Cathie Wood: The US Debt Fear Is Overblown, Here's The Data

At the purple line, and that's debt relative to equities in the United States. And you can see that is on a down slope. We like to think of equities as representing wealth out there. So, debt relative to wealth going down. Nonetheless, as I was traveling around, this debt-to-GDP ratio has been getting a lot of press, mostly because people think that interest rates and inflation are going to be stuck at these levels for a very long period of time because the debt seems intractable. And we can only bail ourselves out of this problem by inflating it away. We disagree entirely. We're not as alarmed by this number. We do think that as this government focuses on getting that deficit down, that debt relative to GDP will start to come down again.

We're starting with fiscal policy. And you can see, as usual, deficit relative to GDP. The green line there is where Treasury Secretary Bessent is aiming to take the deficit by the end of '28, or at least fiscal '28, so September of '28. We think that he and this administration will achieve a much lower deficit because growth is going to be much stronger, we think, than is in most forecasts, including the government's own forecasts. So, on the next slide, I want to continue here with fiscal policy. Here is a chart. The green line is debt, government debt relative to GDP. So, it's over 100%. And that has many people very concerned. Now, you can look at the purple line, and that's debt relative to equities in the United States. And you can see that is on a down slope. We like to think of equities as representing wealth out there, so debt relative to wealth going down. Nonetheless, as I was traveling around, this debt-to-GDP ratio has been getting a lot of press, mostly because people think that interest rates and inflation are going to be stuck at these levels for a very long period of time because the debt seems intractable. And we can only bail ourselves out of this problem by inflating it away. We disagree entirely. We're not as alarmed by this number. We do think that as this government focuses on getting that deficit down, that debt relative to GDP will start to come down again, especially if we are right that growth is going to surprise significantly on the high side of expectations.

So, here I wanted to take a look at both fiscal and monetary policy in a single glance to show the contrast between today, now that we have pretty much, we are on the other side of the COVID boom-bust, and the '60s and '70s. And you can see how different it was back then. The purple line was federal outlays, and you can see what so-called guns and butter did back then. Guns, we were in the Vietnam War, so defense spending was booming. And guns and butter, the social programs that were put in place back then, all ballooned government spending. And you can see from the green line, while it didn't accommodate it altogether, over time, money growth accelerated and really by the late '70s was accommodating all of the spending. And it was an intractable problem until Volcker came in in the early '80s, late '70s, early '80s and just slammed on the brakes. And you can see he slammed on the brakes and he kept, anytime inflation fears were reviving, he slammed on the brakes again. So money growth did slow down quite significantly. So that's some of the history. You can see why so many people were afraid that we were going back into that environment. And it was because of what happened during COVID and also because of '08-'09 trying to get out of that mess and then having to deal with COVID. So these are very long-term in terms of their four-year annualized rates of change. So you can see we're on the other side and federal outlays, while they have picked up recently, defense a big reason for that, they are still from a growth rate point of view on a four-year moving average basis, still near the lower end of where they have been in this chart's history, as is money growth. So we believe that fiscal and monetary policy...