Plus ça change: A French Lesson in Monetary Debauchery
Fiscal policy shifted into turbo-charged, warp speed, overdrive early into the COVID related recession. To facilitate the borrowing binge, the Federal Reserve took unprecedented monetary actions. In 2020, the fiscal deficit (November 2019- October 2020) rose $3.1 trillion and was matched one for one with a $3.2 trillion increase in the Fed’s balance sheet.
The Fed is indirectly funding the government, but are they printing money? Technically they are not. However, they are inching closer through various funding programs in coordination with the Treasury Department.
Will the Fed ever print money? In our opinion, it is becoming increasingly likely as the requirements to service the interest and principal on existing debt, plus new debt, far exceeds what the economy is producing.
Given the increasingly dire mismatch between debt and economic activity, we think it is helpful to retell a tale we wrote about in 2015. This article is more than a history lesson. It effectively illustrates the road on which the U.S. and many other nations currently travel.
This story is not a forecast but a simple reminder of what has repeatedly happened in the past.
As you read, notice the lines French politicians use to persuade the opposition to justify money printing. Note the similarities to the rationales used by central bankers, MMT’ers, and neo-Keynesian economists today. Then, as now, monetary policy is promoted as a cure for economic ills. As we are now constantly reminded, massive monetary actions have manageable consequences, and failure is blamed on not acting boldly enough.
Our gratitude to the late Andrew D. White, on whose work we relied heavily. The exquisite account of France circa the 1780-the 1790s was well documented in his paper entitled “Fiat Money Inflation in France” published in-1896. Any unattributed quotes were taken from his paper.
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