 Hi, I'm James. And I'm Anthony. And this is Words and Numbers. Hey, Aunt. How are you doing? James, I'm doing a lot better than the state of Illinois. Yeah, you know, it used to be the case that whenever something stupid was happening in the United States, it was Rhode Island. This was always the case. Then, some years later, it got to be Florida. But there's a new dog in the hunt, right? Now every time something idiotic is happening, we have to stop and ask, well, what about Illinois? And Illinois has its fair share, right now, of what we might call budget troubles. Yeah, very large budget troubles. I just ran across an article today or yesterday, warning that Illinois' debt is going to be downgraded to junk bond status, which carries all sorts of implications about what institutions are and are not allowed to invest in it. But basically what it means is the state is in such financial straits that its debt is incredibly risky. Yeah, that's right, which means in layman's terms, the faith that the financial industry has that Illinois will pay its debt on time or even at all is diminishing. And it's diminishing quickly. It's diminishing in large part because they can't get their act together with a budget. It's been some time since they've had anything approaching budgetary sanity in Illinois. Just recently, the legislature came up with a new scheme to raise taxes very significantly. It was about 32% increase, which one of the legislators had the temerity of saying was, no, no, no, 1.2% increase because he doesn't know how division works. Right. Yeah, that's worth mentioning. I think I should have looked it up. I thought he said 2%, maybe you're right, 1.2. But the correct statement is 1.2 percentage points, which actually translates into the whatever you said it was, 30%? It's about 32%. So everybody in the state of Illinois, if this plan moves forward, is about to see their income tax increase by a full third. Yeah. Yeah. That's a lot. And to make matters worse, we both know what's going to happen if Illinois actually does get a nice influx of cash from this. All right. They'll spend it on all kinds of other things and end up in exactly the position they're in right now a couple of years down the road if that one. Right. But in walk, the governor and the governor vetoed this scheme and now we wait for the legislature to decide whether they're going to override his veto or not. So no matter what happens, it's going to be a mess in Illinois and it's going to be a mess for a while. And this is a problem, I mean, we've talked about it before that of course the federal government has, but many of the states have the same problem as well. And there are lots of things that we have and can talk about that contribute to this. But one of the things that contributes is the fact that somehow it's so easy for politicians to simply ask for more money rather than to turn around and try to spend less, which is the exact opposite way that households do it. Right. If you or I are in a budget crunch, you don't turn to your employer and say, well, you're going to have to pay me 32 percent more next year. Right. You look around to what you can cut. I'm feeling the pinch. So I'm just going to have to have you give me some more. It doesn't work this way in the real world where individuals are concerned. But and I think here's the critical difference. And we've said this before and, you know, I'm probably spitting into the wind saying it again, but but bear with me. Politicians don't ask the right question, right? They sit down and they say, what is it that we want? Yeah. And then they decide what they're going to do, whereas normal constrained human beings ask first, what can we afford? And then we prioritize under that number. Right. Right. Right. We, you know, so if I'm not bringing in the big money this year, chances are we're not going to Disneyland, right? But but politicians always go to Disneyland. This is their problem. Well, I was looking up Illinois figures and if you include unfunded liability, so promises they made for future pension payments, it seems that they owe in the state in total about two hundred billion dollars. The state collects about 40 billion dollars a year in in revenue, which means that it owes about five times what its annual income is. And you could see how that's going to work out, right? It doesn't take a genius to put two and two together here. A politician will never be able to do it, but it doesn't take from the pool of the rest of us. We don't need the best and the brightest to know that this isn't going to work out long term. Yeah, well, see, this is the interesting thing about the whole political process. The politician doesn't need it to work out. He only needs it to work out for the next five to six years until, you know, he gets elected to some higher position somewhere else and leaves the problem for the next guy. So, you know, they have every motivation to promise the moon and the stars to overspend and then to completely underdeliver when push comes to shove, right, and to just leave some future generation holding a half empty bag. Now, there's an interesting problem here with with Illinois and all the other states face it. And it's interesting because the federal government doesn't. And that is that the federal government, when push comes to shove and it just doesn't have enough money to pay its bills, it can print money, right? And there's all kinds of bad things that arise from that. But the fact is the federal government does have the ability to to print money to pay its debts. But Illinois doesn't. And so all of a sudden, this junk bond status that we're talking about here is is is a is a bigger problem for Illinois than it would be for the federal government because Illinois is constrained. And I think that there's an interesting lesson here. And the interesting lesson is this, if if a government does not have the ability to print currency, then that creates a natural break on its spending. There it reaches a point where it's spent so much that now the financial markets are downgrading its debt, the interest it's going to have to pay is much higher. And that puts natural financial pressure on on restricting future spending. Right. And and one of Illinois's big expenses is in fact interest on its debt. Yeah. Yeah. Right. So it's running into a real problem, right? That as that interest rate goes up, their payments go up, they already can't make the payment and you see how this is going to end, right? So one way or another, the way you put it is is interesting, right? It's a natural break. There's a point that Illinois just can't get through because once they pass that tipping point, easy money is gone. Right. And and when easy money is gone for politicians, all that remains is hard money. And that tends to be when the voters become a lot more interested and you can bet the voters of Illinois are going to be very interested in a 30 percent increase in their state income tax, right? And sooner or later, responsibility will be foisted upon these representatives, whether they want it or not. Right. And it's it's not clear that the people really want them to be responsible, but it is clear that the people don't want their taxes to go up. Yeah. And I think generally speaking, what people want is very, very low levels of taxation and very high levels of government largesse floating into their lives, right? And if they can't have both, then hard choices will be made. Right. But as long as politicians can promise them both things, hey, life is easy, right? We'll just keep going along the way we've always gone along. And it's interesting, right? Because now. Fiscal sanity is about to be imposed. Yeah, by the laws of mathematics, right? But by math, right? On on Illinois in a way that it has not here to fore been imposed on the United States more generally. And this is how the United States accrues a twenty trillion dollar stated debt. But as we've said many times in the past, some were between one hundred and twenty trillion and two hundred and twenty trillion in an unstated debt when you start getting into unfunded liabilities and mandates. Yeah. And you know, the federal while the federal government could print money and much of the quantitative easing is kind of like what that is, while the government could print money to pay off its debt, doing so creates inflation and inflation eats away. It's effectively a tax on your savings. Eats the purchasing power of money that you've put in the bank. And I think that the interesting lesson here is to impose the same kind of fiscal prudence on the federal government would require that the dollar be backed by something, right? So once upon a time it was it was backed by gold. There's nothing magical about backing it by gold. The important thing is the quantity of gold is fixed. And if the quantity of gold is fixed and your dollar is backed by gold, then the number of dollars that you can print is fixed. And now you take away from the government the ability to just wantonly print. And there you have it, ladies and gentlemen, Anthony Davies is a gold bug. Well, yeah, I wouldn't say that necessarily. I'm a fixed quantity bug, right? It doesn't have to be gold. It could be the old land. It could be, you know, gallons of fresh water. I don't know what it is, right? But something that's fixed in quantity. Right. No, it just has to be. The dollar has to be based on something that doesn't increase every time the government wants it to. Right. Right. And that's the simple way of looking at it. Right. Could be a gold standard. Could be some kind of basket of commodities. Could be almost anything that exists in the physical world that somehow we care about. Along these lines, you know, we did an episode on on cryptocurrency. And one of the comments that one of our viewers gave us was, well, yes, but cryptocurrency isn't backed by anything. You know, things like Bitcoin and so forth. And and I was thinking about that because, of course, the dollar isn't backed by anything as well. And then I thought, wait a minute, that's not right. The dollar is backed by something. What it's backed by is pain. That is, when it's time to pay your taxes, you must pay your taxes to the government in US dollars. And if you don't pay in US dollars, they will come and do bad things to you. That is the value of the dollar is backed by pain. Well, those of us in political science would say backed by the monopoly of force, right? Which might be the exact same thing in the end. The threat of pain is every bit as effective as pain. Maybe more so. Those of us who grew up with Italian mothers would tell you. But when it comes right down to it, right? Fiscal responsibility is a matter of simple mathematics, no matter what level we take it to. Because even at the federal level, as you said earlier, right, as as the Fed just simply prints more money, inflation is coming. Right. Of course, of course, it's coming. You will hit a point that's so ridiculous that the money just isn't worth as much as it once was. And for an example, look at Venezuela. Yeah, look at Venezuela and take a long, long look at Venezuela. Incidentally, Venezuela raised its minimum wage a couple of days ago. So I saw that. Right. Yeah, that'll fix everything. Yeah, that's always the answer to these kind of hardcore baked in problems. But when you look at Illinois, and you see in a relatively constrained world, what it means to be responsible, and then you look at the United States more generally, and you see in a relatively unconstrained world, how easy it is to skirt that responsibility. You know that hard times lie ahead, right? Because sooner or later, there will be a reckoning. Right. And we're all going to be present for that reckoning if the numbers add up the way that we think they do. Um, so maybe it's it's time to impose upon ourselves some kind of fiscal responsibility to get us around. Yeah, this lunacy that we've that we've been engaging in all these years. So is that possible? And I'll give you the last word here. Well, I think one of the things to keep in mind is is the whole the whole purpose of a monetary system, in a sense, is to prevent us from consuming more than we produce. Because clearly, clearly that's, you know, that's a problem. And when we borrow money, what we're really doing is is eating today in exchange for eating less tomorrow. And so there comes a point at which you just simply cannot borrow anymore because the future generations aren't going to are going to be under too much hardship, trying to pay back the stuff that you consume today. And on that happy note, that's all we've got time for this week on Words and Numbers. Come on back next week, Wednesday, round about noon eastern time for a new episode. Until then, check out the great content at fee dot org and at fee online on social on social media. I'll see you next week. And see you next week, James.