A New Crisis Is Coming & The Impact That It Will Have Is Scary

Speaker 1: In 2020, we had one of the worst pandemics that the world had ever seen. Now this had a big effect on the economy. Businesses shut down. People lost their jobs.

GDP growth went into the strong negatives. This is something that we haven’t seen in over 80 years since the 1930s Great Depression. But since then, we have recovered a lot. People are generally back into their jobs. Businesses have started to open and GDP’s now and the positives. But there’s something going on behind the scenes which has helped the somewhat unnatural recovery and that can cause an even greater crisis in the future. You see, when the pandemic hits and all of these bad things started to happen with the economy, we were in real trouble. We were at risk of saying one of the worst recessions we’d ever seen in history. Nowhere in the history of the world have we shut everything down to prevent an illness from spreading. And the government didn’t know what to do. The Fed didn’t know what to do. Economists were squabbling among each other for solutions. And in the end, they had to play the one card that no one really wants to play. They pushed the red button, the trump card that saves things for the moment, but causes severe damage down the line. And that card that I’m talking about is the debt card, because when these businesses were shutting down and people were getting unemployed, they needed money. If they didn’t have money. Businesses were closed for good. People would be on the streets and we’d be talking about a Great Depression like the 1930s. So the government steps in and says something unprecedented, something never said before and history. I’m going to give everyone money for free. If you’re a business and you have a poor credit history, it doesn’t matter. You can have money, too. If your junk status with a C corporate credit rating will bail you out, that’s fine. If you are a citizen of the United States, you will get free money. And this strategy, it actually worked. The government borrowed money and gave it out to everyone and anyone, and the economy started to recover the 2020 recession. We started getting lifted out of the stock market, magically changed direction and started shooting up and then it started breaking record highs. The day had been saved by the governments and the Federal Reserve. No Great Recession, no economic troubles, no worries. Hmm. Unfortunately, with economics, just like in physics, every action that you take has a reaction and it doesn’t necessarily come right away, but it will always come back to bite you. So what’s happened is we’ve decided we’re going to get a more debt and not just a little a lot.

During the fiscal year 2020, debt held increased by four point to one trillion dollars, the largest annual dollar increase in history. A debt to GDP ratio is now sitting at one hundred and twenty nine percent, essentially the largest that’s ever been in history. And no, the 2008 housing bubble, it wasn’t even close to this amount. It was sixty five percent. We’re almost double that 2000 technology bubble. It was 57 percent were more than double that. In fact, you’d have to go all the way back to World War Two to try and find levels of debt similar to this. And even at the highest points in two, it was one hundred and twenty one percent in which we are higher than that right now. As you can see, at no point in history have we seen levels of debt anywhere near this. And the average debt to GDP for the US is sixty three percent over the past 80 years. This is interesting because the World Bank conducted a study in 2013 and found that any mark above 77 percent slows economic growth in the future. We’ve always been below that mark. And so the past decade and now we’re well above it at one hundred and twenty nine percent. That’s 52 percent above the tipping point of 77. This means with these high levels of debt, economic growth and the future is going to be dramatically impacted. And we’re already seeing this growth impact take place even before the pandemic. You know, if you look at GDP growth in 2019 and the year before that, it was low for the USA, around two percent. In India, they averaged around six percent, triple that growth. China, they were around seven, eight percent, more than triple. And now that we’ve had such an increase in debt over the past year to a full point, two trillion dollar increase, this is going to stifle growth for future generations. And this debt crisis is not just the US’s. Problem, pretty much every country in the world has vastly increased their debts, the country that increased their debt the most was Canada. Their debt to GDP ratio increased almost 80 percent over the pandemic USA. That was the third most as almost 50 percent. China and the U.K., they’re up there as well, just over 30 percent.

Even big countries like Russia, South Korea, Spain, they couldn’t avoid this problem, all increasing their debt by over 20 percent. Now, the reason this is an issue is because, as we mentioned before, as per the World Bank, too much debt relative to GDP slows down economic growth. And over the past 10 years, the world as a whole, we’ve enjoyed so much growth. It’s true that we live as 21st century kings these days. Innovation over the past decade has allowed us to make a couple of clicks online and food comes right to our door. Any food that we once we get unlimited entertainment right from our room via a computer, we can ring anyone in the world through an app. We’ve had so much growth, but a lot of this growth came from borrowing money and getting into debt. And it all started in 2008. As you can see, we went from a 64 percent debt to GDP ratio, say a decade later, double. That’s one hundred and twenty nine percents. And yes, we produced a lot during this period. But this has come at a cost, and that is a mountain of a debt pile that we’ll have to pay back right now as more than 28 trillion and counting. So we have two options on how we want to deal with this debt crisis. The first is what many economists believe is the most sensible one, and that is that we put our heads down as a nation. We get to work and we start paying back. This means higher taxes. It means less payouts from the governments and Medicare and Medicaid and defense and transportation, et cetera, et cetera. And this results in less profits over the next while. But it does mean that debt is under control and we don’t kick the can to our kids and their kids and so on. The next option that we have, many of the modern economists supports, and that is to print money to pay off those debts. The only problem that comes with this is you risk hyperinflation, just like what happened with Venezuela. Essentially what they did was they printed money heavily and raked in huge deficits, which caused hyperinflation. And when I say hyper, it was hyper. The inflation rate was estimated to be fifty three million seven hundred ninety eight thousand five hundred percents between 2016 and April 2019, just three years. That is something that the United States does not want to go through. Ask anyone from Venezuela, just imagine you spend your whole life saving money. You keep millions in the bank, you go away for three years only to find out that that money is now worthless. We don’t want that, which is why we have to address this debt immediately, address this mess printing of money and also address the deficits that we’re accumulating year by year. Normally, you’d hope that a government produces a surplus every year, you know, actually brings in more than they spend. But the US government has not done this for 20 years, and especially it’s gotten worse during the last year.

The deficit has gotten very big. The final tally for the budget deficit and fiscal 2020 came to three point one three trillion. That was more than triple last year’s shortfall of nine hundred and eighty four billion and double the previous record of one point four trillion in 2009. This deficit is the highest it has ever been since just after World War Two. If we don’t watch out, we end up like Venezuela because two of the main factors that destroyed their economy was, one, the mass printing of money, which the US has been doing heavily. And secondly, it was the deficits run by the governments. Of course, they had strong socialist policies that they implemented as well, which resulted in poor economic growth contributing to hyperinflation. Thank goodness we don’t have those policies as strong as they do. But the mass printing of money and deficits are not a sustainable way to govern a country. The future generations will suffer because we can manage debt payments when interest rates are at their all time historical lows close to zero percent, something which we rarely see in the course of history. But when interest rates inevitably at some point rise, interest payments on those debts will start to increase and less money can go to Social Security and health programs and education and justice. So managing this debt that we’ve accumulated predominantly over the past decade, but especially over this past year, will prove to be one of the most important economic issues that we’ll have to deal with.

Yes, we’ve experienced amazing innovation over the past decade. IPhones, Netflix streamed to your house, packages delivered to your door in a matter of clicks. But this economic growth has come with a cost and we have to address this crisis before it gets out of hand.

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