Shrinking US Debt and Growing the Economy at the Same Time - Is that Possible? Carol Roth

we do need to shrink our spending and we need to get a hold on the debt but it needs to be done in a way that you have the growth go first otherwise you're going to end up with less Revenue which means you're going to actually widen the deficit and create a worse problem a no good deed goes unpunished type of scenario in this latest installment of our special series on the US Presidential transition period I'm sitting down with Carol Roth a former investment banker and author of several books most recently you will own nothing your war with a new Financial world order and how to fight back in this episode we dive into the domestic Financial challenges facing the incoming Trump Administration and how best to navigate them this is American thought leaders and I'm Yan [Music] Kellick Carol Roth such a pleasure to have you on American thought leaders so great to be here I've been looking forward to this discussion you have written a fascinating book uh talking about a new Financial World Order and we've seen a lot of changes to the financial World Order in recent times and I think we're in for another big change so tell me what you're seeing yes so straight out of you will own nothing we have a country with 120% debt to GDP 7% deficits to GDP we have a global order where the biggest central banks in the world are no longer buying our treasuries and now they're transaction Ing and settling in gos and looking to move away everything Yan is moving and shaking and so we are just at the precipice of this big change the way I would articulate where we are today is the us at the center of the Global Financial order being the world's Reserve currency being the currency holding the currency that is used in most most of the trade around the globe and we have been in that position for about 80 years uh prior to us it was Great Britain prior to them it was the Dutch so this is something that Cycles on a pretty regular basis sometimes there are smaller Cycles sometimes there are bigger Cycles the bigger Cycles are usually preceded by a war I like to say that not every war leads to a new Financial world order but every major new Financial world order at least in modern times has been preceded by War so where we are today we are in a situation where the US's sort of grasp on being that center of the financial universe is getting a little bit slippery and it is really nobody else's fault but the US's fault we are supposed to be holding via the fed the world's Reserve currency um steady not only on the international stage but also domestically sometimes those are at odds with each other and so as things have slipped U internationally strangely enough they've also slipped domestically and the fed's done a terrible job of keeping our currency stable at all we've also seen the weaponization of the US dollar and so between that and our fiscal Foundation being very Rocky you know this these are the kinds of things that are shifting what's happening on the global fiscal front there's also a reason why people would want to use the US dollar to settle deals right because is just much more predictable than anything else like you wouldn't want to do it with brenman B for example right well that was the thought um you know whether you call it you know the R&B's the Yuan um the trade and China the reality is that a lot of the countries that are aligned um now known as the bricks Nation the Brazil Russia India China Saudi Arabia and some of the other South uh South Africa's in there um these nations are actually starting to engage in trade in their local currencies and what the Chinese have done and said well maybe you don't want to take the Redmond B you don't want to take the Yuan what we're going to do is we'll offer settlement in gold and so as countries around the world who used to hold you know lots and lots of US Dollars via our treasuries um as the reserves they have been lightning up on those Reserves in fact um in the last 10 years central banks around the world have been net sellers of treasuries not net buyers but what has been replacing that currency in their reserves is not another currency they're not going to the Euro or you know something else what has been replacing it has been gold a neutral Reserve asset and so I think that speaks to not only the US's issue with its fiat currency not holding that stable doing the kinds of things that precede a shift in the Global Financial order but these countries um sort of being on the other side of that and what you have to understand is again it's not really their fault when you have energy when you have food and other Commodities that are priced in US Dollars and now all of a sudden it's going to take many more US dollars for you to afford those things that becomes a national security issue for your country it means that your your country um you know may end up having food issues so you we can kind of understand why those things are happening um also as I talked about the weaponization of the dollar when we chose to freeze Russia's Reserve assets who wants to hold the US dollar in reserve if at any point in time the us could go no just kidding we're going to put a freeze on those so it again it's been sort of our behaviors that are dictating these changes and these other countries who you know maybe have found it easier in the past and there's been less friction there's been more reason to use the dollars are now saying for a whole host of reasons we need to find another way to do this doesn't mean the US dollar is going away it doesn't even mean that it's going to not be the most used currency in terms of settlements but given its huge dominant position even changing the reserves or changing the TR the trade just a little bit has major implications for our own standard of living here in the United States okay and so that's very interesting um because there's the other side of things which is you know basically the fed's balance sheet which is up to you know North of9 trillion now yeah so I think the the feds it's come down a little bit um certainly that was the impetus for shifting what we have seen in our fiscal Foundation um disrupting risk in the market being a c Cal to allow the government to spend money that they didn't have and frankly to create massive inflation in the lives of Americans and it's something that has had sort of a dual path if you are an asset holder if you hold stocks if you have a house if you have other tangible assets that are valuable you've seen that asset inflation that asset inflation actually was the first inflation we saw because it's closest to the source of that money Printing and so those people who are asset holders have said wow this is great I have so much more equity in my house my my 401k balance is the the highest that it's ever been this is fantastic but for the the Have Nots the people who are are not in a position to have many assets then that trickle down into cost of living inflation and so not only are they struggling to afford food and afford rents but there's a bigger ASM now that has been created between you know can I become an asset holder in the future can I afford this house can I get um you know involved in the markets in a meaningful way and and have the same kinds of returns and play catchup and unfortunately that's really manifested in more and more young people being concerned that they're not going to be able to seize the American dream so that has been enabled purely by fed monetary policy and government fiscal policy and it's enabled this really bad behavior and unfortunately given where we are today with our fiscal Foundation I don't think it's a thing that is going to um necessarily stop or maybe it's going to be shifted over time but the reality is that the most likely outcome given sort of the political will is that we will probably see a continuation of that inflation in order to have there this huge debt load that we have um be able to be quote unquote managed by our politicians Carol we're going to take a quick break and we'll be right back and we're back with Carol Roth a recovering investment banker an author of you will ow nothing so Carol you mentioned this idea of this fiscal foundation and we talked about one element of it which is we know a lot of the printing of money um and uh you know corresponding inflation uh so we've talked about that aspect we talked about this other aspect uh the international context of uh less uh trust in the dollar I suppose which contributes to changes in this fiscal Foundation but why don't you kind of give me the overall picture of how you view what is this fiscal Foundation what are the elements aside from the two we just discussed one of them is the overall debt levels and when we talk about at the time we're recording this $ 36 trillion probably in another 100 days it'll be a 37 trillion and and you know continue to grow um you know that number is so big that people can't really get it their heads wrapped around it so I look at it as you know as it relates to the GDP because that's sort of how a lot of economists and financial people measure it so we are at a level that is more than 120% debt to GDP or debt exceeds the output on a yearly basis of the country so if you look at at the IMF and the treasury and a lot of the other major organizations they normally say that a country gets into trouble that the debt becomes unsustainable on an unsustainable path unwieldy at around 70 to 80 per. so really we need to cut the debt to GDP in about half if we were not that world Reserve currency that we talked about if we were not the leading trading currency we would have a sovereign debt crisis but because today people need dollars that we have been able to avoid that but everybody has identified you know every major organization all the major you know names in finance have identified that this is something that is a massive problem in addition to looking at just the the overall debt to GDP we also look at the deficits to GDP and on a historic basis again about 3.4% um is sort of an average deficit which isn't great um but becomes even less great when we have a lot of debt and we have a lot of interest expense right now the country is running deficits that are 7% debt to or deficit to GDP so about double the historic average so when we look at the growth the quote unquote growth that we have had um in our country a lot of that has been done based on taking on these massive deficits which need to be financed and that's a huge problem because that means if Trump wants to cut the deficit he has to make sure that we're growing at the same time because if you purely just cut spending that's been pushing 2% GDP without growth then all of a sudden you're taking in even less money each year in terms of GDP and then taxes and and the like and that could create a recession and create a whole other set of problems when we were um you know looking at like Ronald Reagan uh you that was a situation where the debt to GDP was like 30% so the tools the things that they could do at that point in time to try to write the ship are very different than what it is today and frankly are quite limited the other thing that we have going on is that we have a lot of foreign investment in the United States which is great until we do something that causes them to need to raise dollars and then again they have to sell dollars in order to be able to pay for their own food and oil and that could create another Financial Loop so we really have this very delicate situation that requires perfect choreography and unfortunately there are just a lot of things at odds so we do need to shrink our spending and we need need to get a hold on the debt but it needs to be done in a way that you have the growth go first otherwise you're going to end up with less Revenue which means you're going to actually widen the deficit and create a worse problem a no good deed goes unpunished type of scenario so we have to increase the pie while cutting the cut cutting the cutting of the pie right um simultaneously ex exactly that's a really great way to think about it um is that we need that pie to expand we need to get much much larger so that you know when they take their little uh piece off it actually does what it says that it's going to do because if we don't have the growth and then we end up you know cutting too much of the pie then you end up having sort of the the opposite impact and that is something that I don't think enough people appreciate and when you hear things like oh the economy is doing fine or the economy is doing great again you have to say it's being driven by a wartime deficit and that is really like window addressing when you pull down you know the facade you can see what's behind that curtain and now you're seeing what The Wizard of Oz looks like and it's not great and so um Trump has been left with a veritable mess here and that's something that he's going to to have to work very delicately the best news possible is that he has a very smart treasury secretary pick and Scott bessent and this is somebody who is going to understand this choreography and probably be thinking out of the box versus an academic like Janet Yellen who you know helped to create the situation to begin with well so and there's also this uh you know the whole Doge initiative right with Elon Musk and vivik ramaswami at the helm um identifying Cuts if you were going to be helping them identify Cuts where would you go first well I have my own pet project um which is this corporate transparency act beneficial ownership information rule that impacts small businesses treats them like Financial criminals makes them put their names and uh information like driver's licenses into a database you know to stop the cartels because I'm sure the cartels are all going to sign up to do that and has crazy penalties like jail time um almost $600 a day in fines and courts have already found it unconstitutional so even though it's working way up the court system it's been appealed um everybody's sort of like hey we have the backbone of this country 34 million small businesses maybe let's reduce barriers for them so that would be a very easy thing that's not going to shift anything but it kind of goes back to the point of there's cutting spending and there's cutting regulation and bureaucracy and instilling efficiency and so I think if you look at the timing of that this choreography I keep talking about about is that they really probably first should start with some of the deregulation and the efficiencies that are going to create Drive growth first and then figure out a way to phase in these Cuts as we're seeing that growth because I can see them looking at this like a business and just saying we're gonna take you know do what Elon did when he bought Twitter now X and we're just going to cut the staff which again if we were in 1980 or even if we were 10 or 15 years ago would have been a really great idea but it has you know so many other things attached to it now the other thing is that within the executive branch you know there's so much bureaucracy that frankly isn't the way how government's supposed to work but also is going to be easier for them to touch because it's not going to need Congressional approval when you start moving outside of that there are things that are probably going to you know butt up against Congress and that's where we may see some of the barriers so the things that they can directly impact the things that get rid of the regulations that unleash growth first and then the timeline for that spending so that it neatly kind of folds in I think will put us on a really good path I wish we could do it the Argentina way I wish we could do it a different way but we're really in a tough position right now and I can't not underestimate that well and so what is the biggest challenge that treasury will have in your mind it's it's financing the United States um in without breaking the entire you know Global treasury market that's the the US Treasury Market is the sort of The Benchmark for the world and so you know we have to have a something that is very stable and when we're in a situation where I think he's going to have $1 13 trillion to finance the7 trillion do that's rolling over plus probably another $ 6 trillion doll in in deficit spending that he's going to have to finance um over the next uh next year I think that's going to be a giant challenge um and he's gonna have probably have to come up with some unique things and then just on an ongoing basis working with Trump and the other people on the teams to find and navigate a way out of this um is equally as challenging so he's got a lot of work ahead of him and Carol if people want to hear more about your thoughts about small business you know macroeconomics wherever uh where can they go so I have a free newsletter we cover things like economics uh throwing some humor there at Carol roth.com news is the sign up it comes out usually a couple times a month um I'm on all social platforms but mostly active on X formerly known as Twitter at Carol JS Roth and of of course I have multiple books out most recent is you will own nothing um so some of the topics that are interesting as we talked about this new Financial World Order what's been going on with the fed or why we're in this financial position I do more of a deep dive in in some of the books so those are those are my main touch points okay well Carol thank you um you know this has been a fascinating conversation for me uh any final thoughts as we finish up so I think that the the big takeaways here as we revisit the things that we've talked about that I just want to underscore one more time is that you know there are things that sound simple to do oh we should just cut spending that would be simple at any other point in time but we're at a very precarious Point financially and so some of the things that sound easy are actually incredibly complicated so certainly keep that in mind um and then you know just from an overarching theme that the most important thing as this country gets back on track is that we need everybody participating in the growth in the American dream in the future as as we make America great again it has to be great for everybody and so I hope that as policies come out to the extent there are things that don't really make sense for everyone that people use their voices to push back because we are seeing that especially with social media with platforms like x that you are able to influence some of these outcomes I certainly think it was in play during the election we've seen certain proposals go on and off the table we've even seen um you people who've been put up for positions have you either a second chance or or maybe um you know had some cheerleaders because of everyone's voices so don't be afraid to step up because we really do need to make sure even if you don't feel like you're part of Main Street if it doesn't work for Main Street it's not going to work for anyone else in the long term so um you know make sure that we're champing the backbones of this economy you know you're mentioning uh platforms I can't help but think of the platform Robin Hood right yeah you know Robin Hood's interesting it's had um sort of some some challenges over time in terms of yes it's it's allowed for Access when it has worked but there have been times when it has sort of glitched up so if you're going to use a platform um you know make sure that you understand the risks make sure that if you if you have a banking system that you make sure that they have the appropriate level of insurance um and do something that's right for you because we're in a scenario right now where it seems like everything is just going to go up forever but things don't go up forever and so make really smart decisions you work really hard for your money so make sure that you're making smart decisions if you're going to make a bet then it's got to be with entertainment dollars it's got to be with you know something that you're willing to to lose lose it all um but otherwise you know make educated investment decisions well Carol brth it's such a pleasure to have had you on thank you so much appreciate it thank you all for joining Carol Roth and me on this episode of American thought leaders I'm your host Yan Kellick [Music]