$9 Trillion Time Bomb: What Happens When the U.S. Can’t Afford Its Debt?

[00:00:03] Powell wants rates to stay high, while Trump wants them lowered. But the one thing nobody is talking about is one third of the U.S. debt is coming due at the end of June and needs to be refinanced. Yeah, that's the big thing. Like, it's not really being talked about right now. I don't think the media even pays attention. So we all know that, you know, we're trillions and trillions in debt. I was digging into this. We've got all kinds of numbers for you.

[00:00:31] So rather than, you know, get too macro, I think the reality is just like if you guys had a commercial building or a multifamily building or even a home where your debt was maturing, the U.S. is facing this exact same thing. So Yellen did a whole bunch of short term renewals and a lot of them are renewing.

[00:00:57] So I think what we well, we know what we have because we were we were digging into it this weekend. We have really low rates on that debt. Yeah, like the debt right now that we have is at one to two percent and some of that goes back all the way to 2010, which surprised me. So this isn't only just a covid issue like some of it was refinanced in 2020, but a lot of it stems all the way back from the Great Recession. So when you got a third of your debt. So we went back and did the math. So when we have a third, I'll let you tell the number.

[00:01:27] So when we have a third of the debt renewing this year, a lot of it in June, we've got the Fed meeting in the next couple of days. Then they meet again in June on the 17th, 18th, and then they meet at the end of July. So this, in my opinion, is the reason that Trump is all over Powell, you know, and I'm going to fire him or whatever. He's got a year left and then he moves to the board of governors. So and I don't think he can fire him.

[00:01:56] Well, let's break that down a little bit. So basically what we're saying is right now our interest rates are at two percent or less. They right now where interest rates, if they stay where they're at now, are going to go to four and a half to five percent. Yeah. So that's a huge jump. Right. And so the problem is that our debt payments are going to skyrocket, really. And that's not just a Trump issue. That's going to be a Powell issue as well, because, you know, the budget has to be balanced.

[00:02:24] And it's not on the whole amount. So it's like a nine point two trillion. So obviously that's a lot. Nine point two trillion. That's what's renewing this year. Right. Right. But then as the years pass, more and more will renew. Right. Right. But what we did is we calculated. As you guys would, too. What's the current debt that's renewing, which is point two trillion? What is the rate? And, you know, these are one, twos and threes, like very, very low rates.

[00:02:54] All renewing this year. What would it renew today at? And what would the increased interest cost be as a result of a reset on that debt? So, Jerry, you have that chart. Let's show that up real quick. So there are the numbers. So there's a lot behind all this. Those old rates, for example, there's a bunch of different tranches of debt.

[00:03:21] And of course, the new financing rate, you know, that that's also a scale that we started going down all these different rabbit holes as well. But roughly it's about a two hundred and thirty billion dollar issue. Yeah. And, Jerry, you can take that down before. You know, I know you guys out there saying two hundred and thirty billion is nothing to the federal government. And you're not necessarily wrong because our debt is in the trillions.

[00:03:47] But the issue is that just to put in perspective, we get about four hundred and thirty billion in corporate taxes annually. You know, you always hear tax the corporations more. They should be paying more taxes, et cetera, et cetera. Well, so, you know, the tariffs Trump wanted to put on was about two hundred and sixty billion. He said that was going to raise annually and says with the tariffs. So adding two hundred and thirty billion is just a interest payment alone.

[00:04:15] Nothing else is really a lot of money that comes from, you know, that we could be allocating to other things. Right. So you got to take a look at it like Doge right now, because I looked this up, has saved. Now, of course, you know, there's lots of lots of debate on this, but they're saying it's about one hundred sixty billion. So Doge has saved about one hundred sixty billion.

[00:04:36] The tariffs on China that if you calculate last year, the U.S. did three point two trillion in in imports and four hundred and fifty six billion of that was China. So if you take a look at that, you're looking at about two hundred fifty to three hundred billion just on China. So this this those are those are, of course, are either savings or income.

[00:05:05] And this particular case, it's an expense. So what we're looking at is as this debt matures, it's an expense to the budget. And this is a CBO, the Congressional Budget Office. You guys can take a look at this. The the estimated interest cost for this year is nine hundred fifty two billion. So that's the interest cost. Nin hundred fifty two billion. That's straight off the CBO website. So take a look at that. So so this is a big deal.

[00:05:34] Yeah. Right now we're paying more in interest than we are in defense or Medicare. And if rates stay high and this debt continues to roll over for the next few years, that could eat up 30 percent of tax revenues, which will crowd out, you know, defense, Medicare, infrastructure, et cetera. And the only way really that it wouldn't is if we continue to print. But then there's tons of issues with that as well.

[00:05:58] Yeah. It's just just to put it in perspective, if this rolled to the new rate, it would it would it'd be more than doge. So this is a big deal. It's on everybody's radar. I think this is why Trump is pounded away. Obviously, it seems to me like the Fed is digging their heels in. And so they've got inflation where they want them. Is inflation numbers coming out soon? I think they are. Yeah, I think they're coming.

[00:06:28] So, you know, they've got inflation where they want them. I think unemployment is a little high compared to where they want. But we all know what happens when interest rates go down. Interest rates go down. You're going to start having consumption again. You're going to you're going to start financing things again. So it's going to bode really well for the economy. It'll be great for real estate. It'll be great for the auto auto manufacturers.

[00:06:56] It'll be great for anybody who's financing anything. So there's going to be pressure on the Fed because of this. Right. Because, you know, when you have all this debt and you have cutbacks to programs or printing money, either way, it's not great for the economy. So you're definitely going to have pressure on Powell, not just from Trump, but from, you know, people that advise him as well to start cutting these rates.

[00:07:21] Yeah, that's why we kind of both think that there's there's going to be somewhere kind of a meeting in the middle. Right. I believe and I think a lot of people believe that we're going to start to see some lower some rate lowering this year. But you have to look. So, you know, we really do have a budget issue here. And these higher rates are really making that more apparent. And a lot of people can say, who cares? You know, we never stay on our budget anyways, which is true.

[00:07:50] But the problem is there's only really two ways to get out of this issue. And that's to print more money or raise taxes and to cover some of the spending. Yeah. But lower the expense. Like if we can lower the interest costs, you know, obviously on this maturing debt, that certainly helps. Right. And we'll get into that. But I'm just saying like, you know, so basically you have to cut programs or raise taxes or do both or print money. But the problem with, you know, printing money is it causes inflation. Right.

[00:08:19] Which is the thing they're trying to avoid. And the problem with cutting is nobody wants to cut services. Right. Like that's just not what we do. And with raising taxes. OK, great. You know, corporations pay 400 and some billion dollars in taxes. We can raise that. But our interest is going to just slowly keep eating away at that income if these rates stay high. Right. Right. And one thing to watch and keep watching is that debt ceiling. You guys, it comes up every year.

[00:08:46] It's right now at 36.1 trillion, I think, where they had to increase it. So these are these are significant numbers. And, you know, what's in the media is, you know, the doge stuff, the tariff stuff, all important. I'm not saying it isn't. You know, these are just barely chipping away at some of these things.

[00:09:07] So I think what would be the most interesting is if the U.S. goes into a fiscal dominance situation, which looks very likely, which is when the Fed is forced to cut rates, not because inflation is gone, but to keep the U.S. budget stable. Right. So that that's actually what I'm predicting. Yeah. So I think that you guys aren't really seeing this in the news. At least I haven't. I was reading.

[00:09:35] I stumbled on this and I told Danielle, I said, look at this. Check this out. You know, we've got a third of the debt maturing this year. No different than we've been reporting on, you know, whether it's an office building or a multifamily building or whatever it is. It's the exact same issue. If you have a Danielle's got a bunch of low, low interest rate debt on her condos and her houses that she owns and she's trapped like it's trapped equity.

[00:10:03] She's not going to refinance those at these higher rates. And so the U.S. is doesn't have a choice here. The debt matures. But I think fiscal dominance is something you guys should look into. It basically is when monetary policy becomes captive to fiscal policy. And it's happened a lot before. And I think it's interesting to look at where it's happened and what happened in those situations. So it happened in Brazil. They had hyperinflation because of it. Right.

[00:10:32] Happened in Argentina. They had high inflation because of it. Happened in Zimbabwe. Hyperinflation. And it happened in Japan, too. But they didn't have inflation just because of the demographics were shrinking and aging and they just didn't have that same need to print money.

[00:10:51] But in three of the four situations, they have had hyper or high inflation because the Fed has to start ignoring inflation and focusing on keeping the budget stable so the country doesn't go under, basically. Yeah. And I've been to Japan a couple of times and I remember they were like hunt, QE, infinite. Right. They just kept doing this. Now, the difference is they have a central bank just like us and some of those other areas you mentioned don't. Right.

[00:11:20] So that is something that we have in our back pocket. In addition to that, we're also the world's reserve currency. But doesn't that hurt us more? Because, you know, if we were the central bank in this specific situation, because if we were the world's central or we were a central bank and we can print money for our own citizens and we weren't the reserve currency, there's less of a downside. But because we're the world currency, we're devaluing our dollar and could lose that status from overprinting. Exactly right. Well, that's why we have the right now.

[00:11:49] You guys probably know the dollar's been its week. It's in three years. So so we currently have a weak dollar. And and so that's actually good for our manufacturers. But it's not good if we're paying people in those dollars outside of the country. So if you guys watch George Gammon, he talks a lot about the euro dollar market or Jeff Snyder. Both of those guys will be at Limitless this year. You're going to want to hear them talk about this.

[00:12:18] What they say is that there's more dollars outside of the United States that there is on the inside. That's that's because we pay in dollars. And so people are sitting on dollars and and we're printing dollars and the dollars becoming weaker for all kinds of reasons, not just printing. Then you're going to be pissed if I'm giving you money and I get something from you.

[00:12:43] And all of a sudden that that money that I gave you is worth less, then you're not going to be happy. And so you're right in that particular instance. And that's actually where we are right now. And I think we have a long way before we lose the dollar reserve status personally. But it is the world is is we're a little bit on notice right now.

[00:13:07] We are. And I think, you know, there's some warning signs that economists have put together when something is entering fiscal dominance. And that is over one trillion a year in interest cost, which we will be on the renewal, one point eight to two point oh trillion annual deficits. And right now we're at one point five to two debt to GDP right now is to exceed one hundred and thirty percent. And Fed is under pressure to cut rates, even if inflation is above target.

[00:13:35] And we're seeing this massive pressure on Powell from Trump and other economists to to cut rates. Right. Because if they're cutting rates and inflation isn't gone, it's to keep the government solvent. So if you see Powell start cutting rates right now in the next few months, it's just because he knows the government cannot stay solvent if he does not cut rates. Right. Right. All that's correct.

[00:13:58] I mean, we are from a world stage the most in debt than any other country right now. And so, you know, this is I think this is, you know, what does all this mean to me? What it means is that we potentially are going to have some rate cuts through this year as a result of these political pressures.

[00:14:23] And and that bodes well for the industry that we talk so much about, you know, obviously the real real estate industry. However, we still are a long way from where rates are. As you know, there's a significant amount of equity that people have in homes. Their rates are typically low. You know, we've been calling it trapped equity. It would be really, really good for the commercial side of the equation.

[00:14:50] Well, I ran two different sets of numbers. Right. So if the interest rates stay elevated to five, like four and a half to five where they are now for the federal government by 2029, interest on the national debt will consume over 35 percent of all federal revenue. And by 2030, it will likely exceed that 35 percent threshold, which is considered fiscally unstable by most economists. Right. So that's if it stays high.

[00:15:19] If it goes down to three percent starting in 2027, then our interest drops to 30 to 31 to 32 percent to under 20 percent. The government avoids crossing the fiscal dominance threshold of 35 percent. And, you know, you can do that without hiking taxes or cutting the budget. Right. So basically you have if they stay at five percent, we could push ourselves over the edge.

[00:15:47] If it drops to three percent, then we'll be cruising just fine where we are right now. So that's the decision Powell has to make. That's where he's at. Like all that lies in his kind of hands. Now, to your point, if we lower to three percent, we have massive inflation. But what's he going to do? Right. Right. Right. So the devil's in the details. I do love the branding of fiscal dominance, like just the words like, you know, think about it.

[00:16:12] It's like fiscal dominance in this particular case is negative, but they make it sound so positive. But, you know, it's not good. Right. Where we're heading is. I think we're going to we're going to have to cut and I think we're going to start to see inflation. By the way, we haven't even talked about tariffs. Right. That we haven't even discussed that.

[00:16:35] You know, there's going to be a processional effect or a lag with with all of that, because we are seeing massive, massive money coming in as a result of these tariffs. I don't know if you guys have looked, but you could Google this. It's very interesting how much money we're actually getting it by importing right now. And so it is turning into real revenue.

[00:16:59] And and of course, we're right on the verge of this big tax plan. I think that's that's going to be coming out soon. So that's going to be another one. That's going to be very, very interesting. But to Dale's point, when it's just like the you guys got to think of if you've got so much credit card debt personally, that just it keeps accumulating. You can't pay it down. Just keeps adding to the principal each and every year.

[00:17:28] That's exactly what's happening here. It's the exact same issue. But in this particular case, over 30 percent of whatever it is you make personally goes to pay off that debt. It doesn't even it doesn't even chip away at the principal itself. That's essentially the what we're in. So so just like if it was you on a personal level, the U.S. either has to find it in revenue or cut it on the expense side. Exactly.

[00:17:56] And those are the those are the options. And believe it or not, the the the debt piece is the the maturities of that nine point two trillion is actually a fairly simple process. I mean, you don't have to like slash somebody's jobs and whole departments or anything like that. You just you just got to get the Fed to agree to lower the rates back.

[00:18:20] But let's also point out that these are fairly big increases regardless. I mean, some of these some of this debt is at two percent. So we are a long way from there. Yeah, it's going to be interesting. You know, this is you know, somebody on here mentioned Brady mentioned Powell is only one vote in all of this. Right. It's a whole committee. Do you but he has more? Doesn't he he's only one vote, but doesn't he have more of a say? I don't really know.

[00:18:50] 13 13 governors, I think. Is that about right? Yeah. Yeah. And, you know, one of the things to watch is the dot plot, D-O-T-P-L-O-T. The dot plot is a each individual governor kind of I guess there's some that say we need to lower. There's some that say we need to raise and there's some that say we stay neutral. So the dot plot is something that you definitely should be watching the next 60 days. And typically those are pretty accurate.

[00:19:20] Right. Right. So. But does Powell have more of a say, do you know, in the decision making factors? That's over my pay grade. I don't know. Like if anyone knows on here, let's I think that there's got to be political pressure for some of this. Yeah, there has to be. Right. Mm hmm. Oh, there it is. Oh, there it is. Rates twice in 2025. So.

[00:19:49] So take a look at the dot plot, guys. This is actually pretty cool. It's kind of a little bit hard to read there, but essentially it's. Oh, there you go, Jerry. Nice. Can you explain it? Yeah. So these are the this is the dot plot. And those clusters, those are the if you take a look at the year down below, those are the. So you got 23, 24, 25. That's essentially where they think things are headed. Right.

[00:20:19] For 25 and 26 as of now. So you can you can see from 25 to 26. It's moving down. What's moving down? The rate all the way to the right. Oh, I see. Yeah. So that's what that basically means. And so the 24 is kind of where we are now. 25 is where they think it'll go. And then 26 is actually goes who's voting on this. This is all the governors. I see. Yeah. So this is where.

[00:20:45] So each dot represents one of the governors, you know, so, you know, we were in Philly. There's a there's a one of them there. There's one in Dallas. You know, they're they're they're all over in different places. There's presidents of each of these branches and each one represents. So this this this is kind of where things are. So it does look like that they want to lower this a little bit. So I think this is not new news.

[00:21:13] The question is, is a quarter point here and a quarter point there isn't going to be much. So Brady said if rates drop simply to satisfy government budget rather than to deal with economic downturn, it's likely to spike inflation higher. Is that better? Why not just solve the debt problem at the higher rate? Agreed. Well, we have a twenty seven trillion dollar debt problem to try to solve at the higher rate. So that's a lot of interest. Yeah. Plus, when's the last president that really balanced the budget? Yeah. Right.

[00:21:41] Because Trump isn't even talking about balancing the budget. Not really. He's talking about cutting government jobs, but he's not talking about like cutting Medicare. He's not talking about cutting Social Security. He's not. You know. Yeah. Well, I think, you know, things are lining up that it looks to be that we're going to start to see some inflation.

[00:22:01] One from the inflation or from the tariffs and then two, potentially, you know, from if rates are lowered, you're going to start to see the accumulation again, just like we've seen before. So when the when the price of debt is lowered and it gets cheaper, typically we create bubbles. You guys have seen this. We've we've seen an electronics market. You've seen it in the in the automobile market. You've seen it in the real estate market.

[00:22:31] Typically, when rates really go down, people refinance, they go buy stuff and there's a perception that things are better. And ever, ever, you know, money starts to move. Right. There's nothing wrong with that. But I think that, you know, I think everybody once again, where do you want to be? Where should you be?

[00:22:52] If this is precisely, I believe, why we're starting to see a little bit of a run on gold and silver, not pushing gold or silver, but I do own a fair amount of it. But it stayed kind of steady for the longest time, you know, and you start to see people moving toward hard assets for a couple of reasons. One for the weak dollar, you know, and and then to where do you want to be if there's inflation?

[00:23:21] You want to be in fixed rate debt. You want to be in hard assets. You want to own things that are going to go up in value, not because you're so smart, but because the dollar is actually going to be devalued even a little bit more through inflation. So so things that you want to buy are going to be more expensive. And so just just think about the grocery store two, three years ago.

[00:23:51] Exactly that. Right. Your dollars buy less. And so that it's not necessarily the right thing, but that's essentially what I believe we're going to see with the tariffs. And I think that if we start to see some of these lower interest rates, we'll start to see consumption again, which will bode well for for GDP. Yeah.

[00:24:15] You know, once the numbers start making sense on the price point and the interest rate for investors, then you're going to have, you know, the market really moving again. Right. When investors can buy cash flowing real estate again. Yeah. Yeah. And, you know, I mean, as you guys know, we're already buying like we're we're closing on a deal tomorrow to like a 300 unit project in Scottsdale. We just broke. This is a big week for us.

[00:24:40] We just broke ground on a on a really, really good project in Tucson. Thank you. Look at that, Jerry. So this is a project that we bought the land on. And, you know, so why would we do that today? The reason we would do that today is because this project is going to be delivered in 2027 precisely when, you know, there's a there's a lack of supply.

[00:25:08] So what you want to do is you want to start now on projects like this. OK, that's good, Gary. Jerry, thanks. If you guys are interested in that, Ross and I are going to sell off some of our initial equity in this project. We were we have a lot of money in this deal. And but we it is done. We are breaking ground. It will be open in about a year, essentially. And then we'll lease up through 2027, 28 will stabilize.

[00:25:37] And we think that we're going to time the market very, very well. If you're interested, just go to Lindsay Bennett. It's in the in the details there. So I still think, again, this is a hard asset. You know, the deals we're buying are hard asset. These are what you want is you want to be you want to be investing in things that are going to go up in value. And real estate, in my opinion, is one of those things.

[00:26:03] And that's why we're still bullish no matter what's going on in the government, no matter what's going on with inflation, what's going on in unemployment. All things to watch. You know, we still think that just look at just look at the value of your look at anything that you own 10 years ago, guys, anything doesn't matter what it is. Car house. How about 20 years ago? How about the house you grew up in? How much is that? So that's all inflation.

[00:26:33] And so this is all just it just continues. And so we just need to be on the right side of it. Absolutely. And I think, you know, what to watch out for, you know, moving forward is with the Treasury, our buyers still lining up to buy U.S. debt. That's going to be important. And in the Fed speeches, you know, they might start to prioritize financial stability over inflation.

[00:26:58] So if they start if Powell starts to mention financial stability, then you'll know that this is exactly what he's talking about. This debt that's coming due and these refinance rates, because, you know, they're meeting in a couple of days, but they're meeting again in June, right before the a lot of this debt is set to mature. So there is a possibility that we start to see some softening in June, potentially. Yeah.

[00:27:22] I know right now they're saying that there's not going to be a rate cut tomorrow, basically. Right. Yeah. May 6th and 7th. I think you're going to. Tomorrow. Yeah, I do. I just they're going to have to chip away at this. And, you know, Trump was pretty public about, you know, Powell and all that. Who knows what went on behind the scenes there? Because didn't he appoint him? Actually, I think he did.

[00:27:52] Like his first term. So, oh, boy, that guy. But now, you know, there's a significant amount of pressure here. You know, a couple hundred billion is a lot. And so this is one piece of the puzzle in order to get things back in order. Right. Who wants to be over a trillion dollars in interest payments? Yeah, we'll see. I'm a little bit more. You know, I'm not sure they're going to cut tomorrow, but we'll see if you're right. But I definitely think they're going to need to start cutting soon. All right.

[00:28:21] We'll see you guys next week. All right. See you. Yeah.