All Episodes
Previous Next
Jan. 22, 2025 - Epoch Times
22:48
Shrinking US Debt and Growing the Economy at the Same Time - Is that Possible? Carol Roth
| Copy link to current segment

Time Text
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 U.S. 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 the 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 Jan Jekielek.
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 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 and settling in gold and looking to move away.
Everything, Jan, 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 U.S. 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 of the trade around the globe.
And we have been in that position for about 80 years.
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.
War 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 U.S.'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 U.S.'s fault.
We are supposed to be holding, via the Fed, the world's reserve currency steady.
Not only on the international stage, but also domestically.
Sometimes those are at odds with each other.
And so as things have slipped 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 U.S. dollar.
And so between that and our fiscal foundation being very rocky, you know, these are the kinds of things that are shifting what's happening.
There's also a reason why people would want to use the US dollar to settle deals, right?
Because it is just much more predictable than anything else.
You wouldn't want to do it with renminbi, for example, right?
Well, that was the thought.
Whether you call it the RMBs, the Yuan, the trade in China, the reality is that a lot of the countries that are aligned, now known as the BRICS nation, the Brazil, Russia, India, China, Saudi Arabia, and some of the other South Africans in there, these nations are actually starting to engage in trade in their local currencies.
And what the Chinese have done is said, Well, maybe you don't want to take the renminbi.
You don't want to take the yuan.
What we're going to do is we'll offer settlement and gold.
And so as countries around the world who used to hold lots and lots of U.S. dollars via our treasuries as reserves, they have been lightening up on those reserves.
In fact, in the last 10 years, central banks around the world have been net sellers of treasuries.
But what has been replacing that currency in their reserves is not another currency.
They're not going to the euro or something else.
What has been replacing it has been gold, a neutral reserve asset.
And so I think that speaks to not only the U.S.'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 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 food and other commodities that are priced in U.S. dollars, and now all of a sudden it's going to take many more U.S. dollars for you to afford those things, that becomes a national security issue for your country.
It means that your country may end up having food issues.
So we can kind of understand why those things are happening.
Also, as I talked about, the weaponization of the dollar, when we chose to freeze Russia's reserve assets, Who wants to hold the U.S. dollar in reserve if at any point in time the U.S. could go, no, just kidding, we're going to put a freeze on those.
So again, it's been sort of our behaviors that are dictating these changes.
And these other countries who 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.
It doesn't mean the U.S. 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 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 because there's the other side of things, which is basically the Fed's balance sheet, which is up to north of $9 trillion now.
Thank you.
Yeah, so I think the Fed, it's come down a little bit.
Certainly that was the impetus for shifting what we have seen in our fiscal foundation, disrupting risk in the markets, being a catalyst 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.
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 401k balance is the highest that it's ever been.
This is fantastic.
But for the have-nots, the people who 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...
But there's a bigger chasm 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 involved in the markets in a meaningful way and have the same kinds of returns and play catch up?
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 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 this huge debt load that we have be able to be, quote is that we will probably see a continuation of that inflation in order to have 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 and author of You Will Owe 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 and corresponding inflation.
So we've talked about that aspect.
We talked about this other aspect, the international context of less trust in the dollar, I suppose, which contributes to changes in this fiscal foundation.
But why don't you give me the overall picture of what is this fiscal foundation?
What are the elements, aside from the two we just discussed?
One of them is the overall debt level.
And when we talk about, at the time we're recording this, $36 trillion, probably in another 100 days, it'll be at $37 trillion and continue to grow.
That number is so big that people can't really get their heads wrapped around it.
So I look at it 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. That exceeds the output on a yearly basis of the country.
So if you look 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 percent.
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 names in finance have identified that this is something that is a massive problem.
In addition to looking at just the overall debt to GDP, we also look at the deficits to GDP. And on a historic basis, again, About 3.4% is sort of an average deficit, which isn't great, 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 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 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 the like.
And that could create a recession and create a whole other set of problems.
When we were looking at like Ronald Reagan, that was a situation where the debt to GDP was like 30 percent.
So the tools, the things that they could do at that point in time to try to right 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 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 cutting of the pie simultaneously.
Exactly.
That's a really great way to think about it, is that we need that pie to expand.
We need to get much, much larger so that when they take their little 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 cutting too much of the pie, then you end up having sort of 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 dressing.
When you pull down 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 Trump has been left with a veritable mess here, and that's something that he's going to have to work very delicately.
The best news possible is that he has a very smart Treasury Secretary pick in Scott Besant.
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 helped to create the situation to begin with.
Well, so, and there's also this, you know, the whole Doge initiative, right, with Elon Musk and Vivek Ramaswamy at the helm, identifying cuts.
If you were going to be helping them identify cuts, where would you go first?
Well, I have my own pet project, which is this Corporate Transparency Act Beneficial Ownership Information Rule that impacts small businesses, treats them like financial criminals, makes them put their names in.
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, almost $600 a day in fines.
And courts have already found it unconstitutional.
So even though it's working its way up the court system, it's been appealed.
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 and this choreography I keep talking 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 going to 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 so many other things attached to it now.
The other thing is that.
Within the executive branch, 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 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 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 cannot underestimate that.
What is the biggest challenge that Treasury will have in your mind?
It's financing the United States without breaking the entire global treasury market.
The U.S. treasury market is sort of the benchmark for the world.
And so we have to have something that is very stable.
And when we're in a situation where I think he's going to have $13 trillion to finance, the $7 trillion that's rolling over, plus probably another $6 trillion in deficit spending that he's going to have to finance over the next year.
I think that's going to be a giant challenge, and he's going to probably have to come up with some unique things.
And then just on an ongoing basis, working with And Carol, if people want to hear more about your thoughts about small business, you know, macroeconomics, wherever, where can they go?
So I have a free newsletter.
We cover things like economics.
Throw in some humor there at carolroth.com slash news is the sign-up.
It comes out usually a couple times a month.
I'm on all social platforms, but...
Mostly active on X, formerly known as Twitter, at Carol J.S. Roth.
And of course, I have multiple books out.
Most recent is You Will Own Nothing.
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 some of the books.
So those are my main touch points.
Okay.
Well, Carol, thank you.
This has been a fascinating conversation for me.
Any final thoughts as we finish up?
So I think that 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 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.
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 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 people who've been put up for positions have either a second chance or maybe has 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 make sure that we're championing the backbones of this economy.
You're mentioning platforms.
I can't help but think of the platform Robinhood, right?
Yeah, you know, Robinhood's interesting.
It's had sort of some challenges over time in terms of, yes, 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, make sure that you understand the risks.
Make sure that if you have a banking system, that you make sure that they have the appropriate level of insurance.
And do something that's right for you, because we're in 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 something that you're willing to lose it all.
But otherwise, you make educated investment decisions.
Well, Carol Roth, 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.
▲
Export Selection