Dashboard: Is It Time to Panic About Deficits?

[Music] welcome to another 21 hats dashboard brought to you by our sponsor the great game of business I'm Lauren Feldman and I'm here with Jean Marks welcome Jean hello Lauren how are you I'm doing really well how about you good all right so here we are it's Monday morning I'm curious what's going on what are you Gan marks thinking about these days well so I have um a bunch of presentations uh booked for um actually a few in the coming weeks and then a bunch in the fall and into uh next year and remember I talked to business groups L I like to talk a little bit about the economy as well as you know labor and regulations and you know workplace and Tech and all that and um I've been kind of like obsessed about the whole back and forth about you know our quote unquote runaway deficits and high uh you know national debt and years ago like years ago when I was doing this 10 years ago 12 years ago I would talk about the national debt and and you know deficit issues because it's always been an issue you know and um and like people's eyes would glaze over you know because it's like I mean the numbers are just so crazy that it's um it's hard for somebody running a business to like get their arms around you know what I mean they're sure right I mean it's like it's like gez you know I mean what can we do about this so the um what I what I do when I when I'm going to present something is I like to write about it first so I can I can use use the places that I write to do like my research and formulate my thoughts and then um use that you know use that data and that research then put it into like a presentation form to talk about it so this is kind of like a te like I want to talk about this with you today if you don't mind because I'm working on it and it's we're kind of like I feel like I'm a Chris Rock going on stage at a comedy club to like test out material you know we're workshopping it right workshopping it is exactly right but I think it's important and so the piece that I'm writing right now and you you'll see in the hill it'll be out this week it's called um you know panicking about our deficits here are three reasons why you shouldn't be you know which is a little contrarian because everybody yeah I'm a little surprised I thought you might go the other way so let me go through let me tell you first of all what the three reasons are we can dig into it okay I mean and I have numbers to back all this up so we can we can dig into that too but you know reason number one is that um there is going to be a reckoning on our federal def you know on on on our budget issues you know and our deficit and our national debt issues the the issue is that we just don't know when it will be you know so that's number one I mean it it could be 20 years from now it could be five years from now I mean no Economist has ever been able to predict anything like this so you know it's you know to panic today is not you know is not you know really relevant um and again this might be an issue that continues to get kicked down um you know kicked down the line for future generations to deal with or not um so I you so number one is like I'm saying you should be panicking because even though there's going to be a reckoning I just you know we just don't know when that Reckoning is going to happen number two and again we can dig into this is that I I know for a fact I just know I know it's my opinion but the US is never going to default on its debt and the reason why is that there are too many other options and we can talk about what those options are it's not um I just I we're not we're not going to see a default of US debt in our lifetimes I don't believe uh other than an act of god pushing us into it and number three though I do believe that gradually business owners like you and me and everybody else in our audience we're I I I I truly believe that we will be living in a world of just higher inflation and interest I think the days of 0% you know interest and 1% inflation I think are are going to be behind us and I think that we are because you to to manage this issue unless significant steps are taken um we just we're going to have to get used to higher inflation and interest rates I mean between 5 and 10% on both and that's going to be the new normal of doing business um over the next you know over the next few years and into the next 20 30 years and we better get used to it so I don't think it's reason to panic I just think that it's just going to change the playing field a little bit so number one I don't think there's going to be you know there's going to be a reckoning we just don't know when it's going to be so you shouldn't be panicking number two I don't believe that the US will default on its debt because because there are just too many other options for it not to and number three though for from a business owner standpoint um you shouldn't panic but you should be preparing yourself for a higher inflation and interest environment going forward does that do those three reasons make sense to you Laur what are your comments um I'm curious about a number of aspects let me start by asking you this I know you talk you have a lot of clients you talk to them a lot yep do you have a sense that they believe this is an issue that affects them directly no I mean it's a really great question I mean we are all so busy with our day-to-day problems that when we hear and we read about these like high you know you know your national debt and our ongoing budget deficits and our out of control government spending it just seems so you know out there that most of my clients all of my clients just like hey man what am I going to do you know what I mean you know I can't fix this that's supposed to be for a politicians and you know in this you know in this political environment no one's going to come to any agreement so what are you going to do and and so what I think that's a good answer because there is not a lot we can do but we should be preparing I mean I I think that our that that the environment that we're going to be doing business in is is going to be changing a lot over the next 20 years and I think it's going to be caused by um the pressure that these deficits in national debt are going to place on on our overall U spending by the government let me ask you uh about your your uh prediction that interest rates and inflation are going to stay higher than than they've been um you know I don't think anybody ever expected interest rates to stay where they were you know we essentially went through a period of free money coming out of the Great Recession um to some extent it's a good thing that that's over I think uh it means we're turning to a more normal economy same thing with inflation I mean I I think you know the fed's goal is to have inflation around 2% nobody thinks the goal should be 0% it has come down we've gotten close to that so it's it's actually below where you're saying we might have to live with it why are you expecting inflation to get higher again I'll tell you the reason why when you look at the numbers um you according to the Congressional budget budget office the amount that were being spent um on interest alone is exploding over the next 10 years it's going to go from about 3% of GDP to about 4% of GDP it's going to be like one sixth of our government spending will be on interest um and again this is according to the Congressional budget in you know office so how do you fix this I mean the money's got to come from somewhere right Lauren I mean you know we have to pay for this somehow now we can increase taxes but obviously that's politically untenable or we can decrease costs and cut programs like Social Security and Medicaid which you know those things seem politically untenable and my prediction is that I I don't see anybody in political office having the you know having the the balls to be able to do anything about either government spending or taxation that's going to be making such a big difference to this so in the end what do the government have to do well to satisfy its obligations it's going to have to print more money you know you I mean that's just the bottom line and they the US government can do this Greece couldn't do this a few years ago when it went into default because it's tied to the euro other economies like Ireland and Sweden and New Zealand who also had uh you know deficit issues their economies just weren't big enough to sustain um you know their their deficits whereas the US is the world's largest economy and you know safest economy in the world so what the US government will do is it's just going to print more money which is going to put a lot of pressure on inflation and if they're going to be printing more money um two things will happen the Federal Reserve is going to have to continue to keep interest rates at a higher level to and do their best to restrain uh the money that comes into the system but then also you know as as as these these the debt themselves these the the bonds that the government will have to issue will have that much more risk um you know higher interest rates are going to be needed to attract you know continue to attract investors so I think we're going to see a combination of inflationary pressures and also reasons to keep interest rates at higher levels than they are uh they've been historically um to maintain that balance that's what I see happening and the reason why I I this ties it back into you know our audience and business owners in general that if this does happen if the government doesn't default which I don't think they will if there's nobody out there that's going to restrict significantly restrict spending or significantly increase taxes and I don't think we're in a political environment where that's going to happen I think the only other logical choice is just to you know issue more money and that's just is gonna cause more inflation and interest pressures I think there are a couple of things uh worth noting there one is I liked what you said uh about Greece I think there is often in this conversation some concern that we could go through what Greece went through although they seem to be doing better now I think um but they went through a tough time coming out of the Great Recession where they had huge deficits the key difference being as you said they owed that money to other people other countries outside of Greece which makes a huge difference we owe the money to ourselves largely not exclusively but largely and that means that the that those payments stay in circulation in our economy which is a much better thing um and important to note you know I don't necessarily want to get into this debate but you also you you wrote off the possibility of of increasing taxes as untenable um you know at a certain point that that does become tenable we taxes have been raised in the past I know we're at a point in our political Evolution where getting anything done seems all but impossible but you know there there are solutions to things like the problem with Social Security that could involve lifting the cap on uh you know where how much people have to pay that could solve that problem fairly easily so it may not be impossible to raise taxes at at some point if need be let me just interrupt you and say that I I do agree with you that it's that it's certainly possible that could happen um my bet is that it won't at least not to a significant extent and uh you know I you know my history walking this planet is seeing that whenever governments raise taxes they just use it to spend more money you know um and I've also seen that whenever there's tax increases or tax cuts they tend to turn around in a few years when new administrations or new political environments take place so although I'm saying it's not impossible um reforming Social Security is not impossible I mean I of course I just think it's more likely that nothing will happen or nothing substantial will happen in you know from either austerity I mean remember Canada Sweden uh New Zealand they they did a combination of like um austerity they had Cost Cuts as well as they had tax increases and that brought their deficits to a more manageable level which by the way that's where it has to be a manageable level doesn't have to be like eliminated you know but those countries also have like National healthc care National Education they they they have programs they can do because they're so much smaller you know as a as a country this country is so huge that to put a and across the board austerity measures or across the board you know tax increase measures I I don't think the US is is capable of doing that for the same reason that we can't have an across the board you know National Health System or or better system for higher education to pay for it because we're just too big and too unwieldy and too complicated and that's why I think that the chance of something significant happening either on cost cutting or Revenue generation is is going to decrease the deficits I think that chance is is minimal you know that that's how that's what I'm betting on as a business owner does that make sense it it does I I also would just point out that I don't think austerity always works the way it's hoped for and I think I know you're very familiar with uh the UK uh you spend a good pit of time there they just had a big change in government uh in part I think it's fair to say because austerity hasn't gone the way um the conservative party which had been in power for I think 14 years uh hoped it would um so that's tricky here's the other thing that I think is interesting to think about from a business owners perspective which is you have to remember how we get into this situation and part of it is the government does tend to spend more money when economic times are tough and that was certainly the case in the Great Recession that was certainly the case during covid uh you can certainly made the argument that the government spent too much money especially during covid uh but that putting that money in circulation was helpful to a lot of businesses um tremendously helpful I mean it was helpful to individuals as well especially in covid you know that the debt levels for consumers went down considerably they had money to spend it made a big difference part of the reason we had a much better recovery than most other company countries around the world that was to the benefit of business owners reducing the deficit may not always be to their benefit in the same measure true and also and also if I can just say I mean even with the jobs numbers that came out last week I mean you know 90% of the increase in the jobs numbers came from you know government jobs and social service and and healthc care jobs you know so government spending does have not only its impact on you know for businesses but also helps people you know get work you know and get employed so there is all that good stuff but again even after the the spending that happened during and post pandemic um that's contributed to all the rising deficits and our Rising national debt so you know the spending is great it did you know you know it it certainly helped people and I no one can argue that but it has to be paid for at some point you know what I mean and the issue that I have is like how how's that going to be paid for like what you know these deficits continue to rise and like I said interest is is you know expected to explode over the next 10 years some something's got to be done like the money's got to come from somewhere you know what I mean um and that's and again keep you we keep tying this back to us as business owners why do we care and how does that affect us and you know my point is is that you know barring any acts of gods or significant depressions or recessions or whatever pandemics um I think the likely scenario that is going to impact our businesses over the next 10 15 years is we are going to be operating our businesses in a higher inflationary and uh interest rate environment um and I think that that will impact all of us in a number of ways I think we will I will see a lot of my clients uh double down on technology I see that they will be uh you know getting used to you know targeting their price increases I think that will be the norm more so than ever before I think my best clients would get better at forcasting their cash flow and minimizing their wasteful activities um I think just like we've seen in the past couple of years the cost of capital will increase will you know be at a higher level so banks will be lending less or or scrutinizing um financing a lot more than we've ever seen before um because they want to make sure people can maintain and pay back that debt I think there'll be limited capital for startups and businesses that that are in need I think all of these things um are going to be the sort of The New Normal I think we've seen it in the past year or two mainly because of the inflation that came AC you know from the pandemic and recent government spending but I think these this inflation High interest rates I think is going to be part of our uh you know it's going to be a normal part of doing business uh Gone will be the days of these 2 to 3% rates I think you're going to be seeing rates in the 5 to 10% range and by the way I don't think any of this is catastrophic well I was going to ask you let me ask you this you you again talking to your clients all the time do you get a sense that we've learned anything operating in the inflationary uh period that we have in in in recent years I mean nobody likes inflation neither consumers nor business owners um but to some extent we've gotten used to it and I think you know there sometimes are silver linings there I mean for consumers you know wages went up uh as well uh for for business owners you know until recently I don't think there's ever been a time when it was easier to raise prices than it has been because everybody was Raising prices there was no penalty to pay for that it became expected uh that I don't think is the case anymore um but were inflation to go to the levels you're talking about it probably would become the expect again can we live with inflation more comfortably than we thought we could most economists will tell you that like the there is an acceptable level of inflation for any economy for all the reasons that you just said and that acceptable level is anywhere from three to 5% you know I mean it varies depending on who you read but um you know that level M you know maintains that wages are increasing at a decent level and that businesses can increase their prices where they can and uh an economy can grow that way obviously you don't want to be in the hyperinflation you know of Argentina or Germany after the first world war but you know a level of three to 5% is is you know is is considered to be that sort of acceptable level and businesses will have to um I I think business are going to get used to that I think it could be higher I mean I I I don't think that that's acceptable but I think it's something we're going to have to accept Because unless again the money can be found from somewhere else to pay down you know the the these debts and deficits um I think there's going to be too many pressures um on in that the FED just won't be able to control with just with interest rate as a tool and I think that we should all as both consumers and business owners be expecting a higher interest in inflationary environment in the years to come well I I think I've exhausted my ability to pretend to be an economist um do you have anything else left to say no I I I think one of the there's a lot of opportunities when there are um when you're in that environment and again uh people in financial services will find themselves making more money uh people that are uh that that have the ability to be flexible with their pricing um like you just said I mean in inflationary environment that opens up a lot of opportunities to inflate your prices to as much or even more than you need as opposed to being in a non-inflationary environment where that's not you know the case so there's certainly opportunities um that I think that people will will be jumping on and I do think that people that are either in the tech sector or have the funds available to invest in technology those are also going to be the winners over the next decade uh because they're really going to be forced into making those adjustments the losers in all of this are the losers they're always the losers in all of this which is the people that have lower incomes or the poor or you know what I mean that that that don't have that flexibility um and they can't do anything about it and that's that's the challenge that's the biggest issue that we're going to say but I guess the takeaway is if you're running a business and I talk about this you know I'll be talking about the business groups I would have in the back of your mind that you know this inflationary environment that we're in right now is not going to go away and in fact it's probably going to get worse over the next 10 to 15 years and I just think you should be preparing your operations to uh to deal with that that's my that's my advice Jee I think unfortunately we're not going to be able to talk to you for a few weeks while you uh travel uh a little bit um maybe you'll bring back some reports with how other countries are dealing with this I will be also I will be even though I'm you know me like I I I go to the UK and go to France to see friends but I'll be right so we'll we'll have tons of topics to talk about when I get back okay okay excellent I will look forward to that Jean Marks is a CPA who writes weekly on small business for the guardian the hill the Philadelphian choir the Washington Times the Chicago Daily Herald Forbes an entrepreneur you can also hear him on ABC radio's ey on the world with John Bachelor Jean hosts two small business podcast with paychecks Corporation and the hardford this episode was brought to you by the great great game of business you can learn more about them atre game.com thank you Jean thank you Lauren we'll see you in a couple weeks have a great week everybody [Music]