On his first day in office, President Joe Biden launched an extensive series of initiatives, signing 15 executive orders and 2 agency directives. It seems like he was on a mission to keep busy. Let’s explore some key highlights from his early actions.
Among his executive orders, Biden pledged to recommit the United States to the Paris Climate Agreement, a move aimed at addressing environmental concerns. However, this comes at the cost of American energy independence, as he also halted the Keystone XL pipeline project.
Moreover, he is re-establishing ties with the World Health Organization, and in efforts to prioritize public health, he has mandated 100 days of mask-wearing.
Biden is also positioning himself as a job creator, having set up a new role for a COVID-19 response coordinator, which likely comes with appealing benefits.
If you’re struggling to keep a roof over your head, there’s some relief on the horizon too. The president has extended the moratorium on evictions and foreclosures until March 31, with the possibility of further extensions. And if student loan payments are weighing you down, don’t fret—there’s an extension on those as well until at least September 30.
Additionally, Biden’s ambitious $1.9 trillion American Rescue Plan—featuring $1,400 stimulus checks—is currently making its way through Congress. This plan is just the beginning, with a grand infrastructure proposal expected to follow, likely filled with various projects.
Will this extensive spending strategy revitalize the economy? Perhaps, but only if you view overspending as a legitimate approach to improving a household’s financial stability.
At this pace, by spring, the country may find itself in a more challenging position under Biden than it did under Trump.
Adventures in Social Reconstruction
Though President Biden has taken an oath to uphold the Constitution, the significance of such promises can seem diminished when faced with his bold, yet contradictory actions.
While swearing to protect citizens’ freedoms and private property sounds commendable, a drive towards social reconstruction appears more appealing for a leader like Biden, who caters to special interests. And public demand for assistance is rising.
People are yearning for various forms of aid—be it free checks, free medications, free meals, or relief from rent, education costs, and loans. They want it all, and Biden seems prepared to deliver.
Proponents of expansive financial support have gained prominence in government discussions. Recently, Treasury Secretary Janet Yellen addressed the Senate Finance Committee and called for further stimulus, emphasizing that:
“But right now, with interest rates at historic lows, the smartest thing we can do is act big. In the long run, I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a very long time.”
Yet, how distributing money created from nothing can genuinely assist individuals remains unclear. What is evident, however, is that such financial aid undermines the value of hard work, saving, and self-reliance. This, in turn, creates a precarious economic environment that risks leading to a severe crisis.
Let’s delve deeper into the implications of these actions.
When Boom Turns Into Crack-Up Boom
The current U.S. dollar printing process is rudimentary. The Treasury incurs debt, the Federal Reserve amplifies its balance sheet by creating credit from scratch, which is then loaned back to the Treasury. The government injects this debt-based money into the economy through various programs, contracts, and stimulus checks.
This central planning process is rife with potential for fraud. As credit expansion injects liquidity into the economy, unexpected outcomes can arise. Austrian economist Ludwig von Mises noted in his work, Socialism: An Economic and Sociological Analysis:
“Credit expansion can bring about a temporary boom. But such a fictitious prosperity must end in a general depression of trade, a slump.”
What then occurs if this credit-driven boom is followed by an even greater expansion? Does the debt ever need to be repaid? With sufficient credit, is it possible to indefinitely delay economic downturn?
Mises offers insight once more in his work, Human Action:
“If the credit expansion is not stopped in time, the boom turns into the crack-up boom; the flight into real values begins, and the whole monetary system founders.”
The economic boom initiated by credit growth in the early 2000s culminated in a massive financial crisis in 2008. The ensuing credit expansion uplifted the economy temporarily, but it was not sustainable.
Increasing amounts of credit have been necessary to maintain even modest economic growth. Without continual credit issuance, the economy risks plunging into a significant recession.
Inevitably, the stability of our debt structure relies on continuous credit influx and escalating asset prices—factors that inherently breed instability. Despite expansive monetary measures, central bankers remain focused on combating deflation rather than inflation.
Prices of assets—stocks, real estate, and educational charges—boosted by prior credit expansions are eager to decline, while central bankers strive to elevate them.
The economic constraints put in place during the pandemic have greatly destabilized the debt structure. Initiatives like moratoriums on evictions and foreclosures and pauses on student loan payments do not address the root issues. Neither do printing trillions as ‘stimulus’ effectively remedy the collapse.
The impending and widespread wealth erosion orchestrated by central planners will reach unprecedented levels. The timeline for when this might begin is uncertain; it could be next year or five years hence. However, one thing is certain: the boom has unmistakably transitioned into a crack-up boom.
In concluding, we leave you with the words of Mises from Human Action:
“The final outcome of the credit expansion is general impoverishment.”
Sincerely,
MN Gordon
for Economic Prism
Return from When Boom Turns Into Crack-Up Boom to Economic Prism
