Mark Zandi: The Economy Is Sending a Warning

Mark, let's talk about debt.

You always hear, you know, countries in debt.

Is it a bad thing? When does it become dangerous when, say, a country is in an enormous amount of debt?

Yeah, this goes back to the question around what worries me.

And that was debt that governments are accumulating.

And I think it is to a point where it's not productive.

It's counterproductive and will be a problem if we don't change something, if we don't change the way we manage ourselves, the way we tax and spend and so forth and so on.

But, you know, debt and leverage is an important part of the economy.

I mean, you know, it's critical to growth because we we you know, we need that because we want to match you know, our consumption, you know, what we're spending our money on to our payments.

So, like, think about before we had a mortgage, you know, back in the early 1900s, very difficult to buy a home.

You couldn't buy a home, right? Because you had to come up with all the cash upfront and you would consume the services of that housing over the life of the home for 30 years.

The mortgage comes along and we pay a little bit of fee and interest rate.

And the benefit we get from that is we can plunk down know in the us can plug down almost nothing five ten fifteen twenty percent we're able to buy a home and we make those interest payments over time and that matches our consumption of the house right because we're living in that house today tomorrow a year from now and 30 years from now so debt and leverage is you know really critical to a well-functioning economy but too much debt and leverage is a dagger is a dagger you know and can result in some you know very problematic uh economies like the one we had with global financial crisis that was we took on too much debt we weren't careful about the amount of debt that we took on that mortgage i was talking about was given to people that had zero probability of ever paying on the interest you know that was coming due And given to people that were lying about, you know, their circumstances or what they were going to use the home for, you know, that's a case where, you know, debt is a problem.

And in the case of... federal government debt, sovereign debt, you know, with the Australian government issues, with the Treasury issues, you know, that that has a lot of good things.

You know, we use that to invest in our our defense.

We use that to make infrastructure.

We build bridges and dams and seaports and, you know, build airports.

And, you know, there's a gazillion good things that happen with that.

But, you know, we're at a point where we're taking on too much debt.

And that becomes a problem.

And it becomes a real problem when the interest payments on that debt are so significant that they kind of swamp our ability to do anything else.

And that's when countries get into real trouble when the interest payments on their debt rises that they can't pay.

Investors say, oh, you're going to default or you're not going to be able to pay me on time.

Interest rates rise even further, which adds even further to the debt.

And that's another vicious cycle that countries have gotten to in the past.