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Oct. 16, 2013 - Freedomain Radio - Stefan Molyneux
19:59
2508 The Truth About the Government Debt Default
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Hi everybody, it's Stefan Marlin from Freedom in Radio.
Hope you're doing well.
So this day of historic and blindly repetitive compromise in the United States government about the government slimmed down or shut down, we will have a quick look at the actual truth about the U.S. government and the supposed looming imminent catastrophic sky is falling default.
So, the tussle is about the federal debt limit.
Now, the debt ceiling or the debt limit is a legal limit on how much money the federal government can borrow.
So, it places an upper limit on the national debts, like the credit card limit that you have on your credit card.
Now, when the government hits the debt ceiling, this does not mean that the federal government is going to default on On paying its debts or paying its loans or paying the interest on those loans.
The U.S. Constitution explicitly forbids defaulting on the debt, 14th Amendment, Section 4.
So even if the government did want to default, it's not going to.
So when Barack Obama is saying there's going to be a default or we're going to have to default, he's actually saying we're going to break the law or break the Constitution.
And we all know how serious American presidents are about the Constitution.
Now, one of the things that is kind of tragicomic about all this mess is, of course, over the past five years, government spending and deficits in the US have soared in staggering ways, while at the same time, regular incomes of regular Americans have fallen.
They've seen about a 40% reduction in net wealth in America.
So what's happened is the average households have had to do what?
Well, they've had to economize.
They've had to set spending priorities and get rid of frivolous stuff.
And, of course, the government has had to do no such thing.
And this is probably one of the reasons why the media is hysterical about it, because they tend to be kind of on the left.
But the average population is not too fast.
So, in and around October the 17th, 2013, the U.S. would have hit the debt ceiling.
So the question is, if Congress doesn't raise the current debt ceiling, does the federal government run out of money needed to pay its existing debts?
Let's do a little math, shall we?
On average, the federal government's daily expenditures are about $16.7 billion.
So they get about $14 billion a day on average in taxes.
So they are short $2.7 billion.
It's so hard to keep a straight face with these numbers.
I'm sorry.
I just want to do that Mike Myers thing.
Does it really matter at this point?
Implying an average.
So they need about $2.7 billion to make this work.
So the planned flow of revenues is now about $650 billion less than the planned flow of expenses.
So $650 billion annually, about $2.7 billion every business day.
So interest on the $16 trillion in U.S. debt is covered by a factor of about 10 times by revenues.
So this is, you know, if you owe, if paying the interest is less than one-tenth of your current revenues, then you're in AAA land for creditworthiness.
So in other words, revenues in the U.S. would have to fall by 90% or more to jeopardize interest payments.
So the equivalent is a man who makes $10,000 per month who has to make an $850 mortgage payment every month.
Is he in danger if his income drops of not paying that?
Well, not really very much, right?
So it's nowhere close to a default.
A default is just one of the fear-mongering, sociopathic scare tactics that is used by those in power to avoid making any of the difficult decisions which people supposedly vote them in power to make.
So, what is the debt ceiling in the United States?
Well, the debt ceiling is that bane of democratic politicians.
I just mean in a democracy, not of the Democratic Party.
It is basically a spending cut.
And it's not the nonsense spending cut, which is always talked about, where governments say, well, you know, if we slow down the rate of projected future increases, that's totally the same as a cut.
You know, like if a guy's going to have three burgers tomorrow, but his doctor says, you know, he needs to go on a diet, he says, okay, fine, I'll only have 2.95 burgers tomorrow, so then I'll be thin, right?
It's as silly as that kind of stuff.
Now, in just four years from now, and these are even using the government's estimates, which are surely too low, the $16 trillion debt is going to explode to $22 trillion.
And put that in context, the U.S. gross domestic product is about $13 or $14 trillion.
A year.
And of course, you'd have to subtract a lot of that because a lot of it is just government bureaucrats pushing papers around.
So the actual productivity, I guess it's down to zero now that Steve Jobs is dead.
But there's not a lot of productivity in America.
Worker productivity has been going down for some time.
Social security disability payments have skyrocketed 53% in the last 10 years.
A small portion of this is because of an aging population, but a lot of it is just because people get desperate.
They can't work or they get lazy or whatever, right?
So this is where they go.
Medicare spending has doubled as a percentage of GDP in the last decade, and that increase is expected to continue.
So naturally, the federal government, being a government, says, well, we have really skyrocketing health care costs, so let's expand our control over health care and spend more.
This is the screaming rollercoaster that is going to take out your children's eyeballs.
This is trillions of dollars.
It's a linear scale.
U.S. national debt from 1900 to 2020.
So we sort of look around 1940, 1950.
It's really, really too low to measure.
And by 2020, it's going up to, you know, 22, 23, 24 trillion.
And it's really interesting, right?
So if you sort of look at the 60s is when the entitlement spending really ramped up.
That was LBJ's Great society.
It was the war on poverty, the war on illiteracy, the war on drugs, the war in Vietnam, and so on.
And it's really interesting to see that it's harder to battle social problems using the government than it is to defeat the Nazi Empire.
And if you look around the 80s, it's hugely harder to have the government try and tackle social problems than it is to defeat the entire Soviet Empire, including the Eastern Bloc.
And this is why there may be some people who are skeptical about using the rusty sword of state power in the attempt to solve highly complex social problems.
It's like a brief history, because, of course, the media is generally in the pocket of the left and is generally screaming about the Republicans not allowing the fascistic central planner known as the president to get his way.
Just let him get his way.
He was voted in.
It's the law.
Just get out of his way, which really is just a Mussolini-style cry for fascism.
But there have been 18 partial shutdowns of the federal government, all since 1976.
There have in fact been eight defaults in U.S. history of the federal government.
We'll get to that another time.
So five of these partial shutdowns occurred when Democrats controlled the House, the Senate, and the White House.
So the idea that this is some sort of Republican thing and the Democrats are the White Knights trying to keep government running...
Not exactly true.
Five more occurred when the same party controlled both House and Senate, and of the 18, only seven have been between opposing houses of Congress, as is the case now.
So this is not a Republican, bad, Democrat good.
It's just whoever's in power wants to gain points by increasing debt and handing out more money to their constituents.
And those who are opposing those who are in power try to score points from those frustrated with high taxes and hyperregulation by saying the government should be smaller.
Of course, you can do quick Google searches for all of the Republicans when they were out of power, including Barack Obama, complaining mightily about the fundamental irresponsibility of continuing to raise the debt ceiling rather than rein in government spending.
But that's because they were in opposition and could say that stuff without actually having to do it.
The people in power are always on the side of responsibility and fulfilling government obligations and there's nothing to cut and all the usual sophistry that comes from these sorts of people.
Now the reality is of course the federal government reached according to its own numbers the legal debt ceiling about four months ago.
What?
No, I didn't hear about it then either.
And what it's been doing since then is raiding money from other government funds, like the Federal Government Employees' Pension Fund, because, you know, when that bomb goes off, the people in power are most likely not going to be in power.
So they have basically just been stealing from other government pensions and other government programs in order to keep the illusion going.
They're kind of running out of those options, and so this is why this is coming to a head.
Now, again, just to reiterate, if the debt ceiling can't be raised, what does it mean?
It just means that the government can't issue any more debt.
It means that Congress would actually be forced to submit a balanced budget.
Okay, so let's say they can only spend what they're taxing.
Well, they still get to spend about $2 trillion a year.
That's just the federal government.
We're not talking about state governments, municipal governments, local governments, the governments of cats that have taken over your basement.
We're just talking about the federal government.
Now, Congress, of course, doesn't want to make cuts.
And that's not because there's something wrong with the system or the system is broken.
It's nothing like that.
It would mean cutting foreign aid.
It would mean cutting what are called entitlement programs, which are basically just thefts from the young and healthy.
And it would mean closing down some of these 720 odd military bases the U.S. has around the world.
It would mean cutting the foreign wars.
It would mean all these kinds of things.
And tackling some of the problems of the welfare state at home.
But you see, this is not because the system is broken.
This is not a problem with the system.
This is exactly what the system is.
Democracy, or governments as a whole, are about giving people the illusion of something for nothing.
Right?
As Bastiat said 300 years ago almost, the government is that great fiction by which everyone attempts to live at the expense of everybody else.
Or, as another more modern feminist politician said...
The problem with socialism is you eventually run out of other people's money, which is really what all of this stuff is.
And so governments have to let you vote for them and then provide to you the illusion of giving you something for nothing.
Now, of course, because governments don't create anything, they don't produce anything, all they can do is they can print money, they can borrow money, Or they can raise taxes.
Now, raising taxes exposes the whole game.
So if the government says, I'm going to give you a $200 tax rebate, but I have to raise your taxes $300 in order to do so, everybody would say, well, government is actually a massive overhead, which it is.
I mean, it's only about 20% of the money.
That goes through the welfare state bureaucracy that actually ends up in the hands of the poor.
I mean, you just have to think.
If you're some rich philanthropist with a million dollars and you're dying, you want to help the poor, do you write the check to the United Way or some other private charity, or do you write the check to the Department of Health and Human Services or whatever the welfare agency is?
Well, nobody would write it to the welfare agency because, no, it's not going to get to the poor.
So if the government says, I want to give you $200, but I've got to tax you $300 because it's overhead to process all of that and send you the check back, well, clearly we'd say, well, this is a net loss.
But if the government says, well, I'm going to give you $200 and then just prints the money and sends it to you, then you feel like, woohoo, $200!
And then what happens is, of course, inflation hits 12 to 16 or 18 months down the road, and your money is reduced by more than $200 in value, the total of your money.
But then you blame the shopkeeper and you miss what's actually happening.
So this is the wake-up.
Or they sell a bond, right?
They sell a bond, which is basically an IOU that is written on the hides, blood, sweat, and tears of your children.
So basically, that's not...
Not very good, but this is how the system works.
If politicians can't promise you something for nothing, the whole system falls apart.
But because they can't actually deliver something for nothing, they have to steal, they have to counterfeit, they have to borrow, they have to enslave the unborn in order to provide people the illusion of getting something for nothing, which, of course, I'm sure you remember hearing about all of this in your government-run school, right?
Remember that course where they told you about Nebmite?
Okay.
Americans, naturally, as a result of fine government-run education, are completely schizoid when it comes to the state.
Whenever you say, do you want a balanced budget?
They say, hell yeah!
And when you say, well, which programs should be cut?
Well, none!
So that's good.
Now, when the Fed is forced to stop buying government debt, right now the Fed is buying government debt up and toxic mortgages at the rate of about $85 billion a month.
I know, these numbers are just mental.
Basically, to run a government budget, you just start writing zeros until your hand cramps.
So then, when the Fed has to stop doing that, then the government will stop getting all of this monopoly money that has farted out the Fed's ass, and it will actually have to cut spending.
And if there's nobody who wants the U.S. government's debt at lower interest rates, then Congress will have a whole deal of difficulty issuing so much debt.
And then, you know, math eats fantasy.
I mean, you will get something close to a balanced budget.
And as I mentioned before, if there's a default...
It's not the end of the world.
I mean, if there's a default, it means that people won't want to lend to the American government again.
Ooh, that might not be so bad.
What?
Are you kidding me?
The mafia wants to stop lending money to the gambling addicts?
Let me just see how bad that might be.
There has been an agreement reached, in the Senate at least, apparently, in which the Republicans have naturally caved, as they generally do, because entitlement spending actually goes up faster when Republicans are in power than when Democrats are in power.
Because Democrats kind of want socialism now, and Republicans say, can we do it maybe later tomorrow?
And this is the choices that you have if you're really interested in your own personal political and economic freedom.
Now, one of the reasons that this is completely ridiculous is that this has all been done before.
With every debt ceiling crisis, what happens is there's a standoff.
And then what they say is, okay, well, we'll raise the debt ceiling, but you've got to give us a whole bunch of cuts.
And the people in power say, yeah, okay, we'll give you those cuts, man.
No problem.
Okay, we'll raise the debt ceiling.
And then the debt ceiling goes up, and the cuts never materialize.
Or if they do, they're just paper and they're reductions in projections, spending growth, or whatever.
It's all just nonsense.
So that's what's happened here, and they've kicked the can down to, I think, February of next year, when the same charade will go on.
But it will not go on forever.
Anything which mathematically cannot continue will We'll not continue.
To quote from Fight Club, or paraphrase it, on a long enough timeline, the lifespan of every fiat currency goes to zero.
So there's something very interesting, I think, that's happening, though, which is not really being discussed much at all in the American media, which is natural, of course.
That's why you're listening to me.
But President Obama has said that he may not be able to send out Social Security checks Now, people of course should be shocked and appalled at this if they believe the propaganda.
Why?
Because everybody believes that he or she has paid into Social Security and therefore should be getting their money back.
In other words, there should be this giant mountain of money called Social Security and therefore any reduction in the government's ability to borrow should not affect that.
Right?
Yet, President Obama is saying May not be able to mail out those checks.
So what he's basically saying is there's no money in the Social Security Fund whatsoever.
And if he can't tax and borrow, then there's nothing to give to the Social Security recipients.
What does that mean?
Well, the fact that nobody's shocked and surprised about this means that nobody ever in the future gets to say, well, no, I paid into it, and therefore I should be able to draw out on it.
There's nothing there.
There's nothing in the Social Security Fund.
It's a Ponzi scheme that basically...
Takes from the young and one of the more impoverished generations of recent memory, at least those with the fewest economic opportunity, and takes that money and shovels it into the more of the richest generation the world has ever seen, which is the baby boomers in the West.
So that's one thing I think that's quite important to understand.
It's not really being talked about.
And the real shame of this is it has eclipsed the complete catastrophe that is the rollout of Obamacare.
Of course, Obamacare needs, like, at least 7 million people to sign up to be even remotely fiscally solvent.
I think so far internal leakers have suggested the number might be as high as 51,000, which I believe is slightly lower.
Yeah, it is.
And, of course, Obamacare is another one of these massive wealth transfers from the healthy to the sick and from men to women.
Women use the health care system a lot more, particularly when they're young and have kids and all that.
And, of course, people who are sick have a huge incentive to get free health care, whereas people who are not sick don't have as great an incentive to resist the government's encroachments on this area.
So it's just, it's simply, it's vote buying and it's subsidizing of illness.
Now, for those who are sick by accident, have problems that they couldn't foresee, massive sympathies.
Of course, the majority, 70% or so of illnesses are the direct result of lifestyle choices, let's put it as nicely as possible.
You know, overeating, not exercising, smoking, drinking, drugs, you name it.
So I just want to point out that almost everything you're hearing about is nonsense.
It is very instructive, of course, that 13% of the federal workforce has been sent home and everything's running hunky-dory.
And then, of course, in the very next breath, they will say, well, it's true that we sent home 13% of the federal workers we designate as non-essential.
But, you know, we just can't cut a penny.
The wonderful thing about the mainstream media is the degree to which they're able to say all of this stuff with a straight face.
I don't know the willpower of the White House press spokespeople to be able to say all of this stuff with a straight face is just truly astounding.
But I guess that's what happens when you get hyperverbiage from the morally insane.
Thank you very much.
I hope you'll check out more of these videos.
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