Politicians and economists are seemingly all on board with Modern Monetary Theory. MMT translates to “American has the world’s biggest printing press and they can print as much currency as the want.” The logic is that if Japan can do it, the USA can do it.”
Government debt as a percent of GDP was under 40% until the Reagan Administration tried outspending the Soviet Union eventually leading to its collapse. But the growth of government debt to GDP abated briefly under Clinton when House Speaker Gingrich refused to go along with Clinton’s spending fantasies, so Clinton paid off some of the long-term debt outstanding. But as soon as Gingrich was outed as House Speaker and Bush I got us in a war with Iraq, government debt growth resumed at a modest pace (around 60% public debt as a % of GDP). Then came the housing bubble burst and the ensuing financial crisis and bank bailout that saw public debt to GDP rise from 62.7% in Q3 2007 to 100.45% in Q4 2012.
Politicians figured out that the voters don’t care or are too uninformed. Starting in 2000 you can see the concern of investors about out-of-control government spending and debt issuance. Gold rose from $270 per ounce in 2001 to almost $2,000 per ounce today.
Biden is proposing $11 trillion in brand-new spending over the next decade. Among his biggest-ticket items are $1.4 trillion to expand Obamacare; $2 trillion for his version of the Green New Deal; $1 trillion in new Social Security and Supplemental Security Income spending; and 1.5 trillion more dollars for preschool, K-12, and higher education. He has also signed on to a $3.3 trillion stimulus spending plan pushed by House and Senate Democrats.
That all comes after nearly $7 trillion in federal spending this past year, up from a then-record $4.4 trillion in 2019. To pay for this new largess, Biden has laid out $3.6 trillion in tax hikes over the coming decade, resulting in what the Manhattan Institute’s Brian Riedl calls “the largest permanent tax increase since World War II.” But Biden’s spending plan, as laid out in his campaign, is so out of control that it would still manage to increase the national debt by about $5.6 trillion by 2030, according to the Committee for a Responsible Federal Budget.
Are we turning Japanese??