Judd Gregg: When the dollar is worth 60 cents

In just the last two months of this federal fiscal year, the deficit run up by our government has exceed $1.3 trillion.

This is in two months.

To give some context to the gigantic size of this spending, these two months of deficits exceed by a factor of three the largest annual deficit generated during the term of President George W. Bush, and blow past the largest annual deficit run up by President Obama.

{mosads}Obviously, fighting the economic impact of the coronavirus has driven much of this explosion in debt.

But recall that Bush had to deal with the cataclysmic impact of the attacks of Sept. 11, 2001, and Obama had to deal with the staggering effects of the financial crisis.

These were not small-time fiscal events.

Now we have an almost incomprehensible explosion, not only of the deficit spending of the federal government but of the Federal Reserve’s balance sheet (a euphemistic phrase for how the Federal Reserve accounts for its printing of money).

Even without further spending, your government is headed toward almost $4 trillion in deficit spending, accompanied by somewhere near $10 trillion of financial infusion by the Federal Reserve.

President Trump has suggested another $1 trillion in spending before the election, which Speaker Nancy Pelosi (D-Calif.) has said is not enough. “$3 trillion more is necessary,” is the Democratic demand.

It is likely that the deficit for this year, when all the spending dust is finished being sprinkled around, will be over $5 trillion.

These numbers are mind-numbing.

This may be why no one in the Congress or in this White House or in the campaign of presumptive Democratic nominee Joe Biden seems to care.

The Republican Party, which has traditionally stood for fiscal responsibility, has become the Party of Trump, who long ago in his business days mastered “the art of debt” — spend money that is not yours and, if things do not work out, pass along the damage to someone else.

This could easily be the new mantra of the Republican Party as it has morphed into the “cult of Trump.”

“Give the bill to our kids” is the new slogan.

The Democratic Party has been forthright.

Its policy is built on its newly created dogma called “the modern monetary theory.” This catechism of the left proclaims that debt does not matter.

Its premise is that Democrats should spend as much as is needed to satisfy those constituencies that elect them.

Do not worry about the deficit spending it generates, as it is irrelevant, especially when compared to the imperative to proceed along the path to power.

The Federal Reserve is stumbling into a different category.

Money does not grow on trees but in the catacombs of the banking system.

But as long as its creation does not generate inflation, all is good — at least according to the Fed’s thesis these days.

{mossecondads}If all these vagaries of our political and economic systems are tossed together, a salad of bad outcomes is the end result.

With all this spending, Congress and the president hope to buy their way past the November elections even in the midst of the pandemic.

This may work. $10 trillion-plus has to put some pep into our muted economic engine.

In the short run, it will indeed lessen the personal damage from the job losses and small-business closures caused by the virus.

In the long run though, there will be an accounting, and it will be harsh for Americans and our economic position in the world.

The fire that is being played with here will be difficult to contain if there are not clear parameters set out, now, as to how it will be contained in the future.

Donald Trump will be long gone from the White House when the deficit’s true effect comes due.

Members of Congress do not expect to be held accountable. They will blame someone else or simply move on.

But time is not on the side of the nation.

This will catch up with us. 

At some point, there will be questions raised as to the value of a dollar that is built on all this debt.

There will be an untenable inflation spike.

It is like apples falling from trees.

The fact that this is not on the horizon already is largely due to the rest of the industrialized world grappling with the same problem.

Every major economy is dealing with the coronavirus and the stagnation it is forcing on them. 

In this situation, people naturally look around and seek the strongest of the group. The United States’ economy continues to hold that position.

First, it is deemed to be inherently resilient due to our people and market-oriented culture.

Second, because we have the rule of law, investments are deemed relatively safe here.

But our advantages are not beyond risk.

The expansion in our debt, which will soon exceed anything we have ever seen in our history including during the Second World War, is a threat to these advantages.

More importantly, it is a threat to our standard of living.

When the dollar’s worth is no longer trusted, the quality of life in our nation will deteriorate.

Without a game plan to respond to the future effects of all this debt, those who have lent us the money to fund that debt will expect an accounting.

The Democratic Party has adopted the socialist mantra of Sen. Bernie Sanders (I-Vt.) as its theory for addressing this debt: “Just add more.”

However, if one looks around at the history of socialism, its result — whether in the Soviet Union, Cuba and Venezuela, or even in Greece or France — has been a stark reduction in the standard of living of those forced to live under it. It dumbs down a nation and takes away the motives for economic growth.

The Republican Party is, to put it simply, a mess.

It no longer has a fiscal policy that passes the smell test of legitimacy. It has ceded its role as a guardian of spending discipline to a president who has shown no sense of responsibility for almost anything — and especially lacks such responsibility when it comes to the government’s finances.

As both parties set up their next and most expensive effort in addressing the coronavirus with the election looming, they are following paths that will lead to an economic abyss.

It is not necessary that this happen.

In putting together the next bill of massive largesse, a few small steps for the future correction of the costs of this undertaking should be included.

The outline of such an approach would involve setting enforceable goals in the out years tied to the size of the debt as a percentage of the gross domestic product (GDP), and the percentage of the GDP that should be taken up by the federal government, both on the spending and revenue side.

There should be a system for reaching these goals that is legislatively driven and enforceable.

Reducing the size of the national debt to less than 80 percent of the GDP (which would still be a historic high) and the size of the federal government to less than 23 percent of GDP is achievable.

It would be an extremely positive step toward giving people a belief that the government can right our ship of state.

This approach may affront the far left, i.e. Bernie Sanders supporters, and the far right, i.e. Donald Trump supporters.

But it would give the rest of America some hope that there is a route forward to economic stability and growth in the post-pandemic period.

Judd Gregg (R) is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee, and as ranking member of the Senate Appropriations Foreign Operations subcommittee.