Episode-721- Tom Kowitz on the Last 4 US Goverment Defaults

Tom and his Radio Counterpart Michelle Gaudin

So the main stream media just spent the last 6 months scaring the crap out of everyone in regard to the “debt ceiling crisis”, stating over and over, “for the first time in history the US could default on its debts”.  As the title of today’s show indicates once again the main stream is not just wrong but completely incompetent.

To gain a better perspective of these events and our current financial mess I have enlisted Tom Kowitz of the Baldy and the Blonde Show from WGSO 990 AM in New Orleans to come on TSP and help us gain a greater understanding past defaults and the nation’s economic future.  If you often feel “money isn’t a survival topic”, you need to listen to this show, it will put it in a much more clear perspective for you.

Join me today as we discuss…

  • A bit on our current political nonsense about the debt ceiling
  • Why a AA+ rating of US credit is a joke
  • The history of currency changes and defaults in the last 100 years
    • 1913  Federal Reserve Act (from hell)
    • 1933 Confiscation of gold, and the federal government’s refusal to honor the gold clause in its bond contracts (this was a full-on default); Federal Reserve Notes now redeemable for silver instead of gold.
    • 1945 Bretton Woods Agreement established the dollar as the world’s reserve currency and the only currency convertible into gold (which means massive amounts of U.S. dollars had to be exported, which is precisely what happened in the few years after WWII)
    • 1965 The Coinage Act of 1965 eliminated silver from US coins (except half dollars, where silver content was cut from 90 percent to 40 percent) and gave us the junk we’re using today. (Default on all coinage)
    • 1968 Silver Certificates no longer redeemable for silver (another default)
    • 1969 Special Drawing Rights created by the IMF (1 SDR = 1 US dollar). SDR’s were created in part because of the concern that the U.S. wasn’t circulating enough dollars, and without a LOT of dollars out there, the dollar could not serve as the reserve currency.
    • 1971 Nixon closes the gold window; foreign central banks can no longer convert dollars into gold. This seems to me to be another default. There were way too many dollars out there. (Full on default by the US to the entire world)
    • 1978 IMF establishes a goal of making the SDR the principal reserve asset in the international monetary system. They straight-up announced their plan to put the entire world on a new monetary system.

Additional Resources for Today’s Show

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12 Responses to Episode-721- Tom Kowitz on the Last 4 US Goverment Defaults

  1. @Jack and Tom,

    I’ve got a comment about the “be ready to be a criminal.” I totally understand what you’re saying, but as a matter of principle, that STATEMENT (not the meaning), is wrong. I can never be a criminal for holding my own food that I grew or bought with my own money.

    I think it is important for us to always make it clear, who the criminals are. Anyone who passes a “law” or declaration of some sort that claims to have the right to separate me from my rightfully obtained property is the criminal, and that act is illegitimate. Property rights are fundamental in our Nation…and are God given/natural born rights.

    Maybe I’m splitting hairs, but I’m not willing to give up that Rhetorical ground. I’ve learned over the past 10 years of so that manipulation of language is one means of “shaping” the minds of the public.

    Just like Jack said–we aren’t HOARDING anything. That is a bastardization of language that is used against people to “turn you into a felon” as Tom Mentioned.

    So, clearly, you guys get it, but I just wanted to voice my opposition to the idea that someone can declare me a criminal, because they want to change the rules.

    One other note. I wasn’t raised in a political home, but my Father referred to FDR as “The Destroyer.”

    • Modern Survival

      @KAM, good points may be it would be better to say, “be prepared to be labeled as a criminal” or “be prepared to violate the laws when they themselves become criminal”.

      Sure you are splitting hairs but it ain’t like you are being a dick about it, ;>)

      More than I can say for some nit picking pains in the asses out there, LOL, you know who you are.

  2. @Jack,

    You’re right–”be prepared to be labeled as a criminal.” As you mentioned on the show–also be prepared to be called a “racist” (despite not saying anything about race), “hateful” (despite wanting people to be free and well), “Violent” (while peacefully protesting) etc, etc.

    That’s the game cowards play, which has seen a massive surge in the internet age. Tarring people with labels, and repeating it until it becomes “truth” despite having ZERO basis in fact.

    No, I’m done giving ground on that sort of thing. People can speak to the merit of what I say, or avoid it, but I’m not ever going to be cowed by a label some idiot throws at me. I suspect you think the same way.

    HAHAH. All I can saying is that I’m not TRYING to be “a D!ck about it.” Whether I succeed or not is another story. Racist, Criminal, hateful…no. “D!ck”…maybe. :)

  3. Recommended Reading:

    “What Has Government Done to Our Money” By the great Austrian Economist Murray N Rothbard. You can get it from the Mises Institute for $6.

    http://mises.org/store/product.aspx?ProductId=262

  4. Question for discussion: under what circumstances should we expect deflation vs severe inflation. It seems to me the BEST that could happen is stagnation, like Japan’s lost decade. I’m trying to understand the forces that could tip it either way. I know I’m not in control of it, but would like to feel like I understand it and am prepared for either.

  5. Re: Inflation vs Deflation expectations

    Currency inflation is a monetary phenomenon. More money = inflation; less money = deflation; therefore, to have deflation the Federal Reserve would have to decrease the money supply, and to have inflation they are increasing the money supply. Sorry to state the obvious, but sometimes you just have to go back to basics, to make sure people are on the same page. There are also price moves not related to inflation/deflation of a currency, but this is not the question. The reduction of the money supply has never happened for any long period of time. Expect Inflation. The Keynesians at the Federal Reserve believe that they have to create inflation to keep the economy going, and so they will. Other reasons are given for the continual inflation, but the delusional nature of Keynesianism must suffice in a short post. Also there wasn’t really deflation in Japan (http://research.stlouisfed.org/publications/iet/japan/page4.pdf). What will make it hyperinflation? There is no consensus on what constitutes hyperinflation. Some say 20%, some 50%, and some 100% per annum if you search for a hard numbers definition. All of these would be bad, but the bigger the number the harder the economy falls.

    As a side note, I am pleased that the title of this show uses the word default and not collapse. The government has definitely defaulted, or failed to keep it contractual/understood obligations with the people. On the other hand we have not had a currency collapse in the US, in which the dollar has failed or all but failed to serve as money. Despite the continual defaults, people have continued to use the greenback as money. Fools and the purchasing power of their money are soon parted.

  6. Thanks Rorsch. I hear what you are saying about the money supply. However, if demand drops, prices can still drop. Isn’t that the deflation the Fed has been trying to avoid with QE1, QE2, and the low interest rate?
    History shows that then when demand picks up, inflation must occur. But what if demand just can’t be stimulated?
    Just trying to fully grasp this :)

  7. Historically inflation/deflation was about money supply. Because the Fed ‘researches’ and publishes statistics based on price movements people commonly seen inflation in terms of prices. But prices of any item can rise or fall with supply and demand of that particular item. Because of the confusion now in the inflation discussion, people in the Austrian school of economics have started taking about monetary inflation(increased money supply), and price inflation(increase of average prices). Now take for instance the simplistic scenario in which there is no fractional reserve banking in an economy that is isolated from any other potential economy. In this scenario, then the same people cannot spend more and more money year after year unless there is new money; also to spend more one item x they would have to spend less on items y or z. When the Fed publishes ‘inflation’ statistics they are ‘estimating’ the general price movement, not the price movement of any particular item(I use the quotes because what the fed is really doing is deception). “So if the demand drops?”: You must ask yourself, “the demand for what in particular has dropped?” What if the demand dropped on cell phones? Maybe if a EMP takes out electronics, the demand for cell phones will die, but you still would have money to spend on food, so people would now be able to spend more on things like food and in the end spending the same total if the money supply were held steady. Demand for everything would have to drop for all prices to fall. Only if people are all dead in some Alex Jones apocalypse would all demand for all of various products completely disappear since we all at least need to eat. There is an interplay between the supply/demand for money and supply/demand of various products in society, but if the amount of products remain stable and the money supply increases then you will have both monetary and price inflation.
    The Fed seems to be worried about price deflation since this is what they spend the most intellectual effort on. This is because Keynesianism teaches that price deflation, where there is a stable money supply and more goods, will lead to decreased spending (since items cost less), then decreased wages for workers and/or job losses; This will in turn lead to people less able to buy product (more demand drop) since they have less money; this vicious circle will continue until all we can do is sit around and twiddle our thumbs until we starve. This is false, if the money supply remains stable and the workers more productive, people can now buy more of product x at a lower price, thereby spending the same amount or buy more of other products, again spending the same total amount. In the free market scenario increased productivity frees people to do other things and increase the number and types of product people can consume. Workers keep their wages by producing more products that are cheaper, but by selling more of them, or creating new products that can now be purchased.
    The Fed manipulations of interest rates are not a change in money supply, but do affect the economy. Lowering interest rates will favor the increased buying of items that need to be financed like houses. Would you rather have your mortgage rate 10% or 4%. On a large item like this over 30 years a change in interest rate can change the total cost very significantly. Hence during this last decade when the Fed kept interest rates low, we saw a surge of house buying.

  8. Hey Jack — I was struck by your comment about 17:00 in regarding how public debt was paid down during the Eisenhower years, only to be replaced by household and business debt increasing. I was wondering if you’re familiar with the Australian economist Steve Keen. This is a point that he has been hammering for several years now in regards to total debt vs. government debt. I think you might find his stuff interesting even if you don’t agree with it all (his main argument seems to be about debunking neoclassical economics).

    • Chris Harrison,
      Interesting. Would you please provide specific article links? Also, does he discuss the Fed balance sheet during these times? If so I think that/those articles(s) would be the most relevant to what Jack is saying and TRTAM.

      • Here’s a link to Steve Keen’s website for starters: http://www.debtdeflation.com/blogs/

        He’s also made several appearances on RT’s Keiser Report as a guest, and I always found him to be well worth watching on that show. I’m sure that a little poking around Google would provide some links on that end. In fact, I’d recommend watching him rather than reading him first, because his blog is written on a more technical level and his interviews are more straightforward.

        He doesn’t delve too much into the Federal Reserve because he’s Australian, not American. He’s a follower of Hyman Minsky’s economic school and is interested in debunking neoclassical economic theory — in fact, the name of his book is “Debunking Economics”.

        Hope this helps.

  9. I’m behind a bit, just finished listening to this one yesterday, and I have to say this is one of my all time favorite episodes. It is a great resource to point to when trying to explain to people what BS the mainstream media and our government spew about defaults & budgets & our monetary system. Thanks!