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Speaker 1: Sam Dickey for your funds with me. Now, Hey Sam, Heather,

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Speaker 1: we're going, oh mate, very well. We've got to talk

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Speaker 1: about this US debt burden because this has been getting

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Speaker 1: a lot of attention at the moment.

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Speaker 2: What is going on? Where are we at with the

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Speaker 2: US debt burden?

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Speaker 3: So they owe thirty six trillion dollars, it's about one

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Speaker 3: hundred thousand dollars per person, which is one hundred and

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Speaker 3: twenty five percent of GDP, and that compares to US

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Speaker 3: in Australia about fifty percent of GDP. But it's similar

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Speaker 3: to heavily indebted countries like It's Lee, Greece, France, and

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Speaker 3: even China. And it's in the spotlight right now because

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Speaker 3: one hundred and twenty five percent is around the peak

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Speaker 3: we saw post war, immediately post World War Two, when

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Speaker 3: the US had to borrow a lot to finance it's

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Speaker 3: war effort. And critically, US interest rates, especially those medium

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Speaker 3: term interest rates, are near their highs. So the thirty

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Speaker 3: year interest rates that at eighty year high and that

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Speaker 3: means annual interest payments on that debt pile are now

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Speaker 3: over one trillion dollars. Then, of course we have Trump's

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Speaker 3: big beautiful bell and those against it say, well, left

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Speaker 3: government debt by three to five trillion over the next decade.

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Speaker 1: Somebody sent me a couple of charts on this today, Sam,

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Speaker 1: and it was remarkable to see how the debt had

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Speaker 1: kind of run along the ground for such a long

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Speaker 1: time and then all of a sudden you get this

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Speaker 1: enormous spike. Have they got just a problem with their

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Speaker 1: attitude towards debt there at the moment in the last

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Speaker 1: fifty sixty.

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Speaker 3: Years, Well, yes, they've I think. I guess it was

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Speaker 3: basically in the eighties or post the eighties, and certainly

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Speaker 3: into the nineties when they became addicted to debt and

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Speaker 3: the green span put got put in place where we

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Speaker 3: were every time there was a slight problem, he'd cut

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Speaker 3: interest rates, stoke stoke propensity to borrow, and stoke growth.

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Speaker 3: So I do think not just the end, but I

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Speaker 3: think everyone around the world has got a little bit

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Speaker 3: of a problem and is slightly addicted to debt.

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Speaker 1: Yeah, so what are the risks Some of the risks

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Speaker 1: are quite hot for or something.

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Speaker 3: Well, yeah, I mean the worst case scenario, and I've

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Speaker 3: got to say, I think this is a very low

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Speaker 3: probability is we're knocking on the door of what some

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Speaker 3: people will call the debt doom loop. So that's that

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Speaker 3: self reinforcing cycle whereby that the debt burden reaches a

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Speaker 3: tipping point and that drives up the borrowing costs that

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Speaker 3: lenders would want. They'd want a higher risk premium, which

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Speaker 3: in turn drives up debt. And as the cost of

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Speaker 3: borrowing rises for the government, it would also rise for

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Speaker 3: individuals and businesses. That would drive down GDP growth and

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Speaker 3: therefore further inflate dead as a percentage of GDP. Now

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Speaker 3: that is quite a doomsday scenario. Before we get too excited,

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Speaker 3: a couple of things. Firstly, the US dollars of the

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Speaker 3: world reserve currency. They can print more dollars to ensure

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Speaker 3: they don't default. It's not that attractive either. But also

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Speaker 3: at the stage's GDP growth is higher than interest costs,

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Speaker 3: so we're nowhere near a doom loop. We should ellbrace

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Speaker 3: though hither I think for more of that political brinksmanship

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Speaker 3: you and I have talked about before, back in twenty

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Speaker 3: twenty three, when the government debt ceiling is close to

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Speaker 3: being breached, and that whole debate with Congress will come

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Speaker 3: up in August of this year, so watch out for

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Speaker 3: that extremely low probability but extremely high impact event if

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Speaker 3: it ever happened. How do they solve this, well, three ways,

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Speaker 3: faster growth, or fiscal discipline, or financial repression. So that's

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Speaker 3: keeping interest rates artificially low, so taking each one of

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Speaker 3: those in turn on faster growth. Of course, the maths

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Speaker 3: is simple. Accelerating GDP reduces debt divided by GDP, and

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Speaker 3: of course everyone wants faster growth, but the problem is

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Speaker 3: that usually comes with higher inflation and therefore higher interest rates.

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Speaker 3: Now there is some early early hope that AI can

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Speaker 3: drive productivity and economic growth while driving down prices we

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Speaker 3: shall see. On the austerity side or fiscal discipline, no one,

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Speaker 3: no one wants that from a political point of view,

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Speaker 3: and that's why it's often not used in the market.

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Speaker 3: Head hope that doge and it's promised to cut wastage

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Speaker 3: would be the first step in this austerity journey, but

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Speaker 3: obviously musks out on his ear and it seems like

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Speaker 3: those big savings are a pipe dream. Let's not forget, though,

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Speaker 3: that the US has driven down debt post World War Two,

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Speaker 3: which were of debt from around current levels one hundred

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Speaker 3: and twenty five percent of GDP to thirty percent. And

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Speaker 3: they also did it again in the nineteen eighties and

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Speaker 3: then Portugal, Italy Island, Greece and Spain. The pigs in

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Speaker 3: Europe had austerity forced upon them during the European financial crisis.

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Speaker 3: So this is absolutely doable.

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Speaker 2: Okay, So what do investors need to think about when

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Speaker 2: they're thinking about.

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Speaker 3: All this stuff. Well, that the good news is that

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Speaker 3: the riskers front and center really is and it's been

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Speaker 3: openly debated by investors and politicians. That's great news. It's

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Speaker 3: also good news that we learn post Liberation Day that

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Speaker 3: Trump doesn't care about stock prices, but he does react

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Speaker 3: to the bond market because a rise in interest rates

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Speaker 3: affects everyone. It's always true that politicians have said for

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Speaker 3: many years we all know what to do, but we

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Speaker 3: don't know how to do it and get re elected.

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Speaker 3: So we probably need to market, or more specifically, the

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Speaker 3: bond market and rising interest rates to force politicians hands.

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Speaker 3: So we should be watching this one pretty as always.

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Speaker 2: Thank you so much, Sam, I really appreciate it that

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Speaker 2: Sam Dickey for your fun.

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