Judging Freedom - Kevin DeMeritt: Trump and the Dangers of Government Debt.

Episode Date: January 7, 2025

Kevin DeMeritt: Trump and the Dangers of Government Debt.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Thank you. Hi, everyone. Judge Andrew Napolitano here for Judging Freedom. Today is Monday, January 6, 2025. My guest today is Kevin DeMeritt. Kevin is the founder and CEO of Lear Capital. He is also a world-class economist, and we will be discussing the problems with government debt and not paying its bills and how that affects everyone. Kevin, it's a pleasure, my dear friend. A belated Merry Christmas and Happy New Year to you, and welcome to the program. Yeah, thanks for having me back. Happy New Year. Sure, sure. Thank you. What are the consequences to the consumer of the government spending more money than it takes in? I'm talking about the federal government, of course. Yeah, so, you know, everybody says it's a devalued dollar, right? And it is.

The dollar has been being devalued at a rapid pace over the past five or six years, but people ask, you know, why? So to answer this question, I always like to help people out and help them understand this. So judge, you and I are on an Island and somehow you're the banker and you have all the money and all of the money on that Island or 10 shells. And I'm a, I'm a guy with a great idea. I come into your bank and I said, you know, judge, I have this phenomenal idea. I need all 10 shells. And you said, great, I'm going to lend you all 10 shells and I'm going to charge you 10% interest. I agree. And at the end of the year, I come back to lend you all 10 shells and I'm going to charge you 10% interest. I agree. And at the end of the year, I come back to your bank. My business has just done fantastic.

I have all 10 shells and I give them to you. And you say to me, I own your business. Why? Because there were only 10 shells. You as the bank has to create out of thin air that 11th shell. When you create that 11th shell, the other 10 shells are worth less. That's what's happening when the government keeps piling on more and more and more debt. And why we have this inflation problem is our dollars just aren't going as far as they used to. And that's going to continue as long as they can continue to increase the debt. All right. So every president in the post-World War II era, I would imagine every president since the advent of the Federal Reserve under Woodrow Wilson has borrowed money. Every government has gone into debt. Does it matter which political party controls the Congress or to which political party the president belongs? Or does, we all know this phrase, everybody do it?

Everybody does it, and it's to what extent that they do it. So, you look back from 2008 to, let's say, the early 1900s, it took us 108 years to create $8 trillion worth of debt. From 2008 to where we are right now, we've just created $36 trillion. So from $8 trillion in 2008 to $36 trillion. Most of the time, what you typically find is that under Democratic presidents, they like to spend more money on social programs and so on and so forth. There's been some instances where Republican presidents have had to spend, and then you get a recession and everybody wants to spend to try to help that out. So to answer your question, a little bit more on the Democratic side, but for the most part, it really hasn't mattered that much up until recently, who's been the president.

You may be channeling my dear friend, Senator Rand Paul of Kentucky, because he gave a long speech, we've excerpted clips from it, on the floor of the Senate just two weeks ago, in which he talked about what you just mentioned, devaluing the dollar. Chris, cut number 10. During the last four years, groceries, meat, poultry, gasoline, rent, everything's gone up on average at least 20%. Now, did it become more precious? Did we all of a sudden lose a supply of things? No, the dollar became weaker. The dollar became diluted because we had to buy all this debt.

So it's a bait and switch. What we do is we expand, you know, this week, $200 billion for Social Security, $100 billion for disasters, that's $300 billion, $30 billion for farm subsidies. $330 billion unpaid for. But the people here gathered, the vast majority of them that will vote for this will go home, pat themselves on the back and say, I brought you stuff. Isn't that what you want me to do, bring you free stuff? Well, it's not free. It has ramifications.

They're destroying the dollar. They're destroying the country. And yet it goes on. One of our viewers writes, it'll be $50 trillion in a couple of years at this rate. Do you basically agree with Senator Paul's analysis? Oh, 100%. You know, government spending used to make up around 30% of the economy, and now government spending is around, you know, 40, 42% of the economy. It's just absolutely through the roof. Government spending is around $12 trillion annually. To put that into perspective, if you laid $1 on top of each other dollar for $12 trillion, that would

go to the moon 32 different times. That's a lot of money. And our interest just on that debt, last year was $1 trillion for the very first time. So the government at some point is going to start spending more money on interest than it does on every major program, defense, infrastructure, education. The interest is starting to be larger than all of those programs. And that's a problem. How does the government get out of this mess, Kevin? Well, you've got a couple of different ways to get out of it. And other countries have tried different things. One, you inflate your way out of it. And other countries have tried different things. One, you inflate your way out of it, which means you just keep right on printing money and pay back with dollars worth less.

You default on it, which I'm pretty sure nobody wants to do that. Well, default would mean that the people who have loaned money to the federal government would not get it back. That's correct. Every country, Greece, you can rattle off a few of them, even Mexico, they've defaulted on some portion of their debt. And to try to borrow money around the world, it makes it very, very difficult. And I don't think politicians want to go there. The other way to pay it back or pay it down is to pay back the debt. We haven't seen that and I don't think that's really a possibility, although President Trump is trying to figure out how to do that by reducing the deficit or the spending of government by $2 trillion, which has a whole different set

of ramifications. Because if you're at a $12 trillion annual spend in a $26 trillion economy, meaning all the goods and services, you're taking $2 trillion out of the economy. There's going to be some pain involved to try to get that done. Now, is it the right thing to do? 100%. But if you're a consumer and you are spending more on your credit card debt, then you are on your food and so on and so forth, and some of that is happening, then you have to go through some pain

to pay all of that back, right? You're not gonna go out as much and have fancy dinners. You're probably gonna put off buying another car, the clothes are on hold. There's pain. So if you're going to take a couple of trillion dollars out of the economy, there's going to be pain in the markets. And as consumers, we're going to feel that. Here's Senator Rand Paul again, arguing that entitlements, the concept of I sent you to Washington to bring me home a piece of the pie, is what are driving the debt. Cut number eight. A lot of the spending is entitlements.

Probably two-thirds of the spending is entitlements, but this body refuses to address entitlements. So as part of the continuing spending tonight, keeping government open, all of the entitlements will be taken off board. And there will be no reforms to entitlements, no reduction in spending in entitlements. They will continue growing somewhere between about 5 and 6 percent a year. Almost everybody on both sides of the aisle acknowledges that entitlements are the problem. Entitlements are driving the debt. And entitlements are nowhere authorized in the Constitution, but they're so integral to our society.

I don't know what would happen if we stopped them. I mean, Jefferson and Hamilton, who, as you know from history, hated each other, agreed on one thing. When the federal treasury becomes a federal trough and the public realizes that, they will only send to Washington people who promised to bring home the biggest piece of the pie. Rand Paul, his counterpart, interestingly, also from Kentucky, Thomas Massey in the House, are two of the very, very few people that voted against all this stuff. Everybody else votes in favor of it. Republicans, Democrats, liberals, conservatives, progressives. Well, libertarians don't, but just about everybody else does.

That's right. And people have to remember that one third, well, used to be one third. Now it's more like 40 percent of our economy is driven by government spending. So if that spending stops, then private businesses will lose contracts, jobs disappear and the stock market potentially nosedives. It just depends on how much you pull out. So, you know, imagine pulling the brakes on a speeding train. It's not a smooth stop. That's why the brakes on a speeding train. It's not a smooth stop. That's why they call it a train wreck. It's something completely different. So is it the right thing to do? I keep asking this question. Is it the right thing to do? 100%. Nobody's going to say, no, it's not the right thing to do. Well, maybe a politician trying to get reelected would say, no, it's not the right thing to do. But normal people would say it's the

right thing to do. Are you willing to go through the pain? There is going to be pain in the markets, are going to be pain in your pocketbook if the government stops suspending. All right. So here's a sacred cow that nobody in the government is willing to touch, the Defense Department. The budget is just a little bit under $900 billion a year. That is more than the next 10 countries combined spend on defense, even though Russia has a bigger army and China has a bigger Navy. Nobody can get their arms around the defense budget. They keep losing audits year after year after year. They can't find tens of billions of dollars. What can we do about it? Well, I think Elon Musk has the best solution. Put a smart guy in there that understands finance and accounting and try to figure out where the lost money is

going and try to figure out how to get the spending under control. But again, the question is, where do we stop the spending? Do we stop and cut defense and weaken national security? Potentially. Or do we cut social programs and face mass public outcry? Potentially. But you have to get somebody in there that's unbiased and try to figure out where all this money is going to see how much you can actually cut. And I bet you there's a lot of fat at a trillion dollars. But to put that into perspective, just think about this. The interest on the debt is more of the national defense now. How do you fix that? That is a bigger problem because that one keeps growing. I can control the other one. I can't control how much interest if these people keep spending money. I can't control that.

Kevin, does the government ever reduce principal? I think the answer to that is no. They roll it over, but they don't reduce it. We're still paying interest on the debt that Woodrow Wilson created to fund World War I. That's right. Yeah, they don't really pay it back. To be fiscally responsible in the government, they basically slow down the spending to a degree that 10 years from now, we've inflated away some of that debt and we've not borrowed as much against it. So it's a lower

percentage of our gross domestic product. So taxes will pay more of that debt and the only other thing they have to do is lower interest rates but even if you're going to lower interest rates it's still a third it's a third party type of a market isn't the government saying hey we're only going to pay you this much on the debt there's a market out there saying well you've got to give me x if i'm if you want me to buy that debt and that's one of the problems is that is people are asking for more and more interest when the debt is so high. And again, like your listener said, there's no end in sight. They're talking about it the next 10 years being over $50 trillion. And if it's the government making that estimate, then you can almost increase it by another 20%. Here's Senator Paul again, arguing that we will continue to spend money whether

the government is open or closed, whether we have the money or not. Cut number seven. Well, we've arrived. We're here at last. Another government shutdown averted. The government will remain open. I'm not sure if that's good news or bad news. People need to know, yes, the government will stay open and it will not be chaotic. Congress can adjourn, which is probably a good thing when Congress adjourns. But the thing about government staying open is we will pass something called a continued resolution. What does that mean? It means we're resolved to continue.

Continue as we have for really decades. We will continue to spend money regardless of whether we have it or not. We will continue to spend money at a pace such that we will accumulate about two trillion dollars in debt each year. The deficit will be about $2 trillion. Now, the spending is comprised of a lot of different areas. It's about $6.8 trillion in spending, and we bring in about $4.8 trillion in revenue. So it's about a $2 trillion mismatch. Well, he's right, Kevin. He certainly is. What can people do in the short run and in the long run to confront the ever shrinking value of the dollar? Because it doesn't appear as though the Look, I'm going to be biased because I have a precious metals company. But if you look at precious metals since the year 2000, when really we saw a lot of additional spending because Greenspan started off with, okay, we have the dot-com bubble, and so let's spend some money in the economy. And that's really where we get this quantitative easing really began then. And so what happened when quantitative

easing started and the dollar started to fall? Well, the precious metals market has outperformed the stock market since 2000. That's all you have to know. If you're increasing the debt and you're decreasing the value of the dollar, then tangible things like real estate and precious metals are going to hold or increase in value. So people are shocked when you tell them this relic, this gold relic that's been around 5,000 years has outperformed our stock market. People can't believe it, but look it up. It's true. That is going to be one of the best and most liquid ways that you can protect yourself against a falling dollar and the volatility in the market. And look, we've been talking about government debt. There was just an article that came out, Judge, that

said consumer debt is completely out of control. Credit card defaults hit their highest level in 14 years. And people are not using their credit cards to pay for luxuries and then paying them off. They're using them to pay groceries and for gas because things got so expensive, they had to use credit card debt to do that. So I don't know how you stop the debt in the government when you also have consumers that are in the same boat. So don't be surprised if you wake up and there's another correction in the market like we saw in 2008, because debt was the cause of that, and debt is going to be the cause of the next correction in the market. Just to give you a little bit of humor after Senator Paul's gloom and doom, his colleague Senator John Kennedy from New Orleans talking about dead people. Cut number six. that is not going to be able to fight us in our quest to scrutinize federal spending.

And I'm referring to dead people. And that's what I want to talk about today. I want to talk about dead people and the fact that they're getting money from the federal government. In fiscal year 2023 alone, this is just one year, our government sent $1.3 billion. Not $1. Not 1.3 million dollars. We sent 1.3 billion dollars in checks to dead people. Those aren't my numbers. Those numbers come from the Office of Management and Budget. That's just one year. Not only is the federal government sending checks to dead people,

those checks are being cashed. Now, I have heard, Mr. President, of dead people voting, but cashing the checks, you don't have to be God's perfect idiot to realize that there's fraud happening. And the federal government does not go after the people that cash dead people's checks. I'll give you the last word, Kevin. Yeah, look, a billion something that he brought up is almost a drop in the bucket. There are so many other problems in defense and the education and everything that Elon Musk and President Trump has been talking about to try to get this under control. This debt issue is the biggest problem. My thought is government debt and consumer debt

right now are the biggest negatives in this economy. They are going to come out in 2025 in big ways. If you try to cut it from the government, there's going to be some pain. People aren't willing to put up with any pain. They're continuing to use their credit cards. And you need to find a way to combat the volatility about the volatility and why precious metals and other tangible assets, not just precious metals. The report goes into other types of investment options against the debt in the government and the debt on the consumer side, like we're seeing it now. Kevin DeMert, a pleasure, my dear friend. Thank you for joining us. I hope you'll come back again soon. Very informative listening to you and much appreciated. Always a pleasure, Judge. Thank you. Coming up tomorrow, Ambassador Charles Freeman, Pepe Escobar, Kivork Almacian, Matt Ho, Karen Kwiatkowski, and the always worth waiting for,

Colonel Douglas McGregor, Judge Napolitano for Judging Freedom. Thank you.