Goldman's Solomon Warns US Debt Path Will Cause 'Reckoning'

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00:00The debt of the United States is now $38 trillion.

00:04Some people would say that's a lot.

00:06And you would think that, you know, people in Washington often say, well, it was a problem.

00:10The people in New York, they wouldn't sell, they wouldn't be buying treasury securities

00:14if it was such a big problem because it wouldn't be a good investment.

00:17And then the people in New York say, well, the people in Washington must know what they're

00:20doing.

00:21If they're borrowing this money, they must know how to figure out how to pay it.

00:23So what is the story?

00:25You're not, why is the business community not worried about, as a general rule, they don't

00:28seem to be as worried about the $38 trillion as I would have thought they would be?

00:31Well, I speak to a lot of people in the business community, a lot of people in the financial

00:35community, and I think people are worried about the level of debt.

00:39And the fact that we've reached a point, and by the way, this is true in the United States,

00:43but it's true in every developed economy, where kind of fiscal stimulus and an aggressive

00:47fiscal play is really just kind of embedded in the way these democratic economies are operating.

00:54And it's accelerated meaningfully in the last five years.

00:57I think the pandemic played an accelerating role.

01:01And it doesn't seem like we have an ability to pull it back.

01:04And so we've taken the debt in the last 15 plus years, kind of since the financial crisis,

01:10from $7 trillion to $38 trillion.

01:12And just refinancing it for the rest of the decade, what's got to be refinanced, if you

01:17look at current rates, is going to grow it into the low 40s, for sure.

01:23And we're growing our spending at a reasonable rate still.

01:27Right.

01:28So this is an issue we have to wrestle with.

01:31Now, the path out really isn't a revenue path out.

01:33The path out is a growth path.

01:34And if you think about it, the difference, trend growth is 2%.

01:39The difference between compounding growth of 3% and 2% is monstrous in terms of dealing

01:43with this issue.

01:44So there's a lot of discussion about running real growth play.

01:49I think we have some things that are going on that give us a better opportunity to have

01:54a higher growth trajectory, particularly technology, AI, getting embedded into the enterprise, the

01:59productivity opportunity from that.

02:02But if we continue on the current course and we don't take the growth level up, there will

02:09be a reckoning in this, and the bottom line is we have to find people to buy and finance

02:15our debt.

02:16And ultimately, it's not going to be other people around the world.

02:19If it keeps growing, it's going to turn to us.

02:21And so that crowds out investment.

02:23That ultimately sows growth and it can become a problem.

02:25It doesn't have to be a crisis, although you can have a speed bump.

02:29And if you want to see in places where you don't have the advantage of the dollar, go look

02:33at gilts in the UK and look at the volatility in gilts where they're having budget problems.

02:38But there are budget problems in all these economies, and we should be concerned about

02:43this.

02:44I'm not sounding an alarm bell, but I do think over time, this is an issue if we continue

02:50on this trajectory.

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