Speaker 1: Welcome to you. Stuff you should know Fronhouse stuff works
Speaker 1: dot com right, and uh, this is stuff you should
Speaker 1: know Financial times. Yeah, and you know what, Usually I
Speaker 1: shy away from finance, as you know. Yeah, this was
Speaker 1: This was good though, like timely and easy to understand.
Speaker 1: And I don't think a lot of people. Oh that's
Speaker 1: not true. I don't know how many people I know
Speaker 1: when people say that, I don't think many people. Most
Speaker 1: people don't understand what I understand. But I think if
Speaker 1: you were like me before, you probably didn't know what
Speaker 1: the death ceiling was. And it's really not that difficult.
Speaker 1: I mean, yeah, I had an idea what the death
Speaker 1: ceiling was. It certainly didn't understand the nuts and bolts
Speaker 1: of it. And I also didn't understand that it's fairly
Speaker 1: straightforward the whole thing, yeah, or that our company or company,
Speaker 1: how's that proportian slip our country? The way they do
Speaker 1: business is just it's it's kind of staggered. Oh, it's
Speaker 1: an enormous shell game. It's pretty weird that's being held
Speaker 1: together with duct tape and bubble gum. It's disheartening and
Speaker 1: frightening and all that stuff. So um chuck. The debt
Speaker 1: ceiling has been around for a while, and we'll talk
Speaker 1: about the history of it in a little while, But um,
Speaker 1: it really kind of came into focus in two thousand
Speaker 1: eleven there was a big fight over raising the debt ceiling,
Speaker 1: which to that point had happened more than a hundred
Speaker 1: times since the beginning of the twentieth century UM, and
Speaker 1: it had been routine at any given point in time,
Speaker 1: like it was just that ceiling needs to be raised,
Speaker 1: Congress says, okay, raise it, and that's that. In two
Speaker 1: eleven UM, thanks to a faction of the Republican Party
Speaker 1: known as the Tea Party, the this very normal procedure
Speaker 1: or routine i should say procedure of raising the death
Speaker 1: ceiling was basically like held up and the therefore the
Speaker 1: function of government was basically held hostage. And it happened
Speaker 1: again in two thousand thirteen to even greater effect. But um,
Speaker 1: what's crazy to me? After understanding and investigating what the
Speaker 1: debt ceiling is and what's going on, I'm chilled to
Speaker 1: say that I understand it from both sides now, Like
Speaker 1: I get where both sides are coming from and why
Speaker 1: the debt ceiling is this. It is literally the full
Speaker 1: chrome on which the entire federal government, the entire country,
Speaker 1: and not just the operations of the government, but the
Speaker 1: whole U. S economy, and in turn, the global economy
Speaker 1: sits rests. And if you hold up the debt ceiling,
Speaker 1: you hold the entire global economy hostage. If you hold
Speaker 1: up the process of raising the debt ceiling, yes, yeah,
Speaker 1: you might hold it up like a buttress. If you
Speaker 1: hold yes, if you're doing that, then your back hurts.
Speaker 1: But that's that's the point. That's why it was pretty
Speaker 1: shrewd to target the debt ceiling. But it's not just shrewdness.
Speaker 1: Like I I understand that the people who held it
Speaker 1: up were characterized as political terrorists. I think even if
Speaker 1: you take that aside or not, like, it was pretty
Speaker 1: smart that to target that, not just because that's a
Speaker 1: great thing to hold hostage, but because you can make
Speaker 1: a case like they're in is the greatest symbol or
Speaker 1: functional symbol of all of the problems that are plaguing
Speaker 1: the United States today or the solution to all of
Speaker 1: its problems. Man, you are right down the middle on
Speaker 1: this one, aren't you. I I truly understand it from
Speaker 1: both sides. It's really weird. I think that's a healthy perspective.
Speaker 1: I guess so, and maybe that's what it is. I'm like, well,
Speaker 1: I feel healthy, healthy perspective. Uh yeah, it definitely beats uh,
Speaker 1: hardline partisan views on things. I think when it comes
Speaker 1: to something this huge and complicated, Well, the irony is
Speaker 1: that the people who were holding it up or about
Speaker 1: his hardline partisans as you can get you know. Yeah,
Speaker 1: but the prospect of attacking the debt ceiling and focusing
Speaker 1: light on it is I think a very smart move politically. Yeah.
Speaker 1: So it may not make friends on the playground, No,
Speaker 1: it definitely will not. It is effective. Yeah, okay, so Chuck,
Speaker 1: let's talk about this. Let's talk about the debts. Let's
Speaker 1: talk about the federal government in general and how it operates. Yeah.
Speaker 1: There's a thing that I didn't know exist until recently. Um,
Speaker 1: that is issued every day called the Daily Treasury Statement.
Speaker 1: And if while we're doing this, this sounds just like
Speaker 1: a company or just like given your own personal finance,
Speaker 1: as as it is, it's just a large a lot
Speaker 1: more zeros, a lot more zeros. But it's the principles
Speaker 1: the exact same. Yeah. Um, the daily Treasury statement is
Speaker 1: basically just the balance sheet of what we spend in
Speaker 1: a day as a government and what we take in
Speaker 1: in a day. So let's just pick a day at
Speaker 1: random that's featured in this article. Okay, let's say October. Okay,
Speaker 1: October three of last year, not too long ago. It's
Speaker 1: a third a The sun was shining here in Atlanta.
Speaker 1: The federal government took in about a hundred and ten
Speaker 1: billion and revenue. We were in Los Angeles. Yeah, the
Speaker 1: sun was shining there. Took it in about a hundred
Speaker 1: and ten billion dollars from things like massive amounts of
Speaker 1: taxes that we have to pay my words, bailout loan
Speaker 1: payments from tarp uh selling old jet planes and things
Speaker 1: and guns to other countries, about twenty seven million dollars
Speaker 1: made on that day alone. Uh. And then we spent
Speaker 1: a hundred and forty three billion dollars. So if we
Speaker 1: took in a hundred and ten and we spent a
Speaker 1: hundred and forty three billions, and we spent a hundred
Speaker 1: and forty three on hundreds, if not thousands, of programs
Speaker 1: just all sorts of everything from Social Security to think
Speaker 1: made up the lions share of the the spending that day,
Speaker 1: which was billion um down to tax refunds and not
Speaker 1: just programs, but like you know, the electric bill at
Speaker 1: the White House, right exactly, paying the private in the army. Yes,
Speaker 1: like you know, everything the government pays for, which includes
Speaker 1: a lot of programs. Uh. So that is a difference
Speaker 1: of thirty three billion dollars in that one day, A
Speaker 1: bad a negative difference, right, So that's a deficit we
Speaker 1: ran on that day. We ran a deficit, which is
Speaker 1: not unusual. Thirty three billion dollar deficit on October three. Okay,
Speaker 1: So the rest of the three d and sixty four
Speaker 1: days of that year fiscal or otherwise calendar, even if
Speaker 1: we didn't let's say we had a day where we
Speaker 1: ran a surplus. Um. You take all of those together,
Speaker 1: You take your surpluses and your deficits for all those days,
Speaker 1: and you add them up, and you have whether you
Speaker 1: have a surplus or a deficit for the year. If
Speaker 1: everything equals out, you have what's called the balanced budget
Speaker 1: for that year, which is just doesn't happen, not not
Speaker 1: very frequently. No, I don't see I haven't seen any balance.
Speaker 1: I've seen like for the most part, though, we've been
Speaker 1: in a death sit especially since um, well for many
Speaker 1: many years. Well I've got some numbers actually, uh in
Speaker 1: and this I'm not saying this president is good. This
Speaker 1: president is bad because Congress in the House have probably
Speaker 1: more to do with it than the president does. Well.
Speaker 1: Not only that, it's possible some presidents have inherited the
Speaker 1: the benefits of policies from other presidents, like economists don't know. Yeah,
Speaker 1: like it very contentious to man when people start I
Speaker 1: read a few articles. It's really pretty interesting to see
Speaker 1: people's takes on the economies of the presidency. But in ninete, regardless, uh,
Speaker 1: Bill Clinton inherited a two hundred and fifty five billion
Speaker 1: dollar deficit. Uh. In two starting, we had the first
Speaker 1: budget surplus since nineteen sixty nine, and then two years
Speaker 1: later in two thousand, we hit the high water mark
Speaker 1: of two hundred already six billion dollars surplus in two thousand.
Speaker 1: I mean, that's mind boggling these days. Yeah, man, to
Speaker 1: think about that. That means that the government, after paying
Speaker 1: all of its bills, still had two hundred and thirty
Speaker 1: six billion dollars left over. Yeah. And and people today
Speaker 1: still are like Clinton got lucky because the internet boom
Speaker 1: or no. Clinton's policies were wide or no, it was
Speaker 1: the Republican controlled house in Congress that forced him. It
Speaker 1: was it was kind of a lot of stuff. I
Speaker 1: think the rational approaches, There was a lot of stuff. Regardless,
Speaker 1: those were great years. Uh. And then so in two
Speaker 1: thousand and two hundred thirty six billion dollars surplus. Clinton
Speaker 1: left office with a hundred and twenty seven billion dollars surplus,
Speaker 1: and just a year later we had a hundred and
Speaker 1: fifty seven billion dollar deficit. And by the time Obama
Speaker 1: came into office in two thousand nine, we had a
Speaker 1: one point two trillion dollar deficit when he came into office. Yes,
Speaker 1: and now it's at about seven fifty nine billion, depending
Speaker 1: on what numbers you look at. That's just the deficit,
Speaker 1: not the national debt. Okay, all right, So this is
Speaker 1: this is a very big point of um clarification that
Speaker 1: we need to make. That's the annual budget, right, Yeah,
Speaker 1: that's the deficit. Now, when you take all of those
Speaker 1: annual budgets over all the years, all the money we've
Speaker 1: ever owed, all the money we've ever came out on
Speaker 1: top with, come out on top with, and you put
Speaker 1: it all together, you have what's called the national debt. Yeah,
Speaker 1: that's basically the money we borrow to cover those losses.
Speaker 1: If if we ever had if you ever took all
Speaker 1: of those years together and we had a surplus, then
Speaker 1: you would call it the national surplus. I don't think
Speaker 1: that's ever happened, or ever will happen. I don't think
Speaker 1: that's ever happened. Yeah, since we started borrowing money, even
Speaker 1: though we've had budget surpluses, right, because let's say we've
Speaker 1: we've had a good year two fifty billion dollars surp
Speaker 1: us year. That's a great year, but we also maybe
Speaker 1: had five trillion dollars in national debt that that had
Speaker 1: to be thrown at. Right, So, when you take all
Speaker 1: of those deficits, in all the surpluses, and you add
Speaker 1: them all together, what you come up with is how
Speaker 1: much in the hole the United States is, and that
Speaker 1: is the national debt. And as it stands right now,
Speaker 1: it's add about seventeen trillion, two hundred and eighty two billion,
Speaker 1: five hundred and seventy five million, zero forty four thousand,
Speaker 1: seven hundred and fifty five dollars and thirty five cents.
Speaker 1: That's as of January two thousand, fourteen, and with every
Speaker 1: minute getting more and more so it's tired now than
Speaker 1: it was when you read it, which is a pretty
Speaker 1: significant amount, especially if you consider that in two thousand
Speaker 1: it was at about five trillion. Yeah, you know a
Speaker 1: number is bad when you have to look at it
Speaker 1: from right to left and counting to zeros, like I
Speaker 1: gotta see what the thousands of millions of billions? Okay,
Speaker 1: oh that's trillions. Yeah, so if you if you think
Speaker 1: about that, I mean, think about that, chuck in. In
Speaker 1: just fourteen years, like we've gone up well over twelve
Speaker 1: trillion dollars in debt, twelve trillion dollars, our national debt
Speaker 1: has increased by that much. And so now we kind
Speaker 1: of come to my intro again, if you'll indulge me
Speaker 1: for a second, if you look at the increase. Right,
Speaker 1: of course, there were there were two wars that we
Speaker 1: fought there EXPI that definitely did that didn't help anything
Speaker 1: at all. Like it started, Flint was not at war.
Speaker 1: So that was a lot of people to say, you know,
Speaker 1: those were eight peaceful years. I think they call it
Speaker 1: a piece okay, Yeah. Clayton preferred the surgical um air strike.
Speaker 1: That was his big thing, rather than troops and relying
Speaker 1: on though. Um. But it was so wars they cost
Speaker 1: quite a bit of money, so we were fighting not one,
Speaker 1: but two wars. Then all of a sudden you have
Speaker 1: the global markets just go into the toilet. And now
Speaker 1: all of a sudden, you have a lot of people
Speaker 1: who are unemployed, which means your tax revenue goes down,
Speaker 1: and you have in the in the office a president
Speaker 1: who believes in spending your way out of a crisis,
Speaker 1: a debt crisis. And this is why the Tea Party
Speaker 1: hijacked the the debt ceiling because a lot of people
Speaker 1: are saying, we don't agree with you. There's a lot
Speaker 1: of people who believe in austerity, which is you cut
Speaker 1: government spending to get your way out of a crisis. Um.
Speaker 1: And if you look at Greece, that pretty much proved
Speaker 1: that you can't do that, that it will just completely
Speaker 1: destroy your economy and possibly your entire government. And that
Speaker 1: was actually based on a paper by a couple of economists,
Speaker 1: um who came out with this data that any government
Speaker 1: whose debt to income ratio was if your debt was
Speaker 1: you GDP, you didn't grow as fast and so all
Speaker 1: of a sudden you had all these people saying austerity, austerity,
Speaker 1: And then it turned out that this grad student from
Speaker 1: I believe m y u Um got ahold of the
Speaker 1: original data set and basically saw that they didn't carry
Speaker 1: like a zero and got an incorrect thing. And the
Speaker 1: the government of Greece almost toppled because of this incorrect paper. Yeah,
Speaker 1: but at the time, there are a lot of people saying, well,
Speaker 1: first of all, we don't agree with deficit spending as
Speaker 1: a means of getting out of an economic problem. Um.
Speaker 1: But also you have some other people saying we maybe
Speaker 1: that works, maybe it doesn't. History hasn't proven that yet.
Speaker 1: We still think as twelve trillion dollar increase in the
Speaker 1: national deficit is too much, so we need to curb
Speaker 1: this runaways spending. And one way to do that is
Speaker 1: to target the debt ceiling. Yeah, and debt ceiling, I
Speaker 1: don't even think we've even said specifically, is basically the
Speaker 1: maximum amount of of deficit that we can incur. And
Speaker 1: we literally it's got a ceiling. When we borrow or
Speaker 1: when we have a deficit that hits that, we're at
Speaker 1: the debt ceiling. And the only way to to change
Speaker 1: that is, uh for Congress, like we said, to to
Speaker 1: raise the debt ceiling, which has happened, Um, how many
Speaker 1: times I think at least a hundred times since it started. Well,
Speaker 1: since nineteen sixty they voted seventy eight times. So let's
Speaker 1: call that modern times. Yeah, because okay, So, no matter
Speaker 1: what your politics are, no matter what's going on, no
Speaker 1: matter whose president, this is the way the federal government
Speaker 1: is set up. You have a bunch of money going out.
Speaker 1: You have a bunch of money coming in, usually in
Speaker 1: the form of income tax or like you said, selling
Speaker 1: old fighter jets or that kind of thing. Um, And
Speaker 1: the amount you have coming in very very rarely seeds
Speaker 1: the amount you're putting out. So there's two things you
Speaker 1: can do. You can increase your income, or you can
Speaker 1: cut your spending and raise taxes right so, um the well,
Speaker 1: increasing income by raising taxes right exactly, or you can
Speaker 1: cut your spending. We have two political parties. One is
Speaker 1: completely attached to not increasing taxes, the other one is
Speaker 1: completely attached to not cutting spending, especially on entitlement programs.
Speaker 1: So it doesn't matter who's in office these days. The
Speaker 1: way that things operate is you just go borrow more money.
Speaker 1: That's how you fund the government. That's how it's been done,
Speaker 1: that's how you've gotten around the politics to this point. Yeah,
Speaker 1: and we could, you know, Congress could erase that, you
Speaker 1: know by like you said, raising taxes that's not popular,
Speaker 1: or cutting spending and that that's not popular. So it's
Speaker 1: really kind of a bad situation. So what we have
Speaker 1: is the U. S. Treasury, which issues death that's right,
Speaker 1: US Treasury securities to people regular old schmos. Well not
Speaker 1: regular lord schmos. No, we can well, that's true, that's true.
Speaker 1: You can go buy a US Treasury bond, banks, corporations, governments. UM.
Speaker 1: It's basically a very low interest rate loan and uh,
Speaker 1: you know, up until recently a very very safe one, right,
Speaker 1: and you would still think it's pretty safe. But you know,
Speaker 1: that could go off the cliff. It could. And that
Speaker 1: was the big problem in October of two thousand thirteen
Speaker 1: is a lot of people were saying, like, um, we're
Speaker 1: gonna default on our loan obligations. Yeah, we'll get to
Speaker 1: that though, because that's the bad news at the end.
Speaker 1: This is the bad news in the middle. Uh, China
Speaker 1: and Japan, for instance, UM each owned more than a
Speaker 1: trillion dollars in Treasury securities as of July last year,
Speaker 1: So a lot of people borrow money from the United
Speaker 1: States at pretty low rates. I think it's it's worth
Speaker 1: explaining again, like a Treasury bond, is you chuck going
Speaker 1: to buy going to the U. S. Government saying here,
Speaker 1: I'll give you some money. You give me a promisory
Speaker 1: note that says you'll repay it with a little bit
Speaker 1: extra big right at the at the end when this
Speaker 1: thing matures, and the government says, thanks, we're gonna take
Speaker 1: this money and we're going to use it to pay
Speaker 1: our bills. Because Congress is going over and saying, yes,
Speaker 1: we want to keep our national parks open, and we
Speaker 1: want to um, we want to fund um like security whatever, um.
Speaker 1: And we have bills to pay. So thanks for the money.
Speaker 1: We're gonna pay the bills because that's what Treasury does.
Speaker 1: Congress spend the money. Treasury pays the money, and if
Speaker 1: you're under that ceiling, then it's it's it's all good. Yeah,
Speaker 1: it's fine, just figure out a way to pay the bills.
Speaker 1: And it's just like a big company. And Treasury also
Speaker 1: has more than one financial security. They have all sorts
Speaker 1: of ones that different that mature at different times and
Speaker 1: all that, and um, they do a pretty good job
Speaker 1: of figuring out how to raise money. But the problem
Speaker 1: is for every Treasury bill that they sell, Chuck, that's
Speaker 1: that much more in debt. The federal government has just
Speaker 1: gone yeah, okay with the debt ceiling. Like you said,
Speaker 1: there is a certain limit to the amount of outstanding
Speaker 1: debt the Treasury Department can issue, and it's just like
Speaker 1: a credit card limit to an extent. Yeah, there's there's
Speaker 1: one pretty big difference is um. But it is a
Speaker 1: helpful way to think about it because most people have
Speaker 1: credit cards. But the bank sets your credit card limit
Speaker 1: because they say, Josh, you know you're risky as a spender.
Speaker 1: We don't want to give you a credit card more
Speaker 1: than like Tim Grant. Let's say, yeah, so the bank
Speaker 1: puts the cap on it. There. Um. On the other
Speaker 1: side of the coin, foreign governments that by treasury securities
Speaker 1: are like, I'll take all you got basically, so it's
Speaker 1: a reliable investment. And the credit limit is imposed by
Speaker 1: the borrow instead of the lender. Right, that's the big
Speaker 1: difference with with your credit card. It's the person lending
Speaker 1: you the money that wants to say that that says no,
Speaker 1: you can't borrow anymore. With the debt ceiling, it's us
Speaker 1: saying no, we can't. We can't go borrow anymore. We
Speaker 1: could issue as much as we wanted, and people would
Speaker 1: buy teabills all day long because they're so safe. That's right,
Speaker 1: supposedly or at the moment they are. All right, you
Speaker 1: want to talk about the history a little bit, Well,
Speaker 1: hold one, before we talk history, let's do a message
Speaker 1: break real quick, okay, And now we are talking about
Speaker 1: the history of the death ceiling, right. I think that's
Speaker 1: where we left off. Back in the day, UM, Congress
Speaker 1: used to be a little tighter with this, a lot tighter.
Speaker 1: In fact, we could not sell securities without explicit approval.
Speaker 1: UH Treasury wanted to borrow some money, so Congress would say, Hey,
Speaker 1: what kind of security should we sell? Large or small?
Speaker 1: What should the interest rate be? Um? How many should
Speaker 1: we sell? And they kind of worked it out that
Speaker 1: way up until UH war In War Revenue Act of
Speaker 1: basically said, you know what, in times of war, we
Speaker 1: need to loosen the chains a little bit, and let's
Speaker 1: say we can borrow up to five hundred million dollars
Speaker 1: by some of these securities to fund the Spanish American War, right,
Speaker 1: And then after that they were like, okay, that worked,
Speaker 1: but let's just leave that be. And then there was
Speaker 1: World War One, and there was the First and Second
Speaker 1: Liberty Bonds Acts, which basically did the same thing to
Speaker 1: help fund World War One, and it worked really well.
Speaker 1: And the secretaries of the Treasury, um, I think Andrew
Speaker 1: Carnegie Mellon. Andrew Mellon, Yeah, you can understand why I
Speaker 1: would be confused there, um. And Henry Morgan Thou later
Speaker 1: on in the nineteen twenties and thirties basically said why
Speaker 1: not just do this to fund the government as as
Speaker 1: a whole instead of just in times of war? And
Speaker 1: now today, if you could go back and sit down
Speaker 1: with him, you could say, because it gets out of
Speaker 1: control when you do, because it's right. Um. But they
Speaker 1: got uh was it Franklin? Yeah, fdr Yeah, they got
Speaker 1: Roosevelt on on board, and they got Congress to pass
Speaker 1: this for the first time ever, an aggregate debt limit,
Speaker 1: which is all the debts that the U s ode
Speaker 1: as long as it was beneath a certain amount um.
Speaker 1: The Treasury could do whatever it wanted to pay its
Speaker 1: bills as long as it didn't need to borrow any
Speaker 1: more than that. And that was the first time that
Speaker 1: a debt ceiling was ever set in nine I think, yeah,
Speaker 1: thirty nine, and that was It's pretty similar to kind
Speaker 1: of the debt ceiling that we have today. Not too different. Uh,
Speaker 1: Congress approved spending. Treasury figures out how to pay for
Speaker 1: it all. As long as you're under that, it's all good.
Speaker 1: The problem is when you bump up against it, like
Speaker 1: we've been doing over and over again lately, it seems like, yeah, so,
Speaker 1: like you said, that is a problem, you just vote
Speaker 1: to raise it. Yes, and again. This has been pretty routine.
Speaker 1: You know, a hundred times since the the the nineteen thirties,
Speaker 1: a hundred times these things been lifted. Um, and you
Speaker 1: just say, okay, well, just go issue some more debt.
Speaker 1: People want the debt, people want to lend us money,
Speaker 1: So go issue some more debt and we can keep
Speaker 1: paying our bills. Because here's the thing with the debt ceiling.
Speaker 1: When you raise the debt ceiling, a lot of people
Speaker 1: are like, well, if you don't raise the debt ceiling,
Speaker 1: it curbs spending. That's true. Indirectly, what the Treasury is
Speaker 1: doing is paying for stuff that we've already received on credit,
Speaker 1: whether it's you know, meals for soldiers from a private
Speaker 1: contractor to you know, a bunch of like Boeing jets, whatever,
Speaker 1: We've already received these things, and now Treasury has to pay.
Speaker 1: So if if you don't extend the debt ceiling, then
Speaker 1: you're defaulting on uh payments. You have to make bills,
Speaker 1: you have to pay, just like you your credit card exactly.
Speaker 1: And that's not good. And it's kind of the same
Speaker 1: thing happens really if we default. Uh, Well, here's what happens.
Speaker 1: If we don't raise the debt ceiling and we are
Speaker 1: in danger of defaulting, we uh defaulting would basically start
Speaker 1: raising all other interest rates across the board, well, the
Speaker 1: Marke loan rates, UH, basically anything your average Joe would
Speaker 1: go and get alone for your your rates are going
Speaker 1: to go up, right, And the reason why is because
Speaker 1: the ten year Treasury note um is what the home
Speaker 1: loan rates are tied to. And if the value or
Speaker 1: the credit rating of a T bill goes down, then
Speaker 1: the people who are lending money and return for a
Speaker 1: T bill are going to be able to say, like, yeah,
Speaker 1: I'll give you some money, but you're a little more
Speaker 1: risky than you were before. So I want to hire
Speaker 1: percentage rate and interest, which means it's more expensive for
Speaker 1: the government to borrow money. And if the percentage of
Speaker 1: interest goes up on the T bill, anything that's attached
Speaker 1: to that, like home loans, business loans go up as well,
Speaker 1: which means what well, that means everybody suffers and the
Speaker 1: whole country goes into an economic drag and maybe even worse. Yeah,
Speaker 1: it could get a lot worse. Did you see that
Speaker 1: that thing I sent to you from Forbes. Yeah, so
Speaker 1: a lot of people were saying in October, like, oh,
Speaker 1: going over defaulting on our debt, that's not that big
Speaker 1: of a deal. You know, it's a colossal deal. It
Speaker 1: doesn't matter what your politics are. One thing could happen
Speaker 1: is we could actually lose our credit triple a credit rating,
Speaker 1: which would be horrible. It would be horrible because people
Speaker 1: who buy TEA bills would be able to say, I
Speaker 1: want to hire interest, right, yeah, they still want to
Speaker 1: borrow the money. They would just stick it to us,
Speaker 1: right right. But the thing is to make it more
Speaker 1: attractive because fewer people would want to borrow money, so
Speaker 1: to make it more attractive, the government would have to
Speaker 1: raise interest rate on what it paid back. Right um,
Speaker 1: Also the T bills. If everything just went off the
Speaker 1: cliff and and the government said, you know what, we
Speaker 1: can't pay back this debt, any T bill you hold
Speaker 1: would be as valueless as any other T bill. No
Speaker 1: one would know what they were maybe going to eventually
Speaker 1: repay what was worth what they so they would all
Speaker 1: in effect become worthless. The problem is not only do
Speaker 1: entire federal govern or foreign governments rely on tea bills
Speaker 1: for you know, their reserves, so do banks. Banks also
Speaker 1: used T bills as collateral for overnight loans. Sometimes companies
Speaker 1: cash them in because they need to be more liquid.
Speaker 1: Right So, there's a lot of use of T bills
Speaker 1: that's totally entrenched in the economy. And if all of
Speaker 1: a sudden they went valueless because the government defaulted on
Speaker 1: its loans obligations on its debt, then that would be
Speaker 1: that like the the entire banking system would lose at
Speaker 1: least a third of its collateral it's it's reserves, and
Speaker 1: they would actually probably be hold holding these things illegally
Speaker 1: so they'd have to get rid of them, so they'd
Speaker 1: be selling these things off for whatever they could, and
Speaker 1: a genuine collapse of the markets. Whereas this Ford writer
Speaker 1: puts it, um it would make the what happened in
Speaker 1: two thousand and eight after the Lehman debacle look like
Speaker 1: a children's exercise. It would be catastrophic cats and dogs
Speaker 1: living together. And that's really not hyperbole, Like that's obviously
Speaker 1: the worst case scenario. But the point is these T
Speaker 1: bills are so entrenched in the global economy. They'd just
Speaker 1: be if they became valueless, so too would the global economy. Yeah,
Speaker 1: I wonder how you regain your credit rating. I don't know, sure,
Speaker 1: it's probably much the same as an individual, you know.
Speaker 1: Uh So, one thing that would happen if we decided
Speaker 1: not to raise the debt ceiling is Congress would have
Speaker 1: to operate within a budget, which means the things that
Speaker 1: we were talking about before, like huge spinning cuts or
Speaker 1: raising taxes both probably or both. And that's just tricky politics.
Speaker 1: People would get upset, like what programs do you cut?
Speaker 1: Whose taxes do you raise? It's just a very dangerous game.
Speaker 1: They'd be very very deep cuts too. Yeah, and the
Speaker 1: problem is is any time, um, the federal government makes
Speaker 1: huge cuts so to do corporations, and then all of
Speaker 1: a sudden, unemployment goes up, so you have to raise
Speaker 1: taxes even further because there's fewer people who are employed
Speaker 1: paying taxes, and or they may fall onto the teeth
Speaker 1: of the government as well. Yeah, because they're unemployed. Yeah. Man,
Speaker 1: should we be worried, No, because they're going to vote
Speaker 1: to raise the dead every time. Yeah, there's no way
Speaker 1: that they would ever default. It would just be too again,
Speaker 1: catastrophically bad. Yeah. I think though, you can be worried
Speaker 1: about continuing on like this. Yeah, I mean that has
Speaker 1: to pay. Uh, you gotta pay it at some point
Speaker 1: down the road. Yeah. You know. Um, there was one
Speaker 1: thing we didn't quite touch on that I think really
Speaker 1: kind of reveals just what a big shell game this is. Right. So, again,
Speaker 1: if you don't want to raise taxes and you don't
Speaker 1: want to cut um programs, you just go to the
Speaker 1: treasury to get more money. Well, if the treasury doesn't
Speaker 1: have that much more money, you can also go to
Speaker 1: your own accounts and take whatever you can. So Social Security,
Speaker 1: for example, there's a trust fund and you're not allowed
Speaker 1: to take from Social Security except to a certain amount. Right,
Speaker 1: So say social Security at any time has to have
Speaker 1: two billion dollars. What that's a ridiculously low number. Let's
Speaker 1: say it's two billion, and then one day social Security
Speaker 1: has two billion, one million and its accounts. Federal government
Speaker 1: takes that extra hundred million because it's over and above
Speaker 1: the legal mandate and then uses it for whatever else. Well,
Speaker 1: it gets social Security from payroll, right from payroll taxes
Speaker 1: through you being employed. So it's another that's basically like
Speaker 1: a hidden tax, that's like a hidden way of generating revenue.
Speaker 1: Increasing social Security tax isn't actually helping social Security, it's
Speaker 1: helping fund this the government. That's just like hemorrhaging money
Speaker 1: left and right. Yeah, it sounds like you know the
Speaker 1: old saying robbing Peter to pay Paul. That's exactly right.
Speaker 1: That's why al Gore was talking about in the two
Speaker 1: thousand election with the famous lock box thing, like put
Speaker 1: social Security in a lockbox, like if it has a surplus,
Speaker 1: you can't touch it. And then that way, so social
Speaker 1: Security will be able to actually pay for the people
Speaker 1: it's supposed to in thirty years rather than being robbed
Speaker 1: to fund the federal government, which won't either raise taxes
Speaker 1: or cut spending or both. Yeah, I think most people.
Speaker 1: I don't know when it's gonna happen, but at some
Speaker 1: point someone's not going to get their Social Security that
Speaker 1: they paid into. Oh yeah, well, I think we're definitely
Speaker 1: in that generation. Think. Yeah, I don't think it's going
Speaker 1: to keep going on much longer, or if we do,
Speaker 1: it'll be such a paltry amount that it'll just be laughable,
Speaker 1: not like other people getting rich office security. Now, well,
Speaker 1: I mean there's no and you certainly can't just live
Speaker 1: on it. And I mean you can't, I'm sure in
Speaker 1: certain parts of the country, but for most people it's
Speaker 1: a supplement to something. But I think it would just
Speaker 1: be like bucks or something for us who knows, I'm depressed,
Speaker 1: don't don't be depressed. Why take action? Yeah, by you know,
Speaker 1: taking care of your own personal finances in spite of
Speaker 1: the government, I guess so. But I mean, yeah, yeah,
Speaker 1: it's weird, And this one is. I think it's great
Speaker 1: because everybody's involved, like all political factions are involved in this,
Speaker 1: and everybody has an opinion, you know, like of how
Speaker 1: to do this best. But I feel like, aside from
Speaker 1: the people who are ready to push this into default, um,
Speaker 1: everybody has an understanding like this is a very fragile
Speaker 1: game of Jenga going on right now, and we could
Speaker 1: conceivably go on like this, but it would be better
Speaker 1: to fix it, but we need to do it surgically. Yeah, jinga,
Speaker 1: that's a good analogy, because the wooden tower feels like
Speaker 1: it's could topple at any moment. Yeah. Okay, so you
Speaker 1: got anything else? Uh nope? All right, Well that was
Speaker 1: the debts you. If you want to learn more about it,
Speaker 1: you can type those words into the search part How
Speaker 1: Stuff Works dot Com. Since I said search far, which
Speaker 1: means it's time for listener mail. That's right. I'm gonna
Speaker 1: call this shout out to my gmo or as he
Speaker 1: calls her momo, his grandmother. Hey guys, I had I
Speaker 1: had your How Dying Works podcast my playlist for quite
Speaker 1: some time now, afraid to listen to your take on
Speaker 1: what is happening in my life at the moment. I
Speaker 1: lost my father to a rare form of cancer at
Speaker 1: the beginning of the summer, and I'm currently caring for
Speaker 1: my grandmother who was in the closing days of her life.
Speaker 1: I'm an avid listener, and when the title appeared on
Speaker 1: my podcast list, I began to avoid the topic. I
Speaker 1: decided to finally listen to your take on the end
Speaker 1: of life today, and I have to let you know
Speaker 1: how much I appreciated your take on death and dying.
Speaker 1: It's a topic that is never far from my mind
Speaker 1: these days, and I found the information you provided both
Speaker 1: informational and uplifting. Thanks for informing me that death is
Speaker 1: a process, not an event. I got a lot of information,
Speaker 1: as I always do from your show, but a surprising
Speaker 1: amount of comfort and reassurance. I also know you guys
Speaker 1: don't do shout outs a lot, but I took the
Speaker 1: challenge at the end of the show seriously. I would
Speaker 1: like to ask if you'd give a shout out to
Speaker 1: my grandmother Mamo. It's a great grandmother name who was
Speaker 1: the person who originally instilled the curiosity and love of
Speaker 1: learning and me that led me to your podcast in
Speaker 1: the first place. Please let her know how grateful I
Speaker 1: am for all the things she's given me, and caring
Speaker 1: for her at the end of her life is the
Speaker 1: greatest gift I could ever ask for. That is from
Speaker 1: Chris Howell. So, Mamo, I hope you're still with us
Speaker 1: and listening. Thank you for raising an awesome grandson and
Speaker 1: instilling that curiosity. And Chris, if Mama was no longer
Speaker 1: with us, then uh godspeed. I hope uh, I hope
Speaker 1: that end process was comforting nice somehow very nice. Yeah,
Speaker 1: thanks Chris, Thanks Mamo. That's some. That was a great one. Yeah,
Speaker 1: that was a good one. If you have something, some
Speaker 1: nice email that will knock our socks off like that,
Speaker 1: you can tweet to us at s y s K podcast.
Speaker 1: You can join us on Facebook dot com, slash stuff
Speaker 1: you Should Know. You can send us a regular old
Speaker 1: email to Stuff Podcast at Discovery dot com, and you
Speaker 1: can hang out with us at our website. It's called
Speaker 1: Stuff you Should Know dot com. For more on this
Speaker 1: and thousands of other topics, is it how stuff works
Speaker 1: dot com With over a hundred thousand titles to choose
Speaker 1: from Audible dot com, as a leading provider of downloadable
Speaker 1: digital audio books and spoken word entertainment. Go to Audible
Speaker 1: podcast dot com, slash no stuff, k N O W
Speaker 1: S t U f F to get a free audio
Speaker 1: book download of your choice when you sign up today.