a sudden, we'd look and we go. Man, our debt is less than half our GDP. We're killing it.

even though the debt foreign Next, it becomes substantially less relevant over time. So really, what you have to bet on to not be worried about the debt is in my opinion, substantial growth in the economy. Now for the math whizzes who like math I wrote a little chart over here to make that a little simple and break that down just so you could see how that might work if your debt on a percentage basis Grows by five percent. Uh, but your economy, or rather, yeah, your debt grows at five percent.

Which is kind of almost like what's happening now. Your debt grows at five percent, but your economy is growing at two and a half percent. You're growing your debt twice the speed of GDP. That's really bad, right? You don't want that.

You want to be in a situation like this where your debt is growing at let's say, two and a half percent. So it's still growing. The number is still big, but oopsies, your GDP is growing maybe 10. In this case, your debt is growing at one-fourth the speed of GDP This is what you want.

So I Wrote this note here When people say oh my God the debt is so high it's really a bad and unintellectual argument. What we really have to do is say, how is our debt relative to the interest payments we're making, how is our debt relative to GDP and how is our debt growth relative to our economic growth I Think it's are schools that have failed to teach that obviously I mean I Ran for Governor on the idea of of suggesting we needed Financial education in schools. It seems like it'd be very simple to do, but nobody wants to do it. But anyway, anyone mentioning trillions of debt right? You hear this all the time.

You see this on Twitter all the time headlines. she actually wrote I deleted Twitter and Tick Tock off most of my devices because I found that 99 of the algorithm is emotion based and you know you kind of get that on like YouTube titles as well. But I think logic is within the actual videos. hopefully the ones that you're watching have logic within.

So I make this argument that we're going to go back to What the St Louis Fred says over here. Uh, I Make this argument that really when people argue, oh my gosh, the debt is so high we have 31 trillions of dollars, 31 trillion in debt. We're our country is going to collapse. It's a ridiculous argument because as long as our economy keeps growing, we'll be totally fine.

especially if we can grow at a faster rate than we're growing our debt. And we think about that for a moment. it. What I'm really saying is if America stops innovating America dies I Don't believe that America was going to stop innovating I Think America is the one place in the world that will continue to be the greatest innovator in the world.

I Think it's more likely that China turns into a Japan than the United States turns into a Japan A Japan I Mean there are plenty of reports out now showing that Chinese women are less interested in having children. After the one child's policy was removed, China's population is shrinking, it's declining, their growth is faltering. China might not be in the same boat uh, where where people hope that they will be uh in the future and I think that's why China is now freaking out about oh, we need to be a little bit more friendly to the capitalists because they realize if they don't innovate, they're gonna die and I believe that's true of America as well except for America's purposes. I Have a lot of enthusiasm for what artificial intelligence and productive uh, productivity increases in manufacturing are going to do.

Remember the Wall Street Journal article we've talked about previously Where the Wall Street Journal tells us that Stanley Black and Decker went from having 50 to 75 people on a manufacturing line in China to an in a new modern facility 10 to 12 people which is somewhere around one-fifth to even less of the amount of people on the factory line. And now you're looking at potentially the next phase of factories having only two to three people per line. Those people are then freed up to go make money somewhere else. So think about it, that actually doesn't hurt GDP because you're still producing the same amount of power tools.

except you've now freed up 70 people to go do other jobs. and now you've actually doubled your potential output. So GDP growth is a phenomenal way of minimizing the burdens of our debt. We just have to make sure we continue to invest in in growing this economy rather than shrinking it.

So that's that's very, very important. So let's keep going with this this Fed piece here and we'll keep that banner up on uh, the course member coupon code. All right right before the grade recession U.S debt to GDP was hovering around 60 following the recession, that ratio Rose to around 100 percent. Then in response to the Covid-19 pandemic, that debt to GDP ratio Rose to 120 percent.

and the St Louis Fed talks about a few ways we can reduce that. But first, what I want to talk about is at the bottom. Here, the U.S has experienced this before. In fact, the we hit 100 debt to GDP after World War II This means our debt was basically the same size as the amount uh or as the the size of our economy following.

World War II The ratio reached 97.2 percent in 1945 as a result of War financing. Moreover, in the three decades that followed, U.S debt to GDP ratio fell significantly and by 1974 it went from 97.2 percent to 16.9 percent. Now they break down why that occurred and I translated it over here to save you the time. The drop from nearly 100 GDP to 16 GDP was fueled by a good budget that is actually having a competent government that's spent less than it made.

34.7 percent of that of of of that decline was because of our budget surplus. I Do not see that happening I Just don't see us going into a budget surplus. but it could happen and I'll show you how it could happen. GDP growth represented about 31.8 percent, which that's great.

And then of course you can inflate away debt as well by making it less valuable because as inflation happens, your debt becomes less meaningful over time. To make that very simple: I Want you to think about this: If you have a home loan for a hundred thousand dollars on a home and in 30 years and and today you're making let's say fifty thousand dollars a year. So you're making fifty thousand dollars a year and you have a home loan of a hundred thousand dollars It would take you about two years of income assuming you had no expenses to pay that home loan off, right? Well, let's say now, in 20 years, you haven't paid a dime off on that one hundred thousand dollar home loan because maybe you didn't interest only home loan. But instead of making fifty thousand dollars, you're making five hundred thousand dollars.

Well, now, with just one fifth of your annual income, you could pay that debt away. That would be an example of inflating away your debt assuming that inflation led to those wage increases. Of course, you could also increase your wages by being more of a productive member of society and providing more value which you could have. You can also have both, and that's exactly what it decreased our Uh, our relative debt from the post-war era to Uh to the 70s.

So again, 34 Surplus 31.8 GDP growth and the fifteen point eight percent inflation now. I Wrote that if I I really think we're going to have a GDP boom once we get through this recessionary environment specifically driven by advances in manufacturing chips, electric vehicles I Sound like a broken record by saying that, but basically my pricing power stocks. If you want to know what those stocks are that I Really like, just go to meet Kevin.com You'll see my courses, my affiliate links, and you also see my ETF I am a financial advisor. This video isn't personalized Financial Advice, but check that all out at Meet Kevin.com But anyway, I Think it's entirely possible and I do want to talk about this a little bit as well over here: reducing the net I Think it's entirely possible that we could have a massive increase in GDP and a massive increase in GDP will also massively increase revenues for the government.

And so it. There is this possibility that you could go back to a surplus now I Think our government will end up just spending that money via you know, stimulus checks for businesses that they're trying to prop up like the energy space. but I do think that explosive GDP growth could be a once we get through this recession. So I'm really not personally terribly worried about the level of our debt.

and I'll give you what I think is going to happen with this debt ceiling crisis in a moment. But the St Louis Fed makes it very clear here in terms of three things that could actually help us essentially eliminate the debt. One is fiscal austerity. This is very unpopular.

Think about. like the lack of trash collection in Greece during the 2010's Euro crisis. So fiscal austerity, cutting on spending schools, whatever terrible people hate that people get voted out of office for cutting spending, Then you have inflation, and then of course you have economic growth. which hopefully via the AI uh, Revolution and this Tech Revolution we're going through that I Think we're going to see substantially compound.

over the next 10 years, we're going to see GDP growth just absolutely explode and our debt today will be relatively Irrelevant in the future. So where does this leave us for the debt ceiling crisis this year? Well, obviously, if we defaulted our debt, it would be devastating. I Personally believe that it's 99 likely and I could be very wrong about it. but I think it's nearly certain Congress will pass a debt ceiling limit increase.

Even after they do, they're going to be people pounding the fists, punching the air, and writing in angry tweets about how much dead America has. But anybody who's making the argument that America has too much debt and therefore it's some massive problem is really arguing that America will not innovate in the more in the future. That is the argument. Now it's very important to also consider that America is very different from a direct household.

For example, somebody here is making a reference. Jim Here is making a reference to a margin loan. This is not a margin loan. This is fixed debt.

It's not like somebody calls up America and says all of your debt is due immediately. That's not how it works. The debt America holds is a a a massive collection of of three-month six-month one year, two year, three year, five year, ten year, 20 year, 30 year, and more different various forms of Treasury bonds and different forms of other debts and obligate. Asians The Social Security debts are.

Otherwise, all of these debts aren't coming due at any point. There is no Margin Call There's no movement in the marketplace that all of a sudden makes all of this debt come due. It doesn't matter, what matters is, can we afford the interest rate payment and in the 90s, we afforded twice the interest rate payment we could afford Even more than that. Now again, I'm not saying that's going to be good for the US dollar.

I Think in time as we continue to inflate away our currency, which we will do. remember, every currency that has ever existed has disappeared, Every currency has failed, and the likelihood is that every currency will fail in the future. But personally, the victim of our currency failing is the US dollar, not our assets. Our stocks and dollars, or our stocks and real estate are insulated from that.

Instead, it's it's anything where you're holding actual dollars that is potentially at risk. So I'm not that big of a of a bear when it comes to simply looking at the debt we have because I Think again, the United States has plenty of capacity to make its debt payments, even if we needed to turn the money printer on which we likely will. And uh, even if we do turn the money printer wrong again and people argue, well, this can't last forever. I Agree with that.

I Don't think it can last forever and it won't last forever. But I Don't think this is a problem in this cycle. It probably won't be a cycle in 20 years, or it probably won't be a problem in 20 years. It'll probably be more of a problem in 50 to 100 or 200 years.

We don't know when. maybe we never have to worry about it's. not saying we shouldn't worry about it, but I think what we should focus on now is being as productive as possible not only as a country, but also as individuals. And that's why I have all those beautiful programs on building your wealth.

Being the most productive member of society, you can link down below. whether it's that's zero to million, a real estate group, these stocks and site group or the Elite Hustlers group really popular right now A Lot of people are bundling those three together. They learn all my perspectives on Insurance Liability Llc's building a business Uh, gaining income, building your wealth, High margin businesses, low margin businesses Where to invest your time and your money? Uh, where to build your wealth. So take a look at all of those linked down below.

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