The 2023 Recession Keeps Getting Worse

What's up Grandma? It's guys here. So while everyone is busy watching Tesla drop the price of their cars by up to 20%, we've got another issue quietly brewing behind the scenes. That's the fact that the United States is quickly running out of money, with the national debt now exceeding more than 31 trillion dollars. In fact, the United States only has enough funding to operate until this upcoming Thursday, January 19th. Then they'll have no other option than to resort to extraordinary measures to continue functioning.

Treasury Secretary Janet Yellen warns that this could be the next catalyst that triggers a sudden stock market drop and impending recession. That's why we got to talk about exactly what this means, the impact that this is about to have throughout the entire market, whether or not this is actually something to worry about, and then finally the story I know you all came for: why this man wagered 1.4 million dollars just to win 11 grand and lost. Although before we go into the details, if you appreciate all the information, it does help with the channel tremendously. If you hit the like button or subscribe if you haven't done that already, it seriously makes such a tremendous difference. And I'll be linking to every single one of my sources down below in the pinned comment for anyone who wants to follow along. So thank you guys so much, and now with that said, let's begin.

Alright, so to start, in terms of running out of money, it's first important to understand the term "the debt ceiling," which is quickly becoming the latest SEO keyword for every single news organization in existence, with search trends into 12-month highs. Simply put, the debt ceiling is the maximum amount of money that the U.S. government is able to borrow to pay for all of its obligations like Social Security, Medicare benefits, military salaries, interest on the national debt, tax refunds, and a multitude of other responsibilities that a country must maintain. Like twenty thousand dollars of taxpayer money for custom trash cans around San Francisco, which by the way, I'll cover even more wasteful government spending very shortly in the video. That's sure to make your blood boil, but back on topic.

Beyond the basics, once the U.S. government reaches its debt limit in terms of how much they're able to spend, all of the services can no longer be funded to the point where they begin shutting down to conserve resources. It's really no different than someone running out of money in their bank account after maxing out all of their credit cards and then scrambling to conserve money anywhere they can, except this time it's with the United States. Of course, the usual question at this point is, "But Graham, what's the point of the debt limit if the government could just keep printing as much money as they want to?" To which I gotta say, there's a very interesting answer.

See, prior to 1917, Congress was directly in charge of authorizing all government spending, so if there was a war, infrastructure package, or other investment the U.S. needed to make, they would vote on each measure accordingly and set a budget for each item. But to provide slightly more flexibility throughout World War I, Congress created the Second Liberty Bond Act, which established a ceiling in terms of how many new bonds could be issued and how much money could be spent. In a way, this is like them going from case-by-case spending as needed to using a credit card where they could spend as much money as they wanted without much oversight up to the predetermined limit.

And you could see where this is going. Of course, that also means that when a country begins working on a credit-like system, they're also given a credit score that tells other countries how likely they are to repay their debts anytime they're loaned money. Now, when it comes to the United States, it's almost like a person having a perfect 800 credit score and getting the best interest rates; except here, the U.S. has what's called the AAA rating, meaning they are the safest country to lend money to because they've always repaid their debts on time as agreed. This is also partly why the dollar is so strong relative to the rest of the world and why every other country holds the USD as its reserve currency.

Although, as good as that sounds, there is a slight problem in the fact that the government just keeps spending more and more and more money. So over time, Congress must agree to a new debt ceiling to hold us over a little bit longer until they'll have to do it again. And that of course brings us to today. As of now, the United States is expected to reach its debt limit this upcoming Thursday, January 19th, after it was already raised by two and a half trillion dollars back in December of 2021.

Although what makes this time so unique is that it's not a game of money, but instead, it's become a tug of war of politics, and it came way sooner than expected. So even though Congress could simply vote to raise the debt limit and keep kicking the can further and further down the road until eventually your grandkids have to deal with it, that requires that both sides agree to the terms of the new debt ceiling. And if they don't, it becomes a game of chicken to see which side flinches first, with the entire United States economy on the line.

In this case, House Republicans say that they will not be supporting the debt ceiling increase unless they get spending cuts or other concessions. Or I guess an easier way of putting this is that Democrats want spending initiatives to pass while Republicans want their spending to be reduced, and they both have to agree if we want to move forward. You see the issue here? As The New York Times pointed out, breaching the debt limit would lead to a first-ever default for the United States, creating financial chaos in the global economy.

So even though the U.S. has never defaulted on their debt, in 2011, they got so close that the S&P credit reporting agency downgraded them from AAA to AA+. Several other agencies issued a negative outlook as the debt crisis continued to get worse. Following the announcement, all three stock indexes immediately plummeted five to seven percent in a single day. Not to mention it was so disastrous that the president of the S&P resigned shortly after, which I'll detail on my weekly newsletter down below in the description for anyone who wants to follow along to that, because it's quite interesting.

Anyway, today the concern is that since the United States has the highest debt for any AAA-rated nation, they run the risk of being close to another shutdown, being unable to pay off their debts as agreed and losing their perfect credit score rating, which could cause the stock market to fall, similar to how it did in 2011. So in terms of how this is likely to impact you, your money, and the stock market, here's what you realistically need to know based on over a hundred years of past data.

First, it's important to realize that when the United States reaches its debt ceiling, a government shutdown isn't exactly anything new and it's been an ongoing issue for, let's see, a century? Yeah, no joke. The debt ceiling's actually been raised a hundred times since 1917, or basically it has to be increased every single year just to keep up with spending. In fact, the last time that this occurred was back in late 2021 when the government hit its debt ceiling limit of 28.4 trillion dollars. After months of deliberations, halting reinvestments and borrowing less, they were able to agree on a new limit until that too ran out and they need to ask for more, like what's happening today.

Now, even though the most likely scenario is that Congress spends a few weeks or months negotiating to kick the can further down the road, in the highly unlikely event of a black swan where the U.S. cannot agree on terms and misses a payment, the fallout from a lower credit rating would absolutely devastate the market. The United States would have to pay significantly higher interest rates because their money is seen as no longer risk-free. It's really no different than somebody having a perfect credit score for the last 100 years, never missing a payment, and being the safest borrower in the world. And then oops, missed a payment, and then all of a sudden there's always going to be that little stain on your record for that one time you didn't pay.

Although at least the good news is that the chance of that happening is pretty much non-existent, so it's probably not worth worrying about. But that does not mean we can't get close to a less-than-ideal scenario. In fact, Moody's reported in 2021 as saying that in a prolonged default scenario, six million jobs would be lost, driving the unemployment rate up to nine percent. The resulting stock market sell-off would erase 15 trillion dollars in household wealth. In the short term, interest rates would spike, and in the long term, they would never fall back to pre-default lows.

So in terms of where we stand now, here's what you need to be made aware of, because this process is going to move very quickly. Well, first of all, once the United States reaches its debt ceiling, it resorts to what's called extraordinary measures to stay afloat for another few months. Basically, defaulting on the national debt is going to be the last possible thing to happen. Before that, though, it starts off a lot more mild. As the Treasury explains, they'll begin by suspending state and local government borrowing. They could halt reinvest for retirement and disability funds. They could pause reinvestments of treasuries, and they could extend this throughout foreign investments.

If that sounds confusing, just think of it like instead of the United States reinvesting all the dividends it receives, it just takes all of that extra cash and then uses that to fund its expenses until it can no longer afford it. This also coincides with the government shutdown that I mentioned earlier, where the government begins shutting down essential services to conserve its resources. Surprisingly, it's a lot more common than you would expect. Like in 2020, it was said that the government faced a shutdown 21 times since 1982, and 10 of those times resulted in workers being furloughed.

But what the markets really seem to care about here is the default on their debt, and that is something we really got to pay attention to. If we take a look back through history, the worst government standoff so far in 2011, which resulted in a lower credit rating, caused the markets to drop almost 20 percent in total until a resolution was drawn. Then again, from 1995 to 96, the S&P 500 dropped about four percent. 2013 saw another six percent drop, and over the last 10 years we could see that there's typically short-term hesitation in the market until it's eventually raised, and then the stock market goes right up alongside with it.

So the reality is in the short term, investors will price in the slim, slim, slim chance of the government defaulting on their debt. But as you can see, realistically, that's probably never going to happen and most likely everything will carry on as usual, especially since we have until June to sort things out with the extraordinary measures in place. At the end of the day, though, the national debt is something that may eventually need to be addressed as interest payments make up a larger and larger share of the country's expenses.

But speaking of those expenses, remember how I mentioned earlier that I would mention some wasteful government spending? Well, here's a few of the ones that I found online that are absolutely insane. Well, first of all, in 2015, the government spent 1.3 million dollars to study how to keep beer cold in hot weather. Three million dollars also went to studying hamster fighting when given anabolic steroids. In 2010, the U.S. Census Bureau spent two and a half million dollars for an ineffective Super Bowl commercial. Or there's a hundred million dollars spent on unused plane tickets. And this one is absolutely absurd: five hundred thousand dollars was spent maintaining a self-cleaning toilet that hasn't been flushed since 2017.

Finally, the National Science Foundation paid 75,000 dollars for researchers to capture 47 Anole lizards in the Turks and Caicos and then blast the animals with a leaf blower. Although as far as the debt ceiling is concerned, unfortunately, the entire situation has devolved into a political back-and-forth over various spending agendas. Unfortunately, they're going to get as close as they can to defaulting without actually defaulting until eventually one side concedes. This is probably just going to be a continuing pattern over and over and over again until one day it's somebody else's problem.

So that's why I say it's probably not something to worry about, but if you see it over the next few days, weeks, or months in the headlines, at least you understand exactly what it is, the repercussions at hand, what people are really doing, and how completely dysfunctional the entire system really is. So with that said, you guys, thank you so much for watching. As always, feel free to add me on Instagram, and don't forget our sponsor, republic.com, wants to give you a free stock that's worth all the way up to a thousand dollars. All you need is linked down below in the description with the code "gram" and make a deposit. Let me know what stock you get, and they're soon coming out with the ability to purchase treasuries from directly within the app instead of going through the outdated treasury website, which makes it extremely easy to do so. If you're interested, feel free to sign up down below. Enjoy, thank you so much, and until next time.