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Sept. 16, 2023 - Ron Paul Liberty Report
36:36
3) Jeff Deist - "The US Dollar: Weapon of Mass Destruction"

Rep. Ron Paul's final Chief-of-Staff Jeff Deist discusses the Fed's weapons, de-dollarization, and the "threat" that BRICS poses to US hegemony.

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Time Text
Airplanes in a Crapshoot 00:02:50
All right, thank you very much, Gary.
We're going to switch up a little bit.
Professor Turley's a little bit delayed.
So we're going to switch out for my good friend Jeff Deist, who was Dr. Paul's chief of staff on Capitol Hill, president of the Mises Institute.
And he's going to give a very important talk, especially following Gary, which is a talk about money and about the weaponization and de-dollarization.
without any further ado, Jeff Deist.
Thank you, Daniel.
For those of you who managed to fly here yesterday, congratulations, because it is increasingly a crapshoot to do so, especially if you happen to have a connection, and double, especially if you happen to be flying internationally.
I don't know if you've been following this, but the number of significant delays, which are defined as more than three hours, has gone up dramatically.
And the number of what the mainstream media calls near misses, which can be anything from a runway incident to an actual mid-air collision, have also increased dramatically just in 2023.
So it's interesting when you go to the airport and you get the full gulag experience, as Mr. Haven alluded to.
You know, you get the TSA prison lines, you get these power-tripping flight attendants yelling at you and the masks.
You have a lot of missing pilot crews causing some of these delays.
And sometimes I wonder if all this isn't a purposeful attempt to demoralize us at the airport and make us accustom this kind of rote compliance as you walk through.
So we don't complain about this obvious decline in one of the major industries in this country.
There's a lot of things in decline that we're not supposed to notice or complain about.
But you know, hey, the airlines only received $54 billion in taxpayer stimulus in three tranches during COVID.
So for 18 months, they were paid.
They made payroll.
They were paid not to fly airplanes around.
They're supposed to fly airplanes from point A to point B, but they were paid not to do so, which is an awful nice industry to be in.
Because if you had a restaurant in your town, I don't think you were paid by taxpayers to close your restaurant and not serve food.
So this $54 billion allowed them to make payroll.
And they actually came out of this.
If you go and look at it, the major U.S. carriers came out of the pandemic with more cash, the cash portion, more cash on their balance sheet than before the pandemic.
That's a nice business to be in if you can get it.
Rpi's Role in Counterpoint 00:06:33
So these dollars that they got magically, I'll call them political dollars, are actually our topic today.
And it's an important topic.
But first, I would just like to say a few words about Dr. Paul.
You know, sometimes it's amazing to see how the seeds he was planting back in 08 and 12 have sprouted.
And sometimes this happens in unusual ways.
It takes a long time.
You know, people used to talk about how Barry Goldwater, who lost very badly, of course, was actually planting the seeds for Ronald Reagan later on.
And some people talk about Pat Buchanan back in 92 running, and that planted the seeds later on for Donald Trump.
And I think there's some truth to this, but there's so many seeds that Ron planted.
You know, this rich man north of Richmond guy who went disappointed me.
I thought he would just sing the song, put it on YouTube, go away.
But he couldn't resist, and now he's doing all the stuff he shouldn't be doing.
But there's that line in the song, you know, your dollar ain't shite.
And I thought to myself, wow, you know, that's Ron Paul coming through.
You know, Ron made inflationism and the Fed.
He turned these into populist issues.
I mean, 30 years ago, nobody talked about monetary policy or the Fed.
Everyone was totally deferential to these guys.
Even amongst economists, monetary policy was this sort of wonkish backwater specialty.
And then Ron came along, and now we're talking about it, which is absolutely amazing.
But it's not just the Fed and monetary policy, it's non-interventionism, it's peace, it's civil liberties.
He turned all kinds of things into populist issues.
And I think we see the threads of this in all kinds of things.
We see it a little bit in Vivek, who I don't trust at all, but nonetheless.
His pharmaceutical background was really scummy.
Check it out.
He turned a company with an IPO of 300-something million with seven employees, including his mom, into a $3 billion valuation out of thin air, took the parent company, sold the stock, made himself very wealthy, a sentiment or perhaps a billionaire in the process.
And then poof, the drug didn't work out.
Turns out it didn't cure Alzheimer's.
The company folded, and that $3 billion in magic valuation went away.
But Mr. Ramaswamy, however, is a wealthy guy.
So I don't like people who game either the Fed casino or the FDA casino.
But he's obviously very bright and very talented.
And I take him over Joe Biden.
But you see it, you know, I mean, you see Ron Paul and Javier Millet, the phenomenon down in Argentina.
I think you see it in Bitcoiners.
I think you see it in Maxime Bernier up in Canada.
You see it in people like these crossover audiences like Glenn Greenwald, excuse me, and Tucker Carlson and Jimmy Doerr.
So I think this is really positive.
And as for RPI itself, you know, just such a tremendous organization.
You know, if you happen to see any of that execrable GOP debate the other night, you know, it's just nauseating.
And so it's basically just the villains of change.
Instead of talking about Iraq and Afghanistan, they're talking about Taiwan.
So these people, these neoconservatives, they cannot adjust their worldview to reflect reality.
They're incapable of it.
And on top of it, they have zero principles.
Okay, so what's the word for people who don't believe in reality and have no principles?
Sounds a lot like progressives.
So I guess the horseshoe theory is alive and well.
They both share this mania for perfecting humans.
We need some universal political arrangement for the whole world, social democracy.
And of course, what we desperately need is the opposite.
We need localism, we need markets, we need private property, we need real money.
But thankfully, there are millions of Americans who increasingly disagree with these clowns.
And I think RPI plays a big role in this as a counterpoint.
And, you know, in DC, I spent some time here.
There's all these countless grifting, there's these think tanks and NGOs and nonprofits and foundations and student organizations and activist groups.
And they're all littering the beltway and they're all compromised.
They're all part of the sick game.
And they like to talk about which side of the aisle they're on.
But it really doesn't matter at the end of the day.
And this grift extends out.
I mean, Trump's campaign is bringing in millions and millions of dollars and they're going straight to pay his legal bills.
I mean, little old ladies are sending Donald Trump $100 so he can pay these lawyers.
And increasingly, he doesn't even have lawyers.
Nobody will represent him because lawyers are being leaned upon heavily in this lawless country we live in.
A lot of people are sending money from Fox News to groups with Patriot in their name, stuff like that.
It is a grift.
And it's on the left, too.
I mean, the Soros Fund put $180 million into the 2022 election cycle.
So there's all these groups, there's all these organizations, but RPI is different.
It stands apart.
And so even these organizations that are not in DC, they tend to be of DC, if you know what I mean.
That tends to be their core.
And if you look at how the people on the left and right in the political class, the so-called left and right, if you look at how they actually live, the neighborhoods, the kind of restaurants they go to, what they do all day, they're actually awfully similar.
And so Ron Paul stands apart.
Ron Paul's audience is not what we came to know during COVID as the laptop class.
That's not Ron Paul's audience.
You're his audience.
We used to call them Luftmenschen, the great German term, people of the air.
Well, we're interested in people of the ground.
Okay, people of the air have had their day.
And so Daniel and company, they really walk the walk.
Adam Dick, Chris Rossini, they don't just talk the talk.
And when they stand against empire, they don't just mean that they're against interventionism and war, which of course are very important things to be in.
But RPI is also against the broader things, the geopolitical, this cultural hegemony which the United States attempts to assert over the whole world with the carrot and the stick.
Foreign aid, propaganda, fake support for democracy or this latest color-coded revolution.
You know, we export our degraded pop culture, we export pharma, crony capitalism, Orwellian tech, all this stuff.
And RPI really stands against all of it.
And that's why I think RPI is one of the most important organizations in the country.
Dollars And Information 00:14:57
And you notice they're also one of the smallest because everything good and beautiful and true and important is always happening on the margins.
I think that's just a universal.
So enough about RPI.
Back to our topic at hand, the dollar.
Wow.
Everyone who had the privilege of growing up in America has been a beneficiary of the U.S. dollar.
No question.
It is a magnificent tool of empire, and it has been since at least Bretton Woods for nearly 80 years now.
It's been the world's reserve currency.
And make no mistake, the dollar still works.
It works very well all around the world.
There's lots of places in the world where you can still give it to a cab driver.
Unfortunately, the fundamental approach of our so-called monetary policy, which is a term that I intensely dislike, is to export our inflation all over the world.
So dollar holders, which isn't just us, which is to say almost all foreign governments, almost all foreign central banks, major corporations, pension and investment funds, even millions of individual forest citizens, they all use our dollar.
They use it to buy treasury debt, and boy oh boy, do they buy treasury debt?
Inexplicably.
But boy oh boy, do they buy it?
They hold it in foreign accounts.
We call that Euro dollars.
Euro dollars simply means a dollar outside of the U.S. that's held in a foreign account so that the U.S. Fed and regulators don't have control over it.
60% of all U.S. currency, of all dollars, are outside the U.S. 60%.
They use it to settle international transactions.
They use dollars to repay foreign-denominated debt.
That's a big one.
Just ask the Turks.
Just ask the Turks what it's like to borrow in Euro and dollar for which they cannot print lira to repay.
The Turks are in big trouble because of their borrowing binge over the last 20 years or so.
People use dollars to buy oil.
They use dollars to invest in U.S. real estate and equities.
They use it as a hedge to protect themselves against their own bad fiscal and monetary depredations of their own governments, their own central banks.
They use it as a hedge against forex risk, foreign exchange risk.
And in some countries, they even just use it as cash on the street level, on the ground level, even when their governments ban it.
The former Rhodesian Zimbabwe, that was once the case.
And sometimes these foreigners, they even use dollars for this really old-fashioned purpose.
They buy our exports.
They don't do that as much as they used to, but they still do.
So all of this, over the past 80 years, but especially over the past 50 years since 1971, it's been a very, very happy arrangement for us.
The French finance minister called it our exorbitant privilege back in the 60s.
And I think that's an apt description.
It's paid for welfare and warfare, folks, both of which are popular.
We can kid ourselves in this room.
Those are both popular financial programs.
We've been able to promise entitlements to the moon.
The over 65 segment of America is set to double in the next 30 years, by the way.
Good luck.
But we've also used the dollar to export our financial and military dominance across the globe.
And I think the dollar has added, in its own way, to that cultural dominance I mentioned earlier.
But I'm afraid it's coming to an end.
I'm afraid that these privileges of monetary empire, we might call it, are coming to an end.
I would even like to say, and this is my Christmas gift, that monetary policy itself, so-called, is in its twilight.
Inflationism as a policy has natural limits.
It does.
And that's my message for you today, is that our greatest export and our most powerful weapon, the U.S. dollar, has peaked, folks.
It's peaked.
And the only question now is how steep that hill on the roller coaster that we're about to go over will be.
So why is this?
Because an awful lot of macroeconomists, a pseudo-field, by the way, would disagree.
Well, it always goes back to fundamentals, to the laws of economics.
You know, we talk about commodity money and paper money.
We talk about sound money.
We talk about fiat money.
I make a little different distinction.
I like to talk about political money versus market money.
Those are really the two different kinds of money.
Money that's provided by governments and money that's provided by the marketplace.
That's the real distinction.
And so the dollar is inherently a political tool.
In fact, it's a policy tool rather than a currency in any meaningful sense.
And because the dollar is a political instrument, it faces all these centrifugal forces of politics that are pulling America apart.
And political money can never survive political turmoil.
So the dollar and our politics are inextricably linked.
They're not somehow separated.
Our political class either doesn't get this or just doesn't want to get this and wants to milk this a while longer.
So they simply deny some of the basic truths that apply to money just as they apply to any other good or service which can or ought to be provided by the private sector.
First of all, money is a commodity.
It's an economic good that should be produced by markets.
We don't need money.
We don't need government to produce money any more than we need it to produce houses or food or energy or shoes or anything else.
And unlike other economic goods, more money and credit alone don't make society richer.
More oil, more gold, more commodities, more bushels of wheat, that actually makes us wealthier.
More money doesn't.
Only more stuff, more actual goods and services produced makes us wealthier.
More money in credit doesn't do that.
This is an enduring myth in American life, however.
The political class denies that interest rates aren't policy tools.
They're not little knobs and dials to be adjusted.
They're supposed to be something that arise naturally in the marketplace.
Some people save, some people borrow.
There's supply and demand for both.
They meet in the middle.
Interest rates form without the help of our brilliant friends at the central bank.
Nobody can plan this.
Nobody can know this.
No group of people can plan or know this, including the money supply itself.
And it's ultimately futile and harmful to try to set interest rates or determine the proper money supply.
And the final thing, the fourth economic fundamental reality that our political class ignores or denies is that price deflation is a good thing.
It's not something to be feared or fought by central bankers.
On the contrary, it should occur naturally as the society gets wealthier.
As the society gets wealthier, there's more profits.
That means there's more capital accumulation, which means there's greater efficiency and investment, especially in technological improvements.
And prices come down, folks.
Look at LASIK surgery.
Look at a DVD player, which you can actually buy still.
I looked it up.
They have them at Walmart for like 40 bucks.
So you've got those DVDs sitting around.
DVDs used to cost, DVD players used to cost $800 in 1990 dollars.
Deflation is just another word for people becoming wealthier.
And yet our political class fights it tooth and nail.
Might say that they don't much like us getting healthier and wealthier.
That would be the cynical take.
But these four fundamental truths, which most people never think about, most economists deny, our departure from these, our inability to abide by these realities, they doom our weaponized dollar.
We have to view political money for what it is.
It's the negation of these truths.
So monetary policy, we hear this term all the time, it's just another word for monetary politics.
That's all it is.
So we shouldn't allow them to get away with these high-falute and lofty euphemisms.
Policy is political.
Policy is zero sum.
It has winners and losers.
And that's what our dollar has.
So we used to have a gold standard.
We replaced it with a political standard.
So that's what we have today.
And it's worse.
It's worse in every way.
So under a political standard, the concept of money, it's just overwhelmed.
It's completely obscured now.
We see modern money as a policy tool of government, an instrument.
The only way we can understand it is in the context of politics, all the perverse incentives that the political class has.
In a democracy, we can't redeem dollars in gold, so that means dollars are untethered.
They're unbacked by real assets.
That means politicians, our friends in Congress, can be untethered from any sort of market discipline.
So money creation, debt issuance, becomes a political matter.
It appears, at least for a while, to be almost unlimited.
And the tendency, of course, with political money is always to buy votes.
To buy votes by giving out more free stuff from the government.
Print it and borrow it.
Austerity, okay, you know, that's that Ron Paul stuff.
That's for the future someday, maybe.
And so these central bankers, especially those at the highest levels, they're just politicians.
They're political figures.
Certainly Jerome Powell is inarguably a political figure.
And what happens is that what should be an asset, which is money, which is gold, for example, converts into a liability.
Physical gold doesn't have any counterparty risk.
It just sits there.
You can melt it down.
It never goes away.
U.S. dollars are always subject to all these political forces that we're talking about today.
And of course, devaluation is a policy.
Devaluation of your money, your savings, is a policy.
And so most Americans don't have enough money to hold across a bunch of different currencies and hold foreign equities and all that, and diversify themselves against this political risk posed by political money.
Most of us are pretty much stuck with the dollars in terms of our savings and in terms of our paychecks.
So we really have three choices.
We can hold dollars under our mattress, which makes us nervous.
We can hold them in banks, but then we're just a creditor to the bank.
You don't own your dollars in a bank account.
The bank can close.
It can shut down and tell you to wait.
Or you can hold U.S. debt, U.S. Treasury debt, but that just makes you a creditor to the Treasury itself.
So political money, you know, it's funny.
I'm pretty active in Bitcoin circles.
I'm not as sold.
I'm not a Bitcoin maximalist, as they say, but at any rate, which is a little funny for a gold guy.
But we have all this confusion about what money is.
We don't even know what money and debt are anymore.
And we have all this confusion.
We hear money described as energy, like it's zooming around, little particles in some sort of closed system, subject to the laws of thermodynamics.
You hear economists talk about a system.
We hear money described as information.
We hear it described as an agreement about value and all these things, which none of these really make sense.
If you haven't read your Menger and your Mises, you can fall prey to all this kind of confusion.
And it's all rooted in this politicized zero-sum nature, again, of money today.
So until average normies understand that more money and credit doesn't make us wealthier, it doesn't produce any new goods or services, doesn't make for a more productive economy, until we overcome this myth, we're in deep trouble.
Much smarter people than me have been talking about the death of the dollar, the demise of the dollar for a long time, and especially since 1971, the aforementioned year that shall live in infamy with Mr. Nixon.
But it's always been for all these geopolitical reasons that the dollar has not gone the way of the dodo bird in those 50 long years.
And a big part of it is geopolitics, the fact that other central banks and governments do the same or worse as we do, only harder and faster.
And that, you know, a lot of the Uncle Sam also has this pretty big, bad U.S. military force that the rest of the world would perhaps not like to come in contact with.
So those, you know, the dollar has been propped up.
But what I would like to say today is that I don't think the dollar is going to fail and lose its dominance because of de-dollarization.
Particularly, I don't think this BRICS proposal to have an alternative currency, perhaps backed by gold, I don't think that that's going to materialize anytime soon.
The BRICS countries obviously just met in South Africa.
They've added some real players to, I will say they've added Saudi Arabia, UAE, Egypt, Iran, Argentina, Ethiopia.
So they've added some weight to their arrangement.
The BRICS countries now account for about 43% of all oil, about 40% of the world's GDP.
But the problem is that 90% of international trade is still conducted in U.S. dollars.
And they have a long way to go.
And the idea of the BRICS countries using gold to back their currency, at least at the outset, they're just talking about a trading currency between those countries, governments, and central banks, not an actual day-to-day retail currency for their citizens.
But I mean, when we look at these countries, I mean, they haven't been disciplined in their own fiscal and monetary policies.
Where are they suddenly going to find this ability to not outspend what they could redeem in gold?
I don't think that's forthcoming.
Also, where is this gold going to be held?
Do Russia and China and India and Brazil, do they trust each other to send it into some central clearinghouse?
Probably not.
So they'll probably just hold it in their own vaults and use accounting to determine who has what.
But I just don't think they have the fiscal and discipline to do this anytime soon.
So it's not the BRICS that I think we should all be worried about when it comes to our dollars.
We're going to do it to ourselves, folks.
There's no question about it.
The end of dollar supremacy will be due to politics.
It'll be due to our internal domestic policies, our inability to control political money, our inability to spend wildly beyond, or excuse me, our inability not to spend wildly beyond what Uncle Sam takes in in tax revenues each and every year.
We're addicted to this.
We're addicted to cheap money and credit as a political matter.
So I'm going to wrap up with this over the next few minutes and kind of try to describe how does all this happen?
Dollar Supremacy's End 00:12:13
What's the process by which the U.S. dollar loses its reserve status?
Well, you know, it sounds crazy, I know that.
If you were in a cocktail party in Georgetown in 1985 or in Moscow in 1985 and you had predicted the fall of the former Soviet Union just a few years later, you would have been laughed out of that cocktail party and people would say that you were crazy and that could never ever happen.
So I would say that something very similar is afoot with the dollar.
It's going to fall and it's going to fall slowly then all at once, as they say.
And it's very simple.
Higher interest rates, which are our new reality, they create problems the Fed just can't solve.
And we fail to understand the sea change that's happening right in front of us.
For 40 years, since about 1982 to 2022, interest rates in this country and across the West, as a matter of fact, did nothing but go down.
It wasn't always linear, but they went down and down and down for 40 years.
In 1981, they peaked.
The Fed rate, the rate the Fed tries to set for banks to lend each other overnight, went to 20% under Paul Volcker in 1981.
That was the peak, and they just went down and down and down for 40 years.
But even with that, even at the Fed rate today of about 5.5%, that's at the low end of the historical average, which is basically 5% to 8%.
So here's the thing.
When Paul Volcker raised rates to 20% in 1981, the total U.S. federal debt was $1 trillion.
Pretty easy to pay interest on debt when you owe $1 trillion instead of $32 trillion.
Even if we fast forward to the global financial crisis of 2008, total federal debt was $10 trillion just in 2008.
We tripled it, more than tripled it since then.
If you look at global debt at every level, government, sovereign, corporate, household, individual, every kind of debt that exists on earth, it was about $140 or $150 trillion just in 2008 during the global financial crisis.
It's doubled to $305 trillion since then.
How does everyone pay higher interest?
How does everyone pay 7%, 8%, 10%, 12% interest on a body, an underlying principle that word and doubled?
So rising interest rates almost guarantee doom for the dollar.
All those years that interest rates were going down, we lived it up.
We got used to it.
Americans responded rationally to this incentive.
They borrowed more and more.
They bought bigger houses, nicer cars, better vacations.
They sent their kids to more expensive colleges.
Whoops.
Businesses, hey, they loaded up on why not deductible debt.
MA deals went through the roof, five or seven parts debt to one part equity.
Okay.
Why not play roulette with house money?
We've had it so good for so long that we are historically illiterate.
We don't know basic economics.
All these economists under 40 years of age, let's say, who went to Wharton and Stanford and Yale and Oxford and all these schools they go to, why should they understand anything about the world?
All they've ever known is cheap money.
their whole careers.
The baseline cost of capital has been less than 3% for their whole careers.
So all they know is everything goes up and up and up because projects, everything makes sense on paper when you can go borrow at 1 or 2 percent.
Again, other people's money.
But then 2022 came along and Mr. Powell decided to start raising rates and he decided to do so precipitously.
And we have seen already, I wouldn't say tremors, I would say something stronger than that.
Not an earthquake, but serious tremors in the banking sector right here in the United States.
We've had several significant bank failures.
Sam Bankman Freed's Bank, Silicon Valley Bank, Signature Bank.
We've had a few other big ones in California.
And you've got to understand, this was not because these banks were engaged in buying risky assets like banks were doing back in the go-go years of the 2000s.
No, they were just holding U.S. Treasuries.
That's what banks are supposed to hold.
But the problem is all those Treasuries were issued in their portfolios when Treasuries were paying 1 or 2%.
So now today you can go out and get 5% on a Treasury.
All those bonds that they held suddenly plummeted in value.
All of a sudden, virtually overnight, in less than a year of Jerome Powell raising rates, all these banks in the U.S. found themselves insolvent because of their bond portfolios.
A bond that pays 1 or 2% is worth a hell of a lot less than a bond that pays 4 or 5%.
It's very simple math.
Most of them, of course, have never marked to market, and they're still hanging in there, but that's because they haven't had a bank run, like Silicon Valley Bank had and like Signature Bank had.
So when your depositors get spooked, you can be in big trouble because if they try to sell those bonds, which are worth a lot less, to come up with the cash in a fractional reserve system to pay all those depositors, they don't have enough money.
So that's why the Fed created this ridiculous temporary lending facility to retail banks in America.
So it's a wink and a nod, and what they're allowed to do, which you're not allowed to do, by the way, as a borrower, is they're allowed to go take a bond with a face value of 100 that's only worth 60 and get 100 from the Fed.
Right?
They're allowed to have a wink and a nod and say, hey, here's my collateral that says it's worth 100.
Everybody knows it's not.
But banks have some exorbitant privileges of their own.
So what this means for industry, apart from banks, of course, is higher cost of capital.
Costs more to go out and raise money, which means it costs more to produce goods and services, which means inflation goes up, not down.
Supply is restricted when the cost of capital goes up.
This idea that you raise interest rates to kill inflation.
Well, if everybody goes broke and sits at home and doesn't buy anything, I guess that's maybe one way to bring prices down.
But it reduces production.
It lowers supply.
And it hurts the marginal firms, the firms that are just barely getting by, the firms that need to borrow money to operate, those are the firms that get hurt.
And guess who doesn't need to borrow money, who has tons of cash on their balance sheet?
The Walmarts, the Googles, the Apples, the Amazons.
The rich get richer.
And not only do they not need to borrow, they're going to snap up assets on the cheap when all these ailing companies start to go bankrupt.
How about commercial real estate?
Even before COVID, when everyone went home and decided not to go to the office, even before online shopping like Amazon started to dominate and kill all the retail stores, all of these big cities are full of gigantic commercial real estate projects that have long-term debt obligations.
And something like a trillion dollars in commercial real estate debt is set to mature in the next 12 months.
Well, they're not going to roll it over at anything close to the interest rates they were paying.
They're going to pay a heck of a lot more.
So, all of these office towers, folks, are in big trouble, and so are all these retail stores.
They're in big trouble, especially the kind that happened to be on Market Street in San Francisco, which Daniel and I are both familiar with from having lived there in the past.
Boy, oh boy, Market Street, one of the most beautiful, incredible streets in America back at the turn of the century, is now an absolute ghost town.
And it turns out that people going to Nordstrom don't especially enjoy stepping over the needles and the poop.
And this wasn't so good for Nordstrom.
So one of the Nordstrom's flagship stores recently closed in San Francisco.
Families and individuals, well, you know, we all got pretty used to borrowing stuff, as I mentioned before.
What happens to a nation of people who are so used to and so addicted to spending beyond their means?
Because saving money has been for chumps for 40 years.
Are they suddenly going to change their habit?
Well, we might have to, folks.
Even people with good credit are paying 8%, 9% for auto loans.
The average U.S. automobile average is $50,000 now.
Something like 25% of all car loans.
The monthly payment is over $1,000.
There are people driving around these beautiful escalades and these gigantic Ford F-150s.
They're paying $1,200 a month to have this call.
Are you kidding me?
How about mortgages?
How are these young people going to save up 20% down for even what is today a pretty modest, let's say, $400,000 house when that mortgage payment at 8% on that same $400,000 house is more than double what it was just back in 2020 at, let's say, a 3% mortgage?
The monthly payment doubled.
And then, of course, Congress, Congress has enjoyed having a very, very, very small cost of debt service for these 40 years.
That $30 trillion worth of debt has been manageable because the average weighted cost of capital, all the Treasury debt outstanding up until recently has been well below 2%.
It's been like 1.6%.
So that meant every year Congress only had to spend maybe $300, $400 billion on paying interest on Treasury debt.
Now it's already up to $600 or $700 billion.
Very, very soon.
It's going to be over a trillion dollars in just the next coming years, which will make it the single biggest line item in the congressional budget.
Not so-called defense, not Social Security, not Medicare.
The number one item that Congress will have to budget for will be interest.
And as far as Treasury debt, oh my goodness, well, we're going to be issuing a lot of Treasury debt to pay for the deficit spending that's come, folks.
And you know what?
These foreigners and these pension funds seem to keep buying it.
There seems to be a market.
And there's also a wink and a nod here because they always know that the Fed will buy them as a backstop.
That's the backstop.
That's not the marketplace, folks.
But I'll tell you what, with deficits going to the moon, with the entitlement gap in the future between future tax revenues and future expenditures on Social Security and Medicare, I don't know why investors are going to keep buying these bonds, even at 5%, when we all know real inflation is probably 8%.
Maybe people will start to demand junk bond rates to keep buying Uncle Sam's debt.
I certainly would.
So this is the economic reckoning that's coming.
It's going to turn the dollar, maybe not into the Weimar-Deutschmark, maybe not into the South African Rand, maybe not into the Argentine peso, but it's going to turn it into something far worse than it is today.
And the cultural costs, the cultural costs, folks, are going to be just as high on all of us as the economic costs.
I'll finish with this.
Very few Brits probably would have imagined in the dawn of the 20th century, in 1900, what would become of their empire over the next century and the pound sterling in the process.
Just because we're sitting here pretty materially fat and happy in 2023 does not mean that what happens over the next hundred years might surprise us just as much.
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