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What's the deal with the debt ceiling? · Stuff You Should Know

0:01
Speaker 1: Welcome to you. Stuff you should know Fronhouse stuff works
0:04
Speaker 1: dot com right, and uh, this is stuff you should
0:12
Speaker 1: know Financial times. Yeah, and you know what, Usually I
0:16
Speaker 1: shy away from finance, as you know. Yeah, this was
0:21
Speaker 1: This was good though, like timely and easy to understand.
0:26
Speaker 1: And I don't think a lot of people. Oh that's
0:29
Speaker 1: not true. I don't know how many people I know
0:31
Speaker 1: when people say that, I don't think many people. Most
0:33
Speaker 1: people don't understand what I understand. But I think if
0:36
Speaker 1: you were like me before, you probably didn't know what
0:39
Speaker 1: the death ceiling was. And it's really not that difficult.
0:41
Speaker 1: I mean, yeah, I had an idea what the death
0:43
Speaker 1: ceiling was. It certainly didn't understand the nuts and bolts
0:46
Speaker 1: of it. And I also didn't understand that it's fairly
0:49
Speaker 1: straightforward the whole thing, yeah, or that our company or company,
0:53
Speaker 1: how's that proportian slip our country? The way they do
0:57
Speaker 1: business is just it's it's kind of staggered. Oh, it's
1:00
Speaker 1: an enormous shell game. It's pretty weird that's being held
1:03
Speaker 1: together with duct tape and bubble gum. It's disheartening and
1:06
Speaker 1: frightening and all that stuff. So um chuck. The debt
1:09
Speaker 1: ceiling has been around for a while, and we'll talk
1:11
Speaker 1: about the history of it in a little while, But um,
1:14
Speaker 1: it really kind of came into focus in two thousand
1:16
Speaker 1: eleven there was a big fight over raising the debt ceiling,
1:20
Speaker 1: which to that point had happened more than a hundred
1:23
Speaker 1: times since the beginning of the twentieth century UM, and
1:29
Speaker 1: it had been routine at any given point in time,
1:32
Speaker 1: like it was just that ceiling needs to be raised,
1:35
Speaker 1: Congress says, okay, raise it, and that's that. In two
1:38
Speaker 1: eleven UM, thanks to a faction of the Republican Party
1:42
Speaker 1: known as the Tea Party, the this very normal procedure
1:47
Speaker 1: or routine i should say procedure of raising the death
1:50
Speaker 1: ceiling was basically like held up and the therefore the
1:55
Speaker 1: function of government was basically held hostage. And it happened
1:58
Speaker 1: again in two thousand thirteen to even greater effect. But um,
2:05
Speaker 1: what's crazy to me? After understanding and investigating what the
2:11
Speaker 1: debt ceiling is and what's going on, I'm chilled to
2:16
Speaker 1: say that I understand it from both sides now, Like
2:19
Speaker 1: I get where both sides are coming from and why
2:22
Speaker 1: the debt ceiling is this. It is literally the full
2:26
Speaker 1: chrome on which the entire federal government, the entire country,
2:32
Speaker 1: and not just the operations of the government, but the
2:34
Speaker 1: whole U. S economy, and in turn, the global economy
2:38
Speaker 1: sits rests. And if you hold up the debt ceiling,
2:43
Speaker 1: you hold the entire global economy hostage. If you hold
2:47
Speaker 1: up the process of raising the debt ceiling, yes, yeah,
2:49
Speaker 1: you might hold it up like a buttress. If you
2:51
Speaker 1: hold yes, if you're doing that, then your back hurts.
2:56
Speaker 1: But that's that's the point. That's why it was pretty
2:59
Speaker 1: shrewd to target the debt ceiling. But it's not just shrewdness.
3:02
Speaker 1: Like I I understand that the people who held it
3:05
Speaker 1: up were characterized as political terrorists. I think even if
3:10
Speaker 1: you take that aside or not, like, it was pretty
3:13
Speaker 1: smart that to target that, not just because that's a
3:16
Speaker 1: great thing to hold hostage, but because you can make
3:19
Speaker 1: a case like they're in is the greatest symbol or
3:23
Speaker 1: functional symbol of all of the problems that are plaguing
3:26
Speaker 1: the United States today or the solution to all of
3:30
Speaker 1: its problems. Man, you are right down the middle on
3:33
Speaker 1: this one, aren't you. I I truly understand it from
3:35
Speaker 1: both sides. It's really weird. I think that's a healthy perspective.
3:38
Speaker 1: I guess so, and maybe that's what it is. I'm like, well,
3:41
Speaker 1: I feel healthy, healthy perspective. Uh yeah, it definitely beats uh,
3:48
Speaker 1: hardline partisan views on things. I think when it comes
3:52
Speaker 1: to something this huge and complicated, Well, the irony is
3:57
Speaker 1: that the people who were holding it up or about
3:59
Speaker 1: his hardline partisans as you can get you know. Yeah,
4:02
Speaker 1: but the prospect of attacking the debt ceiling and focusing
4:07
Speaker 1: light on it is I think a very smart move politically. Yeah.
4:12
Speaker 1: So it may not make friends on the playground, No,
4:15
Speaker 1: it definitely will not. It is effective. Yeah, okay, so Chuck,
4:18
Speaker 1: let's talk about this. Let's talk about the debts. Let's
4:20
Speaker 1: talk about the federal government in general and how it operates. Yeah.
4:23
Speaker 1: There's a thing that I didn't know exist until recently. Um,
4:26
Speaker 1: that is issued every day called the Daily Treasury Statement.
4:29
Speaker 1: And if while we're doing this, this sounds just like
4:31
Speaker 1: a company or just like given your own personal finance,
4:33
Speaker 1: as as it is, it's just a large a lot
4:36
Speaker 1: more zeros, a lot more zeros. But it's the principles
4:39
Speaker 1: the exact same. Yeah. Um, the daily Treasury statement is
4:43
Speaker 1: basically just the balance sheet of what we spend in
4:46
Speaker 1: a day as a government and what we take in
4:49
Speaker 1: in a day. So let's just pick a day at
4:52
Speaker 1: random that's featured in this article. Okay, let's say October. Okay,
4:56
Speaker 1: October three of last year, not too long ago. It's
4:59
Speaker 1: a third a The sun was shining here in Atlanta.
5:02
Speaker 1: The federal government took in about a hundred and ten
5:05
Speaker 1: billion and revenue. We were in Los Angeles. Yeah, the
5:09
Speaker 1: sun was shining there. Took it in about a hundred
5:12
Speaker 1: and ten billion dollars from things like massive amounts of
5:16
Speaker 1: taxes that we have to pay my words, bailout loan
5:20
Speaker 1: payments from tarp uh selling old jet planes and things
5:25
Speaker 1: and guns to other countries, about twenty seven million dollars
5:30
Speaker 1: made on that day alone. Uh. And then we spent
5:35
Speaker 1: a hundred and forty three billion dollars. So if we
5:39
Speaker 1: took in a hundred and ten and we spent a
5:41
Speaker 1: hundred and forty three billions, and we spent a hundred
5:43
Speaker 1: and forty three on hundreds, if not thousands, of programs
5:50
Speaker 1: just all sorts of everything from Social Security to think
5:53
Speaker 1: made up the lions share of the the spending that day,
5:56
Speaker 1: which was billion um down to tax refunds and not
6:01
Speaker 1: just programs, but like you know, the electric bill at
6:05
Speaker 1: the White House, right exactly, paying the private in the army. Yes,
6:08
Speaker 1: like you know, everything the government pays for, which includes
6:12
Speaker 1: a lot of programs. Uh. So that is a difference
6:15
Speaker 1: of thirty three billion dollars in that one day, A
6:20
Speaker 1: bad a negative difference, right, So that's a deficit we
6:24
Speaker 1: ran on that day. We ran a deficit, which is
6:26
Speaker 1: not unusual. Thirty three billion dollar deficit on October three. Okay,
6:31
Speaker 1: So the rest of the three d and sixty four
6:34
Speaker 1: days of that year fiscal or otherwise calendar, even if
6:38
Speaker 1: we didn't let's say we had a day where we
6:40
Speaker 1: ran a surplus. Um. You take all of those together,
6:44
Speaker 1: You take your surpluses and your deficits for all those days,
6:48
Speaker 1: and you add them up, and you have whether you
6:50
Speaker 1: have a surplus or a deficit for the year. If
6:53
Speaker 1: everything equals out, you have what's called the balanced budget
6:56
Speaker 1: for that year, which is just doesn't happen, not not
6:59
Speaker 1: very frequently. No, I don't see I haven't seen any balance.
7:02
Speaker 1: I've seen like for the most part, though, we've been
7:07
Speaker 1: in a death sit especially since um, well for many
7:10
Speaker 1: many years. Well I've got some numbers actually, uh in
7:15
Speaker 1: and this I'm not saying this president is good. This
7:17
Speaker 1: president is bad because Congress in the House have probably
7:21
Speaker 1: more to do with it than the president does. Well.
7:23
Speaker 1: Not only that, it's possible some presidents have inherited the
7:27
Speaker 1: the benefits of policies from other presidents, like economists don't know. Yeah,
7:31
Speaker 1: like it very contentious to man when people start I
7:34
Speaker 1: read a few articles. It's really pretty interesting to see
7:36
Speaker 1: people's takes on the economies of the presidency. But in ninete, regardless, uh,
7:42
Speaker 1: Bill Clinton inherited a two hundred and fifty five billion
7:45
Speaker 1: dollar deficit. Uh. In two starting, we had the first
7:51
Speaker 1: budget surplus since nineteen sixty nine, and then two years
7:55
Speaker 1: later in two thousand, we hit the high water mark
7:59
Speaker 1: of two hundred already six billion dollars surplus in two thousand.
8:04
Speaker 1: I mean, that's mind boggling these days. Yeah, man, to
8:07
Speaker 1: think about that. That means that the government, after paying
8:09
Speaker 1: all of its bills, still had two hundred and thirty
8:12
Speaker 1: six billion dollars left over. Yeah. And and people today
8:16
Speaker 1: still are like Clinton got lucky because the internet boom
8:19
Speaker 1: or no. Clinton's policies were wide or no, it was
8:21
Speaker 1: the Republican controlled house in Congress that forced him. It
8:27
Speaker 1: was it was kind of a lot of stuff. I
8:29
Speaker 1: think the rational approaches, There was a lot of stuff. Regardless,
8:33
Speaker 1: those were great years. Uh. And then so in two
8:36
Speaker 1: thousand and two hundred thirty six billion dollars surplus. Clinton
8:40
Speaker 1: left office with a hundred and twenty seven billion dollars surplus,
8:43
Speaker 1: and just a year later we had a hundred and
8:45
Speaker 1: fifty seven billion dollar deficit. And by the time Obama
8:50
Speaker 1: came into office in two thousand nine, we had a
8:52
Speaker 1: one point two trillion dollar deficit when he came into office. Yes,
8:57
Speaker 1: and now it's at about seven fifty nine billion, depending
9:01
Speaker 1: on what numbers you look at. That's just the deficit,
9:03
Speaker 1: not the national debt. Okay, all right, So this is
9:06
Speaker 1: this is a very big point of um clarification that
9:10
Speaker 1: we need to make. That's the annual budget, right, Yeah,
9:14
Speaker 1: that's the deficit. Now, when you take all of those
9:18
Speaker 1: annual budgets over all the years, all the money we've
9:22
Speaker 1: ever owed, all the money we've ever came out on
9:24
Speaker 1: top with, come out on top with, and you put
9:27
Speaker 1: it all together, you have what's called the national debt. Yeah,
9:31
Speaker 1: that's basically the money we borrow to cover those losses.
9:35
Speaker 1: If if we ever had if you ever took all
9:39
Speaker 1: of those years together and we had a surplus, then
9:41
Speaker 1: you would call it the national surplus. I don't think
9:44
Speaker 1: that's ever happened, or ever will happen. I don't think
9:48
Speaker 1: that's ever happened. Yeah, since we started borrowing money, even
9:52
Speaker 1: though we've had budget surpluses, right, because let's say we've
9:56
Speaker 1: we've had a good year two fifty billion dollars surp
10:00
Speaker 1: us year. That's a great year, but we also maybe
10:04
Speaker 1: had five trillion dollars in national debt that that had
10:06
Speaker 1: to be thrown at. Right, So, when you take all
10:10
Speaker 1: of those deficits, in all the surpluses, and you add
10:12
Speaker 1: them all together, what you come up with is how
10:15
Speaker 1: much in the hole the United States is, and that
10:17
Speaker 1: is the national debt. And as it stands right now,
10:20
Speaker 1: it's add about seventeen trillion, two hundred and eighty two billion,
10:27
Speaker 1: five hundred and seventy five million, zero forty four thousand,
10:34
Speaker 1: seven hundred and fifty five dollars and thirty five cents.
10:38
Speaker 1: That's as of January two thousand, fourteen, and with every
10:42
Speaker 1: minute getting more and more so it's tired now than
10:45
Speaker 1: it was when you read it, which is a pretty
10:47
Speaker 1: significant amount, especially if you consider that in two thousand
10:53
Speaker 1: it was at about five trillion. Yeah, you know a
10:56
Speaker 1: number is bad when you have to look at it
10:58
Speaker 1: from right to left and counting to zeros, like I
11:01
Speaker 1: gotta see what the thousands of millions of billions? Okay,
11:04
Speaker 1: oh that's trillions. Yeah, so if you if you think
11:08
Speaker 1: about that, I mean, think about that, chuck in. In
11:10
Speaker 1: just fourteen years, like we've gone up well over twelve
11:17
Speaker 1: trillion dollars in debt, twelve trillion dollars, our national debt
11:23
Speaker 1: has increased by that much. And so now we kind
11:27
Speaker 1: of come to my intro again, if you'll indulge me
11:31
Speaker 1: for a second, if you look at the increase. Right,
11:36
Speaker 1: of course, there were there were two wars that we
11:38
Speaker 1: fought there EXPI that definitely did that didn't help anything
11:43
Speaker 1: at all. Like it started, Flint was not at war.
11:45
Speaker 1: So that was a lot of people to say, you know,
11:47
Speaker 1: those were eight peaceful years. I think they call it
11:50
Speaker 1: a piece okay, Yeah. Clayton preferred the surgical um air strike.
11:57
Speaker 1: That was his big thing, rather than troops and relying
11:59
Speaker 1: on though. Um. But it was so wars they cost
12:04
Speaker 1: quite a bit of money, so we were fighting not one,
12:07
Speaker 1: but two wars. Then all of a sudden you have
12:09
Speaker 1: the global markets just go into the toilet. And now
12:13
Speaker 1: all of a sudden, you have a lot of people
12:16
Speaker 1: who are unemployed, which means your tax revenue goes down,
12:21
Speaker 1: and you have in the in the office a president
12:26
Speaker 1: who believes in spending your way out of a crisis,
12:31
Speaker 1: a debt crisis. And this is why the Tea Party
12:35
Speaker 1: hijacked the the debt ceiling because a lot of people
12:40
Speaker 1: are saying, we don't agree with you. There's a lot
12:43
Speaker 1: of people who believe in austerity, which is you cut
12:45
Speaker 1: government spending to get your way out of a crisis. Um.
12:49
Speaker 1: And if you look at Greece, that pretty much proved
12:52
Speaker 1: that you can't do that, that it will just completely
12:54
Speaker 1: destroy your economy and possibly your entire government. And that
12:58
Speaker 1: was actually based on a paper by a couple of economists,
13:02
Speaker 1: um who came out with this data that any government
13:08
Speaker 1: whose debt to income ratio was if your debt was
13:12
Speaker 1: you GDP, you didn't grow as fast and so all
13:15
Speaker 1: of a sudden you had all these people saying austerity, austerity,
13:18
Speaker 1: And then it turned out that this grad student from
13:21
Speaker 1: I believe m y u Um got ahold of the
13:23
Speaker 1: original data set and basically saw that they didn't carry
13:26
Speaker 1: like a zero and got an incorrect thing. And the
13:30
Speaker 1: the government of Greece almost toppled because of this incorrect paper. Yeah,
13:36
Speaker 1: but at the time, there are a lot of people saying, well,
13:38
Speaker 1: first of all, we don't agree with deficit spending as
13:42
Speaker 1: a means of getting out of an economic problem. Um.
13:46
Speaker 1: But also you have some other people saying we maybe
13:50
Speaker 1: that works, maybe it doesn't. History hasn't proven that yet.
13:52
Speaker 1: We still think as twelve trillion dollar increase in the
13:55
Speaker 1: national deficit is too much, so we need to curb
13:59
Speaker 1: this runaways spending. And one way to do that is
14:03
Speaker 1: to target the debt ceiling. Yeah, and debt ceiling, I
14:07
Speaker 1: don't even think we've even said specifically, is basically the
14:10
Speaker 1: maximum amount of of deficit that we can incur. And
14:16
Speaker 1: we literally it's got a ceiling. When we borrow or
14:19
Speaker 1: when we have a deficit that hits that, we're at
14:21
Speaker 1: the debt ceiling. And the only way to to change
14:24
Speaker 1: that is, uh for Congress, like we said, to to
14:27
Speaker 1: raise the debt ceiling, which has happened, Um, how many
14:30
Speaker 1: times I think at least a hundred times since it started. Well,
14:34
Speaker 1: since nineteen sixty they voted seventy eight times. So let's
14:38
Speaker 1: call that modern times. Yeah, because okay, So, no matter
14:41
Speaker 1: what your politics are, no matter what's going on, no
14:43
Speaker 1: matter whose president, this is the way the federal government
14:46
Speaker 1: is set up. You have a bunch of money going out.
14:48
Speaker 1: You have a bunch of money coming in, usually in
14:50
Speaker 1: the form of income tax or like you said, selling
14:53
Speaker 1: old fighter jets or that kind of thing. Um, And
14:56
Speaker 1: the amount you have coming in very very rarely seeds
15:00
Speaker 1: the amount you're putting out. So there's two things you
15:02
Speaker 1: can do. You can increase your income, or you can
15:06
Speaker 1: cut your spending and raise taxes right so, um the well,
15:10
Speaker 1: increasing income by raising taxes right exactly, or you can
15:13
Speaker 1: cut your spending. We have two political parties. One is
15:16
Speaker 1: completely attached to not increasing taxes, the other one is
15:21
Speaker 1: completely attached to not cutting spending, especially on entitlement programs.
15:26
Speaker 1: So it doesn't matter who's in office these days. The
15:30
Speaker 1: way that things operate is you just go borrow more money.
15:33
Speaker 1: That's how you fund the government. That's how it's been done,
15:36
Speaker 1: that's how you've gotten around the politics to this point. Yeah,
15:41
Speaker 1: and we could, you know, Congress could erase that, you
15:43
Speaker 1: know by like you said, raising taxes that's not popular,
15:47
Speaker 1: or cutting spending and that that's not popular. So it's
15:50
Speaker 1: really kind of a bad situation. So what we have
15:52
Speaker 1: is the U. S. Treasury, which issues death that's right,
15:57
Speaker 1: US Treasury securities to people regular old schmos. Well not
16:02
Speaker 1: regular lord schmos. No, we can well, that's true, that's true.
16:06
Speaker 1: You can go buy a US Treasury bond, banks, corporations, governments. UM.
16:11
Speaker 1: It's basically a very low interest rate loan and uh,
16:16
Speaker 1: you know, up until recently a very very safe one, right,
16:20
Speaker 1: and you would still think it's pretty safe. But you know,
16:23
Speaker 1: that could go off the cliff. It could. And that
16:25
Speaker 1: was the big problem in October of two thousand thirteen
16:28
Speaker 1: is a lot of people were saying, like, um, we're
16:30
Speaker 1: gonna default on our loan obligations. Yeah, we'll get to
16:33
Speaker 1: that though, because that's the bad news at the end.
16:37
Speaker 1: This is the bad news in the middle. Uh, China
16:40
Speaker 1: and Japan, for instance, UM each owned more than a
16:42
Speaker 1: trillion dollars in Treasury securities as of July last year,
16:48
Speaker 1: So a lot of people borrow money from the United
16:51
Speaker 1: States at pretty low rates. I think it's it's worth
16:54
Speaker 1: explaining again, like a Treasury bond, is you chuck going
17:00
Speaker 1: to buy going to the U. S. Government saying here,
17:02
Speaker 1: I'll give you some money. You give me a promisory
17:05
Speaker 1: note that says you'll repay it with a little bit
17:08
Speaker 1: extra big right at the at the end when this
17:11
Speaker 1: thing matures, and the government says, thanks, we're gonna take
17:14
Speaker 1: this money and we're going to use it to pay
17:16
Speaker 1: our bills. Because Congress is going over and saying, yes,
17:20
Speaker 1: we want to keep our national parks open, and we
17:22
Speaker 1: want to um, we want to fund um like security whatever, um.
17:28
Speaker 1: And we have bills to pay. So thanks for the money.
17:31
Speaker 1: We're gonna pay the bills because that's what Treasury does.
17:33
Speaker 1: Congress spend the money. Treasury pays the money, and if
17:36
Speaker 1: you're under that ceiling, then it's it's it's all good. Yeah,
17:39
Speaker 1: it's fine, just figure out a way to pay the bills.
17:41
Speaker 1: And it's just like a big company. And Treasury also
17:43
Speaker 1: has more than one financial security. They have all sorts
17:46
Speaker 1: of ones that different that mature at different times and
17:48
Speaker 1: all that, and um, they do a pretty good job
17:52
Speaker 1: of figuring out how to raise money. But the problem
17:57
Speaker 1: is for every Treasury bill that they sell, Chuck, that's
18:01
Speaker 1: that much more in debt. The federal government has just
18:04
Speaker 1: gone yeah, okay with the debt ceiling. Like you said,
18:08
Speaker 1: there is a certain limit to the amount of outstanding
18:12
Speaker 1: debt the Treasury Department can issue, and it's just like
18:16
Speaker 1: a credit card limit to an extent. Yeah, there's there's
18:20
Speaker 1: one pretty big difference is um. But it is a
18:23
Speaker 1: helpful way to think about it because most people have
18:25
Speaker 1: credit cards. But the bank sets your credit card limit
18:27
Speaker 1: because they say, Josh, you know you're risky as a spender.
18:31
Speaker 1: We don't want to give you a credit card more
18:32
Speaker 1: than like Tim Grant. Let's say, yeah, so the bank
18:35
Speaker 1: puts the cap on it. There. Um. On the other
18:37
Speaker 1: side of the coin, foreign governments that by treasury securities
18:42
Speaker 1: are like, I'll take all you got basically, so it's
18:46
Speaker 1: a reliable investment. And the credit limit is imposed by
18:49
Speaker 1: the borrow instead of the lender. Right, that's the big
18:51
Speaker 1: difference with with your credit card. It's the person lending
18:55
Speaker 1: you the money that wants to say that that says no,
18:58
Speaker 1: you can't borrow anymore. With the debt ceiling, it's us
19:02
Speaker 1: saying no, we can't. We can't go borrow anymore. We
19:05
Speaker 1: could issue as much as we wanted, and people would
19:07
Speaker 1: buy teabills all day long because they're so safe. That's right,
19:12
Speaker 1: supposedly or at the moment they are. All right, you
19:15
Speaker 1: want to talk about the history a little bit, Well,
19:16
Speaker 1: hold one, before we talk history, let's do a message
19:19
Speaker 1: break real quick, okay, And now we are talking about
19:28
Speaker 1: the history of the death ceiling, right. I think that's
19:30
Speaker 1: where we left off. Back in the day, UM, Congress
19:35
Speaker 1: used to be a little tighter with this, a lot tighter.
19:37
Speaker 1: In fact, we could not sell securities without explicit approval.
19:43
Speaker 1: UH Treasury wanted to borrow some money, so Congress would say, Hey,
19:47
Speaker 1: what kind of security should we sell? Large or small?
19:50
Speaker 1: What should the interest rate be? Um? How many should
19:53
Speaker 1: we sell? And they kind of worked it out that
19:55
Speaker 1: way up until UH war In War Revenue Act of
20:02
Speaker 1: basically said, you know what, in times of war, we
20:04
Speaker 1: need to loosen the chains a little bit, and let's
20:07
Speaker 1: say we can borrow up to five hundred million dollars
20:10
Speaker 1: by some of these securities to fund the Spanish American War, right,
20:15
Speaker 1: And then after that they were like, okay, that worked,
20:17
Speaker 1: but let's just leave that be. And then there was
20:20
Speaker 1: World War One, and there was the First and Second
20:23
Speaker 1: Liberty Bonds Acts, which basically did the same thing to
20:26
Speaker 1: help fund World War One, and it worked really well.
20:30
Speaker 1: And the secretaries of the Treasury, um, I think Andrew
20:35
Speaker 1: Carnegie Mellon. Andrew Mellon, Yeah, you can understand why I
20:40
Speaker 1: would be confused there, um. And Henry Morgan Thou later
20:43
Speaker 1: on in the nineteen twenties and thirties basically said why
20:46
Speaker 1: not just do this to fund the government as as
20:49
Speaker 1: a whole instead of just in times of war? And
20:52
Speaker 1: now today, if you could go back and sit down
20:54
Speaker 1: with him, you could say, because it gets out of
20:58
Speaker 1: control when you do, because it's right. Um. But they
21:02
Speaker 1: got uh was it Franklin? Yeah, fdr Yeah, they got
21:06
Speaker 1: Roosevelt on on board, and they got Congress to pass
21:09
Speaker 1: this for the first time ever, an aggregate debt limit,
21:13
Speaker 1: which is all the debts that the U s ode
21:17
Speaker 1: as long as it was beneath a certain amount um.
21:21
Speaker 1: The Treasury could do whatever it wanted to pay its
21:24
Speaker 1: bills as long as it didn't need to borrow any
21:26
Speaker 1: more than that. And that was the first time that
21:28
Speaker 1: a debt ceiling was ever set in nine I think, yeah,
21:31
Speaker 1: thirty nine, and that was It's pretty similar to kind
21:34
Speaker 1: of the debt ceiling that we have today. Not too different. Uh,
21:38
Speaker 1: Congress approved spending. Treasury figures out how to pay for
21:41
Speaker 1: it all. As long as you're under that, it's all good.
21:43
Speaker 1: The problem is when you bump up against it, like
21:45
Speaker 1: we've been doing over and over again lately, it seems like, yeah, so,
21:50
Speaker 1: like you said, that is a problem, you just vote
21:53
Speaker 1: to raise it. Yes, and again. This has been pretty routine.
21:57
Speaker 1: You know, a hundred times since the the the nineteen thirties,
22:04
Speaker 1: a hundred times these things been lifted. Um, and you
22:07
Speaker 1: just say, okay, well, just go issue some more debt.
22:10
Speaker 1: People want the debt, people want to lend us money,
22:14
Speaker 1: So go issue some more debt and we can keep
22:16
Speaker 1: paying our bills. Because here's the thing with the debt ceiling.
22:21
Speaker 1: When you raise the debt ceiling, a lot of people
22:23
Speaker 1: are like, well, if you don't raise the debt ceiling,
22:25
Speaker 1: it curbs spending. That's true. Indirectly, what the Treasury is
22:30
Speaker 1: doing is paying for stuff that we've already received on credit,
22:35
Speaker 1: whether it's you know, meals for soldiers from a private
22:38
Speaker 1: contractor to you know, a bunch of like Boeing jets, whatever,
22:45
Speaker 1: We've already received these things, and now Treasury has to pay.
22:49
Speaker 1: So if if you don't extend the debt ceiling, then
22:53
Speaker 1: you're defaulting on uh payments. You have to make bills,
22:57
Speaker 1: you have to pay, just like you your credit card exactly.
23:00
Speaker 1: And that's not good. And it's kind of the same
23:02
Speaker 1: thing happens really if we default. Uh, Well, here's what happens.
23:06
Speaker 1: If we don't raise the debt ceiling and we are
23:08
Speaker 1: in danger of defaulting, we uh defaulting would basically start
23:14
Speaker 1: raising all other interest rates across the board, well, the
23:19
Speaker 1: Marke loan rates, UH, basically anything your average Joe would
23:23
Speaker 1: go and get alone for your your rates are going
23:25
Speaker 1: to go up, right, And the reason why is because
23:27
Speaker 1: the ten year Treasury note um is what the home
23:31
Speaker 1: loan rates are tied to. And if the value or
23:36
Speaker 1: the credit rating of a T bill goes down, then
23:42
Speaker 1: the people who are lending money and return for a
23:44
Speaker 1: T bill are going to be able to say, like, yeah,
23:46
Speaker 1: I'll give you some money, but you're a little more
23:48
Speaker 1: risky than you were before. So I want to hire
23:50
Speaker 1: percentage rate and interest, which means it's more expensive for
23:53
Speaker 1: the government to borrow money. And if the percentage of
23:57
Speaker 1: interest goes up on the T bill, anything that's attached
24:00
Speaker 1: to that, like home loans, business loans go up as well,
24:04
Speaker 1: which means what well, that means everybody suffers and the
24:08
Speaker 1: whole country goes into an economic drag and maybe even worse. Yeah,
24:13
Speaker 1: it could get a lot worse. Did you see that
24:15
Speaker 1: that thing I sent to you from Forbes. Yeah, so
24:19
Speaker 1: a lot of people were saying in October, like, oh,
24:22
Speaker 1: going over defaulting on our debt, that's not that big
24:25
Speaker 1: of a deal. You know, it's a colossal deal. It
24:28
Speaker 1: doesn't matter what your politics are. One thing could happen
24:30
Speaker 1: is we could actually lose our credit triple a credit rating,
24:32
Speaker 1: which would be horrible. It would be horrible because people
24:36
Speaker 1: who buy TEA bills would be able to say, I
24:39
Speaker 1: want to hire interest, right, yeah, they still want to
24:41
Speaker 1: borrow the money. They would just stick it to us,
24:43
Speaker 1: right right. But the thing is to make it more
24:46
Speaker 1: attractive because fewer people would want to borrow money, so
24:48
Speaker 1: to make it more attractive, the government would have to
24:50
Speaker 1: raise interest rate on what it paid back. Right um,
24:54
Speaker 1: Also the T bills. If everything just went off the
24:58
Speaker 1: cliff and and the government said, you know what, we
25:00
Speaker 1: can't pay back this debt, any T bill you hold
25:04
Speaker 1: would be as valueless as any other T bill. No
25:07
Speaker 1: one would know what they were maybe going to eventually
25:10
Speaker 1: repay what was worth what they so they would all
25:13
Speaker 1: in effect become worthless. The problem is not only do
25:17
Speaker 1: entire federal govern or foreign governments rely on tea bills
25:21
Speaker 1: for you know, their reserves, so do banks. Banks also
25:26
Speaker 1: used T bills as collateral for overnight loans. Sometimes companies
25:30
Speaker 1: cash them in because they need to be more liquid.
25:32
Speaker 1: Right So, there's a lot of use of T bills
25:35
Speaker 1: that's totally entrenched in the economy. And if all of
25:39
Speaker 1: a sudden they went valueless because the government defaulted on
25:42
Speaker 1: its loans obligations on its debt, then that would be
25:47
Speaker 1: that like the the entire banking system would lose at
25:51
Speaker 1: least a third of its collateral it's it's reserves, and
25:56
Speaker 1: they would actually probably be hold holding these things illegally
25:59
Speaker 1: so they'd have to get rid of them, so they'd
26:00
Speaker 1: be selling these things off for whatever they could, and
26:03
Speaker 1: a genuine collapse of the markets. Whereas this Ford writer
26:08
Speaker 1: puts it, um it would make the what happened in
26:12
Speaker 1: two thousand and eight after the Lehman debacle look like
26:15
Speaker 1: a children's exercise. It would be catastrophic cats and dogs
26:20
Speaker 1: living together. And that's really not hyperbole, Like that's obviously
26:24
Speaker 1: the worst case scenario. But the point is these T
26:27
Speaker 1: bills are so entrenched in the global economy. They'd just
26:31
Speaker 1: be if they became valueless, so too would the global economy. Yeah,
26:36
Speaker 1: I wonder how you regain your credit rating. I don't know, sure,
26:41
Speaker 1: it's probably much the same as an individual, you know.
26:45
Speaker 1: Uh So, one thing that would happen if we decided
26:49
Speaker 1: not to raise the debt ceiling is Congress would have
26:52
Speaker 1: to operate within a budget, which means the things that
26:55
Speaker 1: we were talking about before, like huge spinning cuts or
26:58
Speaker 1: raising taxes both probably or both. And that's just tricky politics.
27:03
Speaker 1: People would get upset, like what programs do you cut?
27:05
Speaker 1: Whose taxes do you raise? It's just a very dangerous game.
27:10
Speaker 1: They'd be very very deep cuts too. Yeah, and the
27:13
Speaker 1: problem is is any time, um, the federal government makes
27:15
Speaker 1: huge cuts so to do corporations, and then all of
27:18
Speaker 1: a sudden, unemployment goes up, so you have to raise
27:21
Speaker 1: taxes even further because there's fewer people who are employed
27:23
Speaker 1: paying taxes, and or they may fall onto the teeth
27:27
Speaker 1: of the government as well. Yeah, because they're unemployed. Yeah. Man,
27:31
Speaker 1: should we be worried, No, because they're going to vote
27:35
Speaker 1: to raise the dead every time. Yeah, there's no way
27:38
Speaker 1: that they would ever default. It would just be too again,
27:41
Speaker 1: catastrophically bad. Yeah. I think though, you can be worried
27:45
Speaker 1: about continuing on like this. Yeah, I mean that has
27:48
Speaker 1: to pay. Uh, you gotta pay it at some point
27:51
Speaker 1: down the road. Yeah. You know. Um, there was one
27:53
Speaker 1: thing we didn't quite touch on that I think really
27:55
Speaker 1: kind of reveals just what a big shell game this is. Right. So, again,
28:00
Speaker 1: if you don't want to raise taxes and you don't
28:01
Speaker 1: want to cut um programs, you just go to the
28:04
Speaker 1: treasury to get more money. Well, if the treasury doesn't
28:08
Speaker 1: have that much more money, you can also go to
28:11
Speaker 1: your own accounts and take whatever you can. So Social Security,
28:16
Speaker 1: for example, there's a trust fund and you're not allowed
28:18
Speaker 1: to take from Social Security except to a certain amount. Right,
28:22
Speaker 1: So say social Security at any time has to have
28:25
Speaker 1: two billion dollars. What that's a ridiculously low number. Let's
28:29
Speaker 1: say it's two billion, and then one day social Security
28:32
Speaker 1: has two billion, one million and its accounts. Federal government
28:36
Speaker 1: takes that extra hundred million because it's over and above
28:39
Speaker 1: the legal mandate and then uses it for whatever else. Well,
28:43
Speaker 1: it gets social Security from payroll, right from payroll taxes
28:47
Speaker 1: through you being employed. So it's another that's basically like
28:51
Speaker 1: a hidden tax, that's like a hidden way of generating revenue.
28:54
Speaker 1: Increasing social Security tax isn't actually helping social Security, it's
29:00
Speaker 1: helping fund this the government. That's just like hemorrhaging money
29:03
Speaker 1: left and right. Yeah, it sounds like you know the
29:07
Speaker 1: old saying robbing Peter to pay Paul. That's exactly right.
29:10
Speaker 1: That's why al Gore was talking about in the two
29:12
Speaker 1: thousand election with the famous lock box thing, like put
29:14
Speaker 1: social Security in a lockbox, like if it has a surplus,
29:17
Speaker 1: you can't touch it. And then that way, so social
29:20
Speaker 1: Security will be able to actually pay for the people
29:22
Speaker 1: it's supposed to in thirty years rather than being robbed
29:26
Speaker 1: to fund the federal government, which won't either raise taxes
29:29
Speaker 1: or cut spending or both. Yeah, I think most people.
29:33
Speaker 1: I don't know when it's gonna happen, but at some
29:35
Speaker 1: point someone's not going to get their Social Security that
29:37
Speaker 1: they paid into. Oh yeah, well, I think we're definitely
29:40
Speaker 1: in that generation. Think. Yeah, I don't think it's going
29:43
Speaker 1: to keep going on much longer, or if we do,
29:44
Speaker 1: it'll be such a paltry amount that it'll just be laughable,
29:48
Speaker 1: not like other people getting rich office security. Now, well,
29:50
Speaker 1: I mean there's no and you certainly can't just live
29:53
Speaker 1: on it. And I mean you can't, I'm sure in
29:54
Speaker 1: certain parts of the country, but for most people it's
29:56
Speaker 1: a supplement to something. But I think it would just
29:59
Speaker 1: be like bucks or something for us who knows, I'm depressed,
30:06
Speaker 1: don't don't be depressed. Why take action? Yeah, by you know,
30:12
Speaker 1: taking care of your own personal finances in spite of
30:14
Speaker 1: the government, I guess so. But I mean, yeah, yeah,
30:18
Speaker 1: it's weird, And this one is. I think it's great
30:20
Speaker 1: because everybody's involved, like all political factions are involved in this,
30:26
Speaker 1: and everybody has an opinion, you know, like of how
30:29
Speaker 1: to do this best. But I feel like, aside from
30:32
Speaker 1: the people who are ready to push this into default, um,
30:35
Speaker 1: everybody has an understanding like this is a very fragile
30:40
Speaker 1: game of Jenga going on right now, and we could
30:44
Speaker 1: conceivably go on like this, but it would be better
30:46
Speaker 1: to fix it, but we need to do it surgically. Yeah, jinga,
30:51
Speaker 1: that's a good analogy, because the wooden tower feels like
30:53
Speaker 1: it's could topple at any moment. Yeah. Okay, so you
30:56
Speaker 1: got anything else? Uh nope? All right, Well that was
30:59
Speaker 1: the debts you. If you want to learn more about it,
31:01
Speaker 1: you can type those words into the search part How
31:04
Speaker 1: Stuff Works dot Com. Since I said search far, which
31:07
Speaker 1: means it's time for listener mail. That's right. I'm gonna
31:12
Speaker 1: call this shout out to my gmo or as he
31:16
Speaker 1: calls her momo, his grandmother. Hey guys, I had I
31:21
Speaker 1: had your How Dying Works podcast my playlist for quite
31:24
Speaker 1: some time now, afraid to listen to your take on
31:26
Speaker 1: what is happening in my life at the moment. I
31:28
Speaker 1: lost my father to a rare form of cancer at
31:31
Speaker 1: the beginning of the summer, and I'm currently caring for
31:33
Speaker 1: my grandmother who was in the closing days of her life.
31:35
Speaker 1: I'm an avid listener, and when the title appeared on
31:38
Speaker 1: my podcast list, I began to avoid the topic. I
31:41
Speaker 1: decided to finally listen to your take on the end
31:43
Speaker 1: of life today, and I have to let you know
31:45
Speaker 1: how much I appreciated your take on death and dying.
31:48
Speaker 1: It's a topic that is never far from my mind
31:50
Speaker 1: these days, and I found the information you provided both
31:53
Speaker 1: informational and uplifting. Thanks for informing me that death is
31:56
Speaker 1: a process, not an event. I got a lot of information,
32:00
Speaker 1: as I always do from your show, but a surprising
32:02
Speaker 1: amount of comfort and reassurance. I also know you guys
32:06
Speaker 1: don't do shout outs a lot, but I took the
32:08
Speaker 1: challenge at the end of the show seriously. I would
32:10
Speaker 1: like to ask if you'd give a shout out to
32:12
Speaker 1: my grandmother Mamo. It's a great grandmother name who was
32:16
Speaker 1: the person who originally instilled the curiosity and love of
32:19
Speaker 1: learning and me that led me to your podcast in
32:22
Speaker 1: the first place. Please let her know how grateful I
32:24
Speaker 1: am for all the things she's given me, and caring
32:27
Speaker 1: for her at the end of her life is the
32:29
Speaker 1: greatest gift I could ever ask for. That is from
32:33
Speaker 1: Chris Howell. So, Mamo, I hope you're still with us
32:37
Speaker 1: and listening. Thank you for raising an awesome grandson and
32:41
Speaker 1: instilling that curiosity. And Chris, if Mama was no longer
32:46
Speaker 1: with us, then uh godspeed. I hope uh, I hope
32:49
Speaker 1: that end process was comforting nice somehow very nice. Yeah,
32:55
Speaker 1: thanks Chris, Thanks Mamo. That's some. That was a great one. Yeah,
32:59
Speaker 1: that was a good one. If you have something, some
33:02
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33:04
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