Joe Biden had assumed a gentle image in his more than 40-year-long political career. However, within his first three months as U.S. president, he has proposed an expensive and revolutionary plan.
Not only has he issued nearly 60 executive orders that realize dreams the Democrats have had for years—such as gender diversity, legalization of marijuana, green energy programs, opening the border to illegal immigrants, and reparations for black Americans—but he’s also launched three gigantic economic stimulus plans totaling more than $6 trillion.
Build Infrastructure and Reshape the EconomyBiden touted his stimulus program as a “once-in-a-generation investment in America” that includes three projects: first, the $1.9 trillion American Rescue Plan, with most of the money going to Democrat-controlled states; second, a $2.3 trillion infrastructure plan over the next eight years, focusing on upgrading aging infrastructure such as roads, railways, highways, bridges, and ports, and adding cyber equipment; and third, a $174 billion investment in the electric vehicle market.
In addition, Biden will release an additional economic proposal in April that would add another $2 trillion to the stimulus packages.
Where will the money come from? Biden’s approach is straightforward: Corporate taxes will be increased to finance proposed government spending.
Business Community Angered by Tax IncreasesAccording to various media reports, Biden proposed a corporate tax-rate increase from 21 percent to 28 percent for a period of 15 years, along with closing multinational tax avoidance loopholes by upping the global minimum tax.
Progressive Democrats are thrilled with the plans. Rep. Alexandria Ocasio-Cortez (D-N.Y.) praised Biden’s economic stimulus plan as a good start, saying, “We need to go way higher.”
However, Republicans are displeased. Senate Minority Leader Mitch McConnell (R-Ky.) and others expressed their opposition. Multinational companies that have fully supported Biden’s presidential campaign—including the U.S. Chamber of Commerce, which voluntarily approached nonprofit group Protect Democracy a week before the 2020 Election Day to propose a joint statement in support of Biden—are now restless and ready to launch strong lobbying against Biden’s bill.
Printing Money and Issuing BondsDue to the COVID-19 pandemic, countries around the world were printing money and borrowing in 2020 to see them through the difficult time. In the United States, the Federal Reserve printed $3 trillion. According to data released by the Federal Reserve, the U.S. currency increase in 2020 was about $11 trillion, with newly printed money accounting for 34 percent of all U.S. currency.
Currently, Biden wants to launch an economic stimulus plan larger than any seen before in U.S. history. It will require a total of $6.2 trillion (adding up the three programs: $1.9 trillion plus $2.3 trillion plus $2 trillion). It is impossible for the U.S. dollar to not depreciate, as the U.S. government will have to rely on printing money and borrowing money.
US Treasury Bonds Become Less AttractiveAs of March 1, U.S. national debt exceeded $28 trillion, which is about 30 percent higher than the country’s GDP. On average, the debt for each American family is about $280,000 and per capita debt is about $85,000.
The National Debt Clock on Sixth Avenue in Manhattan gives real-time updates on the size of the gross U.S. national debt, making it easy for local residents to know the situation.
Some experts have estimated that after Biden’s four-year term, the national debt will top at least $7 trillion, exceeding the $5 trillion debt left by the Obama administration.
The attractiveness of owning U.S. debt is starting to decline. According to a report released by the U.S. Department of Treasury on Feb. 16, in the past 33 months, net selling of U.S. debt by foreign central banks occurred in 25 months, and the sell-off reached approximately $1 trillion—a record amount. At the same time, 29 foreign-government holders of U.S. national debt, including Japan, Germany, India, Russia, the UK, France, and Canada, reduced their holdings to varying degrees. Russia topped the list, as it dumped more than 90 percent of its holdings of U.S. Treasury bonds.
Now it’s difficult to find buyers for new bonds. The latest 10-year and 2-year U.S. Treasury bonds worth $100 billion have seen sluggish demand at recent auctions.
US Treasury Bonds Entered an Internal CycleData show that U.S. bonds are now less attractive to foreign buyers. The current total debt on the Fed’s balance sheet is $7.34 trillion; but as of Dec. 16, 2020, the Fed’s holding of U.S. debt (except corporate bonds and MBS) was $4.66 trillion. Thus, the Fed’s holdings of the U.S. Treasurys exceed the total holdings by major foreign government holders, indicating that U.S. Treasurys have entered the mode of “internal circulation and internal debt”—in other words, the United States is losing international buyers for its Treasury bonds.
In the past, global purchases of U.S. bonds used to predominate, and they helped to dilute inflationary pressures in the United States. The increasing internal circulation of U.S. Treasury bonds will surely make people question whether the U.S. financial market is slowly weakening and how long the dollar hegemony can last.
When launching the Great Leap Forward, Mao touted the spirit of “how much you will harvest depends on how bold you are!” Progressive Democrats have this same bold spirit. They don’t hesitate to spend more money, as if the money needed when a bill is passed by Congress will just roll in.
For Biden’s $6.2 trillion stimulus program, House Speaker Nancy Pelosi (D-Calif.) and others are focusing on procedures, trying to find ways to split bigger projects into smaller ones and into phases to facilitate funding. But they haven’t thought about the difficulties Yellen will encounter in attempting to raise the money. Under increasing debt pressure, it will be challenging for the United States to entice foreign buyers. If foreign buyers don’t reenter the market on a large scale, the Democrats will have to deal with inflation and the depreciation of U.S. currency.
In short, Biden’s goal is very ambitious, and the desire of progressive Democrats to spend money is even stronger. But they are completely wrong when they say it’s the Republican Party that’s in the way of Biden realizing his self-proclaimed “once-in-a-generation” dream.
In fact, the impassable barrier for Biden’s dream is not the Republicans nor the business people who have supported him but now oppose tax increases; it’s the unparalleled national debt. And on top of that, the gigantic economic stimulus program is certainly a gamble.