June 2025
Tune in if you're interested in the following:
• Understanding why the U.S. national debt is a growing concern—and what it means for your money
• How inflation, interest rates, and political inaction are shaping our economic future
• Whether we can “grow” our way out of debt, or if inflation is the path of least resistance
• Smart investment strategies for a world where the math doesn’t add up
• Why diversification today means more than just owning stocks and bonds
Watch previous episodes here:
Ep. 142 Stock Options & Strategy: Build Wealth Through Equity Compensation
Ep. 141 10 Principles Every Wise Investor Should Follow
So, Meghan, a few weeks ago, Moody's downgraded the US debt credit rating, and I feel like nobody's really talking about the longer-term issue of the US debt. What are the implications of it? How do we get out of it? Obviously, it's something we've been thinking about for a while in terms of how we invest. But how big of a problem is the US debt, in your opinion?
Well, it's showing up. I would say a little more of the headlines, actually, than it's been in the past because it's been a problem or it's been an increasing problem over a long period of time. You know, the potential we're just going to grow out of it because it is going to be this amazing source or sky that's coming.
So I mean that there are solutions out there, which I'm sure we'll get into.
You could build a bunker.
The bunker. Is that one of the conclusions here? It'll be like you can invest in this or build a bunker. No. Look, I think that the debt is something that we've been harping on for a long time. So long before it even became mainstream to talk about it. Because fundamentally, the US is bankrupt, right? You can't continue to spend so much more than you take in revenue and have the debt continue to accumulate meaningfully over time.
It's gotten more attention recently with, the current administration coming in and saying they were going to cut costs and saying, where can they cut from? And and trying to find places. Despite all of that talk. The current budget proposal actually came out, and they're still spending more than they did the previous year. So it's even when there is sort of a talk or the concept that maybe we can deal with this or we should focus on this.
It's easier said than done.
I find that interesting. So in some of the in some of the stats that Ian pulled up for us, here is something interesting because this goes back all the way to Reagan, right? So back in the 80s, you know, most presidents before, like Carter, Ford, Nixon, they ran like a 100 billion to a couple hundred billion dollar deficit, which sort of built our debt.
And they would increase their percentage increase was like modestly in the 30% to low 40% range. Reagan came in, he was the first president to have a deficit of 1.8 trillion. So over a trillion. So in Jimmy Carter's era, it was almost 300 billion. Reagan comes in at $1.8 trillion. So that was an 186% increase.
And look at recessions and things like that. That increases the deficit. So it's not just spending but yes go ahead.
Correct. And then you go through through Bush, Clinton, Bush number two, Obama, Trump, Biden and Trump. Today it just went from 1.8 trillion to, you know, 1.4 trillion to 6 trillion to 8 to 7 to 9, like we're talking trillion.
Yes. Not a "b."
And, you know, I was talking with Jeff recently. And just to remind everybody, if one number was one second, how much time would have to go by to get to a trillion.
So what's 1,000,000,000,000 seconds? It's 33,000 years, isn't it?
More than that.
I mean, Jeff said 33,000 years.
Very long. So trillion's a big number. And these are numbers that are kind of... we don't have good concepts for them. Right. But now they're being thrown around. Here's another trivia question. What comes after a trillion?
You told me the other day quadrillion.
So let's just wait till we talk about our first quadrillion here. I don't know when that's coming, but it's going to be fun.
I'm 45. And if I rewind back 20 years ago, a billion was a lot of money. Now it doesn't seem like it is.
All this is to say that is what we've had this is not a political argument in terms of Republicans. Democrats like there has been a definite long-term trend of increased spending and spending more than we actually have. And the question becomes, when, when do we have to pay for that? Like, what do you do for that? And you're to a large degree, I think, leveraging the future, saying, okay, that that debt is going to ultimately weigh on growth of a country, for example.
And I think we're seeing that now. We do not grow as quickly as a country as we did, you know, decades past. And so now what do you do? Or when does that become a crisis? What are the actual results? And I think because the US dollar, you know, is the world's reserve currency, it's allowed us to access the printing press to continue to increase the depth, you know, the debt and that.
So far there's no sort of easily seen immediate consequence to that. Right. You, for example, you should be saying that interest rates in theory should be higher, not lower. Everyone thinks they should be lower. But you look at and you say, wow, the US has a lot of debt, you know, and projects to have more.
What does that look like? Should I be lending to a country that's basically saying they're going to keep printing money and they're going to devalue this currency that I'm holding this in? Logically, you would say no rates should be higher, not lower. That may or may not be the case. There are a lot of factors that go into it.
And you bring up the the interest rate problem, which is sort of the reason why I wanted to have this conversation is because how we sort of got out of this in the past, post-World War Two Industrial Revolution, high interest rates, high inflation, we got out of that debt by being able to have really good growth. And some of the concerns today with how much debt we have and interest rates not coming down, or they're not likely to come down much lower in the future.
I mean, I don't know where they're going to go, but I don't see a catalyst without some forced buying or some manipulation to bring the longer-term rates down to make buying homes or construction costs more affordable. We need growth to help solve this problem.
Look, I don't it's very hard to predict. There are so many factors that go into what direction interest rates are going to go. So I wouldn't say I'm predicting like, oh wait, they're definitely going up. I just don't think it's obvious. And there's a lot of people out there who are very confident rates are coming down, especially like in the real estate area where people well, it has to come back down.
Interest rates are not high. Like it's not like we're in, you know, crazy 78 like timeframe where.
But affordability was high before.
Well affordability is yeah it's challenging and so there's there's a lot of issues related to again what direction interest rates are going to go, including at who wants to lend to the US government at the current rates versus do they need higher rates. Does the government come in. And now we can get all of you a bunker conspiracy theory.
But it happens in history. Does the government come in and mandate that institutions, banks and pensions have to buy a certain amount and that keeps rates low? Do they just print it themselves? There's a lot there's a lot of choices. The government has to deal with some of these things. But ultimately there's a consequence. And the consequence is inflation, right... long term, the dollar is devalued. And this happens across paper currencies. By the way, the dollar's not unique.
Japan did that for a number of years.
They're still on it. Japan's an interesting case in some ways. It's sort of a little microcosm of like, what could we you know, one day, one day I get to. But it's a fun experiment. We can watch to see how that unfolds.
And so when you think about this, obviously there are a few different ways that we can get out of it. Obviously cut spending. We could, you know, the austerity. Sorry. We can we could raise taxes. We can just hope that inflation runs high enough to where we wake up one day and say, oh, 36 trillion is not that much money.
Is that the hope?
And we can grow our way out of it as well.
And look with all those I think grin and you mentioned this Jeff laid out I think really nicely I don't remember how long ago was, but in a, in a perspective paper about some of those different options. Right. How do you actually deal with this debt and austerity? The reason I laugh is that it's just not... there's not an alignment between any politician, any party, and the idea of austerity, right?
If you spend less or raise taxes was another one, those are things that have an impact today. The short term impact of that is not fun. They will cause a recession and will cause challenges. You know, in the economy that's not fun to live through. Does that is that the right move for the long-term? Potentially yes.
Yes. But again, the politicians are there to get reelected, not to necessarily do what's best for the long term. The inflation one is tough because inflation is very much the path of least resistance. And the perfect world that everyone would like is that you don't want inflation to be like eight nine, where it was. People freak out when that happens.
You want inflation to just be above the interest rate. You want interest rates, low inflation a little bit higher. And over time then that's how you can manage your debts. And to your point 36 trillion becomes manageable. That's not that's not good for the consumer. Right. That's not good for the middle class. The idea that over time their dollars are continuing to work and work and their dollars are buying less and less. So it's subtle. It's more subtle that way. Maybe people don't notice as much, but it's not really a great recipe for long term success and prosperity.
You know me to be a little bit of an optimist.
I mean if you've got a fixed rate mortgage at a very cheap rate in 20 years from now, you're paying that mortgage payment with depreciated dollars. As long as you've had growth and growth of income, it's a great thing.
But one of the reasons why we think that this government debt is concerning is you couple it with auto loans, credit card defaults and student loan defaults at the highest default rate they've been post-great financial crisis. And so we have signs of an economy that's not able to grow fast enough to kind of tackle this problem.
There are cracks that are starting to show in the economy. Does that necessarily mean big recession? No, not necessarily. But you mentioned a bunch of issues that we're starting to see and concerns with the consumer. The consumer is, you know, the vast majority of the economy. So if a consumer is suffering, that presents concerns that you will see a pull back. Recessions make, even if they're not bad, if they make these deficits worse, right?
So that all of a sudden your tax receipts go down and, and essentially now the deficit balloons even further. So it exacerbates the problem. We're already even during nonrecession times, we're growing the deficit each year. And so that's the trouble is that again when things are good, we grow the deficit. If things are going to get bad, we're going to grow the deficit even more.
So at what point does that start to matter? And I think where you now translate it over to investments. Yeah. It matters in the bond market or it could matter in the bond market. And that's something we've been watching for for some time. But even you saw previous, when the Federal Reserve finally started lowering interest rates, the bond market yields went up.
Yeah. The ten-year went from 3.9 to 4 or 5 or something.
Right. And so that surprises a lot of people because for a long time the Fed was interest rates to a large degree. They moved it but the market followed suit. But a lot of people don't understand that the Fed actually doesn't get to control bond yields. The only thing they get to control is the very short-term rates.
They don't get to control the ten-year treasury.
Well, I mean, I don't know if the FOMC starts printing money and buying $120 billion worth of bonds, they just don't get to... they don't get to set the rate. They don't get to come out and be like, we would like the ten year treasury to be x percent.
So you need manipulation.
You need something right out of the money printing for someone to buy it, whatever it is to actually control that. And again, they can guide to things. They can try to persuade the market that there's a certain rate that's a good rate. But at the end of the day, the market, the bond market is bigger than the fed.
And that's that's an important point. Just because again, we we would like to think we have control over the situation. And oh rates are coming down the fed at lower rates. It doesn't quite quite work that way.
And so that's why when you're taking a look at our investments in our more traditional bond like things, you're sticking to a shorter duration. We're getting paid very well for a lot less risk than going out in duration. Yeah.
You're just... you are not being given all this uncertainty today. You're not being paid to take on that interest rate risk uncertainty. So when you buy a longer-term bond, that bond pricing is going to be a lot more sensitive to interest rates. So if it moves up you lose money. If it moves down, you could actually make money.
It's just too big of an unknown. So if you stay on the short term end here, you don't have that same sensitivity. But to your point, you're actually getting paid pretty well just for staying short term and not having that exposure. So on the liquid part of our portfolio, that's definitely been a focus. I think. Otherwise, though, to protect yourself in this environment, there's a number of things you can do and that we've done pretty, pretty aggressively across portfolios.
And we want more things that we think will be resilient in different environments.
I mean, march to the beat of their own drum.
So you want things that are not necessarily just like so many investments... It's just like what's happening in the economy, what's happening with interest rates. And that is what is going to drive the result. We have to find investments that have other drivers to them, and it doesn't mean there's no risk.
You just want different risk, like that's actual true diversification. When you have different things that are going to drive your returns as opposed to like, well, if the economy does great, we do well. And if not, it, so asset-backed lending is another one. So you've got an actual asset that's behind it. So you've made a loan. Hopefully, you're making better than liquid bond rates. So a nice, nice extra yield.
Better than inflation. But if there's a problem with that loan there is a backup plan. Right. I love backup plans. The other thing is a real asset. So we have quite a bit of exposure to gold, you know, in different kinds of commodities like that, as well as to real estate.
Real estate. Yeah. Challenging in the short term. And I think there could be some positives going forward. But long term like short-term real assets will have great value in an inflationary type environment, even if inflation is not crazy, even if it's just kind of running a little hotter than people would like, it is something that actually could protect value in this situation.
And what's your take on a modest exposure to having stock exposure during a situation like what we're in, where you need growth, you've got inflation, you've got debt?
Yeah, it's tough because we've talked a lot about stocks and valuations being stretched. And there just being a lot of uncertainty in the stock market. I think you have to have some. And there are a few reasons for that. One is that certain kinds of companies, not all actually do well in inflationary environments. If you have a company that's got pricing power and can pass through cost increases to the consumer, those companies actually can do well during inflationary environments.
It is very mixed. And I guess in real terms, after inflation, stocks don't always do great during those kinds of challenges. But there's scenarios here right where everything just continues. And as is, we've been... there have been head fakes, lots of head fakes in recent years where, oh no the market starts to get volatile. And is this sort of the, you know, the reckoning where the debt matters and things matter and we have problems in the world and then it just takes off again.
There's a lot of... I think people in the stock market looking to push prices up. And so I think you can't not have any exposure. You can have less. You can say, look this is heightened risk right now. So we're going to be on the lower end of a fair range that we would like because I'm going to have more things in like the private lending or the gold, the debt of real estate, things that I have more confidence in, kind of the range of potential outcomes.
Meghan, this has been fun. The lights actually turned out right as we're wrapping this.
We should probably pay our electricity bills.
Maybe the inflation has gotten...
We're just cutting back. No more lights.
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