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Freeberg, we have uh this idea that there would be a couple of rate cuts and maybe we get monetary velocity going
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again. People will be able to take more loans out, invest more in business. But with the stock market tearing it up,
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there's a lot of wealth being put into the system with the big beautiful bill. There's a lot of spending in there as
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we've talked about here. Putting that aside, it feels like the economy is in really great shape. Chances of a rate
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cut has now flipped. No change is now the favorite option for September. whereas a week ago the favorite option
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was 25 bips. So this idea that we're going to cut or the Fed's going to cut that seems to be changing as well. So
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your thoughts on the um the macro picture here? So I'm not sure like the firing of Jerome Pal necessarily solves
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the US fiscal challenge which is rising interest rates on the long end of the Treasury curve. So, if you look at the
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the 30-year Treasury yield over time, and Nick, maybe you could pull this up while I'm talking, but as of today,
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we're at exactly 5% on the 30-year. And you can see that this 5% yield, which is
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what the market is demanding the United States government pay in order to be loaned the money to make the bill
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payments that the US government has to make every year is the highest it's been. The borrowing cost is the highest
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it's been since going all the way back to 2007 as of today. And I think this is the real story for the United States. We
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have 36 trillion of debt. The average interest rate we're paying on that debt today is 3.3%. That's the average of all
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the treasuries that the federal government has issued, the Treasury Department has issued to borrow the
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money that it is using and has used to pay all its bills. And if you look at the 5% number, that's a 1.7% hike.
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At 3.3%, which is the current average rate we're paying across 36 trillion, we're we have a run rate interest
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expense. So just the money we're paying each year and the interest of the outstanding debt is $1.2 trillion a
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year. And if this spikes up to 5% from 3.3, we're talking about nearly $2 trillion a year in interest expense. And
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that number is only going to get bigger as we borrow more money each year and the loan balance goes up, the
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outstanding debt goes up because we are still running a deficit. The government is spending more than it's making every
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year. So the crisis that America faces is a more profound fiscal crisis where the rates that we're having to pay are a
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function of what the market is telling us. The market does not want to loan the United States money over a 30-year
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period for less than 5% as of today. And so making adjustments to the short end of the Treasury curve, making overnight
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loans cheaper, which is what the Fed can do, will stimulate the economy and make
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more money flow easily because now you'll be able to borrow money overnight to do stuff like build a building and
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then sell the building next week or next month or take out a car loan and pay it
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down and use your car to go drive for Uber and grow the economy and other things. So the theory is that if we can,
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you know, drive rates down on the short end of the curve, we'll grow the economy
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such that we'll be able to make those payments on the long end of the curve. Um, but there comes a point where again,
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you're only going to be able to move the market so much until the more important
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fiscal situations are going to be addressed, which is spending, taxation, and some of the
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other key policy issues. So I think what the market is saying is it's not as much
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about Jerome Pal and frankly getting rid of a prudent individual may be more challenging than it is beneficial when
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the real challenges facing the United States need to be more hardily addressed. So I think that's my kind of
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take on this whole can I yeah go ahead Gavin build on it. So point number one the 30-year has gone
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up since PAL started cutting rates. So that is just empirical proof that what David is saying I think is right. And
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second, the deficit has been a feature of American politics dating back to Ross Perau's,
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you know, 1992 presidential run, his independent third party run, his independent third party run.
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Here we go. But yes, but it the deficit never really mattered because interest rates kept going down such that even as
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our debt grew, interest expense has kind of a percentage of the government's budget stayed relatively low. Now that
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rates have gone up and don't seem like they're, you know, going down anytime soon, the
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deficit does matter and it really matters. And you can kind of run a a couple of scenarios, but like pick your
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pick your metric. If the deficit kind of continues at current levels and we were to refinance
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the debt at the prices that uh you know David was talking about, you know, it's it's only a few years
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before spending on interest is significantly larger than spending on Medicare and Medicaid or Social Security
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or the military. So, pick something you care about. But you know our current course in speed it's it's in the not
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tooistant future where interest expense is the biggest line item for the government and that is not healthy and
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that's why the deficit finally matters. It's just that rates are higher. But the
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great thing is is there is a virtuous cycle here. Has you close the deficit rates should theoretically
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come down and then those both feed on each other to kind of help the problem. And it is
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possible. There's no silver bullet here, but some combination of slowing government spending, extra revenue, and
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you know, tariffs are effectively, we've never had a consumption tax here in America, which I think is a good thing
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because consumption taxes are very regressive. But the reality is like even when Obama
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controlled the House, the Senate, and was the most popular Democratic president of our lifetime, I don't think
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federal government tax receipts has a percentage of GDP got above 18 19%. So that's kind of the ceiling.
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And it for income taxes alone, and tariffs are really just a consumption tax that kind of insense domestic
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manufacturing. I mean, there's all sorts of reasons they're bad ideas. You know,
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David Ricardo, the theory of comparative advantage, 100% correct. Free trade is a good
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thing. But introducing some sort of a consumption tax, growing the economy a little bit faster through deregulation
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and slowing government spending. I think there is a way out of this for America.
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Yeah. But it's important to find the way because the deficit finally does matter
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after really never mattering in my political lifetime.