IFB151: Economy Basics Pt3 – Government Debt, Fiscal, and Trade Deficits

Announcer (00:00):

You’re tuned in to the Investing for Beginners podcast. Finally, step by step premium investment guidance for beginners led by Andrew Sather and Dave Ahern. To decode industry jargon, silence crippling confusion and help you overcome emotions by looking at the numbers. Your path to financial freedom starts now.

New Speaker (00:36):

Welcome to Investing for Beginners podcast. This is episode 151 tonight. Andrew and I are going to continue our discussion economy. This is going to be an economy 101 part three, and tonight we’re going to do kind of a wide range discussion of a variety of different topics. The first one we’re going to start off talking about is a little bit about government debt and treasury bonds and bills and T and P note T bonds and kind of how all that stuff works. So I’m going to talk a little bit about that, and then I’ll turn it over to Andrew. So let’s talk about government debt. So government debt is, when I’m referring to government debt, I’m talking about two different aspects of it. So the first part I’m talking about is there’s the federal reserve balance sheet, which we’ve discussed in length in the past. And that is more about the federal, federal reserve bank of the United States taking on debt to try to infuse money into the system to try to create more liquidity, which hopefully will stimulate the economy with what’s going on with the pandemic and the lockdowns and most of the economy being shut down.

Dave (01:49):

Thirty million people, I believe, are out of work right now, which is a staggering number. The fed has been trying to pump more liquidity into the system by creating money for the reserves as well as buying T bonds and T-bills back from banks to put on their balance sheets that give the banks talking commercial banks like JP Morgan, Wells Fargo, Bank of America, us bank, and on and on. More liquidity to lend to us to be able to buy things as well as businesses. So the other aspect of that debt is the Treasury, the Treasury is, those are the people that sell us the T-bills and the bonds and the notes. And so on. And they just recently announced that they’re going to be having a large offering here in the upcoming week or so I believe. I don’t remember the exact amount off the top of my head, but it was quite extensive, three or $4 trillion somewhere in that range.

Dave (02:50):

And what that does is that helps give them ammo to sell to the banks to create more liquidity. And so that is, of course, a huge part of the government debt. Now, one of the strengths of the US dollar right now is the attractiveness of those bills. Now, most of that money, not most, a lot of it is sold overseas. So for example, countries like Japan, Russia, China, Great Britain, France, Italy, whoever. A lot of those people will buy our bonds because they’re very highly rated there that that debt is assured that to PB paid, and that helps them earn interest. Now granted,