Today, most people don’t bat an eye at the national debt. But that wasn’t always the case. As David Stockman pointed out there was a great deal of concern about the national debt when he was President Ronald Regan’s Director of the Office of Management and Budget.
Jerome Powell testified on Capitol Hill last week. He said the central bank plans to hold the course on rate hikes and monetary tightening despite the global chaos caused by the Russian invasion of Ukraine. He also continued to dodge any responsibility for rampant inflation. In fact, he repeated a lie Ben Bernanke told in 2008 and insisted the Fed isn’t monetizing federal government debt because it doesn’t intend to hold those Treasuries forever. But as Peter Schiff said in his podcast, it doesn’t matter what the Fed intends to do. All that matters is what it actually does.
President Joe Biden released his 2022 budget this week. The $6 trillion spending plan offers a glimpse into Biden’s long-term fiscal strategy – borrow and spend to infinity and beyond.
The Biden budget would take the US to its highest sustained spending levels since World War II.
And here you thought the pandemic emergency was winding down and spending would go back to normal. Well apparently, this is the new normal.
The US government continues to run massive budget deficits. That means it has to sell bonds to finance the debt. So, who’s buying all these Treasuries?
The Federal Reserve is buying a lot of them as it continues to monetize the ever-growing federal debt. Between March 2020 and March 2021, the central bank monetized more than half of the massive pandemic debt.
The US government ran a budget deficit of $659.59 billion in March, pushing the budget shortfall to a record $1.7 trillion through the first half of fiscal 2021, according to the Treasury Department’s Monthy Treasury Statement.
The March budget deficit ranks as the third biggest monthly shortfall in US history, driving Uncle Sam the biggest half-year deficit ever.
On Wednesday, the House gave final approval to coronavirus stimulus bill 3.0. For those keeping score at home, that brings total stimulus spending approved during the pandemic to $5 trillion.
So, what exactly is all of this money going to be spent on? And who is going to pay for it?
The Federal Reserve expanded its record holdings of US Treasuries in the fourth quarter of 2020 as it continued monetizing the massive federal debt.
The Federal Reserve added another $253 billion to its Treasury holdings in Q4 according to the Fed’s Treasury International Capital data released on Feb. 16. That brought the central bank’s US bond holdings to $4.7 trillion. The Federal Reserve now holds a record 17.5% of all US debt.
Last October, the Federal Reserve relaunched quantitative easing. Of course, Fed Chairman Jerome Powell insists it’s not quantitative easing. But as Peter Schiff pointed out in a recent tweet, that debate is really just semantics.
The argument over whether the current Fed balance sheet expansion constitutes QE is pointless. QE was always just a euphemism for debt monetization. The Fed monetized debt in the past, its monetizing more debt in the present, and it will monetize even more debt in the future!”
A paper by Scott A. Wolla and Kaitlyn Frerking for the Federal Reserve Bank of St. Louis warns that the Fed’s own policy could lead to “economic ruin.”
The paper titled “Making Sense of National Debt” explains the pros and cons of national borrowing in typical Keynesian fashion. In a nutshell, a little debt is a good thing, but too much debt can become a problem.
But in the process of explaining national debt, Wolla and Frerking stumble into an ugly truth — Federal Reserve money printing can destroy a country’s economy.
Was Ben Bernanke lying or just wildly mistaken when he claimed the Federal Reserve wasn’t monetizing the debt in the early days of the financial crisis?
The Fed released the minutes from its January Federal Open Market Committee meeting yesterday. There really weren’t any surprises. The minutes emphasized the central bank will exercise “patience” in raising rates and also signaled that its balance sheet reduction program will end soon. A number of figures at the Fed have hinted that quantitative tightening will end in the near future, including Federal Reserve Governor Lael Brainard and Cleveland Fed President Loretta Mester.