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Debt, Taxes and Economic Cracks? | The Schaftlein Report Ep. 29

February 06, 2024 Episode 29
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Debt, Taxes and Economic Cracks? | The Schaftlein Report Ep. 29
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Show Notes Transcript Chapter Markers

1) Consumers owe Credit card companies $1.05T.  The U.S. government is $34T in Debt.

Are we headed for a 'Death Spiral'? What causes a break?

2) Certain voices are calling for tax increases (former Treasury Sec. Robert Rubin).

What about actual spending CUTS?  With divided government in an election year, neither spending cuts or tax increases are even on the table.

Vermont is considering a Wealth Tax.

3) S & P 500 at record high with certain technology stocks maintaining sky high price to earnings multiples.

On the day record high was achieved, more stocks were in the red than in the green.  1987 was the last time that happened.  We'll analyze.

3a) Are $2T government deficits contributing to the stock valuations?

4) Overall price levels remain high with no sign of reduction.  CPI at 3% but car insurance is up 26%. Middle income and low income consumers are getting crushed.

Rents have also remained high.  Gas prices have come down, but will a wider middle east conflict cause them to go up?  Politics at play?

5) Trump leading Biden by 5 points in latest NBC poll but way upon the economy and border security, which are the top 2 issues.

6) $118B Border, Ukraine, Israel aid bill in big trouble.

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Speaker 1:

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Speaker 4:

Hello everybody, mark Schafflein with you and this is a Schafflein Report. It's Tuesday's edition and we're privileged to have the provost from Liberty University, a Schafflein Report regular, dave Bradt, back on the show. Dave, happy to have you with me today. We got a lot to talk about, my friend.

Speaker 5:

Yeah, too much in the news. It's going to be a busy one. Thanks for having me on, Mark.

Speaker 4:

Hey, it's always great having you back, Dave. Well, Dave, let's talk about what's sort of the topic du jour which is permeating through Washington, Wall Street and Main Street, and that's this explosion of debt that you and I have been talking about for the last few years. Dave, it almost seems like now the political class, the media, they're talking about things that you and I have talked about for two years and it's really I don't want to say it's coming to a crescendo, but when you're north of a trillion on credit card, and now even the mainstream media is talking 34 trillion in debt and the sad thing is there's no end in sight and your former brethren in Congress want to just keep spending. Dave, give me your perspective on this, because this is not a pretty picture that we're seeing right now.

Speaker 5:

Yeah, well, unfortunately there's just not enough leaders up in DC and it's become easier and easier to see, right, there's just all sorts of controversial bills where the American people are just scratching their head the immigration stuff, the budget stuff, the debt stuff and at 60 minutes the chairman of the Fed was on there and he says well, I'm not supposed to talk about fiscal stuff, but we've got to have a reckoning when it comes to spending. Well, okay, that's neat, but the Federal Reserve validated the now 34 trillion in debt we have on the books and, as you said, now the interest just the interest payments on the debt, is a trillion bucks right now. Right, so that's a trillion dollars we're just throwing out in the wind to blow around. But now, according to Zero Hedge and others, the Federal Reserve is going to have to go sell $10 trillion in government debt this year, in 2024. That is cycling through the Federal Reserve debt, the 34 trillion debt, and what 10 of its do? This year they got to go resell $10 trillion and then what happens? They got to pay the higher interest rates on that, which is 5% or so. And so if you just do the math for $50 trillion in debt in 10 years and if you take 5% of $50 trillion and this is CBO right, I'm just quoting all the recognized sources, congressional Budget Office 5% of $50 trillion is $2.5 trillion in interest on the debt at the end of this business cycle, nine years out now. So yeah, it's overwhelming, it's staggering. All this, of course, goes to the kids and their generation and the CBO. The most troubling number there is they have GDP growth rates and productivity which is roughly the same thing, both growing at 1.5% for the next 20 years 1.5% GDP growth for 20 years. So anyone that's telling you the economy is just doing great right now they don't know what they're talking about. They're running $2.5 trillion deficit this year to goose the economy a little bit, have a little economic growth before election cycles and unfortunately, that's our political class at work.

Speaker 4:

Dave, let me ask you this. I mean, the economy is going to grow 1.5%.

Speaker 5:

Yeah.

Speaker 4:

Maybe OK, unless this quote debt, debt, I'm calling it a debt spiral comes into play. Walk our audience through the ramifications and the risks of literally a debt spiral, because the stock market's sitting near all-time highs I mean knocking on the door 5,000 on the S&P 500. My personal opinion is a lot of that, fueled by $2 trillion of excess government spending that's propping up those valuations. I mean you've got some astronomical valuations on a handful of stock propping this market up. But, dave, really drill down to it. Explain to our audience what a debt spiral is.

Speaker 5:

Yeah Well, your audience is sophisticated, and so I could have had a chart out today in a case-shiller index which shows how overvalued the stock market is. There's kind of a pig-in-the-pitheon story going on. The stock market's going like this straight up, and the real economy is flat as a pancake, not growing hardly at all and so how in the world can earnings be going like this when GDP growth, the stuff you make and the underlying economy of these firms is flat as a pancake? And the answer is what you just suggested we printed $8 trillion of federal reserve funny money and then now they're slowing that down, and the reasoning there is interesting. The American people aren't cynical enough to catch this. You have to be a seasoned economist to become this cynical, and so the reason is Axios and all the big news and all the political views are just my own. I don't speak for anybody else on these things, but they were all signalling the White House. There's only one thing that upsets the American people right now. It's not debt, it's not productivity growth in the future, it's not education no one cares. Snoozer, all those things matter, but no one cares. No one votes on those things. The one thing they care about is they've lost 20% of their purchasing power in the past four years due to inflation. The eggs and the bacon and the milk are way up, gasoline still up, the prices have gone up and they've never come down. And so the Federal Reserve M2, they've had to actually go in and cut the money supply and it's coming down. But then someone had to step in to keep this party going and that is what you just said. This year the federal government, not the Federal Reserve, is running $2 and 1 half trillion in deficit spending Borrowing. Here's the picture of this. The United States Federal Government goes out to Uncle Sam. Your rich uncle borrows $2 and 1 half trillion, puts it over in his hand, gives it to the government to count your macroeconomics, put it in capital G, c plus I plus G, and they call that economic growth. You just borrowed $2 and 1 half trillion from your kids. You shove it into government spending and you count that as economic growth. I mean you can't make it up.

Speaker 4:

Yeah. And what makes it even worse, dave, is the average person out there. They're thinking, ok, I keep hearing from Jerome Powell that inflation's coming down. Yeah, the consumer price index is now officially around 3%, but Americans are not going to experience a price decline. In words, it is not going back to the good old days, the way it was when Trump was president, and again I think a lot of people were expecting, well, winter price is going to really come down because, you're right, they're at least 20% higher since Biden been in office. I used an example. We talked about car insurance 26%, 27% increases in that. You've talked about milk, eggs, stuff you consume. This stuff is not coming down. And if I'm really cynical which I am about Democrats, I believe the reason the president is being very light-handed with Iran. He doesn't want to see this conflict escalate because then in an election year he'll start seeing $4 a gallon on the East Coast, 5% to 6% on the West Coast. He doesn't want that. He's already upside down Trump 20 points on the economy. He's upside down Trump 30 points on the border. So I mean, those seem to be, dave, the two main issues that people care about, and I know you've got some charts and graphs you can show our viewers related to employment and who's actually getting jobs and where they're coming from. But, dave, if I'm sitting in Joe Biden's shoes and I'm upside down 20 on the economy and 30 on the border and this border bill looks like it's going nowhere? I'm not trying to give a Democrat advice, but what would you do if you're sitting here as the president?

Speaker 5:

Oh boy, that's a doozy. I just want to reiterate something you just said before I get to that one, because you explain what's crucial about inflation, right? So say inflation was roughly 10 and then five and then five. Right, so prices went up by 10, and then the news reports at night the inflation rate went down from 10 to five. So the American people think, well, that's good news, the prices are going down by five. No, inflation's still five. The prices are still going up by five. So you're precise the right way. Say prices have never gone down, they've only gone up 20%. They are still going up by 3% or three or four, and they're never coming down. Now what would I do if I was Biden? Oh boy, that's a doozy. I would shut down the border. That the new Senate border bill is actually worse than current law. Under this new thing it used to take six months when someone comes to the border and says my government is scary and I want to seek asylum here, and before you had to wait six months and get processed, and all that now in law we're going to codify. You get to leave immediately. And they got some special stuff where they give you a cell phone for free and say you got to call us and stay in touch with the government and the odds of that are zero. And so there's no deportation, no one. The border becomes more open. It's something like 5,000 a day that they count are allowed and they mandate that you have to allow 1,400 a day in. You got to go get them to come in because they want the cheap labor, and so the American people are catching out of this. The big companies get the cheap labor, but one of my all-star friends, heather McDonald, wrote a piece the average cost of school in LA, los Angeles, right now is $50,000 per kid, right. So someone comes across the border, makes $20,000 a year. Everybody's made in God's image, by the way. This is not a put down of any human being so they come across the border, work 20, make 20 grand. One kid in school 50 grand. Who's paying to build local taxpayers wherever you live, right? The K-12 is paid for by state and local. So if I was Biden, I would shut down the border. If I was him, just strategically, I'd keep goose in the economy, like he's doing, which is awful for us. But no one pays attention to the debt and deficits and so unfortunately, he's gonna get away with any of that stuff that's going on and just passing the debt onto the kids, and then I would end all these forever wars. But he's sunk, he's tied in. There's so much corruption over there, in Ukraine, et cetera, that's being hidden. There's I think there's oil off of Gaza. There's all sorts of side stories that no one reports because they don't want to get in trouble. But he's gone hardcore with leftist policies in the schools and other issues and the jobs report we can cover in a minute. But not too much good news, right. It's kind of funny. The New York Times wrote a piece and they said it's a little ironic that Trump will bring back an age of normalcy. And that's the New York Times saying that right, peace and prosperity and normalcy with Trump, if he can imagine that one. And that's from the New York Times Right now. It's not good, right.

Speaker 6:

We've got multiple wars on all sides.

Speaker 4:

It is startling when you add them all up, which is why the current president is sitting at a 37% approval rating. Dave, we're gonna break for one minute and then we're gonna be back and we're gonna be talking about taxes, we're gonna be talking about employment and some other hot topics, and he's gonna show you some graphs that folks will just it'll shake it to your core when you see this stuff Back in 60 seconds MUSIC.

Speaker 6:

When I grow up, I wanna work for a woke company Like super woke when I grow up. When I grow up, I wanna be hired based on what I look like Rather than my skills. I wanna be judged by my political beliefs. I wanna get promoted based on my chromosomes. When I grow up, I want to be offended by my coworkers and walk around the office on eggshells and have my words policed by HR Words like Grandfather Peanut gallery Long time, no see, no can do. When I grow up, I wanna be obsessed with emotional safety and do workplace sensitivity training all day long. When I grow up, I wanna climb the corporate ladder Just by following the crowd. I wanna be a conformist. I wanna weaponize my pronouns. What are pronouns?

Speaker 1:

It's time to grow up and get back to work. Introducing the number one woke, free job board in America RedBalloonwork.

Speaker 4:

Folks, we're back with Dave Brad after watching the funniest and most humorous commercial on streaming. I love it. Thanks to Red Bull Ring. Dave, this border bill is going nowhere. I mean, who in their right mind would start off a border bill by allowing 5,000 people a day to cross the border when you're trying to close it? I mean, if I didn't read one other word of the document, I would say who in their right mind could draft such a document? And yet the mainstream media is talking about how great Senator Lankford is, and Kirsten Sinema and even Mitch McConnell, who came out for the bill, is now urging his members to vote against it. Yeah, this bill is going nowhere. You know it, I know it, and that's just called a reality check here, but you didn't mention all these people coming across. They're not going to stop and the American people are seeing through this, dave. I mean they don't want what's happening right now Brutally high prices, a border that's being overrun, endless wars. I mean we talked about that. Let's put it in sort of perspective, dave, on what we can expect. Talk a little bit about the employment situation right now, because there's some fake news out there and we really need to cut through that.

Speaker 5:

Yeah Well, try cutting through this. The mayor of New York City, I don't think, is an arch conservative. And Eric Adams, the mayor of New York City, said this immigration issue is going to kill my city. Comma in quotes again, it's going to kill my city, right? So this mayor of New York City, immigration is going to kill my city. We're bankrupt. We can't afford any of this. It's a disaster. There's chaos, there's crime, there's drugs. The mayor of Chicago doubled down again, not known for being a hardcore conservative, and so there's really a political alignment going on. This is a globalist and the super wealthy versus the American people. It's not really Republican Democrat anymore, and those poll numbers are kind of reflecting that a 70, 30 flip between the common sense of the American people and the elitists and those who are associated with big money. And they just have to say what they say and I will share with your folks, the senators and the congressmen that are affiliated with leadership. They do get their world rocked. The mega billionaires come after them and they say if you don't put a cheap labor bill through, I'll find an alternative candidate to you in five seconds and we'll fully fund them. And so the grassroots does not have that ability yet to fund alternative candidates. And so the globalist folks to put these bills into play. They're playing with fire right now at a populist moment. And so let's go from the immigration issue. That bill, as you say, is just a disaster. I think it's eight million illegal immigrants coming in, all catch and release going, and now there's reports of everything Hamas, terrorist groups, China stuff. 60 minutes is running stuff on this now. So this is not tin foil hat stuff anymore. The mainstream media actually is picking up on reality. That we've all known. But let me just show you two charts. There's two labor surveys. One is called the establishment survey, one is called the household survey. I won't get into weeds on it, but they're off by nine million jobs over the past four years, just to put it simply. And the reason the establishment is probably the one that's off is because, say, you're very poor and you have three jobs trying to make ends meet, the establishment survey counts that as being three jobs. And so in the household survey says no, it's one person, they're working and they're job. The establishment survey is just way over counting. And if you want to go to that graph, you just had up with the green bar first and the red bar right. There's your last jobs report since February 23 last month. So in the news you read about all the establishment numbers, right, the great, great news of 350,000 new jobs. Wow, that's great, that's cool. Except the problem is, according to this chart, all of those jobs were part-time jobs, which I just kind of got done hinting Right. So what's that chart say, on blind right, 900,000 new part-time jobs, and full-time jobs is in the red. What happened to full-time jobs? They went down by 97,000. All right, and so that's pretty devastating to these optimistic. You know the economy's great, the jobs report are great, it turns out the magnificent seven. You know firms, tech firms are doing great, but the magnificent American people are not doing great. And then, if you want to put up that next chart that follows it, this one is hard to believe. That green line at the far right is foreign-born workers. Full of the job gains. All of them went to foreign-born workers in the past several years. Zero of the job gains have gone to native-born US workers. So again, nothing against immigrants, it's great. But this is illegal immigration we're talking about and it's chaos and who knows what's coming in along the border and I think I hope everybody knows what's going on. There's cartels, criminal cartels, all the way up and down the border and on the Mexico side especially, people are having to pay five, 10, $20,000 to come in. Kids are getting lost, girls and boys are getting human trafficked and you know what that means. Can't say it on polite TV, but it's awful and so you know. That's the optimistic jobs report you've been hearing about. Jobs are great, the economy is doing good. It's not good.

Speaker 4:

What those numbers, I think, explain is something a lot of people who have you know. I've gone on different shows and they asked me the question Mark, the unemployment rate is 3.7. We're creating 300,000 jobs. You know the Federal Reserve is reacting to these numbers, keeping interest rates elevated and yet, and yet, when people are talking about who they're going to vote for, trump is up 20 on the economy. Biden is losing African-American support and I saw a clip the other day on one of this, something where people were being interviewed. They said, well, why are you going to vote for Trump instead of Biden? And the answer was really crystal clear Well, under Trump we had money. Under Biden, we don't Right, that's it. It was really that simple. And you see the president bleeding support among young voters and working age folks who are out there trying to get ahead. You see these quote great economic numbers Because, dave, you and I know, 3.7% unemployment with, if really, 350,000 dollars for being created, joe Biden would not be 20 points upside down. There is just. There is no way that could be happening. But your charts and graphs and the explanation you just showed, that illustrates what's happening in the real economy and if you're making $50,000 or less in this country which, oh, by the way, about 60% of the country falls into that group there is no way you can get ahead, I mean, with over a trillion in credit card debt. Rents have they're not going up anymore, but they're staying elevated at high levels. Here in the state of Florida, insurance costs are way, way over the top. I'm not just talking car insurance, folks. We've got condominiums. This is, there's lots of condominiums in Florida, folks. They, because of what happened last year in Surfside and the Hurricanes, condominium insurances are going up 100% in some cases. People are getting hit by massive assessments. And you throw this on top of all the other issues, dave. It's no wonder the president's upside down 20 points and he's trying to spin it going out. Well, I'm a union guy and well you may be union all you want, but under Donald Trump people did have money. We didn't have a massive overflow at the border. And, dave, 60% of Americans are saying forget all this legislation, just build a damn wall and keep them out. So I don't know. Wanna get your thoughts on something else too.

Speaker 5:

Yeah, well, I'll just add it. Yeah, I'll just add two more stats that go along what you just said. 64% of Americans are now living paycheck to paycheck. That includes financial analysts and people you would not guess. 64% of the American people have zero savings. 45% have less than $1,000 in savings. So what you just described, the numbers buried out, the evidence, the receipts are in. The American people are feeling the pain and now let's hit it. Sorry, I cut you off. Go on to the next topic.

Speaker 4:

No, no, no, no, go ahead, but I wanted to get your comment. Former Treasury Secretary Robert Rubin, formerly of Citibank Treasury Secretary of the United States, I think under Democratic administration. Not a hardcore leftist, but he's sort of a center left type guy. What does he come out and say? Well, we need to raise taxes. Oh, my God, I gotta tell you I don't see it happening in an election year, because two things never happen in an election year they never cut, they never raised taxes, they never cut spending Right right. So Robert Rubin may have the best of intentions, but something tells me, dave, this is not gonna happen in 2024. I mean, economically, I just see problems ahead. I mean, I know you and I both know the S&P 500, near 5,000, that's great if you own a lot of houses and you're in the market, but so many Americans are not participating in that, Dave, yep.

Speaker 5:

No, that's right. 10% the wealthy 10% own 90% of the stocks and the bonds and the pensions. 10% own 90%. Right and so? And we just did a tax package bipartisan, by the way, which is really good. So that means we increase the welfare state for the left and we reduce taxes on. I think the average American got $60 per person and the average rich person in the top 1% got $60,000. Huh, how's that gonna work? At the polls, the average person got 60 bucks and the average rich person got $6,000. And if that's not enough and I could go on all day there's a firm called Meta. You might've heard of Meta, mark Zuckerberg, associated with Zuckerbucks. The effective tax rate of Meta went from 25% to negative two in that. What do you call that? What do you call that nephatism bill? What do you call it when you give money to all your relatives down in South America? Patronage budget bill right? So this was classic. The left gets what they want to give to their groups. The right the old right that's going extinct gets money to pay to the rich, and the middle class gets soaked, and so we just had a tax bill. It's a disaster also, and so that's where we stand. The American people are waking up though the polling results. This populist surge, I think, is gonna show up pretty big in the elections.

Speaker 4:

Dave, we've got about a little over a minute left, the latest NBC News poll and it's a pretty, it's a credible poll. It was followed by other polls. I saw it. I saw it. Yeah, I mean just the sheer when you look at the faces of the media members disclosing this data to you and you see the fear.

Speaker 6:

I mean it gives you sort of a.

Speaker 4:

I told you so type attitude you guys wanna jump. I look what you got. And now, dave, even someone who's a cynic like you and I you look at the president. I mean he's not up to the job. I mean there is no way you can say he's up to it, dave, 30 seconds left. Trump's up by five but, more importantly, in those seven swing states he's up by more than five. Well, outside the margin of error. Is it inevitable that we're gonna put Donald Trump or 20 seconds left? What else could go wrong?

Speaker 5:

Yeah, no, right now it looks like it, and when the New York Times calls him the candidate of normalcy, peace and prosperity sounds kinda good to me. And you can get me at Brat Economics on Getter and I got an email account there to get me. I'm gonna be in the villages in Florida next week, so if you got any friends in the villages I'll be down there talking on just these topics. Look forward to meeting you. Get on.

Speaker 4:

I'm excited to find you, dave. Hey traintv and Dave Brett, that's a great combination. Thanks for being my guest. Great, see you soon.

Speaker 5:

Awesome thanks, Mark, great show.

(Cont.) Debt, Taxes and Economic Cracks? | The Schaftlein Report Ep. 29