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Judd Gregg: Biden's first crisis

Judd Gregg: Biden's first crisis
© getty: President Joe Biden

The horrific invasion of the Capitol promoted and energized by his unstable predecessor is not the first major crisis that President Biden needs to address.

He is a man of natural decency, and his simply taking the reins of the presidency will cause this terrible chapter in American history to become just that: history.

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His party’s control of all branches of the government will lead inevitably to extreme positions driven by the progressives who surround him. This will in turn cause Congress to overreach, forcing Biden to rein in his own people. But that will not be his first significant crisis either.

The first real confrontation for the new president to manage will likely not be some foreign power, either directly or through technology, attacking a core interest or infrastructure of our nation.

The crisis, rather, is on the horizon.

The world is losing confidence in us, as a nation.

There is fear across the globe.

People everywhere have looked for decades toward the United States as the source of world stability, especially economic stability. Now there is a growing disillusionment.

This is not a result of the actions of those who committed insurrection, although that has certainly shaken the world’s confidence in our society.

The financial and political leaders in developed nations are sophisticated enough to recognize that this was a terrible scar on our democracy, but that the same democracy has a natural and undeniable resilience.

Rather it is something more insidious and structural that is driving the world’s concern — a concern that is especially deep in global finance.

It is our debt and our monetary policy — also known as money-printing.

The massive, continued expansion of debt by our political establishment is the primary cause of this rising crisis.

The federal deficit last year exceeded $3 trillion. Biden proposes spending trillions more this year — $1.9 trillion for his COVID relief package alone.

But it is not the one-time massive effort to avert a major virus-driven economic downturn that is at the center of the potential global move away from the dollar. Rather, it is the structural deficit.

Put plainly, our government’s spending exceeds its income as far as the eye can see.

Well beyond the pandemic crisis, deficit spending on programs that are primarily entitlements is the issue. Even without the pandemic, deficits are estimated to be around $1 trillion each year for the next 10 years and beyond.

Our national debt will soon stand at $28 trillion, up from $8 trillion just a few years ago. Our debt-to-GDP ratio, the test of a solvent nation, will soon exceed 130 percent, up from around 60 percent in 2009.

Coupled with this uncontrolled fiscal policy is the Federal Reserve’s monetary policy.

The Fed has driven the monetary base as a percentage of GDP from 5 percent to over 25 percent today. This has never happened before, not even during the Second World War. Most importantly, the Fed clearly has no idea or effective plan for reducing this staggering expansion.

These threats are being conveyed with clarity, for anyone interested in not ignoring them, with the valuation of the dollar.

The dollar is in a disconcerting fall.

The world that since the end of the Second World War has placed its confidence in the stability of the dollar as the currency of the globe is now looking to find a safer harbor.

The growth of Bitcoin, in particular, reflects this search.

There is no longer a belief that our government will be able to pay our debts with dollars that have the same value as those that were lent.

There is no longer a belief that America, the great problem-solving nation, has the political fortitude to stabilize this massive expansion of the currency and our IOUs to the world.

We are on the cusp of losing the integrity of currency.

Biden’s first seriously impactful crisis is going to be a dollar crisis — a dramatic drop in the world’s valuation of the dollar.

This will involve a massive search around the world for other places to safely guard assets, instead of investing in dollar-backed investments.

China will quietly, but with great glee, push forward this crisis.

Europe, which has its own currency issues, will join in the flight as it needs protection from itself, and the dollar no longer offers that protection.

The problem for Biden is that the only way to stem such a flight from the dollar is to have Congress act responsibly.

This is not what most members of Congress ran to do.

Fiscal restraint is not, in today’s politics, on the chart of proposed action.

But a dollar crisis on the scale that appears to be coming is going to force reaction.

The question will be whether Biden understands the need to act and is able to bring the country along with him when he does so.

A run on the dollar is a possibility.

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The action needed to abate it will be a clear statement of policy from the president, supported by the Congress, that we will get our debt under control.

It does not require draconian immediate action.

Rather it requires a purposeful path, set forth and supported by specific legislation, that causes the world to pause and acknowledge that our nation has a workable plan to deal with our debts.

It also, most importantly, requires that this be done sooner rather than later. Confidence in the dollar as the currency of the world will be difficult to regain if it is lost.

The president and his people may not believe this crisis is coming.

If they do not, they and Americans will pay a terrible price especially in the reduction of our standard of living and children’s economic future.

But the crisis is not only coming. It is already here. 

If they do not believe this, they have not looked around at what the world is doing with its money.

Managing crisis requires honestly recognizing its cause.

In this case, the cause is simple. It is us — our political propensity for generating debt.

Biden’s first real crisis is upon him.

Hopefully he knows it. It will require his strong leadership to avoid dire consequences for the American people.

Judd Gregg (R) is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee, and as ranking member of the Senate Appropriations Foreign Operations subcommittee.