According to the Congressional Budget Office (CBO), 2021 will be the second year in a row that federal debt exceeds gross domestic product (GDP). The CBO also projected that this year’s federal deficit will be $ 2.3 trillion, down $ 900 billion from last year. However, the CBO’s projections do not include the $ 1.9 trillion “stimulus” bill that Congress is expected to pass.
The CBO report was largely ignored by Congress and the media. One of the reasons the report has not received the attention it deserves is the continued commitment of Federal Reserve Chairman Jerome Powell to ensuring that Fed policies allow Congress to spend as much as Congress deems necessary to deal with the economic fallout from the coronavirus panic.
As financial analyst Peter Schiff points out, the Fed’s commitment to ensuring that the government can take on massive debt means that the Fed will not allow interest rates to rise to near what is expected. ‘they would be in a free market. Indeed, increasing interest rates would push the federal government’s debt repayments to unsustainable levels. Yet the Fed cannot admit that it will keep rates close to zero, or even below, indefinitely without disrupting the markets. So the Fed keeps promising interest rate hikes in the future and the markets pretend to believe the Fed. When (or if) the lockdowns end, the Fed will find a new crisis to justify keeping interest rates “temporarily” low.
The Federal Reserve has not only approved massive federal spending, Fed Chairman Powell has also approved masks, vaccines and social distancing to defeat the coronavirus and restore the economy. It is disappointing, but not surprising, to see the Fed go full blast.
The overreaction to the coronavirus is a cause of the explosion in federal spending and debt we have witnessed over the past year. However, federal spending has already increased significantly between January 2017 and the lockdowns. This spending growth occurred under a Republican President, a Republican Senate, and, from 2017 to 2019, a Republican House. One bright spot in Democratic control of the presidency and both houses of Congress is that more Republicans will fight overspending and pretend to be “deficit hawks.”
The Republican hypocrisy of claiming to care about spending and debt only when a Democrat sits in the Oval Office is one of the reasons Democrats can so easily ignore debt. Another reason is the adherence of the left to modern monetary theory. Modern monetary theory is the latest take on the fairy tale that politicians don’t have to worry about debt and deficits as long as the central bank can monetize federal debt.
Unless the government changes course, America will experience a crisis greater than the Great Depression. The crisis will result in a definitive rejection of the dollar’s status as a global reserve currency. There will also be a sharp increase in price inflation. At this point, Congress will have no choice but to limit spending, although it will attempt to mask cuts to popular rights programs by “adjusting” government measures for inflation. Congress could then blame the Fed for the reduction in the value of government benefits.
Those who know the truth have two responsibilities. First of all, make sure that they and their families are protected when the accident occurs. Second, redouble our efforts to spread the ideas of freedom and develop the freedom movement so that politicians are forced to cut spending and debt and end the Fed.
This article first appeared on RonPaulInstitute.org.
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