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Global government debt levels 
have been growing rapidly over 

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the last 25 years and are now 
expected to exceed $100 trillion

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by the end of this year. 
For developed countries, the 

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average ratio of public debt to 
GDP is back to where it was in 

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1945, when public debt rose 
above 100% of GDP after two 

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world wars and the Great 
Depression. 

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The recent surge in borrowing 
was driven by a series of 

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shocks. 
First the global financial 

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crisis, then the pandemic, and 
then the Russian invasion of 

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Ukraine. 
For most of that period, 

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interest rates were low and 
falling. 

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But since the pandemic, we've 
seen a spike in inflation 

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globally, which pushed interest 
rates up, meaning that any new 

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debt being issued is much more 
expensive. 

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But that has in no way stopped 
governments from borrowing and 

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spending. 
A quick glance at the news shows

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that even as rates are rising, 
budget deficits around the world

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are projected to grow. 
Government spending in most 

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countries has been high since 
the pandemic for a few reasons. 

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For one thing, politicians tend 
to spend a lot more in election 

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years. 
And 2024 was the biggest 

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election year in world history, 
where 72 countries that 

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encompass half of the world's 
population held elections. 

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Governments spent a lot to win 
re election, and newly elected 

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leaders are now spending a lot 
to fulfill their campaign 

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promises. 
So what is the money being spent

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on? 
Globally, there's been a lot of 

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climate change spending, which 
is expected to continue or 

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possibly increase. 
And in Europe, we saw high 

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government spending to shield 
consumers from a spike in gas 

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prices. 
Geopolitical tensions all around

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the world mean that military 
spending is expected to grow in 

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the years too. 
Last year, government spending 

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around the world was the highest
it's ever been outside of a 

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crisis, with the biggest driver 
of increased spending being the 

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rising interest rates on 
government debt. 

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This week, the US Treasury 
Department saw soft demand at a 

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$16 billion twenty year bond 
auction, which caused stocks and

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the dollar to sell off while 
Treasury yields rose, according 

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to Reuters. 
The weak auction shows 

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intensified investor worries 
about the ballooning U.S. debt, 

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which could spur bond market 
vigilantes who want more fiscal 

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restraint from Washington. 
This came after Moody's 

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downgraded the US government's 
credit rating, citing the 

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growing debt and little progress
towards resolving it. 

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The move was not a huge surprise
as Moody's was the last of the 

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big three rating agents to take 
the step and had warned 2 years 

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ago that this might happen. 
The 30 year U.S. 

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Treasury yield rose above 5% 
earlier this week and has stayed

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there. 
In Japan, events were even more 

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dramatic when the weakest demand
seen at a government debt 

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auction in more than a decade 
drove the 20 year government 

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bond yield up to the highest 
rate in 25 years. 

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The yield on 30 year Japanese 
government bonds climbed to the 

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highest level seen since that 
maturity was first sold in 1999,

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so an all time record. 
Yields on the 40 year Japanese 

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government bond rose to a record
high too of 3.7%, which is a 

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full percentage point higher 
than at the start of April. 

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As the FT points out, a sharp 
move like that from such a low 

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starting point means that 
investors who owned that bond 

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have lost almost 20% of their 
investment in just a few weeks. 

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To highlight how ugly the 
Japanese government bond market 

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is right now, we have to look at
the less liquid bonds which 

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investors are keeping well away 
from for fear of being stuck in 

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a difficult to sell bond as 
prices collapse. 

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The Japanese yield curve is not 
just upward sloping, it's the 

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steepest upward sloping yield 
curve in the developed world. 

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This means that longer maturity 
bonds pay higher interest rates.

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But in the market chaos, the 35 
year bond, which was issued as a

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40 year bond five years ago, now
yields over 100 basis points 

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more than the 40 year bond. 
This makes no sense in such a 

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steep upward sloping yield 
curve. 

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But the reason this is happening
is that the 35 year bond is a 

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lot less liquid than the more 
recently issued 40 year bond. 

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It's what's known as an off the 
run bond, and it's trading at a 

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surprisingly higher yield 
because investors are so afraid 

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of buying a bond that might be 
difficult to sell. the FT 

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describes this as pretty stark 
evidence of the evaporating 

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demand for longer term Japanese 
debt. 

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This kind of drama in high grade
developed market government 

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bonds, where bonds are supposed 
to be the safe asset class, is 

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an example of how things can go 
wrong when investors back away 

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from lending to highly indebted 
nations. 

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Japan today has the highest 
public debt to GDP ratio in the 

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world at over 240%. 
This ratio was only at around 

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50% of GDP in 1990. 
Over the same period, the US has

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gone from a debt to GDP ratio of
around 40% to around 100% today.

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So why have governments around 
the world become addicted to 

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debt? 
And can they deleverage? 

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The surge in Japan's debt to GDP
ratio over the last 35 years was

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driven by a combination of huge 
government spending aimed at 

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reviving A stalled economy 
combined with a collapse in GDP 

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growth. 
So debt grew and grew while GDP 

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didn't. 
Over that period there've been 

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huge stimulus packages including
infrastructure spending and 

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social welfare spending, all in 
an attempt to end persistent 

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deflation and low growth. 
Japan's rapidly aging and hyper 

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aged population is part of the 
problem too, as retirees 

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demanded spending on healthcare 
and pensions, significantly 

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adding to the debt burden. 
The growing debt never really 

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caused a problem over that 
period simply because the 

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government was borrowing at such
low interest rates. 

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The problem is that when 
interest rates start to rise, 

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Japan has to either stop 
borrowing and start paying down 

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it's debt, or it's class of 
borrowing will become 

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unmanageable. 
Japan's Prime Minister told 

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parliament this week that he 
disagrees with the idea of 

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funding tax cuts with bond 
issuance, signalling caution 

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over new government spending now
that the nation's borrowing 

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costs are rising. 
The surge in Japanese bond 

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yields highlights the concerns 
of bond investors globally about

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the risks of unsustainable 
government spending. 

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These higher yields in Japan are
part of a global trend where the

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government borrowing costs in 
the world's largest economies 

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are rising as investors question
the ability of governments to 

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cover massive budget deficits. 
The yield on the UK's 30 year 

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government bond spiked as high 
as 5.54% this week, up 40 basis 

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points a year to date. 
The UK is expected to post a 

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budget deficit equivalent to 
$185.5 billion this year, which 

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is slightly lower than last 
year's levels. 

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They expect the budget to remain
in a deficit through the end of 

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the decade. 
China's debt to GDP has been 

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growing over the last 15 years 
and is expected to continue 

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growing as the country runs 
deficits to stimulate the 

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slowing economy. 
China has for decades aimed to 

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keep the official deficit at no 
more than 3% of GDP, but has 

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breached that figure 3 times 
since 2020. 

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The government set this year's 
fiscal deficit target at 4% of 

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GDP. the US hit its debt to GDP 
record in late 1945, when U.S. 

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National debt was briefly larger
than the entire U.S. economy. 

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After a three decade decline, by
the mid 1970s debt had fallen to

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around 1/4 the size of the 
economy. 

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Since then, it's been steadily 
growing under both Democratic 

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and Republican presidents. 
It really took off in the wake 

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of the global financial crisis 
where it hit around 75% of GDP, 

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and again in early 2020 when the
pandemic struck, it soared close

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to 100% of GDP. 
When you look at the chart, you 

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can see the debt has generally 
grown during times of war or 

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financial crisis when 
unemployment is high and 

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economic growth is low. 
Overall, the US has the eighth 

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highest public debt to GDP ratio
in the world. 

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Right before the pandemic, the 
US economy was in its longest 

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expansion in modern history. 
But at the same time, U.S. debt 

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was quite high and growing, 
which was unusual at the time, 

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as normally that deep into an 
expansion you would expect to 

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see budget deficit shrinking. 
But the US budget deficit was 

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instead growing and at a faster 
and faster rate. 

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Even before the pandemic hit. 
In April 2020, the federal 

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government delayed tax payments,
meaning that money stopped 

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coming in. 
And the Treasury announced that 

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it would borrow $3 trillion in 
the second quarter alone. 

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Who would buy all of this debt? 
Well, the Federal Reserve was 

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the biggest buyer. 
It expanded its Treasury 

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holdings by nearly $2 trillion 
in a matter of two months. 

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That month, Americans received 
their first stimulus checks in 

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the mail. 
The Congressional Budget Office,

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a nonpartisan federal agency 
whose role is to provide 

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Congress with objective analysis
and estimates related to 

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economic and budgetary 
decisions, is now predicting 

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that America's debt to GDP ratio
will rise from 98% where it is 

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today to a record 125% in the 
next decade. 

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There's no war or recession 
right now to easily explain the 

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rapidly increasing pace of 
borrowing and the the US 

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unemployment rate is near an all
time low because the US 

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government has been spending 
more than it collects in taxes 

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since the global financial 
crisis, the national debt has 

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been growing. 
Even without President Trump's 

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planned deficit spending as part
of his budget, the US debt to 

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00:11:03,640 --> 00:11:09,840
GDP ratio is expected to exceed 
the 1945 high in nine years if 

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Trump's One Big Beautiful Bill 
Act makes it through the Senate.

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00:11:14,160 --> 00:11:18,040
The Committee for a Responsible 
Federal Budget, a nonpartisan 

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group that favours debt 
reduction, estimates that U.S. 

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National debt will reach 129% of
GDP by 2034. 

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Now, on the campaign trail, 
Trump claimed that he would not 

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be running a massive budget 
deficit. 

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He instead said that he would 
balance the budget. 

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I want to do what has not been 
done in 24 years, balance the 

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federal budget. 
We're going to balance. 

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00:11:44,280 --> 00:11:48,040
Trump's team claim that the 
legislation, when combined with 

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his pro growth policies, will 
have the US fiscal deficit from 

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00:11:52,600 --> 00:11:57,720
its current level of 6.4% to 3% 
by the end of his term. 

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00:11:58,160 --> 00:12:02,000
His Council of Economic Advisers
claims that the bill will boost 

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00:12:02,000 --> 00:12:06,840
real economic growth by up to 
5.2% over the next four years, 

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00:12:07,040 --> 00:12:12,200
creating or saving up to 7.4 
million jobs and raising 

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00:12:12,200 --> 00:12:16,960
investment by up to 14.5% over 
the next four years. 

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00:12:17,600 --> 00:12:21,360
Not everyone agrees with that. 
While many agree that the tax 

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00:12:21,360 --> 00:12:24,920
cuts might boost economic 
growth, they argue that the 

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00:12:24,920 --> 00:12:28,160
increased borrowing and the 
inflationary effect of Trump's 

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00:12:28,160 --> 00:12:31,880
trade policies will drive up 
interest rates on government 

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00:12:31,880 --> 00:12:34,480
bonds while slowing the US 
economy. 

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00:12:35,160 --> 00:12:38,440
The Center for American 
Progress, a liberal research 

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00:12:38,440 --> 00:12:41,480
group, have published 
projections which assumed that 

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00:12:41,480 --> 00:12:44,560
all of the bills temporary 
provisions get permanently 

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00:12:44,560 --> 00:12:47,040
extended. 
They say that in such a 

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00:12:47,040 --> 00:12:50,640
scenario, government debt could 
reach about double the size of 

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00:12:50,640 --> 00:12:56,800
the economy by 2055, compared 
with 156%, without any changes 

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00:12:56,800 --> 00:12:59,800
to the existing law. 
The weak U.S. 

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00:12:59,800 --> 00:13:04,120
Treasury auction this Wednesday 
highlighted investor fears over 

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00:13:04,120 --> 00:13:07,840
America's rising debt burden in 
the lead up to the vote on 

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00:13:07,840 --> 00:13:10,960
Trump's big, beautiful bill in 
the House of Representatives. 

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00:13:11,240 --> 00:13:16,560
The 30 year Treasury yield rose 
to 5.1% as the price of bonds 

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00:13:16,560 --> 00:13:20,480
fell. 
It extended its rise to 5.12% 

203
00:13:20,480 --> 00:13:23,760
after the bill passed the House 
of Representatives by a single 

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00:13:23,760 --> 00:13:26,800
vote. 
The recent debt downgrade by 

205
00:13:26,800 --> 00:13:31,080
Moody's has also been putting 
upward pressure on US interest 

206
00:13:31,080 --> 00:13:33,760
rates. 
So if every government is 

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00:13:33,760 --> 00:13:37,120
borrowing, who's buying all of 
these government bonds? 

208
00:13:37,400 --> 00:13:40,880
Well, pension funds are amongst 
the biggest buyers of government

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00:13:40,880 --> 00:13:43,840
bonds because they're considered
a safe investment. 

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00:13:44,040 --> 00:13:47,240
Investment funds, central banks,
other governments, and 

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00:13:47,240 --> 00:13:50,200
individual investors also buy 
bonds. 

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00:13:50,640 --> 00:13:55,200
According to the US Treasury, 
80% of U.S. government bonds are

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00:13:55,200 --> 00:13:58,920
held by Americans and 20% by 
other governments. 

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00:13:59,320 --> 00:14:03,680
When we look at the breakdown of
that 80%, we can see that almost

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00:14:03,680 --> 00:14:07,520
1/4 is held by the Federal 
Reserve, with the rest held by 

216
00:14:07,520 --> 00:14:11,520
mutual funds, state and local 
governments, pension funds, 

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00:14:11,520 --> 00:14:16,520
insurance companies, and banks. 
So what does the US government 

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00:14:16,520 --> 00:14:20,120
spend all of the money on? 
Well, the federal budget is 

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00:14:20,120 --> 00:14:23,440
divided between mandatory 
spending, discretionary 

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00:14:23,440 --> 00:14:26,000
spending, and interest payments 
on the debt. 

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00:14:26,320 --> 00:14:30,120
More than 60% of the budget goes
towards mandatory spending, 

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00:14:30,280 --> 00:14:33,960
which is automatic unless 
Congress changes the legislation

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00:14:33,960 --> 00:14:37,320
authorizing it. 
Social Security, Medicare and 

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00:14:37,320 --> 00:14:41,680
Medicaid make up 75% of 
mandatory spending. 

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00:14:42,320 --> 00:14:46,800
About 28% goes towards 
discretionary spending, which 

226
00:14:46,800 --> 00:14:50,560
Congress has to authorize each 
year through the appropriations 

227
00:14:50,560 --> 00:14:53,360
process. 
About half of the discretionary 

228
00:14:53,360 --> 00:14:57,080
spending goes to defence related
agencies and programs. 

229
00:14:57,400 --> 00:15:01,120
The rest is spent on things like
health education, veterans 

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00:15:01,120 --> 00:15:06,680
benefits and transportation. 
About 12% of the budget goes on 

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00:15:06,680 --> 00:15:09,000
interest payments on the 
national debt. 

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00:15:09,640 --> 00:15:13,400
As you can see, this has risen 
over time as both the scale of 

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00:15:13,400 --> 00:15:15,840
borrowing and interest rates 
have gone up. 

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00:15:16,120 --> 00:15:19,600
This is projected to continue 
rising in the future. 

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00:15:20,160 --> 00:15:24,960
Interest payments were $880 
billion last year, which is more

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00:15:24,960 --> 00:15:27,800
than was spent on Medicare and 
the military. 

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00:15:28,080 --> 00:15:32,360
The financial historian Niall 
Ferguson told the FT that any 

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great power that spends more on 
debt servicing than on defence 

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00:15:36,520 --> 00:15:41,960
risks ceasing to be a great 
power unless debt is paid down. 

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00:15:42,160 --> 00:15:46,880
That $880 billion interest 
expense can be expected to grow,

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00:15:47,040 --> 00:15:50,120
as most of the borrowing was 
done when interest rates were 

242
00:15:50,120 --> 00:15:54,160
much lower than they are today 
and when the US still had a AAA 

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00:15:54,160 --> 00:15:57,000
credit rating. 
Even if the amount borrowed 

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00:15:57,000 --> 00:16:01,360
stays the same as old bonds 
expire and are replaced with new

245
00:16:01,360 --> 00:16:05,080
bonds, the interest rate on 
those new bonds will be higher 

246
00:16:05,080 --> 00:16:08,320
than the interest rate was on 
the bonds that expired. 

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00:16:09,000 --> 00:16:12,400
While nonpartisan research 
groups are estimating that 

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00:16:12,400 --> 00:16:15,840
Trump's budget will add more 
than 2 1/2 trillion dollars to 

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00:16:15,840 --> 00:16:19,480
the federal debt over the next 
decade, White House Press 

250
00:16:19,480 --> 00:16:23,600
Secretary Caroline Leavitt says 
that the budget will actually 

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00:16:23,600 --> 00:16:27,320
save the federal government $1.6
trillion. 

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00:16:27,520 --> 00:16:31,040
She said this bill does not add 
to the deficit. 

253
00:16:31,200 --> 00:16:34,840
It is the largest savings for 
any legislation that has ever 

254
00:16:34,840 --> 00:16:37,520
passed Capitol Hill in our 
nation's history. 

255
00:16:38,280 --> 00:16:43,240
The $1.6 trillion figure seems 
to refer to the spending cuts in

256
00:16:43,240 --> 00:16:46,560
the bill, but it ignores the 
fact that the government will 

257
00:16:46,560 --> 00:16:50,800
still be spending significantly 
more overall than it brings in 

258
00:16:50,800 --> 00:16:54,560
in taxes, which means borrowing 
at whatever the prevailing 

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00:16:54,560 --> 00:16:58,240
interest rate is. 
In their downgrade announcement,

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00:16:58,440 --> 00:17:02,520
Moody's predicted that the US 
budget deficit would rise from 

261
00:17:02,520 --> 00:17:08,280
6.4% last year to just under 9% 
by 2035. 

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00:17:08,760 --> 00:17:12,760
So is the Trump administration 
right that the new budget will 

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00:17:12,760 --> 00:17:16,440
spark growth and that the US can
outgrow the deficit? 

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00:17:17,079 --> 00:17:20,400
Well, during the global 
financial crisis, the US 

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00:17:20,400 --> 00:17:24,319
Treasury issued huge amounts of 
new debt, a lot of which was 

266
00:17:24,319 --> 00:17:27,480
bought up by the Federal 
Reserve, a lot like what 

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00:17:27,480 --> 00:17:31,680
happened during the pandemic. 
Some economists predicted huge 

268
00:17:31,680 --> 00:17:35,080
inflation at the time and 
businesses being crowded out of 

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00:17:35,080 --> 00:17:38,280
the debt market, but that didn't
actually occur. 

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00:17:38,560 --> 00:17:41,520
Economists then started 
rethinking many of their 

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00:17:41,520 --> 00:17:44,800
theories around how much 
borrowing is too much. 

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00:17:45,240 --> 00:17:50,080
In 2019, Olivier Blanchard, an 
MIT professor and the former 

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00:17:50,080 --> 00:17:55,000
chief economist at the IMF, used
his last speech as president of 

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00:17:55,000 --> 00:17:58,480
the American Economic 
Association to put forward a 

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00:17:58,480 --> 00:18:02,160
provocative idea. 
In a world where interest rates 

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00:18:02,160 --> 00:18:06,000
are very low, he said 
governments can afford to take 

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00:18:06,000 --> 00:18:10,720
on a lot more debt. 
In a speech titled Public Debt 

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00:18:10,720 --> 00:18:14,360
and Low Interest Rates, 
Blanchard laid out the theory 

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00:18:14,560 --> 00:18:17,880
that as long as the interest 
rate on government debt is lower

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00:18:17,880 --> 00:18:21,000
than the growth rate of the 
economy, that governments can 

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00:18:21,000 --> 00:18:24,440
tolerate a lot more borrowing 
than it previously seemed 

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00:18:24,440 --> 00:18:27,560
reasonable. 
He argued that big government 

283
00:18:27,560 --> 00:18:31,560
debt may not be as dangerous as 
they were previously believed to

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00:18:31,560 --> 00:18:35,160
be. 
Trump's bet is that he can grow 

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00:18:35,160 --> 00:18:39,440
the US economy faster than he 
grows the national debt and that

286
00:18:39,440 --> 00:18:42,160
way he can move towards a 
balanced budget. 

287
00:18:42,720 --> 00:18:47,160
The worry is that his whipsaw 
approach to trade policy, which 

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00:18:47,160 --> 00:18:50,080
has included massive tariff 
announcements followed by 

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00:18:50,080 --> 00:18:53,760
delays, exemptions and 
reversals, has undercut 

290
00:18:53,760 --> 00:18:56,520
businesses ability to plan and 
invest. 

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00:18:57,000 --> 00:19:00,640
This Friday, just hours before 
trade talks were scheduled to 

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00:19:00,640 --> 00:19:05,120
start with the EU, Trump 
threatened a 50% tariff on EU 

293
00:19:05,120 --> 00:19:10,160
goods, while also warning Apple 
that he would impose a 25% 

294
00:19:10,160 --> 00:19:15,200
import tax at least on iPhones 
not manufactured in the United 

295
00:19:15,200 --> 00:19:19,800
States, later widening the 
threat to any smartphone being 

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00:19:19,800 --> 00:19:22,920
imported. 
On Trump's Liberation Day in 

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00:19:22,920 --> 00:19:28,280
April, he announced a 20% tariff
on most EU goods, then halved it

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00:19:28,280 --> 00:19:32,960
to 10% for 90 days to allow time
for negotiations. 

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00:19:33,520 --> 00:19:37,480
It's not obvious how huge 
tariffs and constantly changing 

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00:19:37,480 --> 00:19:41,120
trade policies would boost U.S. 
economic growth. 

301
00:19:41,400 --> 00:19:44,920
There's a real risk that these 
policies are inflationary and 

302
00:19:44,920 --> 00:19:48,520
kill economic growth, which 
would mean higher interest rates

303
00:19:48,520 --> 00:19:53,680
on the debt than the current 5% 
rate with no offsetting growth. 

304
00:19:54,480 --> 00:19:58,680
Bond investors who lock up their
money at a fixed rate hate 

305
00:19:58,680 --> 00:20:01,640
inflation as it eats into their 
returns. 

306
00:20:01,880 --> 00:20:04,680
They equally hate if the 
currency the bonds are 

307
00:20:04,680 --> 00:20:09,560
denominated in depreciates. 
The term bond vigilante was 

308
00:20:09,560 --> 00:20:13,120
coined by the economist Ed 
Yardini in the 1980s. 

309
00:20:13,360 --> 00:20:17,400
He used the term in a letter to 
describe investors who reacted 

310
00:20:17,400 --> 00:20:21,080
to government policies, 
particularly those perceived as 

311
00:20:21,080 --> 00:20:25,080
inflationary or excessive 
spending, by either selling off 

312
00:20:25,080 --> 00:20:29,240
bonds they owned, which drove up
yields, or by just declining to 

313
00:20:29,240 --> 00:20:32,800
buy them. 
The idea was that politicians 

314
00:20:32,800 --> 00:20:36,800
can't mess with the bond market 
and that when politicians get 

315
00:20:36,800 --> 00:20:40,480
out of line, the bond market 
reminds them of the need for 

316
00:20:40,480 --> 00:20:45,360
fiscal responsibility. 
In the UK, Liz Truss's proposed 

317
00:20:45,360 --> 00:20:49,440
mini budget was quickly 
abandoned a few years ago when 

318
00:20:49,440 --> 00:20:52,560
the bond market reacted badly to
its announcement. 

319
00:20:52,760 --> 00:20:57,320
And in the early 90's the 10 
year bond yield rose from 5% to 

320
00:20:57,320 --> 00:21:01,840
over 8% in what was known as the
Great Bond Massacre over 

321
00:21:01,840 --> 00:21:06,360
concerns about federal spending.
Clinton political adviser James 

322
00:21:06,360 --> 00:21:09,840
Carville remarked at the time 
that he would like to come back 

323
00:21:09,840 --> 00:21:13,560
as the bond market as you can 
then intimidate everybody. 

324
00:21:14,080 --> 00:21:17,320
Robert Armstrong made a very 
good point in his unhedged 

325
00:21:17,320 --> 00:21:21,240
newsletter a few weeks ago about
Trump's plan to onshore 

326
00:21:21,240 --> 00:21:25,160
manufacturing, where if a big 
chunk of human, financial and 

327
00:21:25,160 --> 00:21:28,720
physical capital is to be 
deployed in manufacturing and 

328
00:21:28,720 --> 00:21:32,000
exports, they have to be 
redeployed away from what 

329
00:21:32,000 --> 00:21:35,520
they're currently doing. 
And it's very possible that 

330
00:21:35,520 --> 00:21:39,880
redeploying to manufacturing and
exports will make that capital 

331
00:21:39,880 --> 00:21:43,320
less productive. 
After all, there's a reason that

332
00:21:43,320 --> 00:21:46,680
this capital is not deployed in 
manufacturing today. 

333
00:21:46,920 --> 00:21:50,320
And less productive use of 
capital in the United States 

334
00:21:50,320 --> 00:21:53,680
means that the country gets 
poorer, not richer. 

335
00:21:54,520 --> 00:21:58,000
Another difficulty that the US 
will face in trying to grow its 

336
00:21:58,000 --> 00:22:02,040
way out of high debt is that its
aging population and low birth 

337
00:22:02,040 --> 00:22:06,080
rate means that the working age 
population is in decline. 

338
00:22:06,240 --> 00:22:09,560
And without immigration, there 
will be no one to work in all of

339
00:22:09,560 --> 00:22:12,360
the factories that Trump's 
tariffs are supposed to bring 

340
00:22:12,360 --> 00:22:15,880
back on shore. 
Despite the claims that Elon 

341
00:22:15,880 --> 00:22:19,480
Musk would be able to slash $2 
trillion of wasteful government 

342
00:22:19,480 --> 00:22:23,840
spending by eliminating waste, 
fraud and abuse, the DOGE 

343
00:22:23,840 --> 00:22:29,240
website is now only claiming 
$170 billion in savings, much of

344
00:22:29,240 --> 00:22:33,080
which has been disputed, as many
of the contracts that DOGE 

345
00:22:33,080 --> 00:22:37,000
claimed to have cancelled had 
either already been cancelled or

346
00:22:37,080 --> 00:22:40,040
would never have cost as much as
DOGE are claiming. 

347
00:22:40,600 --> 00:22:45,560
Researchers from the BBC could 
only verify 32 1/2 billion 

348
00:22:45,560 --> 00:22:49,200
dollars from the wall of 
receipts, which had less than 2%

349
00:22:49,200 --> 00:22:52,360
of what was promised. 
Doesn't do much to balance the 

350
00:22:52,360 --> 00:22:55,320
budget. 
According to CBS, there are 

351
00:22:55,320 --> 00:23:00,320
offsetting costs of $135 billion
when you add up the cost of 

352
00:23:00,320 --> 00:23:04,200
rehiring mistakenly fired 
workers, defending lawsuits, 

353
00:23:04,200 --> 00:23:08,160
layoff packages, and so on. 
Reductions in government 

354
00:23:08,160 --> 00:23:12,040
spending can be fact checked by 
going to the Treasury Department

355
00:23:12,040 --> 00:23:16,560
website, where they publish U.S.
government monthly spending data

356
00:23:16,720 --> 00:23:19,320
broken down by agency and 
program. 

357
00:23:19,760 --> 00:23:24,520
Despite the big claims, total 
federal spending is about 7% 

358
00:23:24,520 --> 00:23:27,920
higher over the last two months 
than it was during the same 

359
00:23:27,920 --> 00:23:31,640
months a year ago. 
So no cost cutting has shown up 

360
00:23:31,640 --> 00:23:35,760
in the data so far. 
Most of the research I can find 

361
00:23:35,760 --> 00:23:39,480
shows that governments only cut 
spending in response to a 

362
00:23:39,480 --> 00:23:43,000
crisis, and the problem with 
that is that these forced 

363
00:23:43,000 --> 00:23:46,040
spending cuts can be 
indiscriminate and make a 

364
00:23:46,040 --> 00:23:50,000
financial crisis worse. 
The problem is that politicians 

365
00:23:50,000 --> 00:23:53,960
love borrowing and spending 
because the paying back comes in

366
00:23:53,960 --> 00:23:57,040
somebody else's term. 
Since the turn of the 

367
00:23:57,040 --> 00:24:01,080
Millennium, interest rates 
started out low and fell lower 

368
00:24:01,280 --> 00:24:03,840
and during that period of 
declining interest rates, 

369
00:24:04,040 --> 00:24:07,880
governments have grown addicted 
to borrowing and spending, which

370
00:24:07,880 --> 00:24:11,280
they got away with because the 
low interest rates meant that 

371
00:24:11,280 --> 00:24:14,600
economies could outgrow the 
interest rate on the debt. 

372
00:24:14,960 --> 00:24:20,000
With US 30 year rates above 5% 
and anti growth policies being 

373
00:24:20,000 --> 00:24:24,080
pitched by politicians, this 
becomes a lot more difficult. 

374
00:24:24,720 --> 00:24:27,840
Trump's tariffs could of course 
cause problems in other 

375
00:24:27,840 --> 00:24:31,440
countries too. 
According to JP Morgan research,

376
00:24:31,640 --> 00:24:35,680
the impact of the trade war will
be focused on the US, but the 

377
00:24:35,680 --> 00:24:38,720
rest of the world will not be 
immune to the damage. 

378
00:24:39,000 --> 00:24:44,000
They say that the trade war 
could reduce global GDP by 1%. 

379
00:24:44,280 --> 00:24:48,160
In a world with such elevated 
levels of government debt, lower

380
00:24:48,160 --> 00:24:51,840
growth can only be expected to 
make the situation worse. 

381
00:24:52,440 --> 00:24:57,040
In its October Fiscal Monitor 
report, the IMF warned about the

382
00:24:57,040 --> 00:25:01,080
enormous surge in public debt 
over the last five years, with 

383
00:25:01,080 --> 00:25:05,760
the global debt to GDP ratio now
10 percentage points above its 

384
00:25:05,760 --> 00:25:07,800
level on the eve of the 
pandemic. 

385
00:25:08,160 --> 00:25:12,400
Their research showed countries 
with debt that was not expected 

386
00:25:12,400 --> 00:25:16,320
to stabilize accounted for more 
than half of global debt and 

387
00:25:16,440 --> 00:25:22,320
about 2/3 of world GDP. 
The UK, Brazil, France, Italy 

388
00:25:22,320 --> 00:25:25,920
and South Africa were among the 
countries where debt was 

389
00:25:25,920 --> 00:25:30,560
expected to continue rising. 
They said that in countries 

390
00:25:30,560 --> 00:25:34,360
where debt is projected to 
increase further, delaying 

391
00:25:34,360 --> 00:25:37,760
action will make the required 
adjustments even larger. 

392
00:25:37,960 --> 00:25:42,600
And they called for cumulative 
fiscal adjustment tax rises, or 

393
00:25:42,600 --> 00:25:48,880
spending cuts of 3% to 4 1/2% of
GDP to bring down debt across 

394
00:25:48,880 --> 00:25:51,640
the world. 
They added that government 

395
00:25:51,640 --> 00:25:55,520
spending to fund the transition 
to greener energy, together with

396
00:25:55,520 --> 00:25:59,720
aging populations and security 
concerns, were likely to add 

397
00:25:59,720 --> 00:26:02,360
fiscal pressures over the coming
years. 

398
00:26:02,960 --> 00:26:06,760
Government may wish to inflate 
away the debt in the coming 

399
00:26:06,760 --> 00:26:10,480
years where they allow high 
inflation to reduce the real 

400
00:26:10,480 --> 00:26:14,240
value of their outstanding debt.
But higher inflation, as we've 

401
00:26:14,240 --> 00:26:17,920
seen in recent years, is very 
unpopular and can lead to 

402
00:26:17,920 --> 00:26:20,080
governments being thrown out of 
office. 

403
00:26:20,520 --> 00:26:23,640
Thanks again for tuning into 
this week's podcast, with a 

404
00:26:23,640 --> 00:26:27,680
special thanks to my supporters 
on Patreon who make this happen.

405
00:26:27,840 --> 00:26:30,880
Have a great day and talk to you
in the next podcast. 

406
00:26:31,000 --> 00:26:31,320
Bye.