Government Debt and Treasury Yields: Why Ben Carlson Isn't Worried

The chatter about debt and interest rates is really heating up in markets today. And actually, I'm going to highlight a prominent financial media like a financial voice who thinks that the government debt is just not that big a deal. Now, when you have a problem brewing, it's and of course, no one would say it's not a problem at all, but when you have a problem brewing out there, you're going to have some people say something like things are not as bad as they seem. They are worse. Or but I've got a voice today saying things are never as bad as they seem. Now, I will say in my life, um I've typically found that things are not usually as bad as they seem. Maybe I'll be a victim of a moment sometimes where something will seem like a big deal in the moment, but you look 3 months out, 6 months out, and you kind of glance back at it and you say, "Ah, okay, it wasn't so bad, you know, it could have been could have been much worse." Um so, I'm going to highlight this voice today, Ben Carlson, saying that things are not as bad as they seem. We'll do a market update as well. Before I begin, I must remind you this is financial education presentation. You must do your own due diligence before acting on anything you hear in this presentation. More disclaimer information can be found at ankerstarwealth.com. The opinions expressed are mine alone. Look, we've got the chatter heating up around this. And of course, what's this quote they put on the website, right? Is that uh Fed Governor Barr says he'll support a rate hike if inflation doesn't ease. Honestly, on a surface edit at face value, that's a very reasonable quote. That's what rate hikes are for is for helping with inflation. We are kind of in an interesting spot where there is so much debt and a lot has been issued on the front end of the curve that raising interest rates kind of increases your, you know, interest expense for the government, but it also does tamper growth, so the overall offset should be a kind of something that should cool inflation even with increasing the dollars out in circulation because of an increased interest expense on the debt. But, if we go look at these bonds here, let's look at the 10-year. They you know, this is what people are going to be talking about. Uh fresh new high here, pushing up toward 5%. Look, I mean, the We've said the whole time you don't really have anything hitting anything registering economy-wide until you get to like above 5% on the 10-year. So, let's remember that. But, if we do pop over, we do have markets throwing a little bit of a fit today. You know, your tech stocks down a percent, your S&P 500 down 2/3 of a percent. Don't forget, we're still right here. People get very um uh people will make pretty extreme comments at times. Like, all volatility, volatility. Uh we're we're still in market terms hanging out around all-time highs. I don't really consider us away from all-time highs until you're pushing maybe like an 8 or so percent drawdown. Uh and I would tell people like in a retirement scenario, you know, that top 10% if you're 100% equities, that last 10% of value in your account, that kind of belongs to the market. That's just that's just kind of how to think of it. Uh volatility can strike at any point, and that first 10% can go fast. You almost don't even want to think of it as yours. If you're a 100% equity investor, um it because it can go so fast. And if you start doing that high-water mark thing of I'm supposed to be here, here, but I'm 5% below that, you know, you could really drive yourself crazy. So, we do have market We'll see what happens. Uh we will see what happens. But, we're definitely a few percent away from all-time highs at this point. Now, here's what we're going to highlight, Ben Carlson. He is saying he has a contrarian opinion that the debt is not a big deal right now. He is not worried about US government debt. Now, some of the points he's mentioned in this article are points we've talked about on the show. So, he talks about how we have the world's largest, most dynamic economy. Okay, true. We have the biggest, most innovative companies. Super true. Like not even debatable. We have the most liquid financial markets. Super true. We have the global reserve currency. We absolutely do. And we have the most rich people. Definitely true. So, there is no substitute for US Treasury bonds at this time. This is his take. He's not as worried about the government debt crisis. If do I agree with all those things? I really do. I think the only time you'd come into a you'd start to worry about government debt is as it relates to the interest expense, right? Because the government does have revenue and expenses. And if the interest expense on the debt were to reach like a third of the government's revenue, then what does that do? You're paying you're only really allowed to pay for things that you did in the past. You're paying interest on investment you made in the past. You're and you're prevented from making investment in the future, right? Cuz you wouldn't be able to take on much more debt, you know, blah blah blah. So, that's kind of the math problem that I would be worried about. I actually don't worry about the 40 trillion. So, here as much as as others and Ben Carlson would agree with that. Now, the market we'll see what the market thinks. This is Ben Carlson's take is that things are not as bad as they seem. Here he goes GDP debt to GDP going way back. So, again, we aren't really at all-time highs. We were higher in World War II. Now, you could only get argument that things are we're not in a World War II type scenario right now. We don't have emergency spending. We don't even have a recession. We just are spending to spend. So that's not great. But it has been higher in the past. Okay, interest expense as a percent of GDP, it's also been higher in the past. In 1990, it was higher. You yeah. So it's it and it feels like it's a slippery slope, right? That's kind of the the thing that people worry about. This is a slippery slope. Interest expense as a percent of GDP not fun, not great. The worry is that our interest expense becomes such a large part of the budget that difficult choices have to be made. And then he's saying so he actually makes the point down here that the problem is a little bit less about the debt and it's more about the politics around it. So there are so many people worried about government debt, but no politicians willing to do anything about it that eventually it impacts Social Security or other important government spending programs. Um there might be a politician that uses government debt levels as a scare tactic to gain voters and attention. All right. So he makes that point that there is a political risk associated with this. Here he talks about Morgan Housel's chart showing both government and household debt as a percent of GDP. What doesn't get talked about is that going into the Great Financial Crisis, consumers were stretched like consumer balance sheets, govern citizen balance sheets were really messed up. And that is not the case today. People are extremely rich. I think we've talked about it on the show. I don't know what percentage of houses are have no mortgage. It's like over half, well over half, I believe. Um people don't have tons of debt. Savings rates are a little low right now. People are a little stretched based on inflation. But actual um household balance sheets are really healthy. The government has sort of sacrificed their own balance sheet as a way to enrich the the people of the country. And if you balance those things together, we haven't had any growth there over the past 20 years. So, uh government and household debt as a percent of GDP is flat going back to the great financial crisis. Who would have thought, right? You have all this alarmist um speech out there about debt, debt, debt, but they're not talking about how rich the families have gotten during this time. Here he talks about household uh debt service. Remember, we've even mentioned on the show households are spending less on debt uh now than almost ever before. Um going back to the great financial crisis, you were pushing close to 16%. Very stretched at that time. Here's the other thing. The one of the biggest assets of the United States government are the United States citizens. And United States citizens have assets of 205 trillion minus liabilities of 22 trillion. You know, so you've got net assets of about 180 trillion. Now, of course, we don't want government debt to be to match this. That would be kind of impossible uh mathematically. But, you know, with the the government, if push came to shove, could they do they have a tax base that could pay a little more into the system and you know, fix the right the wrong that that they've spent? Yeah. Yeah, they they could. Uh at any time and that's why the if you are an owner of the government debt, you shouldn't be too worried. Okay. Um so Colin Roche said that you know, he mentioned how many assets that the US government and this doesn't even mention like the gold that the government owns, the land, the the other I'm sure mineral rights and other things that the government owns. This is just household balance sheet. Last thing. Um you know, if you look at the the spread interest rate spread between different bond yields, you know, you're at an average range. You have long-term bond yields that really are below a long-term average. Again, some people would say it's not the rate, it's the trend. Oh, which is scary and and I do agree and kind of sympathize with that. But just at face value, 5% on the 30-year is not a big deal. It shouldn't even be viewed as that. It shouldn't even be if you're the government right now, you should be saying, "Hey, these these rates are like below long-term average. Hey, the 10-year? I mean, it's who's to worried about the 10-year? What? We haven't we've been, you know, at or below this range this entire century. Who's worried about that? You shouldn't be." So, you know, and then we get these things the government comes out and they're trying to suppress yields or manipulate currencies. That's almost like making it worse. Have you ever had that thing where somebody's like, "Oh, nothing to see here. Nothing to see here." And then you're like, "Well, wait, wait, wait. What do you mean? I wasn't looking. Now I'm looking." What do you mean there's nothing to see here? That's kind of how it It really is like there's nothing to see here on a long-term basis, but then the government comes out tries to do the currency stuff, the the bond market stuff, and you start saying, "Well, what what are you guys so worried about? What's the what's the deal? What are you hiding here?" So, um do I agree with Ben Carlson and just wanted to give a shout-out amazing article here or blog post uh a Wealthy Common Sense Ben Carlson. Thank you for your work and uh we really appreciate that. Um do I agree or disagree? Look, I think I worry more about the the math problem between government revenue and expenses and where the interest expense relates in that because the interest expense ultimately is you paying for past promises, whereas, you know, it's preventing you from investing in the future. Um so, I do worry about that. Um are we at a level now that's like unforgivable? No, not really, but it's it's uncomfortable a little bit. Uh but do I believe that the government is like going to have risk of insolvency? Absolutely not. I don't I don't think about that at all uh because of all the points that Ben Carlson points mentions here. So, that's my take. That's Ben Carlson's take. We will see what happens. What do you think about this volatility in the market today? Uh I'm very interested to see if it holds and if it does and it persists a bit and we get a little bit bigger dip, then that's an opportunity to uh add high-quality assets um you know, in the coming weeks and months. So, I'll be looking forward to that if it comes or also looking forward to new highs if that comes. Thank you so much for joining us. Of course, look forward to talking to you soon.