Skip to main content
You have permission to edit this article.
Column: Your gamble with Biden

Column: Your gamble with Biden

John Donald O'Shea

John Donald O'Shea is a retired circuit court judge and a columnist for The Dispatch-Argus.

U.S. Rep. Alexandria Ocasio Cortez, the "Modern Monetary Theorists," and now President Joe Biden and his Democratic Party are gambling that trillions of dollars can be created out of "thin air" to fund their wish list of programs — without causing hyper-inflation. They are asking every American who has worked a lifetime to save money to hazard their savings.

From very earlier times, governments have found ways to debase their coinage to benefit the government. A base metal, usually copper, was added to the gold melt. This increased the volume of the melt, and allowed the government to mint more "gold" coins. (The alloy also made the coins more durable).

The earliest "paper money" was what we today would call a "promissory note" — a written unconditional promise to pay the bearer a sum certain. By the 7th century, merchants in China, who engaged in large commercial transactions, would deposit their money with a banker who would give them his note (a banknote), which required the banker to unconditionally repay the sum stated in the note to the person presenting the note for payment. It was far more convenient to journey carrying a bank note than to lug about a hoard of gold coins. In time, governments began issuing their own bank notes. These were also known as "bills," "notes," paper currency," or "paper money."

At first, paper money was backed by the government's promise to unconditionally pay the note in gold or silver. To induce acceptance, the paper money was made "legal tender" — it could be legally used to pay taxes and private debts. But with the benefits of paper money, came problems. One of the governmental benefits of using paper money was that it expanded the money supply. Before its use, the government's supply of gold and silver strictly limited the governments ability to coin. If it had a ton of gold, it could only issue a ton of coins — unless it debased its coinage. But if it debased its coins too much, people wouldn't accept them at full value and inflation resulted.

With paper money, there was no such limit. A government ability to print currency was limited only by its supply of paper and ink. As long as the paper money could be unconditionally exchanged for gold coin, the public had confidence in the paper money. But there was only so much gold. When the face value of the paper money issued exceeded the value of the gold on hand, then what? The promise to repay "in gold" was replaced by the promise that the paper money was "backed by the full faith and credit of the government." But what happens when so much paper money is printed that the public loses faith in the government's ability to make good its promise? Inflation, or worse hyper-inflation.

To finance our Revolutionary War, the Continental Congress printed paper money — "Continentals." The expression says it all: "Not worth a Continental." The Confederate Dollar fared no better. After World War I, hyperinflation destroyed the Weimar Republic; today it ravages Venezuela.

In the last few months, former President Donald Trump and Biden have respectively signed into law Covid relief bills for $900 billion and $1.9 trillion. Where will that money come from? What backs it?

Today, to put money into circulation, the government could run the presses, but the job is normally done by the Federal Reserve. To put money into circulation, the Fed purchases "assets." The Fed is the bank for the bankers. The Fed holds deposits for banks rather like your bank holds the deposits you make. When a bank owns a government bond, the Fed can purchase that bond ("asset") from the bank. First, with a computer key stroke, the Fed creates money out of thin air for itself. Then it uses that key-stroke-made money to buy the bond from the bank. In doing so, it increases the amount of money in circulation.

During the financial crisis about a decade ago, this is how the Fed saved the banks from their own imprudent investments. It was called Quantitative Easing ("QE").

It caused some moderate inflation — as you can see when you buy groceries. But if key-stroke money can be used by the Fed to save banks by buying up worthless mortgage-backed securities, why can't it be used to fund underfunded state and local pension plans, to rebuild decaying roads and bridges, to finance the Green New Deal, and to provide every American a guaranteed monthly income?

Ocasio-Cortez and the Modern Monetary Theorists believe key-stroke money can finance their schemes. They ask the American people to make a leap of faith. They assure us that creating hitherto unimaginable deficits will not lead America to hyper-inflation.

Those without savings have nothing to lose. If inflation wipes out all the savings of those who do, so what? The progressives will have obtained their goal of perfect economic equality — everybody will be poor. This is the gamble you chose to take when you voted for Joe Biden.

John Donald O'Shea, of Moline, is a retired circuit court judge and a columnist for this newspaper.


Catch the latest in Opinion

* I understand and agree that registration on or use of this site constitutes agreement to its user agreement and privacy policy.

Related to this story

Most Popular

Get up-to-the-minute news sent straight to your device.


News Alerts

Breaking News