Hey, everybody, Peter Zeihan here coming to you from monarch Bay in Southern California. Today, we’re going to do kind of a big picture economic take of the United States. Because you know, a lot has gone down in the last 25 years, I think it’s good for me to kind of put my stamp on the ground and where we are.
We might be getting back to some version of Norman, he hit his head with a bunch of light here, we kind of spill that out from the backside. If you remember back to the transition from the Trump administration, to the Biden administration, there was this contest among the two of them about who Americans would like more because they had been paid to like blow the incoming Biden administration and made it very clear that the first thing he was going to do was a trillion dollar stimulus that would put money in people’s hands to get over COVID. And as soon as Trump heard about this, he’s like, Well, I want to do that, too. So I’m gonna be like administration to leave on a high point. Things by forgot that way. But he did put I think, was $900 billion into the system in his final few weeks. And if you remember back COVID was pretty much over by then. So we had $2 trillion dumped in, in a quarter into a system that was already experiencing rapid economic growth, as one of the many reasons why we had an inflation pulse in the early Biden administration. Anyway, you combine that with all the stimulus that was still rolling around in the system from the COVID crisis, and Americans conservatively entered the Biden administration with over $2 trillion in savings that they hadn’t had before. According to the San Francisco fed, they didn’t finish burning through that extra capital until the first quarter of 2024. Which means we’re only now finding the ability to like kind of look under the hood of the economy with a more normal supply and demand dynamic. And at the moment, things look pretty good. Yes, loan delinquencies are rising. But we are pretty close to record lows still, no, we’re nowhere near the average, we’re certainly nowhere near the numbers that we had back in the last technical recession in 2007. Interest rates are higher, but delinquency rates are far lower than they were at the period before we entered any other recession. So I’m not saying that this is like we’re going to grow forever, or anything like that. But at the moment, the mechanicals look pretty positive. And I wouldn’t expect the United States to enter into recession this calendar year. And some things would have to get a lot worse for us to consider a recession in next calendar year. At the current moment. If there is a concern, it’s more knee structural, because it has to do with the balance between private credit and government spending. Now, normally, private credit rises and falls based on conditions that if it rises too fast, you get a bubble, which leads to a correction. The Last Of course, big instance. And we had that was the subprime building from 2000 to 2007, where we roughly doubled total private credit and seven and a half years. And as a result, we had the great recession, which was no fun for anyone.
Another like that is in the books, this time, a private credit has been growing for the last 15 years, it’s something much more along the lines of the century average, normally private credit only drops or goes negative in times of recession, because banks and stockholders generally restrict their play of capital in the system in a time when everything is over leveraged. We’re not seeing that today.
Instead, what we’re seeing is more government activity. Normally, the balance between these two factors is private credit is in the driver’s seat, except in times of recession, which is when the government steps in. And if you add the two together, you get actually a pretty even line. What has changed in calendar year 2023 Is that relationship broke. And for the first time in modern American history, total new government spending, not just the deficit. But the increase in the deficit year on year, that number surpassed the total increase in private spending for the first time in American history outside of a recession. Dow this is only one data point. I don’t want to overplay this. But for the first time in American history, the government has become the primary driver of economic growth in the country. This is not a healthy position to be in. This is a very Zimbabwe, South African Venezuelan sort of approach to economic management. Now, there’s still trillions of dollars of private investment, there’s still 10s of trillions of dollars of private economic activity. This is not something I’m overly stressing about right now. But if the numbers from last year repeated this year and based on the Biden administration spending it looks like they will be. And then next year, which Biden has indicated that probably will be at war, if Trump wins is to absolutely indicate at least he plans to expand the government, then we’re in a different parodic. And if you remove the private sector is the primary driver of American economic growth. Yes, you might get a little bit more populous support for the government or a particular candidate. But it comes at the cost of long term dynamism and size of the American economy, which has served the United States very well, these last 200 years. Now, the degree of populism was always going to be in the car. It’s not just because of the politics, but because of our demographics, the baby boomers, the largest generation ever. They’re past halfway through retirement, they’re going to be sucking at the government T for Medicare and Medicaid, and Social Security until the day they die. So government outlays have to go up, which means deficit spending has to go up. And there is no appetite on either side of the American political aisle to do anything about that, because it’s not a vote winner.
And if this sticks, we will have a problem down the line. This is a much bigger problem than the federal deficit, because this changes the complexion of the American economy, and how we can adapt to shifts in the future because the government just isn’t nearly as efficient. It can be quick, but it’s not efficient. And ultimately, the efficient use of capital is half of the American story. So you’re looking for something to worry about. I’d worry about that. But in the meantime, government spending is stimulatory and that suggests that for this calendar year in next, we’re not looking at a recession. So you know, take your good news where you can.
