00:20:02

David Friedberg: And this inequality and this perception of inequality, both with respect to absolute amounts of capital, income, earnings, and these perception issues have now driven a populist movement in this country that we have seen historically, many times in the past, different countries that ultimately turn into either socialist nations, or fascist nations, in all cases, some sort of autocratic regime seems to have emerged because of this populist movement that we're now seeing not just in the US, but across the West. Do you feel like we're at that moment in the US and one of the manifestations of that, I'll say, is government spending, because everyone demands more from their government and the government steps up and the elected officials that they elect, step up and spend more and it layers and layers and layers. And we now have a $33 trillion debt load. And we have a one and a half trillion dollar annual deficit. And by many projections, Social Security will be bankrupt in anywhere from 10 to 15 years, 10 to 20 years, whatever numbers you want to use, the CBO assumes we're going to have unsustainable spiraling debt. What is your point of view on where we are in the cycle, how it's manifesting today, and how we're going to deal with the fiscal issues that arise from these movements?

00:21:15

(someone): Yeah, so I think where we are in that in the cycle, I don't take that as a passive law of physics. I think that who runs this country and leads this country can make an actual difference in the actual underlying course of that so called cycle, which is part of what pulls me into this. So I'm a little bit unconventional on my views on the debt load and the entitlement spending in this country and our first step in our way out of it.

00:26:31 David Friedberg: Freeberg? Yeah, I think it's inevitable we'll have probably two to $3 trillion of federal money. You know, spent to backstop and support the asset. I mean, that's the general theme here in case everyone isn't paying attention at home is that the Fed, the US government will continue to print money and create programs to effectively support asset values such that there isn't crippling economic ripple effect. And this is the dangerous depth spiral of debt. And it's why I always talk about how concerned I am about global debt levels and particularly debt levels in the US but really global debt levels. I'll say the statistic again and over and over again, 360% global debt to global GDP. But, you know, even within some of these asset classes, a significant amount of debt has been used to fuel asset prices and to fuel equity value. And then that equity value gets levered and reinvested. And so the rippling effect in the economy of declining asset value can be magnified through leverage. And it unfortunately, debt in general forces growth. Without growth, debt fails. And so when we've used that to demand growth, on a macro perspective, it causes, you know, significant stress and strain on the system when you're going through periods of like we are right now, which should be natural recessionary effects from COVID and shutting down the economy, or natural asset price declines because of that. And we can't let it happen. Because if it were to happen, the rippling effect would be crippling.

00:41:08 Chamath Palihapitiya: We know that. So how can we afford not to? How can we afford not to like, bring back jobs to the heartland of America? So the reality that I have, and I think a lot of people have is that this debt to GDP thing is a bit of an intellectual red herring. And the reason is people talk about this thing constantly in these absolute terms with no historical precedent that relates well to our current moment. There is no magic number at which thing this experiment that's called America fails. So I think that you have to be a little bit more intellectually honest and say that at best, it's a relative problem. And it's relative to the countries that have already established dominance of which there are eight or nine. and then the emerging economies, and then thinking about what critical things will they bring to the table in 15 or 20 years from now. And in that context, I think that people will him and haw, but ultimately, they'll capitulate, they will raise the debt ceiling, and they'll continue to fund this transition away from globalism. And I think that's the argument that will get the republicans over the line, because it's going to bring a lot of spending and stimulus and jobs to frankly, a lot of red states that would otherwise kind of continue to wither and die on the vine.

00:34:21 David Friedberg: Yeah, I get it. But let me show you this chart. Just pull up the first chart. So this is our federal government's interest payments per year. Mm hmm. And so this is how much the government pays on interest for the debt, by the way, most of the debt is getting refinanced now at the higher interest rates, because a lot of this debt was sitting in ZURP era since 2008. But as the debt has to get refinanced, and more debt is taken on to fund the interest payment obligations, the interest payment actually starts to mount more significantly. And that's what we've seen in the last two fiscal years in particular. Now, when you take this chart, and you overlay how much we spend on defense, So here's defense spending. We are, I think, as of this month, or last month, now spending more, the federal government is spending more on interest payments on the federal debt than they are on national defense. Whether we believe we are spending money on national defense in a smart way, or in an accountable way, or whether these are good strategic priorities and good strategic decisions, the fact remains that at some point here, our ability to actually fund the programs that we want to fund, whether they're social security, Medicare or defense, the major cost outlays for the federal government, it's going to get further hindered, and continually more hindered by the fact that these interest payments are climbing so significantly. And if you go to the third chart, I think it kind of provides the final point, which is social security.

00:19:24 David Friedberg: some people use the debt to GDP metric, which you know, at this point is approaching or has exceeded 130%. And 52 nations that have reached that level of debt to GDP, only one of them has not had to restructure their currency or restructure their debt payments. Obviously, with the debt ceiling approaching, and some fiscal conservatives using this moment as a point to try and generate leverage. I guess my biggest question for the country now and going forward is, you know, do we actually have the ability to pursue all of these interests on a social geopolitical security agenda, and, and do so without having either a balanced budget or a plan that says, here are the boundaries, and here are the boundary conditions, because in the last couple of years, and particularly, in the last five years, we've seen almost like a bipartisan, unmitigated spending spree, that, you know, is largely driven to, you know, to do what the electorate wants, which is to give people stuff. And giving people stuff costs money, and that money has to be paid back at some point. I guess, how do you think about the importance of this? And how do you think about the boundary conditions that you would, you know, look to articulate and impose as you, you know, think about this role with respect to the deficit spending and the debt levels for this country?

00:20:57 (someone): In terms of a boundary, I would love to hear arguments about that, but as you say, I think the debt is now 32 trillion, our GDP is around 25 trillion, so that's just a really alarming ratio. If you look at why, the primary cause are our military expenditures. We're spending eight this year, I think,

00:35:25 David Friedberg: the programs that we want to fund, whether they're social security, Medicare or defense, the major cost outlays for the federal government, it's going to get further hindered, and continually more hindered by the fact that these interest payments are climbing so significantly. And if you go to the third chart, I think it kind of provides the final point, which is social security. And we're very quickly seeing interest payments mount to the point of where social security spending lays. And when that happens, obviously, as you guys know, everyone talks about that as being the golden program, the right and the left, the democrats and the republicans simply will not touch social security, from a policy perspective from a getting elected perspective, but the economic and arithmetic reality is running up against them, which is that the interest payments on the debt are starting to threaten our ability to fund Social Security and Medicare. There's many more charts we could pull up to highlight this. The Republicans in announcing the debt deal this week made a lot of proclamations about it being a win and showed how we were able to reduce spending by $2 trillion. I think the statement they made the deal cuts $2.1 trillion in spending over the six year life of the bill and one and a half trillion dollars in statutorily mandated savings over the next two years. $2.1 trillion over six years. Remember, we're talking about a seven million $7 trillion per year budget. So that's $42 trillion over those six years, we're cutting 2 trillion of 42. So it's a 5% impact to start. It's a start.

00:07:27 Chamath Palihapitiya: Now, one could say, well, that's a good thing. The other side of it is, well, that's what allows more vibrancy in government and to make sure that the president remains always in charge. And so I think it's very important in this moment where we have a president who's 82 odd years old, or however old he is. We need to have a chance the American public to read underwrite his mental acuity. And I think that's a judgment that we should all be allowed to make. And I think the fairest way to do that is to feel the candidate who can be on the debate stage with him and who can actually just go toe to toe on the critical issues so that we as an American electorate can decide for ourselves, where does this issue land? Is he mentally super sharp and ready to go for another four years, in which case a lot of folks will support him? Or is this a moment where we actually need to be very responsible at the future of the country and not create some puppet government situation? I don't think it's funny that we have this weekend at Bernie's like mean that goes around about him. This is the President of the United States is the most important person in the world. We can't be in a situation where like, that is a 30% probability that people joke about.

00:33:04 Jason Calacanis: Good job, people. Everybody in Vegas is now completed their q3 quarter targets early.

00:33:10 David Friedberg: So the problem, obviously, with mounting debt is the interest payments on the debt cause you to take out more debt. And there's a tipping point where it becomes insurmountable. And there are many people sounding the alarm that we may be entering that point that in order to fund the interest obligations on the debt, we need to take out more debt. And then there's more interest payments, and therefore there's more debt, and it just keeps getting bigger and bigger. And so this chart I'm sharing here is actually from the federal government's GAO, the government accountability office, which acts almost like an independent accounting and forecasting body, trying to provide some outlook on the fiscal condition of the federal government. And this is an analysis I think they put out a few weeks ago, showing that as of the fiscal year 22, 8% of the overall federal budget was going towards interest spending. By fiscal year 25, it'll be 26%. And then net interest spending will need to grow to half of the budget. But if you go to the other side, why don't you say that?

00:34:13 Chamath Palihapitiya: Why don't you say the years because it's important to know what years they're talking about.

00:34:18 David Friedberg: 2051 2096 is what they're showing. This is a long window. Yeah, I get it. But let me show you this chart.

00:39:13 Chamath Palihapitiya: Okay, so about $3 billion, $3 trillion, sorry, three and a half trillion is what you have to pay for 20%. No $3 trillion is the sum of Medicare and Social Security. Okay, so the President still has one and a half to $2 trillion of leeway, of which a quarter are debt payments. So my perspective, quite honestly, is mathematically, there's a lot of room to run here before these things get really out of control. And even if they do, think the relative problem is for the rest of the world will be so egregious that the ability for the United States to go to those banks and those economies and basically sell in more us debt is quite high because they cannot afford to own debt in their own country. So if you think that the United States is bad, go back to that list. Guess what those central banks in those countries are going to be buying us dollars faster than they can go out of style unless we see some

00:40:04 David Friedberg: union of India, China, Saudi Arabia, Russia, Japan, Brazil, obviously not Japan, but some some of that consortia will become a closer trading partner, and perhaps could cause a shift in the balance of the dominance of the US dollar. And that's one path to consider.

00:40:23 Jason Calacanis: What do you think of the balance sheet here? Obviously, we have two opposing opinions here from Chamath and Freeberg.

00:06:21 Davic Sacks: Got it.

00:06:21 Chamath Palihapitiya: Let's go to YouTube. Well, I think it's important to just acknowledge an uncomfortable truth. And I come at it from a person who's independent. I'm not registered Democrat or Republican, but I've donated millions of dollars to the Democrats in the last couple of cycles. But I'm concerned about Joe Biden's mental acuity. And recently, when you look at how the White House behaves, the thing that I'm worried about is that there's almost like this sensation that there's a shadow government that's actually running the country. And we didn't elect any of those people. And this is nothing to say anything bad about Janet Yellen, or Jeff Zients, or anybody else. But I think it's very important to acknowledge that, you know, other presidents have typically seen turnover in the highest ranks of government every two years or so. And there's been incredible consistency. Now, one could say, well, that's a good thing. The other side of it is, well, that's what allows more vibrancy in government and to make sure that the president remains always in charge.

01:07:07 David Friedberg: The federal government is where voters elect to tax and spend. And voters elect people to create a system that can legally go in and take assets and spend assets and borrow money. And we've done it in an extent now that is becoming almost a runaway train. It is a problem. We saw the negative red chart that sacks had you pull up several times that has nothing to do with us dominance and fucking electronics and chips and biotech, and all this other sort of stuff. We have a problem with how we spend money at the federal level.

01:07:38 Jason Calacanis: I agree with that. I agree with that, but I believe that the dominance that we have in entrepreneurship in every one of these categories is what will pull us out of this.

01:07:46 Davic Sacks: The free enterprise system is a wonderful system that produces a lot of good prosperity for America. Okay, that's great. I agree with that. It remains to be seen if China can sustain its remarkable economic growth that it's had over the last few decades. That remains to be seen. However, the United States is behaving like a late-stage empire. That is separate from the system that got us here. We have unsustainable fiscal deficits. We spend way too much money that we don't have. We have an uncontrolled southern border. Our cities are in decline.

00:21:22

(someone): I think that who runs this country and leads this country can make an actual difference in the actual underlying course of that so called cycle, which is part of what pulls me into this. So I'm a little bit unconventional on my views on the debt load and the entitlement spending in this country and our first step in our way out of it. I don't think we're at a place of having remotely enough consensus or trust. And I think trust is probably the more important word than consensus, to begin just snip snip, make cuts to what people feel like they were entitled to and promised, especially in a moment where we're beginning with deep distrust, that will take what you call those populist flames and throw kerosene on it. I do. I'm more optimistic about this. And I think this is quite realistic, actually, is that the next leap forward is we can grow our way out of I'm not going to say all but most of our actual fiscal calamity, pending fiscal calamity. This year, I mean, I think like right now, last six months, we're talking less than 1.5% annualized GDP growth, what we're averaging right now. For most of our national history, we actually grown at over four plus percent GDP growth. Certainly, if you go back to the pre gold standard period, and even after going off the gold standard, we had a relatively stable US dollar and I am one of these weird guys who believes that the Fed should have a single mandate of dollar stability without playing the Phillips curve game. But anyway, put that sidetrack to one side, we've grown at three, 4% GDP growth for most of our national history, even relatively recent national history.

00:41:23 David Friedberg: an increase in the debt ceiling, because the amount of debt that the US that the federal government is going to have to take on in order to meet our budget deficit and refinance our debt and pay our obligations, historically, means that we're going to have to have more than what we're, you know, we've approved to date in terms of the total amount of debt. Now, this has historically been a last minute vote, you know, crazy, dramatic thing that drives markets nuts. The Hill had a public opinion piece from Peter O'Rourke and Mary Spaeth, but I think they make a good point. know, I've talked to a lot of folks who are call it in the fixed income market, but also folks are in the equities markets publicly who are pretty nervous about this debt ceiling vote. And if it does look like the Republican Party takes a very hard line, and says, because this is the current party line, if you don't agree to massive deficit cuts or spending cuts, and, and really commit to that, in a bill that we can pass, that Ben also approves the increase in the debt limit, we are not going to approve increasing the debt limit. And you know, what this opinion piece argues, I think is a very good middle of the line solution, which is, you know, come up with points of view, and actually document those points of view on making sure that government spending is effectively accountable, that there's no more wasteful spending.

00:40:03 David Friedberg: If there is this mounting kind of trend against globalization, this mounting deglobalization movement and effort, particularly in the US. And again, as Saks pointed out, global debt to GDP is something like 300 to 350%, depending on how you count. And we're running into a debt ceiling here in the US. I guess the question is, how do we afford to build the infrastructure redundancy and make the investments at home to replace global trade? Can we afford to do it? And how's this going to play out as we run into this, you know, debt ceiling vote?

00:40:37 Chamath Palihapitiya: I don't think that's the right question. I think it's the inverse of that question. How can we afford not to with the amount of discontent and the amount of economic strain that people feel? you want to really quell populism, you're going to have to create economic vibrancy at home. When people are making money, and they find purpose, they're less agitated, they're not storming the Capitol, they're not electing fringe candidates, they're not doing domestic terrorism, they're just going to work and building a life. right? We know that. So how can we afford not to?

00:51:41

David Friedberg: And then they said we expect another $852 billion of borrowing next quarter. That means Treasury is going to try and issue and sell $2 trillion worth of Treasury bonds in the next two quarters. That's $2 trillion of new borrowing by the federal government to pay our bills. At the start of the year, they were estimating $1.6 trillion for the year, which was an insane number. Now we're talking about $2 trillion and just two quarters. So, rates are climbing. As a result, we need to borrow more. And this is a perfect manifestation of the debt spiral problem that we've talked about multiple times. Our fiscal spending outlay and the rising interest rates combine to create an insurmountable debt spiral that is now manifesting in the fact that we need to sell $2 trillion of treasuries. And here's the crazy statistic that they said. In reviewing recent demand for US treasuries in auctions, The committee noted that an increasing percentage of supply is being absorbed by investment funds, while foreign participation has remained range bound. That means as we're trying to sell more treasuries, foreign governments are buying fewer of them, which means that the US currency as a reserve is no longer the place that everyone wants to plow their money as much as it used to be. It is in decline. Now, the other thing I want to share, which I think is absolutely critical, is how do we address this gap? Well, the one way is these entitlement programs.

00:39:51 David Friedberg: 're gonna it's going to come down to the wire. But my guess is no one's going to want to default on the debt. Yep. And there's going to be some concessions on spending. And ultimately, the debt ceiling will get extended. And that those concessions on spending will allow the Republican Party to save face with their voters and say, Look, we, we got some concessions here, I'm not sure they're going to be enough to really address any of the major problems that the US is facing over the longer term.

00:40:22 Chamath Palihapitiya: But you know, certainly letting the debt ceiling hit and defaulting is catastrophic. Everyone knows that. I think the majority case is a bunch of hand wringing, and then they make a concession. People that are interested in this topic, I would go use the way back machine, and go and read all of the articles in the 80s, where you could replace China with Japan. And what happened with Japan is that Japan just hit a demographic wall, not dissimilar to what China is about to hit in the next 15 or 20 years.

00:40:51 David Friedberg: Right. It's a good counter argument. Yeah, that's a really good point. And I think that there is this element of, you know, China as the primary threat, but I think the bigger problem, Chamath is that we have voted ourselves into a stupor. We have allowed ourselves to accrue these liabilities. that are in many cases not on the balance sheet that we simply cannot afford to pay. And the social unrest that will arise what if and when we don't pay them, or the economic cost of us actually paying them, either of those are going to be pretty significant. But that's under that's water under the bridge. And it has nothing to do with China. It has just everything to do with how the US is spending.

00:27:53 Davic Sacks: that if inflation persists, the Fed will simply just fight it. They'll increase interest rates somewhat and they'll control it. But I actually think that the degrees of action that the Fed can take here might be more constrained than people think. I just want to flag. One of the primary sources I use for the national debt is this website, fred.stlewisfed.org. It's a good website that has a lot of charts by a branch of the Fed. They have this chart. We've seen that federal debt as a percentage of GDP is that sort of all time, peacetime highs, you know, we're now we were at 100% for a few years. And now, because of COVID, we just rocketed up over 120%. We're close to 140%. Now, the argument by mostly liberal economists that the debt didn't matter, was because the debt service remained very low on this debt. So we had a huge increase in debt, but because interest rates were so low, The debt service was still very, very small. They have a good piece on this website about this as well that I'll just post here in the notes. I think I don't know if you guys remember back to a pod we did in May, where we talked about Stanley Druckenmiller came out swinging against the Fed.

00:17:28 Jason Calacanis: We'll rip through this last year. I said Biden and Trump and the extremes. Chamath said the progressive left again, the extreme sack said Pelosi, who just wrapped up her tenure and Freeberg said US influence globally was the biggest political loser. Let's get our predictions for the biggest political loser of 2023. Freeberg, who do you think will be the biggest political loser of 2023? The world wants to know, Freeberg.

00:17:55 David Friedberg: I would continue my US influence, but I am going to shift. Here's what I think is going to happen this year. My big prediction is based on I think the world has too much debt. I think that the economic slowdown coupled with rising interest rates globally and a dearth of kind of asset capital inflows means that there's going to be a lot of issues with a number of debt markets around the world, particularly kind of emerging sovereign debt. Just to give you guys a sense global debt is about $235 trillion in public and private. You know, that's somewhere between five and $15 trillion of interest payments a year, depending on what the net rate is on $96 trillion global GDP. And there's another trillion and a half of unfunded liabilities in the US and pensions and social security and all this other stuff. I think this is the year where a lot of the debt markets start to unravel.

00:18:45 Chamath Palihapitiya: The primary entity that steps in or a political loser?

01:03:37 Davic Sacks: we reduce our debt and our deficits and the need. Remember, we're not this is not a stable situation. We continue to issue what is it somewhere between one and 2 trillion a year to government debt. So we have to constantly find more and more money out in the world to support our debt, at the same time that we're weaponizing the dollar in the financial system, so that these sources of global capital don't want to participate.

01:04:02 David Friedberg: And I agree with sex. This is why I think the disappointment to me that there isn't bipartisan recognition of this being as severe as a war. It is the sort of thing that the government that both parties need to get behind and say, let's figure out a path to solving this problem. This is the objective. We've got to get our fiscal affairs in order. And then all the other stuff, the social stuff, the policy stuff we can fight about, we can argue about later. But we have to put some gas in the tank, we have to be able to drive where we want to go. And we can't drive right now.

01:04:30 Jason Calacanis: Here's what I'll say to you, Friedberg. Since you said the beginning of the end, Now, maybe it's a poor choice of words. It's not the end.

01:04:39 David Friedberg: You said hold on. Don't mischaracterize what I mean by the end.