They Just Revealed Their Plan to Deal with the Debt Crisis

If you're anything like me, you are probably optimistic and hopeful that the new administration would come into office, slash spending, cut taxes, deregulate, and we would finally turn this financial ship around. But you've probably been sorely disappointed over the last couple of months to see that the spending is not slowing down, the borrowing is not slowing down, and even though we might be getting some big tax cuts, it's only going to make the deficits and the debt much worse. But that doesn't mean that this current administration doesn't have a plan to deal with the financial calamity that this country is facing, the sovereign debt crisis that they are staring down the barrel of. And U.S. Treasury Secretary Scott Bessin just went live on TV to detail what the plan really is. There are several components there. So if we unpack it, there is the growth, the potential growth of the debt. But what's more important is that we grow the economy faster. So what we've seen under the past four years, and what we inherited, I inherited 6.7 percent deficit to GDP, which was the highest deficit when we were not at war, not in a recession. So we've been trying to bring down the spending, and we are going to grow the revenue side. So we are going to grow the GDP faster than the debt grows, and that will stabilize the debt to GDP, which even Secretary Yellen and I agree is the most important number. Basically, what he's saying here is we are going to try and grow our way out of the debt problem. So let me explain what is going on here. There are only four ways for a country to deal with its debt, inflation, austerity, default and growth. Let's break each one of those down. Inflation is just what it sounds like. A country will print the money necessary to pay back the debt that way. And we're talking in extremes if they're only printing. They don't have to worry about taking money out of people's paychecks. They don't need to worry about interest rates borrowing from people who are lending voluntarily. They're just saying, hey, we owe some money back. We're just going to fire up the printing press, get that fresh new cash, use that to pay it back. This alone is how countries tip over into hyperinflation. When countries rely on inflation to pay back their debt and to finance all their other spending. That's where you get the hyperinflation that was happening in Argentina. It's happening in Venezuela, in Turkey, in Lebanon, in Zimbabwe and the Weimar Republic in Germany. This is how it happens because the money supply grows so rapidly as a result of all that printing that the value of that money essentially becomes worthless. The debt gets paid off. Don't get me wrong. But the money becomes worthless and it causes a lot more problems than they had to begin with. Number two, we have austerity. Now, that's just a fancy word to say they spend less than they take in taxes. It's like going on a budget for a country. Last year, the U.S. government spent seven trillion dollars, but they only brought five trillion in from the taxes that they took. So for the U.S. government to engage in austerity measures, that would mean cutting spending to at least five trillion dollars, which by the way, is not crazy because the U.S. government only spent four and a half trillion dollars in 2019 and less every year before that, which means that in order to spend less than they're taking in taxes, they would simply have to just undo the spending that has grown since 2020. It's not like you're going back to 1980 budgets or something. It's literally six years ago. But once you balance the budget and at least spend only what is coming in from taxes, the economy still grows and arguably would grow a lot faster because it wouldn't have as big of a burden of the government on top of it. And so then the debt to GDP ratio starts to improve. If you want to improve it very, very quickly, you have to run a surplus, which means you spend even less than the money you're taking in from taxes that pays down the debt and that debt to GDP ratio improves even faster. So that is austerity. Now, if you're looking at all the uncertainty right now and you're not sure whether the markets are just about to collapse or they're about to start soaring much higher, I want you to save this date on your calendar Thursday, June 12th at 7 p.m. Eastern Time. It's coming up very soon here. And that's because I'm hosting a free live zoom call to cover one of my favorite investing strategies for uncertain markets. This is called the black swan trade. This event is going to be completely different than anything I've hosted before. We're going to cover things like why some of the best hedge fund managers believe 2025 will be full of black swan events. I'll show you how I use this strategy to take home a 1793% return in just 11 days during a market crash. We're going to cover the difference between a black swan and a gray swan and how you can set yourself up to profit from either one. I'm also going to give you details on three potential gray swans that I'm worried about right now. Plus, I'm even going to give away a free signed copy of Nassim Taleb's book, The Black Swan. It is signed by the man himself. Give it away to somebody during the call. All you have to do is click on the link in the description below. Register for the event. Remember, it's Thursday, June 12th at 7 p.m. Eastern Time. Coming up very quick here and show up for the call. As always, attendance is completely free, but spots are limited, so don't wait until it's too late. Go ahead and sign up now. I'll see you there. Number three is simply default. If the United States government is looking at $37 trillion in debt saying, ah, we don't want to deal with this. We don't want to pay. Interest rates are getting too expensive. We're just not going to pay. We're going to default. Number one, that means it's going to be pretty hard to borrow again in the future because anybody who's willing to lend to the U.S. government will demand a much higher interest rate than they demand now because U.S. government debt would no longer be risk free, which means that default does two things. Number one, it fixes the debt problem right now because they just say we're not paying it. So the debt goes to basically zero. But number two, it prevents another debt problem from happening any time in the near future because it's so much harder for that government to borrow again. And number three, it's actually more of the honest way out because the way they're doing it right now, they're paying back dollars that are worth less than the dollars that they borrowed because there is inflation happening. And so they're still defaulting in terms of purchasing power. Defaulting outright is just the honest way to do it. And the ones who get hurt are the banks, the financial institutions who have been profiting from this mess the entire time. But it's not going to happen because defaults only happen by choice. If you owe debt in a currency that you can print now, they might choose to do so, but they're probably not going to choose to do so because it means the whole gravy train comes to an end for them. It means it's an end to the grift, an end to the spending. And most importantly, for the people in power, it is an end to the power political suicide, in other words. So outright default probably will not happen, which leaves the fourth option, which is growth. The U.S. debt to GDP ratio is at 120%, which is the same place it was at the end of World War Two. And you notice they were able to de-leverage after World War Two. For 40 years, they decreased their debt to GDP ratio until it hit around 30%. One of the reasons they were able to do this is because a lot of people came home from the war and started working and producing again. The economy exploded, which means that let's say even if the debt stays the same, if there's massive economic growth, it makes the debt easier to deal with because now the government has a larger economy that it can tax from to pay for the debt. To put this into a personal finance example, this would be like going from making $100,000 a year to $200,000 a year. Even if your debt stays the same at, let's say, $50,000, it still becomes a lot easier to pay for because your income goes up. So your income to debt ratio improves massively, even though the debt didn't change. This is exactly what Scott Besant is saying the plan is. He's saying we're not going to focus too much on inflation, on printing in order to pay off the debt. We're not going to default. We're not even going to do austerity. We're not cutting spending. The main thing here that we're trying to focus on is causing growth to happen, and that will pay for the debt. Now, if you take a look at this chart, which is the total amount of taxes the U.S. government takes every year, I want to point something out. That total tax revenue increased during the first year of Trump's first term and then slightly decreased the second year and then increased more so the third year. Obviously 2020 tax revenue went down. The reason I point this out was because during Trump's first term, when they passed the Tax Cuts and Jobs Act, tax rates went down. But over the following couple of years, tax revenue still actually went up. In other words, you paid a smaller amount in taxes from your paycheck as a percent. But as a result of you doing that and all the corporations doing that and the growth that happened from that, meaning you had a lot more money to spend, all that money resulted in more income for companies and people got raises. The total dollar amount U.S. government got as a result of cutting the rates actually went up. This is what Scott Besant is talking about when he's saying we're going to focus on trying to grow the economy in order to pay for the debt. Now, obviously, this little blip that happened in 2016, 17 and 18 is really nothing, especially because the federal deficit and debt grew wildly during that time, which meant that even though the economy grew because the debt grew as well, we really didn't see any reduction in the debt to GDP ratio during that time. It was still hovering around the 100 to 105% range, which means that this time around, if this administration truly wants the economy to grow so much that it can actually reverse the growth in the debt to GDP ratio, it's going to take more than small tax cuts. This is one of the reasons for the new tax proposal that adds up to something like four trillion dollars in tax cuts. They're really pushing for massive tax cuts in the hopes that even though they will have to borrow more to make up the difference in the government's budget, the freedom that that will provide for individuals and companies to spend a lot more will have a big growth effect on the economy. But it's going to require even more than that. You also need to pair tax cuts with big, huge deregulation measures because it's not just taxes that cause the government to be such a massive tumor, a parasite on the economy. It is also the regulations that stop people, individuals and companies from doing things that they would want to do that would make them more money, that stop competition from arising and displacing old incumbents, that stop innovation from happening, that would The government does not, cannot and has not and will never be an element of growth or a catalyst of innovation. The only thing they do is stand in the way because humans are value seeking machines and we do the things that will create the most value given our own subjective preferences and the resources we have available to us. And governments only pass laws that change human behavior, which means that when governments pass laws and regulations that change human behavior, it is by definition causing people to do things that are less valuable than we would do otherwise. So if you want the growth, the government has to get out of the way. And so far, it doesn't look like they have the guts to do that. The last problem with this is that we are still getting the inflation anyway, which means that even if people get the tax cuts and even if people get the deregulation, prices are going to be going up on things because the government still has to print money into existence in order to fund the deficit, which means that in terms of cost of living, in terms of quality of life, in terms of purchasing power, the economy may not actually grow as fast as people think it's going to grow from the tax cuts and the deregulation. Now, if you're sitting there thinking, oh, man, I have no idea how to play this. And if you want me to help you, don't worry, I've got you covered. That's why I'm hosting the Black Swan trade event. Remember, it's Thursday, June 12th at 7 p.m. Eastern time. And if you haven't done so already, click the link in the description below to sign up. I will see you there. As always. Thank you so much for watching. Have a great day.