U.S. debt is roughly 150% of GDP, China's 200%. The speaker argues austerity is politically impossible, so the government will print money and inflate away the debt. He advises buying real estate and gold, avoiding fixed-income investments, and using long-term debt to acquire appreciating assets.
So obviously the United States, and to an even greater extent China, both countries are running these huge debt burdens. And I was shocked to learn this past week that America's is okay, we're at about 150% of GDP. The Chinese are at 200% of GDP. Just kind of crazy numbers. This is kind of a tale of two countries. I'm glad I live in America because we at least have the dollar standard to fall back on, which means the the government can go and print more money. The Chinese, to some extent, have pegged their currency to the United States. But, you know, I think as I've watched this week as a small business owner and seeing the new Republican bill for the big beautiful bill that's coming out of Congress, it's clear that that bill does two things. Well, three things really. The third thing is it does a bunch of kind of, you know, political theater stuff around needs and wants around freedom and gun control and all this kind of stuff. But anyway, we don't have to worry about any of that stuff. What matters is this bill basically does two things. Spending goes up and taxes go down, which is a very typical kind of just holdover from the 2017 Trump tax cuts. And they're just trying to make 'em permanent. You know, we'll see what happens in the next couple weeks. But I think this bill totally tells us what is politically tenable in the United States right now, which is austerity is not politically tenable. It's not gonna happen. If you just sit down and do the math, The way to balance the budget and the way to deal with all of that and to start paying down the national debt, et cetera, it requires austerity, which is like reducing entitlements, which is the big chunk that nobody wants to touch 'cause it's a third rail with older voters and they're the people that are keeping these people in office and other stuff that's like not interesting, like the military. Like we're gonna have the biggest military budget potentially in history this year. Like the spending is still continuing outta control and the tax cuts are going down, which means borrowing is gonna keep going. Up. Arguably, the United States can keep doing what we're doing for some period of time, but eventually there's going to be a reckoning. So if austerity isn't the solution to all this, what is the path forward? Well, there's pretty much only one way the government can deal with this level of debt, and that is to basically go after the bonds, the people who've loaned money to the government. And the way you can do that is by devaluing your currency. And there's lots of ways to do that. But one of them is printing more money and inflating prices, which, you know, post-COVID we've been doing like crazy. Though recently it's kind of under control, which is cool. So if you say the answer is eventually the government to fight all this and, you know, the folks in DC are going to have to inflate the currency's value, meaning make the dollar worth less, that means we as small business people should expect to be doing business in an inflationary environment that is potentially not super connected to the global trade order that has existed post-World War II. So that means certain assets that will benefit a lot in inflationary environments are the ones to go after. Things like property, things like gold. Those are the things that will benefit a lot as the currency gets devalued. On the other end of the spectrum, what doesn't make sense in those environments? Things like bonds, right? And being a lender. If you are getting paid back in the future in dollars that are worth less or much less than they are today, then you're definitely not gonna be making much profit lending money to somebody else. Lastly, that also means being a business owner is probably a good thing. In an inflationary environment if it's a business that can do well in an era of reduced trade and also one where inflation happens. And so owning businesses that are tied to, you know, inflation-resistant assets like folks servicing industrial properties, those type of things can all do well. So, you know, I think that's where we as investors, which is fundamentally what you're doing when you own a small business, you're making calls every single day as to where you're going to invest the time and capital that the business has in order to get return on it, i.e., payment from a customer This can tell us where we should start being smart in the future, which is owning fixed assets is a good thing. Owning assets that benefit from inflation is a good thing. Gold and stuff like that. And then secondarily, like long-term borrowing is potentially a good thing for businesses. So if you can use leverage to buy things that are inflation resistant or benefit from inflation, like property and that type of appreciating assets, like it's a good thing. And if you can use debt to do that, meaning, you know, you're on the other side of the trade where lending is not going to be a great business in the future due to inflation, you can go that direction. I think there's a caveat to that though, which is like if you're going to do borrowing, like interest rates will have to go up and stay up over time. So we should expect them to be high for the future in an inflationary environment. So in that case, using long-term fixed rate debt to buy inflation-resistant assets is a good thing. All right. That's my takeaway from all this as a citizen. I'm super sad that we couldn't get our act together and not put forth a bill that was kind of this dumb. But if it's what we're gonna get, I do feel some peace kind of understanding what the future's gonna look like. And the future is highly inflationary environment. And the good news is you, me, and the folks that own small businesses, we know how to react to that. The playbook's pretty straightforward. Is it good? No. But we know how to react to it and that's what matters. So cool. If you like stuff like this, I don't often talk macro, but sometimes macro makes me talk and that's where we are. And if you like stuff like this, check out my newsletter here. I send out weekly insights like this to people who own a business, wanna own a business, or wanna own multiple businesses. I'm speaking to you. Love to connect and sign up for my email right here. Bye.
