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Please read important information at the end of this program.
Recorded on 11/16/2023.
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Chris Hyzy
Chief Investment Officer
Merrill and Bank of America Private Bank
[Chris Hyzy speaking]
Hello, I'm Chris Hyzy. We're looking at the national debt situation, and not only the national debt situation, global debt in general. I'm here with Lauren Sanfilippo to discuss the implications about our own national debt as well as potential risks and opportunities in the markets for the foreseeable future.
So, first and foremost, estimated, give or take, $300 trillion of global debt; pinpoint in the United States alone, over $33 trillion. You recently wrote a report discussing a lot of the implications and dynamics of this debt.
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November 6, 2023 Capital Market Outlook, "Is the Debt Wall Scalable?"
[Chris Hyzy speaking]
You want to take us through some of the high points of that?
[Lauren Sanfilippo speaking]
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Lauren Sanfilippo
Senior Investment Strategist, Chief Investment Office
Merrill and Bank of America Private Bank
Yeah, I think this is topical now just given how much money we've spent since the pandemic, right, and accumulated all this debt.
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Total global debt surged to a record-high
of $307 trillion in 2023.
Source: The Institute of International Finance.
Data as of October 2023 for the first six months of 2023
$307 trillion's a big number. Of course, like you said, $33 trillion sitting with Uncle Sam, and that's come at the cost of rising defense spending, of course, as well as sort of financing this decarbonization, right, that requires capital, and now we're thinking about this higher interest rate environment and what debt service means in the future and the outlook next year. So, it's a confluence of really all those factors.
[Chris Hyzy speaking]
That's a good point because we talk about this wall, how are we going to scale the debt wall? It's actually a mountain if you really think about it. And when you think about why we're in this situation, there's a lot of reasons, but also the aging of society and the fact that an estimated 10,000 people turn 65 every day between now and say 2030.
So, that mountain could keep climbing up. At what point does the investment community say no more?
[Lauren Sanfilippo speaking]
Right, well I think we need to think about what this means for investors, right? And so, I think just blowing this out, not just government debt, because there's a lot of corporate debt out there, there's a lot of consumer debt.
If you look just what's with the consumer, it's what, $20 trillion, just around.
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Total amount of U.S. consumer debt is
still healthy and manageable.
And I think their debt service as a percent of disposable income is still healthy and manageable. So, I think that's an important factor, just looking at the consumer outlook.
And then with corporates, talk about scaling a wall here, for small caps, actually, they look a lot more challenged, right, with a steeper wall of maturity next year, just in the nearer term.
[Chris Hyzy speaking]
You mentioned the fact that consumer balance sheets are healthy, corporate balance sheets, at least for a majority of corporate America, are still very healthy. They did their job. They extended their debt, they took on debt when rates were really low. The consumer did it in their homes. So, a bright spot here is, yes, there's a mountain of debt. Interest costs are going up for the government. On a relative basis, in terms of the private sector, is still healthy.
So, could you get a balance in these next few years, in your opinion, that says it's an issue, we have to deal with it, and for now, we can continue a pace and create a real economy even in the face of such a thing as large as the national debt.
[Lauren Sanfilippo speaking]
Right. And you're seeing a little bit of cracks, right. So, consider what's happening with consumer. There are some delinquencies that are ticking up. So, there are some cracks showing, but like you said, most of this looks pretty manageable. I think it's with Uncle Sam where the real red flags start to be thrown, yeah.
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What are some of the bigger opportunities and risks out there in the face of this?
[Lauren Sanfilippo speaking]
Well, the real risk is the market isn't pricing this correctly, right, and that actually could afford us some opportunities.
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Consider opportunities in high-quality assets,
across fixed income and equities.
But I also think that we need to double down on that high quality scenario that we're talking about for next year, that bias, and that's across fixed income and equities.
[Chris Hyzy speaking]
With that in mind, any particular thoughts before we close on that and what we know is coming in the year ahead?
[Lauren Sanfilippo speaking]
Just a final thought, investors shouldn't lose sight of the fact that debt, while being very high, these levels actually are a little bit manageable across consumers, corporates and actually the government.
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While high, current debt levels are still manageable
for consumers, corporations and the government.
And really, the ace up Uncle Sam's sleeve is the idea that he has the private sector behind, right. And that's producing healthy profits, growth and that's the dynamic we see continuing at least into the new year.
[Chris Hyzy speaking]
Well, that's a great segue to launch what's coming:
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Watch our webcast "Looking toward a new era of growth,"
available for on-demand viewing on Dec. 14 at 2PM ET.
Which is our December 14th webcast that we're titling "Looking toward a new era of growth," focusing on the private sector, focusing on markets and the implications for the economy in the year ahead.
Thanks for joining us.
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