00:00Let's bring in Vicky Price, international economist, joining us here in London.
00:04Hello, Vicky. So, we've had some quite strong comments from Scott Besant in the last hour or so.
00:09What do you make of it?
00:11I think it suggests to me that they are worried, that they want to calm the markets,
00:15because of the cost of just servicing the debt.
00:19It's not just a case of, and worry, of course, that everyone has about the size of the debt,
00:23but it's also what it's costing to just pay the interest on it,
00:27which suddenly last year amounted to over $1 trillion.
00:31And I think that's quite significant, as you can imagine.
00:34We've also got, of course, the issue of the actual deficit being rather larger than what had been promised,
00:42because, you know, if you look at the most recent president,
00:47but also what was being attempted at the end of the Biden era was to try and reduce the deficit
00:54as a percentage of GDP.
00:55Well, I'm afraid that's still about 5.5%, and that is another worry.
01:01So, is there anything in the pipeline, if you like,
01:05which is going to be possibly reducing that deficit in the future
01:09and do something about reducing also the debt pile that's out there,
01:14and therefore the cost of servicing it?
01:16And for the moment, just the action that we just heard about buying perhaps one's own treasury bills
01:24and doing that in a bigger way than was originally intended,
01:28so $4 billion a week rather than just $2 billion a week, isn't going to do it by itself.
01:34Besson also said he thinks that bonds have hit peak yields.
01:38Do you agree?
01:40Well, who knows?
01:41I mean, if he says so, then he must have something to bring to the table.
01:48The question is, of course, whether the bond markets think that, in fact, debt is going to continue to increase.
01:53The other question is whether they think that inflation, even though it's just been reported by your correspondent,
01:58has been coming down a bit, whether, in fact, that is just temporary,
02:01because we still have the problem of oil prices being very high.
02:05If you just look at the market today, we saw bread crude up to $93 a barrel.
02:12It's been showing no sign of really coming down.
02:15And if anything, if you look at what's happening in the market in terms of yields,
02:19they're going up, not just in the U.S., of course, but more generally.
02:23So I think the markets are taking fright.
02:25They're moving to other types of investment that they want to put their money into,
02:29and that, I think, is a concern in terms of funding the debt at relatively low interest rates in the
02:34future.
02:35It looks like it's going to be rather difficult to do.
02:37At what point would America's debt actually undermine confidence in the bond market and the dollar?
02:43Are we even close to that?
02:45Well, it's interesting you ask about the dollar.
02:47Of course, what everyone is saying is that if you look at the U.S., it can just bring more
02:51money.
02:52It can do all the things that Scott Bestam said he's going to be doing.
02:55The Fed can intervene and perhaps buy more bonds in the secondary market rather than reducing the amount that it's
03:02holding already,
03:03which is, of course, in the trillions.
03:05It has reduced them, but it stopped doing so, so it may be more accommodating.
03:10But generally, of course, we're not talking about a country that is going to default,
03:13and therefore the bond markets are unlikely to get particularly worried to the extent that there will be a crisis.
03:19It is, but there is no doubt that if you look across the world, there is a retreat from funding
03:26government debt,
03:27and I don't think it's going to be affecting just the U.S., I'm afraid.
03:30Some countries might find it a lot more difficult to deal with the situation.
03:33But a weaker dollar, of course, adds to inflation, and that is going to be a worry that, of course,
03:39President Trump is going to have.
03:40And, of course, the Fed, which may want to rethink its interest rate standards, we've just been discussing.
03:45When we look at this $40 trillion hole, it's nice to point a finger of blame.
03:51And I'm wondering how much of this growing debt is bad luck.
03:54I'm thinking pandemics, the global financial crash, natural disasters.
03:58And how much is bad choices, overspending, starting walls, that sort of thing?
04:04Well, I'm afraid it's a combination of all these things.
04:07There is no doubt that because of COVID, well, it all started with the financial crisis,
04:11where there was an extra, you know, trillion or two which had to be put into the economy.
04:15Then we had COVID, and there was a big, big budget stimulus which was given to the economy,
04:22particularly by Biden.
04:23There was a little bit also by Trump.
04:26That has, again, been in the trillions.
04:28And then, of course, there is the issue of what's going on right now in terms of President Trump himself
04:35cutting taxes and giving more incentives for the economy to grow,
04:39which, of course, has affected the amount of revenues that he's been collecting.
04:43And the other unfortunate thing, perhaps, is that the economy has not grown as fast as has been expected
04:48because you can cover that debt and you can cover the actual interest that you have to pay on your
04:55debt.
04:55If the economy does well, well, the economy has done perhaps better than some of the countries.
05:00But if you look at what's going on even this year, the last quarter has seen annualized growth of just
05:071.5%.
05:08It was over 2% in the first quarter.
05:10And there are serious concerns as to where some of the money that you need in terms of taxes
05:15to reduce some of the deficit that I spoke about is, of course, going to come from.
05:19And then, of course, you've also got the repayment of the tariffs.
05:22Now that they have proved some of them to be illegal, which has cost an extra whatever,
05:27160 billion maybe, a little bit more so far.
05:30So it all adds up, I'm afraid.
05:32So it's a series of, yes, accidents, but also some deliberate mistakes.
05:36Thank you so much, Vicky.
05:37Price is an international economist based in London.
05:40Price is an international economist based in London.
05:41Price is an international economist based in London.
Comments