All right, y'all.
Welcome to the show.
It's anti-war radio.
I'm Scott Horton.
Very happy to have you here.
And we're going to start off the show right now with the great Robert Hicks, author of Crisis and Leviathan, Against Leviathan, Depression War and Cold War, Neither Liberty Nor Safety, and on and on like that, The Challenge of Liberty, Opposing the Crusader State, Resurgence of the Warfare State, Rethinking Green, Alternatives to Environmental Bureaucracy, and on and on like that.
He's a senior fellow at the Independent Institute.
That's independent.org and is the editor of their journal, The Independent Review.
Welcome back to the show, Bob.
How are you doing?
I'm fine, Scott.
I really appreciate you joining us on the show today.
And I really wanted to get you on lately to talk about what's going on with this whole debt ceiling thing.
I have to say, you know, as an economist, I'm a great anti-war guy.
And I kind of I like you Austrian economist types, but I am not one of you.
I can't answer these questions myself, really.
I got to turn to to you guys to help straighten me out.
I know that the monetarists are wrong, so that's good.
But here's the thing.
It seems to me like everybody.
Ron Paul, who I tend to agree with, you know, all the time on pretty much everything, who's the reason I knew about the housing bubble back in 2001 because I was paying attention to him.
And and then again, everyone on the on the right in the Republican Party, the Democrats, all the people on TV, the politicians and the think tanks, everybody is trying to scare the hell out of me about the economy, which is already in real bad shape.
And I just wonder what's the truth of all this is.
Is the economy going to implode if the debt ceiling deal doesn't go through?
And, you know, are we better off if it does this, that the other thing?
Can you please straighten me out?
Well, a number of issues are floating around together, Scott, in this discussion and and all the press activity and media activity that has been attracted to the situation.
And many people, as you say, are running around like chicken little and claiming that the sky will fall.
You know, the the economy will blow up or implode or or do something horrible no matter what they do.
Right.
If they raise the debt limit, then that is going to lead to the sky falling.
If they don't raise the debt limit, I think it'll probably explode from the inside of the earth out.
Well, recently, most of the chicken littles have been telling us that this statutory debt limit has to be raised or the sky will fall.
And that claim was was too silly to even be taken seriously, frankly.
But let's face it, the ordinary person doesn't really know anything about how the federal government keeps its accounts.
And what would be meant by default and so forth.
So it's very easy to mislead people and frighten them, too.
And I think the bulk of the commentary, for sure, and probably most people, to the extent that they thought about it, thought that this was a real economic issue, that somehow if the debt limit were not raised, it would result, as the president kept telling us, in the government's defaulting.
Now, that was a really misleading use of language for starters, Scott, because a default is when you have a legal obligation that you don't meet.
For example, when you when you've agreed to pay your mortgage payments and you don't pay them when they're scheduled to be paid, you've defaulted.
Although, of course, lenders normally give borrowers some leeway when that happens, and if they can correct the matter, then they don't have their collateral seized.
They don't lose their home because they miss a mortgage payment or two.
But in any event, what was going on here was the claim, or at least the innuendo most of the time, that the government, absent the increase in this borrowing limit, and therefore more debt being taken on by the government, if that were not done, the government would default.
But that was never the case.
The only legal obligations the government has are to repay legal creditors, like the people who buy its bonds.
And the revenue was going to be far, far more than necessary to make those payments.
So what was really being done was a twisting around of language to say that if the government did not borrow more money, it would not be able to make all the payments, whether it's buying more missiles for the Pentagon or sending out more checks to Grandma, it would not be able to make all the payments it had planned to make.
And of course, all these payments are the result of mere political promises.
They don't have any legally binding status whatsoever.
If Congress promises to pay me X today, it can promise not to pay me X tomorrow.
And it does this kind of changing of its promises practically every time it meets.
So it was a very misleading debate, discussion, whatever you want to call it, from the get-go.
And if the government wanted to make all these payments it's promised to make, it could also do that.
So even in a less careful use of language, the government was not in the situation it purported to be in if it couldn't borrow more money.
It has the means to raise more money.
It owns vast amounts of assets, for example.
It owns a large part of the western United States, which it should not, and it could sell those assets.
They're worth tremendous amounts of money, and they would allow the government to do what normally is done when people get in a financial bind.
They do sell assets in order to make payments.
So that was an option, and there were others, of course.
But in any event, the scare tactics that were associated with use of the word default were completely bogus.
Now, but they're not going to do that.
I mean, it seems like the deal that they made instead was, at least as it's reported in the New York Times version or whatever, is that they're just going to slash the welfare payments.
They're certainly not going to cut the Pentagon's budget or anything like that.
They're certainly not going to sell land that they own in the West.
They're going to go after the weakest first.
They're not even going to do that, Scott.
The deal, insofar as I understand it, and of course it hasn't, to my knowledge, yet been voted on and approved by the Congress, but as described in the media this morning, it's so back-loaded in terms of any cuts.
Of course, as usual, those are cuts from projected spending, not, for the most part, actual cuts.
But it's so back-loaded that it doesn't really change anything for the next couple of years to any significant extent.
The so-called cuts next year and the year after are negligible.
So it's a package of pie in the sky.
Yeah, I mean, if you say all the cuts come in two years, then that means they're not coming at all.
Two years from now, they'll be talking about a whole new...
That's right.
Normally.
Now, this case may be a little different, Scott, because although the government is kicking the can down the road, as usual when it gets in trouble, it cannot continue to do this forever.
This time, the day of reckoning is really up on the government, and it's there because the bond markets are not going to continue buying government's bonds, certainly not on the same good terms as in the past, unless the government does something.
We'll have to hold it right there and pick that up on the other side.
What happens if we just continue on the course that the Republicans and Democrats...
Maybe we should take that and out, the Republicans and Democrats, or have us on here.
We'll be right back with Bob Higgs, everybody.
All right, y'all, welcome back to the show.
It's anti-war radio.
I'm on the line with the great Robert Higgs from the Independent Institute.
That's independent.org.
He's a senior fellow there.
He's the author of Crisis and Leviathan, Depression War and Cold War, and many other great books, tons of great articles, and he's the editor of the Independent Review.
And now, so here's the thing.
Where we left off at the break, Bob, you were saying that...
Well, what were you saying?
Go ahead.
Well, I was saying, Scott, that this kicking can down the road that's just been agreed on, at least by the leadership on the two parties, is really not going to do the job.
They cannot, I believe, this time, get away with what they've always got away with in the past, because many, many creditors have come to look with jaundiced eye on U.S. government securities, and this is something new.
The government did default once before, back in 1933, when it went off the gold standard and refused to make gold payments, as it had agreed in many of its bonds.
But since 1933, the government has had excellent standing in the credit markets.
It has the highest credit rating, and indeed, in economic analysis, economists often treated U.S. government securities as riskless, not having any risk premium at all attached to them, which would require the payment of higher interest rates.
And now, the government is certainly on the verge, and frankly, I'll be shocked if the ratings agencies do not lower its AAA bond rating to reflect the fact that if we look ahead at what the government will be, in all likelihood, collecting in revenue and expending, there's accumulating debt as far as the eye can see.
The government is doing nothing to bring to a close, not even in a 10-year horizon, the necessity of adding more debt every year.
And this cannot go on forever, because it will become quite evident to everybody at some point that the government will simply be unable to repay the creditors as it's promising to repay them.
And when that sensibility takes hold in the bond market, which I believe it's about to do now, then the government will have to pay a risk premium to borrow.
The ratings agencies will have to lower its rating.
The costs of borrowing will rise.
And again, unless the government takes genuine measures to bring its expenditure into line with its revenues, then its credit will get more and more iffy, and it's conceivable that eventually it won't be able to borrow at all.
In that case, the problem would be self-solving.
The market would have solved the problem of the government's refusal to act responsibly by making it impossible for it to act irresponsibly in the sense of continually running up more debt.
So does that mean it's possible that at some point, even just a few years out, that their spending could be reined in short of just a collapse?
Yes, I think it is possible.
In fact, I don't foresee a collapse.
I think you and I discussed this before one time.
I don't foresee a collapse of the government or a collapse of the dollar, but I certainly do see growing pressures brought to bear on the government.
And eventually I see the great potential, in fact likelihood, that those pressures will force the government to act more responsibly.
Because their only other choice will be to completely debase the currency.
That's right.
If they can't borrow and they have to resort to the Fed to basically monetize their debt, then of course that will lead to higher and higher inflation and to what amounts to default through inflation.
Many governments have done that, and I wouldn't rule out that the U.S. government will do it to some extent also.
But nowadays even the ability to do that is more limited than it used to be, because, again, if people flee from the dollar, seeing that the government is basically ruining it, then the ability to pay its bills in an inflationary fashion becomes more and more diminished.
I remember hearing Ron Paul on the radio, I think on a San Antonio station back ten years ago or something, saying, well, they'll never stop sending out the Social Security checks.
It's just eventually they won't buy anything because the dollars will be worthless.
Well, I think one of the things that we can expect to see is that the government and its entitlement programs will just continually chip away at them.
That is to say, if you look at Social Security, they'll probably change the tax rules so that more and more higher-income people will have to repay some of their Social Security in the form of taxes.
They already do to some extent, but the government is likely to make that repayment even greater.
They will probably accelerate the increase in the age of eligibility to receive payments.
They may make other changes.
And in Medicare, which is the even bigger problem for the government fiscally, they will have to raise the cost of the monthly premium.
They'll have to reduce the payments they make to doctors.
And, of course, that means that many doctors will balk at that.
And they'll have to move closer and closer to what we might properly call rationing of medical care.
Well, geez, I mean I guess I won't even waste your time asking about whether they'll ever cut the Pentagon.
That will be the last, right?
So wait, I wanted to get back to make sure I understood you that.
You think that eventually all this debt is going to force up interest rates in a way that they will have to – never mind the political puppet show going on now.
A few years from now, they will have to make deep cuts or else.
And they will choose cuts instead or else.
I think they will choose cuts to some extent.
Now, they may try to combine that with a certain amount of monetizing the debt.
So we may see some use of the Fed in combination with some real cuts.
So some stagflation but not a hyperinflation and a complete destruction of the dollar.
That would be my best guess.
I think stagflation is about – given what the government has done and the role it plays in the economy today, stagflation is about the best we can hope for from the U.S. economy for certainly a five to ten-year horizon.
If it does any better than that, I will be shocked, frankly.
Well, you heard it here first, second, and third, y'all, on Antiwar Radio.
It's the great Robert Higgs.
I want to recommend to you guys again the list of his books.
You can find them all at your favorite book-buying websites.
I'm sure for your Kindle or whatever you need.
Crisis and Leviathan, Critical Episodes in the Growth of American Government Against Leviathan, Depression War and Cold War, Neither Liberty Nor Safety, Opposing the Crusader State, Resurgence of the Warfare State, and on like that.
And check out his archives, his blogs, his articles at independent.org.
Thanks very much again for your time on the show today, Bob.
You're welcome, Scott.
Thanks for having me on.
