U.S. Government Credit Rating Downgraded - What Does It Mean?
This week, the U.S. federal government received a credit rating downgrade. Given the unsustainable levels of government spending and debt, as well as the skyrocketing interest payments to merely service the debt, should anyone be surprised? Endless wars and endless welfare promises come at a cost. It's obviously very easy for politicians to focus on the short-run and let future generations deal with the long-run. But the long-run always arrives, and is rarely expected.
five four three hello everybody and thank you for tuning in to the liberty report With us today is Chris Rossini, our co-host.
Chris, welcome to the program.
Great to be with you, Dr. Paul.
Good.
You know, big news this week, if you're interested in finances, which we are especially interested on Fridays because that's Birch Gold Group Day.
And we talk a little bit about gold always, but there's usually something in the market, something going on that makes it much more necessary to emphasize the importance of gold.
Because a major event occurred this week, and it's a long time coming because it probably could have been said years ago that the dollar and the bonds are being downgraded.
U.S. bonds are downgraded by a major grading service, Fitch.
They said, nope, no more AAA stuff.
AA plus a little bit more.
They have to be cautious.
They don't want to cause a panic.
But this is a significant event, but it's something that most people know.
And I was mentioning it to Chris.
I said, you know, I think even the ones that act differently on it, they know what it is, but they have to figure what's the market going to do.
Today we're going to do this.
So there's a lot of that short-time thinking.
But long-term, it was very easy.
Matter of fact, these kind of events I thought much more seriously about way back in the early 1970s and even the 1960s because the handwriting was on the wall.
And certainly when the Bretton Woods agreement broke down, there was a severance of the dollar and gold and the definition of what a dollar was, that there could be nothing else than this.
But it's amazing that the dollar has remained in the atmosphere of all fiat currencies.
It's done rather well, even though it didn't deserve it.
But that's sort of temporary.
It's a storage of deceit and encouragement.
What does that encourage when people believe in this stuff?
That's not really true.
Well, what it does is causes a lot of debt.
Well, that's been verified.
We know about that.
And the other thing, there's a lot of malinvestment.
There's a lot of that.
So the investment business is tough under these conditions.
There were quite a few back in the 70s knowing this.
But, you know, when Bretton Woods broke down, Americans weren't even allowed to own gold.
So there's more opportunities now for people to invest in gold and look at it.
And that's one thing that Birch Gold Group does, is they offer a program and they emphasize that you can put gold in your IRAs and in your investment group.
So what they do is they help people along with that.
And one thing that we do to help you along is if you'd like to know more about that and more about what Birch Gold Group does, is you can get information.
It doesn't even cost you.
You get the information and you get to make your own mind up about it.
But to get started, if you're not already involved, you can just text Ron at 989898 and that will connect you to the Birch Group and they will send you some material to look at and help you to decide.
But That is something that is very important because we have to be knowledgeable about what we're doing.
Yes, a lot of people say, yeah, you got involved very early on.
That's when gold was a lot less expensive.
But I think that I think the process is getting worse, not better.
So the acceleration of the devaluation of the currency is going to continue.
And that means that the price in dollar terms will keep going up.
And I think that's what we witnessed this week.
We saw an announcement that was very mild compared to what's really going on.
But it might be just the crack in the door there, and this will continue.
And of course, we've talked so many times on this program about other currencies wanting to be the reserve currency of the world.
So things are proving.
Things where activity is very, very important.
And when you think about the young people right now getting a job the old-fashioned way, getting a mortgage, buy a house, own a little bit of property, and also feel secure that you get a little savings account, you can earn some interest.
That doesn't exist right now because the inflation rate is higher than the interest rates.
And generally speaking, especially back in the last 10 years.
So that's made it difficult.
That's why I think it's important to get the information, as much information you can get.
It's readily available everywhere now, which is, I think, a very good thing.
But if you want to be more specific and find out more about what Birch Gold offers, what you do is you text Ron, 989898, and they will send you some material.
Chris, I think this has been a big week for watching the financial markets and a lot of excitement.
So it shouldn't, for me, it didn't surprise me that it happened.
My surprise is how'd they get away with not doing this?
Because I think the market has already discounted the value of the dollar.
They certainly, the market overrode the market when they were pretending gold was at $35 an ounce and we'll keep it there forever.
The market finally said, no way, you're putting too much money.
So the markets are always putting pressure on the monetary authorities.
And that is good.
That's why the maximum amount of liberty is important.
Because, you know, before 1975, we weren't allowed to own gold since 1934.
So it's very, very difficult if you don't have that daily activity into gold.
But that's not the case.
Right now, we don't talk about it, but that was a big deal moving in the right direction where people were allowed to own gold again.
And that does help.
It gives people the opportunity to look at these investments and understand what the markets are, because the monetary system, the value of the dollar, it's in the national reserve currency in the world, and it generates so much harm.
So this is the reason I've been fascinated with the subject, and I've worked with it for many, many years.
Chris?
Yes, very good, Dr. Paul.
Yeah, there was some news this week about a credit rating downgrade for the federal government.
And, you know, I personally don't put much stock into credit rating agencies.
Of course, it seems like the right thing to do, but it makes me wonder, are the ratings even still too high?
All these A's still there.
There's 30-some trillion in debt.
We know the government can't pay the debt.
It's all a matter of will they be able to service it.
You know, so I personally pay attention to big crony financial institutions, especially after, I'm sure we all remember the housing bubble, all the rating, you know, the ratings agencies, they had all these A's, A ratings on the mortgage debt junk, you know, and countless times when you go to like stock analysts, you know, companies go under, banks go under, and you look at what the analysts are saying, buy, buy, buy.
It's like they're no help at all.
You know, and it makes you wonder, you know, when there is another financial crisis and this system that we're in is that's what it is.
It's one big crisis, but then there's every so many years there's a big financial crisis.
Do you think that the analysts and the ratings agencies are going to warn the public, sell now, sell sell?
Of course not.
They're not going to do that.
And the bottom line to all this is you cannot outsource your own thinking, especially not to these big financial institutions that are largely tied to the government.
So if you forego thinking and let other people, these people, do the thinking for you, you're very vulnerable.
And when crisis comes, that's when the vulnerability hits you.
So if you don't know what you're doing with your money, it's probably best not to do it.
So you can't outsource your thinking.
And that's what these ratings agencies and analysts are all about.
Very good.
You know, we talk a lot about inflation, and it's mentioned all the time.
But Mises said in Human Action that it will deliberately be defined as prices rising.
And then the alternatives can be political.
Well, regulate the prices, do this and do that, increase this and manage the economy more.
It's just mismanagement of the economy that has caused these prices to go up.
But Mises said that you should always define it in terms of the value of the dollar.
The dollar is inflated or it's increased, and they've been doing this notoriously, especially since the Federal Reserve was created and especially in the last several decades.
So the definition, I think, is crucial.
But there are other things that we can watch to give us a big hint as to what is coming.
Chris has already mentioned the big one, and that is debt.
You know, where are they going to get the debt?
Can they squeeze it out of the next generation?
Everybody says, you know, it's not right to pass this debt on to the next generation.
And I've used those terms myself, but we're really not doing that anymore.
We've given it to them.
We've given it to a current generation right now when you talk about, oh, I want to build a starter home.
Yeah, it'll be 10 by 12.
You know, and it looks like a big doghouse.
So this is, they're already suffering from it.
So the debt is a big deal and it's continuous.
Anybody who's predicting that there will be another debt conference between the Democrats and Republicans and they will plan to stop, to reduce it, and they will have to reduce the spending a little bit too.
I mean, that's a dream.
That's pie in the sky.
And it's safe to say that we shouldn't expect that.
It's not going to happen.
People have been tricked into that for so long.
And it's not going to happen.
But the prices are the best thing to go by.
I think the person that does the grocery shopping probably has a better concept and understanding of what inflation is.
What happens when you mess up the dollar and prices for normal things like food and groceries, That goes up to the point where people can't afford it, and then you have a lot more poverty.
It might even force people to live in the streets and things like that.
So, we live in very, very dangerous times.
In a way, it's because the people who manage the currency and the economy were too successful in that it was working.
That means they conveyed trust to the people.
It'll be okay.
It'll be okay.
We really don't have to deal with it.
But that trust that was put into this allowed the debt to get this big and the momentum to be gigantic at the same time.
The debt is unsustainable.
And the confidence level is now cracking, and that's what that will help build it because there was overconfidence and false confidence.
And when it comes, you know, it's going to be very, very painful because the corrections have to be made.
Under this circumstances, the debt has to be liquidated.
If you're an individual or a company or whatever, and even in normal times, if you've overspent and ran up too much debt and you can't generate it and you can't make your payments, you know, that's the end of your company.
There were guidelines there.
But it's different when a government does it because they do something more evil.
They incorporate the destruction of the money so that everybody is involved in trying to figure out what to do.
And then they are tempted then to go to the government and ask for some type of bailout, thinking, oh, you know, we don't have enough money.
We can't even pay our bills.
We can't pay our rent.
We have to get more money.
And then they do.
And what has happened under COVID and all these other things?
They get more money, a lot more money.
And not stopping to realize, well, what's the problem?
Well, the problem is there's too much money circulating for too long, and the money has lost its value.
And producing more doesn't increase the value of the money.
That's a huge fallacy.
And thinking if we just pass out more of the Federal Reserve notes, people are going to be better off, maybe for 10 minutes, but it is not.
It just is more debt and more malinvestment.
It's real hard to get people to think about malinvestments, but that's when individuals and governments and everybody else does too much of something that looks like a good idea.
And then you end up with empty hotels and empty houses, empty apartment buildings, commercial properties having problems.
And see, the malinvestment has to be corrected.
The debt has to be corrected.
You have to return to sound money.
And quite frankly, that is not on the horizon, but it has to be put on the horizon because there's going to be a time where we better think seriously about returning to those days when we have sound money and a little bit of common sense when we deal with our budgets.
Chris?
Yes, Dr. Paul, very good.
Yes, after the credit downgrade, you know, the usual blame game.
It was this person's fault, that person's fault.
The Secretary of Treasury, Janet Yellen, she said something that I found funny.
She said, President Biden and I are committed to fiscal sustainability.
I mean, talk about something that is so unsustainable.
Just the interest on the debt, I believe, is either a trillion or maybe over a trillion.
I don't keep that close of an eye.
That's just to keep this going.
You know, anybody that has had credit card problems knows what that's all about, where you're just paying just to spin the wheels.
You're not paying the debt off.
You know, you're just paying the interest.
The Unsustainable Debt Crisis00:03:30
And that's what the government's in.
But the government, they have all these promises.
They have Medicare, and people expect our Social Security checks.
They have empire around the world.
And we're living through how empires, why you should never, ever become an empire, because they always bankrupt themselves.
Think of every empire of the past, they're all gone, you know, because it doesn't work because they became an empire.
The philosophy becomes to take care of the rest of the world before yourself.
And that's the philosophy of this country.
I mean, just we have a lot of problems with Trump, but just the suggestion of America first, America first, no, we're an empire.
Our money has to go all over the world to control the world.
And we're seeing that this is unsustainable.
That's why the Secretary of Treasury is wrong.
This is not fiscal sustainability.
This is the road to bankruptcy.
And the more that they spend, you know, they can't do it all.
And that's why the end game eventually arrives.
And we're heading in that direction.
You know, ultimately, just paying the interest on the debt is going to be too much.
And then you're going to have a severe financial crisis.
Very good.
The effort to try to manage finances and plan financial future is very difficult.
And one thing that people look at when they're trying to figure out what the value of the dollar will be is the balance on the balance sheet.
That is the amount of securities that the federal government, Federal Reserve is holding.
And in 2007, they held less than a trillion dollars.
By 2023, they were holding $8 trillion.
That's a big increase.
But Larry Lepard, a supporter of some of my campaigns, is in the financial business and recently wrote about this.
It caught my attention because, oh, well, you know, it's going to happen, but when and all this sort of thing.
But his predictions and warning, I think, is very legitimate.
Timing of when this is going to happen is another matter.
But he's saying, don't be too shocked when the balance sheet has $20 trillion in it.
That means we keep creating money to buy these securities to pretend that the Federal Reserve is wealthy, but they can't even maintain their own wealth because all that money is put there is devalued on a regular basis.
But the balance sheet is a big deal when they're trying to finance this.
And it also is something that people look at when they're having international trade.
A lot of people are frustrated with that.
That's why our foreign policy and our use of sanctions and interference in trade is inciting people into, well, maybe we ought to look at another reserve currency.
And they are.
We talk about China getting together with Russia and other people.
But the market will deal with that.
They're going to deal with that.
There will be another one.
And already, there's more talk.
As long as I have been watching this, especially since we went off the gold totally in 1971, there's more talk now about governments, you know, the government banks buying gold, individuals buying gold than ever before.
Loaning Money Controversy00:05:19
So that right, when they come in and start saying you can't buy gold again, or we're going to punish you a few years ago, that will be a real danger sign.
That is one thing that they will try to do.
I mean, that was the first thing that Roosevelt did.
He's the one that made gold illegal.
Because gold is a symbol of liberty and freedom and spend the money where you want at the rate.
All we have to do is combine that with getting rid of the income tax.
Believe me, we would have economic growth and the debt would be liquidated.
It would be gone and we could prosper, and we wouldn't have to go around putting sanctions on people, trying to stir up a war in Ukraine, trying to stir up another war in Taiwan.
It would be so unnecessary because people justify that kind of nonsense as being good for the economy.
The military and industrial complex, they agree with that.
Yeah, our business is very good.
It's been very good ever since we've been consuming and destroying all the weapons that we had stored away.
It was supposed to protect this company.
What about the Strategic Petroleum Reserve?
It's way down to the lowest level, I guess, since we've had it, since we've built it up.
And it doesn't even serve the purpose.
It was to be there for military emergency so that we could survive with having oil.
And right now, it turned into an economic tool.
And this administration did the same thing.
So that's the kind of thing that is going to be very, very difficult.
But I want to, you know, mention a little bit about who should be blamed.
I get a big kick out of that.
So I'll do that in a minute.
Chris, you have another statement, don't you?
Yes, I do have one more, Dr. Paul.
I'll finish up.
Yeah, philosophically, you know, as a libertarian, we're talking about loaning money to government and their credit rating, philosophically, at least with our current government.
You know, if you had a government that's committed to protecting your liberty, perhaps the situation would be different.
But I personally have a problem with loaning money to governments like we have today.
First, if I were to loan my money to them for one of their bonds, if they pay it back, they're going to pay it back with money that is worth much less, diluted money.
So right off the bat, I'm being cheated.
But beyond that, looking at if I were to loan them money by buying their treasuries, what they would even do with that money.
First, they take it all over the world and destroy one nation after another.
We talked about Ukraine as the latest example.
Colonel McGregor did a great show this week on that.
So they would use my money for that.
And at home, they would use it to propagandize me, talk about the weather and how they're going to fix the weather, propagandize me about their wars, about viruses.
So I would be paying for my own propaganda.
You know, this makes no sense.
Why would you do that to yourself?
Why would you loan them money so that they could use that money against you or against other people around the world?
Now, again, that's our current government.
Perhaps a government that was, again, committed to the Constitution, committed to protecting your liberties, even building a road here for crying out loud instead of over in Ukraine would be, you at least think about loaning money to them.
But in our current situation, loaning money to them is it seems philosophically to be the wrong thing to do.
Very good.
You know, I want to talk a minute or two about who should be blamed.
And that's a football.
It's kicked around so much.
And the thing about Yellen, I think, is unbelievable.
But she says, well, it's just, they didn't use the right data.
You know, the data that we look at, you know, whether it's inflation data, well, I think that we live in a time where what can you really believe if you hear an issue or statistic or a problem or an emergency coming from the government and say, well, that's 100% true and we have to do it.
Well, a lot of people did that with COVID.
I'm hoping that a lot of people have awakened because it was so misleading.
So, yeah, it was only a data problem when they did it.
But they manipulate the data all the time.
So that's why we should be cautious on listening to the government reports because they're always trying to manipulate.
And we live in an age where there's more manipulations and demagoguing and flat-out lying in the political sense as well as the economic sense that we should be very, very cautious.
So some of the best allies to have when times get really tough, hopefully they don't get really tough, is that you have people you can trust and work with.
And that's why, you know, associations and understanding of people who are like-minded, I think in this day and age is very important because we can still do that to a degree.
Manipulating Data, Colluding to Control00:04:28
But just think of the attack on the First Amendment to let people know what's really happening.
It's a vicious attack on the First Amendment.
And that to me would be, you know, really the downfall if people start putting people in prison for asking questions.
And just think of all the nonsense that went on under COVID.
People weren't even allowed to believe in, debate, or promote natural immunity.
I mean, that gets really bad.
And they haven't changed their tune.
You might not be hearing quite as much, but they're there and they want control.
And that's their goal.
The whole thing is the president, the president thinks he has the person and the way this thing got out of hand.
Who to blame for this downturn in our dollar rating?
It's simple.
It was Trump.
He did it.
That was easy.
He answered that question like nothing.
He knew the answer to that question.
But you know, what is so silly is, you know, who should you blame, Trump or Biden?
But you know, the blame is a lot bigger than that.
The blame is really big because these predictions coming true now were made even before 1913.
Watch out, this will end badly.
And it is ending badly right now.
That is the problem.
So it's the whole thing that, you know, the Federal Reserve, you could, if you want to put the unit that actually carries out this destruction of money is the Federal Reserve.
But why did the Federal Reserve do this?
Well, they're in collusion with the politicians who spend money.
And now they're in collusion with the people who use social media to penalize people and undermine people's freedom of speech.
So this is, they will, you know, collude to accomplish these things.
And that I think is where the big problem is.
And Biden, you know, is responsible.
And Trump is responsible.
Republicans are irresponsible.
Democrats are probably a little bit more responsible than the Republicans.
But it's the people who want the spending.
So it's organized groups.
That's why pure democracy is so bad.
Get a group together and demand it, and you can undermine civil liberties and you can redistribute wealth.
You can create an income tax and you can create a system of war that totally ignores the Constitution.
So it's that that really causes it because people, you know, are lobbyists.
Everybody's a lobbyist.
So do you think that when COVID broke out that somebody would stand up and the president would say, well, this is bad and these are the reasons or economic reasons.
The last thing we need to do is crack down on people's liberty and we'll reduce your taxes.
It would work.
They're not going to allow that.
Well, they want the money immediately.
And they did.
They got it immediately.
And contributed more to the price inflation.
So I think you have to blame philosophy.
I think you have to blame it all the way back to prior 1913.
It was the progressive movement that generated the desire to have the government run everything, the welfare, warfare state.
And the gimmick was nobody would have to pay for it.
We can keep taxes low and we will just provide what the people need.
And they've been able to get away with it pretty well, even though the problem has been smoldering, but it's about to boil.
The boiling has begun.
And I think we can just look back a day or so when the rating was announced by Fitch.
And even if it doesn't get announced next week for another downgrading, the value of the dollar and the problems we have will continue.
The downgrading will be symbolic because they will never admit to you, well, let's have a clean slate.
Let's reduce the grading all the way down to 1A or something like that.
The Answer Lies in Liberty00:01:41
It's not going to happen.
It has to be held together with more debt, more spending, more taxes, and more authoritarianism and more rounding up the people and more control of the people.
But the answer is not complicated.
The answers can be found in the principles of liberty.
And for the most part, there are many answers in our Constitution.
So that is what we need to do.
But we need more people involved and more people, you know, protecting themselves financially, protecting their families in a literal sense.
And that is what has to happen.
But philosophically, we have to protect ourselves as a group of people with devising and understanding the principles of liberty.
Because if you just say, oh, no, the whole battle is between Trump and Biden, I'll tell you what, I know what there's some serious things there, and there will be a difference.
But I'll tell you what, overall, the momentum for spending, whether it's the militarism, you know, they can't even wind on that war.
You know, there's still problems in the Middle East, Syria, and Ukraine.
And now we're just yesterday enough.
We have to send a lot more military operations to Taiwan.
You know, we might have to fight China.
The whole thing is insane when liberty can give us the answers.
So I have a difficult time trying to understand why people reject liberty because it seems to me that brings people together and it offers us a system of government that provides the maximum amount of liberty and the maximum amount of prosperity and peace.