 which brings us to the debt. And as usual, the Grumpy Economist, I don't know why he calls himself the Grumpy Economist, he's not Grumpy. He seems like a nice guy to me. But the Grumpy Economist, John Cochran has an excellent article called Debt Denial, a national debt denial. It's on his blog. I recommend his blog. I've recommended his blog many times. Grumpy, just search on Google Grumpy Economist, or John Cochran, and you'll find it. And it's excellent. And he talks about the fact that on the left in particular, but I think the writers joined us, I mean, Rush Limbaugh, about a year ago, made this amazing statement that just blew my mind. He said something like, yeah, we've always known deficits don't matter. But when the left caused the deficits, like under Obama, we made a big deal out of it. But now that it's our deficits, i.e. of a Republican administration, we can admit to the fact that deficits are fine. They have no negative economic consequences. That's just not true. They do have negative economic consequences, significant negative economic consequences. And we're living through the low economic growth. Government grown too big because the deficit really reflects the fact that there is lots of government spending, which means lots of government intervention in the economy and in our lives more broadly. Government spending is bad. Government spending more and more and more is even worse because it represents the level, the extent of government intervention in our lives, the extent to which government is violating, restricting our rights rather than protecting them. All right. The challenge is that we are already running massive deficits. This year will probably be a four trillion dollar deficit before this 1.4 trillion. In previous years, we've run trillion dollar deficits. During the last few years of the Obama administration, that deficits were actually coming down as a percent of GDP partially because Republican House and Senate did not let Democrats and Obama spend out of control. But that was reversed under Trump. Spending has gone through the roof of the Trump and we've seen deficits expanding. Deficits add up to debt. And the debt today stands at around 100% of our GDP, a gross domestic product. It's at the highest level we've ever seen since World War II in terms of a percentage of GDP. And Biden and the left would like to send it skyrocketing. Skyrocketing. They have ambitions of spending another 10 trillion on anywhere from Medicare for all to Green New Deal, to infrastructure, to just spend. They probably want to bail out all the pension plans around the country. I mean, there's no end to the amount of money the Democrats want to spend. And there is a whole economic theory, both for the modern monetary theory people and from the old Keynesians like Paul Krugman and Neil Keynesians, that it's not a problem to spend the money. And here's the logic and hopefully you guys can follow this. It's pretty straightforward, I think. So we're living in times of unbelievably low interest rates, historically low interest rates. And Democrats are saying, if we can borrow at these low interest rates and the economy still grows, then the economy can actually grow faster than the interest rates. And if we increase our debt and then keep it flat every year, because the economy is growing faster than the interest rates, every year the deficit will shrink as a percent of GDP. So the idea is right now, you can borrow at 1%, right? And then so the debt and then you pay for the borrowing, you pay through borrowing, right? So the debt, you're paying 1%. The debt is then growing by 1% a year. But if the economy goes to 2% a year, then the ratio of debt to GDP slowly falls about 1% each year. And in a few decades, you're back to where you were, right? So the assumption is you take on a huge amount of debt now and then what? This is what Biden wants to do, take on a huge amount of debt now because interest rates are low. And then what do you do? Well, the theoreticians among this group would say, well then you start borrowing. But what's the likelihood of that actually happening? What's the likelihood that politicians after borrowing, let's say, $20 billion, $1 trillion to fund all the goody projects, and when it's done, they just stop? When does that ever happen? Why would one assume it would? And not only stop, we go backwards and actually have a balanced budget. I mean, that, what's the likelihood of a balanced budget when we're running under Democratic, under a Republican president, trillion-dollar deficits? What's the chance we can balance that? It's almost zero. Nobody's going to balance these budgets in order to make the debt to GDP ratio start coming down. It also assumes that interest rates are always going to be low. So whenever we're funding, we have to borrow money in order to pay the interest on the debt. We keep borrowing it at 1%. But as you borrow more and more and more, economic theory at least tells you that the interest rate should rise, not decline. So are we sure interest rates are going to stay this low, even if we ramp up borrowing to let's say 150% of GDP? So imagine, imagine if, you know, we said, no, instead of the one-time big binge of borrowing, we're going to just run small deficits and grow those deficits every year, or grow the debt every year by the deficit. So not too big. So at a percent of GDP again, the deficit would shrink. But that would mean a 1% deficit today of GDP would be $200 billion, but that's tiny as compared to the deficit we're actually running. Are they really going to cut spending to shrink the deficit to that level? So when there's no end to the borrowing that the government has, it's going to continue to do it. We're going to borrow more and more and more year after year. And what happens in the next financial crisis? What happens in the next pandemic? What happens if we go to war? China, Russia, who knows? We borrow more than again. At some point, this is not sustainable. I don't know what the point is. I would have thought the point would have come already. But at some point, this becomes unsustainable. It just can't continue. I mean, if you have another financial crisis, we know governments bail everybody out in the financial crisis, the government's going to have to borrow $5 to $10 trillion to take care of that. Are people going to buy the government's debt? Are there people out there that will trust at that point as the US gets to 150-200% of GDP debt? Are they going to trust that they'll ever see their money back, that the US will be able to pay it back? And what's going to happen to the US economy as this many dollars gets sucked in to government programs, to government distribution, to government control, to government having the post strings? Can the economy grow at 2% steadily, with the government playing such a big role? Does anybody really have an answer to that? And as these deficits increase, and then, of course, in 10 years, about 10 years, what happens to Social Security and Medicaid? They start running deficits, and you're adding trillions, onto trillions, onto trillions. And if you actually run a little financial model, and you run these numbers, and you make some simple projections about the future, I mean, it's insane. The United States, the United States looks like, the United States looks like Greece very quickly. And yeah, the difference between Greece and the United States is that the United States can print money. Yeah, so we can print money and pay off all our debts. But we know what the price is to printing money. It's inflation. And we know how devastating inflation can be. Inflation can destroy a country's economy very, very quickly. And what's the alternative to inflation? The alternative to inflation is default. It's what Greece did. It's going bankrupt. It's having to lay massive numbers of, and of course, Greece was bailed out by the Germans. Who's going to bail out the US? Nobody can bail out the US. Let me just see. So you can see how this easily, easily, spirals out of control. And it could spiral out of control at any point. We don't know when it's going to happen. There's no magic number that we get to this level of debt. It spirals out of control. Now, if interest rates go up because the government is sucking up so much debt, then the interest payments that the government has to make on the debt go up. And that expands the deficits. It's all self-reinforcing towards a catastrophe, towards some kind of Armageddon. Either inflation or default. Now, inflation is a type of default, but a different mechanism of default. And when it happens, when it happens, these things happen quickly and dramatically, and you don't have warning. As much as I love markets and as much as I think markets reflect the best available information, the fact is the markets are terrible at predicting crises. Interest rates do not signal, do not signal a Greek crisis. They didn't. Before the Greek crisis, interest rates were very low until suddenly they want. Interest rates didn't indicate there was going to be inflation in 1970s or disinflation in the 1980s. They caught up once it happened, but they didn't predict it. Economic prediction is very difficult and markets do not do a great job at predicting catastrophes, crises, big momentous events. They never have been. And they're not at good at it. So, you know, a lot of us feel a little stupid that we constantly warn you if they keep doing this, it's going to cause inflation and it doesn't. So you guys go, well, you see you were wrong and we go, oh, but it's going to cause inflation or it's going to cause default. This, you're going to pay the Piper someday, one way or the other. And people keep telling me, yep, hasn't happened yet. And yeah, it didn't happen in Greece until it happened to Greece. It didn't happen to the United States until it happened in the United States in 1970s. We didn't have a financial crisis. Almost nobody other than a few hedge fund guys predicted the financial crisis. And you didn't have the financial crisis until nobody predicted it until you had the financial crisis. So I know it's easy to say people like Peter Schiff they're always doomsayers. Yeah. But that's because there's a truth to their doomsay. And it's because someday they'll be right. The difference between me and Peter is Peter's always confident it's going to be now. It's going to be soon. It's going to be any minute now. And I don't know and I admit I don't know. And I usually think it's probably going to be longer than Peter Schiff's things. But at some point, Peter's going to be right. And it's going to happen on his timeframe because it keeps shifting because some point it will happen. At some point we'll get massive inflation or we'll get default. Now I've always thought I've always thought that our government would choose inflation over default as its preference. But John Cocker makes some good points about it. If you default on your debt, I mean everybody suffers but who suffers immediately? Who suffers the most painful suffering? Who is it self-evident? You can see them suffering, not self-evident, but right in front of you can see they're suffering. Who is that? Well, it's Wall Street, big financial institutions. It's foreigners. It's the Chinese. It's the Japanese. It's the Europeans. They own our debt. So if we defaulted on our debt, then the people who directly would suffer, defaulting means you don't pay the debt. More likely you will structure the debt so you get 50 cents and a dollar. The people who directly lose from that are the people we love to hate. Other people our culture loves to hate on right and left, foreigners. And Wall Street, who suffers if you allow inflation? Who suffers if you allow inflation? If you allow inflation, everybody suffers. Common man suffers. The voters suffer. And the voters won't tolerate it. They'll vote you out of office. They hate inflation. So inflation is much more damaging to the political class than is default. Default, they can excuse it by screwing people nobody likes anyway. Inflation, the poor suffer from inflation. So there's a, I mean now it's the first time I thought of it that way from political perspective, political incentive perspective. And I think it's, I think John is absolutely right. There's a good chance that the US government gets into a position where it has to default explicitly, which is interesting. Some people say, but wait a minute, you know, the dollars it was of currency all over the world, foreigners love holding dollars. Yeah, but they'll only hold dollars in certain finite quantities. On only for as long as they think the US can actually pay it back where the debt is safe. Trust can vanish quickly. Very, very difficult, just generally in life. Very, very difficult to establish trust. Very easy to lose it. Trust can vanish very quickly. And when it does, all the dollars flow to the US again, you get pressure on inflation. Now people say, and I think I've dealt, I talked about this on a past show, people say, but, but look, when we came out of World War II, we had a hundred percent debt to GDP ratio and we paid it all back. Yes. Very different world. At the end of World War II, we cut spending because we stopped the war and the government ran for a long time. Huge, a small surpluses, small surpluses, and the economy grew at 4%. So as a percent of GDP debt shrank very quickly, we were actually paying it back through those small surpluses. Also in 1945, we took all that industrial capacity that had built tanks and weapons systems, and we oriented it, reoriented it to building things that people actually wanted and needed. So you took idle capacity. Capacity was not productive. Build tanks is not directly productive and made it productive. And that was a huge boon to the economy, which allowed for massive economic growth. Plus, arguably, the U.S. was less regulated, less controlled, the government spent less money. There was no redistribution of wealth, there was no Medicare, there was no Medicare, Medicaid that were bankrupting us now. You know, if you look at the percentage of government spending today that is entitlements, that didn't exist back then. You had Social Security, but you didn't have Medicare, Medicaid, which dominate government spending today. And nobody is willing to touch. Nobody's willing to touch. So social programs are small and they were solvent. Today, they're huge and they are bankrupt. So there's no way that we can use World War II as an example. When we are today engaged in a spending binge where productive capacity is utilized, where we don't have a mass millions of people coming home from the front who are going to be suddenly employed in productive activities. And of course, we don't have a government today dedicated even a little bit. We don't have an opposition dedicated even a little bit to cutting spending, cutting spending, reforming entitlement, shrinking the state. Nobody, this is again, goes back to left and right. When both left and right want to expand the state, how can we support that? We must reject them both even if we think one is more evil than the other. We can't associate with either one of them. Even so, vote Republican. But you can't be pro-Republican in the sense of I agree with them. You don't if you're a capitalist, if you're pro-individual rights, if you're pro-freedom. We're in trouble. We're in deep, deep, deep economic trouble, and it's only going to get worse unless the Republicans, now this is my hope, right? And this is if you live in Georgia, this is my call for you to call to arms. Republicans have got to win at least one Senate seat in Georgia. I hope they win both, but they've got to win at least one. Because the only way to slow down government spending, the only way to slow down government spending is for Republicans to be an opposition party, for Republicans to stop the Democrats spending binges, which by the way they're not doing right now. So I don't have a lot of hope for Republicans even if they win the Senate, but it's the only hope. Because if Democrats win the Senate, who's going to control spending? Who's going to say, wait a minute. So we are really, it really is that the Georgia vote is really crucial. It really is. Yeah, so, you know, we'll see what's going to happen, you know, even in the next year or two. So during this crisis COVID, the Fed has basically printed money like crazy. That money is today sitting in your bank account in all of our bank accounts and basically reserves at the Federal Reserve. So that money is not being spent. That money, we've seen a massive increase in checking account deposits. And all that money is in people's checking accounts. It's at in the bank. It's not being deployed through loans. It's not being deployed by the bank to investment. It's just sitting there. What happens when things recover? People get more confident and they start taking their money out of the bank and spending it. You might even see a boom in economic growth in the first, I don't know, second or third quarter after the vaccines in the United States. But what happens when that happens? Well, what happens is you get inflation and what happens when you get inflation is you get interest rates go up. So we will see. It might happen sooner rather than later. We might start seeing the signs sooner rather than later as the economy recovers from this and people start spending all their money that the Fed printed driving interest rates up by causing fears of inflation. You know, the main thing that can be done about this, the main thing that should be done about this is cut, cut spending, cut, cut spending. And again, this is why I'm for voting Republican in so vehemently for voting Republican in Georgia, so that they have the ability to, in a sense, veto the crazy level of spending that many of the Democrats want to engage in. What we need today, what I call the new intellectual would be any man or woman who is willing to think, meaning any man or woman who knows that man's life must be guided by reason, by the intellect, not by feelings, wishes, whims or mystic revelations. Any man or woman who values his life and who does not want to give in to today's cult of despair, cynicism, and impotence and does not intend to give up the world to the dark ages and to the role of the collectivist. All right, before we go on, reminder, please like the show. We've got 163 live listeners right now, 30 likes. That should be at least a hundred. I figure at least a hundred of you actually like the show. 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