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  The debt's not going up at 2% or 3%. The debt's going up 8 n 10% or or more. The US had a 1 trillion dollar baseline budget deficit. A trillion dollars per year deficit for fiscal 2020 pre- pandemic. The Congress threw $3 trillion of emergency aid on top of that. And I'm not even criticizing all those programs. I mean, the the payroll protection plan loans, the extended unemployment benefits, the increased unemployment benefits. Imagine where we'd be if we hadn't done that. But that aside, debt

is debt. They piled $3 trillion on top. Now, this is going to take the US debt to GDP ratio up to 135%. It was 106% when Donald Trump was sworn in. It's close to 130% today because remember, you got two things going on. It's a debt debt to GDP. So debt's your numerator and GDP is your denominator, right? Well, what happened? Well, the denominator shrank. This got smaller and this got bigger. So what happens to the ratio? It blows up. So now it's 135%. If you get the laws of economics right,

which is not easy because most economists don't, but if you get if you get them right, um it's really a reflection of of human nature. I mean what is an economy other than all the people in the economy starting businesses, buying, selling, traveling, providing goods and services, etc. So, um, human nature doesn't change, at least it hasn't changed much in the last 100,000 years. So, the fundamental laws of economics don't change either. Uh, but circumstances change, facts change,

and that's important. Now, to answer your question, Curry, um, you're right, there is, um, a school of thought, uh, growing one, an influential one, that the that doesn't matter. It's like, well, wait a second. Um, so what? So the debt to GDP ratio went to 135% which it did. Who cares? What's wrong with it? 180%. We got issues. We got problems. Print out the money and monetize the debt and uh spend it and keep going. What what is the problem? Uh this this comes under the banner of something

called modern monetary theory, MMT. Uh it's flawed, it's wrong, but it's it's got its followers and those followers are now in the White House because um one of the things Joe Biden had to do to get elected was to make peace with the Bernie Sanders wing of the Democratic Party. They take the view that if the Treasury didn't spend the money, how would anybody make any money? That's ridiculous. But that's what they say. They say, "When the Treasury spends money, what do they do?" Well, they they

build aircraft. They have benefit programs. They have government contracts. They do whatever they do. But when the treasury gives you the money, you take the money and you spend it on somebody else. Goods and services, go out to dinner, have subcontractors, whatever it might be. That that's the real source of money. They also take the Treasury and the Fed and they merge them. Now, that's not legally the case. The Treasury and the Fed are separate institutions. The Treasury is just part of the executive branch. Uh and the Fed

is an independent agency. Uh and the Federal Reserve Banks are actually privately owned. Uh that a lot of people know. Some people know that, some people don't, but the the Federal Reserve banks are privately owned by banks in the districts of City Bank, Bank of America, etc. Uh so they're completely separate. But but the theorists ignore that and say no. Um the Treasury needs to spend money because that's how the economy grows and the Fed can monetize the debt. So you spend the money you don't have.

You borrow to cover it. You issue bonds to cover the borrowing. And if the market wants to buy the bonds, fine. But if not, the Fed can buy them and put them away on the balance sheet, wait 30 years, and collect the money. What's the problem? Who cares about the debt to GDP ratio? It's kind of a statistical abstract. But why should that stand in the way of using money to solve our problems which are free health care, free child care, free tuition, um forgiveness of student loans. That's a

1.2 or sorry, $1.6 trillion ticket by the way. And like look, everyday readers and investors, there's no reason they should know all this stuff. This is this is total inside baseball. You have to be a geek like me to kind of keep up with it. But uh but it's all coming. But what that means u is we're going to test the rogoff Reinhardt thesis. Now let me just take a minute to explain why explain that up to a certain debt to GDP ratio there is a uh Keynesian multiplier greater than one. So the classic example

is the UK was in a depression before the rest of the world. They have been hit pretty hard uh before the Wall Street crash. People aren't spending they're saving. It's a liquidity trap. So if you get money, you pay it on debt. When you don't have any debt, you put it in the bank. Whatever you do, you don't spend it. You you hoard cash. Or people were buying gold. They were accused of hoarding gold, etc. But what they but what they weren't doing was expending and there was a shortage of aggregate

demand. And the banks were not issuing credit. So um so Keen said, well, if the if people if if every day people won't do it, the government must the government can borrow. The government can expend. And what they found was that if you borrow a dollar and expend a dollar, you can get a $150 of GDP. Uh now there's a separate discussion as to whether that's actually additional or whether you're just pulling growth forward. But so what even if you're pulling growth forward, maybe that's

what you need to do when you're in a liquidity trap. Um but there's a difficulty. He called it uh the general theory, you know, general theory of um employment interest and money. Um but it was actually a specific theory. I think you had a little Einstein on me because of the general theory of relativity. But um it's actually a specific theory which means it's a theory that works in a group of circumstances, a group of conditions. The conditions where it works are you're either in a recession

or just coming out of one. You have excess capacity and uh labor and industrial capacity and you have very little obligation. In those circumstances, you can borrow a dollar, expend a dollar, and get more than a dollar of GDP. The issue is that extra GD, that extra GDP you get for the borrowing expend, it goes down as the debt to GDP ratio goes up. What Reinhardt and Raga found is that at 90% you go through the looking glass. Your return is now less than a dollar. You borrow a dollar, you expend a dollar,

and you only get 90 cents of GDP or 95 cents. etc. So now, not only are you not getting your dollars worth for the borrowed dollar or something more, which you did at lower levels, you're getting less than a dollar. So now what's happening? You're borrowing a dollar, you're expending a dollar, you're not getting a dollar of GDP, but you're getting a dollar of obligation, which means your debt to GDP ratio is going up. And the 90% is getting worse. And I just mentioned we're the United States

is at 135%. So here are your two rival schools. There's the Keynesian multiplier and producing aggregate demand with government obligation and the Reinhardt Ragoff. More than a concept, I would say powerful evidence that beyond 90% it doesn't work. It goes under less than one on the one hand. And my friends Stephanie Kelton and Bernie Sanders and Camel Harris and the modern monetary theorists who say no, it's all good. How could you get growth if you didn't expend money through the

government? These theories don't align at all. We're going to find out which ones work. And I'll give it I'll give away the answer, which is that uh Reinhardt and Ragaf have it right. He's had it right up to a point. Reinhardt and Ragoff found that critical threshold that whether you want to call it tipping point or phase transition, which physicists call or whatever, the modern monetary theorists think the opposite. We're going to find out. But what but what it means if Reinhardt and Ragaf are

right and I'm writing Kings was right. The more you borrow it's actually a headwind of growth. Uh you get Lou just as up to the threshold you got more and more and more. Oh sorry it at a low level you got more but then it went down. But it's like any uh declining marginal yield. You know that the curve starts very steeply. You get a lot of return then it levels out. Then it goes down but it's still positive. But at some point it goes below the zero line and your marginal yield is negative .