Coming Hyperinflation & the Debt Ceiling Disaster.

hey everyone meet kevin here earlier i

made a video where i talked about how

historically after 700 years of studying

pandemics

we tend to see that natural interest

rates and inflation come down

and this is the exact opposite response

of what happens after wars

in fact in both cases wages go up

but rates in inflation tends to trend

lower

much lower in fact after pandemics

but not immediately after pandemics more

like 5 to

20 years after pandemics and continue to

remain low

for up to 40 years after pandemics a lot

of the calm well i shouldn't say a lot

there were some comments with multiple

upvotes in the comments section though

wondering

but kevin is this time different because

we've printed

more money than we have in the past and

the study itself actually gives us an

answer

will more money printing at least the

money printing that we have done now

lead to an additional collapse or what

kind of

risks would we expect to our economy

after the amount of money printing that

we have done

to bail ourselves out of this pandemic

and what's worse

printing money after a pandemic or

printing money after a war

first it's worth noting that fiat has

been around

for hundreds of years and every fiat

that has ever existed before has

essentially collapsed and gotten

destroyed at some point so

the dollar's days are probably numbered

but those days

might be many years out and by many

years

i mean potentially more than our

lifetimes now

i don't know i don't personally foresee

a massive dollar collapse within the

near future

but hey that's me taking a stand and i

don't know but i tell you

i'll be the first to tell you if i see

the cracks unfolding and i'm always

looking for cracks

and there are some things that are

slightly concerning in our market right

now

specifically with how much debt has been

pre how much money has been printed

most measures of why we have too much

debt

or most or i should say the most

commonly referenced measure

when it comes to why we have too much

debt is the percentage of debt that we

have to gdp

and if you want to look this up tape

this into google st louis

fred like the name fred and then type in

debt

to gdp usa and i'll show you exactly

what you're going to get and we're

looking to look at it here together

all right we're going to go ahead and

scroll over here federal debt total

public debt as a percentage of gross

domestic product

so the sum of all goods and services

transacted

in our country and as you can see our

total debt is at a current percentage of

about

127 percent of gdp

this is extremely high in fact this

chart does not go back as far as

well ideally it would but the last time

we had debt this high was right after

world war

ii and this is actually a really

interesting reference

because after or during a war you would

expect that a lot of money would be

printed so that we can sustain

a war fight we print money we use that

to fund a war now the mechanics of that

aside

we end up with a lot of debt to gdp

over time that can what we like to say

inflate away that is that old debt

becomes much less

valuable over time as long as the

economy is growing

faster than the than the rate of growth

of our debt

and that's exactly what happened after

world war two in fact after world war ii

we never paid off our wartime debt today

we still technically have some leftover

wartime debt

but it just became increasingly

irrelevant because you could see even

the amount of debt that we had

in the 1970s this drop in the bucket

compared to the amount of debt that we

have

now and numerically this number has

exploded as well

because well right now our economy

is way larger than what it used to be

back in the 70s or the 50s or the 60s

and so obviously having a debt to gdp of

about 127

is really really high and so the federal

reserve tells us hey well what we should

focus on now because yes our debt to gdp

is so high

what we should focus on instead is our

total

debt payments as a percentage

of gdp instead and this gives a little

bit more of a perspective of

oh okay so how much are we actually

spending

on all this debt that we have because

interest rates are lower

and so what this means is in 1960 for

example

we spent 1.28 of our gdp

on debt so for example if i type in

0.00128

times 550 billion dollars

that means we spent about 7.04

billion dollars on servicing our debt

in 1960 that's just a quick way

to do the math on this and as you can

see even though

our total debt has ballooned like crazy

we're actually at a relative low in

terms of how much of our gdp

we're spending on servicing our debt in

fact we had

much larger debt loads in the 1980s

through about 95. we had a much larger

debt service payment because interest

rates were higher back then

and our debt therefore was more of a

burden to us

relative to our gdp so maybe the federal

reserve is right

maybe our debt is not so horribly

unsustainable because

our interest rate payments aren't that

terrible right now now

some like to say this is just the

federal reserve redefining how things

actually work

and we shouldn't be playing the game

like this at all we should just be

focusing on

this chart right here which is a lot

more scary uh and so i suppose it

depends on which side of the aisle

you're on

in terms of what you want to argue i i

personally look at both of these factors

and i go okay yeah look

this is unsustainable right but we did

go into a pandemic

and keynesian economics would call for

lots of money printing during a pandemic

so this is pretty typical

and the fact that interest rates are low

is good but the issue is then what

happens when interest rates start going

up but consider this even if our debt

payments doubled the amount of debt that

we have paid doubled

we'd still only be at roughly 1992

levels

so we've been there before in terms of

uh paying that much debt as a percentage

of our gdp

so these are two important graphs to pay

attention and the good news is this is

slowly ticking down again and hopefully

it doesn't keep skyrocketing to the moon

obviously we'll see what ends up

happening with the amount of stimulus

that ends up getting

injected via the next stimulus packages

that could obviously lead to another

spike over here which will lead to some

heart palpitations

but what is that same study that we

referred to earlier say about this

because they actually talked about this

as well take a look at this

debt sustainability well the short

run fallout from pandemics looks similar

to other economic disasters

large and sudden declines in economic

activity the medium to long-run economic

consequences after a pandemic are

staggeringly

difficult as sorry different as we have

shown that is pandemics remember

that natural rate of interest goes down

substantially and these differences

matter for policy makers

in any abrupt shutdown or downturn the

textbook response is to either

borrow to smooth the shock or to pursue

aggressive stimulative fiscal policy

to counter the shock we had both of

these borrowing

and stimulus right both will likely lead

to a rapid buildup of public

debt correct we did see that however the

sustainability of such debt

depends crucially on the type of

economic disaster confronted

and this chart is actually really useful

because what this chart right here tells

us

is it tells us the natural rate line

of of what the natural interest rate is

in the economy

minus the growth rate so if we have lots

of growth

after a pandemic the blue line we and

the growth is greater than what our

interest rates are

then we'll have less of a debt burden

because we're growing more than our

debts are growing right

and this particular research indicates

that generally after

pandemics you might start with a little

bit more burden of debt

but that actually lowers as your economy

begins to grow again

which is quite the opposite of what you

see after wars

so this is why comparing to world war ii

is actually quite different than when

you compare to other pandemics

now i'll go back over here to look at

the way they worded the conclusion

because it's a little bit different

all right so they say here if this

difference becomes more negative

it is easier to sustain higher levels of

debt in other words

the more down that line was which the

blue line was down for pandemics

the easier the debt is to sustain so in

other words ward debt

is worse pandemic debt better as they

say

once again we see that pandemics and

wars have different consequences in

respect to this as well

uh figure 3d which we just showed shows

that in the aftermath of pandemics

r minus g becomes slightly negative by

about 50 basis points around the 20-year

mark

where before returning back to

equilibrium which would be as if the

pandemic never happened

anyway so this to me is really

interesting because

now if you haven't watched the first

video i encourage you to watch that

because that was a really good one too

and i know this is more detailed which i

like going into the details

those of you in my courses you know that

you know it's like oh man

now we're get we're gonna actually learn

some crap here that's that's why i like

doing my courses and that's why i love

them so much

but anyway uh yeah this is actually

really interesting because it tells us

look

first of all our debt as a percentage of

gdp

in terms of our payments uh is not that

high it's not as high as it has been in

the past

debt as a percentage of gdp in total is

is very very high it's a scary graph

right

but when we frame it properly with what

interest rates are and we frame it with

regard to

how pandemics usually respond to debt

sustainability

i actually don't believe that the amount

of money printing we've done

is horribly bad

i think it's potentially excessive

i think if we kept printing it would

quickly become

excessive like we're not on a

sustainable path in my opinion

i think if we printed what we did and

we're done you know maybe we even you

know

stopped now like no more that that's

okay

you know do i think we can squeeze

another four trillion dollar stimulus

package in

you know that that's when things start

getting a little bit more blurry

so we'll see not trying to get political

i'm just saying like

we see how the market's responding we

see how uh the economy is functioning at

the moment with the amount of debt that

we've already acquired

and we have some history to help guide

us i don't know about

loading on too much more though at this

point but anyway

uh hopefully this provides you a little

bit of insight on uh deaths

and uh hopefully a suashin whatever

some fears they might have anyway i'ma

go now thank you so much for watching

and we'll see you next time bye

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