As Mark Twain once observed, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
Understanding that simple point fully explains why the U.S. now finds itself buffeted by high inflation, massive federal budget deficits, a simmering banking crisis and an economy on the verge of recession.
Little more than two years ago, at the onset of the Biden administration, inflation was a tame 1.4% and the economy was growing briskly. (After contracting sharply in Q2 2020, the economy rebounded at annual rates of 35.3%, 3.9%, and 6.3% in the subsequent three quarters.) Moreover, the unemployment rate had fallen to 6.3% after reaching 14.7% at the height of the COVID-19 lockdowns less than a year earlier.
Despite this extraordinarily strong recovery, President Joe Biden incredulously declared before a Joint Session of Congress that he had inherited “the worst economic crisis since the Great Depression.” And, of course, his administration’s “solution” to that so-called crisis was to spend trillions of additional dollars that the federal government did not have on federal programs that the country did not need and could not afford.
That was not the first instance of a president acting on something he knew “for sure that just ain’t so.” But the 117th Congress largely complied with the Biden administration’s wishes, and the U.S. continues to suffer the consequences.
Predictably, the administration’s policies sparked inflation. That’s what happens when a government enacts inflationary policies.
Inflation jumped to a 40-year high of 9.1% last June before falling to a “mere” 6% last month. Though prices overall are now “only” 14.4% higher since the start of the Biden administration, grocery prices are up by 19.7%, used car prices are up by 22%, gasoline prices are up by 35.2% and utility prices are up an astounding 41.5%. (God help the poor consumer who needs to buy a car and gasoline to go grocery shopping!)
With inflationary pressures swelling and no fiscal restraint or regulatory relief forthcoming to curb it, the Federal Reserve has spent the past year aggressively ratcheting up interest rates in what has literally been the sharpest rate of ascent in modern times. In the aftermath of these painful but necessary rate hikes, the Index of Leading Economic Indicators has fallen for 11 consecutive months and is now clearly in recession territory.
An important consequence of the interest rate uptick is that bondholders saw the market value of their portfolios implode. And through some combination of mismanagement, complacency and distraction with alternative agendas, some banks insufficiently hedged against that development and are now flirting with — or, in Silicon Valley Bank’s case, have already fallen headlong into — insolvency. (RELATED: STEVE HANKE And CALEB HOFMANN: Banks Have Now Become Gov’t-Backed Businesses — Just Look At Silicon Valley Bank)
In short, the Biden administration’s fiscal policies and the resulting interest rate hikes strained the U.S. banking system. That strain, in turn, now risks aggravating an already tenuous economic situation.
To understand why Congress and this administration would unleash this economic damage on the American people, consider what former Kentucky Rep. John Yarmuth, chairman of the 117th Congress’ House Budget Committee, claimed soon after the beginning of the Biden administration.
(Caution: You may want to sit down for this.)
According to Chairman Yarmuth: “We [the federal government] don’t have to balance our checkbook. We are like the banker in Monopoly. We create the money. We hand out the money everyone else plays the game with.”
Yarmuth continued, “When you have a sovereign currency, you can basically do whatever you want, spend whatever you want.” Do whatever you want, spend whatever you want.
That thinking is the basis of Modern Monetary Theory. And, unfortunately, it underpins the Biden administration’s reckless fiscal policies.
In the 40 years leading up to the pandemic, federal spending averaged 21.1% of GDP. Although the pandemic necessitated a temporary boost in spending, the newly installed Biden administration called upon Congress to engage in a renewed spending frenzy that would ultimately drive up federal spending by $4.9 trillion over the decade.
But $4.9 trillion wasn’t enough for the Biden administration. Its fiscal year 2024 federal budget, unveiled earlier this month, would boost federal spending by nearly $1.9 trillion over the current law baseline and keep federal spending elevated for the foreseeable future. Should the administration get its way, federal outlays would average 24.8% of GDP through at least 2033.
And, despite calling for a $4.7 trillion, prosperity-killing tax increase, this budget would produce budget deficits averaging 5% of GDP per year through at least fiscal year 2033. (But not to worry, Chairman Yarmuth tells us deficits don’t really matter because it’s all just a game played with Monopoly money!)
Just how out-of-control is federal spending? According to the Congressional Budget Office, the federal government is on track to spend more than $6.2 trillion this year. That amounts to more than $197,000 per second.
Given that the speed of light is only 186,000 miles per second, Congress is literally spending faster than the speed of light! (RELATED: JAMES CARTER: Spending Faster Than The Speed Of Light)
But $197,000 per second isn’t fast enough for the administration. Biden’s fiscal year 2024 budget calls for increasing federal spending by 10.6% to nearly $6.9 trillion next year. That amounts to more than $218,000 per second!
Federal policymakers know A LOT for sure that just ain’t so. But remember, the federal government is not spending Monopoly money; it’s spending YOUR money.
Modern Monetary Theory is nothing more than an excuse for policymakers to spend like drunken sailors … no offense to drunken sailors.
James Carter is the director of the America First Policy Institute’s Center for American Prosperity. Previously, he served as deputy undersecretary of labor under President George W. Bush and as a deputy assistant secretary for economic policy at the U.S. Treasury.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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