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NBC5 In Depth: How will the nation’s debt crisis affect our region?

This week, we discuss what this could mean for your retirement account and the cost of goods and whether there is anything you can do to prepare

WELCOME TO NBC5 IN DEPTH. STILL NO DEAL IN WASHINGTON TO RAISE THE NATION’S DEBT CEILING MARKETS. AND NOW MILLIONS OF INDIVIDUALS ARE NERVOUS. WE’VE KNOWN ABOUT THE APPROACHING CRISIS FOR MANY MONTHS, OF COURSE, BUT PRESIDENT BIDEN AND HOUSE AND SENATE LEADERS ONLY MET FACE TO FACE TO BEGIN THEIR TALKS THIS WEEK. NO BREAKTHROUGHS, LOTS OF FINGER POINTING. WE EXPLICITLY ASKED SPEAKER MCCARTHY WOULD HE TAKE DEFAULT OFF THE TABLE? HE REFUSED. I’VE DONE EVERYTHING IN MY POWER TO MAKE SURE IT WILL NOT DEFAULT. NEW THE NEW REPUBLICAN HOUSE SPEAKER SAYS HE’LL RAISE THE DEBT CEILING ONLY IF THE PRESIDENT AND DEMOCRATS AGREE TO CANCEL PROGRAMS THAT HAVE ALREADY BEEN APPROVED. A SECOND MEETING SET FOR FRIDAY WAS POSTPONED, AND THAT MIGHT BE A GOOD SIGN. WITHOUT A DEAL, THOUGH, THE NATION BEGINS TO DEFAULT ON ITS BILLS. 18 DAYS FROM NOW. THIS MORNING, WE’LL DISCUSS WHAT THAT COULD MEAN HERE AT HOME TO YOUR RETIREMENT ACCOUNTS TO THE COST OF GOODS AND WHAT, IF ANYTHING, YOU CAN DO NOW TO PREPARE. DAN CUNNINGHAM IS AN INVESTMENT ADVISER AND THE FOUNDER OF THE BURLINGTON FIRM. ONE DAY IN JULY. HE IS BACK WITH US THIS MORNING FOR HIS TAKE ON THE ROAD AHEAD. DAN CUNNINGHAM, THANKS FOR COMING IN. GOOD TO BE HERE. WELL, WELCOME BACK YOU. WE TEND TO CALL ON YOU DURING PERIODS OF ANXIETY. AND THIS AGAIN, QUALIFIES WITH THIS CONVERSATION ABOUT THE NATION’S DEBT CEILING. HOW ARE YOUR CUSTOMERS FEELING ABOUT THE MARKETS RIGHT NOW? AND AND IS THE FIGHT IN WASHINGTON CREATING MORE TENSION? IT’S DEFINITELY CREATING TENSION, AND I DON’T THINK IT’S MAKING ANYONE FEEL GOOD. BUT WE’RE WORKING WITH PEOPLE AND TRYING TO HELP EVERYBODY REALIZE THAT THIS IS US. THIS, TOO, SHALL PASS. IT WAS GOING, AS YOU LIKELY KNOW, IT’S ABOUT TEN YEARS AGO. THIS LED RIGHT UP TO THE TO THE END AND. AND WE’LL GET THROUGH IT. YEAH. WE WERE READING THE OTHER DAY ABOUT THE 2011 CRISIS. SIMILAR CIRCUMSTANCES AND IT WENT UP TO THE LAST 72 HOURS BEFORE DEFAULT. WHAT LONG TERM EFFECT DID THAT HAVE? WELL, IT’S REAL BRINKMANSHIP. AND IN THE PAST THERE HAVE BEEN IN 2011, 2013, THERE HAVE BEEN SOME DOWNGRADES IN THE IN THE US CREDIT RATING OVER THIS. SO THERE CAN BE A LONG TERM EFFECT. THIS BRINKMANSHIP IS NOT HEALTHY. IT’D BE I THINK EVERYONE WOULD LIKE TO SEE IT RESOLVED AS SOON AS POSSIBLE. YOU YOUR FIRM MANAGES SOME $700 BILLION IN INVESTMENTS AND CLIENTS IN A MAJORITY OF STATES. IS THIS ARE PEOPLE MAKING MOVES IN RESPONSE TO THIS? AND WHAT DO YOU ADVISE PEOPLE? WE’LL CALL YOU UP AND SAY, DAN, YOU KNOW, WHAT’S MY EXPOSURE? CAN CAN I REDUCE MY RISK? THERE ARE PEOPLE MAKING MOVES. THERE ARE A LOT OF PEOPLE WHO WANT TO MAKE MOVES. GENERALLY, WE’RE TRYING TO HOLD PEOPLE IN THE PORTFOLIO DESIGNS THAT HAVE BEEN SET UP. IF YOU’RE IF YOU’RE REACTING TO NEWS AND TO THE ANXIETY IN THE MARKET, YOU’RE REALLY TOO LATE. IT’S REALLY DESIGN A PLAN AND STICK WITH IT THROUGH THE UPS AND DOWNS FOR PEOPLE WHO ARE IN OR NEARING RETIREMENT. IS THERE. AND AS WE’RE TALKING HERE, YOU KNOW, THERE COULD ALWAYS BE A LAST MINUTE AGREEMENT. BUT WHO’S WHO’S GOT MORE EXPOSURE AND WHO’S GOT LESS IN A IN A CIRCUMSTANCE LIKE THIS, YOU KNOW, ARE PEOPLE WHO HAVE A LOT OF FIXED INCOME INVESTMENTS OR TREASURIES. HOW ARE THEY DOING? WELL, I MEAN, PEOPLE WILL PERCEIVE SOMETIMES THAT THEY CAN REDUCE THEIR RISK BY GOING IN SHORT TREASURIES. BUT IF YOU REALLY THINK ABOUT THAT, THAT’S ALMOST LIKE THE SILICON VALLEY BANK MISTAKE WHERE YOUR RETIREMENT IS A LONG PROCESS. AND IF YOU PULL YOUR INVESTMENTS INTO SHORT DURATION INVESTMENTS, SHORT TREASURIES WHERE THE RATES LOOK GOOD, YOU’RE MISSED. MATCHING YOUR NEED FOR CASH, WHICH IS LONG TERM WITH AN INVESTMENT THAT’S SHORT TERM, THAT’S EXACTLY THE MISTAKE THAT SILICON VALLEY BANK MADE. AND YOU REALLY DON’T WANT TO DO THAT AS AN INDIVIDUAL INVESTOR. SO IF YOU’RE IN EQUITIES, IF YOU’RE IN THE STOCK MARKET, LEAVE IT ALONE. CLOSE YOUR EYES. YEAH, YEAH. HOPE FOR THE BEST. IT’S SOMETHING THAT YOU WON’T KNOW WHEN WHEN THIS STARTS TO RESOLVE THE INFORMATION WILL LEAK VERY QUICKLY IN THE MARKET WILL START TO MOVE VERY QUICKLY AS IT RESOLVES. BUT IN IN 2011, IN THAT CRISIS, THE MARKET WAS FLAT OVER THAT YEAR. IN 2013, IT WAS UP 33%. IT’S IT’S VERY UNPREDICTABLE WHAT HOW THE MARKET IS GOING TO RESPOND. AND IT MAY EVERYONE ASSUMES IT’S GOING TO BE BAD AND IT MIGHT BE BAD FOR A LITTLE WHILE, BUT THE YEAR COULD END UP VERY WELL, TOO. THE FED KEEPS RAISING INTEREST RATES. WHAT EFFECT? I MEAN, I THINK WE’VE HAD TEN IN A ROW APART FROM THE DEBT CEILING IN A POLITICAL SHOWDOWN. WHAT EFFECT IS THAT HAVING THIS YEAR ON MARKETS? WELL, IT’S STARTING THE MARKETS ARE IF YOU THINK ABOUT INTEREST RATES LIKE GRAVITY, THE INTEREST RATES ARE ARE PULLING THE MARKET DOWN WHERE THEY WOULD OTHERWISE BE. I MEAN, WE HAD A LONG RUN OF FREE MONEY. IT’S IMPORTANT TO REMEMBER WE’RE KIND OF BACK TO AVERAGE NOW HERE A LOT THAT WE’RE ON THESE HIGH RATES, THESE REALLY THESE RATES CURRENTLY ARE NOT HIGH. THESE ARE REALLY MORE THE AVERAGE LONG TERM RATES. BUT IT IS THE CASE WHERE THE FED IS FIGHTING CONGRESS TO A DEGREE WHICH IS STILL POURING MONEY INTO THE ECONOMY AND THE FIGHTING. A LOT OF OTHER FACTORS THAT ARE PUSHING INFLATION UP. SO WE HEARD THIS MORNING INFLATION CAME IN JUST UNDER 5% LAST YEAR AT THIS TIME, IT WAS, I THINK 8.3%. SO COMPOUNDED, YOU’VE LOST ALMOST 14% OF YOUR MONEY IN ABOUT 18 MONTHS. IF YOU’RE HOLDING IT IN CASH, THAT’S A BIG LOSS. AND WE TRY TO EMPHASIZE WITH PEOPLE THAT THINGS LIKE CASH AND BANK ACCOUNTS AND EVEN CDS, THEY’RE REALLY THERE’S A LOT OF RISK IN THOSE AFTER INFLATION, WHEREAS BUSINESSES AND COMPANIES CAN RAISE PRICES WITH INFLATION AND AND PROTECT YOU OVER TIME. IF THERE IS NO DEAL AND WE GO OVER THIS CLIFF, WHAT WHAT IS YOUR CRYSTAL BALL TELL YOU ABOUT THE IMPACT ON ON MARKETS THAT WOULD BE THAT WOULD BE BAD. I MEAN, THAT WOULD THAT WOULD BE NOT CONSTITUTE FOR ONE, IT WOULD SET A VERY BAD PRECEDENT. IT WOULD AFFECT THE US CREDIT RATING AROUND THE WORLD AND THE MARKETS. THE MARKETS WOULD LIKELY DECLINE AT SOME LEVEL TO THAT, ALTHOUGH WHAT WHAT YOU NEVER REALLY KNOW IS HOW MUCH IS ALREADY BAKED INTO THE CALCULATION. AND SO I THINK EVERYONE IS HOPING THAT DOESN’T HAPPEN. AND ON THE OTHER HAND, YOU KNOW, THIS ISN’T ALL BAD. SOME PEOPLE THINK WE SHOULD HAVE NO DEBT CEILING. SOME PEOPLE THINK IT SHOULD BE A PERCENTAGE OF GDP, WHICH MAKES SOME SENSE. BUT THERE IS SOME VALUE IN HAVING THIS DISCUSSION OF JUST HOW MUCH DEBT THE UNITED STATES IS PILING ON, WHICH IS AN EXTRA ORDINARILY HIGH NUMBER. YEAH, I MEAN, IT’S SOARED IN THE LAST DECADE. IT’S SOARED UP TO 1980. WE WERE, I THINK 30, 35% OF GDP. WE’RE NOW AT 136 GDP. AND AND WHAT THAT I MEAN, MONEY ISN’T FREE. THESE THINGS HAVE COSTS. AND WHAT IT MEANS OVER TIME IS GRADUALLY YOU PAY MORE AND YOU GET FEWER GOVERNMENT SERVICES BECAUSE MORE MONEY HAS TO GO TO DEBT SERVICE AND AND THAT DEBT SERVICE IS EXPLODING WITH EVERY FEDERAL RESERVE INTEREST RATE HIKE. IT IS EXPLODING. THAT’S A GOOD POINT. IT’S UP TO ABOUT $400 BILLION IN THE FIRST SEVEN MONTHS OF THE YEAR. THAT’S WHAT THE US GOVERNMENT’S PAID IN INTEREST. THAT’S JUST THE FIRST SEVEN MONTHS OF THE YEAR AND THAT’S ABOUT A 40% INCREASE FROM A YEAR AGO. SO I THINK THAT WHEN YOU HEAR THAT LIKE THAT, THAT THERE’S NO COST TO DEBT, WELL, IF IT’S ZERO 0 OR 1% OR 2%, THAT’S TRUE. BUT WHEN YOU START GETTING UP TO 5% PLUS THESE ARE REAL NUMBERS. SO IF YOU HAVE MONEY, WHAT WOULD YOU DO RIGHT NOW? WOULD YOU WAIT AND SEE? I MEAN, THIS IS A COUPLE OF WEEKS AWAY FROM THIS. YOU KNOW, JANET YELLEN’S JUNE 1ST, YOU KNOW, DAY OF RECKONING. YEAH. IF I HAD NEW MONEY TO PUT IN WHAT I DEFINITELY WOULD NOT DO IS WAIT AND SEE. WARREN BUFFETT SAID DURING THE FINANCIAL CRISIS, IF YOU WAIT FOR THE ROBIN’S SPRING WILL BE OVER. AND I THINK THAT’S A REALLY IMPORTANT THING TO REMEMBER HERE. YOU’RE ONLY YOUR ONLY FRIEND AS AN INVESTOR, PUTTING NEW MONEY IN IS BAD NEWS, SO YOU ALWAYS WANT TO BE INVESTING INTO BAD NEWS CYCLES BECAUSE THAT’S WHEN SOMEONE ELSE IS GOING TO HAND THEIR ASSETS OVER TO YOU AT A REDUCED PRICE. ONCE THE THINGS LOOK CLEAR AND THE NEWS IS POSITIVE, THAT’S NOT GENERALLY A GREAT TIME TO INVEST, ALTHOUGH THAT’S WHEN MOST PEOPLE DO INVEST. SO THERE’S SO MUCH PSYCHOLOGY AT WORK HERE RIGHT? IT IS BECAUSE, I MEAN, NORMALLY AS HUMAN BEINGS AND, YOU KNOW, OUR PREDECESSORS, YOU WEREN’T REWARDED BY BEING OUTSIDE THE PACK. THOSE WERE YOU KNOW, THOSE WERE THE THE PEOPLE OUTSIDE THE PACK EATING, YOU KNOW. RIGHT. AND INVESTING. IF YOU WORK OUTSIDE THE PACK, YOU TEND TO MAKE A LOT OF MONEY OVER TIME. SO YOUR YOUR BEST FRIEND IS BAD NEWS. YOUR BEST FRIEND IS BAD NEWS IF YOU’RE APPLYING NEW MONEY AND WHO GETS WHO GETS EATEN HERE. I SUPPOSE IF YOU HAVE A IF WE GO OVER THE CLIFF AND YOU HAVE A VARIABLE RATE LOAN, YOU KNOW THAT’S NOT GOING TO BE GOOD. THE BECAUSE IF THE US GOVERNMENT CAN’T PAY ON ITS DEBT OR PEOPLE WHO ARE LOANING THE GOVERNMENT MONEY ASSUME THIS MIGHT HAPPEN AGAIN, THEN YOU’RE GOING TO PAY MORE FOR THAT BEHAVIOR DOWN THE ROAD. SO YOUR PHONE CALLS THIS WEEK HAVE BEEN GENERALLY, HEY, IS THERE ANYTHING I SHOULD DO? IS THERE ANY MOVE? I SHOULD MAKE A LOT OF PHONE CALLS AROUND THAT. YEAH. REALLY? AND YOU’RE I DON’T WANT TO OVERSTATE IT, BUT YOU’RE URGING CALM. WE DEFINITELY DO URGE CALM. I MEAN, FINANCIAL MARKETS NEWS AROUND THE WORLD, IT TENDS TO BE, YOU KNOW, THERE WILL BE THERE WILL BE EVENTS AFTER THIS. ONCE WE ONCE WE GET THROUGH THIS, YOU KNOW, YOU MAY SEE INCREASED LAYOFFS THIS SUMMER. YOU MAY SEE INCREASED INTEREST RATE HIKES ABOVE LEVELS THAT ANYONE EXPECTED. AND SO THERE’S ALWAYS GOING TO BE ANOTHER EVENT IN THE FINANCIAL WORLD TO BE ANXIOUS ABOUT. BUT IF WE GET PAST THIS AND THERE’S A DEAL, WHAT’S YOUR READ ON ON MARKETS FOR THE REST OF THE YEAR? WELL, I MEAN, THINGS ARE COOLING DOWN. THEY’RE NOT GOING DOWN ENOUGH YET. I HAVE I MAY BE A LITTLE BIT OUTSIDE OF THE PACK IN THAT I’VE THOUGHT THAT INTEREST RATES ARE GOING TO HAVE TO GO HIGHER THAN MOST PEOPLE THINK TO REALLY COOL INVESTMENT DOWN. BUT THE KEY THING AND I DO THINK POWELL IS DOING A GOOD JOB IN THIS, IS THAT YOU NEED TO BREAK THE CYCLE OF INFLATION. IT HAS TO BE BROKEN. WHEN YOU TALK ABOUT NUMBERS THAT WHEN YOU WHEN YOU LOOK AT THAT NUMBER THAT I ALLUDED TO EARLIER ARE THE PEOPLE’S. THEY’VE LOST 14% OF THEIR WEALTH JUST IN INFLATION THAT NEEDS THAT’S THE FIRST PRIORITY. THAT NEEDS TO STOP. DAN CUNNINGHAM, THE FOUNDER OF ONE DAY IN JULY. THANKS FOR CALMING US DOWN AND BEING OUR GUEST THIS MORNING. THANKS. THANKS FOR HAVING ME. YOU BET. AHEAD IN THIS GAME OF CHICKEN IN WASHINGTON, WHAT IF WE REALLY DO GO OVER THE CLIFF? A MIDDLEBURY ECONOMIST JOINS US WITH HIS ANALYSIS IN A MOMENT. WE. PETER MATTHEWS ENGAGES COLLEGE STUDENTS EACH DAY AT MIDDLEBURY COLLEGE IN THE WHAT IFS OF POLITICAL ECONOMICS. HE REMEMBERS WHAT HAPPENED THE LAST TIME POLITICIANS GOT TOO CLOSE TO THE FIRE. JOINING US THIS MORNING FROM MIDDLEBURY COLLEGE, PETER MATTHEWS IS PROFESSOR OF ECONOMICS. WELCOME BACK TO NBC5. IN DEPTH. I’M GLAD TO BE HERE. STUART. WELL, IT’S GREAT TO HAVE YOU, THOUGH. I WISH NOT UNDER QUITE THESE CIRCUMSTANCES, GIVEN THE QUESTIONS, WE’RE GOING TO FLOAT YOUR WAY. THE WHAT IF SCENARIO. SO AS WE RECORD THIS, THERE IS NO AGREEMENT TO RAISE THE DEBT CEILING. AND I’M WONDERING HOW MUCH WE ARE PUTTING AT RISK HERE AS AN OPENING COMMENT, WHAT WOULD YOU SAY? I THINK WE’RE PUTTING A LOT AT RISK. THIS COULD BE A SELF-INFLICTED ECONOMIC DISASTER ON A SCALE THAT RIVALS WHAT WAS EVEN CONSERVATIVE FORECASTS OF WHAT THIS MIGHT LOOK LIKE SUGGESTS THAT A PROLONGED IMPASSE COULD PRODUCE LARGE INCREASES IN UNEMPLOYMENT, LARGE DECREASES IN STOCK PRICES, LARGE INCREASES IN INTEREST RATES. THERE’S A LOT AT STAKE HERE, STUART. WELL, WHY WOULD MARKETS TANK IF THERE IS NO AGREEMENT? IS THAT BECAUSE THE WORLD WOULD LOSE CONFIDENCE IN THE UNITED STATES? SO THERE ARE A COUPLE OF REASONS TO IT. AND LET’S TALK ABOUT MAYBE THE DIRECT EFFECTS. FIRST, THE FAILURE TO REACH A DEAL MEANS THAT THE US CAN NO LONGER PAY FOR ITS EXPENDITURES BY BORROWING. AT THIS POINT, ALMOST A QUARTER OF ALL NON INTEREST EXPENDITURES OF THE US FEDERAL GOVERNMENT ARE DEBT FINANCED. SO IMAGINE A WORLD IN WHICH, ROUGHLY SPEAKING, A QUARTER OF ALL EXPENDITURES NOW HAVE TO BE CUT BACK. THAT MEANS POTENTIALLY EVERYTHING FROM SOCIAL SECURITY PAYMENTS TO MILITARY EXPENDITURES TO UNEMPLOYMENT BENEFITS TO ALL OF THE THINGS THAT MANY AMERICAN HOUSEHOLDS COUNT ON. AND IN THAT CASE, THERE’S A KIND OF A MACROECONOMIC SHOCK HERE THAT EVEN IN DEPENDENT OF WHAT HAPPENS ON FINANCIAL MARKETS IS GOING TO BE INCREDIBLY DESTRUCTIVE. SO SOCIAL SECURITY CHECKS MIGHT BE DELAYED OR MIGHT NOT BE AS LARGE GOVERNMENT PAYCHECKS, MILITARY PAYCHECKS, ALL OF THE ABOVE. I MEAN, IN SOME WAYS, ONE OF THE REALLY NASTY FIGHTS THAT WILL HAPPEN IF WE DO DRIVE OVER THIS CLIFF IS WHAT EXACTLY WE WILL AND WILL NOT PAY FOR, BECAUSE WE WILL HAVE TO REDUCE EXPENDITURES BY ABOUT A QUARTER. AND I’LL ADD ONE MORE THING, WHICH IS IF WE THEN START LIVING MONTHS TO MONTHS, THERE ARE SOME MONTHS IN WHICH THE THE INFLOW OF TAX REVENUES, WHICH WE WOULD THEN BE RELYING ON COMPLETELY ARE LOWER. SO FOR EXAMPLE, JULY AND AUGUST ARE BAD MONTHS FOR TAX REVENUES. AND SO YOU COULD IMAGINE A WORLD IN WHICH THE CUTS WOULD HAVE TO BE LARGER STILL IN THINGS LIKE SUMMER MONTHS. SO, YES, ALL OF THOSE ARE ON THE TABLE. AND AND AND THE POTENTIAL RAMIFICATIONS FOR US HOUSEHOLDS AND FOR THE US ECONOMY ARE ENORMOUS. THE US DOLLAR IS THE GOLD STANDARD IN THE WORLD NOW IS WOULD THAT NECESSARILY CHANGE IF IF THERE’S NO AGREEMENT BY THE BEGINNING OF JUNE? SO IT’S MORE THAN THE US DOLLAR BEING THE GOLD STANDARD? YOU’RE ABSOLUTELY RIGHT, STUART. BUT IT’S ALSO THE FACT THAT US TREASURIES ARE CONSIDERED THE WORLD’S SAFE ASSET RIGHT? THEY’RE THE THEY’RE THE COLLATERAL FOR ALL SORTS OF OTHER ARRANGEMENTS IN THE WORLD. THE FINANCIAL, THE WORLD FINANCIAL SYSTEM BEHAVES AS THOUGH OPERATES AS THOUGH US TREASURIES ARE THE GOLD AND GOLD STANDARD ASSET. IF YOU WANT TO THINK ABOUT IT, THAT WAY, THE PROSPECT OF OF OF A DEFAULT ON US TREASURIES WOULD CAST TRUMP DOUBT ON THE RELIABILITY AND SECURITY OF US TREASURIES AND ONE OF THE REALLY UNFORTUNATE THINGS ABOUT ALL OF THIS IS THAT PART OF THE REASON THAT THE US GOVERNMENT IS ABLE TO BORROW AT SUCH LOW RATES TO START WITH IS PRECISELY BECAUSE THE WORLD IS HAPPY TO ACCEPT THESE TREASURIES. ONE OF THE THINGS WE’RE PUTTING IN JEOPARDY, IRONICALLY, IS OUR ABILITY TO FINANCE FUTURE DEBT. WHATEVER THAT SIZE IS, BECAUSE THE US TREASURIES WILL NO LONGER HAVE THAT CACHET THEY ONCE DID. THE REPUBLICANS POINT HERE IS THAT WE HAVE BEEN SPENDING LIKE MAD, PARTICULARLY DURING AND SINCE THE PANDEMIC. OF COURSE, DEMOCRATS POINT OUT WE’VE BEEN SPENDING LIKE MAD AND HAVE FINANCED MUCH OF OUR BUDGET THROUGH BORROWING FOR A LONG TIME. BUT I’M WONDERING, IS 30 NEARLY $32 TRILLION IN ACCUMULATED NATIONAL DEBT? ISN’T THAT A HECK OF A LOT? IT IS. AND IT IS IN STUART. I MEAN, I THINK THIS IS THE REALLY INTERESTING QUESTION. AND I WANT TO COME BACK AND ALSO MAKE A POINT ABOUT THE RIGHT TIME TO HAVE THAT CONVERSATION, TOO. BUT BUT JUST ON THE SIZE. SO IT’S NOW ABOUT 125% OF GDP. THAT’S THE RIGHT WAY TO THINK ABOUT IT. RIGHT. YOU ONLY WANT TO THINK ABOUT A COUNTRY’S DEBT OR HOUSEHOLD DEBT RELATIVE TO ITS INCOME. AND RELATIVE TO INCOME. IT WAS ACTUALLY LARGER AT THE END OF THE TRUMP ADMINISTRATION. SO IN SOME WAYS, THE DEBT TO GDP RATIO IS ACTUALLY DECLINED. IT’S STILL HIGH. AND IT’S HIGH EVEN RELATIVE TO MOST OF OUR EUROPEAN COUNTERPARTS, BUT IT’S CLOSER TO ROUGHLY 100%. I’LL POINT OUT THAT THAT JAPAN HAS LIMPED ALONG FOR DEBT LOADS THAT ARE TWICE AS LARGE AND THAT ENGLAND INDUSTRIALIZED UNDER DEBT LOADS THAT WERE TWICE AS LARGE. AND SO THE NOTION THAT WE’RE AT SOME CLIFF EDGE HERE THAT, YOU KNOW, ONE MORE DOLLAR OF DEBT IS SOMEHOW GOING TO DRIVE US OVER THE EDGE ISN’T CONSISTENT WITH WHAT WE KNOW ABOUT ECONOMIC HISTORY OR ABOUT MACROECONOMICS OR ABOUT THE ECONOMICS OF OTHER COUNTRIES IN THE WORLD. THE DEMOCRATS ARE INSISTING THAT THE WHITE HOUSE GIVE BACK SOME OF ITS LEGISLATIVE VICTORIES, CLAW BACK SOME UNSPENT COVID MONEY. THERE IS NO CONVERSATION THAT I’VE HEARD TO THIS POINT ABOUT RAISING REVENUE TO TRY TO NARROW THIS ANNUAL DEFICIT WHERE ARE US TAX RATES COMPARED TO THE HISTORIC AVERAGE, THE LOW RELATIVE TO HISTORIC AVERAGES? AND THEY’RE LOW RELATIVE TO MUCH OF THE REST OF THE WORLD. I MEAN, IT’S IMPORTANT TO REMEMBER THAT THE KIND OF THE GOLDEN AGE OF US CAPITALISM AND THOSE 3 OR 4 GLORIOUS DECADES AFTER THE SECOND WORLD WAR ALL HAPPENED UNDER MARGINAL TAX RATES THAT ARE MUCH HIGHER THAN WE HAVE NOW. BUT I WANT TO ADD SOMETHING TO THIS STORY, WHICH I THINK IS REALLY IMPORTANT FOR VIEWERS TO UNDERSTAND, WHICH IS I THINK THAT HONEST PEOPLE CAN DISAGREE ABOUT HOW LARGE THE US GOVERNMENT SHOULD BE. AND I THINK THAT HONEST PEOPLE CAN DISAGREE ABOUT HOW LARGE TAXES SHOULD BE. THE TIME TO HAVE THAT CONVERSATION, HOWEVER, IS WHEN WE’RE PASSING BUDGETS, RIGHT? DO SO NOW. AND I CONFESS I BORROWED THIS MEME. I SAW IT SOMEWHERE. I LOVE IT SO MUCH, BUT DOING IT NOW IS THE EQUIVALENT OF GOING INTO A RESTAURNT, ORDERING MOST OF THE FOOD ON THE MENU, WASHING IT DOWN WITH COPIOUS AMOUNTS OF BEER AND WINE, GETTING UP AFTER THE MEAL AND SAYING, YOU KNOW WHAT, I HAVE AN EATING DISORDER AND I’M THE WAY TO SOLVE IT IS TO WALK OUT OF THE RESTAURANT AND SKIP OUT ON MY BILL. THAT DOESN’T MAKE SENSE. IF WE WANT TO HAVE THIS CONVERSATION, LET’S HAVE THE CONVERSATION AND LET’S HAVE IT AT THE NEXT BUDGET ROUND, THE NEXT ROUND OF BUDGET NEGOTIATIONS. REPUBLICANS AND DEMOCRATS OUGHT TO HASH THIS OUT WHEN WE TALK ABOUT BUDGETS, BUT NOT WHEN WE TALK ABOUT THE DEBT CEILING. IN SOME WAYS, WE HAVE TO LIVE UP TO OUR PREVIOUS COMMITMENTS. IT’S SEEN, THOUGH, IN A SUPER DIVIDED, SUPER TOXIC WASHINGTON AS A POINT OF LEVERAGE. ABSOLUTELY. I AND IT IS A POINT OF LEVERAGE, BUT IT’S IT’S A POINT OF LEVERAGE THAT I THINK RUNS COUNTER TO ANY SENSE OF WHAT THE RIGHT THING TO DO HERE IS. AND IT’S A POINT OF LEVERAGE THAT RUNS COUNTER TO, I THINK, THE BROADER CONSTITUTIONAL PRINCIPLES THAT ANIMATE US. RIGHT? THERE’S A THERE’S A CONVERSATION OUT THERE NOW THAT I THINK IS REASONABLY ASKING WHETHER OR NOT THE DEBT CEILING LEGISLATION AS A WHOLE IS CONSTITUTIONAL IN THE FIRST PLACE. THERE’S SOME QUESTION ABOUT WHETHER OR NOT IT’S A VIOLATION OF THE 14TH AMENDMENT. YEAH. IN 2011, WE WENT UP TO THE RIGHT, UP TO THE EDGE. IT WAS WITHIN A COUPLE OF DAYS. IS THERE ALREADY DAMAGE, DO YOU THINK, THAT’S DONE FROM THIS INABILITY TO COMPROMISE? SO I THINK SO. I MEAN, IF YOU LOOK AT THE TWO 2011 EXPERIENCE, YOU WILL SEE THAT AS WE APPROACH THE EDGE, INTEREST RATES STARTED TO RISE, THE COST OF INSURANCE ON US HOLDING US TREASURIES STARTED TO RISE AND WE STARTED TO SEE INCREASES IN OTHER KIND OF SECURITIES PRICES TOO. SO ONE OF THE THINGS THAT WILL START TO HAPPEN, I THINK AS WE APPROACH JUNE 2ND, WHICH IS THE DATE THAT SECRETARY YELLEN HAS INDICATED THAT IN SOME WAYS WE CAN NO LONGER USE ACCOUNTING TRICKS TO KIND OF BALANCE THE BALANCE THE BALANCE OF THE BOOKS. I THINK AS WE APPROACH THAT DATE, IN THE ABSENCE OF A DISAGREEMENT, MARKETS WILL ANTICIPATE WHAT’S GOING TO WHAT’S GOING TO HAPPEN AND WE’LL START TO PRICE IN THOSE EFFECTS. AND IF THEY IF THEY THINK THAT THIS IS GOING TO BE A PROLONGED IMPASSE, I THINK THAT YOU CAN EXPECT STOCK PRICES TO START TO FALL FAIRLY RAPIDLY JUST IN ADVANCE OF THAT JUNE 2ND DEADLINE. HAVE ANY PLANS FOR JUNE 2ND? MAYBE WE SHOULD ALL GO FOR A HIKE AND DON’T BRING ANY ELECTRONICS. I’LL GO YEAH, I’LL GO FOR A HIKE. AND MORE FIXED INCOME? I THINK SO, YES. YEAH. WELL, EVERYONE SAYS WE EXPECT THERE TO BE A DEAL, BUT THE PROSPECTS OF DEFAULT ARE NOT ZERO, ARE THEY? THEY’RE NOT. THEY’RE NOT ZERO. I MEAN, I WAS I WAS SAYING BEFORE THAT I WAS I WAS OPTIMISTIC AT THE VERY END. THE LAST TWO TIMES WE’VE DONE THIS. AND I, I DON’T QUITE HAVE THAT OPTIMISM NOW, I’M REALLY CONCERNED THAT WE WILL, IN FACT, GO OVER THE CLIFF EDGE HERE. AND I THINK THAT, AGAIN, THAT THE TRAGEDY HERE IS THAT THE US ECONOMY HAS SURVIVED. IN FACT TRIUMPHED OVER TWO VERY LARGE CHALLENGES. COVID WAS A CHALLENGE AND THE RUSSIAN INVASION OF UKRAINE WAS A MACROECONOMIC CHALLENGE AND THAT THE LAST THING WE SHOULD BE DOING RIGHT NOW IS CREATING A SELF INFLICTED CHALLENGE. AND THAT’S WHAT WE’RE DOING. PETER MATTHEWS, PROFESSOR OF ECONOMICS AT MIDDLEBURY COLLEGE, THANKS FOR BEING WITH US. IT WAS TERRIFIC. THANK YOU

NBC5 In Depth: How will the nation’s debt crisis affect our region?

This week, we discuss what this could mean for your retirement account and the cost of goods and whether there is anything you can do to prepare

With no deal currently in place in Washington, D.C., to raise the nation’s debt ceiling, markets and now millions of individuals are nervous.We’ve known about the approaching crisis for many months, but President Biden and House and Senate leaders only met face-to-face to begin their talks this week.So far, there have been no breakthroughs and lots of finger-pointing.Republican House Speaker Kevin McCarthy said he would raise the debt ceiling only if the president and Democrats would agree to cancel programs that have already been approved.Without a deal in place, the nation will begin to default on its bills by June 1.This week, we discuss what this could mean for your retirement account and the cost of goods and whether there is anything you can do to prepare.

With no deal currently in place in Washington, D.C., to raise the nation’s debt ceiling, markets and now millions of individuals are nervous.

We’ve known about the approaching crisis for many months, but President Biden and House and Senate leaders only met face-to-face to begin their talks this week.

So far, there have been no breakthroughs and lots of finger-pointing.

Republican House Speaker Kevin McCarthy said he would raise the debt ceiling only if the president and Democrats would agree to cancel programs that have already been approved.

Without a deal in place, the nation will begin to default on its bills by June 1.

This week, we discuss what this could mean for your retirement account and the cost of goods and whether there is anything you can do to prepare.