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.