In his first hundred days in the oval office, Joe Biden has approved or proposed $6.3 trillion in new spending.
How will he pay for this spending spree and manage the national debt, which is north of $22 trillion and growing every day?
His proposed tax increases will cover only a small portion of expenditures.
Consequently, the rest of the tab will have to be picked up by an accommodating Federal Reserve. To meet that end, the Fed will simply create money — “ex nihilo.”
With 20% of all money in circulation created in the past year, the question on the mind of some economists and investment bankers is, how long can the Fed run the printing presses before inflation kicks in?
Delusionary politicians like Congresswoman Alexandria Ocasio-Cortez, say never. She and her leftist confreres subscribe to a “Modern Monetary Theory” that suggests the Fed can create forever new money to pay for expanding social welfare programs.
History, however, suggests otherwise.
As the distinguished historian Theodore H. White wrote in 1981, “Inflation comes when a government has made too many promises it cannot keep and papers over the shortfall with currency, which ultimately, becomes confetti — and faith is lost.”
That trenchant observation applied to what became known as the “Great Inflation” of the Carter years (1977-1981).
In the 1960s and 1970s, the culmination of President Lyndon Johnson’s financing of failing Great Society programs and the faltering war in Vietnam, and President Richard Nixon’s abandonment of the gold standard and his wage and price controls, began to catch up.
Economic and real income growth had stalled. Ever increasing regulations had stifled business investments. Inflation had pushed middle-class families into higher and higher tax brackets.
But the real culprit that brought on the era of “Great Inflation” was the Fed’s inordinate monetary expansion.
Too many dollars in circulation caused prices to go up.
During Jimmy Carter’s first year in the White House, the Consumer Price Index (CPI) was up 6.5%. It hit 7.7% in 1978, 11.3% in 1979, and 12.4% in 1980.
Here’s what those staggering numbers meant to the American people: Between 1970 and 1980, the price of milk jumped to $.59 a quart from $.28. A pound of chop meat went from $.88 to $1.88. A pound of coffee, $.91 to $3.69. As for gasoline, in 1970 it cost $.37 a gallon versus $1.80 in 1980.
Inflation also ate away people’s savings, particularly the elderly living on fixed incomes. Many seniors locked into long-term government bonds with low interest returns, could no longer live off the income and had to dip into their eroding principle to make ends meet.
To wring inflation out of the economy, Fed Chairman Paul L. Volker slashed the money supply and pushed interest rates through the roof. Rates on 30-year home mortgage loans hit 18%.
By 1979, the “Great Inflation” became the major topic of discussions at dinner tables throughout the nation. And the man they blamed for the mess: Jimmy Carter.
When the hapless Carter claimed the inflation issue was being effectively managed, his Democratic primary challenger, Senator Ted Kennedy, bellowed, “Is an inflation rate of 18% ‘manageable’ for the American people? Are our interest rates of 18% ‘manageable’ for young people who would like to buy a home?”
In the fall of 1980, the American people heeded Republican candidate Ronald Reagan’s words: “Recession is when your neighbor loses his job. Depression is when you lose yours. And recovery is when Jimmy Carter loses his.”
Carter lost the election receiving 41% of votes cast. He carried only 3 states for a total of 49 electoral votes versus Reagan’s 489.
Can Biden’s spending, funded by money magically created at the Fed, propel another “Great Inflation”? Yes, it can.
Larry Summers, President Obama’s chairman of the National Economic Council, warned in late April that “the government spending the administration is proposing could set off a new bout of high inflation.”
Commodity prices have soared in the past year. Here are a few examples: The cost of lumber is up 262%, crude oil is up 188%, soy beans are up 84%, sugar is up 50%, live cattle are up 18%, wheat is up 10%, and home prices are up 11%. The cost of food is the highest it has been in 11 years.
Kimberly-Clark announced it will raise prices in June on toilet paper, Pull-Ups and Huggies.
General Mills “facing increased supply-chain and freight costs” is expected to raise prices on their cereal brands, etc.
In an April 30 news story titled “The Cost of Just About Everything Is Rising,” The New York Times conceded, “The government’s pumping of money into the economy through recent stimulus packages has also given retailers more room to raise prices.”
“What politicians promise by day,” Teddy White noted, “inflation sneaks away at night.”
If history is our guide, a new wave of confiscatory inflation that “sneaks away” the financial security of Americans could bring down the Biden administration just as it brought down the Carter administration.
George J. Marlin, a former executive director of the Port Authority of New York and New Jersey, is the author of "The American Catholic Voter: Two Hundred Years of Political Impact," and "Christian Persecutions in the Middle East: A 21st Century Tragedy." He is chairman of Aid to the Church in Need-USA. Mr. Marlin also writes for TheCatholicThing.org and the Long Island Business News. Read George J. Marlin's Reports — More Here.
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