Nobody alive today has experienced a fiscal pandemic affecting the dollar’s value. There have been ups and downs in value, but because of our country’s overall strength, the dollar illnesses have been relatively short-lived. But now, on the eve of adding trillions to our national debt, it should be noted that as a percent of Gross Domestic Product (GDP) U.S. debt has risen from 65% in 2008 to now over 107%. We should also remind ourselves of the dollar’s value as a dynamic variable in our country’s financial health.
A tiny percentage of persons are monetarists and that certainly doesn’t include me. Most of us avoid the thicket of prevailing and countervailing theories and actions. Yet we all pay some attention to finance, since we must cope in a world of budgets and cash flow, starting with our own. Recently I have noted the emergence of cryptocurrencies. Is that supply and demand at work—too many dollars?
Analysts for several years have been looking over their shoulder at the Yuan, China’s currency. We know China’s economy is relatively strong and we know it has the assets to support large offerings of sovereign debt which one day will compete with our own. Plus, as of July, 2020, China held about $1.7 Trillion of U.S. debt. How dependent do we want to be on creditors with whom we compete in international markets?
It was said after 9/11/01 we weren’t prepared to protect ourselves because we couldn’t imagine the series of plane assaults that occurred. Even after the first plane hit the World Trade Center, on a clear day in September, many news commentators were assuming it was an accident. And when it comes to monetarist theory, it seems to me that those who are steeped in detail don’t have much imagination.
As I type, a legislative procedure known as Budget Reconciliation, is being threatened for the coronavirus relief bill (so-called). If this direction is taken, we will likely add a totally partisan expenditure of $1.9 trillion. In short, there is an active threat of a party-line vote on what should be a bi-partisan act. When bi-partisanship cannot be negotiated under pandemic relief circumstances, the imagination strains to know when it might work.
It wouldn’t hurt to stretch our imaginations. Here are some questions we should ask.
Is this the last pandemic until we have rebuilt our national balance sheet? And what does a healthy balance sheet actually look like?
Are there spending needs that cannot be anticipated that will have to be deferred or foregone because of the cost of borrowing? For example, infrastructure, green or not?
Will the huge gap in our nation’s balance sheet compromise us in our competition with China? Will the nation’s currency be degraded by fiscal profligacy?
It was said at the time (a couple of weeks ago) that President Biden’s meeting with ten Republican Senators who were hoping for a compromise was historic. He had been in the White House for days only and he was reaching out to the other side as he promised in the campaign. The meeting lasted two hours which seemed to foreshadow promise.
But on the other side of Pennsylvania Avenue there remained a hard-edged push behind the $1.9 trillion dollar package which also included a $15 minimum wage. In short, most Democrats in Congress were tactically keyed in to the insistence that an emergency should be used for a whole list of Party priorities. Sort of “damn the torpedoes, full steam ahead”.
This is, of course, not a partisan tactic; it is used by both Parties. But given our season of extreme division, perhaps early bi-partisan successes should be given a higher priority by the President—a rebirth of authentic Presidential leadership. If the relief package is driven through on a straight party-line vote many will believe that President Biden is following not leading. America needs a leader, especially now.
It will also be clear that the imagination of our elected officials is extreme in another dimension. In short, when adding a couple trillion more to our national debt does not result in real debate about the consequences we have been ill-served.
Al Sikes is the former Chair of the Federal Communications Commission under George H.W. Bush. Al recently published Culture Leads Leaders Follow published by Koehler Books.
Bob Parker says
I, too, am not a monetarist, in fact, I’m not even an economist. I’m a retiree and avid reader of economists, both liberal and conservative, most of whom support a larger rather than a smaller pandemic support bill. Additionally, I understand that a large portion of our countrymen are hurting and need help. I find Mr. Sikes’ argument unconvincing, particularly given that the largest portion of our nation’s increased debt was the consequence of an ill-advised tax break passed by, wait for it, a partisan vote using the budget reconciliation process. Go figure, I guess what was good for the goose is not good for the gander. That tax bill did little to help the middle class, and forget about help those below, and it did little to promote sustained economic growth. What it did accomplish was to add a projected $11 trillion to the national debt over the next 10 years, benefitting the well-off while proving little (if any) benefit to those who are less well off. Yes, while we need to keep our national debt in mind, many (?most) economists believe that the overall strength of our economy provides a cushion the minimize the risk of a further short-term increase in national debt. Maybe the better way to balance or debt issue with the need to help those who need help is to revise the recent tax breaks to moderate the costs of providing pandemic-related support to our country. Yes, a bipartisan approach to legislation is desirable, but the call for “unity” and “bipartisanship” by Congressional Republicans is, to me, disingenuous given their lack of concern when adding a much larger amount to our deficit in 2017. I am a retired physician and my entire career I had to balance the need for treatment now with potential risks of those treatments in the future. Our country (countrymen) has a problem now that must be addressed, we must have faith that we, as a country, can deal with those potential future problems if, and when, they occur.
Carol Voyles says
And there may be a reason that Republicans rarely mention debt while in office. Republican administrations have created nearly 3x as much debt as a share of our economy since 1980.
Tom Hill says
Al,
I love your questions as I believe they go to the heart of spending(stimulus) vs debt and deficits. We all know spending to much brings our house down. Debt seems to goose economies on the short run, but it can bring them down(Argentina, Venez) or at least cause slow growth(Japan) in the long run.
It is interesting to look at debt as a percentage of GDP and how it effects growth. For instance, Japan has debt that is 237% of GDP and their 5 year growth ended in 2018 is .8%. Venezuela is at 175% of GDP and their 5 year growth ended in 2018 is negative 12% a year. Italy is 132% of GDP and their 5 year growth is +.9% year. The US debt is 106% of GDP and our 5 year growth is +2.4% a year. The UK debt is 87% of GDP and growth is +1.4% a year. Germany’s debt is 60% and growth is +1.9%. China’s debt is 50% of GDP and their growth is +6.9%. I might add a caveat that I am never sure we can believe China’s figures as honesty and truth is highly suspect in China. And finally from one of the 5 freest countries in the world, New Zealand, their debt is 29% of their GDP and their growth is +3.4%. These figures are for the 5 years ended in 2018.
So what can we deduce from these figures? The higher the debt generally the slower the growth. So do we continue to spend($1.9 trillion for covid stimulus and perhaps another $2 trillion on infrastructure) or do we dial back some. Will too much spending effect our currency? History would tell us that if our debt continues to grow it is likely that our currency(the US dollar) will decline. The difficulty, of course, is that we are in a crisis and it will take extraordinary leadership to navigate it.
Thank you for bringing up these important topics.