Biden’s Team Is Exterminating the Very Spirit of Capitalism.

We’ve written extensively about monetary policy and the role of the Federal Reserve. Between 2008 and 2014, the Fed increased the base money supply from $800 billion to $4.6 trillion. After reducing that amount to $3.6 trillion between 2014 and 2019, the money supply exploded again to almost $8 trillion during the COVID pandemic panic of 2020.

That figure has come down in the past year but is still over $5.5 trillion, higher than the 2014 high. The impact this money-printing binge will have on the value of the dollar remains to be seen. Still, the long-term impact can only be inflationary unless the money supply is radically reduced.

In that case, something like a new depression may result. The consequences for investors and savers are disastrous either way.

Less discussed is the impact of fiscal policy, which consists of debt and deficits. The best way to measure the impact of excessive debt is the debt-to-GDP ratio. That puts debt in the context of the ability to repay measured by the size of the economy. (By the way, the national debt never has to be “paid off” as many claim, but it does have to be rolled over as old debts mature. That still requires investor confidence so debt-to-GDP is a useful gauge of that).

At the end of World War II, the U.S. debt-to-GDP ratio was 120%. That was the highest in U.S. history at the time, but at least the U.S. won the war and was a global hegemon. Over the next 35 years, that ratio was reduced to 30%, an entirely comfortable and manageable level.

Interestingly, that reduction was a bipartisan effort involving Democrats Truman, Kennedy, Johnson, and Carter, and Republicans Eisenhower, Nixon, and Ford. It was never a political football. It was just the right thing to do and both parties pursued it.

Reagan ran the debt-to-GDP ratio back up from 30% to 50%, but like FDR, he got value for money – he won the Cold War. And under George H. W. Bush, the U.S. once again became the sole global hegemon. Clinton and George W. Bush did not reduce the ratio (as they should have) but at least maintained it in the 50% to 60% range – high but not too dangerous.

Fiscal policy began to run off the rails under Obama and Trump, who took the ratio back up to 106%, the highest since World War II. They did it through a combination of $1 trillion for the 2008 financial crisis stimulus, war spending for Iraq and Afghanistan, and Trump’s $3 trillion of COVID stimulus. Obama and Trump raised the ratio to 120% over twelve years (2009-2021).

Still, the all-time champion debt destroyer is Joe Biden. His pandemic stimulus, infrastructure spending, green new scam (the misnamed Inflation Reduction Act), and other programs added $4 trillion to the national debt. This left the U.S. with a debt-to-GDP ratio of 131%, roughly the same as basket cases like Lebanon, Greece, and Italy.

This article offers a historical and philosophical perspective on the damage that money printing and runaway spending do to societies. It begins with an observation by V. I. Lenin, the father of 20^th-century communism, that “The simplest way to exterminate the very spirit of capitalism is … to flood the country with notes of a high face value without guarantees of any sort.” That’s exactly what the Biden team is doing.

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