Wednesday, September 30, 2020

Asset bubbles threaten low interest rate policy

In Fed's New Strategy Confronts Old Questions on Financial Trade-Offs, the WSJ's Nick Timiraos writes that a lack of consensus on how to handle asset bubbles might threaten the Fed's commitment to maintaining interest rates near zero.

Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren are worried that if rates remain low after the economy recovers from the pandemic, people will be induced to take on more risk since they won't earn a return on their savings. Rosengren, who voted against interest-rate cuts three times last year, is "worried about financial-stability aspects of this policy." He cites examples such as people reaching for yield in commercial real estate and retailers taking on high amounts of debt.

Rosengren and Nellie Liang of Brookings say "it would be easier if Congress granted the central bank or other regulators better macro-prudential tools to address problems such as high levels of indebtedness or the heavy use of short-term borrowings to finance long-term assets."

[Note: this is not really on Congress. In addition to stress tests, which the Fed conducts, macroprudential tools include countercyclical capital buffers, a review of nonbank financial institutions, and limits on loan-to-value ratios. As Liang writes in What are macroprudential tools? (i) the Fed has the authority to set the level of the countercyclical capital buffer, which it kept at zero even during the stronger economy last year, (ii) the Financial Stability Oversight Committee has the authority to designate nonbanks as systemically important but has decided not to "without first evaluating whether the systemic risks could be addressed through more stringent regulations of activities by the primary regulator," and (iii) the Federal Housing Finance Agency has the authority to set maximum loan-to-value (96.5%) and debt-to-income (50%) ratios on home mortgages. In other words, the regulators have the tools, it's more a question of whether they are willing to use them when the economy is doing well.]

When the unconventional becomes conventional

Claudio Borio, Head of the Bank for International Settlements' Monetary and Economic Department, gave a speech today about central banks' toolkits in normal and crisis times, acknowledging that there's not much difference these days. He summarizes lessons, caveats, and challenges. The speech focuses on monetary policy; there's a public debt angle too:

"This notion [the natural interest rate] is especially powerful when coupled with the view that the long-term side effects of unusually and persistently easy monetary policy are not significant or can be effectively managed through other policies. In some respects, this view about the significance of the side effects is not surprising. The costs of failing to rebuild buffers are not highly visible - either ex ante, as they materialize only in the longer term, or ex post, as it will be hard to attribute the costs (eg financial vulnerabilities, notably higher debt, public and private, as well as lower growth) to previous monetary policy decisions. But these vulnerabilities do weaken the economy's ability to withstand higher rates - a kind of "debt trap." In the case of public debt, this can give rise to challenges for the central bank's independence and credibility."

Tuesday, September 29, 2020

Industrial policy for growth

Jared Woodard, head of Bank of America's Research Investment Committee, joined Joe Weisenthal and Tracy Alloway on the Odd Lots podcast to talk about why all financial markets have begun to seem like the same trade. For example, prices for gold, Tesla, Ethereum, and cloud computing stocks have been closely correlated lately.

Around 21:30 Jared starts discussing fiscal policy directly:
"The more important shift to look out for is what happens in public policy over the next several quarters and years. Monetary policy won't move the needle independently, it just affects what happens in some far off distant land of a really hot economy. And if fiscal policy only remains limited to providing life support when it's absolutely necessary -- like we've seen this year in the biggest and fastest fiscal expansion in US history outside of WWII -- all it does is gets us back to where we started the year, so we're not going to break out of this world of secular stagnation and scarce growth.
"To see a level shift / elevation to a new tier of growth and productivity requires new investment, especially industrial policy. This has worked really well in the past in the United States, South Korea, Japan, Germany. Basically any modern industrialized economy hasn't gotten to where it is today without some cooperation between the public and private sector when it comes to incentivizing research, boosting productivity in key industries, and protecting nascent industries, including with government as a buyer.
"Things are changing as countries realize that competition globally requires more than a laissez-faire attitude. So if governments continue the path they've started this year --  for example, there were 15-20 bills in Congress with bipartisan support designed to incentivize R&D and capital expenditures in new technologies -- you could see a big boost to productivity. That's what happened in the US during the Cold War. That's the scenario -- a combination of supporting consumption and incentivizing productivity -- that could get us to a new growth scenario and actually cause a profound shift in the kinds of portfolios that could work well."
Joe summarized Jared's point with "If I'm hearing you correctly, the best thing for the finance and oil industries would be a huge Biden and Democratic sweep and massive fiscal stimulus."

Jared mentions Michal Kalecki's 1943 paper The Political Aspects of Full Employment (summary here) as a prescient summary of the trend we've seen in the US toward a decrease in the power of labor and an increase in the power of capital. This trend has come with a corresponding decline in manufacturing capacity utilization rates, aggregate demand, and inflation. He then explains why there is now bipartisan support for measures such as the Senate authorizing $25 billion for semiconductor manufacturing in the US. In addition to industrial policy, there have been movements on the left and right that incorporate discussions about things like universal basic income, job guarantees, a better deal for working families, and labor unions.
"Things that were politically unthinkable 10 years ago in both parties are suddenly very thinkable today. The bottom line is that many owners of capital, including regular investors, are starting to realize that they're in the same boat with many workers, and if they don't find a new type of negotiated settlement of the sort that we had across the western world after WWII, then things are gonna go badly, not just for working people but for people trying to invest as well."

Daunting Debt Dynamics

In Daunting Debt Dynamics, originally published May 28, 2020, Goldman Sachs writes "Our key takeaways: the benefit of running large deficits today far outweighs any eventual costs; developed market bond yields are likely to rise modestly as a result; worries about distress in emerging market are largely warranted, in munis are mostly not [dependent on "phase 4" stimulus that did not pass as expected], and in the Euro area are somewhere in between; and a likely wave of corporate bankruptcies could prolong--but likely won't derail--the economic recovery."

Quotes below, from Harvard Professor Kenneth Rogoff, Goldman Sachs Chief Economist Jan Hatzius and Chief Interest Rates Strategist Praveen Korapaty, and Penn Professor David Skeel. 

Rogoff and Hatzius agree that government should step in and increase spending to offset the decrease in private spending. "In the current environment of exceptionally weak demand and economic activity, running large government deficits won't be inflationary, and is not a reason to worry about a debt crisis, at least in countries like the US, UK, Japan or other advanced economies that have a floating exchange rate and their own central bank." They differ in how they view the chain of causation between debt levels and growth, which might indicate different policy suggestions in non-crisis times:


"academic literature published over the last 10 years thoroughly supports our conjecture that higher debt and lower growth are correlated. The causation remains debated, but ... countries with very high debt levels are sometimes more reluctant and less able to vigorously support their economies in a crisis, which in turn impacts longer-term growth." 


"I can see why debt levels and growth might be correlated, and why very high debt levels might leave a country less well-positioned to invest in areas like infrastructure that promote growth over the longer term. But the causation probably mostly goes the other way, from weak growth to high debt levels. Certainly in the short term, it's hard for me to see how larger deficits would lead to weaker growth; all else equal, a bigger deficit delivers more stimulus to the economy."

Korapaty summarizes how much of the new debt issuance will be absorbed by central banks. As of this report, the ECB owned 42% of German debt outstanding, the BoJ 50% of JGBs, the Fed 22% of Treasuries, and the BoE 20% of Gilts. 

"So the US and UK, in particular, still have substantial room to increase purchases from here. That said, of the $4tn in US issuance that we expect in the current fiscal year, we estimate that the Fed will end up buying about $2.5tn, which would leave $1.5tn to be absorbed by market participants [primarily money market funds] ... whether you want to call that fiscal-monetary coordination or not, the reality is that a large fraction of sovereign debt issuance will end up on central bank balance sheets to ensure normal market function ... This is not problematic right now because the government is essentially replacing lost demand. But it could become an issue if it represents a paradigm shift toward deficit financing without any safeguards that continues well into a recovery."

Shifting gears, Skeel discusses the potential for a wave of corporate bankruptcies.

"I wouldn't be surprised if filings increase a lot more than they did during the Global Financial Crisis, when they essentially doubled ... many firms were already sitting on a significant amount of debt before the coronacrisis, and this is just the type of disruption that could push some of them over the edge."

Friday, September 25, 2020

New Jersey to borrow $4.5 billion

Tracey Tully and Mary Walsh of the New York Times report that New Jersey officials approved a plan to borrow $4.5 billion to cover basic operating costs, plugging a hole created by the pandemic. Governor Murphy argued that the borrowing was necessary to avoid deep cuts in essential services such as education, transit, and health care.

Normally, economists warn that states should avoid borrowing to cover operating costs, which can create a debt spiral. Unlike the federal government, state governments cannot create dollars, so state deficits can lead to spiraling debt that can force major spending cuts or tax increases. One solution is for Congress to agree on a pandemic aid package to cities and states.

"I still think the federal government needs to do more", [New Jersey Assembly speaker] Coughlin said. "If they do, we'll be able to pay down the debt--readily." 

Keating endorses direct monetary financing

ABC reports that former Australian Prime Minister and Treasurer Paul Keating has written that the Reserve Bank of Australia is not doing what is needed to stop the COVID recession worsening -- direct monetary financing of government deficits. He says that the RBA should do "what is sensibly required", which is funding the "mountainous sums" of government spending required to support the corona-ravaged economy.

The RBA's governor Philip Lowe has repeatedly dismissed calls for the bank to purchase government bonds directly from Treasury to finance the deficit spending. Keating, on the other hand, explains "there was no reason why the RBA should not adopt monetary financing of deficit spending."

"In arguing this, Mr Keating appears to be siding with proponents of a school of economic thought called Modern Monetary Theory who have been arguing there is no need for the RBA to buy bonds from the secondary market to fund government spending measures.

"They argue the RBA has the power to create money itself to finance the Federal Government's stimulus spending by purchasing the bonds directly from Treasury."

Lachlan McCall tweeted that this and other shifts in Australia are "the political side of what Steven Hail called "The Second Keynesian Revolution" 18 months ago. Like I said earlier this year, the future is left-MMT versus right-MMT."

Thursday, September 24, 2020

Moody's finds Biden better for economy than Trump

Moody's Analytics released The Macroeconomic Consequences: Trump vs. Biden, summarizing the macroeconomic effects of Donald Trump and Joe Biden's proposals to change the tax code, government spending, and other policies.

Moody's finds that a Democratic sweep will result in 7.4 million more jobs by 2024 than a Republican sweep, resulting in GDP that is $960 billion, or 4.5 percent, higher. The country has 4.0 million more working-age civilians in 2024 under the Biden plan. In both scenarios, federal debt-to-GDP is just shy of 130 percent by 2030. 

There are two main reasons that Moody's results show a more significant difference between Trump's and Biden's policies than other models such as CBO's dynamic model would.

First, Moody's notes that while the economy remains far from full employment "the Federal Reserve will maintain its zero interest rate policy and long-term interest rates will remain low." As a result, Moody's does not expect government spending on things such as infrastructure to increase interest rates in the near term. In contrast, CBO generally assumes that the Federal Reserve does not have the power to set interest rates and thus limit the interest costs which slow economic growth.

Second, Moody's captures demand side effects, reflecting the fact that the economy is not at capacity. In their model, "Greater government spending adds directly to GDP and jobs, while the higher tax burden has an indirect impact through business investment and the spending and saving behavior of high-income households." In contrast, CBO generally assumes that the economy is operating at capacity, so government spending detracts directly from household spending and saving.

High unemployment claims might signal that additional stimulus is required

The Department of Labor's initial unemployment insurance claims data released this morning show that 825,000 people applied for unemployment insurance in the week ended September 19 (not seasonally adjusted), and 635,000 applied for Pandemic Unemployment Assistance (unemployment for gig workers).

For a quick reaction, Bloomberg's Lisa Abramowicz tweeted 

"The data is messy, but the latest U.S. jobless claims comes in worse than expected. Stock futures rollover, yields tick lower. This adds fuel to the debate over whether the US economy has enough momentum to keep recovering without additional fiscal support."

26 million people are currently receiving unemployment assistance.

Note: I cite the non-seasonally adjusted numbers because I don't know how to interpret seasonal adjustment when we are four times above the pre-pandemic unemployment claim levels that the seasonal adjustment factors are built on. If the seasonal variations on an absolute level (e.g., 10,000 workers) are pretty similar, they would be overestimated when using percentages (e.g., 5 percent would normally be applied to a number around 200,000 instead of 800,000). And some seasonal variations, such as a pre-Christmas increase in workers at Macy's, probably won't happen this year, even if there is a corresponding increase in workers elsewhere such as at Amazon distribution centers.

Wednesday, September 23, 2020

CBO Director Swagel testifies on the budget

Congressional Budget Office Director Phillip Swagel testified before the Senate Budget Committee today on the CBO's 2020 Long-Term Budget Outlook, which was released earlier this week.

Links here for the written testimony and video of the hearing.

Here's an exchange from near the end of the hearing, where Swagel describes certain assumptions that the CBO uses in its projections. 

Senator Mike Braun: In the modeling that you use to come up with predictions on what raising, lowering taxes would do, I'm assuming it's a dynamic system that does reflect that when you raise taxes it generally, as a rule, is going to depress economic growth. Do your models incorporate that?

Director Swagel: Yes, they do. We look at the details of the tax, so a higher tax on capital for example would mean a lower return to investment. We would have less investment, less saving, that would affect the capital stock. Similarly, a higher tax on wage income would affect people's willingness to work, and that would affect the economy as well.

At the same time, JPMorgan's Jamie Dimon pushed for higher taxes on "well-to-do people" like himself, saying they would not slow down growth. His assertion is supported by the academic literature. For example, in Optimal Taxation of Labor Incomes in 2014, Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva showed that cutting tax rates for top earners did not lead to higher economic growth.

Government's role in markets

Two perspectives on government's role in markets are the "market failure" view and the "market making" view. Anna Kovner and Antoine Martin describe the market failure view in a Federal Reserve blog post from today. Mariana Mazzucato described the market making view in a European Central Bank conference paper from 2017.

Market failure

Anna Kovner and Antoine Martin write 

"In the United States and other free market economies, the official sector typically has minimal involvement in market activities absent a clear rationale to justify intervention, such as a market failure." 

The market failure approach focuses on externalities to make the case for government spending during events like the pandemic.  

"Private incentives don't take into account some important costs ... The official sector can take these costs into account and offer support that increases social welfare when the private sector would choose not to."

Market making

Mariana Mazzucato writes

"the classic market failure perspective on public investment in innovation does not justify the breadth and depth of public investments that we observed across the entire innovation chain, from basic research to applied research, early-stage financing of companies, and demand-side procurement policies ... as the history of innovation shows, the great extent of public commitment that is required entails more of a market-making and market-shaping approach than a simple market fixing one."

Mazzucato reviews the history of public financing of innovations, using the smart phone technologies that were funded by government spending as an example.

Economists on government stimulus and debt

In CNBC's Here's why economists are not worried about the national debt, economists say that additional government spending is necessary and spending on productive-boosting things like education rather than corporate bailouts will be better for the economy. Some notes from the video: 

  • Michelle Meyer: The deficit expansion was happening before COVID, the main concern is what happens to the budget on the other side of the pandemic.
  • Paul Krugman: We've been using deficits in a "stupid" way, to give windfalls to corporations rather than investing in productive things like infrastructure ... The arithmetic is encouraging, interest rates are well below economy's normal growth rate ... Historically, Britain came out of WWII with debt that was 250 percent of GDP [around 100 percent in US today], so the great danger now is that we spend too little.
  • Esther Duflo: In a sense we never have to repay the debt. American economic credit is good and will continue to be good.
  • Robert Reich: When you have this much unemployment and underutilized capacity, this is where Keynesianism is most applicable (government as spender of last resort).
  • Danielle DiMartino Booth: More debt calls US dollar reserve currency status into question.
  • Jim O'Neill: The enormous amount of debt created is in itself one of the massive uncertainties out there. Give the Fed a nominal GDP target (rather than a low inflation target) to ensure that debt-to-GDP ratios come down. Implement some version of a sovereign wealth fund to convert some of this debt to equity.
  • William Spriggs: We need to think about whether the debt is creating money for real economic activity. If you borrow money to build a factory, no one says oh that's horrible you just increased the money supply.
  • Dambisa Moyo: Government is getting bigger by bailing out industry, and industry is getting more concentrated. The number of publicly traded companies in the past ten years has decreased 50 percent, and we have oligopolistic competition in sectors such as tech, banking, pharma, airlines, and energy. This expands the range of questions about what is fundamentally happening.
  • Mohamed El-Erian: The biggest mistake after the 2008 financial crisis was failing to establish high, sustainable, inclusive economic growth. The economy got weaker and the financial system got more distorted because central banks couldn't exit.

Tuesday, September 22, 2020

Powell and Mnuchin testify before Congress

The main fiscal / monetary news today was Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin's hybrid hearing before the House Committee on Financial Services.

The CARES Act requires that they provide quarterly testimony in addition to other oversight requirements. Summaries of the hearing:

In short, Powell and Mnuchin point out that they can't tell Congress what to do and that Congress should spend more.

Fed's Evans says Congress must spend more

Chicago Fed President Charles Evans said "Fiscal support is just fundamental" and the economy faces "recessionary dynamics" if Congress does not pass a fiscal package for unemployed workers and state and local governments. From Ann Saphir at Reuters.

Evans didn't rule out more quantitative easing by the Federal Reserve but doesn't think it's imminent.

The Fed is already buying $120 billion of Treasuries and mortgage-back securities each month, the yield on the 10-year Treasury is still very low, and the Fed's newly adopted forward guidance is very aggressive, Evans said.

Federal Reserve: Household balance sheet

 U.S. household wealth has reached a peak of $119 trillion as of 2020Q2, on assets of $135 trillion and liabilities of $16.5 trillion, according to the September 21 release of the Fed's Financial Accounts of the United States.

$94.5 trillion of household assets are financial, including $11 trillion of debt securities, and $40.9 trillion are non-financial, primarily real estate. Mortgages comprise $10.6 trillion of household liabilities.

Peterson Foundation: Is national debt on the right track?

Every month the Peterson Foundation Economic Monitor asks likely voters whether they think the national debt is on the right track. I am not sure what it means for debt to be on the right or wrong track, but the results are interesting.

In the survey results released today, 65% believe that management of the national debt is on the wrong track. By party affiliation, 88% of Democrats, 72% of independents, and 37% of Republicans. The biggest concern about negative debt effects is the threat to programs like Social Security and Medicare (31%).

Federal Reserve Facilities

In Liberty Street Economics' Expanding the Toolkit: Facilities Established to Respond to the COVID-19 Pandemic, Anna Kovner and Antoine Martin provide a helpful overview of the Fed's liquidity and credit facilities.

The liquidity facilities -- Primary Dealer Credit Facility, Commercial Paper Funding Facility, and Money Market Mutual Fund Liquidity Facility -- "support financial intermediaries, such as primary dealers and money market funds, or money markets, such as the commercial paper market" generally for less than one year.

The credit facilities -- Municipal Liquidity Facility, Main Street Lending  Program, Primary and Secondary Market Corporate Credit Facilities, Term Asset-Backed Securities Loan Facility, and Paycheck Protection Program Liquidity Facility -- "support corporations, states, and municipalities more directly and the terms of the loans are longer."

The point of these facilities is to "break the vicious cycle that makes panics self-fulfilling" -- the negative outcome in a world with "multiple equilibria."


In contrast to the CBO director, who is concerned about potential tipping points for interest rates and debt, economists at the Federal Reserve, which sets rates and can buy government debt at the cost of a keystroke, seem more concerned with the moral hazard that might result from Fed interventions. They'll publish more about that on Thursday.

In short, as long as the Federal Reserve is committed to avoiding vicious cycles, the interesting question in regards to government debt levels is probably not Can the Fed keep interest rates low if investors start to dump Treasuries (it can) but rather At what cost?

Monday, September 21, 2020

Bloomberg: Robert Kaplan on forward guidance

Dallas Fed President Robert Kaplan was one of two dissenters (along with Neel Kashkari) to last week's Fed decision to signal that they'll keep rates near zero through 2023.

In a Bloomberg TV interview, Kaplan said he believes "we should keep the current setting of the fed funds rate, i.e., at zero (0 - 25 bps) until we've weathered the pandemic and we're well on track to achieve full employment and price stability," which he thinks will take at least 2 to 3 years. After that it's probably appropriate to remain accommodative, but he would "rather leave those judgments to future committees" who can incorporate the relevant factors of a world that might look very different post-pandemic.

When pushed on whether that was important enough to dissent on, Kaplan said that in addition to giving future committees more decision-making flexibility, the costs were not worth the benefits in terms of market expectations:

"I'd rather use forward guidance where we got more positive benefit. Going into the meeting the world already thought that rates were going to stay extremely low for the next two or three years" so it's hard to see the benefits of this commitment. On the negative side, for people in the asset markets (savers, pension funds, insurance companies): "if you're a market participant, it basically gives you a signal that you need to take more risk ... my concern is about building up excess risk taking which can create fragilities and other excesses in the system, which are hard to see in real-time ... the costs were not worth the benefits."

News on CBO's 2020 Long-Term Budget Outlook

David Lawder of Reuters summarized the Congressional Budget Office's Long-Term Budget Outlook (released today) in Coronavirus recession to push U.S. debt to nearly twice GDP by 2050.

Without changes to tax and spending laws, the federal debt held by the public will reach 195% of GDP by 2050 ... a level approaching the current debt ratios of Japan and Greece ... 

CBO director Phillip Swagel said the long-term U.S. fiscal path is unsustainable, putting long-term confidence in the dollar at risk.

"There is no set tipping point at which a fiscal crisis becomes likely or imminent, nor is there an identifiable point at which interest costs as a percent of GDP become unsustainable," Swagel said in a statement, "But as the debt grows, the risks become greater."

Scott Lanman of Bloomberg summarized the outlook in CBO Sees U.S. Federal Debt Almost Double Economy's Size in 2050

While low interest rates "indicate that the debt is manageable for now and that fiscal policy could be used to address national priorities," the budget path is unsustainable over the coming decades and borrowing costs will eventually become an issue, CBO Director Phillip Swagel said in a statement.

Some scholars are increasingly taking issue with such views in recent years. The school of Modern Monetary Theory argues that countries like the U.S., which borrow in their own currency, don't need to worry about boosting debt to support growth, so long as inflation remains under control.

Kate Davidson of the Wall Street Journal summarized it in CBO Downgrades Long-Term Projections of Economic Growth

Rising debt is at the center of a debate in Washington over how much more support the economy needs to recover from the pandemic ... The agency expects slower growth over the coming decades as the U.S. crawls out of the deep downturn brought on by the pandemic ... The forecasts are highly sensitive to changes in the pace of economic growth and the path of interest rates.

To the point that the forecasts are highly sensitive to assumptions, Kelly Evans of CNBC questioned the estimate that deficits will equal 17.5 percent of GDP in 2050, tweeting "i'd like to see the 2020 projections that were made in 1990."

Scott Fullwiler tweeted "On the day CBO puts out its updated long-term govt debt projections, it's crucial to recognize that on this issue CBO has gotten everything important dead wrong for decades running." He links to an earlier blog for New Economic Perspectives where he summarizes assumptions of CBO's models and finds them "inapplicable to a sovereign, currency-issuing government operating under flexible exchange rates such as the US." On CBO's assumption of crowding out, Fullwiler writes

"The analysis is based on the loanable funds market--which DOES NOT EXIST in the real world. In reality, the funds that banks lend are created out of thin air, not constrained by saving, the flow of deposits, or fractional reserve requirements ... CBO's analysis is simply inconsistent with how the modern financial system actually works."

In response to CBO's statement that "there is no identifiable tipping point", Fullwiler writes "this is true of course, since there isn't a tipping point at all if it's your own currency and you have the ability to set the interest rate on it."

Democracy Journal: Richard Vague calls for a debt "Jubilee"

Richard Vague of the Institute for New Economic Thinking makes the case that freeing households and businesses from excessive private debt would be a boon to the economy. It's Time for a Debt Jubilee.

"In 1951, total debt stood at 128 percent of our national GDP. By the end of 2019, total debt had doubled to 256 percent. Government debt has increased markedly and gets the most attention, but we should be more concerned about the rapid growth in private-sector debt ... private sector debt has grown even faster [than government debt], tripling from 54 percent to 150 percent ... Certain types of broad debt restructuring and forgiveness could help get us out of this debt trap and could be politically feasible. The proposals discussed in this article are for relieving the burden of mortgage debt, student debt, and more, along with a radically different proposal for government debt."

CBO: 2020 Long-Term Budget Outlook

The Congressional Budget Office released its 2020 Long-Term Budget Outlook.

"By the end of 2020, federal debt held by the public is projected to equal 98 percent of gross domestic product (GDP) -- its highest level since shortly after World War II. If current laws governing taxes and spending generally remain unchanged, debt would first exceed 100 percent of GDP in 2021 and would reach 107 percent of GDP, its highest level in the nation's history, by 2023, CBO projects. Debt would continue to increase in most years thereafter, reaching 195 percent of GDP by 2050."

Marketwatch: Dalio says the world will change "in shocking ways"

Ray Dalio speaks about capitalism's crisis.

"The U.S. is in the late stages of a debt cycle and money cycle in which we're producing a lot of debt and printing a lot of money. That's a problem. As a reserve currency status, the U.S. dollar is still dominant though it's being threatened by its central bank printing of money and increasing the debt production problem."