0:01

Welcome to you. Stuff you should know Fronhouse

0:03

stuff works dot com

0:09

right, and uh, this

0:11

is stuff you should know Financial

0:13

times. Yeah, and you

0:16

know what, Usually I shy away from finance,

0:18

as you know. Yeah,

0:20

this was This was good though, like

0:23

timely and easy

0:25

to understand. And I don't think a

0:27

lot of people. Oh that's

0:29

not true. I don't know how many people I know when

0:31

people say that, I don't think many people. Most people

0:33

don't understand what I understand. But

0:36

I think if you were like me before, you probably

0:38

didn't know what the death ceiling was. And it's really not that difficult.

0:41

I mean, yeah, I had an idea what the death ceiling

0:43

was. It certainly didn't understand the nuts and bolts

0:46

of it. And I also didn't understand

0:48

that it's fairly straightforward the whole thing,

0:50

yeah, or that our company or company,

0:53

how's that proportian slip our country?

0:56

The way they do business is

0:58

just it's it's kind of staggered. Oh, it's

1:00

an enormous shell game. It's pretty weird

1:02

that's being held together with duct tape and bubble gum.

1:05

It's disheartening and frightening and all that stuff.

1:07

So um chuck. The debt ceiling

1:10

has been around for a while, and we'll talk about the history

1:12

of it in a little while, But um, it

1:14

really kind of came into focus in two thousand

1:16

eleven there was a big fight

1:19

over raising the debt ceiling, which to that point

1:22

had happened more than a hundred times

1:24

since the beginning of the twentieth

1:26

century UM,

1:29

and it had been routine at any

1:31

given point in time, like it was just that ceiling

1:34

needs to be raised, Congress says, okay, raise it, and

1:36

that's that. In two eleven

1:39

UM, thanks to a faction

1:41

of the Republican Party known as the Tea Party,

1:44

the this very normal procedure

1:47

or routine i should say procedure of

1:49

raising the death ceiling was basically like held

1:52

up and the therefore

1:55

the function of government was basically

1:57

held hostage. And it happened again in

1:59

two thousand thirteen to even

2:02

greater effect. But um,

2:05

what's crazy to me? After

2:08

understanding and investigating

2:11

what the debt ceiling is and what's

2:13

going on, I'm

2:15

chilled to say that I understand

2:17

it from both sides now, Like I

2:20

get where both sides are coming from

2:22

and why the debt ceiling is this. It

2:24

is literally the full chrome

2:27

on which the entire federal

2:29

government, the entire country, and

2:32

not just the operations of the government, but the

2:34

whole U. S economy, and in turn, the

2:36

global economy sits rests.

2:39

And if you hold up the debt ceiling,

2:43

you hold the entire global

2:45

economy hostage. If you hold up the

2:47

process of raising the debt ceiling, yes, yeah,

2:49

you might hold it up like a buttress. If you

2:51

hold yes, if you're doing that, then your

2:54

back hurts. But that's

2:57

that's the point. That's why it was pretty shrewd

2:59

to target the debt ceiling. But it's not just shrewdness.

3:02

Like I I understand that the

3:04

people who held it up were characterized

3:07

as political terrorists. I think

3:09

even if you take that aside

3:11

or not, like, it was pretty smart that

3:14

to target that, not just

3:16

because that's a great thing to hold hostage, but because

3:18

you can make a case like they're in is

3:21

the greatest symbol or functional

3:23

symbol of all of the problems that

3:25

are plaguing the United States today

3:28

or the solution to all

3:30

of its problems. Man, you are right

3:32

down the middle on this one, aren't you. I I truly

3:34

understand it from both sides. It's really weird. I

3:37

think that's a healthy perspective. I guess so,

3:39

and maybe that's what it is. I'm like, well, I feel healthy,

3:42

healthy perspective. Uh

3:45

yeah, it definitely beats

3:47

uh, hardline partisan

3:51

views on things. I think when it comes to something this

3:54

huge and complicated, Well, the irony

3:57

is that the people who were holding it up or

3:59

about his hardline partisans as you can

4:01

get you know. Yeah, but the

4:03

prospect of attacking the

4:06

debt ceiling and focusing light on it

4:08

is I think a very smart move politically.

4:11

Yeah. So it may not make friends

4:14

on the playground, No, it definitely will

4:16

not. It is effective. Yeah, okay,

4:18

so Chuck, let's talk about this. Let's talk about the debts.

4:20

Let's talk about the federal government in general and how it

4:22

operates. Yeah. There's a thing that I

4:24

didn't know exist until recently. Um, that is

4:26

issued every day called the Daily Treasury Statement.

4:29

And if while we're doing this, this sounds just like a

4:31

company or just like given your own personal

4:33

finance, as as it is, it's just a large

4:35

a lot more zeros, a lot

4:38

more zeros. But it's the principles the exact

4:40

same. Yeah. Um, the daily

4:42

Treasury statement is basically just the balance

4:44

sheet of what we spend

4:46

in a day as a government and what we take

4:49

in in a day. So let's just pick a day

4:51

at random that's featured in this article. Okay,

4:54

let's say October. Okay,

4:56

October three of last year, not

4:58

too long ago. It's a third a The

5:00

sun was shining here in Atlanta. The

5:03

federal government took in about a hundred and ten billion

5:05

and revenue. We were in Los Angeles. Yeah,

5:09

the sun was shining there. Took

5:11

it in about a hundred and ten billion dollars from

5:14

things like massive amounts of taxes

5:16

that we have to pay my

5:18

words, bailout loan payments from

5:20

tarp uh selling

5:23

old jet planes and things

5:25

and guns to other countries, about

5:28

twenty seven million dollars made on that day

5:30

alone. Uh. And then

5:33

we spent a

5:35

hundred and forty three billion dollars. So

5:38

if we took in a hundred and ten and we spent

5:41

a hundred and forty three billions, and we spent a hundred

5:43

and forty three on hundreds,

5:45

if not thousands, of programs

5:50

just all sorts of everything from Social

5:52

Security to think made up the lions

5:54

share of the the spending that day, which

5:56

was billion um

5:59

down to tax refunds and not just programs,

6:02

but like you know, the electric

6:04

bill at the White House, right exactly, paying

6:06

the private in the army. Yes, like

6:09

you know, everything the government pays for, which

6:11

includes a lot of programs. Uh.

6:14

So that is a difference of thirty

6:16

three billion dollars in that one day,

6:19

A bad a negative difference, right,

6:22

So that's a deficit we ran

6:24

on that day. We ran a deficit, which

6:26

is not unusual. Thirty three billion

6:28

dollar deficit on October three. Okay,

6:31

So the rest of the three d and

6:33

sixty four days of that year fiscal

6:35

or otherwise calendar, even

6:38

if we didn't let's say we had a day where we ran a

6:40

surplus. Um. You

6:42

take all of those together, You take your

6:45

surpluses and your deficits for all those

6:47

days, and you add them up, and

6:49

you have whether you have a surplus

6:51

or a deficit for the year. If everything

6:54

equals out, you have what's called the balanced budget for

6:56

that year, which is just doesn't happen,

6:58

not not very frequently. No, I don't

7:00

see I haven't seen any balance. I've seen like

7:05

for the most part, though, we've been in a death

7:08

sit especially since um,

7:10

well for many many years. Well I've got some numbers

7:12

actually, uh in and

7:15

this I'm not saying this president

7:17

is good. This president is bad because Congress

7:19

in the House have probably more

7:21

to do with it than the president does. Well. Not only that,

7:23

it's possible some presidents have inherited

7:26

the the benefits of policies from

7:28

other presidents, like economists don't know. Yeah,

7:31

like it very contentious to man when people

7:33

start I read a few articles. It's

7:35

really pretty interesting to see people's

7:37

takes on the economies of the presidency.

7:40

But in ninete, regardless, uh,

7:42

Bill Clinton inherited a two

7:44

hundred and fifty five billion dollar deficit. Uh.

7:48

In two starting, we

7:50

had the first budget surplus since nineteen

7:53

sixty nine, and then two

7:55

years later in two thousand, we hit

7:57

the high water mark of two

7:59

hundred already six billion dollars surplus

8:01

in two thousand. I

8:04

mean, that's mind boggling these days. Yeah,

8:06

man, to think about that. That means that the government,

8:09

after paying all of its bills, still

8:11

had two hundred and thirty six billion dollars

8:13

left over. Yeah. And and people today

8:16

still are like Clinton got lucky because

8:18

the internet boom or no. Clinton's policies

8:20

were wide or no, it was the Republican

8:22

controlled house in

8:24

Congress that forced him.

8:26

It was it was kind of a lot of stuff. I

8:29

think the rational approaches, There

8:31

was a lot of stuff. Regardless, those were

8:33

great years. Uh. And then so

8:35

in two thousand and two hundred thirty six billion dollars surplus.

8:40

Clinton left office with a hundred and twenty seven

8:42

billion dollars surplus, and just a

8:44

year later we had a hundred and fifty seven

8:46

billion dollar deficit. And

8:48

by the time Obama came into office in two

8:50

thousand nine, we had a one point

8:53

two trillion dollar deficit when

8:55

he came into office. Yes, and now it's

8:57

at about seven fifty nine billion,

9:00

depending on what numbers you look at. That's just the deficit,

9:03

not the national debt. Okay,

9:05

all right, So this is this is a very

9:07

big point of um clarification

9:09

that we need to make. That's the

9:12

annual budget, right, Yeah,

9:14

that's the deficit. Now,

9:17

when you take all of those annual budgets

9:20

over all the years, all the money

9:22

we've ever owed, all the money we've ever came out

9:24

on top with, come out on top with, and

9:26

you put it all together, you

9:29

have what's called the national debt.

9:31

Yeah, that's basically the money we borrow to cover

9:33

those losses. If if we ever

9:37

had if you ever took all of

9:39

those years together and we had a surplus, then

9:41

you would call it the national surplus. I

9:43

don't think that's ever happened, or ever will

9:46

happen. I don't

9:48

think that's ever happened. Yeah,

9:51

since we started borrowing money, even though we've

9:53

had budget surpluses, right, because

9:55

let's say we've we've had a good year two

9:58

fifty billion dollars surp us

10:00

year. That's a great year, but

10:03

we also maybe had five trillion dollars in

10:05

national debt that that had to be

10:07

thrown at. Right, So, when

10:10

you take all of those deficits, in all the surpluses,

10:12

and you add them all together, what you come up with is

10:14

how much in the hole the United States is,

10:17

and that is the national debt. And as it

10:19

stands right now, it's

10:21

add about seventeen

10:23

trillion, two hundred and eighty

10:25

two billion, five hundred

10:28

and seventy five million,

10:31

zero forty four thousand,

10:34

seven hundred and fifty five dollars

10:36

and thirty five cents. That's

10:39

as of January two thousand, fourteen,

10:41

and with every minute getting more and more

10:44

so it's tired now than it was when you read it, which

10:47

is a pretty significant amount, especially

10:50

if you consider that in two thousand

10:53

it was at about five trillion. Yeah,

10:55

you know a number is bad when you have to look at

10:57

it from right to left and

11:00

counting to zeros, like I gotta

11:02

see what the thousands of millions of billions?

11:04

Okay, oh that's trillions. Yeah,

11:07

so if you if you think about that, I mean, think

11:09

about that, chuck in. In just fourteen

11:11

years, like we've gone up

11:14

well over twelve

11:17

trillion dollars in

11:19

debt, twelve trillion

11:21

dollars, our national debt has increased

11:24

by that much. And

11:27

so now we kind of come to my

11:29

intro again, if you'll indulge me for a second,

11:33

if you look at the increase.

11:35

Right, of course, there were there were two wars

11:38

that we fought there EXPI

11:41

that definitely did that didn't help

11:43

anything at all. Like it started, Flint

11:45

was not at war. So that was a lot of people to say,

11:47

you know, those were eight peaceful years. I

11:49

think they call it a piece okay,

11:53

Yeah. Clayton preferred the surgical um

11:56

air strike. That was his big thing, rather

11:58

than troops and relying on though. Um.

12:01

But it was so wars

12:04

they cost quite a bit of money, so we were

12:06

fighting not one, but two wars. Then

12:08

all of a sudden you have the global markets

12:11

just go into the toilet. And now

12:13

all of a sudden, you have a lot of people

12:16

who are unemployed, which

12:18

means your tax revenue goes down, and

12:21

you have in the in the office

12:25

a president who believes in

12:28

spending your way out of a

12:31

crisis, a debt crisis. And

12:34

this is why the Tea Party hijacked the

12:37

the debt ceiling because

12:39

a lot of people are saying, we don't

12:41

agree with you. There's a lot of people who believe

12:43

in austerity, which is you cut government

12:46

spending to get your way out of

12:48

a crisis. Um. And if you look at

12:50

Greece, that pretty much proved

12:52

that you can't do that, that it will just completely

12:54

destroy your economy and possibly your entire

12:56

government. And that was actually based

12:59

on a paper by a couple of

13:01

economists, um

13:03

who came out with this data that

13:06

any government whose

13:08

debt to income ratio was if

13:11

your debt was you GDP, you

13:13

didn't grow as fast and so all of a sudden

13:15

you had all these people saying austerity, austerity,

13:18

And then it turned out that this grad student

13:20

from I believe m y u Um

13:23

got ahold of the original data set and basically

13:25

saw that they didn't carry like a zero and

13:27

got an incorrect thing. And the

13:30

the government of Greece almost

13:32

toppled because of this incorrect paper.

13:35

Yeah, but at the time, there

13:37

are a lot of people saying, well, first of all, we don't

13:39

agree with deficit spending

13:42

as a means of getting out of an economic

13:44

problem. Um. But also

13:46

you have some other people saying we

13:49

maybe that works, maybe it doesn't. History hasn't

13:52

proven that yet. We still think as twelve

13:54

trillion dollar increase in the national deficit

13:56

is too much, so we need

13:58

to curb this runaways spending. And

14:02

one way to do that is to

14:04

target the debt ceiling. Yeah, and debt

14:06

ceiling, I don't even think we've even said specifically,

14:09

is basically the maximum

14:11

amount of

14:13

of deficit that we can incur. And

14:16

we literally it's got a ceiling. When

14:18

we borrow or when we have a deficit that

14:20

hits that, we're at the debt ceiling. And the only

14:22

way to to change that is,

14:25

uh for Congress, like we said, to

14:27

to raise the debt ceiling, which has happened, Um,

14:30

how many times I think at least a hundred

14:32

times since it started. Well, since

14:34

nineteen sixty they voted seventy

14:36

eight times. So let's call that modern

14:39

times. Yeah, because okay, So, no matter

14:41

what your politics are, no matter what's going on,

14:43

no matter whose president, this

14:45

is the way the federal government is set up. You have a bunch

14:47

of money going out. You have a bunch of money

14:49

coming in, usually in the form of income tax

14:52

or like you said, selling old fighter jets or

14:54

that kind of thing. Um, And

14:56

the amount you have coming in very

14:58

very rarely seeds the amount you're

15:01

putting out. So there's two things you can do.

15:03

You can increase your income, or

15:06

you can cut your spending and raise taxes

15:08

right so, um the well, increasing

15:11

income by raising taxes right exactly, or

15:13

you can cut your spending. We have two political

15:15

parties. One is completely attached

15:17

to not increasing taxes,

15:20

the other one is completely attached to

15:23

not cutting spending, especially on entitlement

15:25

programs. So it doesn't

15:27

matter who's in office these days. The

15:30

way that things operate is you just go borrow

15:32

more money. That's how you fund the government.

15:35

That's how it's been done, that's how you've gotten

15:37

around the politics to this point. Yeah,

15:41

and we could, you know, Congress could erase that, you

15:43

know by like you said, raising

15:45

taxes that's not popular, or

15:47

cutting spending and that that's not popular. So

15:50

it's really kind of a bad situation. So what

15:52

we have is the U. S. Treasury,

15:54

which issues death that's

15:57

right, US Treasury securities

15:59

to people regular old schmos.

16:02

Well not regular lord schmos. No,

16:04

we can well, that's true, that's true. You can go buy

16:06

a US Treasury bond, banks,

16:09

corporations, governments. UM.

16:11

It's basically a very low interest rate loan

16:14

and uh, you know, up

16:17

until recently a very very safe

16:19

one, right, and you would still think it's pretty

16:21

safe. But you know, that could go off the

16:23

cliff. It could. And that was the big problem

16:26

in October of two thousand thirteen

16:28

is a lot of people were saying, like, um, we're

16:30

gonna default on our loan obligations.

16:33

Yeah, we'll get to that though, because that's the

16:35

bad news at the end. This is

16:37

the bad news in the middle. Uh, China

16:40

and Japan, for instance, UM each owned

16:42

more than a trillion dollars in Treasury

16:44

securities as of July last year,

16:48

So a lot of people borrow

16:50

money from the United States at pretty low

16:52

rates. I think it's it's worth

16:54

explaining again, like a Treasury

16:57

bond, is you chuck

16:59

going to buy going to the U.

17:01

S. Government saying here, I'll give you some money.

17:04

You give me a promisory note that says

17:06

you'll repay it with a little bit extra

17:09

big right at the at the end when

17:11

this thing matures, and the government says,

17:13

thanks, we're gonna take this money and we're

17:15

going to use it to pay our bills. Because

17:18

Congress is going over and saying, yes, we

17:20

want to keep our national parks open, and we

17:22

want to um, we want to fund

17:25

um like security whatever,

17:28

um. And we have bills to pay. So

17:30

thanks for the money. We're gonna pay the bills because

17:32

that's what Treasury does. Congress spend the money.

17:34

Treasury pays the money, and if you're under that ceiling,

17:37

then it's it's it's all good. Yeah, it's

17:39

fine, just figure out a way to pay the bills. And it's

17:41

just like a big company. And Treasury also has

17:43

more than one financial security. They have all

17:45

sorts of ones that different that mature

17:47

at different times and all that, and

17:50

um, they do a pretty

17:52

good job of figuring out how

17:54

to raise money. But the

17:56

problem is for every Treasury

17:58

bill that they sell, Chuck, that's

18:01

that much more in debt. The federal

18:03

government has just gone yeah, okay

18:06

with the debt ceiling. Like you said, there is a

18:08

certain limit to the

18:11

amount of outstanding debt the Treasury

18:13

Department can issue, and it's just

18:15

like a credit card limit to

18:17

an extent. Yeah, there's there's

18:20

one pretty big difference is um.

18:22

But it is a helpful way to think about it because most

18:24

people have credit cards. But the bank sets

18:27

your credit card limit because they say, Josh, you know

18:29

you're risky as a spender. We don't

18:31

want to give you a credit card more than like Tim Grant. Let's

18:33

say, yeah, so the bank puts the cap

18:36

on it. There. Um. On the other side

18:38

of the coin, foreign governments that

18:40

by treasury securities are

18:42

like, I'll take all you got basically,

18:45

so it's a reliable investment. And

18:47

the credit limit is imposed by the borrow instead

18:50

of the lender. Right, that's the big difference with

18:52

with your credit card. It's the person lending

18:55

you the money that wants to say that

18:57

that says no, you can't borrow anymore.

19:00

With the debt ceiling, it's us

19:02

saying no, we can't. We can't go borrow

19:04

anymore. We could issue as much as we

19:06

wanted, and people would buy teabills all day

19:09

long because they're so safe.

19:12

That's right, supposedly or at the moment

19:14

they are. All right, you want to talk about the history

19:16

a little bit, Well, hold one, before we talk history,

19:18

let's do a message break real quick, okay,

19:27

And now we are talking about the history of the death

19:29

ceiling, right. I think that's where we left

19:31

off. Back in the

19:33

day, UM, Congress used to be

19:35

a little tighter with this, a lot tighter.

19:37

In fact, we could not sell

19:39

securities without explicit

19:41

approval. UH Treasury

19:44

wanted to borrow some money, so Congress would

19:46

say, Hey, what kind of security should we sell?

19:49

Large or small? What should the interest rate

19:51

be? Um? How many should we sell?

19:54

And they kind of worked it out that way up until UH

19:57

war In War

19:59

Revenue Act of basically

20:02

said, you know what, in times of war, we need to

20:05

loosen the chains a little bit, and

20:07

let's say we can borrow up to five hundred million

20:09

dollars by some of these securities

20:12

to fund the Spanish American War,

20:14

right, And then after that they were like,

20:16

okay, that worked, but let's just leave

20:18

that be. And then there was World

20:20

War One, and there was the First

20:22

and Second Liberty Bonds Acts, which

20:25

basically did the same thing to help fund

20:27

World War One, and it worked really

20:29

well. And the secretaries of the

20:31

Treasury, um, I think

20:34

Andrew Carnegie Mellon.

20:37

Andrew Mellon, Yeah, you

20:39

can understand why I would be confused there, um.

20:42

And Henry Morgan Thou later on in the nineteen

20:44

twenties and thirties basically said why

20:46

not just do this to fund the government as

20:49

as a whole instead of just in times

20:51

of war? And now today,

20:53

if you could go back and sit down with him, you could

20:55

say, because it

20:58

gets out of control when you do, because it's right.

21:01

Um. But they got uh was

21:03

it Franklin? Yeah, fdr Yeah, they

21:05

got Roosevelt on on board, and

21:08

they got Congress to pass this for

21:11

the first time ever, an aggregate

21:13

debt limit, which is all the debts

21:16

that the U s ode as long

21:18

as it was beneath a certain amount

21:21

um. The Treasury could do

21:23

whatever it wanted to pay its bills as long

21:25

as it didn't need to borrow any more than that. And that was

21:27

the first time that a debt ceiling was ever

21:29

set in nine I think, yeah,

21:31

thirty nine, and that was It's pretty similar

21:34

to kind of the debt ceiling that we have today. Not too

21:36

different. Uh, Congress

21:38

approved spending. Treasury figures out

21:40

how to pay for it all. As long as you're under that, it's

21:42

all good. The problem is when you bump up

21:44

against it, like we've been doing over

21:47

and over again lately, it seems like, yeah, so,

21:50

like you said, that is a problem, you

21:52

just vote to raise it. Yes,

21:55

and again. This has been pretty routine. You

21:57

know, a hundred times since the the

22:00

the nineteen thirties, a

22:04

hundred times these things been lifted. Um,

22:07

and you just say, okay, well, just

22:09

go issue some more debt. People want

22:11

the debt, people want to lend us money,

22:14

So go issue some more debt and we

22:16

can keep paying our bills. Because here's the thing with the

22:18

debt ceiling. When

22:21

you raise the debt ceiling, a lot of people are

22:23

like, well, if you don't raise the debt ceiling, it

22:25

curbs spending. That's

22:27

true. Indirectly, what the

22:30

Treasury is doing is paying for stuff

22:32

that we've already received on credit,

22:35

whether it's you know, meals for soldiers

22:37

from a private contractor to you

22:40

know, a bunch of like Boeing

22:43

jets, whatever, We've

22:46

already received these things, and now Treasury has

22:48

to pay. So if if

22:50

you don't extend the debt ceiling,

22:53

then you're defaulting on uh

22:56

payments. You have to make bills, you have to pay,

22:58

just like you your credit card exactly. And

23:00

that's not good. And it's kind of the same

23:02

thing happens really if we default.

23:05

Uh, Well, here's what happens. If we don't raise the debt ceiling

23:08

and we are in danger of defaulting, we

23:11

uh defaulting would basically

23:14

start raising all other interest rates

23:16

across the board, well,

23:19

the Marke loan rates, UH, basically

23:22

anything your average Joe would go and get alone for your

23:24

your rates are going to go up, right, And the reason why is

23:26

because the ten year Treasury note

23:29

um is what the home loan

23:31

rates are tied to. And if

23:34

the value or

23:36

the credit rating of a T bill

23:40

goes down, then the

23:42

people who are lending money and return

23:44

for a T bill are going to be able to say, like, yeah,

23:46

I'll give you some money, but you're a little more risky than

23:48

you were before. So I want to hire percentage rate

23:51

and interest, which means it's more expensive

23:53

for the government to borrow money. And

23:55

if the percentage of interest goes

23:57

up on the T bill, anything that's attached

24:00

to that, like home loans, business

24:02

loans go up as well, which

24:04

means what well, that means everybody

24:07

suffers and the whole country

24:09

goes into an economic drag and

24:12

maybe even worse. Yeah, it could get

24:14

a lot worse. Did you see that that thing I sent to you from

24:16

Forbes. Yeah, so

24:19

a lot of people were saying in October, like,

24:21

oh, going over defaulting on

24:23

our debt, that's not that big of a deal. You know, it's

24:26

a colossal deal. It doesn't matter what your

24:28

politics are. One thing could happen is we could

24:30

actually lose our credit triple a credit rating, which

24:33

would be horrible. It would be horrible because

24:35

people who buy TEA bills would be

24:38

able to say, I want to hire interest, right,

24:40

yeah, they still want to borrow the money. They would

24:42

just stick it to us, right right. But

24:44

the thing is to make it more attractive because

24:47

fewer people would want to borrow money, so to make it more

24:49

attractive, the government would have to raise interest

24:51

rate on what it paid back. Right um,

24:54

Also the T bills. If

24:56

everything just went off the cliff

24:58

and and the government said, you know what, we can't pay

25:00

back this debt, any T

25:03

bill you hold would be as valueless

25:05

as any other T bill. No one would

25:07

know what they were maybe going to eventually

25:10

repay what was worth what they

25:12

so they would all in effect become worthless.

25:15

The problem is not only do

25:17

entire federal govern or foreign governments

25:20

rely on tea bills for you know, their

25:22

reserves, so do banks.

25:25

Banks also used T bills as collateral for

25:28

overnight loans. Sometimes companies

25:30

cash them in because they need to be more liquid.

25:32

Right So, there's a lot of use of

25:34

T bills that's totally entrenched in the economy.

25:37

And if all of a sudden

25:39

they went valueless because the government

25:41

defaulted on its loans obligations

25:44

on its debt, then that

25:46

would be that like the the entire

25:49

banking system would lose at least

25:51

a third of its collateral it's

25:54

it's reserves, and they would

25:56

actually probably be hold holding these

25:58

things illegally so they'd have to get rid of them, so

26:00

they'd be selling these things off for whatever they could,

26:03

and a genuine collapse

26:05

of the markets. Whereas this Ford writer

26:08

puts it, um it would

26:11

make the what happened in two

26:13

thousand and eight after the Lehman debacle look like a children's

26:16

exercise. It would be catastrophic

26:19

cats and dogs living together. And

26:22

that's really not hyperbole, Like that's obviously

26:24

the worst case scenario. But the point is these

26:27

T bills are so entrenched in the global

26:29

economy. They'd just be if

26:32

they became valueless, so too

26:34

would the global economy. Yeah, I

26:36

wonder how you regain your credit rating. I

26:39

don't know, sure,

26:41

it's probably much the same as an individual,

26:44

you know. Uh So, one

26:47

thing that would happen if we

26:49

decided not to raise the debt ceiling is Congress

26:52

would have to operate within a budget, which

26:54

means the things that we were talking about before, like huge

26:57

spinning cuts or raising taxes both

26:59

probably or both. And that's

27:02

just tricky politics. People would get upset,

27:04

like what programs do you cut? Whose

27:06

taxes do you raise? It's just a very

27:09

dangerous game. They'd be very very deep

27:11

cuts too. Yeah, and the problem

27:13

is is any time, um, the federal government

27:15

makes huge cuts so to do corporations,

27:18

and then all of a sudden, unemployment goes up, so

27:20

you have to raise taxes even further because there's fewer

27:22

people who are employed paying taxes, and

27:25

or they may fall onto the teeth of the government

27:27

as well. Yeah, because they're unemployed.

27:30

Yeah. Man, should we

27:32

be worried, No, because

27:35

they're going to vote to raise the dead every time.

27:37

Yeah, there's no way that they would ever

27:39

default. It would just be too again, catastrophically

27:42

bad. Yeah. I think though, you

27:44

can be worried about continuing on like

27:47

this. Yeah, I mean that has to pay.

27:49

Uh, you gotta pay it at some point down the

27:52

road. Yeah. You know. Um, there was one thing we didn't

27:54

quite touch on that I think really kind of reveals

27:56

just what a big shell game this is. Right. So, again,

28:00

if you don't want to raise taxes and you don't want to cut

28:02

um programs, you just go to

28:04

the treasury to get more money. Well,

28:07

if the treasury doesn't have that much more money,

28:09

you can also go to your own accounts

28:13

and take whatever you can. So Social

28:15

Security, for example, there's a trust fund

28:18

and you're not allowed to take from Social Security except

28:21

to a certain amount. Right, So say social

28:23

Security at any time has to have two

28:25

billion dollars. What that's a ridiculously

28:28

low number. Let's say it's two billion, and

28:30

then one day social Security has

28:33

two billion, one million and its accounts.

28:35

Federal government takes that extra hundred million because

28:38

it's over and above the legal mandate and

28:40

then uses it for whatever else. Well,

28:43

it gets social Security from payroll,

28:45

right from payroll taxes through you

28:48

being employed. So it's another that's

28:50

basically like a hidden tax, that's like a hidden

28:52

way of generating revenue. Increasing

28:55

social Security tax isn't actually

28:57

helping social Security, it's helping

29:00

fund this the government. That's just like hemorrhaging

29:03

money left and right. Yeah, it

29:05

sounds like you know the old saying

29:07

robbing Peter to pay Paul. That's exactly right.

29:10

That's why al Gore was talking about in the two thousand election

29:13

with the famous lock box thing, like put social Security

29:15

in a lockbox, like if it has a surplus,

29:17

you can't touch it. And then that way,

29:19

so social Security will be able to actually

29:21

pay for the people it's supposed to in thirty years

29:24

rather than being robbed to

29:26

fund the federal government, which won't either

29:28

raise taxes or cut spending or both.

29:30

Yeah, I think most people. I

29:33

don't know when it's gonna happen, but at some point someone's

29:36

not going to get their Social Security that they paid into. Oh

29:38

yeah, well, I think we're definitely in that generation.

29:41

Think. Yeah, I don't think it's going to

29:43

keep going on much longer, or if we do, it'll be such

29:45

a paltry amount that it'll just be laughable,

29:48

not like other people getting rich office security. Now,

29:50

well, I mean there's no and you certainly can't

29:52

just live on it. And I mean you can't, I'm sure

29:54

in certain parts of the country, but for most people it's

29:56

a supplement to something. But I think it

29:58

would just be like bucks or something

30:00

for us who knows, I'm

30:03

depressed, don't

30:06

don't be depressed. Why take action? Yeah,

30:10

by you know, taking care of your own

30:12

personal finances in spite of the

30:15

government, I guess so. But I mean, yeah,

30:17

yeah, it's weird, And this one is. I think

30:20

it's great because everybody's

30:22

involved, like all political factions are

30:24

involved in this, and everybody has

30:26

an opinion, you know, like of how

30:29

to do this best. But I feel

30:31

like, aside from the people who are ready

30:33

to push this into default, um,

30:35

everybody has an understanding like this

30:38

is a very fragile

30:40

game of Jenga going on right now, and

30:43

we could conceivably go on like

30:45

this, but it would be better to fix it, but we need

30:47

to do it surgically. Yeah,

30:50

jinga, that's a good analogy, because the

30:52

wooden tower feels like it's could topple at any

30:55

moment. Yeah. Okay, so you got anything

30:57

else? Uh nope? All right, Well

30:59

that was the debts you. If you want to learn more about

31:01

it, you can type those words into the search

31:03

part How Stuff Works dot Com. Since I

31:05

said search far, which means it's

31:07

time for listener mail. That's

31:11

right. I'm gonna call this shout

31:13

out to my gmo or

31:16

as he calls her momo, his grandmother.

31:18

Hey guys, I had I

31:21

had your How Dying Works podcast my

31:23

playlist for quite some time now, afraid

31:25

to listen to your take on what is happening in my life

31:27

at the moment. I lost my father to a

31:29

rare form of cancer at the beginning of the summer,

31:32

and I'm currently caring for my grandmother who was

31:34

in the closing days of her life. I'm an avid

31:36

listener, and when the title appeared on my podcast

31:39

list, I began to avoid the topic. I decided

31:41

to finally listen to your take on the

31:43

end of life today, and I have to let you know how

31:45

much I appreciated your take on death and dying. It's

31:48

a topic that is never far from my mind these

31:50

days, and I found the information you provided

31:52

both informational and uplifting. Thanks

31:55

for informing me that death is a process, not

31:57

an event. I got a lot of information,

32:00

as I always do from your show, but a

32:02

surprising amount of comfort and reassurance. I

32:05

also know you guys don't do shout outs a lot, but

32:07

I took the challenge at the end of the show seriously.

32:10

I would like to ask if you'd give a shout out to my grandmother

32:13

Mamo. It's a great grandmother

32:15

name who was the person who originally

32:17

instilled the curiosity and love of

32:19

learning and me that led me to your

32:22

podcast in the first place. Please let her

32:24

know how grateful I am for all the things she's

32:26

given me, and caring for her at the end of

32:28

her life is the greatest gift I could ever ask

32:30

for. That is

32:33

from Chris Howell. So, Mamo,

32:36

I hope you're still with us and listening. Thank

32:39

you for raising an awesome grandson and instilling

32:42

that curiosity. And Chris,

32:44

if Mama was no longer with us, then

32:47

uh godspeed. I hope uh, I hope

32:49

that end process was

32:52

comforting nice somehow very nice.

32:55

Yeah, thanks Chris, Thanks Mamo.

32:57

That's some. That was a great one. Yeah, that was a

32:59

good one. If you have something, some

33:02

nice email that will knock our socks off

33:04

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33:06

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33:09

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33:11

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