CW 311: National Debt & Grassroots Political Campaigns with Dean Clancy VP of Public Policy for FreedomWorks

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Welcome to the Creating wealth show. This is your host, Jason Hartman, and this is episode number 311. And today we have as our guest Dean Clancy with FreedomWorks. And I think you'll like some of the stuff we cover there, some of the hot topics, talking about fiscal cliff ramifications and a whole bunch of other great stuff. So he'll be up here in a few minutes. But first I've got Michael, investment counselor with us to talk about a few current events and issues and things like that. Michael, how you doing?

I'm great today. Jason, how are you?

Well, good, good. And you are coming to us from Newport beach, right?

I am. And it's, I don't know, mid-60s, it's sunny, just kind of a perfect early spring day.

Yeah, good, good stuff. Well, hey, so you've got a couple of current event type things stories that you want to talk about. Let's dive into those.

Okay, let's just jump in. So I don't know if it's how big a news it is to the rest of the world outside of California, but we just saw that Stockton was okayed by a judge to go through bankruptcy.

Yeah, right. And Detroit is coming up. So we're going to see, folks, look at, I predicted this like I don't know, seven years ago. We're going to see a lot of municipal bankruptcies or defaults and they may not actually reach the technical stage of legal bankruptcy protection, but essentially insolvency. Get used to it and be really careful. If you're financing these municipalities with bonds, muni bonds that offer those tax benefits and so forth that the financial planner will sell you. Watch out, watch out folks. You better be careful.

And you know, this was definitely a departure just because there's 300,000 people in Stockton. So it's the largest city so far that's doing a Municipal bankruptcy. And then we're going to see what happens as CalPERS. The. What is that?

That's the teacher's retirement fund. Yeah.

Yeah. Since they're public employees ready to take it to court to say that the California Constitution overrides federal bankruptcy law. So that'll be pretty. A pretty big deal to see what happens ultimately with that.

Yeah, it's amazing how complex our legal system is and, you know, how people can argue things a zillion different ways and all of these interconnections like that. Yeah, that's pretty crazy, for sure. But what else did you want to say about Stockton?

Well, I don't know what else there is to say about Stockton. You know, this is just. There need to be some changes in the system. And California, this may set the tone for what's going to either help California or, I don't know, maybe it's just going to cause more trouble with the unions that have such a stronghold over the whole state.

Yeah, they certainly do. And you know what's going to be really interesting is we've never had a state go bankrupt. And California is essentially bankrupt except for its assets, if it's willing to use its natural resources and start exploiting them. I mean, California could really solve its problems, its money problems by doing that. But there's just such a strong environmental movement there that I don't know if it'll really ever happen. So barring that, I think California is still in a world of trouble. And what will ultimately happen? I mean, will there be a bankruptcy on a state level at some point? Jerry Brown, Governor Moonbeam from the 70s who's back, unfortunately, he could have done it, and then they could have reworked all those union pension contracts and stuff like that, the public employee unions, and put that state on a solid footing. But there's no way he's gonna do that because he's pandering to his constituency. And it's just pretty interest. Good. Next topic.

So in the Washington Post, and then it was referenced on Dan Mitchell from the Cato Institute on his personal blog, the Obama administration is now starting to already push the banks again to make loans to people with bad credit. And it's interesting the way the Obama administration phrased their thoughts on the topic. And basically they feel like there's a housing recovery and a boom starting to happen, and they feel that it's unfair to people with lesser credit that they're being left out. But I mean, this is where we got into trouble in the first place during Clinton. Clinton's administration was when they decided that not enough people owned houses, that certain people with lesser credit should be allowed into the game. And now we're just seeing a repeat and it's only been a couple years. It's unbelievable.

This is insane. It was way back in the Clinton days and I think even before that technically that the legislation began. But these things get interpreted different ways over the years. But the CRA or the Community Reinvestment act, that was a large push for the banks to feel pressure to loan money to minority groups. It was politically correct even if they didn't have proper financial qualifications. And so you saw banks with guilty consciences that wanted to win political favor with the administration. You saw them basically pandering, just like politicians do to these groups of people where the government would give them more goodies if they financed them. And of course the banks didn't care because all they did is they wrote the loan and then they sold it off into some giant pool of mortgages and then they were purchased by pension plans. Other countries like Iceland was just insane what happened. And, and that's the problem with the system. It's a, it's a game of hot potato where the buck is being passed and passed and passed and Americans have a really short memory. And I don't even think it's really the short memory problem in this case. It's just the pandering to political constituencies and being politically correct. It's, I mean, think of that the way, the way you just said that the Obama administration thinks it's unfair that people with bad credit are being left out as the housing market recovers.

I mean, like there's some sort of, you know, like we are all owed an opportunity to make money. I don't know, I don't see that in the Constitution that I'm owed something like that. An opportunity, it's a privilege, not a right.

That is just unbelievable.

But then it was unbelievable. They, they said that the housing officials were asking the Justice Department to basically go to the banks and tell them if they do these loans they won't face legal or, you know, any financial recriminations. So here we go again. It's going to be the taxpayers will be on the hook for 100% of these loans. And that never works out well when the banks have nothing vested in losing, when they only have an upside.

Well, it's not just the taxpayers, actually. It's the, it's the bondholders, the people that buy the mortgage backed securities. So it's really problematic. I mean, but what it's going to do is it's going to fuel the housing market and who knows how big they'll inflate the bubble this time. But I just want to stress, and of course, this is my opinion, I could be wrong. There's my disclaimer. But I think we are at the, we're just at the very beginning, the next housing bubble. So there's a few people out there and I think you've got an article on this that we'll talk about in a moment saying, oh, the bubble is back and it's just blown up again. Folks, we're not even close to a real bubble yet. Okay? We're just at the beginning stages of it. In my opinion, you can ride this for a long way. But again, as investors, we don't invest. People listening to the show don't invest for speculative reasons anyway. If appreciation happens, hey, it's just icing on the cake. I mean, we're investing for cash flow, for solid, legitimate investment grade principles. We're not speculators, we're not gamblers. But hey, if we have some speculation money come in, I'm not going to complain about winning the lottery. I'm not going to complain about the icing on the cake. Certainly not.

What do you say? You'd rather be lucky than right?

I know I'd rather be lucky than good.

Okay.

I'd rather be lucky than good. And so I'll, you know, you give me some luck, I'll take it. Okay.

All right.

All right. Hey, let's talk about a property. Or we kind of finished with that subject, that ridiculousness.

Yeah, that's fun.

Okay, so let's talk about a property. You know, we've got our Memphis tour coming up and I hope you're all planning to join us for that. It's going to be great. And the price goes up real soon. In fact, by the time you hear this podcast, the price might have already gone up. We did announce it on the last show along with a big announcement about my retirement. And we should get back to that subject in just a moment, Michael, because I received a few, few messages about that one, so we'll talk about that. But this property in Memphis, I mean, this is good looking property. Almost 1900 square feet, $64,000. Only 35 bucks a square foot. And the cash on cash is pretty awesome on this, isn't it?

Yeah, it's unbelievable. So this one right now is Pro forma'd at 17% cash on cash return and total return on investment at 47%. Pretty unbelievable.

Wow, that is, that is unbelievably good. So here you've got a house that's 63,900. Projected rent is 795 per. So you're above the 1% RV ratio, which I gotta tell you folks, it's getting harder and harder to do that in this market because prices are rising and rents always lag. They lag pretty badly most of the time. Prices, rents go up much slower than prices in an accelerating market. But again, they also go down a lot slower in a depreciating market. So here you're looking at this pro forma. Your cash flow here is $2,605 annually. And that's what generates your 17% cash on cash return. And here we've got a prediction on the assumptions here of 6% appreciation, 8%, vacancy rate, management fee at 8% and maintenance really quite high, actually. This is an older property, it's a very solid property. Now, it doesn't say the age. You know, we require our local market specialist to put the age. But they didn't do it on this one. I'm guessing that's a 60s house. What do you think?

That would be my guess. But you know, I think that is pretty conservative of them to stick in the 7% for maintenance. So they are making some adjustments for the age. And I would just say on this property, you know, we put that it had about 1500, $15,600 down payment for the initial cash invested, and then that cash flow is a little over $200 a month. And these are the numbers that I hear a lot from investors that I talk to. They say, you know, I would like to put about $20,000 down and make two to $300 a month cash flow. So this is exactly the kind of property that I'm hearing from a lot of investors that they're looking for right now.

Right, right. It's a, it's a really nice looking property too. So one of the things I want to mention is that whenever we do a property tour, one of the really important reasons to come to that tour is because, as you know, if you're shopping, if you're making offers and trying to buy properties right now, it's getting pretty tough to buy them. So for a few weeks before any tour that we do, we always ask our local market specialists to accumulate properties and not post them on the website, not offer them for sale in any way, shape or form. And the people that go on the tour get first dibs at these. Of course, that's that's fair because I mean, they made the effort to fly out and do the tour with us, okay. And do the Creating wealth seminar there. And as they did that, we've got to give them some. Number one, we've got to have inventory for them that they can buy that weekend. But number two, we've got to give them something exclusive. We've got to give them something they can't get anywhere else. We ask them to kind of cherry pick their inventory and put it on hold and they do this. And the people on the tour will have first dibs at the properties and then if anything doesn't sell, which in this market is pretty unusual, but it may happen. Maybe there, Maybe they hold 12 properties and two of them don't sell. Well, those will show up on our website@jasonhartman.com maybe a week later after the tour. Okay, but. But the best properties will be gone and the people that go on the tours get the first chance to buy them. So I highly recommend you come on the tour. It's very inexpensive. You're basically paying less than our cost for your ticket price and then it's just your travel expenses. And remember the room block on our discounted hotel rooms that does end pretty soon. The hotel's putting a lot of pressure. They did extend the date for me, but they want to raise that room price to 1:59 a night from, I believe it's 1:19 a night now. So hurry up and book the tour. When you book the tour on the website Jason hartman.com In the events section, you'll be emailed all the information about the hotel and the link to where you can book at the early bird rate and the phone number you can call. Okay. Anything else about this one? That's a phenomenal property. I really like it.

No, it's just really nice looking. It was interesting how we decided to have a property that it was Memphis and the tours coming up. So hopefully if people take a look at some of these properties, it'll also be more exciting to them, you know, to see the opportunity. They might be a little more motivated to sign up for the tour.

Absolutely. Absolutely. Now we have a holiday in the US and I don't know, I don't think it's around the world. I have a feeling this is just a US holiday, maybe, you know, and maybe some of our listeners know, but every April 1st we have a holiday called April Fool's Day. Do you know if this is worldwide or is it just us?

I don't know. I'm Jumping and trying to Google it really fast.

I don't know. I didn't bother to look. But note that a few days ago, it was April 1st when I made that big retirement announcement. So just take that for what it's worth, folks, I'm not really retiring. I love doing this. Are you kidding me?

A lot of people sent notes and boy, that, that whole thread on Facebook was, was almost hilarious. But what I did decide I should do is I should try. Although I probably won't succeed at this, but I should try to kind of take the summer off. I'm really gonna try to scale back this summer and kind of do do some non work things. I just kind of think I need it. I love to work. No one has to convince me to work. I'm certainly not doing it for money anymore. I love what we do. And it's a mission, you know, it really is a mission.

Well, those of us that, that know you well knew that there was no way that you would possibly think of retiring anytime soon.

Yeah, no, I, I'm, I'm not too. I'm not too much of the retirement kind of guy. At least I don't see that anywhere in the near future. So, folks, I'll be here with you for better or worse and not retiring. Okay? So if you believed that. April fools. Okay. All right. And hey, I think you've got one more article, Michael, you want to talk about before we go to our guests.

Let's just talk about one article in general and then we'll mention that website that I wanted to mention. So I'm starting to see articles talking about all these markets. Housing markets in the US are being fueled by investors. And some of them are trying to hint at saying there's not enough renters to go into these houses, that there's no possible way rents can keep up without wage increases and employment increases. So let's just get your thoughts on that, because I think we will see more of this in the mainstream media. More info about investors driving the markets. But then also so people already trying to say that the markets are oversold and that it's already too late.

That comment that you just made about how some think there is no way rents will be able to keep up with housing prices because the job creation is not enough. That's basically what you were saying, and I've heard people make comments for that. And folks, this is like the dumbest idea ever. Okay? And here's why it's such a completely bogus argument. It's because it's like saying, well, not everybody will always be able to afford an iPhone. Okay, so they'll buy another phone. You know, it won't be an iPhone, it'll be a lesser phone. And I'm not promoting the iPhone necessarily, although I have one. But it's like saying not everybody will be able to drive a brand new BMW. Okay? So they're gonna go to the model down if they like BMW or they're gonna go to buy a Japanese car or a fantastic Korean car. I mean folks, Hyundai is a phenomenal company if you ask me. They are making incredibly good cars. Hyundai and Kia, just amazing. Those cars are underpriced.

They have amazing warranties too.

Oh my God. It's the best one around. 10 year hundred thousand miles. The Hyundai Genesis is like the best bargain on the road today if you ask me. I was, I almost bought one and I was looking at one a few weeks ago. For $47,000 you can get the fully loaded, absolutely top of the line R spec car that in my opinion, except for the brand name is equivalent to a Mercedes S class that costs 80,000 bucks. I mean that is just a bargain. Okay, but back to the topic at hand. And no, Hyundai is not one of my sponsors and neither is Apple. But this is people, the point is with housing is, and I've been saying this for many years, the lifestyle, the standard of living for most Americans and is declining. And it's not a good thing, it's just an accurate thing. And so people will always live in some house. So, okay, that statement, well, the rents can't keep up with the prices. Okay, fine. So that person that is not getting a raise at their job, that is finding no opportunity out there in the workforce. And their real wages, adjusted for inflation, are declining as really they have been since about 1990. I mean, Americans on the whole, if you have a job, you've not had a raise in years, in decades. I mean you've been losing ground in real dollars after inflation. And so they'll rent something, they'll just rent something less or they'll own something less. It's not as though your house is some fixed thing that Everybody gets a four bedroom, 2,200 square foot house in a nice suburban area. No, that person will move down to a three bedroom, 1500 square foot house in a lesser area. For some reason people think like the house is some static thing that they don't. If this house goes up in price, there's no shopping in the marketplace, there's no adjustment made by the consumer. The Consumer is forced to make adjustments due to economic realities. And the consumer in America, by and large, is getting poorer in real dollars. Their lifestyle is declining. Their standard of living is declining. So when people say, Jason, why are you so pessimistic? I mean, I don't think that bodes well for people renting my house three, five, ten years from now. Sure it does. It's just that the renter profile is going to be a different person. It's going to be usually a person that used to live a better life than they're living when they're renting from you three, five, and ten years in the future. That makes sense, right? Am I explaining that?

Well, I think so. I think it's pretty clear and it's just. But then it makes these other articles seem very, very. They're not very multidimensional. They look at it from a very narrow focus of. Because of A, we. Our only answer is that we're going to go towards B. And they don't think about all this other tertiary information.

I don't know how some of these economists can say this stuff with a straight face. They get on there and they talk about the national housing market as if it's not 400 local markets. They talk about housing as though it's some generic thing. They talk about things like the example I just gave as if the house someone lives in is some static thing. People are going to move down and you need to serve those people as an investor, have housing for them. Those move down tenants, those move down occupants. You know, maybe they owned before and now they're forced to rent because they can't afford to own because they can't gather a down payment. They, they had a better house in the past. Now the house they have is not as good. It's life. It's what's happening. Generally speaking, Americans are getting poorer. Okay. And inflation is causing that and taxation, too.

The important thing is also that we are not static. So we're not just sticking with the same markets year after year. We're looking at them seeing what's going on. When Phoenix got too hot from Driven with a lot of private equity and hedge fund money, you know, when we moved out of there. Sure. Potentially. Now if there's prices got a little high and that maybe they do have vacancies in quite a few areas with some of the hedge funds. But we're not static. We didn't keep selling that.

Right, right, right. We're. We're area agnostic now. That's an important thing. You Bring up there because you know, I always use the example of Charlotte. Years ago I had recommended and my team recommended Charlotte, North Carolina. And then we stopped recommending Charlotte and then we started recommending it again. See what happens there. And the reason we stopped is because too many investors rushed in there. And if you had to rent a property at that time, it was hard to rent it because there were too many competing rental properties on the market for rent, not rental properties for sale, but for rent because so many investors had rushed in there. Now the people that purchased in there prior to that, in Most cases, in 90% of the cases, their property was already stabilized, they already had a tenant and maybe that tenants going to be there as a multi year tenant a lot of times. So maybe you can't raise your rent or you can't raise your rent as much as you'd like to raise your rent every year. But if your property is stabilized, you just sit there and you know, milk it for cash flow. So it's not like you need to sell just because we stopped recommending a market. We're saying no new entrance at this time. We don't think it's a good idea to enter this market. But if you're already in it and you're stabilized, meaning your property is rented, just kick back and enjoy the monthly checks. You're doing great. Okay, well. Hey, Memphis tour, can we hit the website real fast? Yeah, go ahead.

Okay, so this is the freedom in.

50 states.org that's a good one you found? Yeah.

Okay. And that's from the Mercatus center at George Mason University. And this is the third edition of this website which basically they've created a ranking system of how different states have certain policies that either promote freedom or inhibit that related to the fiscal, regulatory and personal realms. And so like fiscal policy made up 35.3% of the of their ranking. Regulatory policy was 32%. Personal freedom was 32.7%. And what it does is they take all these little sub freedom categories into consideration and they created their own index. But they also let users on the website change the weighting of any of these freedoms and indexes so they can make their own decision about something that they see as being more important to them. Maybe it's gun policy or marijuana or tax burden. And then you could rank the states, potentially finding the state that you think is the freest to live in. And maybe you make a decision that you want to move there ultimately.

Yeah, right, right. That's a great little rating system about the freedom of all the. And you know, the two worst states were New York and California, oddly. And the freest states were North Dakota, South Dakota, Oklahoma, and I think there was one other that was in that top tier. And then, you know, Arizona and Texas ranked really well, but they actually weren't the freest according to this survey. So you've got to balance everything out. Weather opportunities, recreation, etc. With Will the government be off my back?

Yeah, and it was just entertaining. They have things like bachelor party freedom, which was combine categories such as gambling, victimless crimes, tobacco, beer, happy hour laws, regulations, beer taxes, marijuana, fireworks, prostitution.

So let me guess, entertaining. I'm guessing Utah doesn't fare that well for those kind of freedoms, Right?

Yeah, I forgot to click for the best bachelor party state.

Yeah, well, that's gotta be Nevada, right? Las Vegas.

I don't know.

Yeah, okay.

Anyway, well, we don't need to go into it.

They can jump on and take a look.

Yeah, but anyway, take a look. That's really interesting. And thanks for bringing that to us. That's a good one. Website. And there's kind of a funny little video you can watch there too. All right. Hey, Michael, thanks so much for joining me today. Let's get to our guest. We'll be back with FreedomWorks in just about 60 seconds.

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It's my pleasure to welcome Dean Clancy to the show. He is the legislative counsel for an organization of which I am a big fan. And it is freedomworks.org and he's coming to us today from Washington, D.C. dean, how are you?

I'm great, thank you. Good.

You are in D.C. right?

Yep, working at Union Station, out my window.

Good. Good stuff. Well, I guess the most topical thing to talk about is the fiscal cliff disaster. I'm not going to call it a fiscal cliff deal. I'm going to call it the fiscal cliff disaster. And, you know, we'll get into that. But just give us a brief one minute on what is FreedomWorks for the audience?

Sure. FreedomWorks is a national grassroots advocacy network of more than 2 million Americans who are dedicated to the principles of lower taxes, less government, and more freedom. We have 4 million friends on Facebook. We're the number one nonprofit on Facebook, and we go around the country trying to help the grassroots freedom movement activists who want to change policy in their communities and elect good people to office, especially fiscal and constitutional conservatives.

Fantastic. For a long time, even on my own Facebook profile, I say that less government equals more freedom. And it's just so simple. I don't know why it's so hard for people to grasp such a concept. Anytime government grows, freedom declines. The bigger the government, the smaller the citizen. So I'm sure we're going to find some good agreement on that. Well, talk to us, if you would, about the fiscal cliff debacle and give us the freedom Works side of what you're thinking about it.

Sure. This is interesting because in Washington you have some conservatives who defend the fiscal cliff bill as basically avoiding a bad situation, automatic tax hikes, continuing some tax cuts for people, and basically putting the tax issue behind Republicans. We take a very different view. We think that it really was a disaster. I mean, think about not just the substance, but also let's start with the process. The process was for 12 years we've known that taxes would go up on New Year's Eve. And for a year we knew that there would be a sequester on automatic across the board spending cut that was agreed to back in 2011, the last time we increased Uncle Sam's credit line. And yet they waited until the last couple of days. Two people went in a room, Mitch McConnell, the Republican Senate leader, and Joe Biden, the Vice president, and they hammer out this deal, which turns out to be loaded with pork and corporate welfare giveaways, which does nothing to reduce spending. In fact, it postpones sequester and it raises taxes on upper income earners and on everyone who works. Bill turns out to be a tax increase on 77% of Americans. They jam it through the Senate at 1:30am on New Year's Eve. I'm told that a number of the senators were, shall we say, enjoying themselves at that hour and they only had a little bit of time to read it. Senator Mike Lee from Utah complained that he was only given a total of six minutes to look at the bill, which was 60 pages long.

Oh, but Dean, Dean, Dean, stop for a moment. We've got to pass the bill to see what's in it.

Well, yeah, that's, that's the new normal.

Yeah.

Nancy Pelosi, that's it. And then the next day the House of Representatives is told they got to deal with it or it's going to be some kind of big crisis. And so they end up deciding to just push it through without even giving anyone a chance to offer amendments. The Republicans basically just rolled over and swallowed this really bad bill. And the thing is full, in addition to raising taxes and not cutting spending at all, it's actually full of new spending and pork. It's got $330 billion in new spending. And it's got stuff like, if I could just give you a few Choice examples here, $248 million for Hollywood film producers. $222 million in tax breaks for rum producers in Puerto Rico, $9 billion on a tax break that helps companies offshore their money. That's the one that helps General Electric evade US taxes. And there's another one that helps GE $12 billion in tax favors for the wind energy industry. And by the way, on that tax credit, you don't even have to have built a windmill to get it in 2013. You just have to basically say you're in the process of building windmills and it goes on and on. Auto Auto trace rack owners, coal miners on Indian lands and so on.

It sounds like, you know, more crony capitalism. Government throws money at things that don't work so can support people that put, that put them and keep them in power.

That's exactly right. It is cronyism. Basically. Max Baucus, the senator from Montana who is the chairman of the Senate Finance Committee, he's got a bunch of former staffers in D.C. who, who have become lobbyists and over the summer they all came up with their wish lists of things they'd like to get done in the next must pass bill and they got that all through the Senate Finance Committee and then it was just waiting there to be dropped by parachute into this fiscal cliff deal without anybody having a chance to comment on it or even, as I said, read it. So the process really stinks. And there's another lesson here on this for us in the grassroots freedom movement, and that is is beware of cliffs. They keep telling us that we've got a cliff, we've got an emergency, we've got to bend the rules and the process so that we can avoid some bad thing from happening. Well, to heck with that. These cliffs are intentional. They are planned by politicians. They write the deadlines into the legislation so that they'll have another excuse to raise taxes and spending. And we got to get out of this.

We can't let a good crisis go to waste.

All I have to do is quote the Obama idiots.

That's right, you're a font of quotes from the unbelievable.

But, but yeah, that's exactly what they do. They create a crisis so the government can rush in to solve it. And they all look so self important, giving up their New Year's Eve to help the people and, and take care of business in Washington when they should be home with their families. Well, yeah, this is just, it's absurdity. I mean, it's just absurd.

Yeah, it's really, it's disgusting. But. And the nice thing is we're only 49 days from the next clock, which.

Is the debt ceiling.

The debt ceiling and also the sequester, which was postponed for two months. Those both will come back around February 28, March 1, and when that happens, it'll be another crisis and we'll be told, well, we've just got to accept new taxes and new spending and we'll have to postpone those spending cuts yet again. We got to get out of this cycle. And that's why we at FreedomWorks are calling on Congressional Republicans especially, but also Washington generally to do Your job. Go back to regular order. Why not let people read the bill? Why not let people amend the bill? How about pass a budget? Harry Reid and the Senate Democrats have not passed a budget which is required under the law for the past three years running. They're going on four years now. They simply refuse to show the American people where they want to take us in terms of using our tax money and spending. And, you know, our debt is out of control. Got 16 trillion in debt. That's, you know, we're approaching Greece levels of debt. That's debt that's on the books. There's plenty of unfunded liabilities that aren't even accounted for. And then we're borrowing 40 cents out of every dollar we spend. This is crazy. My analogy on this is don't raise the debt ceiling unless we get a budget plan.

It is unbelievable that these people can just sell America's future the way they're doing it. And I sort of. Sometimes I question myself and I wonder if maybe they're just. Maybe they're doing the, in a perverse way, the right thing. Maybe I just don't understand the ultimate exit, which will be to inflate our way out of the mess. And, you know, maybe we can just keep getting China to buy our debt and kick the can down the road for the next five decades and the poor will get poorer and the middle class will get poorer due to inflation. Most people don't know how to plan properly or invest properly for inflation, but some benefit tremendously from it, myself included, because I think I know how to beat them at their own game or at least play their game. But maybe this is just the way of things. I don't know. You know, it seems crazy.

I hope not. I hope not. It's easy.

That my joke is.

It is. It's terribly irresponsible. There is a problem, and it's structural. It needs to change. My joke on this is, you know, we face a crossroads. One road leads to default, the other to inflation. Let's pray that we have the wisdom to choose correctly. But of course, there is a third path, which would be to cut spending. And that's where our problem is. And as I was saying before, we shouldn't increase Uncle Sam's credit line until we get a plan in place to help him get his spending habit under control. And we're probably going to need structural reforms to do that, some kind of constitutional amendments. But in theory, we could do it if our politicians would simply wake up and if our voters would hold them Accountable and that's, you know, at FreedomWorks, that's what we try to do.

Yeah, well, you're certainly right. The problem is what's the incentive to do the right thing in Washington?

Well, that's the problem. There's every incentive to do the wrong thing and the result is the mess we're in. I think at some point Uncle Sam's going to need co signers on his loans. We've been talking as if the bond markets will kind of serve that function. So far they haven't. Now maybe if there's another downgrade this year, and at the moment it looks like we're headed towards one, maybe that will start to wake folks up. The other possibility would be constitutional reform where the states in effect have to act as co signers on any additional debt. State legislatures would have to approve a debt limit increase, for example. This is kind of a, you know, out of the box idea that's kind of bobbing around now among fiscal and constitutional conservatives. It's like, you know, we've tried everything else. Maybe we need to get radical, but hopefully not. Hopefully we can just get bipartisan agreement on changes that will keep our debt to spending ratio under control.

Whenever the people in control of the treasury can dole out that treasury to buy votes from people, there's no incentive to ever change that. It just seems like it may be that way forever. And it seems like that's the way it's always been throughout history is buy votes.

Yeah, that's true. When the people learn that they can vote themselves money out of the treasury, that's when democracies decline and we may be subject to that same law, but you know, the founding fathers tried to prevent that by having checks and balances, federalism, separation of powers, all these great limits on government. We got away from that in the 20th century. Really. It's exactly 100 years now that we've been in this experiment with progressivism where we centralize power and trust elites and bureaucrats to govern us and we got to get back to a more decentralized system.

Explain how it's. Yeah, sure you can, but you know, first I've got a question for you. Explain how it's 100 years. I mean, I know it's 100 years for the Federal Reserve and the IRS, but what else?

Well, in 1913. Yeah, 1913 was in my view the worst year in American history because not only did it give us the Federal Reserve, which is, you know, a cartel of semi private banks that basically manipulate the money supply and facilitate Deficits and debt. But it also gave us the federal income tax, which enables the government to take massive amounts of money out of the economy. And it also causes and it enables redistribution of wealth and of course, terrible invasions of our privacy and then social engineering through tax credits, deductions, loopholes, et cetera, et cetera. And then the third thing is they changed how United States Senators are chosen. Before 1913, the states chose the senators. They were effectively ambassadors from the state governments. The legislatures picked them. Since 1913, they have been chosen by the voters in the same way that we choose our representatives in the House. And that weakened the role of the states in our system. Before 1913, the states and the feds kind of fought each other over, you know, who would get power and jurisdiction. Now they effectively cooperate. And all US Senators do in terms of defending their state's interest is to try to fight to get more money out of the federal trough back home to their constituents. And so all of this has facilitated a huge expansion of government. A nice measure of this is in the 19th century, the average peacetime federal outlays was about 3% of GDP. In the 20th century, it has been well over 15%. Right now, we're spending nearly a quarter of GDP through our federal government. You know, this is something that the founding fathers would have been horrified by.

I just, yeah, certainly agree with you there. But just want to touch on that senator comment for a moment because what you're saying would seem really counterintuitive. I mean, why wouldn't you want the voters to elect the senators from their state? The two. I mean, look at who they've elected. Feinstein and Boxer in California.

Well, that's true. I actually don't think that the quality of senators is any worse now than it was, you know, 100 and 200 years ago. I think the incentives of the senators have changed dramatically. So that instead of. It used to be when a senator went to Washington, the state legislature would actually send him instructions. They would say, you know, vote for the this, vote against that, and if you defy us on this, we may not reappoint you. And that acted as a check. And instead now the senators completely ignore their state governments. They do what they think is in their own personal interest to get reelected. They truckle to the voters and it facilitates that problem that you identified of the voters voting themselves money out of the treasury, which is really a way of people helping themselves to their neighbors money. And we need something. It doesn't necessarily have to be the Senate, but something in our federal Government needs to represent the states and pit the states against the feds because that's where freedom comes in. The space that is opened up by this sort of check and balance at the two levels and we don't have that right now. So there's a number of ways you could try to restore that balance. But it's clear that for 100 years we've lacked it and see where it's going.

We'll be back in just a minute.

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You had a question for me?

Oh yeah, I was asking about inflation. You said you thought that the way out of this debt problem is probably going to be inflation. How would that work and on what timeline do you think that might happen?

Well, the timeline is always the question, my friend. That is the answer. Nobody really knows. Ultimately, I think it's just a progressive debasement of the dollar and just a progressive inflation that just, I should call it regressive, but just an inflation that just marches on every single day and it's just, just part of life. It's like oxygen, you know, nobody really notices it and it's just part of your existence because everybody just assumes for some odd reason that prices just go up, you know, and they don't even know a thing about economics or why that happens, or never really seem to question it. Most people as to why are prices higher now than they were 20 years ago.

What should make that happen? And so my plan, although I can't give you a timeline, I don't think anybody can. But my, my plan is just basically to copy what the government does. And what the government does is it accumulates massive amounts of debt, actually long term fixed rate debt, and then it pays that debt back in cheaper dollars. And China and Japan and other countries seem willing to cooperate in that, even though they must know better themselves. But whether it's our customer base being a good exporter for those that those countries export to us, is what I mean to say, being good customers for them and, or our, our military might and throwing our weight around, I don't know why they cooperate. And it really, if it doesn't seem like they should, certainly the Chinese are smart enough to know better that they're going to be paid back in ever cheaper, more worthless dollars. But they do. They're cooperating so far.

I mean, they can't be just stupid. They must think that in fact, inflation will not be that big a problem.

Yeah, yeah. I don't know what they think. It's just hard to know. Certainly they understand it. But the thing is, people argue that America is doing such a stupid thing and you know, on its face, I completely agree with that. But if you really kind of dig a little deeper and take that to the next level, I mean, think about it. We've got the goods, we've got all this stuff over here and we pay for them in worthless currency. That's sort of a good deal for us, really. And the way I do that in my personal investing life is I just buy income properties and get long term debt against them and the debt is just debased by inflation. So seems to be the same thing the government does pretty much.

Well, that's good. Beating them at their own gain.

Yeah, yeah. So if you can own commodities with cheap long term debt that you pay back in cheaper dollars, it's a great deal.

Yeah. This is good advice. I need to get in on this deal.

Well, listen to my podcast.

What, what about the Federal Reserve and what they're doing? I'm not enough of an economist to understand whether they are planting the seeds of a big inflation or if they're not.

Yeah, I would.

Tell me about that.

I would certainly say that they are planting the seeds of a big inflation. However, some of the things they do really kind of surprise me. Almost make me think that they're making compromises too, in a sense, because with this bond buying program, I mean, they've got to know themselves that they're getting these bonds that will ultimately become worth less and less. I don't want to say worth less, but worth less and less as time goes on, so. But they create fake money out of thin air and charge interest on it. So they've got the best deal in the world, no question about it. And I believe that, that the Federal Reserve is really one of the reasons, one of the major reasons that we are always perpetually at war because they finance wars. They finance both sides of wars. And it's not just our Federal Reserve, but it's other central banks that are part of the same cartel around the world, whether it be the ecb, the European Central bank or others. And it seems like the countries we really hate and don't like, like are ones that won't participate in that system, whether they be Iran, North Korea, Cuba.

Wow, this is an interesting take. So if we abolish central banks, would we have World peace?

No, but I think we'd be a lot closer to it, you know. Yeah, yeah. No, I don't think so. I think there'd still be conflicts, but at least the conflicts would be, you know, I'll say legitimate conflicts. The conflicts now seem like they're generated intentionally just to, for the various powers that be to benefit from them, whether it be the banking industrial complex or the military industrial complex, probably the reason for JFK's assassination. There are all these people that benefit. Whenever you put these big structures in place, there are all these people that are on the take. I mean, look at, look at the state of California, my home state that I left last year, the Socialist Republic of California. These public employee unions are destroying that state. I mean, it is, they, they've just completely destroyed the state. And, and two major things, what you said about what happened 100 years ago is very good point, but two major things that happened on the federal and the state side, you know, over the last few decades is from what I know, John F. Kennedy allowed federal employees to unionize. And that was the beginning of the end. I mean, it is unbelievable to me that government.

And government is the arbiter of fairness. It is the court system.

It is the way we come and seek fairness, okay, through our society, through government, through justice and through that. And it is amazing to me that employees of the government are allowed to unionize against essentially the taxpayers.

That's just unfathomable. It makes no sense at all.

Yeah, it is, it's terrible. Right? The government employees are becoming the largest share of unionized workers in the country. It's especially a problem, I think, at the state level where they sometimes do collectively bargain against the state government effectively, you know, attacking the treasury, you know, holding up the citizens. I think at the federal level, the federal workers are not allowed to collectively bargain. They can get together for other purposes. In fact, the Patkoff strike back in 1981, I think the reason Reagan fired all the air traffic controllers is precisely because they violated the rule that you can't go on strike. But still it is a problem. And my feeling is it's bigness, it's centralization that's the problem. Big government naturally relates to big business and big labor and big banks. And then you get the cronyism and the corruption and it becomes a self sustaining kind of organism that has a mind of its own, doesn't really care about justice, just cares about its own interests. And we all get sucked into it, we get hurt by it. And the answer to it is decentralization.

Yeah, it's an iron triangle of selfish self interested groups. And just to finish that thought, the thing I was going to say about Jerry Brown is in the 70s, Jerry Brown allowed the public employees in California to unionize against the taxpayer. And that's just the beginning of the end.

That's insane. That's insane. Yeah. FDR has a famous letter to the unions where he basically says, no, I'm not going to let you. I'm not going to let federal workers unionize because that is, you know, in effect an assault on the treasury. And we can't allow that.

It's surprising that that would be from fdr, but I applaud him for that.

But what else is FreedomWorks up to nowadays? Are you working on specific campaigns or mobilizing certain efforts? Tell us about that.

Yeah, absolutely. We are engaged, I think more than ever at the state level at the moment. We're very supportive of school choice efforts around the country. We're also fighting on paycheck protection which is letting workers deny money they don't have to give their dues money to the union to be used for political causes that they oppose. We support secret ballot elections for union employees and the kinds of reforms that you saw in Wisconsin, of course, right to work. We want to reform health care as well. And we've been fighting Obamacare ever since it first appeared. And we are, we have an effort called block exchanges.com where we are actually helping to coordinate the battle in the states to block exchanges so that we can can force the administration to come back to Congress to try to reopen the Obamacare law. Our ultimate goal being to dismantle and repeal that law and replace it with patient centered care. We're also, for example just today raising the standard of opposition to Jack Lew as the nominee for Treasury Secretary. Jack Lew has served in a number of posts including Budget Director and White House Chief of Staff. And he has not been forthright with Congress. He's helped put together budgets that do absolutely nothing to get our fiscal house in order. And a lot of members of Congress feel like he's lied to them about the budget. And so those are examples of what we're working on.

Well, good stuff. Give out your website if you would and tell people, you know, any tips you have on what they can do if they want to get involved.

Sure. FreedomWorks.org is our website and if you are interested in getting involved in some of these battles that we're engaged in to promote freedom, just click on the Take Action tab and we have what we call action centers there. You just click on them and they're designed so that you can for example, patch through and send an email to your member of Congress, your senator, or even call their office and deliver a message about how you feel.

On one of these issues. And again, I'd mention that blockexchanges.com website where you can get involved in the fight for healthcare freedom.

Good stuff. Well, Dean Clancy, thank you so much and keep up the Good work with FreedomWorks.

Thank you Jason. It was my pleasure.

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