1 00:00:00,080 --> 00:00:02,520 Speaker 1: The phony bookkeeping goes merrily on. You know, we borrow 2 00:00:02,560 --> 00:00:05,200 Speaker 1: money from the Social Security Trust Fund and we call 3 00:00:05,280 --> 00:00:08,959 Speaker 1: it income Now corporation did something like that, the management 4 00:00:08,960 --> 00:00:11,160 Speaker 1: would all be watching each other's laundry and club fed. 5 00:00:15,320 --> 00:00:18,279 Speaker 1: Hi and welcome back to Bloomberg Benchmark, a podcast about 6 00:00:18,280 --> 00:00:22,320 Speaker 1: the global economy. It's Thursday, October Tween night. I'm Tori Stillwell, 7 00:00:22,520 --> 00:00:25,959 Speaker 1: the US economics reporter in DC with Bloomberg News. I'm 8 00:00:26,000 --> 00:00:29,319 Speaker 1: with my colleagues inco hosts Dan Moss, our executive editor 9 00:00:29,360 --> 00:00:32,600 Speaker 1: for International Economics here in d C with me and Akiedo, 10 00:00:32,720 --> 00:00:37,280 Speaker 1: our editor for Benchmark in San Francisco. Hello, Tory, how's 11 00:00:37,280 --> 00:00:40,080 Speaker 1: it going. It's going. You know, it's pretty it's pretty 12 00:00:40,159 --> 00:00:43,520 Speaker 1: miserable weather here and just waiting for a debt deal 13 00:00:43,560 --> 00:00:47,920 Speaker 1: to come down, so you know the usual. Well, this 14 00:00:48,000 --> 00:00:52,200 Speaker 1: has been another very exciting week in the global economy. Um, Dan, 15 00:00:52,280 --> 00:00:54,920 Speaker 1: what's cut your eye over the past week? I was 16 00:00:54,960 --> 00:00:59,600 Speaker 1: looking at the Ali Baba earnings released yesterday. The general 17 00:00:59,760 --> 00:01:02,160 Speaker 1: nar clity of was that Ali Barbera hit it out 18 00:01:02,200 --> 00:01:05,160 Speaker 1: of the park. Sales were up by almost a third 19 00:01:05,840 --> 00:01:12,199 Speaker 1: despite a slowing Chinese economy, Defying the slowdown overcoming the slowdown. 20 00:01:12,840 --> 00:01:17,240 Speaker 1: And yes it's true China's headline GDP is slowing, but 21 00:01:17,440 --> 00:01:21,040 Speaker 1: the mix of what's driving Chinese growth has changed dramatically 22 00:01:21,040 --> 00:01:27,080 Speaker 1: in recent years. Services now accounts for more than half consumption, 23 00:01:27,319 --> 00:01:31,520 Speaker 1: which is what Ali Barbera is is doing pretty well, 24 00:01:31,600 --> 00:01:36,800 Speaker 1: getting stronger, exports getting weaker, manufacturing getting weaker, fixed their sets, 25 00:01:36,880 --> 00:01:40,920 Speaker 1: investment getting weaker. So it's not that Ali Barbera overcame 26 00:01:41,000 --> 00:01:45,240 Speaker 1: the slowdown. Ali barber is the Chinese economy. Yeah, that's 27 00:01:45,280 --> 00:01:48,080 Speaker 1: a great point, and that's also a great plug for 28 00:01:48,120 --> 00:01:52,600 Speaker 1: our second episode on the Chinese financial market crisis for 29 00:01:53,000 --> 00:01:55,840 Speaker 1: people who haven't digging to listen to that show yet, 30 00:01:55,920 --> 00:01:59,360 Speaker 1: which I get out tor, what's been interesting for you? Yeah? 31 00:01:59,360 --> 00:02:02,160 Speaker 1: I want to share from services to goods. We got 32 00:02:02,200 --> 00:02:06,720 Speaker 1: the Advanced Trade report this morning, so that be Wednesday morning, 33 00:02:07,200 --> 00:02:11,560 Speaker 1: and before your eyes glaze over, I swear it's interesting 34 00:02:12,880 --> 00:02:17,200 Speaker 1: the US merchandise trade deficits, so for goods it actually 35 00:02:17,720 --> 00:02:23,120 Speaker 1: shrank um and that was due to higher exports. Shipments 36 00:02:23,120 --> 00:02:26,320 Speaker 1: of goods to overseas customers climbed two point four percent, 37 00:02:26,480 --> 00:02:30,360 Speaker 1: which is the biggest increase since March. And this is 38 00:02:30,480 --> 00:02:33,840 Speaker 1: great news because you know, we've talked in many episodes 39 00:02:33,840 --> 00:02:36,000 Speaker 1: about there being a strong dollar and that being bad 40 00:02:36,000 --> 00:02:39,200 Speaker 1: for manufacturers here because it makes them goods more expensive 41 00:02:39,360 --> 00:02:42,840 Speaker 1: to foreign customers. Some of that may be starting to abate, 42 00:02:42,919 --> 00:02:45,920 Speaker 1: which would be excellent news for our economy. Well, you, guys, 43 00:02:45,960 --> 00:02:48,320 Speaker 1: I wanted to talk about the deal that the White 44 00:02:48,360 --> 00:02:52,560 Speaker 1: House made with Republicans. They reached this deal late Monday 45 00:02:52,639 --> 00:02:56,799 Speaker 1: night to raise the eighteen point one trillion dollar debt 46 00:02:56,840 --> 00:02:59,919 Speaker 1: ceiling and thus prevent the US government from de fall 47 00:03:00,000 --> 00:03:02,880 Speaker 1: thing on its debt. So yeah, the government was able 48 00:03:02,960 --> 00:03:06,639 Speaker 1: to avoid a lot of potential chaos with with the steal. 49 00:03:07,120 --> 00:03:10,240 Speaker 1: But first let's introduce our guests. John Steel Gordon, a 50 00:03:10,360 --> 00:03:14,480 Speaker 1: historian and author of the book Hamilton's Blessing, The Extraordinary 51 00:03:14,560 --> 00:03:17,880 Speaker 1: Life and Times of our National Debt. Hello John, Hello, 52 00:03:17,880 --> 00:03:20,000 Speaker 1: I'm glad to be here for people who are listening 53 00:03:20,120 --> 00:03:22,240 Speaker 1: and are like I know that the death ceiling is 54 00:03:22,240 --> 00:03:25,800 Speaker 1: a big deal, but I don't quite know what it is. Tori. 55 00:03:25,880 --> 00:03:28,600 Speaker 1: Can you can you give a quick explainer on what 56 00:03:28,800 --> 00:03:32,520 Speaker 1: exactly this mysterious term is. Yes, I will do you 57 00:03:32,680 --> 00:03:35,280 Speaker 1: one better. I will define a couple of terms. So 58 00:03:35,360 --> 00:03:38,280 Speaker 1: we have all our ducks in our own. So the 59 00:03:38,360 --> 00:03:43,040 Speaker 1: debt is just the total of federal budget deficits you 60 00:03:43,080 --> 00:03:47,320 Speaker 1: know throughout history, minus federal budget surpluses. That's all of 61 00:03:47,320 --> 00:03:51,400 Speaker 1: them put together. Now, the deficit is just how much 62 00:03:51,600 --> 00:03:56,920 Speaker 1: spending exceeds revenues in one given fiscal year. And that's 63 00:03:57,000 --> 00:03:58,960 Speaker 1: that's sort of easy to imagine as a consumer, how 64 00:03:59,040 --> 00:04:01,120 Speaker 1: much you're spending versus how much you're getting in. So 65 00:04:01,200 --> 00:04:04,560 Speaker 1: you can have a surplus and it's still to exactly 66 00:04:04,720 --> 00:04:06,680 Speaker 1: for for one year. You can have a surplus and 67 00:04:06,680 --> 00:04:10,480 Speaker 1: they're still debt exactly. UM. Now, the debt ceiling is 68 00:04:10,520 --> 00:04:13,800 Speaker 1: the legal limit on how much total debt the government 69 00:04:13,840 --> 00:04:17,120 Speaker 1: can issue. And that's not just the amounts borrowed in 70 00:04:17,160 --> 00:04:23,039 Speaker 1: credit markets, but also insecurities treasuries issued to UM other 71 00:04:23,080 --> 00:04:26,520 Speaker 1: parts of the government for example, John, how many countries 72 00:04:26,560 --> 00:04:29,400 Speaker 1: have a debt ceiling? Is this a unique situation here? 73 00:04:29,600 --> 00:04:31,640 Speaker 1: It's it's the only one that I know of, UM, 74 00:04:31,720 --> 00:04:34,040 Speaker 1: And that may be because we have a presidential um 75 00:04:34,240 --> 00:04:37,279 Speaker 1: form of government as opposed to a parliamentary form of 76 00:04:37,320 --> 00:04:40,120 Speaker 1: government where the where the government and the parliament are 77 00:04:40,200 --> 00:04:43,280 Speaker 1: essentially one and the same, and so they don't need 78 00:04:43,320 --> 00:04:45,359 Speaker 1: a debt ceiling. Why do we have it in the 79 00:04:45,440 --> 00:04:48,800 Speaker 1: first place, and what are the pros and cons of it? Well, 80 00:04:48,800 --> 00:04:53,320 Speaker 1: the death ceiling. Before nineteen seventeen, Congress authorized all issue 81 00:04:53,360 --> 00:04:55,760 Speaker 1: of debt. If the Treasury wanted to issue you know, 82 00:04:55,800 --> 00:04:58,360 Speaker 1: a billion dollars worth of treasury bonds, that Congress had 83 00:04:58,400 --> 00:05:00,880 Speaker 1: to say, Okay, you can spend it on building bridges 84 00:05:00,960 --> 00:05:03,599 Speaker 1: or whatever. And then in nineteen seventeen they put a 85 00:05:03,640 --> 00:05:06,520 Speaker 1: limit on the various forms of debt. I mean, how 86 00:05:06,520 --> 00:05:09,480 Speaker 1: many Treasury bills, how many Treasury notes, how many Treasury 87 00:05:09,520 --> 00:05:13,000 Speaker 1: bonds um the Treasury could issue. And then in nineteen 88 00:05:13,040 --> 00:05:15,560 Speaker 1: thirty nine they established the debt ceiling, and you know, 89 00:05:15,600 --> 00:05:19,080 Speaker 1: the total debt cannot exceed this number without Congressional permission. 90 00:05:19,320 --> 00:05:22,240 Speaker 1: This seems like it was just kind of a control measure, 91 00:05:22,440 --> 00:05:26,359 Speaker 1: like Congress wanting some measure of control over what the 92 00:05:26,360 --> 00:05:30,400 Speaker 1: Treasury is doing. Yes, um, that's that's the point of it. 93 00:05:30,440 --> 00:05:34,680 Speaker 1: But of course, if Congress appropriates money to spend um, 94 00:05:34,760 --> 00:05:37,240 Speaker 1: and then it has to provide the money to do 95 00:05:37,279 --> 00:05:40,000 Speaker 1: the spending. And if you don't don't have the you know, 96 00:05:40,160 --> 00:05:42,320 Speaker 1: tax revenues coming in, and you have no choice but 97 00:05:42,400 --> 00:05:44,919 Speaker 1: to borrow the money. So it's kind of a you know, 98 00:05:45,040 --> 00:05:47,960 Speaker 1: dog chasing its tail kind of a thing. John, Was 99 00:05:47,960 --> 00:05:52,000 Speaker 1: it always this contentious, No, not usually. It's in the 100 00:05:52,080 --> 00:05:55,200 Speaker 1: last UMF twenty years that has really gotten heated, and 101 00:05:55,360 --> 00:05:59,719 Speaker 1: especially under Obama. How do you account for that? Well, 102 00:05:59,760 --> 00:06:04,400 Speaker 1: I've I think partly it's the American politics is polarizing. 103 00:06:05,000 --> 00:06:06,640 Speaker 1: You know. It used to be used to have liberal 104 00:06:06,680 --> 00:06:11,280 Speaker 1: Democrats and conservative Democrats and liberal Republicans and conservative Republicans. 105 00:06:11,279 --> 00:06:15,159 Speaker 1: You don't anymore. Old Democrats are liberal, Republicans are conservative. Yeah, 106 00:06:15,240 --> 00:06:17,800 Speaker 1: And for our listeners, let's just sort of establish where 107 00:06:17,800 --> 00:06:22,640 Speaker 1: we are in the In the debt ceiling talks in Washington, UM, 108 00:06:23,040 --> 00:06:25,560 Speaker 1: the Republicans and the White House came to agreement, az 109 00:06:25,560 --> 00:06:28,279 Speaker 1: Aki said, And so now it's got to pass both 110 00:06:28,320 --> 00:06:32,000 Speaker 1: the House and the Senate. UM. Our congressional reporters say 111 00:06:32,040 --> 00:06:35,480 Speaker 1: that will probably happen in the House sometime Wednesday today, 112 00:06:35,480 --> 00:06:39,200 Speaker 1: the day we're recording, and then it'll have to go 113 00:06:39,279 --> 00:06:41,680 Speaker 1: to the Senate for approval as well. And they have 114 00:06:41,880 --> 00:06:46,320 Speaker 1: until November three is our deadline. Basically, that's before the 115 00:06:46,440 --> 00:06:50,080 Speaker 1: US gets very close to defaulting on its obligations, which 116 00:06:50,080 --> 00:06:54,760 Speaker 1: would be an extraordinarily bad scenario. Let's back up a 117 00:06:54,800 --> 00:06:58,120 Speaker 1: little bit here. When I first learned what the debt 118 00:06:58,160 --> 00:07:02,560 Speaker 1: ceiling was, I was astonished, because every year Congress decides 119 00:07:02,680 --> 00:07:05,080 Speaker 1: on the budget, you know, it decides on how much 120 00:07:05,080 --> 00:07:08,080 Speaker 1: it wants to spend and how much approximately it's going 121 00:07:08,120 --> 00:07:11,400 Speaker 1: to take in and revenue, and then decides, uh, these 122 00:07:11,560 --> 00:07:14,080 Speaker 1: are the bonds that we have to issue in order 123 00:07:14,120 --> 00:07:17,560 Speaker 1: to borrow enough to actually be able to spend that 124 00:07:17,600 --> 00:07:20,240 Speaker 1: amount of money. So they already decide on all of this, 125 00:07:20,520 --> 00:07:23,240 Speaker 1: and then later they also have to go through this 126 00:07:23,360 --> 00:07:28,880 Speaker 1: thing where they authorize the amount that the of the 127 00:07:28,920 --> 00:07:32,720 Speaker 1: total total debt of the government. And it just seems 128 00:07:32,800 --> 00:07:36,160 Speaker 1: like this very weird thing where you already say that 129 00:07:36,240 --> 00:07:38,640 Speaker 1: you're going to spend this amount and you already decide 130 00:07:38,680 --> 00:07:40,120 Speaker 1: on it, but then you have to go through this 131 00:07:40,240 --> 00:07:44,320 Speaker 1: separate process of then getting approval to do all of 132 00:07:44,360 --> 00:07:47,640 Speaker 1: that all over again. It's so confusing to me, very bizarre. 133 00:07:47,880 --> 00:07:50,120 Speaker 1: Probably has something to do with getting good headlines the 134 00:07:50,160 --> 00:07:54,880 Speaker 1: next morning you can spending John, do you think things 135 00:07:54,920 --> 00:07:56,800 Speaker 1: would be better if we just got rid of this 136 00:07:56,960 --> 00:07:59,679 Speaker 1: debt ceiling altogether or if we just kind of tried 137 00:07:59,760 --> 00:08:03,920 Speaker 1: to meld it in together with the budget making process. Yes, 138 00:08:03,960 --> 00:08:07,960 Speaker 1: I do, because I think it's now become a political football, um, 139 00:08:08,000 --> 00:08:10,560 Speaker 1: and it doesn't serve any purpose other than to get 140 00:08:10,600 --> 00:08:13,080 Speaker 1: politicians to get good headlines the next morning, which is 141 00:08:13,160 --> 00:08:16,680 Speaker 1: of course half of politics. I guess every every year 142 00:08:16,760 --> 00:08:19,480 Speaker 1: when this issue comes up, it does give us a 143 00:08:19,520 --> 00:08:23,080 Speaker 1: good chance, though, to reflect on how much the US 144 00:08:23,160 --> 00:08:29,520 Speaker 1: government owes to everyone else, both US citizens and US 145 00:08:29,600 --> 00:08:34,880 Speaker 1: businesses and companies and individuals around the world. Tori, do 146 00:08:34,880 --> 00:08:38,120 Speaker 1: you want to give us a quick primer on what 147 00:08:38,200 --> 00:08:42,240 Speaker 1: this debt looks like? Now? Yes, sell debt comes in 148 00:08:42,520 --> 00:08:46,200 Speaker 1: many different shades, and there's many different labels for the 149 00:08:46,200 --> 00:08:48,679 Speaker 1: different kinds of debt. So I'll walk through a couple 150 00:08:48,760 --> 00:08:52,480 Speaker 1: of them. So, the US public debt subject to limit, 151 00:08:52,720 --> 00:08:57,880 Speaker 1: which includes um even debt that is accumulated when parts 152 00:08:57,880 --> 00:09:01,040 Speaker 1: of the government borrow or lend from or to other 153 00:09:01,080 --> 00:09:04,360 Speaker 1: parts of the government. So that amount right there is 154 00:09:04,400 --> 00:09:07,560 Speaker 1: eighteen point one trillion dollars right now, and that's right 155 00:09:07,679 --> 00:09:10,480 Speaker 1: at the limit that is the debt ceiling right there. 156 00:09:11,160 --> 00:09:15,120 Speaker 1: That's a lot of money. Yeah. Then we have the 157 00:09:15,240 --> 00:09:19,240 Speaker 1: US public debt held by the public, and this is uh, 158 00:09:19,280 --> 00:09:22,240 Speaker 1: this is more often used by economists. This is what 159 00:09:22,280 --> 00:09:25,800 Speaker 1: people are really concerned about. And this is thirteen trillion 160 00:09:25,840 --> 00:09:30,439 Speaker 1: dollars um. To give you some context, before the recession 161 00:09:31,040 --> 00:09:34,360 Speaker 1: um in December two thousand seven, that number was five 162 00:09:34,440 --> 00:09:38,480 Speaker 1: point one trillion dollars. So we've we've more than doubled 163 00:09:38,720 --> 00:09:41,800 Speaker 1: that level since then, and you know that has to 164 00:09:41,840 --> 00:09:45,520 Speaker 1: do with revenues decreasing during the recession. Also, you know 165 00:09:45,559 --> 00:09:48,000 Speaker 1: we spent to try to get the economy going back 166 00:09:48,080 --> 00:09:52,640 Speaker 1: up again, so we've definitely seen debt balloon recently. Let's 167 00:09:52,640 --> 00:09:56,640 Speaker 1: put these numbers into some kind of perspective, because taken 168 00:09:56,679 --> 00:10:01,200 Speaker 1: in and of themselves, they sound stratus eric. But how 169 00:10:01,280 --> 00:10:05,360 Speaker 1: is the US doing relative to other major economies? Is 170 00:10:05,360 --> 00:10:08,400 Speaker 1: that a lot of debt? Is it average? Is it 171 00:10:08,480 --> 00:10:13,880 Speaker 1: not very much? It's well above average. We're currently about 172 00:10:13,920 --> 00:10:16,199 Speaker 1: a hundred and three hundred four percent of g d P. 173 00:10:16,800 --> 00:10:19,240 Speaker 1: There are countries in worthshape. Greece is a hundred and 174 00:10:19,240 --> 00:10:22,480 Speaker 1: fifty eight percent, Japan is about a hundred and seventy 175 00:10:22,480 --> 00:10:26,280 Speaker 1: four percent. But Japan, the Japanese are very thrifty people, 176 00:10:26,360 --> 00:10:30,480 Speaker 1: and the Japanese national debt is almost entirely internally held. 177 00:10:31,240 --> 00:10:34,600 Speaker 1: The UK is around ninety percent, Frances around eighty six percent. 178 00:10:34,960 --> 00:10:37,600 Speaker 1: These numbers have all been getting steadily worse over the 179 00:10:37,679 --> 00:10:41,240 Speaker 1: last um several decades, and it's important to look at 180 00:10:41,280 --> 00:10:45,280 Speaker 1: these debt to GDP ratios instead of just the absolute 181 00:10:45,320 --> 00:10:49,080 Speaker 1: amount in trillions of dollars. Because your economy produces a 182 00:10:49,080 --> 00:10:51,720 Speaker 1: lot every year and you have some amount of debt, 183 00:10:51,760 --> 00:10:54,720 Speaker 1: that's totally fine. But if your economy doesn't produce a 184 00:10:54,760 --> 00:10:57,400 Speaker 1: whole lot, but the debt size is actually a lot, 185 00:10:57,800 --> 00:11:00,640 Speaker 1: that's when you're kind of in trouble. But on Japan 186 00:11:00,679 --> 00:11:03,360 Speaker 1: and Act, you may also be able to provide some 187 00:11:03,440 --> 00:11:09,000 Speaker 1: perspective of this. Shouldn't it to GDP of the magnitude 188 00:11:09,040 --> 00:11:13,320 Speaker 1: that John does just described If you believe half of 189 00:11:13,360 --> 00:11:16,160 Speaker 1: what's said about the US debt, shouldn't that be leading 190 00:11:16,200 --> 00:11:20,520 Speaker 1: to a catastrophe in Japan? Yet Japanese bonds are in 191 00:11:20,679 --> 00:11:24,480 Speaker 1: more demand than ever. The country is not falling apart. 192 00:11:25,559 --> 00:11:27,720 Speaker 1: Why is it such a big deal. So part of 193 00:11:27,760 --> 00:11:31,120 Speaker 1: the reason why people aren't panicked about Japan right now 194 00:11:31,200 --> 00:11:33,599 Speaker 1: is because, like John said, most of the debt is 195 00:11:33,640 --> 00:11:37,679 Speaker 1: actually owed to its own citizens, its own companies. So 196 00:11:37,720 --> 00:11:39,679 Speaker 1: when the death's kind of internal like that, you're just 197 00:11:39,840 --> 00:11:42,000 Speaker 1: it's kind of like you're pushing money around within the 198 00:11:42,040 --> 00:11:44,960 Speaker 1: same country, it's not that big of a deal. Whereas 199 00:11:45,040 --> 00:11:47,880 Speaker 1: when you have foreign investors, that's when things get a 200 00:11:47,920 --> 00:11:50,559 Speaker 1: little bit more worrying. That was the case for Greece, 201 00:11:50,679 --> 00:11:54,120 Speaker 1: that was the case for Spain, etcetera during the European 202 00:11:54,120 --> 00:11:57,480 Speaker 1: sovereign debt crisis. UM. But at the end of the day, 203 00:11:57,520 --> 00:12:00,560 Speaker 1: this is really about market psychology. You know, investors can 204 00:12:00,559 --> 00:12:03,400 Speaker 1: really wake up tomorrow and decide that the US or 205 00:12:03,480 --> 00:12:08,120 Speaker 1: Japan or any of these other countries just aren't trustworthy anymore, 206 00:12:08,480 --> 00:12:11,360 Speaker 1: and that's when interest rates go up very quickly and 207 00:12:11,440 --> 00:12:15,160 Speaker 1: you quickly tumble into a financial crisis. I suppose they could. 208 00:12:15,200 --> 00:12:18,640 Speaker 1: But don't you think comparisons with Greece and Spain are 209 00:12:18,679 --> 00:12:22,880 Speaker 1: somewhat exaggerated. I mean, here in the US, we or 210 00:12:23,000 --> 00:12:26,840 Speaker 1: you do actually control your own currency. That's not the 211 00:12:26,880 --> 00:12:30,120 Speaker 1: case in Greece and not the case in Spain. John, 212 00:12:30,160 --> 00:12:32,319 Speaker 1: what do you think of those comparisons, Well, I think 213 00:12:32,360 --> 00:12:35,320 Speaker 1: that's perfectly true. I mean, we are the reserve currency 214 00:12:35,320 --> 00:12:39,000 Speaker 1: and that is a huge economic advantage for US UM 215 00:12:39,040 --> 00:12:41,080 Speaker 1: and there's no other country that really could provide the 216 00:12:41,080 --> 00:12:44,360 Speaker 1: reserve currency at this point, so we're very lucky in 217 00:12:44,360 --> 00:12:49,280 Speaker 1: that regard. So we're okay for now. Well, we can 218 00:12:49,320 --> 00:12:52,840 Speaker 1: afford the debt right now because interest rates are extraordinarily 219 00:12:52,880 --> 00:12:54,960 Speaker 1: low and have been for several years. But if they 220 00:12:55,000 --> 00:12:58,839 Speaker 1: go back up to normal rates, suddenly the interest on 221 00:12:58,880 --> 00:13:00,480 Speaker 1: the debt is going to be eating up an awful 222 00:13:00,480 --> 00:13:04,280 Speaker 1: lot of tax revenue. How worried should we be about 223 00:13:04,320 --> 00:13:06,839 Speaker 1: the size of the US debt? I think we should 224 00:13:06,840 --> 00:13:09,520 Speaker 1: be moderately worried about it. It's not a crisis, but 225 00:13:09,600 --> 00:13:12,880 Speaker 1: it can quickly become one. And what are we borrowing 226 00:13:12,920 --> 00:13:16,200 Speaker 1: this money for. In the nineteenth century, we use the 227 00:13:16,280 --> 00:13:18,679 Speaker 1: national debt to save the Union, you know. In the 228 00:13:18,720 --> 00:13:21,240 Speaker 1: nineteen thirties we used it to save the American economy. 229 00:13:21,440 --> 00:13:23,800 Speaker 1: In the nineteen four Days, we used it to save 230 00:13:23,840 --> 00:13:26,520 Speaker 1: the world. What have we spent this all this money on? 231 00:13:26,600 --> 00:13:29,719 Speaker 1: In nineteen seventy the national debt was of g d P. 232 00:13:30,200 --> 00:13:33,920 Speaker 1: Today it's over and we've had no great war, no 233 00:13:34,040 --> 00:13:37,600 Speaker 1: great depression. But we do have an aging population. We 234 00:13:37,679 --> 00:13:40,040 Speaker 1: do have an aging population, but it's not as bad 235 00:13:40,080 --> 00:13:42,640 Speaker 1: as say Japan is at the moment. And so what 236 00:13:42,679 --> 00:13:45,320 Speaker 1: we've basically done is we have borrowed money from our 237 00:13:45,360 --> 00:13:49,160 Speaker 1: grandchildren so that we can enjoy it today. And you know, 238 00:13:49,160 --> 00:13:53,000 Speaker 1: don't forget today's borrowing is necessarily tomorrow's taxes. We're taking 239 00:13:53,000 --> 00:13:54,840 Speaker 1: this money from our grandchildren so that we can have 240 00:13:54,840 --> 00:13:58,600 Speaker 1: a nice lifestyle. When I when I talked to an 241 00:13:58,600 --> 00:14:03,200 Speaker 1: economist yesterday, John Nale over at LPL Financial, he told 242 00:14:03,200 --> 00:14:07,160 Speaker 1: me that when he talks to clients UM and investors, 243 00:14:07,760 --> 00:14:12,240 Speaker 1: the debt is the number one question that people have 244 00:14:12,360 --> 00:14:14,120 Speaker 1: for him. It is the thing that people are most 245 00:14:14,160 --> 00:14:16,800 Speaker 1: worried about. Do you think that's why that is? It's 246 00:14:16,840 --> 00:14:20,000 Speaker 1: just this whole feeling that it's getting unsustainable and it's 247 00:14:20,040 --> 00:14:23,160 Speaker 1: getting out of hand, and it jeopardizes serve the U 248 00:14:23,240 --> 00:14:25,000 Speaker 1: S as we know it, and just kind of curious 249 00:14:25,040 --> 00:14:27,800 Speaker 1: why they would be so worried about it. Why that's 250 00:14:27,800 --> 00:14:30,680 Speaker 1: the first question. Well, I think one thing is that 251 00:14:30,760 --> 00:14:34,000 Speaker 1: this could this could suddenly become a crisis, very very quickly. 252 00:14:34,480 --> 00:14:37,800 Speaker 1: It's again it's psychology. I mean, in the nineteen seventies, 253 00:14:37,880 --> 00:14:40,960 Speaker 1: New York City trotted on down to Wall Street and 254 00:14:41,080 --> 00:14:44,760 Speaker 1: asked to borrow more money. UM and Wall Street just said, sorry, 255 00:14:44,840 --> 00:14:47,200 Speaker 1: we're not lending the City of New York any more money. 256 00:14:47,720 --> 00:14:51,200 Speaker 1: And suddenly it was forward the city dropped debt. Fortunately, 257 00:14:51,240 --> 00:14:53,840 Speaker 1: the State of New York bailed out New York City 258 00:14:54,240 --> 00:14:56,560 Speaker 1: and put it under strict control. I mean, one thing 259 00:14:56,600 --> 00:14:58,640 Speaker 1: they did was required New York City to keep its 260 00:14:58,680 --> 00:15:01,800 Speaker 1: books according to generally accept at accounting principles. It would 261 00:15:01,800 --> 00:15:03,920 Speaker 1: certainly help if the federal government had to do that. 262 00:15:04,440 --> 00:15:06,600 Speaker 1: What they don't. You know, you know those surpluses we 263 00:15:06,600 --> 00:15:10,360 Speaker 1: had in nine, two thousand, two thousand one, the national 264 00:15:10,400 --> 00:15:13,200 Speaker 1: debt went up every one of those years. Now, how 265 00:15:13,200 --> 00:15:15,120 Speaker 1: can you be running a surplus and yet you're debt 266 00:15:15,160 --> 00:15:17,520 Speaker 1: is increasing? It was phony bookkeeping is how you do it. 267 00:15:18,080 --> 00:15:21,280 Speaker 1: And the phony bookkeeping ended in two thousand and one. No, 268 00:15:21,440 --> 00:15:24,720 Speaker 1: that's when we slipped into deafic set again. Now the 269 00:15:24,720 --> 00:15:27,080 Speaker 1: phony bookkeeping goes merrily on, and you know, we borrow 270 00:15:27,120 --> 00:15:29,760 Speaker 1: money from the Social Security Trust Fund and we call 271 00:15:29,840 --> 00:15:32,640 Speaker 1: it income. Now a corporation did something like that, the 272 00:15:33,080 --> 00:15:35,800 Speaker 1: management would all be watching each other's laundry and club fed. 273 00:15:36,880 --> 00:15:39,720 Speaker 1: I'm wondering. You know, this is a conversation with a 274 00:15:39,760 --> 00:15:44,040 Speaker 1: lot of numbers and a lot of vocabulary. That's pretty difficult. 275 00:15:44,280 --> 00:15:47,520 Speaker 1: Talking about sovereign debt is not my favorite thing in 276 00:15:47,520 --> 00:15:50,520 Speaker 1: the world, because it's so complicated. But if you're a 277 00:15:50,560 --> 00:15:54,520 Speaker 1: normal person out there, if you're like a normal American citizen, Um, 278 00:15:55,240 --> 00:15:57,680 Speaker 1: why should you care about the debt ceiling? And why 279 00:15:57,760 --> 00:16:00,520 Speaker 1: should you care about the US debt? I think the 280 00:16:00,560 --> 00:16:03,480 Speaker 1: debt ceiling is they don't care about it. Most people 281 00:16:03,520 --> 00:16:06,160 Speaker 1: don't care about politics, and people who do care about 282 00:16:06,160 --> 00:16:10,000 Speaker 1: politics find that absolutely incomprehensible. But ninety percent of the 283 00:16:10,000 --> 00:16:12,960 Speaker 1: American people don't like politics very much. It's sort of 284 00:16:13,400 --> 00:16:15,000 Speaker 1: now they deal with it as much as they have to, 285 00:16:15,080 --> 00:16:16,800 Speaker 1: sort of like nobody likes going to the dentist, but 286 00:16:16,880 --> 00:16:19,600 Speaker 1: we do. Anyway, I can personally attest to that. Well, 287 00:16:19,640 --> 00:16:22,880 Speaker 1: I'm wondering, John, what do you think Alexander Hamilton's would 288 00:16:22,880 --> 00:16:25,520 Speaker 1: have said if there was a time machine that he 289 00:16:25,600 --> 00:16:30,240 Speaker 1: teleported into modern day America and saw that the US 290 00:16:30,280 --> 00:16:33,440 Speaker 1: debt is now around eighteen trillion dollars and that the 291 00:16:33,480 --> 00:16:38,960 Speaker 1: debt ceiling becomes this huge political debating point every year. Well, 292 00:16:39,000 --> 00:16:41,320 Speaker 1: I mean, Alexander Hamilton's said that you know that the 293 00:16:41,440 --> 00:16:44,000 Speaker 1: national debt, if it is not excessive, will be to 294 00:16:44,120 --> 00:16:46,840 Speaker 1: us a national blessing, and it has many times proved 295 00:16:46,840 --> 00:16:48,720 Speaker 1: to be exactly that we could not have won the 296 00:16:48,760 --> 00:16:52,480 Speaker 1: Civil War without it. Now what Hamilton's who died in 297 00:16:52,560 --> 00:16:55,600 Speaker 1: eighteen o four, would say about twenty fifteen, I think 298 00:16:55,600 --> 00:16:58,640 Speaker 1: he'd be probably more interested in things like airplanes and 299 00:16:59,120 --> 00:17:03,080 Speaker 1: television and ray idea and what have you and snapchat. Right. 300 00:17:03,440 --> 00:17:07,440 Speaker 1: There are a number of prominent economists, such as Paul Krookman, 301 00:17:07,440 --> 00:17:10,879 Speaker 1: though he's not the only one who would say, with 302 00:17:10,960 --> 00:17:14,200 Speaker 1: interest rates the slow ought we not be borrowing to invest? 303 00:17:14,359 --> 00:17:17,320 Speaker 1: What would hamilton have made of that? Well on thing, 304 00:17:17,400 --> 00:17:21,080 Speaker 1: about one third of the national debt turns over every 305 00:17:21,080 --> 00:17:24,000 Speaker 1: couple of years UM, so it wouldn't be very long 306 00:17:24,080 --> 00:17:26,760 Speaker 1: before if interest rates go back up to normal, when 307 00:17:26,760 --> 00:17:29,800 Speaker 1: the amount of tax revenue needed to service the debt 308 00:17:29,800 --> 00:17:33,240 Speaker 1: would go straight up. And then you know, either we 309 00:17:33,680 --> 00:17:38,240 Speaker 1: keep borrowing um and pretending everything's fine, or there has 310 00:17:38,280 --> 00:17:42,160 Speaker 1: to be drastic tax increases which would certainly slow the economy, 311 00:17:42,280 --> 00:17:44,280 Speaker 1: or there's going to have to be big government cuts 312 00:17:44,480 --> 00:17:47,520 Speaker 1: which would also slow the economy. So we better to 313 00:17:47,960 --> 00:17:50,880 Speaker 1: do something about his starting now. But I wouldn't hold 314 00:17:50,920 --> 00:17:54,200 Speaker 1: my brand well. I want to end on a light note. 315 00:17:54,400 --> 00:17:58,600 Speaker 1: Have you seen that Hamilton's and musical yet? I have not? Um, 316 00:17:58,600 --> 00:18:00,960 Speaker 1: I hear it's very good hip hop. Not exactly my 317 00:18:01,640 --> 00:18:05,800 Speaker 1: kind of music. I'm more Rogers and Hamistan musical type. Um, 318 00:18:05,800 --> 00:18:08,600 Speaker 1: but everybody was saying it said it was absolutely great. Yeah. 319 00:18:08,640 --> 00:18:10,719 Speaker 1: I saw it a few weeks back back in August 320 00:18:10,840 --> 00:18:13,919 Speaker 1: and it's it's amazing. I am going to plug it. 321 00:18:13,960 --> 00:18:15,720 Speaker 1: I'm gonna say that you should watch it. The hip 322 00:18:15,760 --> 00:18:20,399 Speaker 1: hop is it's very well done and uh it's hilarious 323 00:18:20,440 --> 00:18:23,240 Speaker 1: to boot. So on that note, thank you so much 324 00:18:23,280 --> 00:18:27,000 Speaker 1: for joining us. Thank you, and thanks to all of 325 00:18:27,000 --> 00:18:29,440 Speaker 1: you for listening to Bloomberg Benchmark. We will be back 326 00:18:29,480 --> 00:18:34,160 Speaker 1: next week. You can find us on Bloomberg dot com, iTunes, Podecast, SoundCloud, Stitcher, 327 00:18:34,280 --> 00:18:37,640 Speaker 1: and many other places. If you're on iTunes, please take 328 00:18:37,680 --> 00:18:40,080 Speaker 1: a moment to rate and review the show. That really 329 00:18:40,119 --> 00:18:43,600 Speaker 1: helps other listeners discover us and let us know what 330 00:18:43,640 --> 00:18:45,600 Speaker 1: you thought of the show. You can reach us and 331 00:18:45,640 --> 00:18:48,880 Speaker 1: follow us on Twitter at Daniel Mass, d C, Tori 332 00:18:49,040 --> 00:18:56,880 Speaker 1: Stillwell and Akio seven. See you next week.