Subsidizing Debt - A Crime Of The Central Planners
If you subsidize something, you get more of it. Including debt and "free" money. Including the military-industrial complex. Including illegal immigration. And so on. Government subsidies are the prime tools of the central planners.
Be sure to visit http://www.ronpaullibertyreport.com for more libertarian commentary.
If you subsidize something, you get more of it. Including debt and "free" money. Including the military-industrial complex. Including illegal immigration. And so on. Government subsidies are the prime tools of the central planners.
Be sure to visit http://www.ronpaullibertyreport.com for more libertarian commentary.
If you subsidize something, you get more of it. Including debt and "free" money. Including the military-industrial complex. Including illegal immigration. And so on. Government subsidies are the prime tools of the central planners.
Be sure to visit http://www.ronpaullibertyreport.com for more libertarian commentary.
Hello everybody and thank you for tuning in to the Liberty Report.
With me today is Daniel Mick Adams and Daniel it's good to see you.
Good to see you Dr. Paul.
Good.
I'd like to talk about an old saying that I've heard for a long time and make a few points on it.
The old saying is if you subsidize something, you get more of it because governments are always subsidizing.
That's how government operates, especially under our system.
And there are so many examples of this.
I think we could write a long list of what would be truly a subsidy if you're getting a special benefits.
Democrats would like to say a tax cut is a subsidy.
We're not dealing with that.
Cutting taxes and tax credits, that's lowering taxes.
That's not what I'm talking about.
I'm talking about when you literally send money and privileges over one corporation versus another or one group.
And this, I think, is a gross distortion.
It really messes up the free market economy.
And we'll talk a little bit about the various things that have benefited by government subsidies.
It could be directly through money, but it could be protectionism through regulations and things.
But I think the mother of all subsidies is that of free money, and that is that debt doesn't cost anything.
I'd like to put up a chart to show this because just recently, you know, of course, the Fed lowering the interest rates, raising the interest rates after 10 years, they hadn't raised them for 10 years.
But this chart is interesting because they were gradually lowered and they kept at zero for seven years or so.
Now they're raising them just a very small amount and the whole world is watching.
But the chart really demonstrates when that line down at the bottom, that means money is free.
So where did it go and who benefited by this?
Well, we could think of all the special interests in Congress.
We can think of the banks.
That line at the bottom means that they're getting free money, overnight money, Fed funds rate.
The bank borrows and then passes it on to their friends.
It never seems to satisfy the market in producing more jobs or anything.
But it is truly a subsidy and subsidizing debt.
It won't even be government debt.
It will be corporate debt.
It's going to be personal debt.
And I think debt is a nemesis.
I think it will really finally bring us down.
Even if nobody's paying interest rates, debt will have to be paid or liquidated, and that's what we're facing.
But I'm sure you can think of some things that get subsidies.
What about through our foreign policy?
Is that always designed to give us more national defense?
Or is there a design that there may be some special interests out there, whether it's direct military budget or those offshoots of the military budget?
Money goes overseas, and a lot of it flows back to some people here in this country.
Sure.
Well, you have, I can think of a couple off the top of my head.
I think the greatest example of a subsidy is probably the F-35 project, where you have a plane that nobody wants.
It's a piece of junk, but they build it in 45 states, I think 15 foreign countries.
There's a little bit of it everywhere.
There's jobs for everyone in it.
The American people don't need the plane.
The plane doesn't work well, but nobody's going to lift a finger to kill it.
And we're not made safer by this.
Maybe we might even antagonize people with our bombs and our missiles and everything that we put and plant around the world.
I see it actually a very negative on the pretense that it's making us safe.
No, I think that's a great example.
But right now, very much in the news, and this has to do with international movement of people.
You know, we have had a lot of immigrants coming from the South, a few from the North, but not many.
But we also have the refugee problem, Europe more so than us, as a consequence of a foreign policy that is deeply flawed.
And I think most Americans do lean toward openness for people who really suffer at the abuse of their own government.
And if they can come here and be assimilated, that's one thing.
But the other thing is, should the people already here struggling to make a living have to accommodate by paying and be taxed in order to subsidize immigration?
And is it conceivable that if there was no subsidy to immigrants and refugees, maybe there wouldn't be as much.
Maybe because of what we offer, that could increase the number of people coming to our country.
I think it's such a great point that you make, you know, separating the economic issue of subsidizing immigration or refugees versus the humanitarian aspect versus the idea that we should welcome some immigrants into the country who, as you point out, want to assimilate and contribute to the economy.
And unfortunately, most of the demagogues don't make that differentiation.
They'll take one side or the other.
Well, there's so many things.
I think often because it involved our district here in Texas, and that was subsidizing insurance, flood insurance and windstorm insurance.
And most people don't complain too much about it, especially the people receiving the benefit.
But, you know, it's virtually impossible if you live on the Gulf Coast to buy market insurance.
And they say, well, it's too expensive.
Why is it too expensive?
Maybe because it's of high risk.
So what we do is we subsidize people who have money to build fancy houses on the Gulf Coast, and then hurricane comes and blows them down.
And then people who don't live on the Gulf Coast has to fail them out.
So there's much more.
You subsidize something, you get more of it.
You get more people taking more risk building houses where they wouldn't do it or they would have insurance that they pay more money for.
But, you know, I always got a lot of heat from some officials on that.
But, you know, for the most part, the constituents never held it against me because I thought it was common sense.
And so often, you know, the other reason it didn't seem to be so bad is FEMA was such an outrageous organization that they always were so inept.
But another thing, if you want to talk about malinvestment, and this would be part of the way the Federal Reserve works, is the FDIC, how they insure deposits.
You know, banks will take greater risk and people will take greater risk if the government always guarantees everything and that encourages people to assume more risk and more debt.
And you also, I think, I have a form of subsidy when you talk about international alliances.
Subsidies and Student Debt00:06:21
Think about NATO, for example.
There's an implicit subsidy of U.S. military force backing up the NATO partner countries, particularly the weaker ones like Latvia, Lithuania.
And they tend to have a much more bellicose foreign policy against Russia because they feel they're subsidized by the huge U.S. military machine.
Look at Turkey's behavior recently in shooting down this Russian jet.
If they didn't feel they had the force of the U.S. military behind them, they might not engage in such reckless behavior.
Well, you know, there's been a recent debate going on with the Russians and NATO.
You know, Ukraine is one.
Are we going to get assistance from Russia?
Are we going to get it from NATO?
And they make these promises that you talk about.
But what about in the Balkans right now that they're arguing countries, should you go with NATO?
And it's how much subsidies will you be given?
Of course, since governments essentially are all broke, they don't have it.
It's all a promise and a trusting government to print enough money and run things.
But that's been going on, of course, for a long time.
You know, another area where there's tremendous subsidies, and we're seeing the conquerence, because my argument about talking about this is debt.
Debt is bad.
But think about how the education has occurred in the last 15 or 20 years, or even could be longer, all the student grants and loans, which are, you know, there's not paid for.
And the students now are graduating, they have $1.3 trillion worth of debt.
You subsidize it, you get more of it, but you don't get a better quality.
But they couldn't have done this without somebody accommodating.
The taxpayers so far haven't directly accommodated that system, but the debt did, and the deficit, and the banks, the banks get their loans guaranteed, and they had extra guarantees on this.
But once again, if you'd have had to work in the marketplace, there wouldn't have been this.
And what happened?
When you subsidize, you get more of it, but you get more costs too.
Professors make more money, buildings go up, and student tuition goes up.
You know, it's not a good thing to have subsidies.
It really is.
It's great in your point in education because you end up subsidizing more students going to school than need to.
Not as many young people need to have a college education to have a productive career as society tells them, and that's because it's easy money to get through.
And it contributes to the malinvestment because if you're out of high school and you want to go into, maybe you can't, don't want to go to college and it's not like a magic ticket, not anymore anyway, they might be better off doing a year in trades.
I keep telling you, and some people do quite well.
I've seen some people just avoid college altogether and go into a trade and a building trades.
And they do very well.
It wasn't that they weren't smart enough to go to college.
It was just too boring.
And they can get in there.
I think a good welder, a good mechanic is going to be much more valuable than a college degree from a fancy college when times get worse than they are now.
And right now, even though the market's doing well, there's a lot of problems out there when you think of the percentage of people who are living with their parents.
So subsidies, I think, are misleading.
You can subsidize education in two different ways.
One, the Fed credit is low.
At the same time, government writes regulations and makes grants.
Housing was the same way.
The housing bubble didn't get there because of natural economic forces.
The housing bubble built because of easy credit, low interest rates.
And then, of course, the bubble burst.
But the Barney Franks of the world had Community Reinforcement Act and said, you have to do it.
So it wasn't all the banks' fault.
They were participants and students didn't complain.
I can't pay for this.
But all I would like to do is put a general reminder out there that it's not at the end of the world.
Whether it's flood insurance, it doesn't mean there won't be flood insurance.
It'll probably be private.
It'll be a more honest thing.
And the people who are taking the risk should do it.
And on education, I graduated from college in 57 and went to medical school and graduated in 1961.
But we didn't have grants.
But the cost was much lower.
So the subsidies pushed the costs way up.
And anybody who had any ambition at all could have a part-time job in college and a summer job and pay their way through.
And it wasn't that difficult.
Today, I can't say to the kids, go, work their way through college.
The costs are too high.
But that's all a consequence Of this system and debt.
The debt is going to bring this country down, and it's expanding at a very rapid rate.
Very few people talk about it, and it could not happen without the Federal Reserve.
The chart we showed shows that money is free.
If you have something free and you're subsidizing it, you're going to get too much of it.
And there's way too much debt, and it's government debt, it's international government debt, it's debt in corporations and all around debt with students and debt with households.
And you say, well, the interest rates are low.
We don't have to pay interest.
Yeah, but debt eventually has to be paid.
Debt always has to be liquidated if you want to get sound economic growth again.
Debt can be liquidated by defaulting and walking away from it, or it can be liquidated by just having a default by devaluing the currency.
The Fed says the only thing they want to do is further devalue the currency to pay off the debt.
Either way, it's bad.
But as long as they prop up debt and add to the debt, the economy will continue in its sluggishness and it will get much worse.
You have to have the liquidation of debt, and eventually, the thing to do is eliminate this guaranteed subsidy of debt through the Federal Reserve system.