With over 50 years of experience in the federal tax area, Larry Gibbs counsels senior executives of large businesses...
Rocky Dhir’s dual interest in innovation and the law prompted him to establish Atlas Legal Research, LP in 2000....
The US national debt today is about 22 trillion dollars and each day it continues to rise. Rocky Dhir hosting from the State Bar of Texas’ 2019 Annual Meeting, is joined by Larry Gibbs to talk about America’s national debt crisis. They discuss the difference between the national deficit and the national debt; how other countries, such as China, are financing our debt (for now); and what could happen if we default on our loans. Larry strongly urges our listeners and everyone out there to educate themselves about our debts, deficits, and spending programs and to reach out to their politicians and to make our debt a principle issue in this country.
Larry Gibbs is a senior counsel at Miller & Chevalier
Special thanks to our sponsor, LawPay.
State Bar of Texas Podcast
State Bar of Texas Annual Meeting 2019: The US National Debt with Larry Gibbs
Intro: Welcome to the State Bar of Texas Podcast, your monthly source for conversations and curated content to improve your law practice, with your host, Rocky Dhir.
Rocky Dhir: Hello and welcome to the State Bar of Texas Podcast, recorded from the Annual Meeting in Austin, Texas. This is Rocky Dhir and I’m the host for today’s show which is being sponsored by LawPay, trusted by more than 35,000 law firms to accept legal payments online. It’s the only payment solution offered as a member benefit by the State Bar of Texas.
Joining me now I have Larry Gibbs. Welcome to the show, Larry.
Larry Gibbs: Thanks Rocky.
Rocky Dhir: Before we get started, I know you’ve been talking today about — and I’m going to read the title because this is quite an earful and quite a mouthful, The United States of America: Our National Debt, Our Annual Deficits, and the Increasing Risks They Pose. What can be done about them?
That sounds like a heck of a topic.
Before we get into that, tell us about yourself. Tell us about your background and what you do?
Larry Gibbs: I’m a Texan, transplanted from Kansas originally but grew up in Dallas, Texas, went to the University of Texas School of Law, here in Austin, lived in Corpus Christi for 11 years back to Dallas for 10 years, currently living in Sarasota, Florida.
Rocky Dhir: Now you were the IRS Commissioner for a time.
Larry Gibbs: I was indeed.
Rocky Dhir: When was that and obviously you were living in DC, you didn’t get to be a Texan then.
Larry Gibbs: I moved from Dallas to DC and was an appointee for President Ronald Reagan from 1986 to 1989.
Rocky Dhir: I assume you were happy to leave DC and to come back to the South.
Larry Gibbs: Sarasota looks great, it really does, it’s a good way to leave DC, if you have to leave DC.
Rocky Dhir: It’s a good place to go. I’m always partial to Texas personally. I love it here, I don’t ever want to move away but —
Larry Gibbs: We fly the Texas flag from our dock in Sarasota Bay.
Rocky Dhir: Is that legal to do in Florida?
Larry Gibbs: Absolutely.
Rocky Dhir: Okay, good, good. So look, Larry, let’s talk for a second about the national debt, and I guess reading the title, it sounds like now when I look at my credit card statement, I can say to myself at least I’m not the United States of America. We’ve got a big debt problem. Tell us a little bit about this.
Larry Gibbs: It’s huge and is growing; $22 trillion.
Rocky Dhir: That’s our national debt.
Larry Gibbs: That’s our national debt —
Rocky Dhir: Okay.
Larry Gibbs: — and it’s growing daily. Within three years, the Congressional Budget Office, which is highly respected nonpartisan, is predicting that we will add a trillion dollars a year because of our deficits to the $22 trillion we presently have. So its exploding has been for 10 years.
Rocky Dhir: Okay, so let’s maybe try to break this down because I think a lot of people, myself included, when we hear about the national debt and then we hear about deficits. I think maybe we conflate those two terms, we don’t necessarily know the difference, but I understand there is a difference. So talk to us about budgetary deficits versus the national debt and what that means.
Larry Gibbs: I would be glad to. Each year the United States operates on a budget, the entire federal government and what an annual deficit is means that we are paying out more than we are taking in and revenue another receipts, and what that means is that we are spending more than we have.
And as I said, the projection is that that within the next two or three years, that’s projected to go to a trillion dollars a year overspending more than we are taking in.
Rocky Dhir: So that means per year, we’re spending a trillion dollars more than we actually take in as a government?
Larry Gibbs: That is correct.
Rocky Dhir: So, obviously, somehow the country is functioning because I know for most of us as individuals, when we think that my expenses exceed my income that means at some point you declare bankruptcy or you try to find ways to pay off that debt or you’re just carrying a debt load forever that you’re trying to service.
How is the United States as an entity paying for this debt? I mean, obviously, we’re carrying it and things are functioning, so how are we financing all this debt that we’re carrying?
Larry Gibbs: We’re financing it largely by borrowing from other countries.
Rocky Dhir: Okay.
Larry Gibbs: They are lending us money and instead of using our own money or generating money ourselves we are borrowing literally from others to pay for the way we operate.
Rocky Dhir: So does that mean these other countries have surpluses or are they also running debts and they’re just lending to us and that turns in —
Larry Gibbs: Both.
Rocky Dhir: Okay, so we hear a lot about China, right, that we owe a lot of debt to China, can you tell us a little bit about that? I mean, how has that debt structured and what happens if China decides to call in that debt?
Larry Gibbs: Well, the debt is on fixed maturities. China can’t call it. We could call it but we don’t, we continue, we roll it over, we pay interest and as interest increases then we obviously have to pay more.
Rocky Dhir: Sure.
Larry Gibbs: China is one of the major lenders to us, although they have been reducing the amount that they are willing to lend us over the last several years, but they still lend us a substantial amount of money. So far we’ve been able to make payments on time to China as well as other — our other creditors.
If we ever stopped doing that, then the poster child for countries that can’t pay their debts is Greece.
Rocky Dhir: So you think that could happen to us, that can happen to the United States?
Larry Gibbs: There is now a projection, a computer program by an economist at Wharton by the name of Smetters and his projection is that within 25 years, the United States will default on its federal debt.
Rocky Dhir: Now when you look at a country like Greece and you look at a major military power like the United States and obviously it’s the dollar seems to — it’s the petro dollar, there’s a lot of world currencies are tied to the US dollar, what happens at the United States defaults? Is it the same thing that happens to Greece or do we get special treatment by dint of being such a big large country in a big large market?
Larry Gibbs: Right now, the United States is the world’s reserve currency, other states basically trade in our currency.
Rocky Dhir: Sure.
Larry Gibbs: So long as we’re the world’s reserve currency most economists feel that we will be able to weather the storm. The problem is that we can’t depend on being the world’s reserve currency.
Rocky Dhir: How does that change?
Larry Gibbs: It changes when countries are no longer willing to lend to us and would prefer to use a currency of another country. When we start having problems borrowing even before we default, even other countries’ currency is recognized as being stronger, we’ve got a problem. Indeed, business right now often long-term finances not in United States denominated currency, they use a basket of currencies. It gives them a hedge against the declining value of the dollar and ultimately, a hedge against the possibility that we would default on our debt one day.
Rocky Dhir: I guess as a layperson who doesn’t deal with taxation and debts and deficits every day, it sounds like the US is still — we’re still the world’s largest economy by far. If you look at the way just as a market, everybody still wants to do business with us and they want to do business here. So if people start using a different currency, how does that equation change? What does it mean for us on the ground for those of us that are citizens?
Larry Gibbs: Over time it basically is going to mean that there will be things that we take for granted now. Let me give you an example —
Rocky Dhir: Please.
Larry Gibbs: — of the types of things that will start occurring. Today, we take for granted that we live in a State or in a locality that has a natural disaster that the federal government will step in and help with that.
Rocky Dhir: Sure.
Larry Gibbs: The Congress just passed a Natural Disaster Bill and the President has signed it. It took longer this year and it was more difficult this year to get that legislation passed, and there are some that are beginning to ask how long is the federal government going to be able to do that?
What I’m saying is, we will begin unless we start addressing our debt and deficits, finding a way to deal with our entitlements; Social Security, Medicare, other welfare programs, finding ways to reduce those costs. We are going to begin to see signs of fiscal stress in our government where they won’t be — the federal government won’t be able to pay the things that they’ve been paying in the past.
That’s when we will begin to see the difficulties that can snowball, for example, if interest rates go up; for example, if other countries decide to stop lending to us and so forth, that’s where we could get into trouble. It’s not a here and now problem, but as I say, there is at least one computer program out there that says we’ve got 25 years and this problem we’ve known about for 30 years. We’ve known this was going to happen to us for 30 years, that’s how I got interested in 30 years ago because our politicians’ bipartisan on both parties were saying we need to do something about this problem 30 years ago.
Rocky Dhir: If you had to predict, how long do — if we do nothing and just keep things going the way they are, how long before —
Larry Gibbs: I’ve asked that question over and over and over again to politicians and to economists. I finally have an economist who is willing to say, well, I have a computer program that shows 25 years.
Rocky Dhir: 25 years.
Larry Gibbs: 25 years.
Rocky Dhir: So that’s in the lifetimes of most, many of us, that’s — so that’s on our doorstep.
Larry Gibbs: And that’s a projection. The point is that our — because we have been adding to our entitlements, our Social Security, our Medicare and particular other socioeconomic programs that have been run through the government and run through the tax system, spending programs. This is a snowball that is going downhill and it’s getting larger and larger and larger.
Rocky Dhir: Wow, I could talk to you about this all day long, but last question for now. Hopefully we can have you back on the podcast and talk about this more deeply, but last question for now is, and this goes back to the title of your talk, what can be done about this?
Lawrence Gibbs: What I’m suggesting is that people begin to start educating themselves about our escalating national debt, annual deficits and other spending programs, that’s the first step.
Next step is, start contacting your politicians. Tell them your concern, start asking them hard questions. How big is our national debt, and not only our entitlements but also our other spending programs, how big are they? Tell us what size of debt we can have where we won’t have this risk of default. How big does the debt have to get before it could get out of control? If it does get out of control, what happens? We like Greece, what does that mean for me as an individual? What does it mean for my family?
Start pressing our elected officials, that actually could bring us all back together instead of a divided country if we realize the dangers to all of us across the political spectrum it could be unifying and we could support our elected officials and I frankly remain optimistic that if we do that we can find a way to deal with our fiscal problems. And that means that we could actually find a way to unite once we realize the ramifications to all of us if we don’t start doing something about this problem.
Rocky Dhir: Wow, big issues. This is going to be something which you want for a while, but it does look like we’ve reached the end of our program.
I want to thank Larry Gibbs for joining us today. Thank you, Larry.
Lawrence Gibbs: Thank you, Rocky.
Rocky Dhir: If our listeners have questions or wish to follow up with you, how do they reach out to you, what’s the best way?
Lawrence Gibbs: [email protected]
Rocky Dhir: That’s your law firm’s email address.
Lawrence Gibbs: That’s my email address. If you write me I will be glad to respond and provide the information that I have to help you begin educating yourself.
Rocky Dhir: That’s tremendous. Well, that is all the time we have for this episode of the State Bar of Texas Podcast brought to you by LawPay. Thank you again, LawPay, we love you.
Also, thank you to our listeners for tuning in.
If you like what you heard today, please rate us and review us in Apple Podcasts, Google Podcasts, Spotify or your favorite podcasting app.
I’m Rocky Dhir, until next time, thanks for listening.
Outro: If you would like more information about today’s show, please visit legaltalknetwork.com. Go to texasbar.com/podcast. Subscribe via Apple Podcasts and RSS. Find both the State Bar of Texas and Legal Talk Network on Twitter, Facebook, and LinkedIn or download the free app from Legal Talk Network in Google Play and iTunes.
The views expressed by the participants of this program are their own and do not represent the views of, nor are they endorsed by the State Bar of Texas, Legal Talk Network, or their respective officers, directors, employees, agents, representatives, shareholders, or subsidiaries. None of the content should be considered legal advice. As always, consult a lawyer.
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